The following companies may have unusual price changes in India trading. Stock symbols are in parentheses and share prices are as of the last close.
The Bombay Stock Exchange Sensitive Index, or Sensex, fell 191.57, or 1.1 percent, to 17,509.33, the lowest since June 16. The gauge climbed 1 percent in the three months ended June, completing the longest quarterly winning streak since at least September 1979, according to data compiled by Bloomberg.
The S&P CNX Nifty Index on the National Stock Exchange lost 1.2 percent to 5,251.40. The BSE 200 Index retreated 0.8 percent to 2,229.53. SGX CNX Nifty Index futures for July delivery fell 0.2 to 5,250 at 11:02 a.m. in Singapore.
Axis Bank Ltd. (AXSB IN): The lender and three other banks were raised to “buy” from “hold” by BNP Paribas analysts Vijay Sarathi and Abhishek Bhattacharya, who cited rising loan growth and declining credit costs. Axis Bank is the brokerage’s “top pick,” the analysts said. They also upgraded Bank of India, ICICI Bank Ltd. and Punjab National Bank Ltd. to “buy.”
Axis Bank dropped 0.7 percent to 1,233.65 rupees. Bank of India (BOI IN) gained 2.2 percent to 357 rupees. ICICI Bank (ICICIBC IN) sank 2.4 percent to 841.45 rupees. Punjab National Bank (PNB IN) lost 2.7 percent to 1,020.35 rupees.
Colgate-Palmolive (India) Ltd. (CLGT IN): The maker of toothpaste and soap was cut to “neutral” from “outperform” by Govindarajan Chellappa, an analyst at Credit Suisse AG, with a share-price estimate of 884 rupees. The stock gained 0.4 percent to 840.6 rupees.
Indiabulls Real Estate Ltd. (IBREL IN): The developer was rated “overweight” in new coverage by Morgan Stanley analysts Sameer Baisiwala and Arunabh Chaudhari, who said they expect the company can unlock “significant value in its underlying assets” over the next three years. The analysts have a share- price estimate of 200 rupees. The stock declined 0.8 percent to 156.35 rupees.
Jaypee Infratech Ltd. (JPIN IN): The unit of India’s biggest builder of dams was rated “equal-weight” in new coverage by Morgan Stanley analysts Baisiwala and Chaudhari, who said the value in the company’s assets may take as many as 24 months to be unlocked and that its near-term earnings are dependent on one “micro market” that may slow in coming quarters despite its “strong potential.” The analysts have a share-price estimate of 85 rupees. The shares climbed 1.7 percent to 90.4 rupees.
NIIT Ltd. (NIIT IN): The software company was raised to “buy” from “sell” by Citigroup Inc. analysts Vishal Agarwal and Surendra Goyal, who cited the stock’s “reasonable valuations” and improving operating metrics. The analysts raised their share-price estimate to 85 rupees from 50 rupees. The shares slid 1.7 percent to 63.65 rupees.
Mahindra & Mahindra Ltd. (MM IN): India’s biggest maker of sport-utility vehicles and tractors declined to comment on a newspaper report that it’s in talks with Boeing Co. to buy a plant in Australia, Hemant Luthra, sector president at unit Mahindra Systech, said in an e-mailed statement. The stock fell 1.9 percent to 615.15 rupees.
Monnet Ispat & Energy Ltd. (MISP IN): Blackstone Group LP will invest 2.75 billion rupees ($59 million) to buy a 12.5 percent stake in India’s Monnet Power Co., the world’s biggest private-equity firm said in a statement. Monnet Power is a unit of sponge-iron maker Monnet Ispat & Energy Ltd. Monnet Ispat rose 0.1 percent to 402.80 rupees.
Oil & Natural Gas Corp. (ONGC IN): India’s biggest exploration company has approved in-principle cluster development of four fields in the western offshore area, the company said in a release. ONGC fell 1.4 percent to 1,302.3 rupees.
Persistent Systems Ltd. (PSYS IN): The software company was rated “outperform” in new coverage by Credit Suisse Group AG analysts led by Sunil Tirumalai, who said the stock should trade at a premium to its peers given its growth and margin profile. The analysts have a share-price estimate of 540 rupees. The shares jumped 4.3 percent to 429.85 rupees.
Reliance Communications Ltd. (RCOM IN): India’s second- largest mobile-phone operator acquired cable television operator Digicable in an all-stock deal, according to a statement on the Bombay Stock Exchange. Reliance Communications fell 3.1 percent to 192.25 rupees.
Reliance Power Ltd. (RPWR IN): The company controlled by billionaire Anil Ambani got approval for a $600 million loan from the U.S. Export-Import Bank for a power project in India’s Madhya Pradesh state, the Economic Times reported, citing a letter written by the bank’s Chairman Fred Hochberg. The loan is conditional on Reliance Power investing in the renewable energy sector, according to the report. Reliance shares decreased 1.1 percent to 169.55 rupees.
Steel Authority of India Ltd. (SAIL IN): The nation’s second-biggest producer and Posco’s joint venture to set up a steel mill in the South Asian nation will start in September after a detailed project report is prepared, Business Standard reported, citing Steel Secretary Atul Chaturvedi. The 110 billion rupee project will be located at Bokaro in Jharkhand state where Steel Authority has a mill, according to the report. The two companies may also build another plant in Maharashtra state at a cost of 150 billion rupees, the newspaper said. Steel Authority dropped 1.8 percent to 189.25 rupees.
Sun Pharmaceutical Industries Ltd. (SUNP IN): India’s largest drugmaker by market value introduced a generic version of Novartis AG’s Exelon treatment for mild to moderate dementia, according to an e-mailed statement. Sun Pharmaceutical would share a 180-day marketing exclusivity for the generic drug in the U.S., the statement said. The stock fell 1.8 percent to 1,752.65 rupees.
Tata Motors Ltd. (TTMT IN): The owner of Jaguar and Land Rover sold 67,730 vehicles in June, compared with 45,440 units sold a year earlier, the company said in an e-mailed statement.
Separately, Tata Chief Executive Officer Carl-Peter Forster said Land Rover needs to develop models that produce less carbon. Tata Motors fell 2 percent to 762.75 rupees.
Thursday, July 1, 2010
Fortis in $3.1bn bid for Parkway
Malaysia’s sovereign wealth fund is expected to raise its partial takeover offer for Singapore’s Parkway Holdings after India’s Fortis Healthcare launched a rival takeover bid valuing the company at $3.1bn.
The Indian move pits Parkway’s two biggest shareholders in a battle for control that reflects interest in private healthcare facilities in Asia, where rising incomes are driving growth in medical tourism.
The battle for the hospital chain comes after Fortis’s $685m acquisition in March of a 23.9 per cent stake in Parkway from TPG, the US private equity group.
The Fortis stake was later raised to 25 per cent.
Khazanah, the Malaysian state investment agency, has a 23.3 per cent stake, but was angered by an arrangement under which Fortis took control of the board through an agreement with three directors.
Khazanah last month offered S$3.78 a share for enough shares to give it a 51 per cent holding, valuing the group at just less than $3bn.
The offer was described in a report to the board by Morgan Stanley as “not compelling”.
Fortis, India’s leading domestic hospital operator, on Thursday offered to buy all outstanding shares for S$3.80 a share, sparking speculation that Khazanah would raise its offer rather than see the Indian group consolidate control.
Lynette Tan, analyst at DMG Partners Securities, said: “They [Khazanah] are unlikely to accept this and I think they will want to counter-offer.”
There was no comment from Kuala Lumpur-based Khazanah.
Parkway shares closed at S$3.57 on Wednesday, but were suspended from trading on Thursday.
Fortis, owned by Malv-inder and Shivinder Singh, will have to pay S$3.2bn ($2.3bn) for the outstanding shares it does not own.
After the deal in March, Malvinder Singh took over as chairman of Parkway, and Fortis was allocated four directors on the 13-member board excluding alternates.
The Morgan Stanley report disclosed Fortis’s formal arrangement with three other directors giving it “the right to direct” how they vote in return for “certain economic benefits”.
The deal did not breach Singapore’s corporate governance code but annoyed Khazanah as it allowed Fortis to control Parkway with a quarter of the shares.
The Indian move pits Parkway’s two biggest shareholders in a battle for control that reflects interest in private healthcare facilities in Asia, where rising incomes are driving growth in medical tourism.
The battle for the hospital chain comes after Fortis’s $685m acquisition in March of a 23.9 per cent stake in Parkway from TPG, the US private equity group.
The Fortis stake was later raised to 25 per cent.
Khazanah, the Malaysian state investment agency, has a 23.3 per cent stake, but was angered by an arrangement under which Fortis took control of the board through an agreement with three directors.
Khazanah last month offered S$3.78 a share for enough shares to give it a 51 per cent holding, valuing the group at just less than $3bn.
The offer was described in a report to the board by Morgan Stanley as “not compelling”.
Fortis, India’s leading domestic hospital operator, on Thursday offered to buy all outstanding shares for S$3.80 a share, sparking speculation that Khazanah would raise its offer rather than see the Indian group consolidate control.
Lynette Tan, analyst at DMG Partners Securities, said: “They [Khazanah] are unlikely to accept this and I think they will want to counter-offer.”
There was no comment from Kuala Lumpur-based Khazanah.
Parkway shares closed at S$3.57 on Wednesday, but were suspended from trading on Thursday.
Fortis, owned by Malv-inder and Shivinder Singh, will have to pay S$3.2bn ($2.3bn) for the outstanding shares it does not own.
After the deal in March, Malvinder Singh took over as chairman of Parkway, and Fortis was allocated four directors on the 13-member board excluding alternates.
The Morgan Stanley report disclosed Fortis’s formal arrangement with three other directors giving it “the right to direct” how they vote in return for “certain economic benefits”.
The deal did not breach Singapore’s corporate governance code but annoyed Khazanah as it allowed Fortis to control Parkway with a quarter of the shares.
Wednesday, June 30, 2010
IPO Filings Hit Post-2007 High Amid Losses; LBO Firms Seek Cash
July 1 (Bloomberg) -- U.S. companies are getting set for the biggest wave of initial public offerings since the last bull market at the same time that IPOs get canceled at the fastest pace since the collapse of Lehman Brothers Holdings Inc.
HCA Inc., Zipcar Inc. and 89 other companies filed with the Securities and Exchange Commission last quarter to sell $23.6 billion of shares, data compiled by Bloomberg show. The last time more companies announced such plans was in 2007. In the past three months, 50 IPOs globally were shelved, the most in six quarters.
Investors in U.S. IPOs lost 7.2 percent so far this year as the Standard & Poor’s 500 Index fell to an almost nine-month low. Leveraged-buyout firms, which spent $2 trillion on takeovers during the credit-market bubble, announced the biggest stock sales and accounted for at least 50 percent of the deals filed with the SEC in April through June.
“Beggars can’t be choosers to a certain extent,” said Scott Billeadeau, who helps oversee $19 billion at Fifth Third Asset Management in Minneapolis. LBO firms are “going through their portfolios going, ‘What is something I can go monetize to get some equity out?’” he said.
The second quarter began with 17 companies completing initial sales in April, the most this year, as the S&P 500 rallied to a 19-month high. Metals USA Holdings Corp., owned by Leon Black’s New York-based Apollo Global Management LLC, and PAA Natural Gas Storage LP of Houston priced their IPOs above the forecast range.
Stock-Market Slump
Gains then evaporated on concern the end of government stimulus and widening budget gaps from Greece to Spain will curb the global economic recovery. The S&P 500 fell as much as 15 percent from its 2010 high in April, while the MSCI World Index of 24 developed nations lost 16 percent.
Price declines led companies from Ron Burkle’s Atlanta- based Americold Realty Trust to Swire Properties Ltd. in Hong Kong to pull $13.2 billion of initial offerings last quarter. IPOs backed by LBO firms, which take controlling stakes in companies and use borrowed money to finance most of the purchase, accounted for four of the five biggest sales announced in the U.S., data compiled by Bloomberg show.
“In volatile markets like this, sponsors want to be ready to launch to capitalize on what may be short windows of opportunity to get deals done,” said Pete Chapman, New York- based co-head of equity-capital markets for the Americas at Bank of America Corp.’s Merrill Lynch & Co. investment banking unit.
Client Distributions
Private-equity owners are using initial offerings to pay down debt and return money to investors after the collapse of New York-based Lehman in September 2008 halted dealmaking and froze credit markets. Distributions to clients last year decreased to the lowest since at least 2000, according to data compiled by London-based Preqin Ltd.
HCA, the hospital chain bought four years ago in a $33 billion LBO led by KKR & Co. and Boston-based Bain Capital LLC, filed with the SEC in May to sell $4.6 billion of shares. The IPO would be the largest in the U.S. since Visa Inc. of San Francisco raised $19.7 billion in March 2008.
The hospital operator will get about 54 percent of the proceeds, which will be used to pay back some of its $25.7 billion in debt. HCA’s owners, who used borrowed money for more than 80 percent of the purchase price, will get the rest.
HCA posted net income of $1.05 billion last year, 26 percent less than in 2005, the year before the Nashville, Tennessee-based company was taken private.
‘The Tsunami’
“The smart ones are trying to get ahead of the tsunami” of debt coming due, said David Weild, New York-based senior adviser at accounting firm Grant Thornton LLP. “The unsettled economic outlook has created a real roller coaster for IPOs.”
Nielsen Holdings BV, the New York-based television-audience rating company owned by KKR and Blackstone Group LP of New York, Washington-based Carlyle Group and Thomas H. Lee Partners LP of Boston, filed last month to raise as much as $1.75 billion.
Toys “R” Us Inc., the toy-store chain acquired by KKR, Bain and Vornado Realty Trust of New York in 2005, said in May that it plans to raise $800 million. The Wayne, New Jersey-based retailer has $5 billion in long-term debt.
Companies supported by venture capital firms are also tapping equity markets.
Zipcar, the car-sharing company that rents vehicles by the hour, will seek $75 million in an IPO to reduce debt and expand its fleet, according to its SEC filing.
Venture Capital
While sales rose almost 10-fold in the past five years, the Cambridge, Massachusetts-based company hasn’t earned a profit since its founding in 2000, and expects to lose money this year. Zipcar is backed by Steve Case’s Washington-based Revolution and Benchmark Capital of Menlo Park, California.
InvenSense Inc., which makes the motion sensors for Kyoto- based Nintendo Co.’s Wii MotionPlus remote video-game controller, filed this week to raise $100 million. The Sunnyvale, California-based company became profitable this fiscal year for the first time since at least 2005.
Venture capital firms Artiman Ventures of Palo Alto, California, Partech International in San Francisco and Menlo Park-based Sierra Ventures own a combined 54 percent stake.
“You go public whenever you can, because you don’t know when you’re going to be able to go public again,” said Steven Kaplan, professor of finance at the University of Chicago’s Booth School of Business. “They’re filing now with the hope that the economy or stock markets will hold or improve, and then they’ll be able to go public.”
HCA Inc., Zipcar Inc. and 89 other companies filed with the Securities and Exchange Commission last quarter to sell $23.6 billion of shares, data compiled by Bloomberg show. The last time more companies announced such plans was in 2007. In the past three months, 50 IPOs globally were shelved, the most in six quarters.
Investors in U.S. IPOs lost 7.2 percent so far this year as the Standard & Poor’s 500 Index fell to an almost nine-month low. Leveraged-buyout firms, which spent $2 trillion on takeovers during the credit-market bubble, announced the biggest stock sales and accounted for at least 50 percent of the deals filed with the SEC in April through June.
“Beggars can’t be choosers to a certain extent,” said Scott Billeadeau, who helps oversee $19 billion at Fifth Third Asset Management in Minneapolis. LBO firms are “going through their portfolios going, ‘What is something I can go monetize to get some equity out?’” he said.
The second quarter began with 17 companies completing initial sales in April, the most this year, as the S&P 500 rallied to a 19-month high. Metals USA Holdings Corp., owned by Leon Black’s New York-based Apollo Global Management LLC, and PAA Natural Gas Storage LP of Houston priced their IPOs above the forecast range.
Stock-Market Slump
Gains then evaporated on concern the end of government stimulus and widening budget gaps from Greece to Spain will curb the global economic recovery. The S&P 500 fell as much as 15 percent from its 2010 high in April, while the MSCI World Index of 24 developed nations lost 16 percent.
Price declines led companies from Ron Burkle’s Atlanta- based Americold Realty Trust to Swire Properties Ltd. in Hong Kong to pull $13.2 billion of initial offerings last quarter. IPOs backed by LBO firms, which take controlling stakes in companies and use borrowed money to finance most of the purchase, accounted for four of the five biggest sales announced in the U.S., data compiled by Bloomberg show.
“In volatile markets like this, sponsors want to be ready to launch to capitalize on what may be short windows of opportunity to get deals done,” said Pete Chapman, New York- based co-head of equity-capital markets for the Americas at Bank of America Corp.’s Merrill Lynch & Co. investment banking unit.
Client Distributions
Private-equity owners are using initial offerings to pay down debt and return money to investors after the collapse of New York-based Lehman in September 2008 halted dealmaking and froze credit markets. Distributions to clients last year decreased to the lowest since at least 2000, according to data compiled by London-based Preqin Ltd.
HCA, the hospital chain bought four years ago in a $33 billion LBO led by KKR & Co. and Boston-based Bain Capital LLC, filed with the SEC in May to sell $4.6 billion of shares. The IPO would be the largest in the U.S. since Visa Inc. of San Francisco raised $19.7 billion in March 2008.
The hospital operator will get about 54 percent of the proceeds, which will be used to pay back some of its $25.7 billion in debt. HCA’s owners, who used borrowed money for more than 80 percent of the purchase price, will get the rest.
HCA posted net income of $1.05 billion last year, 26 percent less than in 2005, the year before the Nashville, Tennessee-based company was taken private.
‘The Tsunami’
“The smart ones are trying to get ahead of the tsunami” of debt coming due, said David Weild, New York-based senior adviser at accounting firm Grant Thornton LLP. “The unsettled economic outlook has created a real roller coaster for IPOs.”
Nielsen Holdings BV, the New York-based television-audience rating company owned by KKR and Blackstone Group LP of New York, Washington-based Carlyle Group and Thomas H. Lee Partners LP of Boston, filed last month to raise as much as $1.75 billion.
Toys “R” Us Inc., the toy-store chain acquired by KKR, Bain and Vornado Realty Trust of New York in 2005, said in May that it plans to raise $800 million. The Wayne, New Jersey-based retailer has $5 billion in long-term debt.
Companies supported by venture capital firms are also tapping equity markets.
Zipcar, the car-sharing company that rents vehicles by the hour, will seek $75 million in an IPO to reduce debt and expand its fleet, according to its SEC filing.
Venture Capital
While sales rose almost 10-fold in the past five years, the Cambridge, Massachusetts-based company hasn’t earned a profit since its founding in 2000, and expects to lose money this year. Zipcar is backed by Steve Case’s Washington-based Revolution and Benchmark Capital of Menlo Park, California.
InvenSense Inc., which makes the motion sensors for Kyoto- based Nintendo Co.’s Wii MotionPlus remote video-game controller, filed this week to raise $100 million. The Sunnyvale, California-based company became profitable this fiscal year for the first time since at least 2005.
Venture capital firms Artiman Ventures of Palo Alto, California, Partech International in San Francisco and Menlo Park-based Sierra Ventures own a combined 54 percent stake.
“You go public whenever you can, because you don’t know when you’re going to be able to go public again,” said Steven Kaplan, professor of finance at the University of Chicago’s Booth School of Business. “They’re filing now with the hope that the economy or stock markets will hold or improve, and then they’ll be able to go public.”
Asian Stocks, Oil Fall on China Manufacturing, Spain’s Rating
July 1 (Bloomberg) -- Asian stocks fell for the third day, continuing the global first-half slump, as China’s manufacturing growth slowed and Moody’s Investors Service said it may cut Spain’s top credit rating. Commodities and the euro declined.
The MSCI Asia Pacific Index of shares sank to a three-week low, dropping 1.4 percent to 111.25 at 10:27 a.m. in Hong Kong. Futures on the Standard & Poor’s 500 Index dropped 0.8 percent. The euro weakened 0.3 percent to $1.2201 and reached a record low against the Swiss franc. Crude oil slipped 1.1 percent to $74.81 a barrel and copper dropped 0.8 percent.
Stock returns trailed bonds by the widest margin in nine years during the first six months on signs growing budget deficits from Greece to Spain would stunt the global economic recovery. Concerns deepened today as Moody’s said Spain faces challenges in meeting fiscal targets and an industry group said China’s manufacturing grew at a slower pace for a second month.
“Investors are already finding difficulty traversing the wall of worry,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “A downgrade of Spanish sovereign debt would be another piece of negative news that adds to demand for perceived safe-haven investments.”
The MSCI World Index of 24 developed countries dropped 9.6 percent including dividends in the first half. Bonds gained 4.2 percent, the Bank of America Merrill Lynch Global Broad Market Index shows. Growing budget gaps in Greece, Spain and Portugal sent the euro down 15 percent and oil dropped 9 percent.
BHP, Nissan
Japan’s Nikkei 225 Stock Average slumped 1.9 percent today and the S&P/ASX 200 Index declined 1.8 percent in Sydney. BHP Billiton Ltd., the world’s largest mining company, sank 2.2 percent to A$36.82. Woodside Petroleum Ltd., Australia’s second- largest oil and gas producer, lost 1.4 percent to A$41.24.
Nissan Motor Co., which gets 13 percent of its revenue in Europe, sank 1.6 percent to 616 yen in Tokyo. Sony Corp., which gets 21 percent of its revenue from Europe, declined 3.4 percent to 2,303 yen. Sony separately said it’s recalling 535,000 Vaio personal computers because they may overheat due to a temperature-control defect.
“Investor sentiment is certainly negative and we’ve seen that reiterated in buying of defensive asset classes,” said Chris Weston, head of institutional dealing at IG Markets in Melbourne. “Traders are pricing in a double dip, which is not a healthy stalking ground for equities.”
South Korea’s Kospi stock index fell 1.5 percent, the most in more than three weeks. Hyundai Motor Co., South Korea’s largest carmaker, retreated 4.5 percent, the most in a month, after Chosun Ilbo reported its parent group may bid for a controlling stake in Hyundai Engineering & Construction Co. Hyundai Engineering gained 4.6 percent.
China Manufacturing
China’s Shanghai Composite Index lost 0.1 percent, led by commodity producers. Jiangxi Copper Co. dropped 1.2 percent, falling for an eighth day. The Purchasing Managers’ Index fell to a lower-than-expected 52.1 in June from 53.9 in May, the Federation of Logistics and Purchasing said today. A reading of above 50 signals expansion.
“Today’s economic data is evidence of weakening growth, but most of that has already been priced into stocks,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai.
Twelve-month yuan non-deliverable forwards weakened 0.2 percent to 6.6755 per dollar. Policy makers have this year raised banks’ reserve requirements three times, tightened mortgage requirements and curbed lending targets.
South Korea’s won declined 1.1 percent to 1,235.41 per dollar, after dropping 7.4 percent last quarter. A purchasing managers’ survey today indicated South Korea’s business conditions in June were the worst this year. The HSBC South Korea PMI fell to 53.3 in June from 54.6 the previous month.
“Risk aversion is being emphasized,” said Ko Kyu Youn, a currency dealer at Korea Exchange Bank in Seoul. “Investors are seeking safe havens.”
Swiss Franc
The Swiss franc traded as high as 1.3085 per euro in Tokyo trading, the strongest since the common currency’s debut, from 1.3184 in New York. The yen rose 0.6 percent to 107.56 per euro near the eight-year high of 107.32 reached on June 29.
“Like most safe-haven assets, the dollar, the yen and the franc are rising at the moment due to risk aversion,” said Gareth Berry, a currency strategist in Singapore at UBS AG, the world’s second-largest foreign-exchange trader. “The weak PMI from China pushed” the franc higher, he said.
Three-month delivery copper fell as much as 1.3 percent to $6,430.75 a metric ton on the London Metal Exchange and dropped more than 16 percent last quarter. Aluminum declined 0.7 percent to $1,963 a ton. The Reuters/Jefferies CRB Index of 19 raw materials fell 5.4 percent in the second quarter, the worst three-month period since the end of 2008.
Crude oil declined for a fourth day in New York, its longest losing streak since May, after gasoline stockpiles unexpectedly increased in the U.S., raising concern about the growth of fuel demand in the world’s biggest energy consumer. The U.S. Energy Information Administration reported gasoline inventories rose 537,000 barrels to 218.1 million last week.
“There’s a lot of concerns about the pace of the U.S. economic recovery,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney.
The MSCI Asia Pacific Index of shares sank to a three-week low, dropping 1.4 percent to 111.25 at 10:27 a.m. in Hong Kong. Futures on the Standard & Poor’s 500 Index dropped 0.8 percent. The euro weakened 0.3 percent to $1.2201 and reached a record low against the Swiss franc. Crude oil slipped 1.1 percent to $74.81 a barrel and copper dropped 0.8 percent.
Stock returns trailed bonds by the widest margin in nine years during the first six months on signs growing budget deficits from Greece to Spain would stunt the global economic recovery. Concerns deepened today as Moody’s said Spain faces challenges in meeting fiscal targets and an industry group said China’s manufacturing grew at a slower pace for a second month.
“Investors are already finding difficulty traversing the wall of worry,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “A downgrade of Spanish sovereign debt would be another piece of negative news that adds to demand for perceived safe-haven investments.”
The MSCI World Index of 24 developed countries dropped 9.6 percent including dividends in the first half. Bonds gained 4.2 percent, the Bank of America Merrill Lynch Global Broad Market Index shows. Growing budget gaps in Greece, Spain and Portugal sent the euro down 15 percent and oil dropped 9 percent.
BHP, Nissan
Japan’s Nikkei 225 Stock Average slumped 1.9 percent today and the S&P/ASX 200 Index declined 1.8 percent in Sydney. BHP Billiton Ltd., the world’s largest mining company, sank 2.2 percent to A$36.82. Woodside Petroleum Ltd., Australia’s second- largest oil and gas producer, lost 1.4 percent to A$41.24.
Nissan Motor Co., which gets 13 percent of its revenue in Europe, sank 1.6 percent to 616 yen in Tokyo. Sony Corp., which gets 21 percent of its revenue from Europe, declined 3.4 percent to 2,303 yen. Sony separately said it’s recalling 535,000 Vaio personal computers because they may overheat due to a temperature-control defect.
“Investor sentiment is certainly negative and we’ve seen that reiterated in buying of defensive asset classes,” said Chris Weston, head of institutional dealing at IG Markets in Melbourne. “Traders are pricing in a double dip, which is not a healthy stalking ground for equities.”
South Korea’s Kospi stock index fell 1.5 percent, the most in more than three weeks. Hyundai Motor Co., South Korea’s largest carmaker, retreated 4.5 percent, the most in a month, after Chosun Ilbo reported its parent group may bid for a controlling stake in Hyundai Engineering & Construction Co. Hyundai Engineering gained 4.6 percent.
China Manufacturing
China’s Shanghai Composite Index lost 0.1 percent, led by commodity producers. Jiangxi Copper Co. dropped 1.2 percent, falling for an eighth day. The Purchasing Managers’ Index fell to a lower-than-expected 52.1 in June from 53.9 in May, the Federation of Logistics and Purchasing said today. A reading of above 50 signals expansion.
“Today’s economic data is evidence of weakening growth, but most of that has already been priced into stocks,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai.
Twelve-month yuan non-deliverable forwards weakened 0.2 percent to 6.6755 per dollar. Policy makers have this year raised banks’ reserve requirements three times, tightened mortgage requirements and curbed lending targets.
South Korea’s won declined 1.1 percent to 1,235.41 per dollar, after dropping 7.4 percent last quarter. A purchasing managers’ survey today indicated South Korea’s business conditions in June were the worst this year. The HSBC South Korea PMI fell to 53.3 in June from 54.6 the previous month.
“Risk aversion is being emphasized,” said Ko Kyu Youn, a currency dealer at Korea Exchange Bank in Seoul. “Investors are seeking safe havens.”
Swiss Franc
The Swiss franc traded as high as 1.3085 per euro in Tokyo trading, the strongest since the common currency’s debut, from 1.3184 in New York. The yen rose 0.6 percent to 107.56 per euro near the eight-year high of 107.32 reached on June 29.
“Like most safe-haven assets, the dollar, the yen and the franc are rising at the moment due to risk aversion,” said Gareth Berry, a currency strategist in Singapore at UBS AG, the world’s second-largest foreign-exchange trader. “The weak PMI from China pushed” the franc higher, he said.
Three-month delivery copper fell as much as 1.3 percent to $6,430.75 a metric ton on the London Metal Exchange and dropped more than 16 percent last quarter. Aluminum declined 0.7 percent to $1,963 a ton. The Reuters/Jefferies CRB Index of 19 raw materials fell 5.4 percent in the second quarter, the worst three-month period since the end of 2008.
Crude oil declined for a fourth day in New York, its longest losing streak since May, after gasoline stockpiles unexpectedly increased in the U.S., raising concern about the growth of fuel demand in the world’s biggest energy consumer. The U.S. Energy Information Administration reported gasoline inventories rose 537,000 barrels to 218.1 million last week.
“There’s a lot of concerns about the pace of the U.S. economic recovery,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney.
SMFG buys stake in Kotak Mahindra
Sumitomo Mitsui Financial Group has agreed to buy a 4.5 per cent stake in India’s fourth-largest private bank, the first investment by a Japanese financial group in an Indian bank.
SMFG and India’s Kotak Mahindra will also explore setting up an infrastructure fund, helping companies in India raise money through samurai bonds and other opportunities as part of a new equity alliance.
“India has domestic growth but could do with [access to more] savings while Japan has savings but could do with some growth,” Uday Kotak, Kotak Mahindra vice-chairman and managing director, told the Financial Times.
The Rs13.7bn ($296.2m) stake purchase by SMFG, which will make it Kotak Mahindra’s biggest shareholder after the founding families and Warburg Pincus, the US investment bank, is part of a push by Japanese companies to expand into markets beyond the ageing population at home.
India’s financial industry has become one of the fastest-growing, fuelled by growth in retail and corporate lending, but the majority of the country’s population of more than 1.1bn people lacks access to banking services.
India’s banking system will need large injections of funds if it is to keep pace with the country’s economic growth, which the government wants to boost to levels approaching 10 per cent.
This is SMFG’s fourth Asian bank investment following its acquisition of a 15 per cent stake in the Export Import Bank of Vietnam, a 4.1 per cent stake in Hong Kong’s Bank of East Asia and a 0.5 per cent stake in South Korea’s Kookmin Bank.
SMFG has a stake of less than 2 per cent in Barclays, which it acquired for about £500m ($748) in 2008.
Mr Kotak said the divestment was necessary to satisfy regulatory requirements to reduce the stake of the controlling shareholders – his family and that of Anand Mahindra, which controls the Mahindra & Mahindra automotive conglomerate – from 51 per cent to below 50 per cent.
The Kotak family holds 48 per cent of the bank and the Mahindra family 3 per cent.
After the transaction, their combined stake will be about 49 per cent while the other large shareholder, Warburg Pincus, will be left with about 10 per cent.
He said the sale of the stake to a strong strategic investor enabled Kotak to command a valuation representing the longer-term fundamentals of the bank rather than one based on “market gyrations”.
SMFG’s strong balance sheet could help Kotak pursue its target of organic and inorganic growth across banking, asset management, capital markets, investment banking, broking, life insurance and other areas.
He said he saw opportunities for co-operation with SMFG’s brokerage Nikko Cordial Securities and other areas.
The partners would be able to serve the increasing number of Japanese companies investing in India in the automotive, infrastructure and other industries.
SMFG and India’s Kotak Mahindra will also explore setting up an infrastructure fund, helping companies in India raise money through samurai bonds and other opportunities as part of a new equity alliance.
“India has domestic growth but could do with [access to more] savings while Japan has savings but could do with some growth,” Uday Kotak, Kotak Mahindra vice-chairman and managing director, told the Financial Times.
The Rs13.7bn ($296.2m) stake purchase by SMFG, which will make it Kotak Mahindra’s biggest shareholder after the founding families and Warburg Pincus, the US investment bank, is part of a push by Japanese companies to expand into markets beyond the ageing population at home.
India’s financial industry has become one of the fastest-growing, fuelled by growth in retail and corporate lending, but the majority of the country’s population of more than 1.1bn people lacks access to banking services.
India’s banking system will need large injections of funds if it is to keep pace with the country’s economic growth, which the government wants to boost to levels approaching 10 per cent.
This is SMFG’s fourth Asian bank investment following its acquisition of a 15 per cent stake in the Export Import Bank of Vietnam, a 4.1 per cent stake in Hong Kong’s Bank of East Asia and a 0.5 per cent stake in South Korea’s Kookmin Bank.
SMFG has a stake of less than 2 per cent in Barclays, which it acquired for about £500m ($748) in 2008.
Mr Kotak said the divestment was necessary to satisfy regulatory requirements to reduce the stake of the controlling shareholders – his family and that of Anand Mahindra, which controls the Mahindra & Mahindra automotive conglomerate – from 51 per cent to below 50 per cent.
The Kotak family holds 48 per cent of the bank and the Mahindra family 3 per cent.
After the transaction, their combined stake will be about 49 per cent while the other large shareholder, Warburg Pincus, will be left with about 10 per cent.
He said the sale of the stake to a strong strategic investor enabled Kotak to command a valuation representing the longer-term fundamentals of the bank rather than one based on “market gyrations”.
SMFG’s strong balance sheet could help Kotak pursue its target of organic and inorganic growth across banking, asset management, capital markets, investment banking, broking, life insurance and other areas.
He said he saw opportunities for co-operation with SMFG’s brokerage Nikko Cordial Securities and other areas.
The partners would be able to serve the increasing number of Japanese companies investing in India in the automotive, infrastructure and other industries.
Tuesday, June 29, 2010
Asian Stocks, Oil Fall on Global Recovery Concern; Won Weakens
June 30 (Bloomberg) -- Asian stocks dropped the most in more than two weeks, oil fell for a third straight day and the won weakened on concern that the global recovery is faltering.
The MSCI Asia Pacific Index retreated 1.4 percent to 112.36 as of 11:35 a.m. in Tokyo, the biggest decline since June 11 and set for its worst first half in two years. Chinese stocks fell to a 14-month low and South Korea’s won led a decline in emerging-market currencies. Crude extended its drop since June 25 to 3.9 percent, the sharpest three-day slide in six weeks.
Shares extended a global rout as an unexpected drop in U.S. consumer confidence added to concern sparked by the downward revision of an economic indicator for China. President Barack Obama said the U.S. economy faces “headwinds” from Europe’s debt crisis, while reports today and tomorrow may show gains in U.S. business activity and Chinese manufacturing are moderating.
“Equity markets are concerned about a slowdown in U.S. economic growth,” said Khiem Do, Hong Kong-based head of multi- asset strategy at Baring Asset Management (Asia) Ltd. which oversees about $10 billion. “It’s not a bad thing that the Chinese government is trying to cool down the economy, but it’s having a negative impact on market sentiment.”
More than six stocks declined in the MSCI’s Asian gauge for each one that advanced. Japan’s Nikkei 225 Stock Average lost 2.1 percent, while Australia’s S&P/ASX 200 Index dropped 1.5 percent. The Kospi declined 1 percent in Seoul.
S&P Futures
Futures on the Standard & Poor’s 500 Index rose 0.4 percent. The gauge yesterday slumped 3.1 percent to its lowest since Oct. 30 after the Conference Board’s gauge of confidence among U.S. consumers slumped to 52.9 this month from a revised 62.7 in May.
Nissan Motor Co. and Canon Inc., which get more than a quarter of their revenue in the Americas, slid in Tokyo as a stronger yen dented their profit outlooks. Nissan fell 1 percent while Canon declined 3 percent.
BHP Billiton Ltd., the world’s largest mining company, sank 1.8 percent in Sydney. Rio Tinto Group, the world’s third- biggest mining company, lost 2.8 percent. Mitsubishi Corp., which trades commodities, fell 3 percent in Tokyo.
The Reuters/Jefferies CRB Index of 19 raw materials tumbled 2.8 percent yesterday, the most since Aug. 14. Copper for three- month delivery was little changed at $6,495 a metric ton, after tumbling 5.5 percent yesterday, the most in six weeks.
Crude fell below $76 a barrel in New York on concern a weakening global economic recovery will slow growth in fuel demand.
“Crude has been shellacked due to confidence around the world eroding,” said Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney.
Mining Tax
Australian Prime Minister Julia Gillard said today “good discussions” are continuing with the mining industry amid speculation the government will unveil a compromise as soon as today on its planned resource tax.
The outlook for commodities demand dimmed yesterday after the Conference Board revised down its April leading economic index for China to show the smallest gain in five months. That triggered a global sell-off in riskier assets, with Chinese stocks dropping the most in six weeks.
China’s Shanghai Composite Index fell 1.1 percent to a 14- month low on concern economists may reduce their growth forecasts for the nation on policy tightening measures and the European debt crisis.
Jiangxi Copper Co. and Zhuzhou Smelter Group Co. lost at least 2.7 percent after metal prices retreated. Poly Real Estate Group Co., the second-largest developer by market value, dropped as much as 4.1 percent.
Foxconn Loss
Taiwan’s Taiex index dropped 1.6 percent. Hon Hai Precision Industry Co., the world’s largest electronics contract manufacturer, slipped the most in three weeks after its unit Foxconn International Holdings Ltd. forecast a wider first-half loss. Foxconn slid 7.7 percent in Hong Kong trading to the lowest since October.
“The view is spreading among investors that a recovery in the global economy won’t be as easy as people had expected,” said Kiyoshi Ishigane, a strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees about $65 billion. “Moves by countries around the world to tighten fiscal policies are behind the plunge in markets.”
The Institute for Supply Management-Chicago Inc. will say today its U.S. business barometer fell to 59 this month from 59.7 in May, according to a Bloomberg News survey of economists. The Purchasing Managers’ Index for China dropped to 53.2 in June from 53.9 in May, another survey showed before tomorrow’s data.
Weaker Won
South Korea’s won weakened 1.1 percent to 1,230.09 per dollar, headed for its first quarterly loss in more than a year. Malaysia’s ringgit dropped 0.4 percent to 3.2630 against the U.S. currency. China and the U.S. are South Korea’s two largest export markets.
“The situation at home and abroad is psychologically vulnerable and stocks are not doing as well as we hoped,” said Ha Joon Woo, a currency dealer at Daegu Bank Ltd in Seoul. “We’ll have to see if exporter demand to repatriate foreign income can stop the slide.”
The won fell even as a Bank of Korea report today showed South Korean manufacturers’ confidence held near a seven-year high. The central bank said its index measuring expectations for July stayed at 104, unchanged from June.
The yen traded near the strongest in more than eight years against the euro and the highest in almost eight weeks against the dollar amid higher demand for Japan’s currency as a refuge.
Double Dip?
Japan’s currency was at 108.09 per euro in Tokyo from 107.98 in New York yesterday, when it touched 107.32, the strongest level since November 2001. The yen was at 88.54 per dollar from 88.60. Yesterday it reached 88.29, the strongest level since May 6. The euro fetched $1.2208 from $1.2188.
“Investors are growing more concerned about the global recovery story, with talk of double-dip recession rising,” said Khoon Goh, a senior markets economist at ANZ National Bank Ltd. in Wellington. “The dollar and the yen are back in favor as ‘safe-haven’ currencies.”
The cost of insuring Asian bonds against default rose to the highest in three weeks, according to traders of credit- default swaps.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan added 5 basis points to 147 basis points as of 8:17 a.m. in Singapore, the highest since June 10, Royal Bank of Scotland Group Plc and CMA DataVision prices show.
The MSCI Asia Pacific Index retreated 1.4 percent to 112.36 as of 11:35 a.m. in Tokyo, the biggest decline since June 11 and set for its worst first half in two years. Chinese stocks fell to a 14-month low and South Korea’s won led a decline in emerging-market currencies. Crude extended its drop since June 25 to 3.9 percent, the sharpest three-day slide in six weeks.
Shares extended a global rout as an unexpected drop in U.S. consumer confidence added to concern sparked by the downward revision of an economic indicator for China. President Barack Obama said the U.S. economy faces “headwinds” from Europe’s debt crisis, while reports today and tomorrow may show gains in U.S. business activity and Chinese manufacturing are moderating.
“Equity markets are concerned about a slowdown in U.S. economic growth,” said Khiem Do, Hong Kong-based head of multi- asset strategy at Baring Asset Management (Asia) Ltd. which oversees about $10 billion. “It’s not a bad thing that the Chinese government is trying to cool down the economy, but it’s having a negative impact on market sentiment.”
More than six stocks declined in the MSCI’s Asian gauge for each one that advanced. Japan’s Nikkei 225 Stock Average lost 2.1 percent, while Australia’s S&P/ASX 200 Index dropped 1.5 percent. The Kospi declined 1 percent in Seoul.
S&P Futures
Futures on the Standard & Poor’s 500 Index rose 0.4 percent. The gauge yesterday slumped 3.1 percent to its lowest since Oct. 30 after the Conference Board’s gauge of confidence among U.S. consumers slumped to 52.9 this month from a revised 62.7 in May.
Nissan Motor Co. and Canon Inc., which get more than a quarter of their revenue in the Americas, slid in Tokyo as a stronger yen dented their profit outlooks. Nissan fell 1 percent while Canon declined 3 percent.
BHP Billiton Ltd., the world’s largest mining company, sank 1.8 percent in Sydney. Rio Tinto Group, the world’s third- biggest mining company, lost 2.8 percent. Mitsubishi Corp., which trades commodities, fell 3 percent in Tokyo.
The Reuters/Jefferies CRB Index of 19 raw materials tumbled 2.8 percent yesterday, the most since Aug. 14. Copper for three- month delivery was little changed at $6,495 a metric ton, after tumbling 5.5 percent yesterday, the most in six weeks.
Crude fell below $76 a barrel in New York on concern a weakening global economic recovery will slow growth in fuel demand.
“Crude has been shellacked due to confidence around the world eroding,” said Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney.
Mining Tax
Australian Prime Minister Julia Gillard said today “good discussions” are continuing with the mining industry amid speculation the government will unveil a compromise as soon as today on its planned resource tax.
The outlook for commodities demand dimmed yesterday after the Conference Board revised down its April leading economic index for China to show the smallest gain in five months. That triggered a global sell-off in riskier assets, with Chinese stocks dropping the most in six weeks.
China’s Shanghai Composite Index fell 1.1 percent to a 14- month low on concern economists may reduce their growth forecasts for the nation on policy tightening measures and the European debt crisis.
Jiangxi Copper Co. and Zhuzhou Smelter Group Co. lost at least 2.7 percent after metal prices retreated. Poly Real Estate Group Co., the second-largest developer by market value, dropped as much as 4.1 percent.
Foxconn Loss
Taiwan’s Taiex index dropped 1.6 percent. Hon Hai Precision Industry Co., the world’s largest electronics contract manufacturer, slipped the most in three weeks after its unit Foxconn International Holdings Ltd. forecast a wider first-half loss. Foxconn slid 7.7 percent in Hong Kong trading to the lowest since October.
“The view is spreading among investors that a recovery in the global economy won’t be as easy as people had expected,” said Kiyoshi Ishigane, a strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees about $65 billion. “Moves by countries around the world to tighten fiscal policies are behind the plunge in markets.”
The Institute for Supply Management-Chicago Inc. will say today its U.S. business barometer fell to 59 this month from 59.7 in May, according to a Bloomberg News survey of economists. The Purchasing Managers’ Index for China dropped to 53.2 in June from 53.9 in May, another survey showed before tomorrow’s data.
Weaker Won
South Korea’s won weakened 1.1 percent to 1,230.09 per dollar, headed for its first quarterly loss in more than a year. Malaysia’s ringgit dropped 0.4 percent to 3.2630 against the U.S. currency. China and the U.S. are South Korea’s two largest export markets.
“The situation at home and abroad is psychologically vulnerable and stocks are not doing as well as we hoped,” said Ha Joon Woo, a currency dealer at Daegu Bank Ltd in Seoul. “We’ll have to see if exporter demand to repatriate foreign income can stop the slide.”
The won fell even as a Bank of Korea report today showed South Korean manufacturers’ confidence held near a seven-year high. The central bank said its index measuring expectations for July stayed at 104, unchanged from June.
The yen traded near the strongest in more than eight years against the euro and the highest in almost eight weeks against the dollar amid higher demand for Japan’s currency as a refuge.
Double Dip?
Japan’s currency was at 108.09 per euro in Tokyo from 107.98 in New York yesterday, when it touched 107.32, the strongest level since November 2001. The yen was at 88.54 per dollar from 88.60. Yesterday it reached 88.29, the strongest level since May 6. The euro fetched $1.2208 from $1.2188.
“Investors are growing more concerned about the global recovery story, with talk of double-dip recession rising,” said Khoon Goh, a senior markets economist at ANZ National Bank Ltd. in Wellington. “The dollar and the yen are back in favor as ‘safe-haven’ currencies.”
The cost of insuring Asian bonds against default rose to the highest in three weeks, according to traders of credit- default swaps.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan added 5 basis points to 147 basis points as of 8:17 a.m. in Singapore, the highest since June 10, Royal Bank of Scotland Group Plc and CMA DataVision prices show.
China Sinking Like Greece Signals 65% Rally to Morgan
June 30 (Bloomberg) -- China, the worst-performing stock market after Greece, looks like a buy by almost any measure, according to top-ranked analysts of the Asian nation’s shares.
The Shanghai Composite Index’s 26 percent plunge this year, including yesterday’s 4.3 percent slump, sent its price-earnings ratio to 18, the lowest level versus the MSCI Emerging Markets Index in a decade. The largest owners of yuan-denominated stocks have turned net buyers for the first time since equities bottomed in 2008, while international investors are paying the biggest premium in 21 months to bet on a rally in funds that hold China’s yuan-denominated or A shares, data compiled by Macquarie Group Ltd. and Bloomberg show.
Morgan Stanley, BNP Paribas SA and Nomura Holdings Inc. say stocks will rally as China’s June 19 decision to end the yuan’s two-year peg to the dollar helps curb inflation and asset bubbles. The Shanghai index rose 62 percent in 12 months after China last allowed a more flexible exchange rate in July 2005.
“We are very bullish,” said Jerry Lou, the Hong Kong- based strategist at Morgan Stanley, among the top-ranked analysts for China stocks by Institutional Investor, who predicts the Shanghai Composite may climb 65 percent to 4,000 by June 2011. “We like valuations and inflation will peak. All we need is a catalyst such as a change in yuan policy.”
Prospects for a stock rebound may be cut as China’s exports face “strong headwinds” in the second half and loan growth may slow by the end of 2010, Citigroup Inc. said this week, even as the average of 14 economist estimates in a Bloomberg survey calls for economic growth of 10.2 percent this year and 9.2 percent in 2011.
Revision
The Conference Board yesterday revised its leading economic index for China, contributing to the biggest sell-off in Chinese equities in six weeks. Agricultural Bank of China Ltd., which priced the Shanghai portion of its $20.1 billion initial share sale, also drove banking stocks lower.
The Shanghai Composite fell for a sixth day today, losing 0.8 percent to 2,408.46 at 10:14 a.m. Its slump this year is second only to the 35 percent plunge in Greece’s ASE Index among the world’s 60 biggest stock markets, according to data compiled by Bloomberg. Companies on the Shanghai gauge will increase earnings by 40 percent in 12 months, more than double the pace of the ASE, analysts’ estimates by Bloomberg show.
Rising profits reduced the Shanghai Composite’s valuation premium over the MSCI emerging index to 26 percent, down from an average of 140 percent since 1997, based on weekly price- earnings ratios compiled by Bloomberg. The last time the gap was so small in February 2000, the Shanghai Composite gained 27 percent in 12 months, while the MSCI measure sank 26 percent.
Lower Valuations
Lower valuations spurred the biggest Chinese investors to buy last month. Shareholders who own at least 5 percent of a company’s stock boosted their holdings by 1.1 billion yuan ($162 million), according to Macquarie analysts Michael Kurtz and Shirley Zhao in Shanghai, basing their analysis on data from Wind Information. Similar purchases in October 2008 signaled the end of the Shanghai Composite’s year-long bear market, with the gauge rallying 82 percent from its low on Oct. 28, 2008, through October 2009.
Yuan-denominated shares, restricted almost exclusively to local investors, fell below Chinese stocks traded in Hong Kong this month for the first time in almost four years, according to the Hang Seng China AH Premium Index. When A shares last traded at a discount in November 2006, the Shanghai Composite tripled in 12 months, outpacing a 156 percent gain in the Hong Kong benchmark index and a 58 percent rise in the MSCI gauge.
‘Pay for Exposure’
“The premium between A and H shares is disappearing,” said Hao Hong, Beijing-based global equity strategist at China International Capital Corp., the top-ranked brokerage for China research in Asiamoney’s annual survey. That indicates “foreign investors are willing to pay for exposure to China’s stocks.”
International investors pushed the price of BlackRock Inc.’s iShares FTSE/Xinhua A50 China Index exchange-traded fund to 11 percent above the value of its underlying assets last week, the highest level in almost two years, according to data compiled by Bloomberg. The fund trades in Hong Kong and tracks the 50 biggest A-share companies.
The Shanghai Composite fell 22 percent this quarter, lagging behind gauges in the other so-called BRIC markets of the largest developing economies, after China raised banks’ reserve requirements to the highest level in at least three years and curbed real-estate speculation. Property prices rose 12.4 percent in May from a year earlier, the second-fastest pace after April’s 12.8 percent record gain.
BRIC Markets
Brazil’s Bovespa index dropped 8.7 percent during the period and Russia’s Micex slipped 8 percent, while India’s Bombay Stock Exchange Sensitive Index advanced 0.2 percent. The MSCI emerging gauge lost 7.6 percent.
The New York-based Conference Board corrected its April gauge for the outlook of China’s economy this week, saying its leading index for the country rose the least since November, rather than registering the biggest gain in 14 months.
A flood of new stock may also weigh on the market, according to Credit Suisse Group AG’s Sakthi Siva. Chinese companies will sell about 320 billion yuan ($47 billion) of new shares in Shanghai and Shenzhen this year as they fund expansion and banks bolster capital after a record amount of government- led lending, PricewaterhouseCoopers predicts.
Agricultural Bank’s share sale in Shanghai and Hong Kong is the biggest initial public offering since Industrial & Commercial Bank of China Ltd.’s $21.9 billion sale almost four years ago.
‘Quite Cautious’
“I’m still quite cautious,” Siva, the Singapore-based top-ranked Asia strategist in Institutional Investor’s 2010 poll, said in an interview. “There’s quite a lot of supply.”
Ending the fixed 6.83 yuan peg to the dollar should help “contain inflation and asset bubbles,” China’s central bank said in a June 20 statement. Inflation will probably peak at 3.7 percent toward the end of the third quarter then “level off” the rest of the year, according to CICC’s Hong.
Chinese authorities had prevented the currency from strengthening against the dollar since July 2008 to help exporters cope with the global financial crisis.
The yuan appreciated 21 percent in the three years after a managed float against a basket of currencies was introduced in 2005. Twelve-month non-deliverable forwards yesterday indicate investors are betting the yuan will strengthen 1.6 percent. A yuan revaluation won’t happen quickly or fix all of the global economy’s imbalances, International Monetary Fund Managing Director Dominique Strauss-Kahn said this week.
Vanke, China Merchants
China Vanke Co., the Shenzhen-based property developer that sank 37 percent this year, trades for 13 times reported profits, down from 35 times a year ago, according to data compiled by Bloomberg. Earnings growth of 29 percent this year will help lift the stock 42 percent, according to analyst estimates on Bloomberg.
China Merchants Bank Co.’s 2.7 price-to-book ratio is near a record low relative to the MSCI Emerging Markets Financials Index after the Shenzhen-based company declined 24 percent this year. The stock is poised to surge 49 percent in 12 months, according to analysts, who have 35 “buy” ratings and one “sell,” according to data compiled by Bloomberg.
Consumer-related shares will benefit from a shift in the economy to increase domestic spending, said Leo Gao, who helps oversee about $600 million at APS Asset Management Ltd. in Shanghai, whose APS China Alpha Fund has beaten 87 percent of peers in the past year, according to Bloomberg data.
The Shanghai Composite Index’s 26 percent plunge this year, including yesterday’s 4.3 percent slump, sent its price-earnings ratio to 18, the lowest level versus the MSCI Emerging Markets Index in a decade. The largest owners of yuan-denominated stocks have turned net buyers for the first time since equities bottomed in 2008, while international investors are paying the biggest premium in 21 months to bet on a rally in funds that hold China’s yuan-denominated or A shares, data compiled by Macquarie Group Ltd. and Bloomberg show.
Morgan Stanley, BNP Paribas SA and Nomura Holdings Inc. say stocks will rally as China’s June 19 decision to end the yuan’s two-year peg to the dollar helps curb inflation and asset bubbles. The Shanghai index rose 62 percent in 12 months after China last allowed a more flexible exchange rate in July 2005.
“We are very bullish,” said Jerry Lou, the Hong Kong- based strategist at Morgan Stanley, among the top-ranked analysts for China stocks by Institutional Investor, who predicts the Shanghai Composite may climb 65 percent to 4,000 by June 2011. “We like valuations and inflation will peak. All we need is a catalyst such as a change in yuan policy.”
Prospects for a stock rebound may be cut as China’s exports face “strong headwinds” in the second half and loan growth may slow by the end of 2010, Citigroup Inc. said this week, even as the average of 14 economist estimates in a Bloomberg survey calls for economic growth of 10.2 percent this year and 9.2 percent in 2011.
Revision
The Conference Board yesterday revised its leading economic index for China, contributing to the biggest sell-off in Chinese equities in six weeks. Agricultural Bank of China Ltd., which priced the Shanghai portion of its $20.1 billion initial share sale, also drove banking stocks lower.
The Shanghai Composite fell for a sixth day today, losing 0.8 percent to 2,408.46 at 10:14 a.m. Its slump this year is second only to the 35 percent plunge in Greece’s ASE Index among the world’s 60 biggest stock markets, according to data compiled by Bloomberg. Companies on the Shanghai gauge will increase earnings by 40 percent in 12 months, more than double the pace of the ASE, analysts’ estimates by Bloomberg show.
Rising profits reduced the Shanghai Composite’s valuation premium over the MSCI emerging index to 26 percent, down from an average of 140 percent since 1997, based on weekly price- earnings ratios compiled by Bloomberg. The last time the gap was so small in February 2000, the Shanghai Composite gained 27 percent in 12 months, while the MSCI measure sank 26 percent.
Lower Valuations
Lower valuations spurred the biggest Chinese investors to buy last month. Shareholders who own at least 5 percent of a company’s stock boosted their holdings by 1.1 billion yuan ($162 million), according to Macquarie analysts Michael Kurtz and Shirley Zhao in Shanghai, basing their analysis on data from Wind Information. Similar purchases in October 2008 signaled the end of the Shanghai Composite’s year-long bear market, with the gauge rallying 82 percent from its low on Oct. 28, 2008, through October 2009.
Yuan-denominated shares, restricted almost exclusively to local investors, fell below Chinese stocks traded in Hong Kong this month for the first time in almost four years, according to the Hang Seng China AH Premium Index. When A shares last traded at a discount in November 2006, the Shanghai Composite tripled in 12 months, outpacing a 156 percent gain in the Hong Kong benchmark index and a 58 percent rise in the MSCI gauge.
‘Pay for Exposure’
“The premium between A and H shares is disappearing,” said Hao Hong, Beijing-based global equity strategist at China International Capital Corp., the top-ranked brokerage for China research in Asiamoney’s annual survey. That indicates “foreign investors are willing to pay for exposure to China’s stocks.”
International investors pushed the price of BlackRock Inc.’s iShares FTSE/Xinhua A50 China Index exchange-traded fund to 11 percent above the value of its underlying assets last week, the highest level in almost two years, according to data compiled by Bloomberg. The fund trades in Hong Kong and tracks the 50 biggest A-share companies.
The Shanghai Composite fell 22 percent this quarter, lagging behind gauges in the other so-called BRIC markets of the largest developing economies, after China raised banks’ reserve requirements to the highest level in at least three years and curbed real-estate speculation. Property prices rose 12.4 percent in May from a year earlier, the second-fastest pace after April’s 12.8 percent record gain.
BRIC Markets
Brazil’s Bovespa index dropped 8.7 percent during the period and Russia’s Micex slipped 8 percent, while India’s Bombay Stock Exchange Sensitive Index advanced 0.2 percent. The MSCI emerging gauge lost 7.6 percent.
The New York-based Conference Board corrected its April gauge for the outlook of China’s economy this week, saying its leading index for the country rose the least since November, rather than registering the biggest gain in 14 months.
A flood of new stock may also weigh on the market, according to Credit Suisse Group AG’s Sakthi Siva. Chinese companies will sell about 320 billion yuan ($47 billion) of new shares in Shanghai and Shenzhen this year as they fund expansion and banks bolster capital after a record amount of government- led lending, PricewaterhouseCoopers predicts.
Agricultural Bank’s share sale in Shanghai and Hong Kong is the biggest initial public offering since Industrial & Commercial Bank of China Ltd.’s $21.9 billion sale almost four years ago.
‘Quite Cautious’
“I’m still quite cautious,” Siva, the Singapore-based top-ranked Asia strategist in Institutional Investor’s 2010 poll, said in an interview. “There’s quite a lot of supply.”
Ending the fixed 6.83 yuan peg to the dollar should help “contain inflation and asset bubbles,” China’s central bank said in a June 20 statement. Inflation will probably peak at 3.7 percent toward the end of the third quarter then “level off” the rest of the year, according to CICC’s Hong.
Chinese authorities had prevented the currency from strengthening against the dollar since July 2008 to help exporters cope with the global financial crisis.
The yuan appreciated 21 percent in the three years after a managed float against a basket of currencies was introduced in 2005. Twelve-month non-deliverable forwards yesterday indicate investors are betting the yuan will strengthen 1.6 percent. A yuan revaluation won’t happen quickly or fix all of the global economy’s imbalances, International Monetary Fund Managing Director Dominique Strauss-Kahn said this week.
Vanke, China Merchants
China Vanke Co., the Shenzhen-based property developer that sank 37 percent this year, trades for 13 times reported profits, down from 35 times a year ago, according to data compiled by Bloomberg. Earnings growth of 29 percent this year will help lift the stock 42 percent, according to analyst estimates on Bloomberg.
China Merchants Bank Co.’s 2.7 price-to-book ratio is near a record low relative to the MSCI Emerging Markets Financials Index after the Shenzhen-based company declined 24 percent this year. The stock is poised to surge 49 percent in 12 months, according to analysts, who have 35 “buy” ratings and one “sell,” according to data compiled by Bloomberg.
Consumer-related shares will benefit from a shift in the economy to increase domestic spending, said Leo Gao, who helps oversee about $600 million at APS Asset Management Ltd. in Shanghai, whose APS China Alpha Fund has beaten 87 percent of peers in the past year, according to Bloomberg data.
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