Emerging Stocks Pare Weekly Gain as Rate Cuts Disappoint

By Christine Harvey and Jason Webb - Jul 6, 2012

Emerging-market stocks fell, paring the benchmark index’s second straight weekly gain, as Chinese and European interest-rate cuts failed to bolster investor confidence and U.S. payrolls rose less than forecast.
The MSCI Emerging Markets Index lost 1 percent to 946.01 by the close in New York, trimming its weekly advance to 0.9 percent. Samsung Electronics (005930), the world’s largest maker of televisions and mobile phones, slumped after quarterly sales missed estimates. Brazil’s Bovespa snapped a five-day advance with B2W Cia. Global do Varejo falling 6.2 percent in Sao Paulo. The Micex Index dropped the most in a week as oil slid.
The People’s Bank of China announced yesterday its second reduction in borrowing costs in a month and the European Central Bank lowered its benchmark rate to a record low 0.75 percent. U.S. payrolls rose 80,000 last month after a 77,000 increase in May, Labor Department figures showed today in Washington. Economists projected a 100,000 gain, according to the median estimate in a Bloomberg News survey. Private employment increased 84,000 in June, the weakest in 10 months.
“The rate cuts by the Chinese central bank and the ECB failed to spark any optimism and led to profit taking yesterday,” Slava Smolyaninov and Leonid Slipchenko, analysts at UralSib Capital in Moscow, wrote in an e-mail to clients. “Investors clearly need to have greater confidence if they are to continue buying equities after the emergence of the latest signs of a slowdown.”

Worst Quarter

The MSCI Emerging Market gauge has added 3.2 percent in 2012 and trades at a multiple of 10.2 times estimated earnings, compared with 12.2 for the MSCI World Index, according to data compiled by Bloomberg, The index of developed nations has added 4 percent this year.
Unemployment in the U.S. held at 8.2 percent, matching the Bloomberg survey median. June concluded the worst quarter for corporate hiring since the first three months of 2010.
The IShares MSCI Emerging Markets Index (MXEF) exchange-traded fund, the ETF tracking developing-nation shares, sank 1.8 percent to $38.77.
The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, rose 2.4 percent to 26.90.
Brazil’s Bovespa dropped 1.7 percent, paring its weekly advance to 1.9 percent, its first five-day advance in three weeks.

Oil Falls

Russia’s Micex Index tumbled 1.5 percent, its biggest decline since June 28, to pare its weekly advance to 3 percent. OAO Novatek, the nation’s largest non-state producer of natural- gas, slid 3.9 percent.
OAO Sberbank, the nation’s largest lender, fell 1.9 percent as its operating expenses in the first six months of this year rose 22 percent from a year earlier.
Oil for August delivery fell $2.77, or 3.2 percent, to $84.45 a barrel on the New York Mercantile Exchange. Crude is down 15 percent this year and 0.6 percent this week.
The BSE India Sensitive Index (SENSEX) dropped 0.1 percent.
The FTSE/JSE Africa All Share Index (JALSH) was little changed in Johannesburg. SABMiller Ltd. (SAB), the world’s second-largest brewer, added 1.9 percent.
The ISE National 100 Index (XU100) gained 1.3 percent in Istanbul.

Samsung Electronics

Samsung Electronics dropped 2 percent in Seoul after the company’s second-quarter sales of 47 trillion won ($41.3 billion) trailed the 49.8 trillion-won average of 35 analysts’ estimates compiled by Bloomberg, overshadowing record operating profit.
South Korea’s Kospi Index fell 0.9 percent.
A gauge of developers in the Shanghai index surged 3.5 percent, the most since March 2. Poly Real Estate Group Co., the second-largest listed developer, surged 5 percent to the highest level in 2 1/2 years. Investors and speculators will increasingly re-enter the property market after the rate cut and housing prices will rise over the next few months, Jinsong Du, a Hong Kong-based property analyst at Credit Suisse Group AG, wrote in a note to clients yesterday.
The Hang Seng China Enterprises Index (HSCEI) of Chinese companies listed in Hong Kong lost 0.2 percent. China Construction Bank Corp. (939) dropped 2.7 percent as Citigroup Inc. said the nation’s interest-rate cut will hurt lenders’ earnings.
The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose four basis points, or 0.04 percentage point, to 369, according to JPMorgan Chase & Co.’s EMBI Global Index.
To contact the reporters on this story: Christine Harvey in New York at charvey32@bloomberg.net; Jason Webb in London at jwebb25@bloomberg.net
To contact the editors responsible for this story: Gavin Serkin at gserkin@bloomberg.net; Tal Barak Harif at tbarak@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Singh Adviser Warns Against Portfolio Investor Tax-Rule Changes By Unni Krishnan - Jul 5, 2012

India should refrain from changing the way foreign investors in stocks and bonds are taxed, a key adviser to Prime Minister Manmohan Singh said, as the nation prepares rules to clamp down on tax avoidance.

“We should clarify that it is not the intention to change the tax treatment of bona fide foreign institutional investors,” Montek Singh Ahluwalia, 68, deputy chairman of India’s Planning Commission, said in an interview in New Delhi yesterday. “I hope they will clarify it in a way in which FIIs will be reassured that their investment is welcome.”

Prime Minister Singh has made reviving investment in India a priority after taking charge of the finance ministry on June 26 with growth at a nine-year low. Ahluwalia also said he hopes India will “very soon” allow foreign companies to open supermarkets selling multiple brands, an industry closed off to overseas businesses and one that Singh is trying to open up.

The prime minister decided to lead the finance ministry after Pranab Mukherjee resigned to vie for the presidency. Mukherjee outlined steps to tackle tax avoidance, the so-called General Anti-Avoidance Rule, or GAAR, in the budget in March, before retreating on the proposals in May by delaying implementation until 2013 to salvage investor confidence.

Ahluwalia’s comments “are more to assuage foreign investors,” said Jagannadham Thunuguntla, a strategist at SMC Global Securities Ltd. (GLBS) in New Delhi. “It is an effort to find a middle ground while introducing the tax rules.”

Stocks, Rupee

India plans to issue a clarification this month keeping overseas investors of equity and bond derivative instruments out of the purview of Indian taxes, two government officials with direct knowledge of the matter said, declining to be identified citing rules. The so-called participatory notes are derivatives that allow foreigners not registered with the nation’s market regulator to invest in local stocks and bonds.

The rupee fell 0.8 percent to 54.955 per dollar in Mumbai yesterday. The currency has declined 19 percent against the dollar in the past 12 months. The BSE India Sensitive Index (SENSEX) of stocks rose 0.4 percent. The yield on the 8.15 percent notes due June 2022 advanced 3 basis points, or 0.03 percentage point, to 8.19 percent.

The government aims to revive plans to allow companies including Wal-Mart Stores Inc. (WMT) to set up retail stores after protest from allies and opposition parties prompted it to defer the rules in December, Ahluwalia said. Singh may allow state governments to decide whether to implement the rule, he said.

‘Consensus Building’

“We have done some consensus building since” December, said Ahluwalia, one of the top bureaucrats in the finance ministry when Singh opened up India’s economy in 1991 as finance minister. Under India’s federal structure, states are responsible for issuing licenses for retail stores.

Ahluwalia said the government had set up monitoring mechanisms to ensure faster implementation of road, port and power projects. The measures will help boost economic growth and increase foreign investment flows, he said.

Gross domestic product rose 5.3 percent in the three months to March 31 from a year earlier, the least since 2003. Ahluwalia, who last year set a 9 percent target for economic growth in the next five years, estimates GDP to expand 8 percent to 8.5 percent as the global recovery falters.

Economic Prospects

Inflation accelerated to 7.55 percent in May, the fastest pace in the BRIC group of largest emerging markets that also includes Brazil, Russia and China. Higher food prices and more expensive imports because of the weaker rupee have contributed to jumps in living costs.

Ahluwalia said the rupee had corrected after over depreciating and a “little” fall in the currency should be positive. The rupee has surged 3.7 percent since June 27, when Singh called for capital inflows.

India’s current account, the broadest measure of trade, widened to a record $21.7 billion in the three months ended March. The widening of the deficit was due to a surge in gold imports, which have slowed after the government imposed an additional tax on shipments, Ahluwalia said.

“India’s economic prospects will support foreign capital inflow needed in order to finance the deficit, without putting pressure on the rupee,” Ahluwalia said. “The current account deficit this year won’t be as bad as last year.”

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Mahindra Said to Consider Bidding for Hawker Beechcraft By Siddharth Philip - Jul 4, 2012

Mahindra & Mahindra Ltd. (MM), India’s biggest maker of utility vehicles, is considering bidding for Hawker Beechcraft Inc., the bankrupt aircraft maker part owned by Goldman Sachs Group Inc. (GS), a person with knowledge of the matter said.

Hawker would fit well with Mahindra because both produce turboprop aircraft, said the person, who asked not to be identified because the deliberations are private. The Mumbai- based company has not decided whether to make an offer, the person said. Roma Balwani, a spokeswoman for Mahindra, said the company doesn’t comment on speculation.

Mahindra, which purchased majority stakes in component maker Aerostaff Australia and turboprop aircraft manufacturer Gippsland Aeronautics in 2009, has been in talks with India’s National Aerospace Laboratories on possibly partnering for a regional jet. A successful bid for the business jet-maker will catapult Mahindra into the aerospace market as a manufacturer, according to Dhiraj Mathur of PricewaterhouseCoopers LLP.

“This is a sensible move as with an acquisition, they get access to years’ worth of technology and certification,” said Mathur, a Gurgaon, India-based executive director at PwC’s unit. “Mahindra will jump up the value chain. It’ll give them aersopace capabilities. They will be able to participate as an OEM and not a partner of an OEM.”

Ssangyong Purchase

Shares of Mahindra were little changed at 718.55 rupees yesterday in Mumbai. They have gained 5.4 percent this year, compared with a 13 percent increase in the benchmark Sensitive Index. (SENSEX) Of the 61 analysts who track the stock, 46 recommend buying the shares, according to data compiled by Bloomberg.

Mahindra Group is a conglomerate with 110 subsidiaries in finance, information technology, real estate and resorts. Mahindra last year acquired 70 percent of South Korean automaker Ssangyong Motor Co. (003620) for $378 million.

The tractor maker, which formed its aerospace division in 2007, makes light aircraft, as well as parts for Boeing Co. (BA)’s 737s, Gulfstream Aerospace Corp. business jets and Lockheed Martin Corp. (LMT)’s F-35 Joint Strike Fighters, according to its website.

The company had cash and short-term investments of 54 billion rupees ($989 million) as of March 31, according to data compiled by Bloomberg.

The Indian automaker in March said it was in exploratory talks with National Aerospace to partner the state-owned plane designer in developing a planned regional jet. NAL last year announced the 40 billion-rupee plan to develop a 90-seat aircraft as the country joins China in trying to form a globally competitive aerospace industry.

Revamp Plan

Hawker, which makes the Beechcraft King Air turboprop and the Hawker 4000 business jet, filed a reorganization plan in U.S. Bankruptcy Court on June 30 that would give control of the Wichita, Kansas-based company to secured creditors who hold debt valued at almost $922 million.

Goldman Sachs Capital Partners, the fifth-biggest U.S. bank’s private-equity arm, and Toronto-based Onex Corp. (OCX) bought Hawker in 2007 for $3.3 billion. Hawker reported net losses totaling more than $900 million in the past two years as U.S. military contracts and plane sales declined.

Hawker competes with Cessna Aircraft Co, Embraer SA (EMBR3), Gulfstream Aerospace Corp. and Bombardier Inc. (BBD/B) to supply business jets in the mid- and light-aircraft categories.

To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editor responsible for this story: Chua Kong Ho at kchua6@bloomberg.net

India’s Sensex Swings Between Gains, Losses; Tata Drops By Rajhkumar K Shaaw - Jul 2, 2012

Indian stocks swung between gains and losses as some investors judged a recent rally excessive.
Tata Motors Ltd. (TTMT), the nation’s biggest truckmaker and owner of Jaguar Land Rover, dropped 1.2 percent after June sales declined. Bharti Airtel Ltd. (BHARTI), the largest mobile-phone operator, climbed 1.1 percent.
The BSE India Sensitive Index (SENSEX), or Sensex, retreated 0.2 percent to 17,403.83 at 9:54 a.m. after swinging between gains and losses at least five times. Its 14-day relative strength index, a measure of how rapidly prices rose or fell during the specified period, was 68 on June 29. Some investors see readings of more than 70 as a signal to sell.
“Investors are taking a breather given the superb rally we had last month,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. in Kochi. “They are waiting for some trigger which could come from more reform measures by the Prime Minister to boost economic growth.”
Indian stocks jumped the most in Asia in June on optimism Prime Minister Manmohan Singh will accelerate the government’s reform agenda after he took over the country’s Finance Ministry on June 26. Singh, who will head the ministry until a successor for Pranab Mukherjee is named, was finance minister in the 1990s, sparking an economic turnaround that now faces one of its sternest tests.

Reform Pressure

Singh’s administration has seen its agenda stymied by opposition from its own coalition allies, and last year suspended a plan to allow Wal-Mart Stores Inc. (WMT) and other foreign companies to buy majority stakes in Indian multi-brand retailers. An anti-corruption bill and proposals to allow foreign direct investment in pensions have also been shelved.
“There is hope that he will go quicker on reforms because there is so much pressure from the media, analysts and economists that we are not doing anything,” Nirmal Jain, chairman of IIFL Ltd., a Mumbai-based brokerage, said in a Bloomberg UTV interview on June 29.
The Sensex has gained 13 percent this year and trades at 13.6 times estimated earnings. Valuations sank to a three-year low of 12.4 times on May 23 on concern slowing economic growth will hurt corporate profits. The MSCI Emerging Markets Index trades at 10 times.
Overseas investors sold a net $122.1 million of Indian stocks on June 28, paring their investment this year to $8.6 billion, according to the nation’s market regulator.
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net