July 18 (Bloomberg) -- Australian Prime Minister Julia Gillard started a five-week election campaign with a poll showing she has a winning lead that relies on support from Greens Party voters.
Gillard won 52 percent support against 48 percent for opposition Liberal-National coalition leader Tony Abbott in a head-to-head Galaxy poll published today by the Sunday Telegraph newspaper. She drew a 39 percent primary vote compared with Abbott’s 42 percent and 13 percent for the Greens, the poll showed.
Gillard, 48, called the ballot yesterday for Aug. 21, betting the Labor Party’s record of delivering growth during the global financial crisis will help ensure re-election. She begins the first full day of the campaign in Queensland, home to former Prime Minister Kevin Rudd whom she ousted last month, and where Labor aims to retain 10 seats with margins of less than 4.6 percent.
Even though the polls show Gillard is leading, the result is likely to be far closer than most people expect, said Anthony Green, an Australian Broadcasting Corp. election analyst.
“The government’s position isn’t as secure as that sounds,” Green said on the ABC’s Insiders program today.
Abbott’s coalition has 63 seats in the 150-member House of Representatives. Labor has 83 lawmakers and there are four independents, according to the parliamentary website.
Contested Seats
Queensland has 10 of the most-closely contested seats in the country and New South Wales, Australia’s most populous state, has eight Labor lawmakers with majorities of less than 5 percent, the level below which seats are considered marginal.
“A lot of the leaders will be spending their time in Queensland and New South Wales because that’s where there’s the most bang for their buck in terms of seats,” Green said.
Gillard’s campaign started amid questions about the circumstances of her ouster of Rudd on June 24, after party factions and key labor unions switched their allegiance.
Some 57 percent of people thought the manner in which Rudd had been treated would undermine Labor’s chances of winning the election, today’s Galaxy poll showed. The survey was based on 800 voters on July 16 and no margin of error was given.
Treasurer Wayne Swan said concern among voters about the dumping of Rudd is “certainly a factor” in Queensland. “But the predominant factor here is the head-to-head contest between Julia Gillard and Tony Abbott,” he told the Nine Network in Sydney today.
Resources Tax
The election will determine whether resources companies led by BHP Billiton Ltd. and Rio Tinto Ltd. pay higher taxes, a policy championed by Rudd and diluted by Gillard to win their support. Abbott, bidding to make Labor the first one-term government in 80 years, has pledged not to adopt the tax, describing it as a punishment for the nation’s most profitable industry.
Swan today also sought to draw attention to Labor’s handling of the economy through the worst global recession since World War II. In contrast to most developed economies, Australia’s gross domestic product expanded for the past five quarters as government stimulus spending helped boost consumer demand.
Aggressive Tightening
The economic rebound has prompted the central bank to boost the benchmark rate six times to 4.5 percent since early October, from a half-century low of 3 percent, the most aggressive round of monetary policy tightening by a Group of 20 member.
Signs that the expansion will accelerate, including a 5.1 percent jobless rate that fell below Japan’s level for the first time since at least 1978 and to almost half the level of the U.S., could increase pressure on Reserve Bank of Australia Governor Glenn Stevens to resume raising borrowing costs on Aug. 3, potentially hurting voters in marginal seats.
“We are doing everything we possibly can to get the overall settings in the economy right to minimize inflationary pressures,” Swan told the Nine Network today.
Saturday, July 17, 2010
Insurers Push Plans Limiting Patient Choice of Doctors
As the Obama administration begins to enact the new national health care law, the country’s biggest insurers are promoting affordable plans with reduced premiums that require participants to use a narrower selection of doctors or hospitals.
The plans, being tested in places like San Diego, New York and Chicago, are likely to appeal especially to small businesses that already provide insurance to their employees, but are concerned about the ever-spiraling cost of coverage.
But large employers, as well, are starting to show some interest, and insurers and consultants expect that, over time, businesses of all sizes will gravitate toward these plans in an effort to cut costs.
The tradeoff, they say, is that more Americans will be asked to pay higher prices for the privilege of choosing or keeping their own doctors if they are outside the new networks. That could come as a surprise to many who remember the repeated assurances from President Obama and other officials that consumers would retain a variety of health-care choices.
But companies may be able to reduce their premiums by as much as 15 percent, the insurers say, by offering the more limited plans.
“What we’re seeing is a definite uptick in interest because, quite frankly, affordability is the most pressing agenda item,” said Dr. Sam Ho, the chief medical officer for UnitedHealth’s health-care plans.
Many insurers also expect the plans to be popular with individuals and small businesses who will purchase coverage in the insurance exchanges, or marketplaces that are mandated under the new health care law and scheduled to take effect in 2014.
Tens of millions of everyday Americans will buy their coverage through those exchanges, a vast pool of new customers, including many of the previously uninsured, whom insurers expect will be willing to accept restrictions to get a better deal.
“What this does is eliminate the Gucci doctors,” said Peter Skoda, the controller of the Haro Bicycle Corporation, a Vista, Calif., business that employs 30 people. Facing a possible 35 percent increase in its rates, Haro switched to an Aetna plan that prevents employees from seeing doctors at two medical groups affiliated with the Scripps Health system in San Diego. If employees go to one of the excluded doctors, they are responsible for paying the whole bill.
“There wasn’t any pushback,” Mr. Skoda said. Haro’s employees are generally young and healthy, he said, and they rarely go to the doctor. Instead, they want to make sure they have adequate coverage if they go to the emergency room.
The company’s premiums average $433 a month, Mr. Skoda said, with employees paying one-fourth of the expense. A few employees opted for more traditional coverage, enabling them to go where they please. But they are paying significantly higher deductibles and out-of-pocket costs that could add thousands of dollars to their medical bills.
The last time health insurers and employers sought to sharply limit patients’ choice was back in the early 1990s, when insurers tried to reinvent themselves by embracing managed care. Instead of just paying doctor and hospital bills, insurers also assumed a greater role in their customers’ medical care by restricting what specialists they could see or which hospitals they could go to.
“Back in the H.M.O. days, it was tight networks, and it did save money,” said Ken Goulet, an executive vice president at WellPoint, one of the nation’s largest private health insurers, which is experimenting with re-introducing the idea in California.
The concept was largely abandoned after the consumer backlash persuaded both employers and health plans that Americans were simply not willing to sacrifice choice. Prominent officials like Mr. Obama and Hillary Rodham Clinton learned to utter the word “choice” at every turn as advocates of overhauling the system.
But choice — or at least choice that will not cost you — is likely to be increasingly scarce as health insurers and employers scramble to find ways of keep premiums from becoming unaffordable. Aetna, Cigna, the UnitedHealth Group and WellPoint are all trying out plans with limited networks.
The size of these networks is typically much smaller than traditional plans. In New York, for example, Aetna offers a narrow-network plan that has about half the doctors and two-thirds of the hospitals the insurer typically offers. People enrolled in this plan are covered only if they go to a doctor or hospital within the network, but insurers are also experimenting with plans that allow a patient to see someone outside the network but pay much more than they would in a traditional plan offering out-of-network benefits.
The insurers are betting these plans will have widespread appeal in the insurance exchanges as individuals gravitate toward the least expensive options. “We think it’s going to grow to be quite a hit over the next few years,” said Mr. Goulet of WellPoint.
The new health care law offers some protection against plans offering overly restrictive networks, said Nancy-Ann DeParle, head of the office of health reform for the White House. Any plan sold in the exchanges will have to meet standards developed to make sure patients have enough choice of doctors and hospitals, she said.
Ms. DeParle said the goal of health reform was to make sure people retained a choice of doctors and hospitals, but also to create an environment where insurers would offer coverage that was both high quality and affordable. “What the Congress and the president tried to accomplish through reform is to transform the marketplace by building on the existing system,” she said.
The plans, being tested in places like San Diego, New York and Chicago, are likely to appeal especially to small businesses that already provide insurance to their employees, but are concerned about the ever-spiraling cost of coverage.
But large employers, as well, are starting to show some interest, and insurers and consultants expect that, over time, businesses of all sizes will gravitate toward these plans in an effort to cut costs.
The tradeoff, they say, is that more Americans will be asked to pay higher prices for the privilege of choosing or keeping their own doctors if they are outside the new networks. That could come as a surprise to many who remember the repeated assurances from President Obama and other officials that consumers would retain a variety of health-care choices.
But companies may be able to reduce their premiums by as much as 15 percent, the insurers say, by offering the more limited plans.
“What we’re seeing is a definite uptick in interest because, quite frankly, affordability is the most pressing agenda item,” said Dr. Sam Ho, the chief medical officer for UnitedHealth’s health-care plans.
Many insurers also expect the plans to be popular with individuals and small businesses who will purchase coverage in the insurance exchanges, or marketplaces that are mandated under the new health care law and scheduled to take effect in 2014.
Tens of millions of everyday Americans will buy their coverage through those exchanges, a vast pool of new customers, including many of the previously uninsured, whom insurers expect will be willing to accept restrictions to get a better deal.
“What this does is eliminate the Gucci doctors,” said Peter Skoda, the controller of the Haro Bicycle Corporation, a Vista, Calif., business that employs 30 people. Facing a possible 35 percent increase in its rates, Haro switched to an Aetna plan that prevents employees from seeing doctors at two medical groups affiliated with the Scripps Health system in San Diego. If employees go to one of the excluded doctors, they are responsible for paying the whole bill.
“There wasn’t any pushback,” Mr. Skoda said. Haro’s employees are generally young and healthy, he said, and they rarely go to the doctor. Instead, they want to make sure they have adequate coverage if they go to the emergency room.
The company’s premiums average $433 a month, Mr. Skoda said, with employees paying one-fourth of the expense. A few employees opted for more traditional coverage, enabling them to go where they please. But they are paying significantly higher deductibles and out-of-pocket costs that could add thousands of dollars to their medical bills.
The last time health insurers and employers sought to sharply limit patients’ choice was back in the early 1990s, when insurers tried to reinvent themselves by embracing managed care. Instead of just paying doctor and hospital bills, insurers also assumed a greater role in their customers’ medical care by restricting what specialists they could see or which hospitals they could go to.
“Back in the H.M.O. days, it was tight networks, and it did save money,” said Ken Goulet, an executive vice president at WellPoint, one of the nation’s largest private health insurers, which is experimenting with re-introducing the idea in California.
The concept was largely abandoned after the consumer backlash persuaded both employers and health plans that Americans were simply not willing to sacrifice choice. Prominent officials like Mr. Obama and Hillary Rodham Clinton learned to utter the word “choice” at every turn as advocates of overhauling the system.
But choice — or at least choice that will not cost you — is likely to be increasingly scarce as health insurers and employers scramble to find ways of keep premiums from becoming unaffordable. Aetna, Cigna, the UnitedHealth Group and WellPoint are all trying out plans with limited networks.
The size of these networks is typically much smaller than traditional plans. In New York, for example, Aetna offers a narrow-network plan that has about half the doctors and two-thirds of the hospitals the insurer typically offers. People enrolled in this plan are covered only if they go to a doctor or hospital within the network, but insurers are also experimenting with plans that allow a patient to see someone outside the network but pay much more than they would in a traditional plan offering out-of-network benefits.
The insurers are betting these plans will have widespread appeal in the insurance exchanges as individuals gravitate toward the least expensive options. “We think it’s going to grow to be quite a hit over the next few years,” said Mr. Goulet of WellPoint.
The new health care law offers some protection against plans offering overly restrictive networks, said Nancy-Ann DeParle, head of the office of health reform for the White House. Any plan sold in the exchanges will have to meet standards developed to make sure patients have enough choice of doctors and hospitals, she said.
Ms. DeParle said the goal of health reform was to make sure people retained a choice of doctors and hospitals, but also to create an environment where insurers would offer coverage that was both high quality and affordable. “What the Congress and the president tried to accomplish through reform is to transform the marketplace by building on the existing system,” she said.
Daimler, BMW Surge on ‘Bottomless’ Appetite for German Luxury
Daimler AG’s E-Class Mercedes-Benz, Bayerische Motoren Werke AG’s new 5-Series and Volkswagen AG’s revamped Audi A8 are attracting wealthy buyers in the U.S. and China, prompting the German carmakers to boost deliveries.
Daimler raised a full-year forecast yesterday after second- quarter profit beat analysts’ estimates. BMW, the largest luxury-car maker, this week lifted its 2010 sales and earnings projections. Audi’s first-half increase in vehicle sales beat those of both BMW and Daimler.
“The Chinese appetite for German nameplates is absolutely bottomless,” said Sascha Gommel, a Frankfurt-based analyst with Commerzbank AG. “There are more than 900,000 millionaires in China and many of them are bursting to show off their wealth.”
The German carmakers are posting gains in China, which passed the U.S. last year as the biggest auto market, as new models attract buyers. BMW has said the new 5-Series is sold out, while Audi is benefitting from the new A8 sedan. Daimler’s Mercedes-Benz aims to add market share with an extended E-Class sedan, its first vehicle for Chinese consumers.
Mercedes-Benz, BMW and Audi are adding workers and cutting summer factory breaks to boost production as demand for luxury cars returns quicker than they had planned.[bn:WBTKR=DAI:GY]
Daimler [] has hired 1,800 temporary workers and added Saturday shifts at German assembly plants making the SLS gull- wing sports car, GLK sport-utility vehicle and E-Class convertible. Audi is putting on extra shifts. BMW has added 5,000 temporary workers and will give all employees covered by a wage agreement 1,060 euros on average in one-time payment.
Flared Headlights
BMW’s new 5-Series, which abandoned the flared headlights and small kidney-shaped grill of the previous version, is sold out in all markets and customers are waiting three to four months for deliveries, the Munich-based carmaker said June 23. The sedan, which starts at $44,550 in the U.S., went on sale in the country last month and in Europe in late March.
“German premium manufacturers have really worked to improve the quality of their cars,” said Robert Heberger, an analyst at Merck Finck & Co. in Munich. “Daimler’s new E-class is of a much better make than its predecessor. BMW benefits from a positive product cycle. The 5-Series is brand new and such state-of-the-art models are always in demand.”
BMW this week raised its 2010 forecast, predicting sales will rise about 10 percent to more than 1.4 million cars and sport-utility vehicles, while the operating margin at the automotive unit will exceed 5 percent.
BMW increased first-half group deliveries 13 percent while Mercedes-Benz, the second-largest luxury-car maker, posted a 12 percent gain. Six-month deliveries at Ingolstadt, Germany-based Audi, which aims to dethrone BMW by 2015, advanced 19 percent.
‘Death Bells’
“It’s really the other side of the 2009 coin, when everyone was ringing the death bells,” said Sascha Heiden, senior analyst at IHS Global Insight in Frankfurt. “BMW and Mercedes field relatively new models with their 5-Series and E- class, so that may help the German companies attract more buyers.”
Daimler yesterday reported second-quarter operating profit of 2.1 billion euros as sales increased 28 percent to 25.1 billion euros. The carmaker was forecast to post Ebit of 1.52 billion euros on revenue of 22.7 billion euros, according to the average estimates of analysts compiled by Bloomberg.
Mercedes-Benz second-quarter production output of “well over” 300,000 vehicles will be close to the volumes achieved before the start of the financial and economic crisis, Daimler said May 28.
Luxury-car makers are among the best performers this year, with BMW up 33 percent and Daimler gaining 16 percent on the Frankfurt exchange. The 11-member Bloomberg EMEA Auto Manufacturers Index added 2.9 percent.
German Exports
“German luxury-car makers are benefiting from their product portfolio and their regional positioning especially in the surging North American and Chinese markets,” said Marc-Rene Tonn, an analyst at M.M. Warburg in Hamburg. “Especially in China we’re seeing growth that’s way beyond expectations and that won’t be easily derailed even if economic growth slows.”
BMW plans to export 10,000 3-Series vehicles built in Munich to China this year to meet additional demand. Along with the additional temporary workers, the carmaker is in talks with unions to expand regular shifts beyond the average 38 hours, BMW said this week.
“German luxury cars are a synonym for status, comfort and safety,” Gommel said. “Those are the traits you want to embody when you’re courting future partners for business. In China, buying a German luxury car is seen like buying a ticket to future wealth.”
For Related News and Information: Top Stories: TOP <GO> BMW sales breakdown: BMW GY <Equity> FA PROD CHART <GO> Today’s top transport news: TRNT <GO>
Daimler raised a full-year forecast yesterday after second- quarter profit beat analysts’ estimates. BMW, the largest luxury-car maker, this week lifted its 2010 sales and earnings projections. Audi’s first-half increase in vehicle sales beat those of both BMW and Daimler.
“The Chinese appetite for German nameplates is absolutely bottomless,” said Sascha Gommel, a Frankfurt-based analyst with Commerzbank AG. “There are more than 900,000 millionaires in China and many of them are bursting to show off their wealth.”
The German carmakers are posting gains in China, which passed the U.S. last year as the biggest auto market, as new models attract buyers. BMW has said the new 5-Series is sold out, while Audi is benefitting from the new A8 sedan. Daimler’s Mercedes-Benz aims to add market share with an extended E-Class sedan, its first vehicle for Chinese consumers.
Mercedes-Benz, BMW and Audi are adding workers and cutting summer factory breaks to boost production as demand for luxury cars returns quicker than they had planned.[bn:WBTKR=DAI:GY]
Daimler [] has hired 1,800 temporary workers and added Saturday shifts at German assembly plants making the SLS gull- wing sports car, GLK sport-utility vehicle and E-Class convertible. Audi is putting on extra shifts. BMW has added 5,000 temporary workers and will give all employees covered by a wage agreement 1,060 euros on average in one-time payment.
Flared Headlights
BMW’s new 5-Series, which abandoned the flared headlights and small kidney-shaped grill of the previous version, is sold out in all markets and customers are waiting three to four months for deliveries, the Munich-based carmaker said June 23. The sedan, which starts at $44,550 in the U.S., went on sale in the country last month and in Europe in late March.
“German premium manufacturers have really worked to improve the quality of their cars,” said Robert Heberger, an analyst at Merck Finck & Co. in Munich. “Daimler’s new E-class is of a much better make than its predecessor. BMW benefits from a positive product cycle. The 5-Series is brand new and such state-of-the-art models are always in demand.”
BMW this week raised its 2010 forecast, predicting sales will rise about 10 percent to more than 1.4 million cars and sport-utility vehicles, while the operating margin at the automotive unit will exceed 5 percent.
BMW increased first-half group deliveries 13 percent while Mercedes-Benz, the second-largest luxury-car maker, posted a 12 percent gain. Six-month deliveries at Ingolstadt, Germany-based Audi, which aims to dethrone BMW by 2015, advanced 19 percent.
‘Death Bells’
“It’s really the other side of the 2009 coin, when everyone was ringing the death bells,” said Sascha Heiden, senior analyst at IHS Global Insight in Frankfurt. “BMW and Mercedes field relatively new models with their 5-Series and E- class, so that may help the German companies attract more buyers.”
Daimler yesterday reported second-quarter operating profit of 2.1 billion euros as sales increased 28 percent to 25.1 billion euros. The carmaker was forecast to post Ebit of 1.52 billion euros on revenue of 22.7 billion euros, according to the average estimates of analysts compiled by Bloomberg.
Mercedes-Benz second-quarter production output of “well over” 300,000 vehicles will be close to the volumes achieved before the start of the financial and economic crisis, Daimler said May 28.
Luxury-car makers are among the best performers this year, with BMW up 33 percent and Daimler gaining 16 percent on the Frankfurt exchange. The 11-member Bloomberg EMEA Auto Manufacturers Index added 2.9 percent.
German Exports
“German luxury-car makers are benefiting from their product portfolio and their regional positioning especially in the surging North American and Chinese markets,” said Marc-Rene Tonn, an analyst at M.M. Warburg in Hamburg. “Especially in China we’re seeing growth that’s way beyond expectations and that won’t be easily derailed even if economic growth slows.”
BMW plans to export 10,000 3-Series vehicles built in Munich to China this year to meet additional demand. Along with the additional temporary workers, the carmaker is in talks with unions to expand regular shifts beyond the average 38 hours, BMW said this week.
“German luxury cars are a synonym for status, comfort and safety,” Gommel said. “Those are the traits you want to embody when you’re courting future partners for business. In China, buying a German luxury car is seen like buying a ticket to future wealth.”
For Related News and Information: Top Stories: TOP <GO> BMW sales breakdown: BMW GY <Equity> FA PROD CHART <GO> Today’s top transport news: TRNT <GO>
Friday, July 16, 2010
ESun’s $2.4 Billion Claim Against Casino Investors Dismissed
July 17 (Bloomberg) -- A Hong Kong court dismissed an eSun Holdings Ltd. unit’s $2.39 billion claim against investors in its Macau casino project including Oaktree Capital Management LP and Silver Point Capital LP.
High Court Judge A.T. Reyes ruled yesterday that East Asia Satellite Television (Holdings) Ltd.’s attempt to sue them is “untenable” under Macau and Hong Kong laws. He allowed a separate claim for $88.6 million against Oaktree and Silver Point for “inducing breach” of an agreement to proceed.
East Asia Satellite last October sued New Cotai LLC, owned by Oaktree, Silver Point and former Las Vegas Sands Corp. executive David Friedman, and its directors, accusing them of systematically hindering the development of their Macao Studio City project in order to force a renegotiation of the terms of their joint venture.
Calls to eSun executives requesting comment weren’t returned. Peter Lam, chairman of eSun parent Lai Sun Development Co., wasn’t available for comment after office hours in Hong Kong.
Friedman, New Cotai’s chief executive, said in a statement he was pleased the High Court dismissed “so many” of East Asia’s claims.
“We will vigorously defend the remaining claims and are confident that when the Court has the opportunity to consider the remaining claims, our position will be vindicated,” he said.
Playboy Mansion
East Asia Satellite and the group of investors announced the casino project in 2007. It was slated to include a film studio and million-square-foot shopping mall, and attracted Playboy Enterprises Inc., which signed a licensing agreement to build a Playboy mansion on the site.
ESun has sold a one-third stake in East Asia Satellite to Singapore’s CapitaLand Ltd. for about HK$659 million ($85 million).
By November, both Playboy and shopping mall developer Taubman Group had terminated their agreements. Taubman in October said Asia President Morgan Parker resigned, without saying who would replace him.
Friedman, Skardon Baker, Parag Vora and Gary Moross were among the New Cotai directors sued by East Asia Satellite.
The case is East Asia Satellite Television (Holdings) Ltd. and New Cotai LLC, HCA 2189/2009 in the Hong Kong Court of First Instance.
High Court Judge A.T. Reyes ruled yesterday that East Asia Satellite Television (Holdings) Ltd.’s attempt to sue them is “untenable” under Macau and Hong Kong laws. He allowed a separate claim for $88.6 million against Oaktree and Silver Point for “inducing breach” of an agreement to proceed.
East Asia Satellite last October sued New Cotai LLC, owned by Oaktree, Silver Point and former Las Vegas Sands Corp. executive David Friedman, and its directors, accusing them of systematically hindering the development of their Macao Studio City project in order to force a renegotiation of the terms of their joint venture.
Calls to eSun executives requesting comment weren’t returned. Peter Lam, chairman of eSun parent Lai Sun Development Co., wasn’t available for comment after office hours in Hong Kong.
Friedman, New Cotai’s chief executive, said in a statement he was pleased the High Court dismissed “so many” of East Asia’s claims.
“We will vigorously defend the remaining claims and are confident that when the Court has the opportunity to consider the remaining claims, our position will be vindicated,” he said.
Playboy Mansion
East Asia Satellite and the group of investors announced the casino project in 2007. It was slated to include a film studio and million-square-foot shopping mall, and attracted Playboy Enterprises Inc., which signed a licensing agreement to build a Playboy mansion on the site.
ESun has sold a one-third stake in East Asia Satellite to Singapore’s CapitaLand Ltd. for about HK$659 million ($85 million).
By November, both Playboy and shopping mall developer Taubman Group had terminated their agreements. Taubman in October said Asia President Morgan Parker resigned, without saying who would replace him.
Friedman, Skardon Baker, Parag Vora and Gary Moross were among the New Cotai directors sued by East Asia Satellite.
The case is East Asia Satellite Television (Holdings) Ltd. and New Cotai LLC, HCA 2189/2009 in the Hong Kong Court of First Instance.
Bangladesh, With Low Pay, Moves In on China
GAZIPUR, Bangladesh — The eight-lane highway leading from the Bangladeshi capital, Dhaka, narrows repeatedly as it approaches this town about 30 miles north, eventually depositing cars onto a muddy, potholed lane bordered by mangroves and small shops.
But this is no mere rural backwater. It is the sort of place to which foreign manufacturers may increasingly turn, if the rising wage demands of factory workers in China prompt companies to seek new pools of cheap labor elsewhere.
Already, in factories behind steel gates and tall concrete walls, tens of thousands of workers, most of them women, spend their days stitching T-shirts, pants and sweaters for Wal-Mart, H&M, Zara and other Western retailers and brands.
One of the Bangladeshi companies here, the DBL Group, employs 9,000 people making T-shirts and other knitwear. Business has been so good that the company is finishing a new 10-story building with open floors the size of soccer fields, planted with row after row of sewing machines.
“Our family needed the money, so we came here,” said Maasuda Akthar, a 21-year-old sewing machine operator for DBL.
As costs have risen in China, long the world’s shop floor, it is slowly losing work to countries like Bangladesh, Vietnam and Cambodia — at least for cheaper, labor-intensive goods like casual clothes, toys and simple electronics that do not necessarily require literate workers and can tolerate unreliable transportation systems and electrical grids.
Li & Fung, a Hong Kong company that handles sourcing and apparel manufacturing for companies like Wal-Mart and Liz Claiborne, reported that its production in Bangladesh jumped 20 percent last year, while China, its biggest supplier, slid 5 percent.
“Bangladesh is getting very competitive,” William Fung, Li & Fung’s group managing director, told analysts in March.
The flow of jobs to poorer countries like Bangladesh started even before recent labor unrest in China led to big pay raises for many factory workers there — and before changes in Beijing’s currency policy that could also raise the costs of Chinese exports. Now, though, economists expect the migration of China’s low-paying jobs to accelerate.
And while workers in Bangladesh and other developing countries are demanding higher pay, too — leading to a clash between police and protesters earlier this week in a garment hub outside Dhaka — they still earn much less than Chinese factory workers.
Bangladesh, for instance, has the lowest garment wages in the world, according to labor rights advocates. Ms. Akthar, who is relatively well paid by local standards, earns about $64 a month. That compares to minimum wages in China’s coastal industrial provinces ranging from $117 to $147 a month.
“The Chinese firms that are beginning to get into trouble are producing textiles, rubber footwear and things like that,” said Barry Eichengreen, a professor of economics and political science at the University of California. “And there are lots of countries in South Asia and East Asia and in Central America that would like to fill this space.”
But Bangladesh has its own challenges to overcome.
China’s combination of a vast population of migrant workers, many with at least elementary school educations, along with modern roads, railways and power grids in its industrial provinces, has bestowed it with manufacturing capabilities that countries like Bangladesh cannot offer. Beijing also provides low-cost loans and other incentives to its industries that other countries have trouble matching for theirs.
Most of Bangladesh, meanwhile, suffers blackouts six to seven hours a day because it has not invested enough in power plants and natural gas fields — deficiencies that the government is working on but that will not be eliminated quickly.
The country has a literacy rate of only 55 percent — compared with more than 92 percent in China. As a result, workers in this country are only one-fourth as productive as the Chinese in making shirts, jackets and other woven clothes, according to a report by the Center for Policy Dialogue, an independent research organization based in Dhaka.
Despite its handicaps, Bangladesh nearly doubled garment exports from 2004 to 2009. And the industry now employs about three million people, more than any other industrial segment in this largely agrarian country of 160 million. From June through November last year, garment exports accounted for more than 80 percent of the country’s total exports of $7.1 billion.
Among developing countries, Bangladesh is the third-biggest exporter of clothing after mainland China, which exported $120 billion in 2008, and Turkey, a distant No. 2, according to the World Trade Organization.
And with nearly 70 million people of working age, Bangladesh could probably absorb many more of China’s 20 million garment industry jobs.
Still, some of the changes in China could prove to be mixed blessings for Bangladesh. If China allows its currency, the renminbi, to trade more freely, Bangladeshi exports would become more competitive.
But a stronger renminbi could also hurt Bangladesh by raising the price of machinery and fabric imported from China, its biggest supplier, said Ahmed Mushfiq Mobarak, an assistant professor of economics at the Yale School of Management. Over time, Bangladesh could buy more from other countries, like India, but those countries first would need to build up significant production capacity.
But this is no mere rural backwater. It is the sort of place to which foreign manufacturers may increasingly turn, if the rising wage demands of factory workers in China prompt companies to seek new pools of cheap labor elsewhere.
Already, in factories behind steel gates and tall concrete walls, tens of thousands of workers, most of them women, spend their days stitching T-shirts, pants and sweaters for Wal-Mart, H&M, Zara and other Western retailers and brands.
One of the Bangladeshi companies here, the DBL Group, employs 9,000 people making T-shirts and other knitwear. Business has been so good that the company is finishing a new 10-story building with open floors the size of soccer fields, planted with row after row of sewing machines.
“Our family needed the money, so we came here,” said Maasuda Akthar, a 21-year-old sewing machine operator for DBL.
As costs have risen in China, long the world’s shop floor, it is slowly losing work to countries like Bangladesh, Vietnam and Cambodia — at least for cheaper, labor-intensive goods like casual clothes, toys and simple electronics that do not necessarily require literate workers and can tolerate unreliable transportation systems and electrical grids.
Li & Fung, a Hong Kong company that handles sourcing and apparel manufacturing for companies like Wal-Mart and Liz Claiborne, reported that its production in Bangladesh jumped 20 percent last year, while China, its biggest supplier, slid 5 percent.
“Bangladesh is getting very competitive,” William Fung, Li & Fung’s group managing director, told analysts in March.
The flow of jobs to poorer countries like Bangladesh started even before recent labor unrest in China led to big pay raises for many factory workers there — and before changes in Beijing’s currency policy that could also raise the costs of Chinese exports. Now, though, economists expect the migration of China’s low-paying jobs to accelerate.
And while workers in Bangladesh and other developing countries are demanding higher pay, too — leading to a clash between police and protesters earlier this week in a garment hub outside Dhaka — they still earn much less than Chinese factory workers.
Bangladesh, for instance, has the lowest garment wages in the world, according to labor rights advocates. Ms. Akthar, who is relatively well paid by local standards, earns about $64 a month. That compares to minimum wages in China’s coastal industrial provinces ranging from $117 to $147 a month.
“The Chinese firms that are beginning to get into trouble are producing textiles, rubber footwear and things like that,” said Barry Eichengreen, a professor of economics and political science at the University of California. “And there are lots of countries in South Asia and East Asia and in Central America that would like to fill this space.”
But Bangladesh has its own challenges to overcome.
China’s combination of a vast population of migrant workers, many with at least elementary school educations, along with modern roads, railways and power grids in its industrial provinces, has bestowed it with manufacturing capabilities that countries like Bangladesh cannot offer. Beijing also provides low-cost loans and other incentives to its industries that other countries have trouble matching for theirs.
Most of Bangladesh, meanwhile, suffers blackouts six to seven hours a day because it has not invested enough in power plants and natural gas fields — deficiencies that the government is working on but that will not be eliminated quickly.
The country has a literacy rate of only 55 percent — compared with more than 92 percent in China. As a result, workers in this country are only one-fourth as productive as the Chinese in making shirts, jackets and other woven clothes, according to a report by the Center for Policy Dialogue, an independent research organization based in Dhaka.
Despite its handicaps, Bangladesh nearly doubled garment exports from 2004 to 2009. And the industry now employs about three million people, more than any other industrial segment in this largely agrarian country of 160 million. From June through November last year, garment exports accounted for more than 80 percent of the country’s total exports of $7.1 billion.
Among developing countries, Bangladesh is the third-biggest exporter of clothing after mainland China, which exported $120 billion in 2008, and Turkey, a distant No. 2, according to the World Trade Organization.
And with nearly 70 million people of working age, Bangladesh could probably absorb many more of China’s 20 million garment industry jobs.
Still, some of the changes in China could prove to be mixed blessings for Bangladesh. If China allows its currency, the renminbi, to trade more freely, Bangladeshi exports would become more competitive.
But a stronger renminbi could also hurt Bangladesh by raising the price of machinery and fabric imported from China, its biggest supplier, said Ahmed Mushfiq Mobarak, an assistant professor of economics at the Yale School of Management. Over time, Bangladesh could buy more from other countries, like India, but those countries first would need to build up significant production capacity.
Gillard Calls Australian Election After Ending Mining Standoff
July 17 (Bloomberg) -- Australian Prime Minister Julia Gillard called a general election less than a month after she became the nation’s first female leader and settled a dispute with mining companies that propelled her to office.
Gillard, 48, called the ballot for Aug. 21, betting the ruling Labor Party’s record of delivering growth during the global financial crisis will help ensure re-election. Her ouster of former Prime Minister Kevin Rudd restored the party’s lead in opinion polls over Tony Abbott’s Liberal-National coalition.
“I want to keep the economy strong so people can enjoy the benefits of work,” Gillard told reporters in Canberra today. “We do not have to be afraid of the future, we can master big challenges like climate change together.”
The election will determine whether resources companies led by BHP Billiton Ltd. and Rio Tinto Ltd. pay higher taxes, a policy championed by Rudd and diluted by Gillard to win their support. Abbott, bidding to make Labor the first one-term government in 80 years, pledged not to adopt the tax, describing it as a punishment for the nation’s most profitable industry.
“It would defy recent history if the coalition were to defeat Labor: the last time we had a one-term government was during the Great Depression,” said Nick Economou, a political scientist at Monash University in Melbourne. “It’s going to be close. The government will probably just fall over the line.”
Voter surveys indicate a close race. Labor’s support fell three percentage points to 52 percent in a Nielsen poll published July 12, compared with when Gillard had just taken power. The coalition rose three points to 48 percent.
Gillard’s Compromise
Gillard on July 2 announced an agreement with resources companies on a reduced mining levy for a country that is the world’s biggest shipper of coal, iron ore and alumina. She scaled back the planned tax to 30 percent of coal and iron ore earnings from 40 percent on all resource profits.
The election will also be fought on climate-change policies and management of Australia’s A$1.2 trillion ($1 trillion) economy. Gillard said last week the economy is the foundation of her re-election campaign. She also reaffirmed the central bank’s annual inflation target of 2 percent to 3 percent. The Australian dollar is the third-best performer among the world’s 16-most traded currencies during the past decade, gaining about 50 percent against the dollar.
The economy expanded for a fifth straight quarter in the three months ended March 31 as government stimulus spending helped boost consumer demand amid the Group of 20’s most aggressive interest-rate increases. The Reserve Bank of Australia has increased the benchmark rate six times to 4.5 percent since early October from a half-century low of 3 percent.
China Demand
Central bank policy makers expect economic growth to almost double in the next two years as China’s demand for resources spurs a mining investment boom. China is Australia’s biggest trading partner, with two-way trade worth A$85.1 billion in 2009.
Gillard said the government will review plans for a carbon- trading system in 2012, and that the market should set the price for carbon. Labor also wants to generate 20 percent of the nation’s energy from renewable sources like wind, solar and geothermal projects by 2020.
Abbott, 52, opposes any form of carbon tax and proposes an A$1 billion emissions reduction fund to give companies incentives to cut pollutants 5 percent by 2020. The coalition plans to establish a 15,000-strong “green army” to repair and restore the environment.
Abbott in December became the coalition’s third leader since the 2007 election because of a party dispute over whether to support Rudd’s climate plans.
Immigration Policy
Immigration will also feature in the six-week election campaign after the number of asylum seekers arriving by boat jumped to 3,768 so far this year from 2,726 for 2009, immigration department figures show.
Gillard has vowed to open a regional center to process asylum seekers to curb the rising number of refugees from Southeast Asia arriving by sea. She came under fire for suggesting East Timor should house the refugee center before fully negotiating the plan with officials from that country. East Timor’s parliament on July 12 rejected having the facility there in a unanimous vote, the Australian Broadcasting Corp. said.
Rudd ended John Howard’s almost 12-year rule in November 2007. He withdrew Australian troops from Iraq, abolished the unpopular Work Choices labor laws, ratified the Kyoto treaty on climate change and offered the nation’s first apology to Aborigines taken from their families between 1910 and 1970 for assimilation with the white community.
Welsh Roots
Gillard, who emigrated from Wales when she was four after she contracted bronchial pneumonia, replaced Rudd after party factions and key labor unions switched their allegiance.
Abbott is a Rhodes Scholar who won two boxing Blues while studying at Oxford University. He was, under Howard, employment minister between 2001 and 2003 and then health minister until 2007.
He won the leadership of the Liberal Party in December last year, ousting Malcolm Turnbull, a former Goldman Sachs Group Inc. executive, when party lawmakers rejected Turnbull’s support for Rudd’s climate plan.
Labor has 83 lawmakers in the 150-member House of Representatives, compared with 63 Liberal-National coalition members, according to the parliament’s Web site. There are four independents.
Gillard, 48, called the ballot for Aug. 21, betting the ruling Labor Party’s record of delivering growth during the global financial crisis will help ensure re-election. Her ouster of former Prime Minister Kevin Rudd restored the party’s lead in opinion polls over Tony Abbott’s Liberal-National coalition.
“I want to keep the economy strong so people can enjoy the benefits of work,” Gillard told reporters in Canberra today. “We do not have to be afraid of the future, we can master big challenges like climate change together.”
The election will determine whether resources companies led by BHP Billiton Ltd. and Rio Tinto Ltd. pay higher taxes, a policy championed by Rudd and diluted by Gillard to win their support. Abbott, bidding to make Labor the first one-term government in 80 years, pledged not to adopt the tax, describing it as a punishment for the nation’s most profitable industry.
“It would defy recent history if the coalition were to defeat Labor: the last time we had a one-term government was during the Great Depression,” said Nick Economou, a political scientist at Monash University in Melbourne. “It’s going to be close. The government will probably just fall over the line.”
Voter surveys indicate a close race. Labor’s support fell three percentage points to 52 percent in a Nielsen poll published July 12, compared with when Gillard had just taken power. The coalition rose three points to 48 percent.
Gillard’s Compromise
Gillard on July 2 announced an agreement with resources companies on a reduced mining levy for a country that is the world’s biggest shipper of coal, iron ore and alumina. She scaled back the planned tax to 30 percent of coal and iron ore earnings from 40 percent on all resource profits.
The election will also be fought on climate-change policies and management of Australia’s A$1.2 trillion ($1 trillion) economy. Gillard said last week the economy is the foundation of her re-election campaign. She also reaffirmed the central bank’s annual inflation target of 2 percent to 3 percent. The Australian dollar is the third-best performer among the world’s 16-most traded currencies during the past decade, gaining about 50 percent against the dollar.
The economy expanded for a fifth straight quarter in the three months ended March 31 as government stimulus spending helped boost consumer demand amid the Group of 20’s most aggressive interest-rate increases. The Reserve Bank of Australia has increased the benchmark rate six times to 4.5 percent since early October from a half-century low of 3 percent.
China Demand
Central bank policy makers expect economic growth to almost double in the next two years as China’s demand for resources spurs a mining investment boom. China is Australia’s biggest trading partner, with two-way trade worth A$85.1 billion in 2009.
Gillard said the government will review plans for a carbon- trading system in 2012, and that the market should set the price for carbon. Labor also wants to generate 20 percent of the nation’s energy from renewable sources like wind, solar and geothermal projects by 2020.
Abbott, 52, opposes any form of carbon tax and proposes an A$1 billion emissions reduction fund to give companies incentives to cut pollutants 5 percent by 2020. The coalition plans to establish a 15,000-strong “green army” to repair and restore the environment.
Abbott in December became the coalition’s third leader since the 2007 election because of a party dispute over whether to support Rudd’s climate plans.
Immigration Policy
Immigration will also feature in the six-week election campaign after the number of asylum seekers arriving by boat jumped to 3,768 so far this year from 2,726 for 2009, immigration department figures show.
Gillard has vowed to open a regional center to process asylum seekers to curb the rising number of refugees from Southeast Asia arriving by sea. She came under fire for suggesting East Timor should house the refugee center before fully negotiating the plan with officials from that country. East Timor’s parliament on July 12 rejected having the facility there in a unanimous vote, the Australian Broadcasting Corp. said.
Rudd ended John Howard’s almost 12-year rule in November 2007. He withdrew Australian troops from Iraq, abolished the unpopular Work Choices labor laws, ratified the Kyoto treaty on climate change and offered the nation’s first apology to Aborigines taken from their families between 1910 and 1970 for assimilation with the white community.
Welsh Roots
Gillard, who emigrated from Wales when she was four after she contracted bronchial pneumonia, replaced Rudd after party factions and key labor unions switched their allegiance.
Abbott is a Rhodes Scholar who won two boxing Blues while studying at Oxford University. He was, under Howard, employment minister between 2001 and 2003 and then health minister until 2007.
He won the leadership of the Liberal Party in December last year, ousting Malcolm Turnbull, a former Goldman Sachs Group Inc. executive, when party lawmakers rejected Turnbull’s support for Rudd’s climate plan.
Labor has 83 lawmakers in the 150-member House of Representatives, compared with 63 Liberal-National coalition members, according to the parliament’s Web site. There are four independents.
Thursday, July 15, 2010
India struggles to contain Kashmiri rage
Jameela Akhtar, a Kashmiri housewife, sent her teenage son, Ishtiyaq, to a bakery in their middle-class Anantnag neighbourhood to buy bread. It proved to be a fatal errand.
A kilometre away, teenagers were hurling stones at police on the national highway, part of an upsurge of violent clashes pitting frustrated local youth against the might of Indian security forces across Kashmir.
It is unclear whether Ishtiyaq, 15, joined the agitation or was simply caught in the chaos. But police – chasing protesters through the narrow, twisting alleys of the residential colony – pursued him home, then shot him in his courtyard, where he died in front of his family. A friend and a bakery employee were also shot and killed on the spot.
As India and Pakistan’s foreign ministers resumed talks on Thursday about the disputed territory, Ishtiyaq’s devastated family and enraged neighbours were thinking only of justice. His older cousin, Asif Khandey, an engineer, asks: “How is it possible that they would have shot three people at point blank range? Is this justice? Is this India? Is this democracy?”
The anger in Anantnag reflects the broader rage erupting across Indian-controlled Kashmir – India’s only Muslim-majority province – where authorities have been struggling to control an outbreak of civil unrest led by stone-throwing youths calling for freedom from New Delhi’s rule.
Jammu and Kashmir mapFifteen civilians, including a woman and a nine-year-old child, have been killed since mid-June, with scores more injured, by paramilitaries and police. Each death fuels new protests and more casualties in a region fought over three times by New Delhi and Islamabad, which both claim the picturesque Himalayan valley as their own.
To break the latest cycle of violence, the region’s entire population was put under a six-day de facto house arrest last week as Indian authorities imposed a strict curfew. The region remains tense, with paramilitary contingents patrolling largely deserted roads and public squares and most shops and businesses shut down. Hundreds, including a leading local lawyer, have been arrested for waging war against the state.
While New Delhi blames Pakistan-based militants for inciting unrest, local people insist the protests, including small sit-ins in various Srinagar neighbourhoods on Thursday, are indigenous expressions of genuine anger and frustration.
“People want freedom from Indian occupation,” says Wasim Khan, a 26-year-old university student in Anantnag. “When they take up stones, they are showing how much hatred they have towards these cops. But it is a political problem and it should be solved politically.”
Since 1989 around 68,000 people have been killed in Kashmir in an armed Pakistan-backed separatist insurgency and New Delhi’s harsh military counter-measures. But militant violence has plummeted in recent years, as most Kashmiri fighters renounced armed struggle and Pakistan was pressed to curb cross-border infiltration of Islamist fighters.
Even as insurgency has waned, India’s security forces maintain an overbearing presence. Young, English-speaking graduates can’t find jobs. New Delhi, distracted by a Maoist insurgency in central and east India, has made no serious overtures towards the alienated, politicised population. India’s proposals to give Kashmir greater autonomy gather dust.
The 2008 election of Omar Abdullah – the now 40-year-old grandson of Kashmir’s most popular political leader – as Kashmir’s chief minister raised hopes for change as he promised to crack down on human rights abuses in a “zero tolerance” pledge echoed by Manmohan Singh, the prime minister.
Yet Mr Abdullah, remote and seemingly out of touch with the public mood, has struggled to deliver, as the armed forces have resisted efforts to dilute their legal immunity for rights abuses or excessive use of force in Kashmir.
In the absence of any credible political process, Kashmir remains volatile. Anger was stoked by the alleged killing of three villagers by soldiers, who are said to have falsely portrayed the victims as foreign militants to win promotions.
Tech-savvy Kashmiri youth have kept the mood charged with videos of police brutality and victims’ funerals on Facebook and YouTube.
But while the current unrest has put Kashmir back on New Delhi’s radar, Arif Parrey, a lawyer involved in back channel reconciliation efforts, remains pessimistic.
“Whenever there is dialogue, Kashmiris move two steps forward, and India doesn’t move at all,” he says. “They are afraid if they take some political steps, and offer something for a change, we will take that then demand more.”
A kilometre away, teenagers were hurling stones at police on the national highway, part of an upsurge of violent clashes pitting frustrated local youth against the might of Indian security forces across Kashmir.
It is unclear whether Ishtiyaq, 15, joined the agitation or was simply caught in the chaos. But police – chasing protesters through the narrow, twisting alleys of the residential colony – pursued him home, then shot him in his courtyard, where he died in front of his family. A friend and a bakery employee were also shot and killed on the spot.
As India and Pakistan’s foreign ministers resumed talks on Thursday about the disputed territory, Ishtiyaq’s devastated family and enraged neighbours were thinking only of justice. His older cousin, Asif Khandey, an engineer, asks: “How is it possible that they would have shot three people at point blank range? Is this justice? Is this India? Is this democracy?”
The anger in Anantnag reflects the broader rage erupting across Indian-controlled Kashmir – India’s only Muslim-majority province – where authorities have been struggling to control an outbreak of civil unrest led by stone-throwing youths calling for freedom from New Delhi’s rule.
Jammu and Kashmir mapFifteen civilians, including a woman and a nine-year-old child, have been killed since mid-June, with scores more injured, by paramilitaries and police. Each death fuels new protests and more casualties in a region fought over three times by New Delhi and Islamabad, which both claim the picturesque Himalayan valley as their own.
To break the latest cycle of violence, the region’s entire population was put under a six-day de facto house arrest last week as Indian authorities imposed a strict curfew. The region remains tense, with paramilitary contingents patrolling largely deserted roads and public squares and most shops and businesses shut down. Hundreds, including a leading local lawyer, have been arrested for waging war against the state.
While New Delhi blames Pakistan-based militants for inciting unrest, local people insist the protests, including small sit-ins in various Srinagar neighbourhoods on Thursday, are indigenous expressions of genuine anger and frustration.
“People want freedom from Indian occupation,” says Wasim Khan, a 26-year-old university student in Anantnag. “When they take up stones, they are showing how much hatred they have towards these cops. But it is a political problem and it should be solved politically.”
Since 1989 around 68,000 people have been killed in Kashmir in an armed Pakistan-backed separatist insurgency and New Delhi’s harsh military counter-measures. But militant violence has plummeted in recent years, as most Kashmiri fighters renounced armed struggle and Pakistan was pressed to curb cross-border infiltration of Islamist fighters.
Even as insurgency has waned, India’s security forces maintain an overbearing presence. Young, English-speaking graduates can’t find jobs. New Delhi, distracted by a Maoist insurgency in central and east India, has made no serious overtures towards the alienated, politicised population. India’s proposals to give Kashmir greater autonomy gather dust.
The 2008 election of Omar Abdullah – the now 40-year-old grandson of Kashmir’s most popular political leader – as Kashmir’s chief minister raised hopes for change as he promised to crack down on human rights abuses in a “zero tolerance” pledge echoed by Manmohan Singh, the prime minister.
Yet Mr Abdullah, remote and seemingly out of touch with the public mood, has struggled to deliver, as the armed forces have resisted efforts to dilute their legal immunity for rights abuses or excessive use of force in Kashmir.
In the absence of any credible political process, Kashmir remains volatile. Anger was stoked by the alleged killing of three villagers by soldiers, who are said to have falsely portrayed the victims as foreign militants to win promotions.
Tech-savvy Kashmiri youth have kept the mood charged with videos of police brutality and victims’ funerals on Facebook and YouTube.
But while the current unrest has put Kashmir back on New Delhi’s radar, Arif Parrey, a lawyer involved in back channel reconciliation efforts, remains pessimistic.
“Whenever there is dialogue, Kashmiris move two steps forward, and India doesn’t move at all,” he says. “They are afraid if they take some political steps, and offer something for a change, we will take that then demand more.”
Asian Stocks Fall for 2nd Day, Yen Strengthens on U.S. Output
July 16 (Bloomberg) -- Asian stocks fell for a second day, led by Japanese exporters, after the yen strengthened and U.S. manufacturing weakened and Google posted disappointing earnings.
The MSCI Asia Pacific Index lost 0.5 percent to 116.31 at 11:40 a.m. in Tokyo and Japan’s Nikkei 225 Stock Average tumbled 1.6 percent, the most in two weeks. The yen appreciated to as strong as 87.17 per dollar in Tokyo from 87.40 in New York yesterday, near the 2010 high of 86.97 reached on July 1. Standard & Poor’s 500 Index futures rose less than 0.1 percent.
Asian markets retreated after Federal Reserve reports on the Philadelphia and New York regions showed manufacturing growth slowed this month and as Google Inc. reported lower-than- estimated profit. Losses were limited as Goldman Sachs Group Inc. agreed to a $550 million settlement with the Securities and Exchange Commission, the Senate passed a financial-industry regulation overhaul measure and BP Plc said it stopped the flow of oil at its leaking well in the Gulf of Mexico.
“Investors are reacting to the negative data that point to some slowdown in economic activity,” said Chu Moon Sung, a fund manager at Shinhan BNP Paribas Asset Management Co. in Seoul, which manages $26 billion.
Almost three stocks retreated for each that gained among the MSCI index’s 985 companies. Nintendo Co. dropped 3.4 percent to five-week low after its U.S. sales fell by a third in June. Sony Corp. and Nissan Motor Co. also declined more than 2 percent as the yen headed for a 1.6 percent gain this week.
Goldman Settlement
Stocks fell in the U.S. yesterday before staging a rebound in the final hour of trading before the settlement between Goldman Sachs and the SEC was disclosed. In addition to the penalty, the largest ever levied by the regulator against a Wall Street firm, Goldman Sachs acknowledged it made a “mistake,” the agency said. The S&P 500 rose 0.1 percent.
Goldman Sachs surged 4.4 percent. That helped overshadow the 4 percent decline in Google after it reported profit excluding some items of $6.45 a share in the second quarter. Analysts had estimated $6.52 a share, according to a Bloomberg survey.
Agricultural Bank of China Ltd. shares climbed 2.8 percent to HK$3.29 on its first day of trading in Hong Kong. The stock fell 0.4 percent in Shanghai, paring yesterday’s gains that marked the smallest first-day advance among the nine lenders that have sold shares in the city. CapitaMalls Malaysia Trust, the nation’s second-biggest real estate investment trust that also debuted for the first time today, fell 2 percent.
Consumer Prices
New Zealand’s dollar strengthened 1.1 percent to 72.16 U.S. cents from 72.75 cents after Statistics New Zealand said consumer prices rose 0.3 percent in the first quarter. That’s smaller than the median estimate of a 0.4 percent gain in a Bloomberg survey of 15 economists, which may give central bank Governor Alan Bollard room to raise interest rates at a gradual pace.
The U.S. is scheduled to release its consumer price index today, which may show a 0.1 percent decrease compared with May, according to the median estimate of economists surveyed by Bloomberg. A separate report may also show U.S. household sentiment deteriorated this month.
“The market is becoming increasingly worried about downside risks to the U.S. economy,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at Ueda Harlow Ltd.
The MSCI Asia Pacific Index lost 0.5 percent to 116.31 at 11:40 a.m. in Tokyo and Japan’s Nikkei 225 Stock Average tumbled 1.6 percent, the most in two weeks. The yen appreciated to as strong as 87.17 per dollar in Tokyo from 87.40 in New York yesterday, near the 2010 high of 86.97 reached on July 1. Standard & Poor’s 500 Index futures rose less than 0.1 percent.
Asian markets retreated after Federal Reserve reports on the Philadelphia and New York regions showed manufacturing growth slowed this month and as Google Inc. reported lower-than- estimated profit. Losses were limited as Goldman Sachs Group Inc. agreed to a $550 million settlement with the Securities and Exchange Commission, the Senate passed a financial-industry regulation overhaul measure and BP Plc said it stopped the flow of oil at its leaking well in the Gulf of Mexico.
“Investors are reacting to the negative data that point to some slowdown in economic activity,” said Chu Moon Sung, a fund manager at Shinhan BNP Paribas Asset Management Co. in Seoul, which manages $26 billion.
Almost three stocks retreated for each that gained among the MSCI index’s 985 companies. Nintendo Co. dropped 3.4 percent to five-week low after its U.S. sales fell by a third in June. Sony Corp. and Nissan Motor Co. also declined more than 2 percent as the yen headed for a 1.6 percent gain this week.
Goldman Settlement
Stocks fell in the U.S. yesterday before staging a rebound in the final hour of trading before the settlement between Goldman Sachs and the SEC was disclosed. In addition to the penalty, the largest ever levied by the regulator against a Wall Street firm, Goldman Sachs acknowledged it made a “mistake,” the agency said. The S&P 500 rose 0.1 percent.
Goldman Sachs surged 4.4 percent. That helped overshadow the 4 percent decline in Google after it reported profit excluding some items of $6.45 a share in the second quarter. Analysts had estimated $6.52 a share, according to a Bloomberg survey.
Agricultural Bank of China Ltd. shares climbed 2.8 percent to HK$3.29 on its first day of trading in Hong Kong. The stock fell 0.4 percent in Shanghai, paring yesterday’s gains that marked the smallest first-day advance among the nine lenders that have sold shares in the city. CapitaMalls Malaysia Trust, the nation’s second-biggest real estate investment trust that also debuted for the first time today, fell 2 percent.
Consumer Prices
New Zealand’s dollar strengthened 1.1 percent to 72.16 U.S. cents from 72.75 cents after Statistics New Zealand said consumer prices rose 0.3 percent in the first quarter. That’s smaller than the median estimate of a 0.4 percent gain in a Bloomberg survey of 15 economists, which may give central bank Governor Alan Bollard room to raise interest rates at a gradual pace.
The U.S. is scheduled to release its consumer price index today, which may show a 0.1 percent decrease compared with May, according to the median estimate of economists surveyed by Bloomberg. A separate report may also show U.S. household sentiment deteriorated this month.
“The market is becoming increasingly worried about downside risks to the U.S. economy,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at Ueda Harlow Ltd.
S.E.C. Settling Its Complaints With Goldman
WASHINGTON — Goldman Sachs has agreed to pay $550 million to settle federal claims that it misled investors in a subprime mortgage product as the housing market began to collapse, officials said Thursday.
If approved by a federal judge in Manhattan, the settlement would rank among the largest in the 76-year history of the Securities and Exchange Commission, but it would represent only a small financial dent for Goldman, which reported $13.39 billion in profit last year.
News of the settlement sent Goldman’s shares 5 percent higher in after-hours trading, adding far more to the firm’s market value than the amount it will have to pay in the settlement.
Even so, the settlement is humbling for Goldman, whose elite reputation and lucrative banking business endured through the financial crisis, only to be battered by government investigations that shed light on potential conflicts of interest in its dealings.
“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” said Robert S. Khuzami, the commission’s director of enforcement.
The civil suit brought by the S.E.C. focused on a single mortgage security that Goldman created in 2007, just as cracks appeared in the housing market. That security, called Abacus 2007-AC1, enabled a prominent hedge fund manager, John A. Paulson, to place a bet against mortgage bonds.
The commission contended that Goldman misled investors, who were making a positive bet on housing, because Goldman did not disclose Mr. Paulson’s involvement in creating the deal. Mr. Paulson has not been accused of wrongdoing.
Though Goldman did not formally admit to the S.E.C.’s allegations, it agreed to a judicial order barring it from committing intentional fraud in the future under federal securities laws.
In addition, Goldman acknowledged that the marketing materials for Abacus “contained incomplete information” and that it was “a mistake” not to have disclosed Mr. Paulson’s role. As part of the agreement, the bank also said it “regrets that the marketing materials did not contain that disclosure.”
Goldman’s general counsel, Gregory K. Palm, signed the S.E.C. settlement on Wednesday, though it was not announced until after markets closed on Thursday. Officials said the timing was not affected by the Senate’s approval of an overhaul of financial regulations.
Word that Goldman had settled the case began leaking about 30 minutes before the markets closed and appeared to please investors; some analysts had expected a settlement by this Monday, when Goldman, which had been under pressure by shareholders to reach a settlement, was expected to deliver a formal response to the commission’s complaint.
“We believe that this settlement is the right outcome for our firm, our shareholders and our clients,” Goldman said in a written statement on Thursday.
When the commission filed its case in April, Goldman took a notably defensive stance. The bank had apparently been surprised that investigators did not warn its executives about the case and give them a chance to settle at that time.
Yet Goldman began holding settlement talks with the S.E.C. immediately after the complaint was filed. As the weeks and months dragged on, Goldman executives heard concerns from clients and former executives.
Goldman was bound to face another round of questions from analysts next week, when the bank is scheduled to report its earnings.
The settlement removes a significant problem looming over Goldman, but it could still face other legal problems.
Though Goldman said that it understood the S.E.C. was not planning to bring other cases, the commission continues to investigate collateralized debt obligations, like the Abacus security, issued by Goldman and other banks, and could still take action.
The Justice Department also had been reviewing the Abacus deal, and the S.E.C. could refer other findings to prosecutors.
Goldman faces private lawsuits related to multiple mortgage securities and to its decision not to tell its shareholders last year when it received formal notification that the S.E.C. was investigating the Abacus deal.
“Goldman played fast and loose in the Abacus deal, misled its clients, and got called on it today,” said Senator Carl M. Levin, a Michigan Democrat who led a separate Congressional investigation that examined the Abacus deal.
“A key factor in the settlement is that Goldman acknowledges wrongdoing, in addition to paying a fine and changing its practices,” Mr. Levin said in a written statement. “I hope the Goldman settlement together with the new financial reform law — which prohibits additional unethical practices and conflicts of interest — signal an end to the abusive practices that contributed to the 2008 financial crisis and the beginning of needed Wall Street reforms.”
The settlement announced on Thursday awaits approval by a federal judge, Barbara S. Jones, in the Southern District of New York. A year ago, the S.E.C. suffered a black eye when a different judge in that district rejected a settlement between the commission and Bank of America. The commission settled with the bank later on, after substantially increasing the fine.
Under the proposed settlement, Goldman would pay back the $15 million in profit it made from the Abacus deal and also pay a civil penalty of $535 million. The money would be given to the two banks that had losses on the deal — $150 million to IKB Deutsche Industriebank and $100 million to the Royal Bank of Scotland Group — with the rest, $300 million, going to the United States Treasury as a fine.
Goldman’s settlement requires it to make changes in how it reviews and approves offerings of certain mortgage securities.
Cornelius K. Hurley, director of the Morin Center for Banking and Financial Law at Boston University and a former Federal Reserve lawyer, said the dollar amount would not dent the public anger at the banks.
“You have to consider the symbolism of the S.E.C.’s case. When it was filed back in April, it completely changed the dynamic on Capitol Hill,” Mr. Hurley said. “Now comes the settlement and it’s $550 million. Well, two weeks ago we were talking about a $19 billion tax on the likes of Goldman. The public wanted to see either more financial pain or actually have a trial.”
Goldman was not the only Wall Street firm to create complex mortgage securities that allowed investors to make negative bets, and the commission continues to look at other deals from across the industry.
Fabrice P. Tourre, the Goldman vice president who was named in the S.E.C. case, was not included in the settlement.
Mr. Tourre took a leave from Goldman after the case was filed. When he appeared before a Senate committee in April, he said he should have pointed out Mr. Paulson’s involvement in Abacus in the deal’s marketing materials. The lawyer for Mr. Tourre did not return a phone call seeking comment on Thursday.
The Goldman settlement would be larger than the $400 million the mortgage giant Fannie Mae, accused of inflating its earnings while lavishing its executives with bonuses, agreed to pay in 2006, but smaller than the $750 million the telecommunications company WorldCom was ordered to pay in 2003 after an accounting scandal. Fannie Mae was seized by the government in 2008, and WorldCom, after emerging from bankruptcy, eventually became part of Verizon.
If approved by a federal judge in Manhattan, the settlement would rank among the largest in the 76-year history of the Securities and Exchange Commission, but it would represent only a small financial dent for Goldman, which reported $13.39 billion in profit last year.
News of the settlement sent Goldman’s shares 5 percent higher in after-hours trading, adding far more to the firm’s market value than the amount it will have to pay in the settlement.
Even so, the settlement is humbling for Goldman, whose elite reputation and lucrative banking business endured through the financial crisis, only to be battered by government investigations that shed light on potential conflicts of interest in its dealings.
“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” said Robert S. Khuzami, the commission’s director of enforcement.
The civil suit brought by the S.E.C. focused on a single mortgage security that Goldman created in 2007, just as cracks appeared in the housing market. That security, called Abacus 2007-AC1, enabled a prominent hedge fund manager, John A. Paulson, to place a bet against mortgage bonds.
The commission contended that Goldman misled investors, who were making a positive bet on housing, because Goldman did not disclose Mr. Paulson’s involvement in creating the deal. Mr. Paulson has not been accused of wrongdoing.
Though Goldman did not formally admit to the S.E.C.’s allegations, it agreed to a judicial order barring it from committing intentional fraud in the future under federal securities laws.
In addition, Goldman acknowledged that the marketing materials for Abacus “contained incomplete information” and that it was “a mistake” not to have disclosed Mr. Paulson’s role. As part of the agreement, the bank also said it “regrets that the marketing materials did not contain that disclosure.”
Goldman’s general counsel, Gregory K. Palm, signed the S.E.C. settlement on Wednesday, though it was not announced until after markets closed on Thursday. Officials said the timing was not affected by the Senate’s approval of an overhaul of financial regulations.
Word that Goldman had settled the case began leaking about 30 minutes before the markets closed and appeared to please investors; some analysts had expected a settlement by this Monday, when Goldman, which had been under pressure by shareholders to reach a settlement, was expected to deliver a formal response to the commission’s complaint.
“We believe that this settlement is the right outcome for our firm, our shareholders and our clients,” Goldman said in a written statement on Thursday.
When the commission filed its case in April, Goldman took a notably defensive stance. The bank had apparently been surprised that investigators did not warn its executives about the case and give them a chance to settle at that time.
Yet Goldman began holding settlement talks with the S.E.C. immediately after the complaint was filed. As the weeks and months dragged on, Goldman executives heard concerns from clients and former executives.
Goldman was bound to face another round of questions from analysts next week, when the bank is scheduled to report its earnings.
The settlement removes a significant problem looming over Goldman, but it could still face other legal problems.
Though Goldman said that it understood the S.E.C. was not planning to bring other cases, the commission continues to investigate collateralized debt obligations, like the Abacus security, issued by Goldman and other banks, and could still take action.
The Justice Department also had been reviewing the Abacus deal, and the S.E.C. could refer other findings to prosecutors.
Goldman faces private lawsuits related to multiple mortgage securities and to its decision not to tell its shareholders last year when it received formal notification that the S.E.C. was investigating the Abacus deal.
“Goldman played fast and loose in the Abacus deal, misled its clients, and got called on it today,” said Senator Carl M. Levin, a Michigan Democrat who led a separate Congressional investigation that examined the Abacus deal.
“A key factor in the settlement is that Goldman acknowledges wrongdoing, in addition to paying a fine and changing its practices,” Mr. Levin said in a written statement. “I hope the Goldman settlement together with the new financial reform law — which prohibits additional unethical practices and conflicts of interest — signal an end to the abusive practices that contributed to the 2008 financial crisis and the beginning of needed Wall Street reforms.”
The settlement announced on Thursday awaits approval by a federal judge, Barbara S. Jones, in the Southern District of New York. A year ago, the S.E.C. suffered a black eye when a different judge in that district rejected a settlement between the commission and Bank of America. The commission settled with the bank later on, after substantially increasing the fine.
Under the proposed settlement, Goldman would pay back the $15 million in profit it made from the Abacus deal and also pay a civil penalty of $535 million. The money would be given to the two banks that had losses on the deal — $150 million to IKB Deutsche Industriebank and $100 million to the Royal Bank of Scotland Group — with the rest, $300 million, going to the United States Treasury as a fine.
Goldman’s settlement requires it to make changes in how it reviews and approves offerings of certain mortgage securities.
Cornelius K. Hurley, director of the Morin Center for Banking and Financial Law at Boston University and a former Federal Reserve lawyer, said the dollar amount would not dent the public anger at the banks.
“You have to consider the symbolism of the S.E.C.’s case. When it was filed back in April, it completely changed the dynamic on Capitol Hill,” Mr. Hurley said. “Now comes the settlement and it’s $550 million. Well, two weeks ago we were talking about a $19 billion tax on the likes of Goldman. The public wanted to see either more financial pain or actually have a trial.”
Goldman was not the only Wall Street firm to create complex mortgage securities that allowed investors to make negative bets, and the commission continues to look at other deals from across the industry.
Fabrice P. Tourre, the Goldman vice president who was named in the S.E.C. case, was not included in the settlement.
Mr. Tourre took a leave from Goldman after the case was filed. When he appeared before a Senate committee in April, he said he should have pointed out Mr. Paulson’s involvement in Abacus in the deal’s marketing materials. The lawyer for Mr. Tourre did not return a phone call seeking comment on Thursday.
The Goldman settlement would be larger than the $400 million the mortgage giant Fannie Mae, accused of inflating its earnings while lavishing its executives with bonuses, agreed to pay in 2006, but smaller than the $750 million the telecommunications company WorldCom was ordered to pay in 2003 after an accounting scandal. Fannie Mae was seized by the government in 2008, and WorldCom, after emerging from bankruptcy, eventually became part of Verizon.
India and Pakistan reopen negotiations
India and Pakistan on Thursday reopened high-level cross-border political talks for the first time since the Mumbai terror attacks almost two years ago.
SM Krishna, India’s foreign minister, and Shah Mahmoud Qureshi, his Pakistani counterpart, met in Islamabad to repair the strained relationship between the two nuclear armed nations set on a knife edge by the ferocious attack on India’s financial capital by Islamist militants.
Mr Krishna, the most senior Indian official to visit Pakistan for two years, has insisted that Pakistan needs to make greater progress towards prosecuting those responsible for the terror attacks that led to a three day stand-off and killed 166 people. He was meeting senior Pakistan officials on Thursday night after which the two sides were expected to issue a joint statement.
Indian commentators view progress over Mumbai as an essential prerequisite to any breakthrough on wider issues, most importantly any discussion about Kashmir, the disputed Himalayan region which lies at the heart of hostilities between two countries that have fought three wars since the end of British rule in 1947.
Manmohan Singh, India’s prime minister, has made rebuilding trust with Pakistan, a central theme of his second term in office. But he is likely to meet strong opposition.
Mr Singh himself has expressed doubts about having a credible negotiating partner in Pakistan that can deliver a lasting peace between the south Asian countries.
“[Mr] Singh is far out in front of Indian politics,” said Maria Kuusisto, an analyst at the Eurasia Group, the political risk consultants. “His approach to Pakistan is deeply unpopular, even within his own party, among those who believe Islamabad has done little to tackle terrorism or even to bring the Mumbai perpetrators to justice.”
New Delhi wants to maintain its focus in the talks on efforts to combat terror, Pakistan is eager to broaden the dialogue. India has repeatedly called on Pakistan to crackdown on militant groups like Lashkar-e-Taiba, blamed for the Mumbai attacks and strikes on Indian targets in Afghanistan.
“Things are not going to move forward unless Pakistan gives something over Mumbai,” said, Pramit Pal Chaudhuri, the foreign editor of the Hindustan Times newspaper.
Pakistan, meanwhile, wants to address Kashmir.
The high-level meeting comes just days after India sent the army onto the streets of Kashmir to quell violent anti-government protests that left 15 people dead. India’s overwhelming security presence in Kashmir is deeply resented by locals. One senior Indian minister explained the upsurge in violence as Kashmiris registering their frustration over New Delhi’s complacency towards their grievances in spite of two years of relative calm in the region.
While General Pervez Musharraf was in power in Pakistan, the two neighbours came close to agreeing a resolution to Kashmir. The blueprint was shelved after his fall from office in 2008.
His former ministers say they remain confident that the plans can be revived. “What gives me confidence is that the documents are still sitting in Delhi and Islamabad,” said one.
Since then, Pakistan has faced a widespread militant onslaught by Pakistani Taliban focused on its border with Afghanistan and Punjab, its most populous province. On Thursday, a suicide bomber struck in Mingora in Pakistan’s Swat Valley, killing six people. Mingora had been considered stable after an army campaign last year pushed Taliban fighters from the area.
SM Krishna, India’s foreign minister, and Shah Mahmoud Qureshi, his Pakistani counterpart, met in Islamabad to repair the strained relationship between the two nuclear armed nations set on a knife edge by the ferocious attack on India’s financial capital by Islamist militants.
Mr Krishna, the most senior Indian official to visit Pakistan for two years, has insisted that Pakistan needs to make greater progress towards prosecuting those responsible for the terror attacks that led to a three day stand-off and killed 166 people. He was meeting senior Pakistan officials on Thursday night after which the two sides were expected to issue a joint statement.
Indian commentators view progress over Mumbai as an essential prerequisite to any breakthrough on wider issues, most importantly any discussion about Kashmir, the disputed Himalayan region which lies at the heart of hostilities between two countries that have fought three wars since the end of British rule in 1947.
Manmohan Singh, India’s prime minister, has made rebuilding trust with Pakistan, a central theme of his second term in office. But he is likely to meet strong opposition.
Mr Singh himself has expressed doubts about having a credible negotiating partner in Pakistan that can deliver a lasting peace between the south Asian countries.
“[Mr] Singh is far out in front of Indian politics,” said Maria Kuusisto, an analyst at the Eurasia Group, the political risk consultants. “His approach to Pakistan is deeply unpopular, even within his own party, among those who believe Islamabad has done little to tackle terrorism or even to bring the Mumbai perpetrators to justice.”
New Delhi wants to maintain its focus in the talks on efforts to combat terror, Pakistan is eager to broaden the dialogue. India has repeatedly called on Pakistan to crackdown on militant groups like Lashkar-e-Taiba, blamed for the Mumbai attacks and strikes on Indian targets in Afghanistan.
“Things are not going to move forward unless Pakistan gives something over Mumbai,” said, Pramit Pal Chaudhuri, the foreign editor of the Hindustan Times newspaper.
Pakistan, meanwhile, wants to address Kashmir.
The high-level meeting comes just days after India sent the army onto the streets of Kashmir to quell violent anti-government protests that left 15 people dead. India’s overwhelming security presence in Kashmir is deeply resented by locals. One senior Indian minister explained the upsurge in violence as Kashmiris registering their frustration over New Delhi’s complacency towards their grievances in spite of two years of relative calm in the region.
While General Pervez Musharraf was in power in Pakistan, the two neighbours came close to agreeing a resolution to Kashmir. The blueprint was shelved after his fall from office in 2008.
His former ministers say they remain confident that the plans can be revived. “What gives me confidence is that the documents are still sitting in Delhi and Islamabad,” said one.
Since then, Pakistan has faced a widespread militant onslaught by Pakistani Taliban focused on its border with Afghanistan and Punjab, its most populous province. On Thursday, a suicide bomber struck in Mingora in Pakistan’s Swat Valley, killing six people. Mingora had been considered stable after an army campaign last year pushed Taliban fighters from the area.
Wednesday, July 14, 2010
Indian inflation stays above 10%
Inflation remained stubbornly high in India last month, piling pressure on the central bank to curb rising prices with a second July rate rise when it meets in two weeks.
Wholesale prices had risen 10.55 per cent in June from a year earlier, data released on Wednesday showed, propelled by rising incomes, low agricultural yields and the fast growing domestic economy. Prices rose 10.16 per cent in May.
Manmohan Singh, prime minister, last month publicly acknowledged the pain that high prices were inflicting on the country’s 1.2bn people and promised to ease inflation to 5-6 per cent by the end of the year.
Most economists expect the Reserve Bank of India to raise the benchmark rate by 25 basis points at its policy review on July 27. At the meeting, the RBI will have to take into account a recent fuel price hike and a slump in industrial output growth in May.
The bank raised rates in an unscheduled action this month by a quarter point, its third hike so far this year.
“Indian inflation has been bouncing around 10 to 11 per cent for five months now, and there is a real risk that this will impact inflation expectations and make it even more difficult to get price pressures under control,” said Brian Jackson, senior strategist at the Royal Bank of Canada.
He described rising prices as “an increasingly difficult political issue” for the Congress party-led government, as it pushes for 9 per cent economic growth.
The Bharatiya Janata party, the Hindu nationalist opposition, has criticised the government for pursuing a high-growth strategy at the cost of India’s most vulnerable, who are particularly sensitive to price rises. This month, the opposition staged a protest in central Delhi against high prices.
Some analysts have warned that India is in danger of over-stimulating its economy in the aftermath of the global financial crisis. They are also becoming concerned that the bank’s actions and messages are increasingly inconsistent.
One analyst said the central bank, which is not fully autonomous, appeared to have so many mandates, it was unclear whether it was prioritising fighting inflation as India recovers from the global economic downturn.
India in recent months has been the most aggressive tightener of monetary policy among the G20 leading nations after Australia.
More interest rate rises are on the way. The RBI has said it will take “baby steps” rather than more dramatic action.
Some analysts predict the repo rate, the rate at which the central bank lends to commercial banks, will rise another 75 basis points from the current rate of 5.50 per cent by year-end.
Wholesale prices had risen 10.55 per cent in June from a year earlier, data released on Wednesday showed, propelled by rising incomes, low agricultural yields and the fast growing domestic economy. Prices rose 10.16 per cent in May.
Manmohan Singh, prime minister, last month publicly acknowledged the pain that high prices were inflicting on the country’s 1.2bn people and promised to ease inflation to 5-6 per cent by the end of the year.
Most economists expect the Reserve Bank of India to raise the benchmark rate by 25 basis points at its policy review on July 27. At the meeting, the RBI will have to take into account a recent fuel price hike and a slump in industrial output growth in May.
The bank raised rates in an unscheduled action this month by a quarter point, its third hike so far this year.
“Indian inflation has been bouncing around 10 to 11 per cent for five months now, and there is a real risk that this will impact inflation expectations and make it even more difficult to get price pressures under control,” said Brian Jackson, senior strategist at the Royal Bank of Canada.
He described rising prices as “an increasingly difficult political issue” for the Congress party-led government, as it pushes for 9 per cent economic growth.
The Bharatiya Janata party, the Hindu nationalist opposition, has criticised the government for pursuing a high-growth strategy at the cost of India’s most vulnerable, who are particularly sensitive to price rises. This month, the opposition staged a protest in central Delhi against high prices.
Some analysts have warned that India is in danger of over-stimulating its economy in the aftermath of the global financial crisis. They are also becoming concerned that the bank’s actions and messages are increasingly inconsistent.
One analyst said the central bank, which is not fully autonomous, appeared to have so many mandates, it was unclear whether it was prioritising fighting inflation as India recovers from the global economic downturn.
India in recent months has been the most aggressive tightener of monetary policy among the G20 leading nations after Australia.
More interest rate rises are on the way. The RBI has said it will take “baby steps” rather than more dramatic action.
Some analysts predict the repo rate, the rate at which the central bank lends to commercial banks, will rise another 75 basis points from the current rate of 5.50 per cent by year-end.
Asia Stocks, Commodities Drop on Fed, U.S. Retail Sales, China
July 15 (Bloomberg) -- Asian stocks declined from a three- week high and commodities fell, after the Federal Reserve cut its growth forecast, U.S. retail sales declined and China’s economic growth eased.
The MSCI Asia Pacific Index lost 0.5 percent to 117.15 at 11:37 a.m. in Tokyo. The yield on Korean government bonds slipped from a four-month high. Copper fell 1.4 percent and crude oil slid 0.5 percent. Standard & Poor’s 500 Index futures rose 0.5 percent after the index was little changed yesterday.
The Federal Reserve cut its central forecast for growth this year to a range of 3-to-3.5 percent from 3.2-to-3.7 percent, and sales at U.S. retailers dropped for a second month, falling more than economists estimated. Economic growth in China eased to 11.1 percent in the first half from 11.9 percent in January- March after the government succeeded in tempering credit, investment spending and property speculation.
“It’s hard to eliminate concerns about the future,” said Mitsushige Akino, who oversees about $450 million in assets in Tokyo at Ichiyoshi Investment Management Co. “However, shares have significant upside potential in terms of valuations.”
Two shares fell for every one that gained on the MSCI Asia Pacific Index, which rallied 1.5 percent yesterday to its highest since June 22 after Intel Corp. reported record second- quarter sales and Singapore raised its growth forecast.
Japan’s Nikkei 225 Stock Average dropped 1.1 percent. Mitsubishi Corp., Japan’s biggest commodities trading company, retreated 1. percent in Tokyo.
The Federal Reserve report derailed a six-day rally in U.S. stocks after better-than-estimated profits from Intel Corp. and Alcoa Inc. boosted shares. JPMorgan Chase & Co. and Google Inc. are scheduled to report earnings later today
“The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside,” the Fed said in its minutes. “The changes to the outlook were viewed as relatively modest and as not warranting policy accommodation beyond that already in place.”
The MSCI Asia Pacific Index lost 0.5 percent to 117.15 at 11:37 a.m. in Tokyo. The yield on Korean government bonds slipped from a four-month high. Copper fell 1.4 percent and crude oil slid 0.5 percent. Standard & Poor’s 500 Index futures rose 0.5 percent after the index was little changed yesterday.
The Federal Reserve cut its central forecast for growth this year to a range of 3-to-3.5 percent from 3.2-to-3.7 percent, and sales at U.S. retailers dropped for a second month, falling more than economists estimated. Economic growth in China eased to 11.1 percent in the first half from 11.9 percent in January- March after the government succeeded in tempering credit, investment spending and property speculation.
“It’s hard to eliminate concerns about the future,” said Mitsushige Akino, who oversees about $450 million in assets in Tokyo at Ichiyoshi Investment Management Co. “However, shares have significant upside potential in terms of valuations.”
Two shares fell for every one that gained on the MSCI Asia Pacific Index, which rallied 1.5 percent yesterday to its highest since June 22 after Intel Corp. reported record second- quarter sales and Singapore raised its growth forecast.
Japan’s Nikkei 225 Stock Average dropped 1.1 percent. Mitsubishi Corp., Japan’s biggest commodities trading company, retreated 1. percent in Tokyo.
The Federal Reserve report derailed a six-day rally in U.S. stocks after better-than-estimated profits from Intel Corp. and Alcoa Inc. boosted shares. JPMorgan Chase & Co. and Google Inc. are scheduled to report earnings later today
“The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside,” the Fed said in its minutes. “The changes to the outlook were viewed as relatively modest and as not warranting policy accommodation beyond that already in place.”
Toyota Concedes 2 Flaws Caused Loss of Control
DETROIT — Toyota said Wednesday that its investigation of about 2,000 vehicles reported to experience sudden acceleration found evidence that sticking accelerator pedals and interference by floor mats — the subjects of two big recalls — did indeed cause some of the incidents.
The modified accelerator pedal, left, and the original recalled pedal.
It is the first time since the recalls that Toyota has acknowledged that its internal review, which is continuing, found sudden-acceleration complaints to be valid. The carmaker did not disclose how many of the incidents had been caused by the sticky pedals and floor mats.
The National Highway Traffic Safety Administration has received about 3,000 complaints about sudden acceleration in Toyota vehicles and is conducting its own examination of them. The agency said in a statement on Wednesday that it had reached “no conclusions” about the causes.
A Toyota spokesman, Mike Michels, said the company’s investigation involved inspecting the vehicles and downloading data from onboard recorders if a crash occurred. Mr. Michels said the investigation found sticking accelerator pedals in a small number of vehicles and a larger number with floor mats that interfered with pedals.
He said none of the vehicles with a sticking pedal was involved in a crash, and he did not know how many of those identified as having problematic floor mats had crashed.
The Toyota review pointed to human error in most instances when a vehicle crashed while the driver was trying to brake, Mr. Michels said. Nearly all of the crashes in those instances resulted from “pedal misapplication,” meaning the driver mistakenly pressed the accelerator instead of the brake, he said.
No evidence of malfunctioning electronic throttle systems has been found, Mr. Michels said.
“We’re not implying that everything is driver error, absolutely not,” he said. “But in instances where they reported having their foot on the brake pedal, there is very clear evidence that this is pedal misapplication.”
The Wall Street Journal, citing anonymous sources, reported Tuesday that federal transportation officials had examined event data recorders from dozens of Toyota vehicles and had found open throttles and no evidence of braking. Some media outlets referred to the report as vindication of Toyota, whose supporters had argued that reports of the problems were overblown.
Sean Kane, the president of Safety Research and Strategies, a Massachusetts consulting firm that is working with lawyers suing Toyota, said data recorders that did not show braking were “far from an exoneration of Toyota and its electronics.”
Mr. Kane said that driver error was always assumed to be the cause of at least some of the complaints but that the recorders alone could not prove that a car did not accelerate on its own.
“You can’t ignore the fact that when they move to an electronic throttle control you basically see a fourfold increase in complaints,” Mr. Kane said. He also said the event data recorders rely “on the same sensing system that is unable to detect the failure to begin with,” and is therefore not “an independent witness.”
Toyota has recalled about 8.5 million vehicles worldwide since November to resolve the floor-mat interference and sticking pedal problems. Some vehicles are subject to both recalls. In issuing the recalls, Toyota acknowledged the problems, but it had not conducted as thorough a review of the complaints.
After the recalls were announced, regulators were flooded with more complaints from drivers who say their Toyota or Lexus accelerated suddenly, or from family members of crash victims alleging a defect was responsible.
The complaints attribute 93 deaths to sudden acceleration by one of the Japanese carmaker’s vehicles. The government ordered Toyota to pay a record $16.4 million fine for waiting too long to initiate a recall after learning that its accelerator pedals contained a defect.
The N.H.T.S.A. is working with the National Academy of Sciences and the National Aeronautics and Space Administration to investigate causes of the sudden acceleration reports. The agency received 10 machines capable of interpreting Toyota’s vehicles’ data recorders from the carmaker, but the recorders typically are activated only when the vehicle’s air bag deploys.
Toyota has in various court cases argued against using data from the recorders as reliable sources of evidence. Mr. Michels acknowledged the technology to be “in development” but said it was “maturing” and did provide valuable information.
“What we’re finding is that the E.D.R.’s information is consistent with everything else that is known or determined about the incident,” he said.
The widespread attention given to Toyota’s issues with sudden acceleration has prompted many of the affected vehicles’ owners to have repairs performed more quickly than recalls are usually performed.
Mr. Michels said dealers had fixed nearly 80 percent of the 2.3 million vehicles in the United States included in the sticking pedal recall and about half of the 5.4 million recalled for their floor mats. The carmaker has yet to announce repair procedures for some of the models in the floor-mat recall, including the high-volume Corolla compact sedan.
The modified accelerator pedal, left, and the original recalled pedal.
It is the first time since the recalls that Toyota has acknowledged that its internal review, which is continuing, found sudden-acceleration complaints to be valid. The carmaker did not disclose how many of the incidents had been caused by the sticky pedals and floor mats.
The National Highway Traffic Safety Administration has received about 3,000 complaints about sudden acceleration in Toyota vehicles and is conducting its own examination of them. The agency said in a statement on Wednesday that it had reached “no conclusions” about the causes.
A Toyota spokesman, Mike Michels, said the company’s investigation involved inspecting the vehicles and downloading data from onboard recorders if a crash occurred. Mr. Michels said the investigation found sticking accelerator pedals in a small number of vehicles and a larger number with floor mats that interfered with pedals.
He said none of the vehicles with a sticking pedal was involved in a crash, and he did not know how many of those identified as having problematic floor mats had crashed.
The Toyota review pointed to human error in most instances when a vehicle crashed while the driver was trying to brake, Mr. Michels said. Nearly all of the crashes in those instances resulted from “pedal misapplication,” meaning the driver mistakenly pressed the accelerator instead of the brake, he said.
No evidence of malfunctioning electronic throttle systems has been found, Mr. Michels said.
“We’re not implying that everything is driver error, absolutely not,” he said. “But in instances where they reported having their foot on the brake pedal, there is very clear evidence that this is pedal misapplication.”
The Wall Street Journal, citing anonymous sources, reported Tuesday that federal transportation officials had examined event data recorders from dozens of Toyota vehicles and had found open throttles and no evidence of braking. Some media outlets referred to the report as vindication of Toyota, whose supporters had argued that reports of the problems were overblown.
Sean Kane, the president of Safety Research and Strategies, a Massachusetts consulting firm that is working with lawyers suing Toyota, said data recorders that did not show braking were “far from an exoneration of Toyota and its electronics.”
Mr. Kane said that driver error was always assumed to be the cause of at least some of the complaints but that the recorders alone could not prove that a car did not accelerate on its own.
“You can’t ignore the fact that when they move to an electronic throttle control you basically see a fourfold increase in complaints,” Mr. Kane said. He also said the event data recorders rely “on the same sensing system that is unable to detect the failure to begin with,” and is therefore not “an independent witness.”
Toyota has recalled about 8.5 million vehicles worldwide since November to resolve the floor-mat interference and sticking pedal problems. Some vehicles are subject to both recalls. In issuing the recalls, Toyota acknowledged the problems, but it had not conducted as thorough a review of the complaints.
After the recalls were announced, regulators were flooded with more complaints from drivers who say their Toyota or Lexus accelerated suddenly, or from family members of crash victims alleging a defect was responsible.
The complaints attribute 93 deaths to sudden acceleration by one of the Japanese carmaker’s vehicles. The government ordered Toyota to pay a record $16.4 million fine for waiting too long to initiate a recall after learning that its accelerator pedals contained a defect.
The N.H.T.S.A. is working with the National Academy of Sciences and the National Aeronautics and Space Administration to investigate causes of the sudden acceleration reports. The agency received 10 machines capable of interpreting Toyota’s vehicles’ data recorders from the carmaker, but the recorders typically are activated only when the vehicle’s air bag deploys.
Toyota has in various court cases argued against using data from the recorders as reliable sources of evidence. Mr. Michels acknowledged the technology to be “in development” but said it was “maturing” and did provide valuable information.
“What we’re finding is that the E.D.R.’s information is consistent with everything else that is known or determined about the incident,” he said.
The widespread attention given to Toyota’s issues with sudden acceleration has prompted many of the affected vehicles’ owners to have repairs performed more quickly than recalls are usually performed.
Mr. Michels said dealers had fixed nearly 80 percent of the 2.3 million vehicles in the United States included in the sticking pedal recall and about half of the 5.4 million recalled for their floor mats. The carmaker has yet to announce repair procedures for some of the models in the floor-mat recall, including the high-volume Corolla compact sedan.
Monday, July 12, 2010
Infosys First-Quarter Profit Falls, Missing Analyst Estimates
July 13 (Bloomberg) -- Infosys Technologies Ltd., India’s second-largest software exporter, reported lower first-quarter profit after it cut prices to retain contracts.
Net income fell 2.6 percent to 14.9 billion rupees ($318.5 million) in the three months ended June 30, from 15.3 billion rupees a year earlier, Bangalore-based Infosys said today. That compared with the 15.6 billion rupee average of 25 analyst estimates compiled by Bloomberg.
Chief Executive Officer S. Gopalakrishnan cut prices to retain and win business from customers in the U.S. and Europe including Alstom SA, the maker of Amtrak’s Acela high-speed trains, and Microsoft Corp. The euro’s 6.3 percent decline against the rupee in three months to June 30 dragged down the value of sales in Europe, which accounts for about 20 percent of Infosys’s business.
“Naturally, there’s going to be some negative impact on all exporters from unfavorable currents in currency,” Jayesh Shroff, who manages about $1.4 billion in equities at SBI Funds Management in Mumbai, said before the announcement. “It has nothing to do with the fundamentals of the software export business. We’re seeing strong global demand for IT services, so we have a generally positive outlook on the industry.”
The weakness of the euro, which has lost about 12 percent against the rupee this year, and ripples from the Greek debt crisis will result in a 12 to 15 percent loss in income for the Europe-based business of Indian IT vendors, according to estimates from Forrester Research, Inc. in Cambridge, Massachusetts.
Net income fell 2.6 percent to 14.9 billion rupees ($318.5 million) in the three months ended June 30, from 15.3 billion rupees a year earlier, Bangalore-based Infosys said today. That compared with the 15.6 billion rupee average of 25 analyst estimates compiled by Bloomberg.
Chief Executive Officer S. Gopalakrishnan cut prices to retain and win business from customers in the U.S. and Europe including Alstom SA, the maker of Amtrak’s Acela high-speed trains, and Microsoft Corp. The euro’s 6.3 percent decline against the rupee in three months to June 30 dragged down the value of sales in Europe, which accounts for about 20 percent of Infosys’s business.
“Naturally, there’s going to be some negative impact on all exporters from unfavorable currents in currency,” Jayesh Shroff, who manages about $1.4 billion in equities at SBI Funds Management in Mumbai, said before the announcement. “It has nothing to do with the fundamentals of the software export business. We’re seeing strong global demand for IT services, so we have a generally positive outlook on the industry.”
The weakness of the euro, which has lost about 12 percent against the rupee this year, and ripples from the Greek debt crisis will result in a 12 to 15 percent loss in income for the Europe-based business of Indian IT vendors, according to estimates from Forrester Research, Inc. in Cambridge, Massachusetts.
China Stocks Fall Most in Two Weeks as Loan Curbs Maintained
July 13 (Bloomberg) -- China’s stocks fell, with the benchmark index declining the most in two weeks, after the government quashed speculation it will abandon real-estate curbs that drove property prices to snap 15 months of gains.
China Vanke Co. and Bank of China Ltd. dropped among developers and lenders after the government said it will “strictly” enforce housing policies to prevent speculative real estate investment. Jiangxi Copper Co. slid 2.8 percent, ending five days of gains, while China Shenhua Energy Co. retreated 2.4 percent.
“The government isn’t likely to relax tightening measures as it wants to transform the country’s growth model to focus on consumption rather than investment,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 29.73, or 1.2 percent, to 2,460.99 as of 10:27 a.m., the most since June 29. The CSI 300 Index fell 1.4 percent to 2,638.42.
The Shanghai Composite jumped 3.7 percent last week, the most this year, on speculation the government will adopt a looser monetary policy. The gauge has slumped 25 percent in 2010, making it Asia’s worst performer, on concern government efforts to curb inflation and property speculation will slow the economy.
China’s property prices fell 0.1 percent in June from the previous month, ending 15 months of gains, statistics bureau data showed yesterday. New lending of 603 billion yuan ($89 billion) last month was the least in three months, the central bank said July 11.
The Ministry of Housing and Urban-Rural Development reiterated that it will maintain curbs on speculative purchases and increase market supply. The statement was in response to media reports that said China may abandon its current property policies, it said.
Bank Regulator
China’s banking regulator also said it has made no changes to policies on home loans, according to a statement posted late yesterday to the website of the China Banking Regulatory Commission. The regulator called on commercial banks to strictly enforce home loan rules, it said.
Vanke, the nation’s biggest developer, fell 1.8 percent to 7.50 yuan. Price cuts by Vanke have been among signs the market is cooling as the government cracks down on speculation. Poly Real Estate Group Co., the second largest, dropped 2.6 percent to 11.53 yuan.
A measure of property stocks on the Shanghai Composite slumped 2.4 percent, the most among the five industry groups. The real-estate gauge jumped 2.6 percent yesterday after the Southern Metropolis Daily reported China may loosen limitations on third-home loans as the curbs reaped their intended effects on the real estate market. Some Chinese banks have eased standards for mortgage lending, at least on a case-by-case basis, according to Credit Suisse Group AG in a report yesterday.
Bank of China retreated 1.4 percent to 3.52 yuan. Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender lost 0.7 percent to 4.27 yuan.
Shanghai Banks
Shanghai-based commercial banks have maintained second-home loan curb policies, the Shanghai Banking Association said yesterday. It has not loosened the measures, it said. The Oriental Morning Post reported July 8 that some commercial banks based in the city have eased policies for second-home buyers.
Harvard University professor Kenneth Rogoff said July 6 that a “collapse” in real estate is beginning, while Barclays Capital forecasts prices may fall as much as 30 percent in the next 12 months.
Jiangxi Copper, China’s biggest producer of the metal, slid 2.8 percent to 24.60 yuan, snapping a five-day, 13 percent rally. China Shenhua Energy retreated 2.4 percent to 21.73 yuan.
Zinc declined 1.4 percent on the London Metal Exchange, reversing a gain of 0.5 percent, while copper and aluminum trimmed their advance.
China doesn’t plan to delay or suspend initial share sales in Shanghai or Shenzhen, the China Securities Journal said, citing an unidentified official at the China Securities Regulatory Commission. The comments refute media reports saying China is considering suspending new IPOs to stem further declines in the stock market, it said.
Agricultural Bank of China Ltd., which begins trading in Shanghai on July 15 and in Hong Kong the day after, raised $19.2 billion in the world’s biggest initial public offering in four years.
China Vanke Co. and Bank of China Ltd. dropped among developers and lenders after the government said it will “strictly” enforce housing policies to prevent speculative real estate investment. Jiangxi Copper Co. slid 2.8 percent, ending five days of gains, while China Shenhua Energy Co. retreated 2.4 percent.
“The government isn’t likely to relax tightening measures as it wants to transform the country’s growth model to focus on consumption rather than investment,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 29.73, or 1.2 percent, to 2,460.99 as of 10:27 a.m., the most since June 29. The CSI 300 Index fell 1.4 percent to 2,638.42.
The Shanghai Composite jumped 3.7 percent last week, the most this year, on speculation the government will adopt a looser monetary policy. The gauge has slumped 25 percent in 2010, making it Asia’s worst performer, on concern government efforts to curb inflation and property speculation will slow the economy.
China’s property prices fell 0.1 percent in June from the previous month, ending 15 months of gains, statistics bureau data showed yesterday. New lending of 603 billion yuan ($89 billion) last month was the least in three months, the central bank said July 11.
The Ministry of Housing and Urban-Rural Development reiterated that it will maintain curbs on speculative purchases and increase market supply. The statement was in response to media reports that said China may abandon its current property policies, it said.
Bank Regulator
China’s banking regulator also said it has made no changes to policies on home loans, according to a statement posted late yesterday to the website of the China Banking Regulatory Commission. The regulator called on commercial banks to strictly enforce home loan rules, it said.
Vanke, the nation’s biggest developer, fell 1.8 percent to 7.50 yuan. Price cuts by Vanke have been among signs the market is cooling as the government cracks down on speculation. Poly Real Estate Group Co., the second largest, dropped 2.6 percent to 11.53 yuan.
A measure of property stocks on the Shanghai Composite slumped 2.4 percent, the most among the five industry groups. The real-estate gauge jumped 2.6 percent yesterday after the Southern Metropolis Daily reported China may loosen limitations on third-home loans as the curbs reaped their intended effects on the real estate market. Some Chinese banks have eased standards for mortgage lending, at least on a case-by-case basis, according to Credit Suisse Group AG in a report yesterday.
Bank of China retreated 1.4 percent to 3.52 yuan. Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender lost 0.7 percent to 4.27 yuan.
Shanghai Banks
Shanghai-based commercial banks have maintained second-home loan curb policies, the Shanghai Banking Association said yesterday. It has not loosened the measures, it said. The Oriental Morning Post reported July 8 that some commercial banks based in the city have eased policies for second-home buyers.
Harvard University professor Kenneth Rogoff said July 6 that a “collapse” in real estate is beginning, while Barclays Capital forecasts prices may fall as much as 30 percent in the next 12 months.
Jiangxi Copper, China’s biggest producer of the metal, slid 2.8 percent to 24.60 yuan, snapping a five-day, 13 percent rally. China Shenhua Energy retreated 2.4 percent to 21.73 yuan.
Zinc declined 1.4 percent on the London Metal Exchange, reversing a gain of 0.5 percent, while copper and aluminum trimmed their advance.
China doesn’t plan to delay or suspend initial share sales in Shanghai or Shenzhen, the China Securities Journal said, citing an unidentified official at the China Securities Regulatory Commission. The comments refute media reports saying China is considering suspending new IPOs to stem further declines in the stock market, it said.
Agricultural Bank of China Ltd., which begins trading in Shanghai on July 15 and in Hong Kong the day after, raised $19.2 billion in the world’s biggest initial public offering in four years.
India’s fierce battle for control of Ulips
It was the kind of thing rarely seen in Indian bureaucracy. Two normally restrained financial industry regulators engaged in such a fierce public battle that the matter went to court.
The combatants were the Securities and Exchange Board of India, the capital markets regulator, and the Insurance Regulatory and Development Authority, the insurance watchdog. The fight was over who should have jurisdiction over one of India’s most common investment products – unit-linked insurance products. Sebi argued insurers were selling mutual funds dressed up as insurance with high fees. Irda rejected the argument.
In June, the finance ministry stepped in. It gave Irda control over Ulips – policies that offer life insurance cover as well as the upside from investments in underlying stocks or bonds – but on the condition that the terms of the products were tightened up to reduce fees.
“Life insurance business shall include any unit linked insurance policy or scripts or any such instruments. This would set at rest issues regarding Ulips between two financial regulators,” the finance ministry said in a statement.
The battle has been one of the most closely watched in the financial industry for years. Insurers generate more than half of their premium collections from the sale of new Ulips. According to the Life Insurance Council, India’s life insurance industry is valued at $41bn (£27bn, €33bn). More importantly for foreign investors, it is growing at a rate of 32-34 per cent a year.
The confrontation between the regulators has its roots in a move by Sebi in August last year to abolish “entry load” on mutual funds – fees paid by equity funds to their distributors.
Formerly, mutual funds would charge investors up to 2.25 per cent entry load. The asset management company would also pay an additional 50-100 basis points to distributors as a form of commission.
These distributors include banks as well as thousands of individual agents who go door to door selling funds. Sebi said it was abolishing the entry load on the basis that distributors should earn their fees directly from investors in return for advice. This left distributors looking for other sources of income.
For many, Ulips provided a viable alternative. Insurers were charging upfront fees of up to 40 per cent on first-year premiums for Ulips, a significant portion of which would be passed on to the distributors, often 10-12 percentage points.
But in January, Sebi moved to bring Ulips under its control by sending a notice to all life insurance companies asking them to explain why they had not sought its approval before selling Ulips. Sebi argued that the structure of Ulips, with their underlying investments in equities and bonds, resembled an investment product more than an insurance product and therefore should come under its jurisdiction as the stock market watchdog.
In April, Sebi escalated the confrontation by issuing a notice banning 14 life insurance firms from offering new Ulip schemes.
Irda told the life insurers to ignore the Sebi order. The issue went to the courts until the finance ministry intervened on the side of Irda.
Although Sebi was not able to wrest regulatory control of Ulips from the insurance regulator, since the Sebi notice in April, Irda has introduced a succession of regulatory changes to Ulips, most of which are aimed at enlarging the policies’ insurance components. The most recent was introduced by Irda last month [on June 28] following the finance ministry’s ordinance.
Among the changes, Irda has capped commissions to distributors at 4 per cent in the first year from September 1, increased the lock-in period for Ulips from three to five years and required minimum annualised returns of 4.5 per cent. The minimum sum insured must be 10 times the premium compared with five times earlier.
Like Sebi’s abolition of entry load on mutual funds in August last year, the new regulations have upset the insurance industry. They say the lower commissions mean distributors will have no incentive to sell Ulips with annual premiums of below Rs20,000 (£281, $426, €339) a year. These represent about half the market and mean lower income earners will not have access to the product.
“This is going to really be a huge hit for the industry,” Kamesh Goyal, chief executive of joint venture Bajaj Allianz Life Insurance Company said on Indian television.
Brokerages have already begun downgrading the targets for listed insurance firms. “We cut volumes to flat in financial year 2011 (from 10-15 per cent) due to new norms, and cut valuations by 5-10 per cent for insurance companies,” said UBS in a research note.
Mutual fund managers are naturally pleased with the changes. They argued that before the new norms, the playing field had been tilted in the favour of Ulips and the insurance companies. The new regulations favoured investors.
“The measures introduced over the past few months should result in an increase in the insurance component of Ulips and lower costs, making them more investor friendly,” says Vivek Kudva, managing director, India and Ceemea (central and eastern Europe, Middle East and Africa), Franklin Templeton Investments. Insurers, however, are not giving up. V. Srinivasan, chief financial officer with Bharti Axa Life, says the industry plans to lobby Irda further.
“We’ve been running this regime of 40 per cent upfront commission for the last 10 years and on that basis we have built a huge workforce across the country. We can’t just undo this in two months time,” Mr Srinivasan says.
The combatants were the Securities and Exchange Board of India, the capital markets regulator, and the Insurance Regulatory and Development Authority, the insurance watchdog. The fight was over who should have jurisdiction over one of India’s most common investment products – unit-linked insurance products. Sebi argued insurers were selling mutual funds dressed up as insurance with high fees. Irda rejected the argument.
In June, the finance ministry stepped in. It gave Irda control over Ulips – policies that offer life insurance cover as well as the upside from investments in underlying stocks or bonds – but on the condition that the terms of the products were tightened up to reduce fees.
“Life insurance business shall include any unit linked insurance policy or scripts or any such instruments. This would set at rest issues regarding Ulips between two financial regulators,” the finance ministry said in a statement.
The battle has been one of the most closely watched in the financial industry for years. Insurers generate more than half of their premium collections from the sale of new Ulips. According to the Life Insurance Council, India’s life insurance industry is valued at $41bn (£27bn, €33bn). More importantly for foreign investors, it is growing at a rate of 32-34 per cent a year.
The confrontation between the regulators has its roots in a move by Sebi in August last year to abolish “entry load” on mutual funds – fees paid by equity funds to their distributors.
Formerly, mutual funds would charge investors up to 2.25 per cent entry load. The asset management company would also pay an additional 50-100 basis points to distributors as a form of commission.
These distributors include banks as well as thousands of individual agents who go door to door selling funds. Sebi said it was abolishing the entry load on the basis that distributors should earn their fees directly from investors in return for advice. This left distributors looking for other sources of income.
For many, Ulips provided a viable alternative. Insurers were charging upfront fees of up to 40 per cent on first-year premiums for Ulips, a significant portion of which would be passed on to the distributors, often 10-12 percentage points.
But in January, Sebi moved to bring Ulips under its control by sending a notice to all life insurance companies asking them to explain why they had not sought its approval before selling Ulips. Sebi argued that the structure of Ulips, with their underlying investments in equities and bonds, resembled an investment product more than an insurance product and therefore should come under its jurisdiction as the stock market watchdog.
In April, Sebi escalated the confrontation by issuing a notice banning 14 life insurance firms from offering new Ulip schemes.
Irda told the life insurers to ignore the Sebi order. The issue went to the courts until the finance ministry intervened on the side of Irda.
Although Sebi was not able to wrest regulatory control of Ulips from the insurance regulator, since the Sebi notice in April, Irda has introduced a succession of regulatory changes to Ulips, most of which are aimed at enlarging the policies’ insurance components. The most recent was introduced by Irda last month [on June 28] following the finance ministry’s ordinance.
Among the changes, Irda has capped commissions to distributors at 4 per cent in the first year from September 1, increased the lock-in period for Ulips from three to five years and required minimum annualised returns of 4.5 per cent. The minimum sum insured must be 10 times the premium compared with five times earlier.
Like Sebi’s abolition of entry load on mutual funds in August last year, the new regulations have upset the insurance industry. They say the lower commissions mean distributors will have no incentive to sell Ulips with annual premiums of below Rs20,000 (£281, $426, €339) a year. These represent about half the market and mean lower income earners will not have access to the product.
“This is going to really be a huge hit for the industry,” Kamesh Goyal, chief executive of joint venture Bajaj Allianz Life Insurance Company said on Indian television.
Brokerages have already begun downgrading the targets for listed insurance firms. “We cut volumes to flat in financial year 2011 (from 10-15 per cent) due to new norms, and cut valuations by 5-10 per cent for insurance companies,” said UBS in a research note.
Mutual fund managers are naturally pleased with the changes. They argued that before the new norms, the playing field had been tilted in the favour of Ulips and the insurance companies. The new regulations favoured investors.
“The measures introduced over the past few months should result in an increase in the insurance component of Ulips and lower costs, making them more investor friendly,” says Vivek Kudva, managing director, India and Ceemea (central and eastern Europe, Middle East and Africa), Franklin Templeton Investments. Insurers, however, are not giving up. V. Srinivasan, chief financial officer with Bharti Axa Life, says the industry plans to lobby Irda further.
“We’ve been running this regime of 40 per cent upfront commission for the last 10 years and on that basis we have built a huge workforce across the country. We can’t just undo this in two months time,” Mr Srinivasan says.
Sunday, July 11, 2010
Yen Weakens Against Euro on Japan Elections; Exporters Gain
July 12 (Bloomberg) -- The yen fell on concern efforts to cut Japan’s public debt will be undermined after the ruling party lost control of the upper house. Most Asian stocks rose, led by Japanese exporters and commodity producers.
The yen weakened against all 16 of its most-active counterparts at 11:28 a.m. in Tokyo, sliding to 112.23 per euro from 112.01 in New York on July 9. The MSCI Asia Pacific Index was little changed at 116.07, following a two-day, 2.6 percent rally. Standard & Poor’s 500 Index futures slipped 0.2 percent.
The Democratic Party of Japan won 44 seats in the upper house in yesterday’s elections, less than the opposition Liberal Democratic Party’s 51 seats, making it less likely that Prime Minister Naoto Kan will be able to raise the sales tax to cut the world’s largest public debt. Stocks fluctuated ahead of the start of the U.S. second-quarter earnings season, with S&P 500 companies projected to post profit gains of 34 percent, according to analysts’ estimates compiled by Bloomberg.
“The yen could actually weaken because there’s going to continued spending by the government and there’s going to be a delay in the consumption tax hike,” Curtis Freeze, chairman of Honolulu-based Prospect Asset Management Inc. with about $1 billion in assets, said in a Bloomberg Television interview. “Earnings are the key but it’s going to be very company specific.”
Four stocks rose for every three that fell among the MSCI index’s 985 members, with a measure tracking materials stocks posting the biggest gain among 10 industry groups. The Nikkei 225 Stock Average climbed 0.1 percent, a third day of gains.
Honda, Sony
Honda Motor Co. jumped 2.8 percent and Sony Corp. rallied 3.6 percent as the yen fell to as weak as 89.16 per dollar, the least since June 29, from 88.62 last week. The Japanese currency also weakened before reports this week that are forecast to show a rise in European industrial production and a drop in U.S. initial jobless claims.
“With extreme worries about the fate of the global economy easing, risk aversion is also weakening,” said Tomohiro Nishida, a Tokyo-based foreign-currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “The recent bout of yen buying, driven by strong risk aversion, seems to be running out of steam.”
Commodity-related stocks rallied, with Rio Tinto Group rising 1.3 percent and Nippon Steel Corp., Japan’s largest steelmaker, surging 3.3 percent. Alcoa Inc., the first company in the Dow Jones Industrial Average to report second-quarter earnings, will post a profit for the first time in three quarters, according to analyst estimates compiled by Bloomberg.
Three-month copper futures fell as much as 0.6 percent to $6,720 a metric ton on the London Metal Exchange after a customs office report showed that imports by China, the largest user, dropped for a third month in June. A report also showed China, the world’s second-biggest energy consumer, increased crude imports to a record in June, helping to drive a fourth day of gains in crude. Oil gained 0.2 percent to $76.24 in New York.
The yen weakened against all 16 of its most-active counterparts at 11:28 a.m. in Tokyo, sliding to 112.23 per euro from 112.01 in New York on July 9. The MSCI Asia Pacific Index was little changed at 116.07, following a two-day, 2.6 percent rally. Standard & Poor’s 500 Index futures slipped 0.2 percent.
The Democratic Party of Japan won 44 seats in the upper house in yesterday’s elections, less than the opposition Liberal Democratic Party’s 51 seats, making it less likely that Prime Minister Naoto Kan will be able to raise the sales tax to cut the world’s largest public debt. Stocks fluctuated ahead of the start of the U.S. second-quarter earnings season, with S&P 500 companies projected to post profit gains of 34 percent, according to analysts’ estimates compiled by Bloomberg.
“The yen could actually weaken because there’s going to continued spending by the government and there’s going to be a delay in the consumption tax hike,” Curtis Freeze, chairman of Honolulu-based Prospect Asset Management Inc. with about $1 billion in assets, said in a Bloomberg Television interview. “Earnings are the key but it’s going to be very company specific.”
Four stocks rose for every three that fell among the MSCI index’s 985 members, with a measure tracking materials stocks posting the biggest gain among 10 industry groups. The Nikkei 225 Stock Average climbed 0.1 percent, a third day of gains.
Honda, Sony
Honda Motor Co. jumped 2.8 percent and Sony Corp. rallied 3.6 percent as the yen fell to as weak as 89.16 per dollar, the least since June 29, from 88.62 last week. The Japanese currency also weakened before reports this week that are forecast to show a rise in European industrial production and a drop in U.S. initial jobless claims.
“With extreme worries about the fate of the global economy easing, risk aversion is also weakening,” said Tomohiro Nishida, a Tokyo-based foreign-currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “The recent bout of yen buying, driven by strong risk aversion, seems to be running out of steam.”
Commodity-related stocks rallied, with Rio Tinto Group rising 1.3 percent and Nippon Steel Corp., Japan’s largest steelmaker, surging 3.3 percent. Alcoa Inc., the first company in the Dow Jones Industrial Average to report second-quarter earnings, will post a profit for the first time in three quarters, according to analyst estimates compiled by Bloomberg.
Three-month copper futures fell as much as 0.6 percent to $6,720 a metric ton on the London Metal Exchange after a customs office report showed that imports by China, the largest user, dropped for a third month in June. A report also showed China, the world’s second-biggest energy consumer, increased crude imports to a record in June, helping to drive a fourth day of gains in crude. Oil gained 0.2 percent to $76.24 in New York.
China’s Property-Price Gains Slow for Second Month
July 12 (Bloomberg) -- China’s property prices rose at a slower pace for a second month after April’s record gain as the government cracked down on speculation, damping home sales in a bid to avert asset bubbles.
Prices in 70 cities rose 11.4 percent in June from a year earlier, according to a report today in the statistic bureau’s newspaper, China Information News. That compared with 12.8 percent in April and 12.4 percent in May.
Property prices slid 0.1 percent in June from the previous month, adding to signs that growth is moderating in the world’s third-biggest economy. Harvard University professor Kenneth Rogoff said July 6 that a “collapse” in real estate is beginning, while Barclays Capital forecasts prices may fall as much as 30 percent in the next 12 months.
“Chinese authorities appear very determined in regulating the property sector and policies are unlikely to reverse,” Peng Wensheng, the Hong Kong-based head of China research for Barclays, said before today’s release. “Price corrections are inevitable and that’s what the government would like to see.”
The value of property sales rose 25.4 percent in the first half of the year to 1.98 trillion yuan ($292 billion), slowing from the 38.4 percent gain in the first five months, today’s report showed.
Poly, China Vanke
China Vanke Co., the nation’s biggest listed developer, has cut prices and Guangzhou-based developer Poly Real Estate Group Co. reported slower first-half sales growth. A Shanghai stock index tracking 34 real-estate companies has tumbled about 28 percent this year, the worst performer among five industry groupings.
A slide in Chinese stocks this year highlights investors’ concern that the economy may slow excessively as the government trims stimulus measures and Europe’s sovereign-debt crisis threatens export demand.
The statistics bureau is due to announce second- quarter gross domestic product on July 15 after the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Goldman Sachs Group Inc. this month cut its forecast for full-year growth to 10.1 percent from 11.4 percent.
Cooling Speculation
Authorities intensified a crackdown on property speculation in April. Besides raising minimum mortgage rates and down-payment ratios for some home purchases, the government has pledged to boost land supply and the construction of low-cost public homes. Officials may also trial a property tax, according to state media.
Investment in real-estate development rose 38.1 percent to 1.97 trillion yuan in the first half of this year, almost the same as the gain in the January-May period, the newspaper said today. Sales by floor area increased 15.4 percent to 394 million square meters (4.24 billion square feet), it said. That compares with a 22.5 percent gain in the first five months.
Land Minister Xu Shaoshi said property prices will likely have an “overall” correction in about three months, the Securities Times reported July 5. In a meeting the previous day, Xu said authorities will continue to “actively conduct macro controls” on the property sector and also investigate land hoarding, according to a statement on the ministry’s website.
Extra Intensity
Xu’s comments indicate China will “intensify” the enforcement of land policies in the second half of the year rather than reverse them, UBS AG wrote in a July 8 note.
In Shanghai, new-home sales fell 57 percent in the first half, Shanghai Uwin Real Estate Information Services Co. said July 7. In Beijing, the decline was 44 percent from a year earlier, property research firm China Index Academy said July 2.
“This time around, Chinese policy makers are not simply curbing an overheating property sector, they aim for fundamental changes that will help to prevent more bumpy corrections in the future,” said Barclay’s Peng.
Property investment accounts for about 10 percent of gross domestic product and construction consumes half of the nation’s output of steel and 36 percent of the aluminum that it makes, JPMorgan Chase & Co. estimates.
Home prices are set to fall as much as 20 percent in a “healthy” correction, Michael Klibaner, head of China research at property broker Jones Lang LaSalle Inc., said July 7. The property boom has been driven by cash rather than debt, meaning there’s little chance of the forced selling that exacerbated the U.S. housing market collapse, he said.
Prices in 70 cities rose 11.4 percent in June from a year earlier, according to a report today in the statistic bureau’s newspaper, China Information News. That compared with 12.8 percent in April and 12.4 percent in May.
Property prices slid 0.1 percent in June from the previous month, adding to signs that growth is moderating in the world’s third-biggest economy. Harvard University professor Kenneth Rogoff said July 6 that a “collapse” in real estate is beginning, while Barclays Capital forecasts prices may fall as much as 30 percent in the next 12 months.
“Chinese authorities appear very determined in regulating the property sector and policies are unlikely to reverse,” Peng Wensheng, the Hong Kong-based head of China research for Barclays, said before today’s release. “Price corrections are inevitable and that’s what the government would like to see.”
The value of property sales rose 25.4 percent in the first half of the year to 1.98 trillion yuan ($292 billion), slowing from the 38.4 percent gain in the first five months, today’s report showed.
Poly, China Vanke
China Vanke Co., the nation’s biggest listed developer, has cut prices and Guangzhou-based developer Poly Real Estate Group Co. reported slower first-half sales growth. A Shanghai stock index tracking 34 real-estate companies has tumbled about 28 percent this year, the worst performer among five industry groupings.
A slide in Chinese stocks this year highlights investors’ concern that the economy may slow excessively as the government trims stimulus measures and Europe’s sovereign-debt crisis threatens export demand.
The statistics bureau is due to announce second- quarter gross domestic product on July 15 after the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Goldman Sachs Group Inc. this month cut its forecast for full-year growth to 10.1 percent from 11.4 percent.
Cooling Speculation
Authorities intensified a crackdown on property speculation in April. Besides raising minimum mortgage rates and down-payment ratios for some home purchases, the government has pledged to boost land supply and the construction of low-cost public homes. Officials may also trial a property tax, according to state media.
Investment in real-estate development rose 38.1 percent to 1.97 trillion yuan in the first half of this year, almost the same as the gain in the January-May period, the newspaper said today. Sales by floor area increased 15.4 percent to 394 million square meters (4.24 billion square feet), it said. That compares with a 22.5 percent gain in the first five months.
Land Minister Xu Shaoshi said property prices will likely have an “overall” correction in about three months, the Securities Times reported July 5. In a meeting the previous day, Xu said authorities will continue to “actively conduct macro controls” on the property sector and also investigate land hoarding, according to a statement on the ministry’s website.
Extra Intensity
Xu’s comments indicate China will “intensify” the enforcement of land policies in the second half of the year rather than reverse them, UBS AG wrote in a July 8 note.
In Shanghai, new-home sales fell 57 percent in the first half, Shanghai Uwin Real Estate Information Services Co. said July 7. In Beijing, the decline was 44 percent from a year earlier, property research firm China Index Academy said July 2.
“This time around, Chinese policy makers are not simply curbing an overheating property sector, they aim for fundamental changes that will help to prevent more bumpy corrections in the future,” said Barclay’s Peng.
Property investment accounts for about 10 percent of gross domestic product and construction consumes half of the nation’s output of steel and 36 percent of the aluminum that it makes, JPMorgan Chase & Co. estimates.
Home prices are set to fall as much as 20 percent in a “healthy” correction, Michael Klibaner, head of China research at property broker Jones Lang LaSalle Inc., said July 7. The property boom has been driven by cash rather than debt, meaning there’s little chance of the forced selling that exacerbated the U.S. housing market collapse, he said.
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