Asian Stocks Decline for Third Day as Global Recession Deepens

Feb. 18 (Bloomberg) -- Asian stocks dropped for a third day, dragging Japan’s Topix index toward the lowest close in 25 years, as the deepening global recession hurts demand for commodities and corporate earnings.

Westpac Banking Corp., Australia’s biggest lender by market value, slipped 2.6 percent as a fivefold surge in bad-debt charges dragged quarterly profit lower. BHP Billiton Ltd. retreated 4.3 percent in Sydney after metal and oil prices declined. Sony Corp., which gets a quarter of its sales from the U.S., fell 3.1 percent after manufacturing in New York shrank at the fastest pace on record.

“I’d be very surprised if profit numbers didn’t keep on coming down,” said San Francisco-based Robert Horrocks, who helps manage about $4.7 billion including Asian equities at Matthews International Capital Management LLC. “You’re seeing the ripples from the credit shock, where the medium-term effect on demand is a chronic problem that governments are trying to combat.”

The MSCI Asia Pacific Index declined 0.9 percent to 78 as of 9:53 a.m. in Tokyo, set to close at the lowest level since Nov. 24. Finance and commodity shares were the biggest drag on the gauge, which has lost 13 percent this year. The measure tumbled by a record 43 percent in 2008, as the credit crisis dragged the world’s biggest economies into recession.

Japan’s Topix lost 1 percent to 749.04 and earlier sank to as low as 744.37, which would be the lowest close since January 1984. Hong Kong’s Hang Seng Index dropped 1.3 percent, while Australia’s S&P/ASX 200 Index fell 2.6 percent.

Government Action

Futures on the Standard & Poor’s 500 Index rose 0.3 percent today. The gauge slumped 4.6 percent yesterday as U.S. President Barack Obama signed a $787 billion stimulus bill into law. After U.S. markets closed, General Motors Corp. said it needs as much as $16.6 billion in new U.S. loans, more than doubling the aid to date it needs to survive.

Governments and central banks have been cutting interest rates and introducing spending packages to reverse the worst global slump since World War II. International Monetary Fund Managing Director Dominique Strauss-Kahn said last week that he expects more countries to apply to the IMF for aid.

The Japanese government, which yesterday appointed Kaoru Yosano as its new finance minister, said two days ago that gross domestic product contracted 12.7 percent in the fourth quarter, the most since the 1974 oil shock. The Federal Reserve Bank of New York’s general economic index sank to the lowest level since records began in 2001, according to a report yesterday.

A gauge of finance companies on the MSCI index dropped 1.4 percent. The finance measure is the second-worst performer in the past 12 months of 10 industry groups as the credit crisis caused losses at institutions worldwide to swell to more than $1 trillion.

‘Volatile’ Conditions

Westpac Banking Corp. declined 2.6 percent to A$16.34 after profit fell 2 percent in the three months to Dec. 31 as bad debts outweighed increased fee income from last year’s purchase of St. George Bank Ltd.

“With global economic conditions continuing to be volatile, operating conditions will remain difficult,” Chief Executive Officer Gail Kelly, said in a statement.

Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, fell 2 percent to 442 yen. Sony Financial Holdings, which cut its profit forecast last week, lost 6.7 percent to 256,000 yen.

The Markit iTraxx Japan index of credit-default swaps, which measures the cost of protecting investors in Japanese corporate bonds from default, rose to a record today, Barclays Capital prices show.

BHP fell 4.3 percent to A$30.36 in Sydney. Rio Tinto Group, the world’s third-largest mining company, dropped 2.4 percent to A$47.86.

Slowing Global Demand

Concern the global economic slump will deepen drove down commodity prices. Crude oil tumbled 6.9 percent to settle at $34.93 a barrel in New York, the steepest drop since Jan. 27. Copper futures slumped 7.2 percent, the most since Oct. 30.

Sony lost 3.1 percent to 1,608 yen on concern global demand for its televisions and video-game consoles will slow further. The company reported a 95 percent plunge in third-quarter profit on Jan. 29. Canon Inc., the world’s biggest digital-camera maker, slid 2.3 percent to 2,310 yen.

“There are looming prospects that corporate earnings will deteriorate even further,” Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc., said in an interview with Bloomberg Television. “We’re getting ever closer to historic lows, and that weighs on investor sentiment as well.”

Mideast wealth funds fret over US Treasuries

Sovereign wealth funds in the Middle East are growing increasingly concerned about the health of the US Treasury market, raising questions about whether they will remain such active buyers of US government debt.

Middle Eastern buyers are the fifth-largest investors in Treasuries after China, Japan, the UK and Caribbean banking centres, and their appetite could prove critical to US government plans to issue mountains of debt to fund stimulus efforts.
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So far there is little sign of a flight from the dollar or from Treasuries, but senior executives at several sovereign funds in the region say the US Treasury has been conducting a dialogue to reassure Middle Eastern investors that US government debt still offers value.

Treasury prices soared – and Treasury yields declined – last year as investors sought the safety of government debt. Yields have started rising this year, and Middle East investors remain concerned that they will continue to do so, reducing the value of holdings and removing the incentive to buy more.

Current Treasury yields were an expression of “the psychology of fear”, said the head of one sovereign fund in the Middle East. “It is the financial equivalent of a 10-alarm fire outside one’s home.”

Adding to the skittishness of Middle East investors is the fear that the dollar will also decline, further depressing the value of US debt holdings. Since oil is priced in dollars, these investors are inclined to invest in dollar-denominated assets.

“If there is a further meltdown in the financial system, it could have an impact on the dollar,” says one Gulf central bank governor. “A run on the dollar would be the worst-case scenario.”

Deutsche Bank estimates that Treasury issuance will rise sharply as a result of the stimulus efforts – “with at least $2,000bn [€1,538bn, £1,388bn] in net marketable borrowing likely to occur this year and potentially that much again next year”.

Middle Eastern investors will also face competing claims at home, and will probably have to scale back Treasury purchases, at least at the margin, as they allocate funds to help revive their domestic economies.

“There are supply issues, valuation issues and demand issues with existing holders,” says Mohamed El-Erian, chief executive at Pimco, the US-based bond investor.

“Where you go from here is a big dilemma.

BG Lifts Bid for Pure to A$995 Million, Topping Arrow

Feb. 17 (Bloomberg) -- BG Group Plc raised its hostile offer for Pure Energy Resources Ltd. to A$995 million ($646 million), topping a bid by Arrow Energy Ltd., as it seeks to add coal-seam gas reserves for an Australian export venture.

BG, the U.K.’s third-biggest gas producer, boosted its cash offer by 25 percent to A$8 a share, the company said today in a statement. That’s 11 percent higher than the cash and stock bid from Arrow, based on yesterday’s closing prices, and 7 percent more than Brisbane-based Pure’s close yesterday of A$7.48.

Arrow and BG are among companies building up gas reserves in northeastern Australia to feed planned liquefied natural gas projects that would tap a forecast shortfall in supply. Australia’s coal-seam gas industry attracted more than A$17 billion in investment last year as producers such as ConocoPhillips and Malaysia’s Petroliam Nasional Bhd. bought into ventures that may meet Asian demand for cleaner fuel.

BG’s latest bid “still looks as though it’s within the range of previous acquisitions, so it’s not overspending,” said Andrew Williams, an energy analyst at Credit Suisse Group in Melbourne. “It’s conjecture whether Arrow can come back or not with a higher offer.”

Pure Energy gained as much as 90 cents, or 12 percent, to A$8.38 on the Australian stock exchange, rising beyond BG’s increased offer. Arrow advanced as much as 6.3 percent to A$2.85.

Reading, England-based BG is being advised by Gresham Advisory Partners, while Goldman Sachs JBWere Pty is advising Pure and Wilson HTM Corporate Finance is advising Arrow.

‘Competitively Priced’

Nick Davies, managing director of Brisbane-based Arrow, said earlier today he believed Pure’s assets were “still competitively priced” at Arrow’s latest bid, worth A$7.21 a share at yesterday’s close.

“Of course that value equation will change at some level of bid,” he said in the document. Davies couldn’t be immediately reached for comment today.

Pure is exploring for coal-seam gas, which mostly comprises methane on the surface of coal. BG, Arrow’s coal-seam gas partner Royal Dutch Shell Plc, Petronas and ConocoPhillips are among the companies in five rival ventures planning to convert coal-seam gas into LNG for export to Asia, the biggest market for the fuel.

Coal-seam gas, which can be extracted when pressure on the coal seam is reduced, usually by removing water, hasn’t previously been used as a fuel for LNG export projects. BG’s latest bid is more than double the price Pure was trading at before Arrow made its initial A$5.40-a-share bid in December.

‘Frustrating’ Bid

BG probably needs Pure Energy more than Arrow does, Credit Suisse’s Williams said today in a report.

“We see BG with a stronger imperative for success in the Pure Energy bidding situation and certainly with more cash resources to be successful,” he said.

In terms of reserves, BG is bidding 40 Australian cents a gigajoule for Pure, still less than the 72 cents a gigajoule it paid for Queensland Gas Co. in October. BG’s A$5.2 billion purchase of the rest of Queensland Gas, its partner in its Australian LNG venture, followed a failed A$13.5 billion offer earlier in the year for Origin Energy Ltd., Australia’s biggest producer of gas from coal seams, which attracted an A$8 billion investment from ConocoPhillips.

BG’s bid for Pure may be designed “to frustrate Arrow Energy’s plans for LNG” at a rival LNG project Arrow plans with Liquefied Natural Gas Ltd. at Fisherman’s Landing near Gladstone, Citigroup Inc said in a Feb. 12 report.

Australia’s Foreign Investment Review Board has advised it has no objections to the bid from BG, which today said its offer is unconditional.

Arrow’s bid, of A$3 in cash and 1.57 shares for each Pure share, is also unconditional. Arrow is Pure’s biggest shareholder, with a stake of 19.9 percent. Shell owns about 11.2 percent and BG owns 9.7 percent.

LNG is natural gas chilled to liquid form for transport by tanker to destinations not connected by pipeline.

Asian Stocks Decline on Capital Concerns; T&D, Brambles Slump

Feb. 17 (Bloomberg) -- Asian stocks fell, led by finance and commodity companies, amid concern insurers may have to boost capital reserves and as metals prices and shipping rates declined.

T&D Holdings Inc., Japan’s largest publicly traded life insurer, plunged 9.7 percent, as the U.K.’s Financial Services Authority asked the industry to assess how well they can withstand market shocks. BHP Billiton Ltd., the world’s biggest mining company, fell 0.7 percent in Sydney as copper retreated. Brambles Ltd., the world’s biggest supplier of pallets used to move and store goods, tumbled 9.4 percent after a drop in profit prompted brokerage downgrades.

“In the current market climate, there is little incentive for investors to buy stocks,” Mamoru Shimode, a Tokyo-based equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television.

The MSCI Asia Pacific Index declined 0.8 percent to 80.58 as of 10:10 a.m. in Tokyo. Five stocks dropped for every two that advanced. The gauge has lost 10 percent this year, extending 2008’s record 43 percent tumble, as the credit crisis dragged the world’s biggest economies into recession.

The Nikkei 225 Stock Average lost 0.8 percent to 7,690.02. Benchmark measures in other Asian markets open for trading also fell. Futures on the U.S. Standard & Poor’s 500 Index fell 1.1 percent. U.S. markets were closed yesterday for Presidents’ Day.

T&D slumped 9.7 percent to 2,010 yen, tracking an 11 percent drop by the U.K.’s Legal & General Group Plc, which declined on speculation the 173-year-old British insurer may have to cut its dividend to boost capital reserves.

Broker Downgrades

BHP lost 0.7 percent to A$31.91. A measure of six primary metals traded in London fell 2.4 percent, with copper losing 2.9 percent. The Baltic Dry Index, a measure of shipping costs for commodities, dropped 3.2 percent on lower rates to haul coal and iron ore for steel production.

Brambles tumbled 9.4 percent to A$5.12. The stock was downgraded at Merrill Lynch & Co., JPMorgan Chase & Co. and Macquarie Group Ltd. a day after the company reported a 28 percent decline in first- half profit.

Indian Bonds Tumble Most in Five Weeks on Record Debt Sale Plan

Feb. 16 (Bloomberg) -- India’s bonds tumbled the most in five weeks after the government said it will borrow record amounts this fiscal year and the next as it boosts spending to revive economic growth.

Yields on debt due in 2018 climbed to an almost one-week high as India said it plans to sell 2.61 trillion rupees ($53.5 billion) of debt, or 80 percent more than its initial target, in the year ending March 31. The borrowing target for the next fiscal year is 3.62 trillion rupees, according to the government’s interim budget unveiled today.

“People are dumping bonds because debt sales in the pipeline are the biggest yet,” said Arvind Sampath, head of interest-rate trading at Standard Chartered Plc in Mumbai. “Yields are rising as supply is set to overwhelm demand.”

The yield on the 8.24 percent note due April 2018 rose 25 basis points to 6.42 percent at the 5:30 p.m. in Mumbai, according to the central bank’s trading system. That is the steepest increase since Jan. 9. The price fell 1.89 rupees per 100-rupee face amount to 112.47. A basis point is 0.01 percentage point.

The yield on the note has climbed 1.57 percentage points from a record low of 4.85 percent reached last month.

Prime Minister Manmohan Singh’s government is borrowing more to fund two stimulus packages it unveiled in the past two months to revive Asia’s third-largest economy. Growth may slow to 7.1 percent in the year to March 31, 2009, the weakest in six years, according to government estimates. Foreign Minister Pranab Mukherjee, while presenting the budget, said spending to revive the economy is more important now than worrying about the deficit.

Market ‘Spooked’

“What spooked the bond market was the statement that next year’s fiscal deficit estimates are based on current numbers,” said K. Ramanathan, who helps manage 25 billion rupees at ING Investment Management in Mumbai. “The concern is that the government will have to spend more to protect the economy and growth with more stimulus measures. The deficit could be higher.”

India will release as much as 480 billion rupees into the financial system in the coming financial year by repaying bonds previously sold under the so-called market stabilization plan, according to the finance ministry. The government sells debt under the stabilization plan to prevent excess cash at banks from fanning inflation. The government repaid 817.8 billion rupees of stabilization debt in the current fiscal year.

Bonds pared losses after India said it will turn to sources outside the bond market to raise as much as 450 billion rupees of the additional borrowings planned for the current fiscal year. The government didn’t give details.

The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, climbed. The rate, a fixed payment made to receive floating rates, rose to 4.88 percent from 4.70 percent on Feb. 13

South Africa Can ‘Cushion’ Economy If Slump Persists

Feb. 12 (Bloomberg) -- South Africa’s government has the “space to cushion the economy” if a slowdown in economic growth persists, said Kuben Naidoo, head of the National Treasury’s budget office.

“We have a lot of room if growth is low for a longer time,” Naidoo told lawmakers in Cape Town today. “We will continue with a counter cyclical fiscal policy, however long it takes for the economy to recover.”

Finance Minister Trevor Manuel yesterday cut his economic growth forecast for this year to 1.2 percent, the lowest since 1998 and down from 3 percent estimated in October. Falling corporate profits and a slump in consumer spending will cut tax revenue, pushing the budget deficit to 3.8 percent of gross domestic product in the year through March 2010 from an estimated 1 percent this year.

The government doesn’t want the ratio of debt to GDP to “deteriorate too rapidly,” Naidoo said. If the government needs to run a wider deficit and raise borrowing, it plans to return to “safer” levels of debt once the economy recovers, he added.

South Africa’s debt will rise to 26 percent of GDP in the year through March 2010, from about 23 percent in the current fiscal year, according to the Treasury’s Budget Review published yesterday. It will reach 27 percent in the 2011 fiscal year, the Treasury forecast.

LSE Set to Appoint Rolet Today as New Chief Executive, FT Says

Feb. 13 (Bloomberg) -- London Stock Exchange Group Plc will today appoint Xavier Rolet as chief executive officer, replacing Clara Furse, the Financial Times reported, without attribution.

Rolet has experience in dealing with exchanges and ran trading operations at Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Dresdner Kleinwort, the FT said.

LSE spokesman, Alastair Fairbrother, declined to comment, when contacted by Bloomberg News.