NEW DELHI/ DAVOS: U K Sinha, UTI Asset Management Company chairman and managing director, is set to be the new chairman of the Securities & Exchange Board of India (Sebi) with Prime Minister Manmohan Singh clearing his appointment. Sources involved with the appointment told TOI that the government would notify his appointment early next week. The present Sebi chairman C B Bhave's three-year term is due to end next month. It is unclear if Sinha will get a three-year term or a five-year term.
Sinha will be the sixth Sebi chairman since the regulatory agency was set up through a law in 1992. The former Indian Administrative Service Officer has been associated with the capital markets sector for a decade now, having first worked as a joint secretary in the finance ministry before moving to take over the reins of UTI.
Apart from dealing with cleaning up the sector in the aftermath of the 2001 stock scam, Sinha was one of the main architects of revamping UTI which went under due to commitment to offer assured return schemes and wrong investment decisions. Apart from the bailout, the government split the erstwhile Unit Trust of India into two entities, one dealing with the assured return schemes while the rest moved to what is now UTI AMC.
In addition, Sinha has been involved with preparing the roadmap for developing the bond market, something that he would be associated with once he moves across the road from the UTI headquarters in Mumbai's Bandra Kurla Complex to the Sebi head office.
State Bank of India chairman O P Bhatt says it's one area that needs urgent attention. But Bhatt is not alone. In the absence of a well-developed bond market, developers of long-gestation projects have to rely on bank funding, creating pressure on the system. Hero Corporate Services chairman Sunil Munjal adds further techonological development to the list. In addition he says that Sebi should clear the air on entry of new players in the stock exchanges business. The area has become a big controversy, especially in the wake of the Bimal Jalan committee report which among other things has proposed a cap on profits and restrictions on listing. That will be one of the first few things on the table.
Sinha had recently headed a committee which sought to provide greater clarity of portfolio flows and that's something where he will have to advise the government. He will have to act on increasing the reach of equity MFs as they have been relying heavily on debt to shore up their assets under management (AUM).
Friday, January 28, 2011
P-note unwinding pummels markets
Sensex plunges to its lowest level in 5 months.
The ghost of participatory notes (P-notes) has returned to haunt Indian stock markets. Spooked by a possible government crackdown in the wake of a recent controversy over black money, some investors are offloading their equity holdings, say leading stockbrokers.
According to data from the Securities & Exchange Board of India (Sebi), foreign institutional investors (FIIs) have already sold equity worth Rs 4,837 crore from the beginning of this year up to January 27. Brokerage firms dealing with large institutions say most of this is off-loading P-note positions.
As a result of the sell-off, the Bombay Stock Exchange Sensex fell to its lowest level in nearly five months on Friday. The 30-stock index, which opened at 18,708.62, closed at 18,395.97, down 1.54 per cent, or 288.46 points. It fell to as low as 18,235.45 during the day, but recouped some losses on short covering. The BSE Sensex has shed more than 10 per cent this month so far.
At the National Stock Exchange, the broader 50-stock S&P CNX Nifty ended below the 5,600-level on Friday. It lost 92.15 points, or 1.64 per cent, to close at 5,512.15. The index closed below its 200-day moving average of 5,621 — considered an important technical level — for the second straight day.
Moreover, index counters, including Reliance Industries, DLF, Jaiprakash Associates, Reliance Capital and Reliance Infrastructure, where P-note positions are considered to be high are all trading near their annual lows.
“P-note holders and ETFs (exchange-traded funds) are on a selling spree. In fact, the fall was sharp in the past couple of days as stop-losses of this class of investors seem to have been triggered,” said Deven Choksey, managing director of Mumbai-based K R Choksey Shares & Securities.
In a clear attempt to reassure markets, a senior finance ministry official told Business Standard on Friday that the market fall over the last few days was due more to nervousness than anything else. He pointed out that the nervousness was on account of inflation and a “few other concerns”.
This “nervousness is not warranted”, stressed the official. On the likely inflation scenario in coming months, however, another senior official from the ministry said that it was expected to go down a bit next month, but might pick up again.
P-notes are off-shore derivative contracts whose holders do not want to bring money directly into the country to avoid scrutiny. Institutions issuing these ‘hot money’ instruments are mainly registered in tax havens. Large players in this trade include Morgan Stanley, Merrill Lynch, Citigroup, Goldman Sachs and CLSA. Somewhat similar are ETFs, in which large funds mainly put their money, making it difficult to track the ultimate beneficiary.
Just over a week ago, Sebi had issued a circular asking FIIs to furnish more details and report P-note holdings with a six-month lag. The regulator had also declared 188 FIIs as non-compliant for operating as multi-class vehicles and protected cell companies, which makes it easy to camouflage the identity of the ultimate investors and encourages inflows of unaccounted for money.
This comes at a time when the government is looking into ways to bring back black money stashed abroad. However, when asked by reporters earlier this week if the government is planning to ban P-notes, Finance Minister Pranab Mukharjee refused to comment, saying any statement on the matter could impact the markets. The Supreme Court has also asked the government to disclose the names of those holding black money overseas.
The value of FII investments in the country is estimated to be around Rs 11 lakh crore. Market players say after the recent pullout of funds in January, the net equity positions of FIIs through P-notes would be at historic lows, which will be confirmed only when Sebi publishes its data next month. FIIs have to provide the regulator with P-note details every month.
P-note unwinding was also witnessed in December, when Sebi was thinking of imposing stricter reporting norms for P-note issuers. Last month, when the FII investment in country was at its peak, P-note holdings had dropped. They fell from around 13.6 per cent to 12.2 per cent of FII holdings.
P-note positions had reached 60 per cent of FII investments in 2007, after which Sebi imposed a ban on their issuance. This was revoked by incumbent Sebi Chairman C B Bhave in 2009.
The ghost of participatory notes (P-notes) has returned to haunt Indian stock markets. Spooked by a possible government crackdown in the wake of a recent controversy over black money, some investors are offloading their equity holdings, say leading stockbrokers.
According to data from the Securities & Exchange Board of India (Sebi), foreign institutional investors (FIIs) have already sold equity worth Rs 4,837 crore from the beginning of this year up to January 27. Brokerage firms dealing with large institutions say most of this is off-loading P-note positions.
As a result of the sell-off, the Bombay Stock Exchange Sensex fell to its lowest level in nearly five months on Friday. The 30-stock index, which opened at 18,708.62, closed at 18,395.97, down 1.54 per cent, or 288.46 points. It fell to as low as 18,235.45 during the day, but recouped some losses on short covering. The BSE Sensex has shed more than 10 per cent this month so far.
At the National Stock Exchange, the broader 50-stock S&P CNX Nifty ended below the 5,600-level on Friday. It lost 92.15 points, or 1.64 per cent, to close at 5,512.15. The index closed below its 200-day moving average of 5,621 — considered an important technical level — for the second straight day.
Moreover, index counters, including Reliance Industries, DLF, Jaiprakash Associates, Reliance Capital and Reliance Infrastructure, where P-note positions are considered to be high are all trading near their annual lows.
“P-note holders and ETFs (exchange-traded funds) are on a selling spree. In fact, the fall was sharp in the past couple of days as stop-losses of this class of investors seem to have been triggered,” said Deven Choksey, managing director of Mumbai-based K R Choksey Shares & Securities.
In a clear attempt to reassure markets, a senior finance ministry official told Business Standard on Friday that the market fall over the last few days was due more to nervousness than anything else. He pointed out that the nervousness was on account of inflation and a “few other concerns”.
This “nervousness is not warranted”, stressed the official. On the likely inflation scenario in coming months, however, another senior official from the ministry said that it was expected to go down a bit next month, but might pick up again.
P-notes are off-shore derivative contracts whose holders do not want to bring money directly into the country to avoid scrutiny. Institutions issuing these ‘hot money’ instruments are mainly registered in tax havens. Large players in this trade include Morgan Stanley, Merrill Lynch, Citigroup, Goldman Sachs and CLSA. Somewhat similar are ETFs, in which large funds mainly put their money, making it difficult to track the ultimate beneficiary.
Just over a week ago, Sebi had issued a circular asking FIIs to furnish more details and report P-note holdings with a six-month lag. The regulator had also declared 188 FIIs as non-compliant for operating as multi-class vehicles and protected cell companies, which makes it easy to camouflage the identity of the ultimate investors and encourages inflows of unaccounted for money.
This comes at a time when the government is looking into ways to bring back black money stashed abroad. However, when asked by reporters earlier this week if the government is planning to ban P-notes, Finance Minister Pranab Mukharjee refused to comment, saying any statement on the matter could impact the markets. The Supreme Court has also asked the government to disclose the names of those holding black money overseas.
The value of FII investments in the country is estimated to be around Rs 11 lakh crore. Market players say after the recent pullout of funds in January, the net equity positions of FIIs through P-notes would be at historic lows, which will be confirmed only when Sebi publishes its data next month. FIIs have to provide the regulator with P-note details every month.
P-note unwinding was also witnessed in December, when Sebi was thinking of imposing stricter reporting norms for P-note issuers. Last month, when the FII investment in country was at its peak, P-note holdings had dropped. They fell from around 13.6 per cent to 12.2 per cent of FII holdings.
P-note positions had reached 60 per cent of FII investments in 2007, after which Sebi imposed a ban on their issuance. This was revoked by incumbent Sebi Chairman C B Bhave in 2009.
Thursday, January 27, 2011
Crisis Panel’s Report Parsed Far and Wide
WASHINGTON — Behind closed doors, Ben S. Bernanke, the Federal Reserve chairman, called it “the worst financial crisis in global history, including the Great Depression.”
He said that 12 of the country’s 13 most important financial institutions, including Goldman Sachs, had been on the verge of collapse “within a week or two.” (The apparent exception: JPMorgan Chase.)
Imagining the impact of a Citigroup bankruptcy, he recalled, was “sort of like saying, ‘Well, four out of your five heart ventricles are fine, and the fifth one is lousy.’ ” (The human heart actually has two.)
Mr. Bernanke’s remarks, from a November 2009 interview with government investigators, were among the fresh details in the blow-by-blow chronicle of regulatory negligence and Wall Street recklessness released Thursday by a federal commission.
The report by the Financial Crisis Inquiry Commission draws on more than 700 interviews, millions of e-mail exchanges and other records that have not previously been disclosed.
While the official 633-page document comes after the Dodd-Frank law tightened up financial regulation, its findings are certain to be pored over for years — and not just by historians.
On Wall Street, analysts were already scouring 1,200 supporting documents the panel released on its Web site; an additional 700 documents and some 300 transcripts of audio interviews are to be posted before the panel’s mandate expires Feb. 13.
The report examined the risky mortgage loans that helped build the housing bubble; the packaging of those loans into exotic securities that were sold to investors; and the heedless placement of giant bets on those investments.
Enabling those developments, the panel found, were a bias toward deregulation by government officials, and mismanagement by financiers who failed to perceive the risks.
The Fed, under Mr. Bernanke’s predecessor, Alan Greenspan, failed to develop mortgage lending standards that could have stemmed the flow of bad mortgages into the financial pipeline, the panel found. “The Federal Reserve was clearly the steward of lending standards in this country,” said one commissioner, John W. Thompson, a technology executive. “They chose not to act.”
Mr. Greenspan declined to comment.
Just as the 10-member commission splintered along partisan lines — with the four Republican members offering two separate dissents — so did the response to the document.
“We certainly applaud the efforts of the commission,” the White House press secretary, Robert Gibbs, said, in remarks echoed by Senator Tim Johnson, Democrat of South Dakota, the new chairman of the Senate Banking Committee.
But Representative Spencer T. Bachus, Republican of Alabama and the new chairman of the House Financial Services Committee, said that the panel had “failed to reach even a rough consensus on the causes of the financial crisis” and that the Democratic majority had been “minimizing the role of Fannie Mae and Freddie Mac in causing the crisis.”
Those two mortgage finance entities, the main report found, contributed to the 2008 crisis but were not among its chief causes.
It concluded that Fannie and Freddie had loosened underwriting standards, bought and guaranteed riskier loans and increased their purchases of mortgage-backed securities because they were fearful of losing more market share to Wall Street competitors.
The main report said that was not because of the government’s affordable-housing goals, which conservatives like Peter J. Wallison, a Republican commissioner, believed were the primary culprit.
The culpability of the housing finance agencies is likely to influence debate in Congress over the future of housing finance. But the bulk of the report consists of a long, well-known narrative that is largely beyond dispute.
The report offered new details about how Citigroup and the American International Group, which received bailouts, were internally divided as the crisis worsened: some parts of each company continued to invest in housing-related investments even as others pulled away.
It offered new evidence that officials at Citigroup and Merrill Lynch had portrayed mortgage-related investments to investors as being safer than they really were. It noted — Goldman’s denials to the contrary — that “Goldman has been criticized — and sued — for selling its subprime mortgage securities to clients while simultaneously betting against those securities.”
It showed that the Fed and the Treasury Department had been plunged into uncertainty and hesitation after Bear Stearns was sold to JPMorgan Chase in March 2008, which contributed to a series of “inconsistent” bailout-related decisions later that year.
Neither the Fed nor the Treasury commented on the report, nor did most of the financial institutions mentioned in it, though a spokeswoman said Citigroup was “a fundamentally different company today than it was before the crisis.”
Sprinkled throughout the report were vivid quotes from major players.
Sabeth Siddique, a top Fed regulator, described how his 2005 warnings about the surge in “irresponsible loans” had prompted an “ideological turf war” within the Fed — and resistance from bankers who had accused him of “denying the American dream” to potential home borrowers.
The Office of Thrift Supervision, a soon-to-be-closed agency that was supposed to regulate A.I.G., was so outmatched that its former director, John M. Reich, compared it to “a gnat on an elephant.”
Some bankers came across as simply bumbling. E. Stanley O’Neal, chief executive of Merrill Lynch, told the commission about a “dawning awareness” through September 2007 that mortgage securities had been causing disastrous losses at the firm; weeks later, the report noted, he walked away with a severance package worth $161.5 million.
The Lehman Brothers bankruptcy in September 2008, which sent markets into a tailspin and led to a string of costly bailouts and was probably the most dramatic moment of the crisis, was reviewed in depth in the report.
The prominent Wall Street banking lawyer H. Rodgin Cohen, who represented Lehman among other big banks, said he thought the government, in refusing to bail out Lehman, had seemed that it was “playing a game of chicken,” hoping that other institutions would save Lehman.
The commission’s chairman, Phil Angelides, said he hoped the report would help bear witness to a preventable catastrophe. “Some on Wall Street and Washington with a stake in the status quo may be tempted to wipe from memory this crisis or to suggest again that no one could have seen or prevented it,” he said.
But little on Wall Street has changed. One commissioner, Byron S. Georgiou, a Nevada lawyer, said the financial system was “not really very different” today from before the crisis.
“In fact, the concentration of financial assets in the largest commercial and investment banks is really significantly higher today than it was in the run-up to the crisis, as a result of the evisceration of some of the institutions, and the consolidation and merger of others into larger institutions,” he said.
He said that 12 of the country’s 13 most important financial institutions, including Goldman Sachs, had been on the verge of collapse “within a week or two.” (The apparent exception: JPMorgan Chase.)
Imagining the impact of a Citigroup bankruptcy, he recalled, was “sort of like saying, ‘Well, four out of your five heart ventricles are fine, and the fifth one is lousy.’ ” (The human heart actually has two.)
Mr. Bernanke’s remarks, from a November 2009 interview with government investigators, were among the fresh details in the blow-by-blow chronicle of regulatory negligence and Wall Street recklessness released Thursday by a federal commission.
The report by the Financial Crisis Inquiry Commission draws on more than 700 interviews, millions of e-mail exchanges and other records that have not previously been disclosed.
While the official 633-page document comes after the Dodd-Frank law tightened up financial regulation, its findings are certain to be pored over for years — and not just by historians.
On Wall Street, analysts were already scouring 1,200 supporting documents the panel released on its Web site; an additional 700 documents and some 300 transcripts of audio interviews are to be posted before the panel’s mandate expires Feb. 13.
The report examined the risky mortgage loans that helped build the housing bubble; the packaging of those loans into exotic securities that were sold to investors; and the heedless placement of giant bets on those investments.
Enabling those developments, the panel found, were a bias toward deregulation by government officials, and mismanagement by financiers who failed to perceive the risks.
The Fed, under Mr. Bernanke’s predecessor, Alan Greenspan, failed to develop mortgage lending standards that could have stemmed the flow of bad mortgages into the financial pipeline, the panel found. “The Federal Reserve was clearly the steward of lending standards in this country,” said one commissioner, John W. Thompson, a technology executive. “They chose not to act.”
Mr. Greenspan declined to comment.
Just as the 10-member commission splintered along partisan lines — with the four Republican members offering two separate dissents — so did the response to the document.
“We certainly applaud the efforts of the commission,” the White House press secretary, Robert Gibbs, said, in remarks echoed by Senator Tim Johnson, Democrat of South Dakota, the new chairman of the Senate Banking Committee.
But Representative Spencer T. Bachus, Republican of Alabama and the new chairman of the House Financial Services Committee, said that the panel had “failed to reach even a rough consensus on the causes of the financial crisis” and that the Democratic majority had been “minimizing the role of Fannie Mae and Freddie Mac in causing the crisis.”
Those two mortgage finance entities, the main report found, contributed to the 2008 crisis but were not among its chief causes.
It concluded that Fannie and Freddie had loosened underwriting standards, bought and guaranteed riskier loans and increased their purchases of mortgage-backed securities because they were fearful of losing more market share to Wall Street competitors.
The main report said that was not because of the government’s affordable-housing goals, which conservatives like Peter J. Wallison, a Republican commissioner, believed were the primary culprit.
The culpability of the housing finance agencies is likely to influence debate in Congress over the future of housing finance. But the bulk of the report consists of a long, well-known narrative that is largely beyond dispute.
The report offered new details about how Citigroup and the American International Group, which received bailouts, were internally divided as the crisis worsened: some parts of each company continued to invest in housing-related investments even as others pulled away.
It offered new evidence that officials at Citigroup and Merrill Lynch had portrayed mortgage-related investments to investors as being safer than they really were. It noted — Goldman’s denials to the contrary — that “Goldman has been criticized — and sued — for selling its subprime mortgage securities to clients while simultaneously betting against those securities.”
It showed that the Fed and the Treasury Department had been plunged into uncertainty and hesitation after Bear Stearns was sold to JPMorgan Chase in March 2008, which contributed to a series of “inconsistent” bailout-related decisions later that year.
Neither the Fed nor the Treasury commented on the report, nor did most of the financial institutions mentioned in it, though a spokeswoman said Citigroup was “a fundamentally different company today than it was before the crisis.”
Sprinkled throughout the report were vivid quotes from major players.
Sabeth Siddique, a top Fed regulator, described how his 2005 warnings about the surge in “irresponsible loans” had prompted an “ideological turf war” within the Fed — and resistance from bankers who had accused him of “denying the American dream” to potential home borrowers.
The Office of Thrift Supervision, a soon-to-be-closed agency that was supposed to regulate A.I.G., was so outmatched that its former director, John M. Reich, compared it to “a gnat on an elephant.”
Some bankers came across as simply bumbling. E. Stanley O’Neal, chief executive of Merrill Lynch, told the commission about a “dawning awareness” through September 2007 that mortgage securities had been causing disastrous losses at the firm; weeks later, the report noted, he walked away with a severance package worth $161.5 million.
The Lehman Brothers bankruptcy in September 2008, which sent markets into a tailspin and led to a string of costly bailouts and was probably the most dramatic moment of the crisis, was reviewed in depth in the report.
The prominent Wall Street banking lawyer H. Rodgin Cohen, who represented Lehman among other big banks, said he thought the government, in refusing to bail out Lehman, had seemed that it was “playing a game of chicken,” hoping that other institutions would save Lehman.
The commission’s chairman, Phil Angelides, said he hoped the report would help bear witness to a preventable catastrophe. “Some on Wall Street and Washington with a stake in the status quo may be tempted to wipe from memory this crisis or to suggest again that no one could have seen or prevented it,” he said.
But little on Wall Street has changed. One commissioner, Byron S. Georgiou, a Nevada lawyer, said the financial system was “not really very different” today from before the crisis.
“In fact, the concentration of financial assets in the largest commercial and investment banks is really significantly higher today than it was in the run-up to the crisis, as a result of the evisceration of some of the institutions, and the consolidation and merger of others into larger institutions,” he said.
Asian Stocks Fall for First Day This Week After Oil, Gold Prices Decline
Asian stocks fell, dragging down a regional benchmark index for the first time this week, as Japanese banks dropped after Standard & Poor’s cut the nation’s credit rating, and commodity shares declined.
Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., Japan’s two biggest publicly traded banks, sank more than 2 percent in Tokyo. BHP Billiton Ltd., the world’s largest mining company, declined 1.1 percent and Newcrest Mining Ltd, Australia’s No. 1 gold producer, lost 3.6 percent in Sydney as oil and gold prices slumped. Advantest Corp. plunged 5.6 percent after Goldman Sachs Group Inc. lowered its share-price estimate on the maker of chip-testing equipment.
Japan’s rating cut “is negative for banks that hold government bonds,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo.
The MSCI Asia Pacific Index fell 0.4 percent to 137.77 as of 10:17 a.m. Tokyo, paring this week’s gain to 1 percent. About two stocks declined for each that advanced in the gauge, which had its first weekly drop in 1 1/2 months last week amid concern faster-than-expected economic growth in China will add pressure on policy makers to accelerate efforts to tame inflation.
Japan’s Nikkei 225 Stock Average lost 0.9 percent and the Topix lost 1 percent, the steepest drops among benchmark equity indexes in the Asia-Pacific region. South Korea’s Kospi Index declined 0.2 percent. Australia’s S&P/ASX 200 Index fell 0.5 percent.
Futures on the Standard & Poor’s 500 Index dropped 0.2 percent today. The index gained 0.2 percent yesterday in New York, rising for a fifth straight day, as home sales and Qualcomm Inc.’s forecast beat projections by economists and analysts, offsetting higher-than-estimated jobless claims.
Earnings, Estimates
Of the 106 companies in the MSCI index that have reported earnings for the latest quarter, 48 have exceeded analysts’ estimates, while 45 have missed them, according to data compiled by Bloomberg. On Jan. 31, 86 of the 1,019 companies in the gauge are scheduled to release results.
Japan’s credit rating was cut yesterday for the first time in nine years by Standard & Poor’s as persistent deflation and political gridlock undermine efforts to reduce a 943 trillion yen ($11 trillion) debt burden.
Japan, the world’s most indebted nation, had its rating cut to AA-, the fourth-highest level, putting the country on a par with China, which likely passed Japan last year to become the second-largest economy. The government lacks a “coherent strategy” to address the nation’s debt, the rating company said yesterday in a statement. The outlook for the rating is stable, S&P said.
Oil, Gold
Crude oil for March delivery tumbled $1.69 to $85.64 a barrel yesterday in New York, the lowest settlement price since Nov. 30. Gold futures for April delivery fell 1.1 percent to settle at $1,319.80 an ounce in New York yesterday. In after- hours electronic trading, the price touched $1,311, the lowest since Oct. 1.
The MSCI Asia Pacific Index increased 0.4 percent this year to yesterday, compared with gains of 3.3 percent for the S&P 500 and 2.6 percent for the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 14.1 times estimated earnings on average at the last close, compared with 13.6 times for the S&P 500 and 11.3 times for the Stoxx 600.
Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., Japan’s two biggest publicly traded banks, sank more than 2 percent in Tokyo. BHP Billiton Ltd., the world’s largest mining company, declined 1.1 percent and Newcrest Mining Ltd, Australia’s No. 1 gold producer, lost 3.6 percent in Sydney as oil and gold prices slumped. Advantest Corp. plunged 5.6 percent after Goldman Sachs Group Inc. lowered its share-price estimate on the maker of chip-testing equipment.
Japan’s rating cut “is negative for banks that hold government bonds,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo.
The MSCI Asia Pacific Index fell 0.4 percent to 137.77 as of 10:17 a.m. Tokyo, paring this week’s gain to 1 percent. About two stocks declined for each that advanced in the gauge, which had its first weekly drop in 1 1/2 months last week amid concern faster-than-expected economic growth in China will add pressure on policy makers to accelerate efforts to tame inflation.
Japan’s Nikkei 225 Stock Average lost 0.9 percent and the Topix lost 1 percent, the steepest drops among benchmark equity indexes in the Asia-Pacific region. South Korea’s Kospi Index declined 0.2 percent. Australia’s S&P/ASX 200 Index fell 0.5 percent.
Futures on the Standard & Poor’s 500 Index dropped 0.2 percent today. The index gained 0.2 percent yesterday in New York, rising for a fifth straight day, as home sales and Qualcomm Inc.’s forecast beat projections by economists and analysts, offsetting higher-than-estimated jobless claims.
Earnings, Estimates
Of the 106 companies in the MSCI index that have reported earnings for the latest quarter, 48 have exceeded analysts’ estimates, while 45 have missed them, according to data compiled by Bloomberg. On Jan. 31, 86 of the 1,019 companies in the gauge are scheduled to release results.
Japan’s credit rating was cut yesterday for the first time in nine years by Standard & Poor’s as persistent deflation and political gridlock undermine efforts to reduce a 943 trillion yen ($11 trillion) debt burden.
Japan, the world’s most indebted nation, had its rating cut to AA-, the fourth-highest level, putting the country on a par with China, which likely passed Japan last year to become the second-largest economy. The government lacks a “coherent strategy” to address the nation’s debt, the rating company said yesterday in a statement. The outlook for the rating is stable, S&P said.
Oil, Gold
Crude oil for March delivery tumbled $1.69 to $85.64 a barrel yesterday in New York, the lowest settlement price since Nov. 30. Gold futures for April delivery fell 1.1 percent to settle at $1,319.80 an ounce in New York yesterday. In after- hours electronic trading, the price touched $1,311, the lowest since Oct. 1.
The MSCI Asia Pacific Index increased 0.4 percent this year to yesterday, compared with gains of 3.3 percent for the S&P 500 and 2.6 percent for the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 14.1 times estimated earnings on average at the last close, compared with 13.6 times for the S&P 500 and 11.3 times for the Stoxx 600.
Tata Motors Looks at Selling Nano in Asia Outside India in 2011
Tata Motors Ltd. may expand sales of the Nano, the world’s cheapest car, to countries such as Thailand, Sri Lanka and Bangladesh as early as this year as demand for the egg-shaped vehicle rebounds in India.
“We will go after these markets one after another,” Tata Chief Executive Officer Carl-Peter Forster said yesterday at an auto-industry event in Bochum, Germany. “The Nano is a raw diamond that needs polishing.”
Nano sales are likely to climb to 8,000 to 10,000 cars a month “soon” from a current rate of 6,000 to 7,000 deliveries as the Mumbai-based automaker expands marketing for the model and continues to offer 100 percent financing to customers who can’t afford a down payment, Forster said.
The Nano’s registrations in December rose to 5,784 cars from a record low of 509 in November, Tata Motors said on Jan. 1. The manufacturer has more than doubled warranties and offered easier financing to promote the model. The December tally, a 60 percent increase from a year earlier, was below the 9,000-car monthly sales record reached in July.
Tata delivered the Nano to its first customer in July 2009. The car, which costs as little as 137,555 rupees ($3,000) in New Delhi, went on sale in India nationwide on Jan. 3 through Tata’s 874 dealerships. Deliveries had been limited to 12 states as the company worked through initial orders and ramped up production at a new factory that opened in June with annual capacity to build 250,000 of the car.
Maintenance Packages
Tata Motors is also offering maintenance packages, including one for 99 rupees a month, and inviting prospective customers to meetings with Nano owners to overcome the concerns of first-time car buyers.
The model’s sales fell on a month-on-month basis from July through November because of price increases and safety concerns following reports of at least three fires with the model. In response to the drop, Tata began a television advertising campaign and adding sales points in smaller towns in December, the same month it lengthened warranties to four years or 60,000 kilometers (37,300 miles) and introduced the maintenance plan.
The carmaker said in November that it would retrofit Nanos with additional protection in exhaust and electrical systems after the fires. Investigations concluded that reasons for the fires were “specific” to the vehicles involved, Tata Motors has said.
Tata rose 2.6 percent to 1,195.85 rupees yesterday in Mumbai trading. The shares gained 65 percent last year, the second-best performance on the benchmark Sensitive Index of the Bombay Stock Exchange.
“We will go after these markets one after another,” Tata Chief Executive Officer Carl-Peter Forster said yesterday at an auto-industry event in Bochum, Germany. “The Nano is a raw diamond that needs polishing.”
Nano sales are likely to climb to 8,000 to 10,000 cars a month “soon” from a current rate of 6,000 to 7,000 deliveries as the Mumbai-based automaker expands marketing for the model and continues to offer 100 percent financing to customers who can’t afford a down payment, Forster said.
The Nano’s registrations in December rose to 5,784 cars from a record low of 509 in November, Tata Motors said on Jan. 1. The manufacturer has more than doubled warranties and offered easier financing to promote the model. The December tally, a 60 percent increase from a year earlier, was below the 9,000-car monthly sales record reached in July.
Tata delivered the Nano to its first customer in July 2009. The car, which costs as little as 137,555 rupees ($3,000) in New Delhi, went on sale in India nationwide on Jan. 3 through Tata’s 874 dealerships. Deliveries had been limited to 12 states as the company worked through initial orders and ramped up production at a new factory that opened in June with annual capacity to build 250,000 of the car.
Maintenance Packages
Tata Motors is also offering maintenance packages, including one for 99 rupees a month, and inviting prospective customers to meetings with Nano owners to overcome the concerns of first-time car buyers.
The model’s sales fell on a month-on-month basis from July through November because of price increases and safety concerns following reports of at least three fires with the model. In response to the drop, Tata began a television advertising campaign and adding sales points in smaller towns in December, the same month it lengthened warranties to four years or 60,000 kilometers (37,300 miles) and introduced the maintenance plan.
The carmaker said in November that it would retrofit Nanos with additional protection in exhaust and electrical systems after the fires. Investigations concluded that reasons for the fires were “specific” to the vehicles involved, Tata Motors has said.
Tata rose 2.6 percent to 1,195.85 rupees yesterday in Mumbai trading. The shares gained 65 percent last year, the second-best performance on the benchmark Sensitive Index of the Bombay Stock Exchange.
Wednesday, January 26, 2011
India’s inflation deters foreign investors
Few would have guessed a year ago that a rise in the price of onions would put a brake on the stellar growth of India’s stock market and force investors to rethink exposure to Asia’s third-largest economy.
That, though, is what has happened. A sharp jump in food prices has revived fears that high inflation in India could threaten its economy, which last year attracted billions of dollars from overseas.
EDITOR’S CHOICE
India raises rates in inflation fight - Jan-25
Indian industrialists fear rate rise too far - Jan-25
Raising rates but extending liquidity - Jan-25
beyondbrics: Investors lose faith in Indian growth - Jan-25
New Delhi to act on soaring prices of food - Jan-13
Production data spark India growth fears - Jan-12
On Tuesday, the Reserve Bank of India raised interest rates for the seventh time in less than a year in an effort to curb food price inflation. This could also undermine growth prospects, and the likely returns for foreign investors.
Duvvuri Subbarao, the RBI’s governor, has warned that “should global recovery be faster than expected, it may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India”.
Goldman Sachs, Credit Suisse, Morgan Stanley and Nomura are among a number of banks to have recently warned clients of the risk of slower growth.
After a deluge of foreign investment last year, when inflows into India’s equity market hit a record $29.4bn, many investors have been advised to cash in their gains and take a “detox” period from Indian stocks. Since the start of this year, foreign institutional investors, the main drivers of Indian equities, have sold more shares than they have bought, leading to a net capital outflow of $711.5m, according to data released by India’s market regulator.
The effect on India’s stock market has been sizeable. Bombay’s benchmark Sensex index, which hit an all-time high in November, has since tumbled nearly 8 per cent.
India’s wholesale price index, the country’s main inflation indicator, rose to 8.43 per cent year on year in December.
The more politically sensitive food inflation measure rose to about 16 per cent, as vegetable prices, in particular for onions and garlic, spiked 70.7 per cent year on year in January. At the same time, state-run fuel retailers have been increasing petrol prices – by as much as 22 per cent since the government deregulated the market in June. This has added to pressure on manufacturers struggling to keep costs down.
A recent rise of between 17 per cent and 30 per cent in minimum wages across different Indian states has benefited rural incomes, but is also likely to add to inflationary pressure, economists believe.
Optimism, therefore, is limited, at least in the short term. Ridham Desai, chief India strategist at Morgan Stanley, says: “Our recent investor interactions and investor survey underpin a rather bearish sentiment for India in 2011. Only one-fourth of the buyside investors believe that India will outperform emerging markets in 2011.”
Rohini Malkani, economist at Citigroup, says last year’s benign domestic macroeconomic environment has been jolted by the rise in inflation and a widening current account deficit, at a record 4.1 per cent of gross domestic product.
Food prices
FT In depth: News, comment and analysis on rising concerns about food security and prices
Abby Joseph Cohen, investment strategist at Goldman Sachs, said recently the group had an optimistic view of developed markets this year, as their economies recovered and valuations looked attractive. “From the valuation perspective, the developed markets look more attractive than the developing market at least from the six to 12 months perspective,” she told the ET, an Indian business daily. “This is not necessarily our long-term view.”
Indian stocks have been trading for more than a year on a price-to-earnings ratio well above their long-term average for forward earnings of 13.8 times.
Even after the latest correction, the ratio is between 19 and 22 times. This is substantially above the ratio for the MSCI Emerging Market index, which is 12, and for the developed world, which is about 12.5 times. On a price-to-book ratio, Indian shares do not look that expensive in historic terms, but look pricey compared with emerging market peers, at 2.7 times versus 1.8 times.
Last year, many investors were content to keep investing in Indian stocks on the grounds that they could look forward to double-digit growth. That was the case for most of 2010 as the MSCI India index outperformed the MSCI EM index in nine out of 12 months. However, as economists revise their overall growth outlooks downward, few investors see value in buying assets that look to be overpriced.
Assuming India’s inflation is dealt with, however, economists’ long-term view is far from pessimistic.
“India has, in the last decade, seen both near-term and long-term obstacles pop up. However, these have been consistently overshadowed by larger and broader opportunities. We believe this tussle will persist through 2011, but opportunities will continue to overwhelm these obstacles,” says Ms Malkani.
That, though, is what has happened. A sharp jump in food prices has revived fears that high inflation in India could threaten its economy, which last year attracted billions of dollars from overseas.
EDITOR’S CHOICE
India raises rates in inflation fight - Jan-25
Indian industrialists fear rate rise too far - Jan-25
Raising rates but extending liquidity - Jan-25
beyondbrics: Investors lose faith in Indian growth - Jan-25
New Delhi to act on soaring prices of food - Jan-13
Production data spark India growth fears - Jan-12
On Tuesday, the Reserve Bank of India raised interest rates for the seventh time in less than a year in an effort to curb food price inflation. This could also undermine growth prospects, and the likely returns for foreign investors.
Duvvuri Subbarao, the RBI’s governor, has warned that “should global recovery be faster than expected, it may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India”.
Goldman Sachs, Credit Suisse, Morgan Stanley and Nomura are among a number of banks to have recently warned clients of the risk of slower growth.
After a deluge of foreign investment last year, when inflows into India’s equity market hit a record $29.4bn, many investors have been advised to cash in their gains and take a “detox” period from Indian stocks. Since the start of this year, foreign institutional investors, the main drivers of Indian equities, have sold more shares than they have bought, leading to a net capital outflow of $711.5m, according to data released by India’s market regulator.
The effect on India’s stock market has been sizeable. Bombay’s benchmark Sensex index, which hit an all-time high in November, has since tumbled nearly 8 per cent.
India’s wholesale price index, the country’s main inflation indicator, rose to 8.43 per cent year on year in December.
The more politically sensitive food inflation measure rose to about 16 per cent, as vegetable prices, in particular for onions and garlic, spiked 70.7 per cent year on year in January. At the same time, state-run fuel retailers have been increasing petrol prices – by as much as 22 per cent since the government deregulated the market in June. This has added to pressure on manufacturers struggling to keep costs down.
A recent rise of between 17 per cent and 30 per cent in minimum wages across different Indian states has benefited rural incomes, but is also likely to add to inflationary pressure, economists believe.
Optimism, therefore, is limited, at least in the short term. Ridham Desai, chief India strategist at Morgan Stanley, says: “Our recent investor interactions and investor survey underpin a rather bearish sentiment for India in 2011. Only one-fourth of the buyside investors believe that India will outperform emerging markets in 2011.”
Rohini Malkani, economist at Citigroup, says last year’s benign domestic macroeconomic environment has been jolted by the rise in inflation and a widening current account deficit, at a record 4.1 per cent of gross domestic product.
Food prices
FT In depth: News, comment and analysis on rising concerns about food security and prices
Abby Joseph Cohen, investment strategist at Goldman Sachs, said recently the group had an optimistic view of developed markets this year, as their economies recovered and valuations looked attractive. “From the valuation perspective, the developed markets look more attractive than the developing market at least from the six to 12 months perspective,” she told the ET, an Indian business daily. “This is not necessarily our long-term view.”
Indian stocks have been trading for more than a year on a price-to-earnings ratio well above their long-term average for forward earnings of 13.8 times.
Even after the latest correction, the ratio is between 19 and 22 times. This is substantially above the ratio for the MSCI Emerging Market index, which is 12, and for the developed world, which is about 12.5 times. On a price-to-book ratio, Indian shares do not look that expensive in historic terms, but look pricey compared with emerging market peers, at 2.7 times versus 1.8 times.
Last year, many investors were content to keep investing in Indian stocks on the grounds that they could look forward to double-digit growth. That was the case for most of 2010 as the MSCI India index outperformed the MSCI EM index in nine out of 12 months. However, as economists revise their overall growth outlooks downward, few investors see value in buying assets that look to be overpriced.
Assuming India’s inflation is dealt with, however, economists’ long-term view is far from pessimistic.
“India has, in the last decade, seen both near-term and long-term obstacles pop up. However, these have been consistently overshadowed by larger and broader opportunities. We believe this tussle will persist through 2011, but opportunities will continue to overwhelm these obstacles,” says Ms Malkani.
Monday, January 24, 2011
Uncertainty Over Economy Clouds Obama Speech
Once burned, twice shy.
A year ago, the economy looked as if it were speeding down the runway, only to stall out in the spring.
Now tentative signs of a pickup are emerging across the country again. Factory production, retail sales and existing-home sales are rising, while unemployment claims are trending down. Companies like General Motors and Macy’s have recently announced hiring plans, and bank lending to businesses is starting to expand. Investor sentiment is strengthening, as major stock market indexes climb to their highest levels since mid-2008.
This time, though, economists and business leaders are more measured in their optimism about the recovery. Growth is real, they say, though they remain unconvinced it will accelerate all that much.
As President Obama prepares to tackle the economy in his State of the Union address Tuesday night, economists and industry executives are likewise sifting through the data.
The darkest clouds that marred the economic landscape last summer and fall have indeed lifted, but expectations have also been reined in. Many of the factors that have restrained growth, including heavy household debt and strained state and local budgets, remain. Parts of Europe are still unstable, and higher food and energy prices could crimp household spending. The construction industry has not yet staged a comeback.
The unemployment rate, stubbornly high at 9.4 percent, could climb higher as more people who stopped looking for work return to the job search. And few see enough jobs being created over the next year to help more than a small portion of the eight million people who lost work during the recession.
So even if the economy is picking up steam, and the president is hoping to ride its momentum, making a significant dent in joblessness will probably remain frustratingly difficult for him and his new economic advisers.
“It’s really a muddle-through economy,” said David Rosenberg, chief economist and strategist for the investment firm Gluskin Sheff & Associates.
Part of what has changed is simply a growing belief that unlike in previous recoveries, the economy will not suddenly ignite.
“After a normal recession, once the economy starts growing again, within six months, you’re back to where you started,” said Kenneth S. Rogoff, a professor at Harvard and co-author, with Carmen M. Reinhart, of “This Time Is Different,” a history of financial crises. “We’re still just crawling back to where we started.” He added, “It’s going to take a few more years, really, before we’re back at whatever normal is.”
One reason that hope was crushed last spring was that debt crises in Europe’s weak countries destabilized the stock markets, in turn unnerving consumers. And when fiscal stimulus measures expired, like the tax credit for first-time homebuyers, the housing market sagged.
Unlike last year, hardly anyone is expecting skyrocketing growth in coming months. Industry leaders instead talk of stable improvement.
“We don’t expect a big upswing in sales,” said Tom Henderson, a spokesman for General Motors. “It’s just slow and steady, which is tracking along what we’re seeing in the economy.”
The automaker announced on Monday that it was beginning a third shift at its pickup truck assembly plant in Flint, adding 750 jobs. Most of those slots will be filled by people who were laid off in recent years.
Overall sales are starting to improve, and bank lending to businesses rose in the fourth quarter of last year for the first time since the end of 2008, according to an analysis of Federal Reserve data by Mark Zandi of Moody’s Analytics.
Small businesses — which represented about two-thirds of job growth in the last recovery — are still cautious.
“It’s not that sales haven’t been improving, but it’s improving from a really horrible level of a year ago,” said William C. Dunkelberg, chief economist for the National Federation of Independent Business. “We still haven’t got Main Street firing on many pistons.”
Some small businesses are having trouble getting bank loans because they do not have the collateral. Ami Kassar, chief executive of MultiFunding, a small-business lending broker in Plymouth Meeting, Pa., said that many of his clients had seen the values of their homes, office buildings and warehouses fall so much that banks would not accept them as security.
Mr. Kassar said that when his clients did procure loans, they often used the money to cover payrolls rather than to hire new workers, in part because many of their largest customers were taking longer to pay their bills.
A year ago, the economy looked as if it were speeding down the runway, only to stall out in the spring.
Now tentative signs of a pickup are emerging across the country again. Factory production, retail sales and existing-home sales are rising, while unemployment claims are trending down. Companies like General Motors and Macy’s have recently announced hiring plans, and bank lending to businesses is starting to expand. Investor sentiment is strengthening, as major stock market indexes climb to their highest levels since mid-2008.
This time, though, economists and business leaders are more measured in their optimism about the recovery. Growth is real, they say, though they remain unconvinced it will accelerate all that much.
As President Obama prepares to tackle the economy in his State of the Union address Tuesday night, economists and industry executives are likewise sifting through the data.
The darkest clouds that marred the economic landscape last summer and fall have indeed lifted, but expectations have also been reined in. Many of the factors that have restrained growth, including heavy household debt and strained state and local budgets, remain. Parts of Europe are still unstable, and higher food and energy prices could crimp household spending. The construction industry has not yet staged a comeback.
The unemployment rate, stubbornly high at 9.4 percent, could climb higher as more people who stopped looking for work return to the job search. And few see enough jobs being created over the next year to help more than a small portion of the eight million people who lost work during the recession.
So even if the economy is picking up steam, and the president is hoping to ride its momentum, making a significant dent in joblessness will probably remain frustratingly difficult for him and his new economic advisers.
“It’s really a muddle-through economy,” said David Rosenberg, chief economist and strategist for the investment firm Gluskin Sheff & Associates.
Part of what has changed is simply a growing belief that unlike in previous recoveries, the economy will not suddenly ignite.
“After a normal recession, once the economy starts growing again, within six months, you’re back to where you started,” said Kenneth S. Rogoff, a professor at Harvard and co-author, with Carmen M. Reinhart, of “This Time Is Different,” a history of financial crises. “We’re still just crawling back to where we started.” He added, “It’s going to take a few more years, really, before we’re back at whatever normal is.”
One reason that hope was crushed last spring was that debt crises in Europe’s weak countries destabilized the stock markets, in turn unnerving consumers. And when fiscal stimulus measures expired, like the tax credit for first-time homebuyers, the housing market sagged.
Unlike last year, hardly anyone is expecting skyrocketing growth in coming months. Industry leaders instead talk of stable improvement.
“We don’t expect a big upswing in sales,” said Tom Henderson, a spokesman for General Motors. “It’s just slow and steady, which is tracking along what we’re seeing in the economy.”
The automaker announced on Monday that it was beginning a third shift at its pickup truck assembly plant in Flint, adding 750 jobs. Most of those slots will be filled by people who were laid off in recent years.
Overall sales are starting to improve, and bank lending to businesses rose in the fourth quarter of last year for the first time since the end of 2008, according to an analysis of Federal Reserve data by Mark Zandi of Moody’s Analytics.
Small businesses — which represented about two-thirds of job growth in the last recovery — are still cautious.
“It’s not that sales haven’t been improving, but it’s improving from a really horrible level of a year ago,” said William C. Dunkelberg, chief economist for the National Federation of Independent Business. “We still haven’t got Main Street firing on many pistons.”
Some small businesses are having trouble getting bank loans because they do not have the collateral. Ami Kassar, chief executive of MultiFunding, a small-business lending broker in Plymouth Meeting, Pa., said that many of his clients had seen the values of their homes, office buildings and warehouses fall so much that banks would not accept them as security.
Mr. Kassar said that when his clients did procure loans, they often used the money to cover payrolls rather than to hire new workers, in part because many of their largest customers were taking longer to pay their bills.
Asian Stocks Rise as U.S. Takeovers, Buybacks Enhance Outlook; Rio Gains
Asian stocks rose, driving the regional benchmark index higher for the second day as U.S. takeovers, share buybacks and dividend prospects drove the Dow Jones Industrial Average to its highest close since June 2008.
Toyota Motor Corp., a Japanese automaker that earns about 70 percent of its revenue abroad, climbed 1.6 percent in Tokyo. Elpida Memory Inc. advanced 2.5 percent after Texas Instruments Inc., the largest analog chipmaker, reported higher profit. Rio Tinto Group, the world’s third-bigest mining company, gained 1.1 percent in Sydney as metal prices advanced.
The MSCI Asia Pacific Index rose 0.9 percent to 138.36 as of 11:11 a.m. in Tokyo, with about four stocks advancing for each that declined, and consumer and technology stocks leading gains. The gauge had its first weekly drop in 1 1/2 months last week amid concern faster-than-expected economic growth in China will add pressure on policy makers to accelerate efforts to tame inflation.
“This is the perfect time for consolidation,” said James Holt, who helps manage about $40 billion in Sydney at BlackRock Investment Management Australia) Ltd. “We expect that U.S. companies which undertook massive cost cutting during the global financial crisis will, as they regain confidence, deploy their record cash balances into mergers and acquisitions or new business investment.”
Japan’s Nikkei 225 Stock Average rose 0.9 percent and South Korea’s Kospi Index gained 0.8 percent. Australia’s S&P/ASX 200 Index advanced 0.6 percent and New Zealand’s NZX 50 Index increased 0.3 percent. Hong Kong’s Hang Seng Index advanced 0.6 percent. Shanghai Composite Index retreated 0.6 percent.
Futures on the Standard & Poor’s 500 Index were little changed today. The index increased 0.6 percent in New York yesterday and the Dow Jones climbed 0.9 percent to 11,980.52.
Valuations Slip
The MSCI Asia Pacific Index dropped 0.4 percent this year to yesterday, compared with gains of 2.6 percent for the S&P 500 and 2.2 percent for the Stoxx Europe 600 Index.
Stocks in the Asian benchmark were valued at 14.1 times estimated earnings on average at the last close, from 14.3 on June 30. Over the same period, shares in the S&P 500 have risen to 13.5 times estimated earnings from 12.7 times. Valuations for the Stoxx 600, at 11.2 times, are the same as they were at the end of the first half of 2010.
Intel Corp., the world’s largest chipmaker, gained after adding $10 billion to its share-buyback plan, Smurfit-Stone Container Corp. surged after agreeing to be acquired, and Warren Buffett’s Berkshire Hathaway Inc. advanced amid speculation the company may start paying a dividend this year.
Blue Chips ‘Targets’
Separately, Texas Instruments, the largest maker of analog chips, reported a 44 percent gain in fourth-quarter profit.
“International blue chips will likely be the main targets for investors to buy, leading gauges to further gains,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co.
Toyota rose 1.6 percent to 3,470 yen in Tokyo and Canon Inc., the world’s largest camera maker, climbed 1.1 percent to 4,135 yen. Elpida advanced 2.5 percent to 1,162 yen, while in Seoul, Samsung Electronics Co., the world’s No. 1 maker of televisions, rose 0.6 percent to 977,000 won.
A measure of material stocks tracked by the Asia-Pacific gauge also climbed today, following metals prices higher.
Rio Tinto gained 1.1 percent to A$86.07 in Sydney, while BHP Billiton Ltd., the world’s largest mining company, rose 0.7 percent to A$45.21. Mitsubishi Corp., Japan’s No. 1 commodities trader, added 1 percent to 2,339 yen in Tokyo.
Copper prices gained for a second straight session on signs of rebounding demand in China, the world’s largest buyer, and a recovery in Europe, while tin reached a record. The London Metal Exchange Index of six metals including copper and aluminum gained 0.4 percent yesterday, rising for a second day.
Toyota Motor Corp., a Japanese automaker that earns about 70 percent of its revenue abroad, climbed 1.6 percent in Tokyo. Elpida Memory Inc. advanced 2.5 percent after Texas Instruments Inc., the largest analog chipmaker, reported higher profit. Rio Tinto Group, the world’s third-bigest mining company, gained 1.1 percent in Sydney as metal prices advanced.
The MSCI Asia Pacific Index rose 0.9 percent to 138.36 as of 11:11 a.m. in Tokyo, with about four stocks advancing for each that declined, and consumer and technology stocks leading gains. The gauge had its first weekly drop in 1 1/2 months last week amid concern faster-than-expected economic growth in China will add pressure on policy makers to accelerate efforts to tame inflation.
“This is the perfect time for consolidation,” said James Holt, who helps manage about $40 billion in Sydney at BlackRock Investment Management Australia) Ltd. “We expect that U.S. companies which undertook massive cost cutting during the global financial crisis will, as they regain confidence, deploy their record cash balances into mergers and acquisitions or new business investment.”
Japan’s Nikkei 225 Stock Average rose 0.9 percent and South Korea’s Kospi Index gained 0.8 percent. Australia’s S&P/ASX 200 Index advanced 0.6 percent and New Zealand’s NZX 50 Index increased 0.3 percent. Hong Kong’s Hang Seng Index advanced 0.6 percent. Shanghai Composite Index retreated 0.6 percent.
Futures on the Standard & Poor’s 500 Index were little changed today. The index increased 0.6 percent in New York yesterday and the Dow Jones climbed 0.9 percent to 11,980.52.
Valuations Slip
The MSCI Asia Pacific Index dropped 0.4 percent this year to yesterday, compared with gains of 2.6 percent for the S&P 500 and 2.2 percent for the Stoxx Europe 600 Index.
Stocks in the Asian benchmark were valued at 14.1 times estimated earnings on average at the last close, from 14.3 on June 30. Over the same period, shares in the S&P 500 have risen to 13.5 times estimated earnings from 12.7 times. Valuations for the Stoxx 600, at 11.2 times, are the same as they were at the end of the first half of 2010.
Intel Corp., the world’s largest chipmaker, gained after adding $10 billion to its share-buyback plan, Smurfit-Stone Container Corp. surged after agreeing to be acquired, and Warren Buffett’s Berkshire Hathaway Inc. advanced amid speculation the company may start paying a dividend this year.
Blue Chips ‘Targets’
Separately, Texas Instruments, the largest maker of analog chips, reported a 44 percent gain in fourth-quarter profit.
“International blue chips will likely be the main targets for investors to buy, leading gauges to further gains,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co.
Toyota rose 1.6 percent to 3,470 yen in Tokyo and Canon Inc., the world’s largest camera maker, climbed 1.1 percent to 4,135 yen. Elpida advanced 2.5 percent to 1,162 yen, while in Seoul, Samsung Electronics Co., the world’s No. 1 maker of televisions, rose 0.6 percent to 977,000 won.
A measure of material stocks tracked by the Asia-Pacific gauge also climbed today, following metals prices higher.
Rio Tinto gained 1.1 percent to A$86.07 in Sydney, while BHP Billiton Ltd., the world’s largest mining company, rose 0.7 percent to A$45.21. Mitsubishi Corp., Japan’s No. 1 commodities trader, added 1 percent to 2,339 yen in Tokyo.
Copper prices gained for a second straight session on signs of rebounding demand in China, the world’s largest buyer, and a recovery in Europe, while tin reached a record. The London Metal Exchange Index of six metals including copper and aluminum gained 0.4 percent yesterday, rising for a second day.
Indian Central Bank Says Curbing Inflation `Dominant' Objective
India’s central bank said reducing inflation is the “dominant” goal at the moment, signaling the possibility of an interest-rate increase today.
“The anti-inflationary focus of monetary policy would have to continue,” the Reserve Bank of India said in a report yesterday. “Since a lower inflation regime is essential for sustainable high growth, containing inflation becomes the dominant policy objective in the current environment.”
Governor Duvvuri Subbarao may join South Korea and Thailand in raising borrowing costs this month after boosting them six times in 2010, the most by any central bank in Asia. The move will buttress government efforts to cool inflation after Prime Minister Manmohan Singh unveiled plans to import onions from Pakistan and keep a ban on exports of lentils and edible oils.
“The RBI’s pretty hawkish stance indicates that a rate hike is a done deal,” said Shubhada Rao, a Mumbai-based economist at Yes Bank Ltd. “Inflation is becoming a huge challenge for policy makers.”
Twenty one of 22 economists in a Bloomberg News survey forecast Subbarao will raise the benchmark repurchase rate by a quarter-point to 6.5 percent. One expects a half-point increase. The RBI is due to announce the decision at 11:30 a.m. in Mumbai.
Bonds Fall
India’s benchmark nine-year government bonds fell for a second day on speculation the RBI will tighten policy. The yield rose one basis point to 8.17 percent as of the 5 p.m. close in Mumbai yesterday. A basis point is 0.01 percentage point.
The Bombay Stock Exchange’s Sensitive Index, which has declined 6.6 percent this year, gained 0.8 percent. The rupee slipped 0.1 percent to 45.68 against the dollar.
Subbarao refrained from boosting borrowing costs in the last policy statement on Dec. 16 as a record 1.1 trillion rupees ($24.1 billion) of share sales by companies including Coal India Ltd. caused a cash squeeze at lenders.
Inflation in India is being stoked by the higher cost of farm products. The food-inflation rate rose to 15.5 percent in the week to Jan. 8 in Asia’s third-largest economy, undermining spending power in a country where the World Bank estimates 828 million people live on less than $2 a day.
The benchmark wholesale-price inflation rate may average 8.5 percent in the year ending March 31, according to a survey of forecasts by lenders and research groups including the International Monetary Fund and the Asian Development Bank compiled by the RBI, yesterday’s report showed. In November, the average inflation was projected at 8.1 percent.
Faster Growth
The survey showed the economy may grow 8.7 percent in the year through March, faster than the 8.5 percent estimated three months ago.
“While inflation upsurge has largely come from supply-side elements, monetary policy would need to factor in near-term risks to inflation from high input cost pressures transmitting to output prices,” the central bank said in the report. “The risks to generalized inflation cannot be overlooked as inflation expectations are currently ruling high.”
Companies including Hindustan Unilever Ltd., India’s biggest household products maker, may suffer lower profit in the three quarters through September as input prices rise, Amit Mishra, a Mumbai-based analyst at Macquarie Securities India Pvt., said in an interview on Jan. 7.
Asian Rates
Officials across Asia have tightened monetary policy in recent weeks.
The Bank of Korea on Jan. 13 raised borrowing costs for the third time since the global financial crisis while Thailand on Jan. 12 increased its benchmark rate for the fourth time in seven months.
China, which boosted rates twice in the fourth quarter of last year, told banks on Jan. 14 to set aside more deposits as reserves for the fourth time in just over two months.
India’s main opposition Bharatiya Janata Party started a month-long campaign on Jan. 20 against Singh’s government, alleging corruption and a failure to check price gains.
Singh, who wants to cap prices before his Congress party faces nine state elections in the next 18 months, said Jan. 19 he’s “confident” of slowing inflation by March.
Chakravarthy Rangarajan, the top economic adviser to Singh, said Jan. 7 that “some action” by the RBI may be needed to contain prices.
“The anti-inflationary focus of monetary policy would have to continue,” the Reserve Bank of India said in a report yesterday. “Since a lower inflation regime is essential for sustainable high growth, containing inflation becomes the dominant policy objective in the current environment.”
Governor Duvvuri Subbarao may join South Korea and Thailand in raising borrowing costs this month after boosting them six times in 2010, the most by any central bank in Asia. The move will buttress government efforts to cool inflation after Prime Minister Manmohan Singh unveiled plans to import onions from Pakistan and keep a ban on exports of lentils and edible oils.
“The RBI’s pretty hawkish stance indicates that a rate hike is a done deal,” said Shubhada Rao, a Mumbai-based economist at Yes Bank Ltd. “Inflation is becoming a huge challenge for policy makers.”
Twenty one of 22 economists in a Bloomberg News survey forecast Subbarao will raise the benchmark repurchase rate by a quarter-point to 6.5 percent. One expects a half-point increase. The RBI is due to announce the decision at 11:30 a.m. in Mumbai.
Bonds Fall
India’s benchmark nine-year government bonds fell for a second day on speculation the RBI will tighten policy. The yield rose one basis point to 8.17 percent as of the 5 p.m. close in Mumbai yesterday. A basis point is 0.01 percentage point.
The Bombay Stock Exchange’s Sensitive Index, which has declined 6.6 percent this year, gained 0.8 percent. The rupee slipped 0.1 percent to 45.68 against the dollar.
Subbarao refrained from boosting borrowing costs in the last policy statement on Dec. 16 as a record 1.1 trillion rupees ($24.1 billion) of share sales by companies including Coal India Ltd. caused a cash squeeze at lenders.
Inflation in India is being stoked by the higher cost of farm products. The food-inflation rate rose to 15.5 percent in the week to Jan. 8 in Asia’s third-largest economy, undermining spending power in a country where the World Bank estimates 828 million people live on less than $2 a day.
The benchmark wholesale-price inflation rate may average 8.5 percent in the year ending March 31, according to a survey of forecasts by lenders and research groups including the International Monetary Fund and the Asian Development Bank compiled by the RBI, yesterday’s report showed. In November, the average inflation was projected at 8.1 percent.
Faster Growth
The survey showed the economy may grow 8.7 percent in the year through March, faster than the 8.5 percent estimated three months ago.
“While inflation upsurge has largely come from supply-side elements, monetary policy would need to factor in near-term risks to inflation from high input cost pressures transmitting to output prices,” the central bank said in the report. “The risks to generalized inflation cannot be overlooked as inflation expectations are currently ruling high.”
Companies including Hindustan Unilever Ltd., India’s biggest household products maker, may suffer lower profit in the three quarters through September as input prices rise, Amit Mishra, a Mumbai-based analyst at Macquarie Securities India Pvt., said in an interview on Jan. 7.
Asian Rates
Officials across Asia have tightened monetary policy in recent weeks.
The Bank of Korea on Jan. 13 raised borrowing costs for the third time since the global financial crisis while Thailand on Jan. 12 increased its benchmark rate for the fourth time in seven months.
China, which boosted rates twice in the fourth quarter of last year, told banks on Jan. 14 to set aside more deposits as reserves for the fourth time in just over two months.
India’s main opposition Bharatiya Janata Party started a month-long campaign on Jan. 20 against Singh’s government, alleging corruption and a failure to check price gains.
Singh, who wants to cap prices before his Congress party faces nine state elections in the next 18 months, said Jan. 19 he’s “confident” of slowing inflation by March.
Chakravarthy Rangarajan, the top economic adviser to Singh, said Jan. 7 that “some action” by the RBI may be needed to contain prices.
India’s growth push gets regional boost
Asian countries are among the biggest investors in India as the region increasingly backs its own rapid growth amid a fall-off in longer-term capital from the west.
India, the world’s fastest-growing large economy after China, has witnessed a surge in foreign direct investment from countries such as China, Japan and Malaysia. Investments from the US, France and the UK have declined over the past year.
Higher levels of FDI are crucial for India to achieve its ambition of double-digit growth. Duvvuri Subbarao, India’s central bank governor, has warned that India needs a quantum step” in investment if it is to propel its growth rate higher than the current 8.5 per cent.
An Ernst & Young study, released on Monday, showed that in spite of an often strained relationship across the Himalayas, FDI from China almost doubled over the past year. China was India’s ninth largest investor by number of projects in 2010, up from 16th the year before.
“In terms of potential new long-term trends, perhaps the most significant is the rapid growth of China as an investor in India,” the report said.
Japan has invested more in India than in China over the past two years and has overtaken the UK and Germany as investors, as capital has flowed into India’s manufacturing sector.
Although the US is still India’s largest investor, its share of investment has fallen from 45 per cent of total inflows into India in 2003 to 30 per cent. The number of investments last year was half the tally of four years ago.
Investments in India’s $60bn information technology sector have become increasingly controversial, triggering public anger and strong protectionist rhetoric at a time of high unemployment in the US.
Asian investors show a clear preference for the automotive, electronics and infrastructure sectors. But some are wary of India’s longer-term constraints.
“India is not a large energy-producing country and in view of its anticipated growth I expect the demand for energy to outstrip supply in times to come,” said Daisuke Ochiai, chief financial officer of Mitsui & Co. “I feel this could be a risk factor in India’s growth story.”
China remains the big FDI destination of the region, attracting about two-thirds more than India in spite of projections that India’s growth rate may overtake that of China’s in the coming five years.
India, the world’s fastest-growing large economy after China, has witnessed a surge in foreign direct investment from countries such as China, Japan and Malaysia. Investments from the US, France and the UK have declined over the past year.
Higher levels of FDI are crucial for India to achieve its ambition of double-digit growth. Duvvuri Subbarao, India’s central bank governor, has warned that India needs a quantum step” in investment if it is to propel its growth rate higher than the current 8.5 per cent.
An Ernst & Young study, released on Monday, showed that in spite of an often strained relationship across the Himalayas, FDI from China almost doubled over the past year. China was India’s ninth largest investor by number of projects in 2010, up from 16th the year before.
“In terms of potential new long-term trends, perhaps the most significant is the rapid growth of China as an investor in India,” the report said.
Japan has invested more in India than in China over the past two years and has overtaken the UK and Germany as investors, as capital has flowed into India’s manufacturing sector.
Although the US is still India’s largest investor, its share of investment has fallen from 45 per cent of total inflows into India in 2003 to 30 per cent. The number of investments last year was half the tally of four years ago.
Investments in India’s $60bn information technology sector have become increasingly controversial, triggering public anger and strong protectionist rhetoric at a time of high unemployment in the US.
Asian investors show a clear preference for the automotive, electronics and infrastructure sectors. But some are wary of India’s longer-term constraints.
“India is not a large energy-producing country and in view of its anticipated growth I expect the demand for energy to outstrip supply in times to come,” said Daisuke Ochiai, chief financial officer of Mitsui & Co. “I feel this could be a risk factor in India’s growth story.”
China remains the big FDI destination of the region, attracting about two-thirds more than India in spite of projections that India’s growth rate may overtake that of China’s in the coming five years.
Sunday, January 23, 2011
The Understudy Takes the Stage at Apple
On an 18-hour flight from California to Singapore a few years ago, Timothy D. Cook, Apple’s chief operating officer, had little time for small talk with a colleague. Glued to his business class seat, Mr. Cook had his nose in spreadsheets, preparing for a thorough review of Apple’s Asian operations.
The two landed at 6 a.m., took time to shower and headed into a meeting with Apple’s local executives. Twelve hours later, and well past dinnertime, the local executives were ready to call it quits.
“They were absolutely exhausted,” said Michael Janes, the Apple executive who accompanied Mr. Cook. “Tim was not. He was ready to jump to the next slide and the next slide after that. He is absolutely relentless.”
That relentlessness could be indispensable in the months ahead, because Mr. Cook may be tested as never before. He has been charged with running Apple’s day-to-day operations while his boss, Steven P. Jobs, the company’s visionary chief executive, is on medical leave.
Mr. Cook has done that twice before, briefly and successfully. Yet if Mr. Jobs’s health does not improve, Mr. Cook could be on the job for a long time. And while Apple’s succession plans are closely guarded, Mr. Cook is widely believed to be the most likely candidate to permanently replace Mr. Jobs.
In Silicon Valley, Mr. Jobs is also known for relentlessness. Yet on many levels, he and Mr. Cook are opposites. While Mr. Jobs is mercurial and prone to outbursts, Mr. Cook, who was raised in a small town in Alabama, is polite and soft-spoken. He is often described as a “Southern gentleman.” While Mr. Jobs obsesses over every last detail of Apple’s products, Mr. Cook obsesses over the less glamorous minutiae of Apple’s operations.
Their complementary skills have helped Apple pull off the most remarkable turnaround in American business, and made it the world’s most valuable technology company. When Mr. Cook is on his own, he will have to compensate for the absence of Mr. Jobs — and his inventiveness, charisma and uncanny ability to predict the future of technology and anticipate the wishes of consumers.
“He is going to have to look to others to provide the creative vacuum left by Steve,” said A. M. Sacconaghi Jr., an analyst with Sanford Bernstein & Company.
Mr. Cook and Apple declined to comment for this article. From his first days at Apple in 1998, Mr. Cook, who is known as intensely private, worked in the shadow of Mr. Jobs and other prominent leaders. Although his job — making sure Apple could produce, assemble and ship its breakthrough products around the world, and do so profitably — was not considered sexy, he quickly removed inefficiencies from Apple’s supply chain.
“My favorite scenes were meeting suppliers,” said a former Apple executive who had traveled with Mr. Cook frequently and asked to remain anonymous because he did not want to upset their relationship. “He is Mr. Spreadsheet. If things weren’t right, he would torture the suppliers and demand improvement. At the same time, he had good relationships with them.”
Apple was smaller then and largely focused on making PCs. Its operations were a mess.
Apple was still running its own factories in California, Ireland and Singapore. While more profitable and efficient companies like Dell had moved to a just-in-time manufacturing model, Apple still held 90 days of inventory.
Mr. Cook closed Apple’s factories and outsourced all manufacturing to a far-flung network of suppliers in Asia. Inventories decreased to 60 days, then to 30 days, then to the just-in-time model. Mr. Cook virtually lived in airplanes, traveling the world to meet with suppliers and browbeat them into meeting his demands.
Analysts and investors say Mr. Cook’s efforts on the production end made the difference in turning Apple’s fortunes around. And they still are critical to the company’s success.
Take the iPad. It took Mr. Jobs’s imagination and the expertise of his engineers and designers to create it. But Mr. Cook’s operational abilities allowed Apple to parlay a cool product into a business that has already brought in $9.6 billion, as the company built and shipped worldwide nearly 15 million iPads in just nine months to meet customers’ seemingly insatiable appetite.
The two landed at 6 a.m., took time to shower and headed into a meeting with Apple’s local executives. Twelve hours later, and well past dinnertime, the local executives were ready to call it quits.
“They were absolutely exhausted,” said Michael Janes, the Apple executive who accompanied Mr. Cook. “Tim was not. He was ready to jump to the next slide and the next slide after that. He is absolutely relentless.”
That relentlessness could be indispensable in the months ahead, because Mr. Cook may be tested as never before. He has been charged with running Apple’s day-to-day operations while his boss, Steven P. Jobs, the company’s visionary chief executive, is on medical leave.
Mr. Cook has done that twice before, briefly and successfully. Yet if Mr. Jobs’s health does not improve, Mr. Cook could be on the job for a long time. And while Apple’s succession plans are closely guarded, Mr. Cook is widely believed to be the most likely candidate to permanently replace Mr. Jobs.
In Silicon Valley, Mr. Jobs is also known for relentlessness. Yet on many levels, he and Mr. Cook are opposites. While Mr. Jobs is mercurial and prone to outbursts, Mr. Cook, who was raised in a small town in Alabama, is polite and soft-spoken. He is often described as a “Southern gentleman.” While Mr. Jobs obsesses over every last detail of Apple’s products, Mr. Cook obsesses over the less glamorous minutiae of Apple’s operations.
Their complementary skills have helped Apple pull off the most remarkable turnaround in American business, and made it the world’s most valuable technology company. When Mr. Cook is on his own, he will have to compensate for the absence of Mr. Jobs — and his inventiveness, charisma and uncanny ability to predict the future of technology and anticipate the wishes of consumers.
“He is going to have to look to others to provide the creative vacuum left by Steve,” said A. M. Sacconaghi Jr., an analyst with Sanford Bernstein & Company.
Mr. Cook and Apple declined to comment for this article. From his first days at Apple in 1998, Mr. Cook, who is known as intensely private, worked in the shadow of Mr. Jobs and other prominent leaders. Although his job — making sure Apple could produce, assemble and ship its breakthrough products around the world, and do so profitably — was not considered sexy, he quickly removed inefficiencies from Apple’s supply chain.
“My favorite scenes were meeting suppliers,” said a former Apple executive who had traveled with Mr. Cook frequently and asked to remain anonymous because he did not want to upset their relationship. “He is Mr. Spreadsheet. If things weren’t right, he would torture the suppliers and demand improvement. At the same time, he had good relationships with them.”
Apple was smaller then and largely focused on making PCs. Its operations were a mess.
Apple was still running its own factories in California, Ireland and Singapore. While more profitable and efficient companies like Dell had moved to a just-in-time manufacturing model, Apple still held 90 days of inventory.
Mr. Cook closed Apple’s factories and outsourced all manufacturing to a far-flung network of suppliers in Asia. Inventories decreased to 60 days, then to 30 days, then to the just-in-time model. Mr. Cook virtually lived in airplanes, traveling the world to meet with suppliers and browbeat them into meeting his demands.
Analysts and investors say Mr. Cook’s efforts on the production end made the difference in turning Apple’s fortunes around. And they still are critical to the company’s success.
Take the iPad. It took Mr. Jobs’s imagination and the expertise of his engineers and designers to create it. But Mr. Cook’s operational abilities allowed Apple to parlay a cool product into a business that has already brought in $9.6 billion, as the company built and shipped worldwide nearly 15 million iPads in just nine months to meet customers’ seemingly insatiable appetite.
Swaps Climb to 2008 High as RBI `Desperate' to Raise Rates: India Credit
The cost of locking in five-year interest rates in India has climbed to the highest level since 2008 as investors brace for the central bank to resume Asia’s most-aggressive tightening of monetary policy.
The fixed rate to receive floating payments for five years in a swap contract surged 118 basis points in the past year, the most in Asia, to a 27-month high of 8.09 percent on Jan. 20, data compiled by Bloomberg show. The Reserve Bank of India will boost its repurchase rate tomorrow by 25 basis points to 6.5 percent, according to 21 of 22 economists in a Bloomberg News survey.
Central bank Governor Duvvuri Subbarao said at a ceremony in Mumbai on Jan. 17 he is “desperate” to cool inflation that accelerated the most in 10 months in December to 8.43 percent. Deutsche Bank AG forecast this month that rates on India’s 2016 swaps, already twice as high as the 4.15 percent for the similar gauge in China, will advance further as investors use the contracts to guard against higher debt costs.
“A 50-basis-point rate increase is probably what’s needed to bring inflation under control and the swap market is telling you just that,” K. Ramanathan, chief investment officer at ING Investment Management Pvt. in Mumbai, said in a Jan. 20 interview. “Monetary policy so far seems to have stayed a bit too pro-growth than was necessary.”
Mumbai-based Credit Analysis & Research Ltd. predicted a 50 basis point increase, a move HSBC Holdings Plc and JPMorgan Chase & Co. also said is possible.
Rate Move
The last time swap rates surged this high, in June 2008, the RBI raised rates by 0.50 percentage point twice in as many months. An increase of that size would be larger than each of the six quarter-point increases of 2010.
Five-year swap rates have gained 65 basis points since the last policy review on Dec. 16, when Subbarao left borrowing costs unchanged after share sales by companies including Coal India Ltd. caused a cash crunch in the banking system.
The Reserve Bank lifted the repurchase rate, its overnight lending rate, by 150 basis points last year, the most by any central bank in Asia. Brazil increased its benchmark on Jan. 19 for the first time since July, to 11.25, while South Korea and Thailand raised rates this month to 2.75 and 2.25. A basis point is 0.01 percentage point. The RBI’s decision will be announced in Mumbai at 11:30 a.m. tomorrow.
‘Out of Hand’
“The RBI is likely to raise rates by 25 basis points but there’s an outside chance of them surprising with a 50 basis points increase,” Jahangir Aziz, the Mumbai-based chief economist at JPMorgan who previously worked at the finance ministry, said in a Jan. 21 interview. “If inflation isn’t subdued at this point in time, it will get out of hand.”
The South Asian nation’s sovereign bonds have lost 0.9 percent this month, the third-worst performance after local- currency debt markets in Indonesia and the Philippines, HSBC indexes show.
India’s 7.8 percent bonds due May 2020 are headed for their first monthly loss since October, pushing yields close to the highest level since the notes were issued in May. The yield on the security rose three basis points to 8.16 percent on Jan. 21, according to the central bank’s trading system.
“Inflation will remain a worry in 2011,” Kumar Rachapudi, a Singapore-based fixed-income strategist at Barclays Plc, said in a Jan. 19 interview. “With no clear respite in sight for interest rates due to sticky inflation, we see the yield on the benchmark bond rising above 8.4 percent” by the end of June.
Real Yields
Real yields on nine-year government bonds, adjusted for inflation, ended last week at a negative 0.27 percent, compared with a positive 0.45 percent a month earlier, as the benchmark wholesale-price index rose faster. In China, 10-year real yields are a negative 0.61 percent.
“We are still bearish on India,” Adeline Ng, who oversees $1.6 billion in Singapore as head of Asian fixed-income trading at BNP Paribas Investment Partners, a unit of France’s largest bank, said in a Jan. 19 interview. “Central banks will still hike rates, partially to normalize rates where many of the countries are still having negative interest rates.”
The BNP Paribas L1 Bond Asia Ex-Japan fund uses interest- rate swaps to profit from its forecasts.
Inflation in India is being stoked by the higher cost of farm products. The food-inflation rate rose 15.5 percent in the week to Jan. 8 in Asia’s third-largest economy, undermining spending power in a country where the World Bank estimates 828 million people live on less than $2 a day.
Political Pressure
The main opposition Bharatiya Janata Party started a month- long campaign on Jan. 20 against Prime Minister Manmohan Singh’s government for failing to check price gains. The government is targeting economic growth of 9 percent over the next two decades to cut poverty.
Singh, who is under pressure to cap prices before his Congress party faces nine state elections in the next 18 months, said Jan. 19 he’s “confident” of slowing inflation by March. Chakravarthy Rangarajan, the top economic adviser to Singh, said Jan. 7 that “some action” on rates may be needed to contain prices.
The cost of protecting debt of State Bank of India from default for five years rose 23 basis points to 183 this year. Some investors use State Bank as a proxy for sovereign credit- default swaps. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
India’s rupee fell 0.2 percent to 45.62 per dollar on Jan. 21. The currency rose 4.1 percent in 2010 after gaining 4.9 percent in 2009, and slumping 19 percent in 2008.
“With inflation remaining above its comfort level, the RBI needs to demonstrate strong resolve to tackle it in order to maintain credibility,” Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc, said in a Jan. 18 interview.
The fixed rate to receive floating payments for five years in a swap contract surged 118 basis points in the past year, the most in Asia, to a 27-month high of 8.09 percent on Jan. 20, data compiled by Bloomberg show. The Reserve Bank of India will boost its repurchase rate tomorrow by 25 basis points to 6.5 percent, according to 21 of 22 economists in a Bloomberg News survey.
Central bank Governor Duvvuri Subbarao said at a ceremony in Mumbai on Jan. 17 he is “desperate” to cool inflation that accelerated the most in 10 months in December to 8.43 percent. Deutsche Bank AG forecast this month that rates on India’s 2016 swaps, already twice as high as the 4.15 percent for the similar gauge in China, will advance further as investors use the contracts to guard against higher debt costs.
“A 50-basis-point rate increase is probably what’s needed to bring inflation under control and the swap market is telling you just that,” K. Ramanathan, chief investment officer at ING Investment Management Pvt. in Mumbai, said in a Jan. 20 interview. “Monetary policy so far seems to have stayed a bit too pro-growth than was necessary.”
Mumbai-based Credit Analysis & Research Ltd. predicted a 50 basis point increase, a move HSBC Holdings Plc and JPMorgan Chase & Co. also said is possible.
Rate Move
The last time swap rates surged this high, in June 2008, the RBI raised rates by 0.50 percentage point twice in as many months. An increase of that size would be larger than each of the six quarter-point increases of 2010.
Five-year swap rates have gained 65 basis points since the last policy review on Dec. 16, when Subbarao left borrowing costs unchanged after share sales by companies including Coal India Ltd. caused a cash crunch in the banking system.
The Reserve Bank lifted the repurchase rate, its overnight lending rate, by 150 basis points last year, the most by any central bank in Asia. Brazil increased its benchmark on Jan. 19 for the first time since July, to 11.25, while South Korea and Thailand raised rates this month to 2.75 and 2.25. A basis point is 0.01 percentage point. The RBI’s decision will be announced in Mumbai at 11:30 a.m. tomorrow.
‘Out of Hand’
“The RBI is likely to raise rates by 25 basis points but there’s an outside chance of them surprising with a 50 basis points increase,” Jahangir Aziz, the Mumbai-based chief economist at JPMorgan who previously worked at the finance ministry, said in a Jan. 21 interview. “If inflation isn’t subdued at this point in time, it will get out of hand.”
The South Asian nation’s sovereign bonds have lost 0.9 percent this month, the third-worst performance after local- currency debt markets in Indonesia and the Philippines, HSBC indexes show.
India’s 7.8 percent bonds due May 2020 are headed for their first monthly loss since October, pushing yields close to the highest level since the notes were issued in May. The yield on the security rose three basis points to 8.16 percent on Jan. 21, according to the central bank’s trading system.
“Inflation will remain a worry in 2011,” Kumar Rachapudi, a Singapore-based fixed-income strategist at Barclays Plc, said in a Jan. 19 interview. “With no clear respite in sight for interest rates due to sticky inflation, we see the yield on the benchmark bond rising above 8.4 percent” by the end of June.
Real Yields
Real yields on nine-year government bonds, adjusted for inflation, ended last week at a negative 0.27 percent, compared with a positive 0.45 percent a month earlier, as the benchmark wholesale-price index rose faster. In China, 10-year real yields are a negative 0.61 percent.
“We are still bearish on India,” Adeline Ng, who oversees $1.6 billion in Singapore as head of Asian fixed-income trading at BNP Paribas Investment Partners, a unit of France’s largest bank, said in a Jan. 19 interview. “Central banks will still hike rates, partially to normalize rates where many of the countries are still having negative interest rates.”
The BNP Paribas L1 Bond Asia Ex-Japan fund uses interest- rate swaps to profit from its forecasts.
Inflation in India is being stoked by the higher cost of farm products. The food-inflation rate rose 15.5 percent in the week to Jan. 8 in Asia’s third-largest economy, undermining spending power in a country where the World Bank estimates 828 million people live on less than $2 a day.
Political Pressure
The main opposition Bharatiya Janata Party started a month- long campaign on Jan. 20 against Prime Minister Manmohan Singh’s government for failing to check price gains. The government is targeting economic growth of 9 percent over the next two decades to cut poverty.
Singh, who is under pressure to cap prices before his Congress party faces nine state elections in the next 18 months, said Jan. 19 he’s “confident” of slowing inflation by March. Chakravarthy Rangarajan, the top economic adviser to Singh, said Jan. 7 that “some action” on rates may be needed to contain prices.
The cost of protecting debt of State Bank of India from default for five years rose 23 basis points to 183 this year. Some investors use State Bank as a proxy for sovereign credit- default swaps. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
India’s rupee fell 0.2 percent to 45.62 per dollar on Jan. 21. The currency rose 4.1 percent in 2010 after gaining 4.9 percent in 2009, and slumping 19 percent in 2008.
“With inflation remaining above its comfort level, the RBI needs to demonstrate strong resolve to tackle it in order to maintain credibility,” Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc, said in a Jan. 18 interview.
Asian Stocks Rise for First Time in Three Days, Led by Japanese Automakers
Asian stocks rose for the first time in three days, led by Japanese carmakers after Nomura Holdings Inc. boosted its investment rating on Honda Motor Co.
Honda, Japan’s second-biggest carmaker by market value, climbed 3.1 percent in Tokyo, and Toyota Motor Corp., the world’s largest automaker, advanced 1.3 percent. Woolworths Ltd., Australia’s No. 1 retailer, dropped 2.5 percent in Sydney after cutting its annual profit forecast. JB Hi-Fi Ltd., an Australian electronics retailer, decreased 1.9 percent.
The MSCI Asia Pacific Index gained 0.2 percent to 136.79 as of 10:27 a.m. in Tokyo, with about three stocks advancing for each two that declined. Of the 40 companies in the gauge that have reported net income for the latest quarter, 18 have exceeded analyst estimates and the same number has missed them, according to data compiled by Bloomberg.
The Asia-Pacific gauge sank 1.7 percent last week amid concern China’s faster-than-expected economic growth will add pressure on policy makers to boost efforts to tame inflation.
Honda, Japan’s second-biggest carmaker by market value, climbed 3.1 percent in Tokyo, and Toyota Motor Corp., the world’s largest automaker, advanced 1.3 percent. Woolworths Ltd., Australia’s No. 1 retailer, dropped 2.5 percent in Sydney after cutting its annual profit forecast. JB Hi-Fi Ltd., an Australian electronics retailer, decreased 1.9 percent.
The MSCI Asia Pacific Index gained 0.2 percent to 136.79 as of 10:27 a.m. in Tokyo, with about three stocks advancing for each two that declined. Of the 40 companies in the gauge that have reported net income for the latest quarter, 18 have exceeded analyst estimates and the same number has missed them, according to data compiled by Bloomberg.
The Asia-Pacific gauge sank 1.7 percent last week amid concern China’s faster-than-expected economic growth will add pressure on policy makers to boost efforts to tame inflation.
Indonesia to sign $15bn deals with India
Indonesia will sign 17 deals worth more than $15bn this week during a visit to India by Susilo Bambang Yudhoyono, Indonesia’s president, along with a dozen of his key ministers. The deals will be a significant boost to ties between Asia’s two largest democracies.
The agreements, to be formalised on Tuesday, are part of an ambitious push by Indonesia, a member of the group of 20 and south-east Asia’s largest economy, to attract $150bn in infrastructure investment.
Among the projects to be implemented over the next three years are multibillion-dollar investments by Indian energy companies Reliance Group, Archean, Adani and Tata, according to a list given to the Financial Times by the Indonesian Investment Co-ordinating Board.
One memorandum of understanding will be with Indian infrastructure developer GVK, the company building Bombay’s new airport, which will construct airport terminals on Indonesia’s resort island of Bali and in Yogyakarta, a city in central Java.
Adani, the energy group, will build a 270km railway and a coal terminal in southern Sumatra with the provincial government in a deal worth $1.6bn. Other deals include the building of coal-fired power plants, railways and shipyards.
Indonesia urgently needs infrastructure investment to meet growing demand for services and goods both at home and abroad.
For decades the country has been a leading source of coal, metal and minerals for richer neighbours but, as an emerging regional power governing 240m people, Jakarta hopes profits from Indonesia’s abundant resources can deepen development.
“It’s not the old paradigm of extracting, it’s the new paradigm of digging, but also creating value, in Indonesia,” Gita Wirjawan, head of the Indonesian Investment Co-ordinating Board, said on Sunday. “This will be a big bang. I am very excited about the fact that the Indians are keen on coming to Indonesia.”
Indonesia is also negotiating similar deals with companies from South Korea, China and Japan that are willing to invest billions in infrastructure to secure supplies of coal, oil and gas.
Mr Yudhoyono will oversee the signing of dozens of other bilateral agreements and will discuss expanding trade in India and the 10 countries of Asean, the south-east Asian regional grouping. Bilateral trade between India and Indonesia is worth $11.8bn per year, while Indonesia is India’s second-largest Asean trading partner, importing large quantities of wood pulp, palm oil and minerals. India invested $26.2m in Indonesia in 2009.
The agreements, to be formalised on Tuesday, are part of an ambitious push by Indonesia, a member of the group of 20 and south-east Asia’s largest economy, to attract $150bn in infrastructure investment.
Among the projects to be implemented over the next three years are multibillion-dollar investments by Indian energy companies Reliance Group, Archean, Adani and Tata, according to a list given to the Financial Times by the Indonesian Investment Co-ordinating Board.
One memorandum of understanding will be with Indian infrastructure developer GVK, the company building Bombay’s new airport, which will construct airport terminals on Indonesia’s resort island of Bali and in Yogyakarta, a city in central Java.
Adani, the energy group, will build a 270km railway and a coal terminal in southern Sumatra with the provincial government in a deal worth $1.6bn. Other deals include the building of coal-fired power plants, railways and shipyards.
Indonesia urgently needs infrastructure investment to meet growing demand for services and goods both at home and abroad.
For decades the country has been a leading source of coal, metal and minerals for richer neighbours but, as an emerging regional power governing 240m people, Jakarta hopes profits from Indonesia’s abundant resources can deepen development.
“It’s not the old paradigm of extracting, it’s the new paradigm of digging, but also creating value, in Indonesia,” Gita Wirjawan, head of the Indonesian Investment Co-ordinating Board, said on Sunday. “This will be a big bang. I am very excited about the fact that the Indians are keen on coming to Indonesia.”
Indonesia is also negotiating similar deals with companies from South Korea, China and Japan that are willing to invest billions in infrastructure to secure supplies of coal, oil and gas.
Mr Yudhoyono will oversee the signing of dozens of other bilateral agreements and will discuss expanding trade in India and the 10 countries of Asean, the south-east Asian regional grouping. Bilateral trade between India and Indonesia is worth $11.8bn per year, while Indonesia is India’s second-largest Asean trading partner, importing large quantities of wood pulp, palm oil and minerals. India invested $26.2m in Indonesia in 2009.
New Delhi eyes bank reshape
India’s central bank plans to encourage foreign institutions operating in the country to set up wholly owned subsidiaries rather than merely operating as branches of overseas groups.
The Reserve Bank of India said in a discussion paper that having foreign banks set up as locally incorporated, wholly owned subsidiaries would be better for the stability of the financial system than the current structure, where they operate as branches of their overseas parents.
Local incorporation of foreign banks in India would ensure “a clear delineation between the assets and liabilities of the domestic bank and those of its foreign parent and clearly provides for ring-fenced capital within the host country”, it said.
Such a structure would facilitate more “effective control in a banking crisis and enables the host country authorities to act more independently as against branch operations”, the central bank said, while a local board of directors would prioritise local interests.
Some 34 foreign banks operate in India, but all are structured as branches of overseas institutions and face many restrictions on expanding their networks.
However, according to the RBI, during the global financial crisis foreign banks – which had grown substantially in preceding years – sharply curtailed their domestic lending in India as their parent companies ran into difficulties.
As a result, foreign banks accounted for 7.65 per cent of total Indian banking system assets at the end of March 2010, down from about 9 per cent in March 2009. The five biggest foreign banks – including Citibank and Standard Chartered – account for 70 per cent of India’s foreign bank assets.
The RBI said it could not force foreign banks already operating in India to incorporate locally, but that it expected those that had become systemically important – by virtue of their size – to “voluntarily convert their branches into wholly owned subsidiaries”.
It said any bank accounting for at least 0.25 per cent of India’s total financial system assets was to be deemed systemically important.
Wholly owned subsidiaries of foreign banks would be given more favourable treatment for expanding their Indian branch networks than other foreign banks, the RBI proposed.
Local subsidiaries of foreign banks could also be given a five-year transition period to comply with India’s priority sector lending rules.
The RBI has invited feedback on its proposals.
The Reserve Bank of India said in a discussion paper that having foreign banks set up as locally incorporated, wholly owned subsidiaries would be better for the stability of the financial system than the current structure, where they operate as branches of their overseas parents.
Local incorporation of foreign banks in India would ensure “a clear delineation between the assets and liabilities of the domestic bank and those of its foreign parent and clearly provides for ring-fenced capital within the host country”, it said.
Such a structure would facilitate more “effective control in a banking crisis and enables the host country authorities to act more independently as against branch operations”, the central bank said, while a local board of directors would prioritise local interests.
Some 34 foreign banks operate in India, but all are structured as branches of overseas institutions and face many restrictions on expanding their networks.
However, according to the RBI, during the global financial crisis foreign banks – which had grown substantially in preceding years – sharply curtailed their domestic lending in India as their parent companies ran into difficulties.
As a result, foreign banks accounted for 7.65 per cent of total Indian banking system assets at the end of March 2010, down from about 9 per cent in March 2009. The five biggest foreign banks – including Citibank and Standard Chartered – account for 70 per cent of India’s foreign bank assets.
The RBI said it could not force foreign banks already operating in India to incorporate locally, but that it expected those that had become systemically important – by virtue of their size – to “voluntarily convert their branches into wholly owned subsidiaries”.
It said any bank accounting for at least 0.25 per cent of India’s total financial system assets was to be deemed systemically important.
Wholly owned subsidiaries of foreign banks would be given more favourable treatment for expanding their Indian branch networks than other foreign banks, the RBI proposed.
Local subsidiaries of foreign banks could also be given a five-year transition period to comply with India’s priority sector lending rules.
The RBI has invited feedback on its proposals.
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