July 15 (Bloomberg) -- Asian stocks declined from a three- week high and commodities fell, after the Federal Reserve cut its growth forecast, U.S. retail sales declined and China’s economic growth eased.
The MSCI Asia Pacific Index lost 0.5 percent to 117.15 at 11:37 a.m. in Tokyo. The yield on Korean government bonds slipped from a four-month high. Copper fell 1.4 percent and crude oil slid 0.5 percent. Standard & Poor’s 500 Index futures rose 0.5 percent after the index was little changed yesterday.
The Federal Reserve cut its central forecast for growth this year to a range of 3-to-3.5 percent from 3.2-to-3.7 percent, and sales at U.S. retailers dropped for a second month, falling more than economists estimated. Economic growth in China eased to 11.1 percent in the first half from 11.9 percent in January- March after the government succeeded in tempering credit, investment spending and property speculation.
“It’s hard to eliminate concerns about the future,” said Mitsushige Akino, who oversees about $450 million in assets in Tokyo at Ichiyoshi Investment Management Co. “However, shares have significant upside potential in terms of valuations.”
Two shares fell for every one that gained on the MSCI Asia Pacific Index, which rallied 1.5 percent yesterday to its highest since June 22 after Intel Corp. reported record second- quarter sales and Singapore raised its growth forecast.
Japan’s Nikkei 225 Stock Average dropped 1.1 percent. Mitsubishi Corp., Japan’s biggest commodities trading company, retreated 1. percent in Tokyo.
The Federal Reserve report derailed a six-day rally in U.S. stocks after better-than-estimated profits from Intel Corp. and Alcoa Inc. boosted shares. JPMorgan Chase & Co. and Google Inc. are scheduled to report earnings later today
“The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside,” the Fed said in its minutes. “The changes to the outlook were viewed as relatively modest and as not warranting policy accommodation beyond that already in place.”
Wednesday, July 14, 2010
Toyota Concedes 2 Flaws Caused Loss of Control
DETROIT — Toyota said Wednesday that its investigation of about 2,000 vehicles reported to experience sudden acceleration found evidence that sticking accelerator pedals and interference by floor mats — the subjects of two big recalls — did indeed cause some of the incidents.
The modified accelerator pedal, left, and the original recalled pedal.
It is the first time since the recalls that Toyota has acknowledged that its internal review, which is continuing, found sudden-acceleration complaints to be valid. The carmaker did not disclose how many of the incidents had been caused by the sticky pedals and floor mats.
The National Highway Traffic Safety Administration has received about 3,000 complaints about sudden acceleration in Toyota vehicles and is conducting its own examination of them. The agency said in a statement on Wednesday that it had reached “no conclusions” about the causes.
A Toyota spokesman, Mike Michels, said the company’s investigation involved inspecting the vehicles and downloading data from onboard recorders if a crash occurred. Mr. Michels said the investigation found sticking accelerator pedals in a small number of vehicles and a larger number with floor mats that interfered with pedals.
He said none of the vehicles with a sticking pedal was involved in a crash, and he did not know how many of those identified as having problematic floor mats had crashed.
The Toyota review pointed to human error in most instances when a vehicle crashed while the driver was trying to brake, Mr. Michels said. Nearly all of the crashes in those instances resulted from “pedal misapplication,” meaning the driver mistakenly pressed the accelerator instead of the brake, he said.
No evidence of malfunctioning electronic throttle systems has been found, Mr. Michels said.
“We’re not implying that everything is driver error, absolutely not,” he said. “But in instances where they reported having their foot on the brake pedal, there is very clear evidence that this is pedal misapplication.”
The Wall Street Journal, citing anonymous sources, reported Tuesday that federal transportation officials had examined event data recorders from dozens of Toyota vehicles and had found open throttles and no evidence of braking. Some media outlets referred to the report as vindication of Toyota, whose supporters had argued that reports of the problems were overblown.
Sean Kane, the president of Safety Research and Strategies, a Massachusetts consulting firm that is working with lawyers suing Toyota, said data recorders that did not show braking were “far from an exoneration of Toyota and its electronics.”
Mr. Kane said that driver error was always assumed to be the cause of at least some of the complaints but that the recorders alone could not prove that a car did not accelerate on its own.
“You can’t ignore the fact that when they move to an electronic throttle control you basically see a fourfold increase in complaints,” Mr. Kane said. He also said the event data recorders rely “on the same sensing system that is unable to detect the failure to begin with,” and is therefore not “an independent witness.”
Toyota has recalled about 8.5 million vehicles worldwide since November to resolve the floor-mat interference and sticking pedal problems. Some vehicles are subject to both recalls. In issuing the recalls, Toyota acknowledged the problems, but it had not conducted as thorough a review of the complaints.
After the recalls were announced, regulators were flooded with more complaints from drivers who say their Toyota or Lexus accelerated suddenly, or from family members of crash victims alleging a defect was responsible.
The complaints attribute 93 deaths to sudden acceleration by one of the Japanese carmaker’s vehicles. The government ordered Toyota to pay a record $16.4 million fine for waiting too long to initiate a recall after learning that its accelerator pedals contained a defect.
The N.H.T.S.A. is working with the National Academy of Sciences and the National Aeronautics and Space Administration to investigate causes of the sudden acceleration reports. The agency received 10 machines capable of interpreting Toyota’s vehicles’ data recorders from the carmaker, but the recorders typically are activated only when the vehicle’s air bag deploys.
Toyota has in various court cases argued against using data from the recorders as reliable sources of evidence. Mr. Michels acknowledged the technology to be “in development” but said it was “maturing” and did provide valuable information.
“What we’re finding is that the E.D.R.’s information is consistent with everything else that is known or determined about the incident,” he said.
The widespread attention given to Toyota’s issues with sudden acceleration has prompted many of the affected vehicles’ owners to have repairs performed more quickly than recalls are usually performed.
Mr. Michels said dealers had fixed nearly 80 percent of the 2.3 million vehicles in the United States included in the sticking pedal recall and about half of the 5.4 million recalled for their floor mats. The carmaker has yet to announce repair procedures for some of the models in the floor-mat recall, including the high-volume Corolla compact sedan.
The modified accelerator pedal, left, and the original recalled pedal.
It is the first time since the recalls that Toyota has acknowledged that its internal review, which is continuing, found sudden-acceleration complaints to be valid. The carmaker did not disclose how many of the incidents had been caused by the sticky pedals and floor mats.
The National Highway Traffic Safety Administration has received about 3,000 complaints about sudden acceleration in Toyota vehicles and is conducting its own examination of them. The agency said in a statement on Wednesday that it had reached “no conclusions” about the causes.
A Toyota spokesman, Mike Michels, said the company’s investigation involved inspecting the vehicles and downloading data from onboard recorders if a crash occurred. Mr. Michels said the investigation found sticking accelerator pedals in a small number of vehicles and a larger number with floor mats that interfered with pedals.
He said none of the vehicles with a sticking pedal was involved in a crash, and he did not know how many of those identified as having problematic floor mats had crashed.
The Toyota review pointed to human error in most instances when a vehicle crashed while the driver was trying to brake, Mr. Michels said. Nearly all of the crashes in those instances resulted from “pedal misapplication,” meaning the driver mistakenly pressed the accelerator instead of the brake, he said.
No evidence of malfunctioning electronic throttle systems has been found, Mr. Michels said.
“We’re not implying that everything is driver error, absolutely not,” he said. “But in instances where they reported having their foot on the brake pedal, there is very clear evidence that this is pedal misapplication.”
The Wall Street Journal, citing anonymous sources, reported Tuesday that federal transportation officials had examined event data recorders from dozens of Toyota vehicles and had found open throttles and no evidence of braking. Some media outlets referred to the report as vindication of Toyota, whose supporters had argued that reports of the problems were overblown.
Sean Kane, the president of Safety Research and Strategies, a Massachusetts consulting firm that is working with lawyers suing Toyota, said data recorders that did not show braking were “far from an exoneration of Toyota and its electronics.”
Mr. Kane said that driver error was always assumed to be the cause of at least some of the complaints but that the recorders alone could not prove that a car did not accelerate on its own.
“You can’t ignore the fact that when they move to an electronic throttle control you basically see a fourfold increase in complaints,” Mr. Kane said. He also said the event data recorders rely “on the same sensing system that is unable to detect the failure to begin with,” and is therefore not “an independent witness.”
Toyota has recalled about 8.5 million vehicles worldwide since November to resolve the floor-mat interference and sticking pedal problems. Some vehicles are subject to both recalls. In issuing the recalls, Toyota acknowledged the problems, but it had not conducted as thorough a review of the complaints.
After the recalls were announced, regulators were flooded with more complaints from drivers who say their Toyota or Lexus accelerated suddenly, or from family members of crash victims alleging a defect was responsible.
The complaints attribute 93 deaths to sudden acceleration by one of the Japanese carmaker’s vehicles. The government ordered Toyota to pay a record $16.4 million fine for waiting too long to initiate a recall after learning that its accelerator pedals contained a defect.
The N.H.T.S.A. is working with the National Academy of Sciences and the National Aeronautics and Space Administration to investigate causes of the sudden acceleration reports. The agency received 10 machines capable of interpreting Toyota’s vehicles’ data recorders from the carmaker, but the recorders typically are activated only when the vehicle’s air bag deploys.
Toyota has in various court cases argued against using data from the recorders as reliable sources of evidence. Mr. Michels acknowledged the technology to be “in development” but said it was “maturing” and did provide valuable information.
“What we’re finding is that the E.D.R.’s information is consistent with everything else that is known or determined about the incident,” he said.
The widespread attention given to Toyota’s issues with sudden acceleration has prompted many of the affected vehicles’ owners to have repairs performed more quickly than recalls are usually performed.
Mr. Michels said dealers had fixed nearly 80 percent of the 2.3 million vehicles in the United States included in the sticking pedal recall and about half of the 5.4 million recalled for their floor mats. The carmaker has yet to announce repair procedures for some of the models in the floor-mat recall, including the high-volume Corolla compact sedan.
Monday, July 12, 2010
Infosys First-Quarter Profit Falls, Missing Analyst Estimates
July 13 (Bloomberg) -- Infosys Technologies Ltd., India’s second-largest software exporter, reported lower first-quarter profit after it cut prices to retain contracts.
Net income fell 2.6 percent to 14.9 billion rupees ($318.5 million) in the three months ended June 30, from 15.3 billion rupees a year earlier, Bangalore-based Infosys said today. That compared with the 15.6 billion rupee average of 25 analyst estimates compiled by Bloomberg.
Chief Executive Officer S. Gopalakrishnan cut prices to retain and win business from customers in the U.S. and Europe including Alstom SA, the maker of Amtrak’s Acela high-speed trains, and Microsoft Corp. The euro’s 6.3 percent decline against the rupee in three months to June 30 dragged down the value of sales in Europe, which accounts for about 20 percent of Infosys’s business.
“Naturally, there’s going to be some negative impact on all exporters from unfavorable currents in currency,” Jayesh Shroff, who manages about $1.4 billion in equities at SBI Funds Management in Mumbai, said before the announcement. “It has nothing to do with the fundamentals of the software export business. We’re seeing strong global demand for IT services, so we have a generally positive outlook on the industry.”
The weakness of the euro, which has lost about 12 percent against the rupee this year, and ripples from the Greek debt crisis will result in a 12 to 15 percent loss in income for the Europe-based business of Indian IT vendors, according to estimates from Forrester Research, Inc. in Cambridge, Massachusetts.
Net income fell 2.6 percent to 14.9 billion rupees ($318.5 million) in the three months ended June 30, from 15.3 billion rupees a year earlier, Bangalore-based Infosys said today. That compared with the 15.6 billion rupee average of 25 analyst estimates compiled by Bloomberg.
Chief Executive Officer S. Gopalakrishnan cut prices to retain and win business from customers in the U.S. and Europe including Alstom SA, the maker of Amtrak’s Acela high-speed trains, and Microsoft Corp. The euro’s 6.3 percent decline against the rupee in three months to June 30 dragged down the value of sales in Europe, which accounts for about 20 percent of Infosys’s business.
“Naturally, there’s going to be some negative impact on all exporters from unfavorable currents in currency,” Jayesh Shroff, who manages about $1.4 billion in equities at SBI Funds Management in Mumbai, said before the announcement. “It has nothing to do with the fundamentals of the software export business. We’re seeing strong global demand for IT services, so we have a generally positive outlook on the industry.”
The weakness of the euro, which has lost about 12 percent against the rupee this year, and ripples from the Greek debt crisis will result in a 12 to 15 percent loss in income for the Europe-based business of Indian IT vendors, according to estimates from Forrester Research, Inc. in Cambridge, Massachusetts.
China Stocks Fall Most in Two Weeks as Loan Curbs Maintained
July 13 (Bloomberg) -- China’s stocks fell, with the benchmark index declining the most in two weeks, after the government quashed speculation it will abandon real-estate curbs that drove property prices to snap 15 months of gains.
China Vanke Co. and Bank of China Ltd. dropped among developers and lenders after the government said it will “strictly” enforce housing policies to prevent speculative real estate investment. Jiangxi Copper Co. slid 2.8 percent, ending five days of gains, while China Shenhua Energy Co. retreated 2.4 percent.
“The government isn’t likely to relax tightening measures as it wants to transform the country’s growth model to focus on consumption rather than investment,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 29.73, or 1.2 percent, to 2,460.99 as of 10:27 a.m., the most since June 29. The CSI 300 Index fell 1.4 percent to 2,638.42.
The Shanghai Composite jumped 3.7 percent last week, the most this year, on speculation the government will adopt a looser monetary policy. The gauge has slumped 25 percent in 2010, making it Asia’s worst performer, on concern government efforts to curb inflation and property speculation will slow the economy.
China’s property prices fell 0.1 percent in June from the previous month, ending 15 months of gains, statistics bureau data showed yesterday. New lending of 603 billion yuan ($89 billion) last month was the least in three months, the central bank said July 11.
The Ministry of Housing and Urban-Rural Development reiterated that it will maintain curbs on speculative purchases and increase market supply. The statement was in response to media reports that said China may abandon its current property policies, it said.
Bank Regulator
China’s banking regulator also said it has made no changes to policies on home loans, according to a statement posted late yesterday to the website of the China Banking Regulatory Commission. The regulator called on commercial banks to strictly enforce home loan rules, it said.
Vanke, the nation’s biggest developer, fell 1.8 percent to 7.50 yuan. Price cuts by Vanke have been among signs the market is cooling as the government cracks down on speculation. Poly Real Estate Group Co., the second largest, dropped 2.6 percent to 11.53 yuan.
A measure of property stocks on the Shanghai Composite slumped 2.4 percent, the most among the five industry groups. The real-estate gauge jumped 2.6 percent yesterday after the Southern Metropolis Daily reported China may loosen limitations on third-home loans as the curbs reaped their intended effects on the real estate market. Some Chinese banks have eased standards for mortgage lending, at least on a case-by-case basis, according to Credit Suisse Group AG in a report yesterday.
Bank of China retreated 1.4 percent to 3.52 yuan. Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender lost 0.7 percent to 4.27 yuan.
Shanghai Banks
Shanghai-based commercial banks have maintained second-home loan curb policies, the Shanghai Banking Association said yesterday. It has not loosened the measures, it said. The Oriental Morning Post reported July 8 that some commercial banks based in the city have eased policies for second-home buyers.
Harvard University professor Kenneth Rogoff said July 6 that a “collapse” in real estate is beginning, while Barclays Capital forecasts prices may fall as much as 30 percent in the next 12 months.
Jiangxi Copper, China’s biggest producer of the metal, slid 2.8 percent to 24.60 yuan, snapping a five-day, 13 percent rally. China Shenhua Energy retreated 2.4 percent to 21.73 yuan.
Zinc declined 1.4 percent on the London Metal Exchange, reversing a gain of 0.5 percent, while copper and aluminum trimmed their advance.
China doesn’t plan to delay or suspend initial share sales in Shanghai or Shenzhen, the China Securities Journal said, citing an unidentified official at the China Securities Regulatory Commission. The comments refute media reports saying China is considering suspending new IPOs to stem further declines in the stock market, it said.
Agricultural Bank of China Ltd., which begins trading in Shanghai on July 15 and in Hong Kong the day after, raised $19.2 billion in the world’s biggest initial public offering in four years.
China Vanke Co. and Bank of China Ltd. dropped among developers and lenders after the government said it will “strictly” enforce housing policies to prevent speculative real estate investment. Jiangxi Copper Co. slid 2.8 percent, ending five days of gains, while China Shenhua Energy Co. retreated 2.4 percent.
“The government isn’t likely to relax tightening measures as it wants to transform the country’s growth model to focus on consumption rather than investment,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 29.73, or 1.2 percent, to 2,460.99 as of 10:27 a.m., the most since June 29. The CSI 300 Index fell 1.4 percent to 2,638.42.
The Shanghai Composite jumped 3.7 percent last week, the most this year, on speculation the government will adopt a looser monetary policy. The gauge has slumped 25 percent in 2010, making it Asia’s worst performer, on concern government efforts to curb inflation and property speculation will slow the economy.
China’s property prices fell 0.1 percent in June from the previous month, ending 15 months of gains, statistics bureau data showed yesterday. New lending of 603 billion yuan ($89 billion) last month was the least in three months, the central bank said July 11.
The Ministry of Housing and Urban-Rural Development reiterated that it will maintain curbs on speculative purchases and increase market supply. The statement was in response to media reports that said China may abandon its current property policies, it said.
Bank Regulator
China’s banking regulator also said it has made no changes to policies on home loans, according to a statement posted late yesterday to the website of the China Banking Regulatory Commission. The regulator called on commercial banks to strictly enforce home loan rules, it said.
Vanke, the nation’s biggest developer, fell 1.8 percent to 7.50 yuan. Price cuts by Vanke have been among signs the market is cooling as the government cracks down on speculation. Poly Real Estate Group Co., the second largest, dropped 2.6 percent to 11.53 yuan.
A measure of property stocks on the Shanghai Composite slumped 2.4 percent, the most among the five industry groups. The real-estate gauge jumped 2.6 percent yesterday after the Southern Metropolis Daily reported China may loosen limitations on third-home loans as the curbs reaped their intended effects on the real estate market. Some Chinese banks have eased standards for mortgage lending, at least on a case-by-case basis, according to Credit Suisse Group AG in a report yesterday.
Bank of China retreated 1.4 percent to 3.52 yuan. Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender lost 0.7 percent to 4.27 yuan.
Shanghai Banks
Shanghai-based commercial banks have maintained second-home loan curb policies, the Shanghai Banking Association said yesterday. It has not loosened the measures, it said. The Oriental Morning Post reported July 8 that some commercial banks based in the city have eased policies for second-home buyers.
Harvard University professor Kenneth Rogoff said July 6 that a “collapse” in real estate is beginning, while Barclays Capital forecasts prices may fall as much as 30 percent in the next 12 months.
Jiangxi Copper, China’s biggest producer of the metal, slid 2.8 percent to 24.60 yuan, snapping a five-day, 13 percent rally. China Shenhua Energy retreated 2.4 percent to 21.73 yuan.
Zinc declined 1.4 percent on the London Metal Exchange, reversing a gain of 0.5 percent, while copper and aluminum trimmed their advance.
China doesn’t plan to delay or suspend initial share sales in Shanghai or Shenzhen, the China Securities Journal said, citing an unidentified official at the China Securities Regulatory Commission. The comments refute media reports saying China is considering suspending new IPOs to stem further declines in the stock market, it said.
Agricultural Bank of China Ltd., which begins trading in Shanghai on July 15 and in Hong Kong the day after, raised $19.2 billion in the world’s biggest initial public offering in four years.
India’s fierce battle for control of Ulips
It was the kind of thing rarely seen in Indian bureaucracy. Two normally restrained financial industry regulators engaged in such a fierce public battle that the matter went to court.
The combatants were the Securities and Exchange Board of India, the capital markets regulator, and the Insurance Regulatory and Development Authority, the insurance watchdog. The fight was over who should have jurisdiction over one of India’s most common investment products – unit-linked insurance products. Sebi argued insurers were selling mutual funds dressed up as insurance with high fees. Irda rejected the argument.
In June, the finance ministry stepped in. It gave Irda control over Ulips – policies that offer life insurance cover as well as the upside from investments in underlying stocks or bonds – but on the condition that the terms of the products were tightened up to reduce fees.
“Life insurance business shall include any unit linked insurance policy or scripts or any such instruments. This would set at rest issues regarding Ulips between two financial regulators,” the finance ministry said in a statement.
The battle has been one of the most closely watched in the financial industry for years. Insurers generate more than half of their premium collections from the sale of new Ulips. According to the Life Insurance Council, India’s life insurance industry is valued at $41bn (£27bn, €33bn). More importantly for foreign investors, it is growing at a rate of 32-34 per cent a year.
The confrontation between the regulators has its roots in a move by Sebi in August last year to abolish “entry load” on mutual funds – fees paid by equity funds to their distributors.
Formerly, mutual funds would charge investors up to 2.25 per cent entry load. The asset management company would also pay an additional 50-100 basis points to distributors as a form of commission.
These distributors include banks as well as thousands of individual agents who go door to door selling funds. Sebi said it was abolishing the entry load on the basis that distributors should earn their fees directly from investors in return for advice. This left distributors looking for other sources of income.
For many, Ulips provided a viable alternative. Insurers were charging upfront fees of up to 40 per cent on first-year premiums for Ulips, a significant portion of which would be passed on to the distributors, often 10-12 percentage points.
But in January, Sebi moved to bring Ulips under its control by sending a notice to all life insurance companies asking them to explain why they had not sought its approval before selling Ulips. Sebi argued that the structure of Ulips, with their underlying investments in equities and bonds, resembled an investment product more than an insurance product and therefore should come under its jurisdiction as the stock market watchdog.
In April, Sebi escalated the confrontation by issuing a notice banning 14 life insurance firms from offering new Ulip schemes.
Irda told the life insurers to ignore the Sebi order. The issue went to the courts until the finance ministry intervened on the side of Irda.
Although Sebi was not able to wrest regulatory control of Ulips from the insurance regulator, since the Sebi notice in April, Irda has introduced a succession of regulatory changes to Ulips, most of which are aimed at enlarging the policies’ insurance components. The most recent was introduced by Irda last month [on June 28] following the finance ministry’s ordinance.
Among the changes, Irda has capped commissions to distributors at 4 per cent in the first year from September 1, increased the lock-in period for Ulips from three to five years and required minimum annualised returns of 4.5 per cent. The minimum sum insured must be 10 times the premium compared with five times earlier.
Like Sebi’s abolition of entry load on mutual funds in August last year, the new regulations have upset the insurance industry. They say the lower commissions mean distributors will have no incentive to sell Ulips with annual premiums of below Rs20,000 (£281, $426, €339) a year. These represent about half the market and mean lower income earners will not have access to the product.
“This is going to really be a huge hit for the industry,” Kamesh Goyal, chief executive of joint venture Bajaj Allianz Life Insurance Company said on Indian television.
Brokerages have already begun downgrading the targets for listed insurance firms. “We cut volumes to flat in financial year 2011 (from 10-15 per cent) due to new norms, and cut valuations by 5-10 per cent for insurance companies,” said UBS in a research note.
Mutual fund managers are naturally pleased with the changes. They argued that before the new norms, the playing field had been tilted in the favour of Ulips and the insurance companies. The new regulations favoured investors.
“The measures introduced over the past few months should result in an increase in the insurance component of Ulips and lower costs, making them more investor friendly,” says Vivek Kudva, managing director, India and Ceemea (central and eastern Europe, Middle East and Africa), Franklin Templeton Investments. Insurers, however, are not giving up. V. Srinivasan, chief financial officer with Bharti Axa Life, says the industry plans to lobby Irda further.
“We’ve been running this regime of 40 per cent upfront commission for the last 10 years and on that basis we have built a huge workforce across the country. We can’t just undo this in two months time,” Mr Srinivasan says.
The combatants were the Securities and Exchange Board of India, the capital markets regulator, and the Insurance Regulatory and Development Authority, the insurance watchdog. The fight was over who should have jurisdiction over one of India’s most common investment products – unit-linked insurance products. Sebi argued insurers were selling mutual funds dressed up as insurance with high fees. Irda rejected the argument.
In June, the finance ministry stepped in. It gave Irda control over Ulips – policies that offer life insurance cover as well as the upside from investments in underlying stocks or bonds – but on the condition that the terms of the products were tightened up to reduce fees.
“Life insurance business shall include any unit linked insurance policy or scripts or any such instruments. This would set at rest issues regarding Ulips between two financial regulators,” the finance ministry said in a statement.
The battle has been one of the most closely watched in the financial industry for years. Insurers generate more than half of their premium collections from the sale of new Ulips. According to the Life Insurance Council, India’s life insurance industry is valued at $41bn (£27bn, €33bn). More importantly for foreign investors, it is growing at a rate of 32-34 per cent a year.
The confrontation between the regulators has its roots in a move by Sebi in August last year to abolish “entry load” on mutual funds – fees paid by equity funds to their distributors.
Formerly, mutual funds would charge investors up to 2.25 per cent entry load. The asset management company would also pay an additional 50-100 basis points to distributors as a form of commission.
These distributors include banks as well as thousands of individual agents who go door to door selling funds. Sebi said it was abolishing the entry load on the basis that distributors should earn their fees directly from investors in return for advice. This left distributors looking for other sources of income.
For many, Ulips provided a viable alternative. Insurers were charging upfront fees of up to 40 per cent on first-year premiums for Ulips, a significant portion of which would be passed on to the distributors, often 10-12 percentage points.
But in January, Sebi moved to bring Ulips under its control by sending a notice to all life insurance companies asking them to explain why they had not sought its approval before selling Ulips. Sebi argued that the structure of Ulips, with their underlying investments in equities and bonds, resembled an investment product more than an insurance product and therefore should come under its jurisdiction as the stock market watchdog.
In April, Sebi escalated the confrontation by issuing a notice banning 14 life insurance firms from offering new Ulip schemes.
Irda told the life insurers to ignore the Sebi order. The issue went to the courts until the finance ministry intervened on the side of Irda.
Although Sebi was not able to wrest regulatory control of Ulips from the insurance regulator, since the Sebi notice in April, Irda has introduced a succession of regulatory changes to Ulips, most of which are aimed at enlarging the policies’ insurance components. The most recent was introduced by Irda last month [on June 28] following the finance ministry’s ordinance.
Among the changes, Irda has capped commissions to distributors at 4 per cent in the first year from September 1, increased the lock-in period for Ulips from three to five years and required minimum annualised returns of 4.5 per cent. The minimum sum insured must be 10 times the premium compared with five times earlier.
Like Sebi’s abolition of entry load on mutual funds in August last year, the new regulations have upset the insurance industry. They say the lower commissions mean distributors will have no incentive to sell Ulips with annual premiums of below Rs20,000 (£281, $426, €339) a year. These represent about half the market and mean lower income earners will not have access to the product.
“This is going to really be a huge hit for the industry,” Kamesh Goyal, chief executive of joint venture Bajaj Allianz Life Insurance Company said on Indian television.
Brokerages have already begun downgrading the targets for listed insurance firms. “We cut volumes to flat in financial year 2011 (from 10-15 per cent) due to new norms, and cut valuations by 5-10 per cent for insurance companies,” said UBS in a research note.
Mutual fund managers are naturally pleased with the changes. They argued that before the new norms, the playing field had been tilted in the favour of Ulips and the insurance companies. The new regulations favoured investors.
“The measures introduced over the past few months should result in an increase in the insurance component of Ulips and lower costs, making them more investor friendly,” says Vivek Kudva, managing director, India and Ceemea (central and eastern Europe, Middle East and Africa), Franklin Templeton Investments. Insurers, however, are not giving up. V. Srinivasan, chief financial officer with Bharti Axa Life, says the industry plans to lobby Irda further.
“We’ve been running this regime of 40 per cent upfront commission for the last 10 years and on that basis we have built a huge workforce across the country. We can’t just undo this in two months time,” Mr Srinivasan says.
Sunday, July 11, 2010
Yen Weakens Against Euro on Japan Elections; Exporters Gain
July 12 (Bloomberg) -- The yen fell on concern efforts to cut Japan’s public debt will be undermined after the ruling party lost control of the upper house. Most Asian stocks rose, led by Japanese exporters and commodity producers.
The yen weakened against all 16 of its most-active counterparts at 11:28 a.m. in Tokyo, sliding to 112.23 per euro from 112.01 in New York on July 9. The MSCI Asia Pacific Index was little changed at 116.07, following a two-day, 2.6 percent rally. Standard & Poor’s 500 Index futures slipped 0.2 percent.
The Democratic Party of Japan won 44 seats in the upper house in yesterday’s elections, less than the opposition Liberal Democratic Party’s 51 seats, making it less likely that Prime Minister Naoto Kan will be able to raise the sales tax to cut the world’s largest public debt. Stocks fluctuated ahead of the start of the U.S. second-quarter earnings season, with S&P 500 companies projected to post profit gains of 34 percent, according to analysts’ estimates compiled by Bloomberg.
“The yen could actually weaken because there’s going to continued spending by the government and there’s going to be a delay in the consumption tax hike,” Curtis Freeze, chairman of Honolulu-based Prospect Asset Management Inc. with about $1 billion in assets, said in a Bloomberg Television interview. “Earnings are the key but it’s going to be very company specific.”
Four stocks rose for every three that fell among the MSCI index’s 985 members, with a measure tracking materials stocks posting the biggest gain among 10 industry groups. The Nikkei 225 Stock Average climbed 0.1 percent, a third day of gains.
Honda, Sony
Honda Motor Co. jumped 2.8 percent and Sony Corp. rallied 3.6 percent as the yen fell to as weak as 89.16 per dollar, the least since June 29, from 88.62 last week. The Japanese currency also weakened before reports this week that are forecast to show a rise in European industrial production and a drop in U.S. initial jobless claims.
“With extreme worries about the fate of the global economy easing, risk aversion is also weakening,” said Tomohiro Nishida, a Tokyo-based foreign-currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “The recent bout of yen buying, driven by strong risk aversion, seems to be running out of steam.”
Commodity-related stocks rallied, with Rio Tinto Group rising 1.3 percent and Nippon Steel Corp., Japan’s largest steelmaker, surging 3.3 percent. Alcoa Inc., the first company in the Dow Jones Industrial Average to report second-quarter earnings, will post a profit for the first time in three quarters, according to analyst estimates compiled by Bloomberg.
Three-month copper futures fell as much as 0.6 percent to $6,720 a metric ton on the London Metal Exchange after a customs office report showed that imports by China, the largest user, dropped for a third month in June. A report also showed China, the world’s second-biggest energy consumer, increased crude imports to a record in June, helping to drive a fourth day of gains in crude. Oil gained 0.2 percent to $76.24 in New York.
The yen weakened against all 16 of its most-active counterparts at 11:28 a.m. in Tokyo, sliding to 112.23 per euro from 112.01 in New York on July 9. The MSCI Asia Pacific Index was little changed at 116.07, following a two-day, 2.6 percent rally. Standard & Poor’s 500 Index futures slipped 0.2 percent.
The Democratic Party of Japan won 44 seats in the upper house in yesterday’s elections, less than the opposition Liberal Democratic Party’s 51 seats, making it less likely that Prime Minister Naoto Kan will be able to raise the sales tax to cut the world’s largest public debt. Stocks fluctuated ahead of the start of the U.S. second-quarter earnings season, with S&P 500 companies projected to post profit gains of 34 percent, according to analysts’ estimates compiled by Bloomberg.
“The yen could actually weaken because there’s going to continued spending by the government and there’s going to be a delay in the consumption tax hike,” Curtis Freeze, chairman of Honolulu-based Prospect Asset Management Inc. with about $1 billion in assets, said in a Bloomberg Television interview. “Earnings are the key but it’s going to be very company specific.”
Four stocks rose for every three that fell among the MSCI index’s 985 members, with a measure tracking materials stocks posting the biggest gain among 10 industry groups. The Nikkei 225 Stock Average climbed 0.1 percent, a third day of gains.
Honda, Sony
Honda Motor Co. jumped 2.8 percent and Sony Corp. rallied 3.6 percent as the yen fell to as weak as 89.16 per dollar, the least since June 29, from 88.62 last week. The Japanese currency also weakened before reports this week that are forecast to show a rise in European industrial production and a drop in U.S. initial jobless claims.
“With extreme worries about the fate of the global economy easing, risk aversion is also weakening,” said Tomohiro Nishida, a Tokyo-based foreign-currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “The recent bout of yen buying, driven by strong risk aversion, seems to be running out of steam.”
Commodity-related stocks rallied, with Rio Tinto Group rising 1.3 percent and Nippon Steel Corp., Japan’s largest steelmaker, surging 3.3 percent. Alcoa Inc., the first company in the Dow Jones Industrial Average to report second-quarter earnings, will post a profit for the first time in three quarters, according to analyst estimates compiled by Bloomberg.
Three-month copper futures fell as much as 0.6 percent to $6,720 a metric ton on the London Metal Exchange after a customs office report showed that imports by China, the largest user, dropped for a third month in June. A report also showed China, the world’s second-biggest energy consumer, increased crude imports to a record in June, helping to drive a fourth day of gains in crude. Oil gained 0.2 percent to $76.24 in New York.
China’s Property-Price Gains Slow for Second Month
July 12 (Bloomberg) -- China’s property prices rose at a slower pace for a second month after April’s record gain as the government cracked down on speculation, damping home sales in a bid to avert asset bubbles.
Prices in 70 cities rose 11.4 percent in June from a year earlier, according to a report today in the statistic bureau’s newspaper, China Information News. That compared with 12.8 percent in April and 12.4 percent in May.
Property prices slid 0.1 percent in June from the previous month, adding to signs that growth is moderating in the world’s third-biggest economy. Harvard University professor Kenneth Rogoff said July 6 that a “collapse” in real estate is beginning, while Barclays Capital forecasts prices may fall as much as 30 percent in the next 12 months.
“Chinese authorities appear very determined in regulating the property sector and policies are unlikely to reverse,” Peng Wensheng, the Hong Kong-based head of China research for Barclays, said before today’s release. “Price corrections are inevitable and that’s what the government would like to see.”
The value of property sales rose 25.4 percent in the first half of the year to 1.98 trillion yuan ($292 billion), slowing from the 38.4 percent gain in the first five months, today’s report showed.
Poly, China Vanke
China Vanke Co., the nation’s biggest listed developer, has cut prices and Guangzhou-based developer Poly Real Estate Group Co. reported slower first-half sales growth. A Shanghai stock index tracking 34 real-estate companies has tumbled about 28 percent this year, the worst performer among five industry groupings.
A slide in Chinese stocks this year highlights investors’ concern that the economy may slow excessively as the government trims stimulus measures and Europe’s sovereign-debt crisis threatens export demand.
The statistics bureau is due to announce second- quarter gross domestic product on July 15 after the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Goldman Sachs Group Inc. this month cut its forecast for full-year growth to 10.1 percent from 11.4 percent.
Cooling Speculation
Authorities intensified a crackdown on property speculation in April. Besides raising minimum mortgage rates and down-payment ratios for some home purchases, the government has pledged to boost land supply and the construction of low-cost public homes. Officials may also trial a property tax, according to state media.
Investment in real-estate development rose 38.1 percent to 1.97 trillion yuan in the first half of this year, almost the same as the gain in the January-May period, the newspaper said today. Sales by floor area increased 15.4 percent to 394 million square meters (4.24 billion square feet), it said. That compares with a 22.5 percent gain in the first five months.
Land Minister Xu Shaoshi said property prices will likely have an “overall” correction in about three months, the Securities Times reported July 5. In a meeting the previous day, Xu said authorities will continue to “actively conduct macro controls” on the property sector and also investigate land hoarding, according to a statement on the ministry’s website.
Extra Intensity
Xu’s comments indicate China will “intensify” the enforcement of land policies in the second half of the year rather than reverse them, UBS AG wrote in a July 8 note.
In Shanghai, new-home sales fell 57 percent in the first half, Shanghai Uwin Real Estate Information Services Co. said July 7. In Beijing, the decline was 44 percent from a year earlier, property research firm China Index Academy said July 2.
“This time around, Chinese policy makers are not simply curbing an overheating property sector, they aim for fundamental changes that will help to prevent more bumpy corrections in the future,” said Barclay’s Peng.
Property investment accounts for about 10 percent of gross domestic product and construction consumes half of the nation’s output of steel and 36 percent of the aluminum that it makes, JPMorgan Chase & Co. estimates.
Home prices are set to fall as much as 20 percent in a “healthy” correction, Michael Klibaner, head of China research at property broker Jones Lang LaSalle Inc., said July 7. The property boom has been driven by cash rather than debt, meaning there’s little chance of the forced selling that exacerbated the U.S. housing market collapse, he said.
Prices in 70 cities rose 11.4 percent in June from a year earlier, according to a report today in the statistic bureau’s newspaper, China Information News. That compared with 12.8 percent in April and 12.4 percent in May.
Property prices slid 0.1 percent in June from the previous month, adding to signs that growth is moderating in the world’s third-biggest economy. Harvard University professor Kenneth Rogoff said July 6 that a “collapse” in real estate is beginning, while Barclays Capital forecasts prices may fall as much as 30 percent in the next 12 months.
“Chinese authorities appear very determined in regulating the property sector and policies are unlikely to reverse,” Peng Wensheng, the Hong Kong-based head of China research for Barclays, said before today’s release. “Price corrections are inevitable and that’s what the government would like to see.”
The value of property sales rose 25.4 percent in the first half of the year to 1.98 trillion yuan ($292 billion), slowing from the 38.4 percent gain in the first five months, today’s report showed.
Poly, China Vanke
China Vanke Co., the nation’s biggest listed developer, has cut prices and Guangzhou-based developer Poly Real Estate Group Co. reported slower first-half sales growth. A Shanghai stock index tracking 34 real-estate companies has tumbled about 28 percent this year, the worst performer among five industry groupings.
A slide in Chinese stocks this year highlights investors’ concern that the economy may slow excessively as the government trims stimulus measures and Europe’s sovereign-debt crisis threatens export demand.
The statistics bureau is due to announce second- quarter gross domestic product on July 15 after the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Goldman Sachs Group Inc. this month cut its forecast for full-year growth to 10.1 percent from 11.4 percent.
Cooling Speculation
Authorities intensified a crackdown on property speculation in April. Besides raising minimum mortgage rates and down-payment ratios for some home purchases, the government has pledged to boost land supply and the construction of low-cost public homes. Officials may also trial a property tax, according to state media.
Investment in real-estate development rose 38.1 percent to 1.97 trillion yuan in the first half of this year, almost the same as the gain in the January-May period, the newspaper said today. Sales by floor area increased 15.4 percent to 394 million square meters (4.24 billion square feet), it said. That compares with a 22.5 percent gain in the first five months.
Land Minister Xu Shaoshi said property prices will likely have an “overall” correction in about three months, the Securities Times reported July 5. In a meeting the previous day, Xu said authorities will continue to “actively conduct macro controls” on the property sector and also investigate land hoarding, according to a statement on the ministry’s website.
Extra Intensity
Xu’s comments indicate China will “intensify” the enforcement of land policies in the second half of the year rather than reverse them, UBS AG wrote in a July 8 note.
In Shanghai, new-home sales fell 57 percent in the first half, Shanghai Uwin Real Estate Information Services Co. said July 7. In Beijing, the decline was 44 percent from a year earlier, property research firm China Index Academy said July 2.
“This time around, Chinese policy makers are not simply curbing an overheating property sector, they aim for fundamental changes that will help to prevent more bumpy corrections in the future,” said Barclay’s Peng.
Property investment accounts for about 10 percent of gross domestic product and construction consumes half of the nation’s output of steel and 36 percent of the aluminum that it makes, JPMorgan Chase & Co. estimates.
Home prices are set to fall as much as 20 percent in a “healthy” correction, Michael Klibaner, head of China research at property broker Jones Lang LaSalle Inc., said July 7. The property boom has been driven by cash rather than debt, meaning there’s little chance of the forced selling that exacerbated the U.S. housing market collapse, he said.
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