|From: Sam Citron||1/12/2009 7:53:04 PM|
|Capitalism Freezes in Worldwide Winter of Discontent (Update2)|
By James G. Neuger
Jan. 12 (Bloomberg) -- As capitalism staggers through its first globalized economic crisis, the costs won’t be measured only in dollars and cents.
From newly rich Russia to eternally impoverished sub- Saharan Africa, social strains are threatening the established political order, putting some countries’ very survival at risk.
In the past month, Nigerian rebels threatened renewed warfare against foreign oil producers, Russia sent riot police from Moscow to quell an anti-tax protest in Siberia and China’s communist leadership warned of social agitation as the 20th anniversary of the Tiananmen Square massacre looms.
The disillusionment and spillover effects of the global recession “are not only likely to spark existing conflicts in the world and fuel terrorism, but also jeopardize global security in general,” says Louis Michel, 61, the European Union’s development aid commissioner in Brussels.
Somewhere in the wreckage may lurk an unexpected test for U.S. President-elect Barack Obama, 47, one that upstages his international agenda just as Afghanistan’s backwardness and radicalism led to the Sept. 11 attacks that defined the era of George W. Bush only eight months into his term.
Among the possible outcomes: instability in Pakistan, a more aggressive if economically stricken Iran, a collapsing Somalia, civil disorder in copper-dependent Zambia, a strengthened, drug-financed insurgency in Colombia and a more warlike North Korea.
Cascading Into a Crisis
The U.S. housing slump that began in 2007 has cascaded into a worldwide crisis that forced central bankers to cut interest rates to near zero to unlock credit markets, pushed governments to bail out their biggest banks amid a $1 trillion of writedowns, and sent titans like General Motors Corp. and American International Group Inc. begging for bailouts.
The World Bank reckons trade will shrink for the first time in more than 25 years, deepening the economic hole for governments in developing nations, where higher food and fuel prices cost consumers an extra $680 billion last year and pushed as many as 155 million people into poverty.
Nuclear-armed Pakistan, once touted by Bush as the key U.S. ally in the war on terror, sits at the nexus between economic insecurity and extremism.
“Blood and tears” may be Pakistan’s fate, says Thaksin Shinawatra, 59, who as prime minister of Thailand fought rural poverty during a stormy five-year tenure until his ouster by a military coup in 2006. “That’s where I’m worried, and also about political stability, and the terrorist activities are there,” he said in an interview.
On Nov. 25, Pakistan clinched a $7.6 billion International Monetary Fund bailout to avert a debt default amid ebbing growth and an inflation rate of 23 percent in December that is ruining the livelihoods of its poor.
A day later, an Islamic terrorist group went on a rampage in Mumbai, India’s financial hub, killing 164 people and adding a bloody new chapter to six decades of animosity on the subcontinent. India accused Pakistan of harboring the militants, much as the Taliban uses ungoverned Pakistani tribal regions as a launch pad for attacks on Afghanistan.
Neighboring Iran is among the energy-exporting states afflicted by the 74 percent drop in oil prices from last July’s peak of $147.27. The government, reliant on oil income for more than half the budget, may pare subsidies for utility bills, adding to the pain of October’s 30 percent inflation rate.
Axis of Evil
Elections in June may determine whether Iran, part of Bush’s “axis of evil,” presses ahead with its nuclear program -- or may change little regardless of outcome, says Yousef al- Otaiba, the United Arab Emirates’ ambassador to the U.S. Whether or not President Mahmoud Ahmadinejad is re-elected, power will remain with Ayatollah Ali Khamenei and religious leaders.
“Whoever comes to office in June is going to be a different face of what I think is the same policy,” al-Otaiba said in an interview.
On a global scale, the spiral of economic distress and political radicalism has been at work throughout history, from the bread riots that stoked the French Revolution to the mass unemployment that brought the Nazis to power in Germany. Some dictators, like Hitler and Stalin, turned on their neighbors after disposing of internal enemies. Others, like Mao, walled off their societies, condemning millions to misery.
The increasingly lopsided world economy “provides fertile ground for extremism and violence,” French President Nicolas Sarkozy said at a conference last week in Paris. With globalization, he said, “we expected competition and abundance, and in the end we got scarcity, debt, speculation and dumping.”
Extremism and Violence
Historians say it’s too early to declare the end of the intertwining of the global economy, under way at least since the collapse of the Soviet bloc in 1989. For one thing, developed nations still have a huge stake in the system: Even with $29 trillion wiped off the value of global equity markets last year, the Dow Jones Industrial Average is back where it was in 2003, hardly a time of privation.
As a result, disturbances in the West -- from Greece’s worst riots since the 1970s, to a 31 percent increase in New Year’s Eve car torchings in France, to a pickup in shoplifting at 84 percent of major U.S. retailers -- won’t shake the foundations of those societies.
Failed and Failing
It’s the failed or failing states that stand to lose the most. “The punch line: Poverty does cause violence,” says Raymond Fisman, a professor at Columbia Business School in New York. Researchers led by Edward Miguel of the University of California have even quantified it: a 5 percent drop in national income in African countries increases the risk of civil conflict in the following year to 30 percent.
The frailest nations are those concentrated south of the Sahara desert, plagued by a legacy of despotism, corruption, disease and economic misfortune -- often all at once. The region accounts for seven of the top 10 countries in a ranking of “failed” states compiled by the Fund for Peace, a Washington- based research group.
With commodity prices sinking, cutting the UBS Bloomberg Constant Maturity Commodity Index by almost half in the past six months, mining companies including Anglo-American Plc, De Beers, Lonmin Plc, and Xstrata Plc are slashing jobs, adding to Africa’s economic woes.
Nigeria, holder of Africa’s biggest fossil-fuel reserves, is staring into a $5 billion budget hole due to the oil-price swoon. It also confronts an emboldened guerrilla movement in the southern Niger Delta, the oil-producing region that has attracted the likes of Royal Dutch Shell Plc and Chevron Corp.
“The outlook is not optimistic,” says Pauline Baker, president of the Fund for Peace, which ranks Nigeria 18th on the most-at-risk list. “Unless Nigeria begins to pull itself together, I think with the lowering oil price in particular it is quite vulnerable.”
As incomes shrivel in the poor world, the economically troubled rich world isn’t able to fill the gap. Even when the going was good, the Group of Eight industrial powers were struggling to meet a 2005 commitment to increase annual aid to poor countries by $50 billion by 2010. Now, official donations are set to fall by as much as 30 percent, the European Commission predicts.
The IMF may need another $150 billion to help reverse the damage to emerging markets, Managing Director Dominique Strauss- Kahn says. While “demand may be above what we have,” Strauss- Kahn said in an interview that he is convinced the IMF could scrounge up the extra funds.
Perched between advanced economies and the raw-materials exporters in the southern hemisphere is Russia, which used the eight-fold oil-price surge from 2002 to 2008 to reassert its claim to the great-power status that evaporated along with the Soviet empire.
Under President-turned-Prime Minister Vladimir Putin, that newfound clout became manifest in last year’s invasion of neighboring Georgia and this month’s shutdown of gas shipments to Europe. The tactics deflected domestic attention from the onset of the first recession since Russia’s debt default in 1998. The ruble dropped 19 percent against the dollar in 2008, the steepest slide in nine years. Today, it fell to 31.0533 per dollar, the lowest level in almost six years.
Belligerency fueled by sudden wealth is likely to be inflamed by sudden scarcity, says Harold James, a history professor at Princeton University.
“Economic difficulties are always a spur to foreign political adventurism,” James says. “In Russia, there’s already a big devaluation, there’s unrest in Siberia and other provincial cities. This is really where the destabilization is going to come from.”
As Russia clashes with its neighbors, China may be headed toward domestic repression. While growth of 7.5 percent as predicted by the World Bank will outstrip the industrial economies, the pace will be the slowest since 1990, the year after the army put down the Tiananmen pro-democracy uprising.
China’s recipe for raising the standard of living has relied on creating jobs in coastal boomtowns like Shanghai as a magnet for millions of poor from the vast, rural interior. Now that formula is breaking down. More than 10 million migrant workers lost their jobs in the first 11 months of 2008, an unidentified Labor Ministry official told Caijing Magazine last month.
Using Communist Party code for riots and civil disorder, the state-controlled Outlook Magazine last week warned that a spike in “mass incidents” will test the government’s ability to preserve the social peace.
At stake is the endurance of the Chinese hybrid of an open economy and closed political system. During its two-decade rise that has increased gross domestic product almost 10 times to make China the world’s fourth-largest economy and engine of global growth, a buoyant economy provided insurance against political dissent.
In a worst-case scenario, U.S. intelligence agencies warn, the communist leadership would roll back China’s integration into the world economy.
“Although a protracted slump could pose a serious political threat, the regime would be tempted to deflect public criticism by blaming China’s woes on foreign interference, stoking the more virulent and xenophobic forms of Chinese nationalism,” the U.S. National Intelligence Council concluded in November.
China has known outbursts of chauvinism in the past and remained intact, thanks to a social hierarchy dating back to the age of Confucius. Poorer countries lacking that political anchor face a bleaker outlook.
The crisis “could undermine the development momentum,” Liberian President Ellen Johnson Sirleaf said in an interview. “It would mean joblessness would increase, and that could undermine the stability of nations.”
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|From: Sam Citron||1/15/2009 12:43:31 PM|
|Chinese officials gamble, and their luck runs out|
By Mark McDonald
Thursday, January 15, 2009
MACAO: As mayor of a small city in the Chinese hinterland, Li Weimin started out innocently enough, playing the slots in nearby Macao, games with names like Five Dragons, Chinese Kitchen and Super Happy Fortune Cat.
But he soon began to try his hand at other games, and for higher stakes, financing his increasingly frequent trips to glitzy casinos by dipping into the municipal budget and several real estate firms under his control.
"It was easy for me to borrow or divert money from those places," the 43- year-old Li said at his trial, according to a state-run newspaper, China Daily. Eventually he lost $12 million and was sentenced to 20 years in prison.
Li is one of an increasing number of Communist Party bosses and government officials who, government prosecutors say, pillaged state funds, company accounts and municipal treasuries to try their luck in Macao, which sits just across the border from Guandong Province.
Many of the biggest losers have been sent to prison and at least 15 have been executed. Some have committed suicide. The scandals have become a source of deep embarrassment for the Chinese government, which has now begun cracking down on travel visas for Macao.
While gambling remains illegal in mainland China, it is pure oxygen for Macao, which Portugal handed back to China in December 1999. The tiny territory, which has been enjoying a gambling-tourist-building boom since 2004, relies on gambling for 75 percent of its tax base.
Now the biggest gambling market in the world, Macao has annual gambling revenues higher than the Las Vegas Strip and Atlantic City combined. Among its 31 casinos is the world's largest, the Venetian Macao.
Much of that prosperity is now threatened, experts here say, not only by the global economic crisis but also by the crackdown on gambling by the government in Beijing. The issue is so sensitive in China that more than a dozen interview requests over the past month were refused by government and party leaders.
A Chongqing official, the head of the local Communist Party's propaganda department, was accused of embezzling a total of $24 million. Along with a co-worker, he blew at least half the money at the Casino Lisboa here, according to Xinhua, the official Chinese news agency.
The Chinese officials who gamble here lose mostly at baccarat, the game of choice in Macao, but they also lose at blackjack, poker and a dice game called Fish-Prawn-Crab. And even though many of them are neophyte gamblers, they often bet thousands of dollars on a single hand.
A 2008 study of 99 high rollers from mainland China showed that 59 had some sort of state affiliation: 33 were government officials, 19 were senior managers at state-owned enterprises and 7 were cashiers at state businesses. They were typically men, between 30 and 49 years old, and lived in mainland areas close to Macao.
The government officials reported losing an average of $2.7 million each, according to the study, which was conducted by Zeng Zhonglu, a professor at Macao Polytechnic Institute. State managers lost $1.9 million each, on average, and cashiers dropped an average of $500,000. Most said their gambling careers lasted less than four years before they were found out.
Their losses at the tables bankrupted at least 10 companies. An editorial in the Beijing Youth Daily said gambling by public officials "threatens the safety of the national treasury," though it is unclear just how much public money has been gambled away.
"I doubt even the Chinese government knows," said Desmond Lam, an expert on Macao and Chinese gambling who is currently a senior research fellow at the University of South Australia. "Still, the figure is likely to be very substantial, at least in the hundreds of millions so far.
"And if you include the undetected money, it must be higher."
China had tried repeatedly to clamp down on gambling by public officials but had never had much success until hitting on the idea of limiting visas. The new visa regulations, which went into effect last summer, limit mainland officials to just one trip every three months, and for no more than seven days, and have been highly effective, gambling analysts and scholars say.
"It has been a very, very serious problem, but it's better now," said Zeng, the author of the study on high rollers. "The mainland government has strict controls over officials coming to Macao."
But along the way, the restrictions have helped turn Macao's boom into something of a bust, a connection that was underscored on Monday, when the stocks of Macao casino companies plunged by a fifth after Beijing announced that it would retain the visa controls. Share prices of the companies are down more than 80 percent on average from their highs a year ago.
Casino bosses, tour operators, shop owners, restaurateurs and hoteliers say they are feeling the pain from what Samuel Yeung, the manager of the landmark Hotel Lisboa, calls "the tightening control of mainland China."
Gambling revenues are plunging and luxury shops are empty. Soaring hotel and apartment towers stand half-finished. Thousands of construction and casino workers have been fired. Last month at the Venetian, half the singing gondoliers on its indoor "Grand Canal" were abruptly fired.
"The government is saying Macao is going too fast and we need to cool it down," said Davis Fong, a business professor and director of the Institute for the Study of Commercial Gaming at the University of Macao. He cited a freeze on new projects and tighter regulations on the territory's casinos.
It is as if the gold is running out in the Klondike.
"It's not so much the global downturn that's having an effect on Macao; it's the visa restrictions that are having the most impact," said Anil Daswani, an analyst in Hong Kong who follows the gambling industry for Citigroup. "Clearly there was way too much capital coming into Macao, and the mainland is trying to cool the economy.
"But it's definitely worrying. Volumes are down materially."
|RecommendKeepReplyMark as Last Read|
|From: Sam Citron||1/21/2009 1:54:33 PM|
|Ireland’s Banks Sink With Decline of ‘Celtic Tiger’ (Update2)|
By Dara Doyle and Louisa Nesbitt
Jan. 21 (Bloomberg) -- The bloodletting may be far from over for Ireland’s banks as the wheels come off what was once Europe’s fastest-moving economy.
The government said Jan. 16 it would seize control of Anglo Irish Bank Corp. following a scandal that forced the resignations of its chief executive officer and chairman. Three days later, Brian Goggin, CEO of Bank of Ireland Plc, said he will retire a year early following a bailout announced in December that also included Allied Irish Banks Plc. Bank of Ireland fell as much as 33 percent today in Dublin.
“Nobody can stop what’s happening,” said Ken Murray, CEO of Blue Planet Investment Management in Edinburgh. “It’s going to carry on, and governments are going to have to come up with the capital because the market doesn’t have it.”
Ireland’s financial industry fed the so-called “Celtic Tiger” as the economy more than doubled and banking shares increased at least fivefold in the decade ending in 2006. Now the property market is collapsing, Irish financial shares are down more than 90 percent from a year ago, and some analysts say it’s just a matter of time before Bank of Ireland and Allied Irish, the two biggest lenders, combine or end up in state control.
“Merging is one possibility that needs to be actively looked at now,” said Ray Kinsella, business professor at the University College Dublin. “The second option is nationalization, to take them into public ownership for a fixed period of time.”
Ireland needs both Bank of Ireland and Allied Irish to survive, said Alan Ahearne, a lecturer at the National University of Ireland in Galway and a former economist at the Federal Reserve in the U.S. “So it would be reasonable for the government to put more money into them or even nationalize them,” he said.
Allied Irish was unchanged at 45 euro cents at 1:30 p.m. in Dublin. The company now has a stock market value of 397 million euros, less than Bank Zachodni WBK SA, the Polish bank it owns. The Irish financial index fell 7.9 percent.
Ireland’s banking policy is designed to avoid a banking failure ‘under any circumstances,” Power, foreign affairs minister Peter Power said today in an interview with Dublin-based broadcaster RTE today. The government will provide “whatever funds are necessary” to enable Allied Irish and Bank of Ireland finance themselves, he said.
The government’s “firm intention” is to keep Allied Irish and Bank of Ireland in private ownership, Finance Minister Brian Lenihan told lawmakers yesterday. Allied Irish CEO Eugene Sheehy said in a message to employees that he believes the Dublin-based bank will remain independent.
Ireland isn’t alone in having to deploy taxpayer’s money. The British government increased its stake this week in Royal Bank of Scotland Group Plc to 70 percent as the Edinburgh-based lender faced its biggest loss in British history. The Bank of England also plans to buy 50 billion pounds ($69 billion) of assets, and the U.K. may back hundreds of billion pounds of securities hurt by market turmoil.
Convincing investors to stump up money for Irish banks is a tall order, according to Andrew Ramsbottom, who helps manage 7.3 billion pounds for Deutsche Bank AG in Liverpool. Ireland’s economy is set to slump 5 percent this year, Western Europe’s worst performance, the European Commission forecasts.
“International investors don’t seem to want to know at the moment,” said Ramsbottom.
The six-member ISEF Index of Irish financial companies has dived 96 percent during the past year. The companies together now are worth less than a fifth of Dublin-based CRH Plc, the world’s second-biggest maker and distributor of building materials.
“Investors have lost faith in the Irish economic story and in the banks,” said Jim Power, chief economist at Dublin-based investment and insurance company Friends First. “They are not going to be able to raise money.”
Ireland’s house prices, which quadrupled between 1997 and early 2007, lost 15 percent in two years, according to a monthly index by the Economic and Social Research Institute in Dublin.
Irish banks are owed 39 billion euros by real estate developers, the country’s financial regulator said on Oct. 14. Development land values have fallen at least 40 percent in the last year, according to the Irish unit of CB Richard Ellis.
Amid concern about the bad debts, Ireland’s government on Dec. 21 said it would invest 2 billion euros in both Bank of Ireland and Allied Irish and underwrite a further sale of shares of as much as 1 billion euros each.
Failure to Disclose
The difficulties may have been exacerbated by troubles at Anglo Irish, a Dublin-based bank that lends to businesses.
Already facing mounting losses on property loans, Anglo’s woes increased last month when Chairman Sean Fitzpatrick quit after saying he failed to fully disclose loans of as much as 129 million euros from the bank over an eight-year period.
CEO David Drumm left a day later and Finance Director Willie McAteer resigned last week.
“Clearly the market is saying, we don’t want anything to do with the banks,” said Brian Lucey, associate professor in finance at Trinity College Dublin. “I guess the only way forward is nationalization for all the banks.”
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|From: Sam Citron||1/27/2009 11:12:31 AM|
|Ukraine Stares Into an Economic-Political ‘Abyss’ (Update2)|
By James M. Gomez and Daryna Krasnolutska
Jan. 27 (Bloomberg) -- For Europeans, last week’s resumption of Russian natural gas shipments ended a two-week energy dispute. For Ukraine, it may have ended any hope of weathering the global financial crisis.
The accord with Russia will increase Ukraine’s spending on gas by almost 7 percent, to $9.16 billion, at a time when soaring bond yields are raising the specter of default. Already, Ukraine is living on the first installment of a $16.4 billion bailout from the International Monetary Fund. Further payouts will depend on whether the country balances its 2009 budget, cancels a tax on foreign exchange and strengthens banking laws.
Ukraine hasn’t been so fragile since the early 1990s, following the breakup of the Soviet Union. The economy may shrink as much as 10 percent this year, which would be the deepest recession in Europe except for Iceland’s. President Viktor Yushchenko’s support is close to zero and clashes with Prime Minister Yulia Timoshenko may bring down the government.
“The country is staring into the abyss, both politically and economically,” said Neil Shearing, an analyst at London-based Capital Economics Ltd. “I can’t think of another country that will be hit harder this year” in eastern Europe.
The 2004 Orange Revolution, which brought Yushchenko and Timoshenko to power when both favored joining the European Union and the North Atlantic Treaty Organization, seems far away.
A promise of EU membership hasn’t been offered, and NATO ruled out near-term entry for Ukraine and Georgia last December, though support for Ukraine in the longer term would keep the region stable, said Czech Deputy Prime Minister Petr Necas, whose country holds the EU’s six-month rotating presidency.
“We are interested in having a stable and economically prosperous Ukraine,” Necas said in an e-mailed answer to a Bloomberg question yesterday. “Ukrainian workers undoubtedly contribute to the economic growth in the Czech Republic and we do not regard them as a threat.”
The outcome of the energy controversy has strengthened Russian Prime Minister Vladimir Putin, 56, who said on Jan. 8 that Ukraine’s leadership was “highly criminalized.” Over time, Ukraine’s income from transit fees for natural gas may be jeopardized as Europe seeks or builds more stable supply routes.
The dispute with Russia that left Ukraine and other eastern European countries without gas is only the latest in a series of events that brought the country to the brink of collapse.
Global steel prices have fallen 50 percent since a record in July, hurting the country’s largest export and cutting sales for VAT ArcelorMittal Kryvyi Rih and Metinvest BV. The higher gas costs will deepen this year’s expected contraction. Gross domestic product will shrink as much as 10 percent, according to Shearing, and 9 percent based on HSBC Holdings Ltd. forecasts.
Yields on Ukraine’s $105.4 billion of government and company debt, now at 25.67 percent, are the highest of any country with dollar-denominated debt except Ecuador, which defaulted in December.
The gross foreign debt includes direct state debt, including loans from the IMF, the European Bank for Reconstruction and Development; domestic Treasuries owned by foreigners; bank borrowing, including bonds and loans; and corporate debt, including bonds and loans.
The Ukrainian currency, the hryvnia, has lost 38 percent in the past year against the dollar and the benchmark stock index has plunged 75 percent.
Like fellow Russian gas customers Bulgaria and Slovakia, Ukraine failed to diversify its power sources or budget for a gas- price increase that Russia has been trying to impose since Yushchenko took office at the beginning of 2005. The agreement between Russian gas exporter OAO Gazprom and NAK Naftogaz Ukrainy will make Ukraine pay market prices starting next year.
The bickering between Yushchenko, 54, and Timoshenko, 48, has gone on since they began sharing power, crippling the government’s ability to pass legislation to strengthen the banking and economic systems and sell unprofitable state assets.
“You can start by putting the Ukrainian government on the stand,” said Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy. “One can blame other factors, but the simple fact is you can avoid the situation you have seen in Ukraine with better policies.”
A Dec. 17-28 survey conducted by the Kiev-based Democratic Initiatives Foundation showed that 84 percent of respondents believed the country was moving in the wrong direction even before the gas crisis started. That compares with 48.6 percent in 2007. The poll of 2,012 people had a margin of error of 2.2 percent.
The poll also found that if presidential elections scheduled for January 2010 were held today, 22.3 percent would support former Prime Minister Viktor Yanukovych, the pro-Russian opposition leader. Another 13.9 percent would pick Timoshenko and 2.4 percent would choose Yushchenko. Almost half said no politician could deal with the financial and economic crises.
“The government was not ready to meet such obvious worldwide financial threats and currently is not able to protect Ukrainians,” said Oleksandr Slobodyanyk, 27, who lost his job more than two months ago as a broker at Concorde Capital in Kiev. “I see no other option but to look for a job abroad.”
The government broke down in October after Timoshenko joined the opposition in stripping the president of some powers. Plans for early elections on Dec. 14 were later dropped after the two leaders re-formed the Cabinet and promised to work together.
Pressure on Central Bank
Now, Yushchenko blames Timoshenko -- who went to Moscow and negotiated with Putin -- for giving in too far to Russian demands. She is trying to oust central bank Governor Volodymyr Stelmakh, an ally of Yushchenko’s.
Former Soviet republics Latvia and Lithuania to the north experienced rioting this month because of anger over government failure to limit the effect of the financial meltdown.
“Ukrainians, generally speaking, have had enough of the government,” said Tanya Costello, the London director for New York-based Eurasia Group. “I don’t think there is a political leader in whom the public has its trust at the moment. So it’s more likely you will see pockets of social unrest.”
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|From: Sam Citron||1/28/2009 1:43:39 PM|
|Eying Chinese imports and electricity production. |
Both have fallen off a cliff lately [see article below, John Authers video 1/21/08 at ft.com, and seekingalpha.com], which is worrisome to those who believe that China must replace US as the world's consumer of last resort if we are to recover from a worldwide recession.
China Imports, Exports Tumble [1.12.08]
Dow Jones Newswires
SHANGHAI -- China's exports and imports both fell for the second consecutive month in December, with an accelerated contraction in trade offering a bleak outlook for the world's fourth-largest economy and highlighting the need for Beijing to rely more on potent fiscal stimuli.
The weak trade data, especially that of imports, showed China isn't just suffering from a global economic slowdown but also from a deterioration in local demand, an engine that the authorities have hoped would keep the economy going and unemployment in check.
China's exports in December fell 2.8% from a year earlier to $111.16 billion, while imports in the month fell 21.3% to $72.18 billion, a person familiar with the data said.
China's trade surplus in December totaled $38.98 billion, the person said. That was down from a record $40.09 billion in November.
The fall in December exports was lower than the median forecast of a 3.8% drop by 12 economists surveyed by Dow Jones Newswires but was higher than the 2.2% decline in November, the first monthly drop since June 2001.
The rate of decline for imports in December was sharper than the 19.1% expected by the economists and the 17.9% fall in November, the first decline since February 2005.
While the falling value of imports in December partly reflects declining international commodity prices, it also indicates "a sharp deceleration of economic growth in the fourth quarter and poor growth momentum in the first quarter," said Stephen Green, an economist at Standard Chartered Bank.
Machinery imports were weak in November and likely continued into December, showing that "there is a real downturn in domestic investment...and manufacturing," he added.
Beijing's recently unveiled four-trillion-yuan fiscal stimulus package, which will raise public spending on infrastructure and social welfare, will likely give some support to imports of commodities such as iron ore and metals this year, Mr. Green said.
The weak trend for imports could start stabilizing in the second half of this year as Chinese firms finishing running down their inventories and global commodities prices rebound, said Xu Jian, an analyst at China International Capital Corp.
China's exports in 2008 rose 17.2% to $1.43 trillion and imports last year rose 18.5% to $1.13 trillion, said the person familiar with the trade data.
The country's trade surplus in 2008 was a record $295.46 billion, the person said, up from 2007's surplus of $262.2 billion.
The market had expected a 17.3% rise in 2008 exports, a 19.3% rise in imports and a full-year trade surplus of $289.2 billion, according to the survey of economists.
China's exports will fall around 5% in 2009, extending the weakness from the past two months, said Mr. Xu.
Mr. Xu added that Beijing will likely raise export-tax rebates on more products and ease trade financing but is unlikely to use a weak yuan as a tool to help exporters.
As for China's trade surplus, despite a narrowing in December, it stayed near historically wide levels. While ordinarily trade surpluses would be welcome, the performance in the past two months was of a different and worrying nature: the strong numbers were driven by a sharper decline in imports rather than faster growth in exports as in previous months and years.
|RecommendKeepReplyMark as Last Read|
|From: Sam Citron||2/7/2009 4:45:12 PM|
|Have Car, Need Briefs? In Russia, Barter Is Back [NYT]|
By ELLEN BARRY
MOSCOW — Does the Taganrog Automobile Factory have a deal for you! Rows of freshly minted Hyundai Santa Fe sport utility vehicles are available right now. In exchange — well, do you have any circuit boards? Or sheet metal? Or sneakers?
Here is a sign of the financial times in Russia: Barter is back on the table.
Advertisements are beginning to appear in newspapers and online, like one that offered “2,500,000 rubles’ worth of premium underwear for any automobile,” and another promising “lumber in Krasnoyarsk for food or medicine.” A crane manufacturer in Yekaterinburg is paying its debtors with excavators.
And one of Russia’s original commodities traders, German L. Sterligov, has rolled out a splashy “anti-crisis” initiative that he says will link long chains of enterprises in a worldwide barter system.
All this evokes a bit of déjà vu. In the mid-1990s, barter transactions in Russia accounted for an astonishing 50 percent of sales for midsize enterprises and 75 percent for large ones.
The practice kept businesses afloat for years but also allowed them to defer some fundamental changes needed to make them more competitive, like layoffs and price reductions. It also hurt tax revenues.
The comeback is on a small scale so far. The most recent statistics available, from November, showed that barter deals made up about 3 to 4 percent of total sales, according to the Russian Economic Barometer, an independent bulletin. Nevertheless, economists are taking note.
“Russians are so arrogant that they never cut prices,” said Vladimir Popov, a professor at Moscow’s New Economic School. By turning to barter systems during an economic downturn, he said, “you are hiding your head in the sand.”
It would be hard, however, to dissuade business owners who see barter as a point of light on a bleak financial horizon.
Among the most upbeat of them is Mr. Sterligov, who, just as the credit crunch brought most business deals to a halt, shoveled $13 million into the Anti-Crisis Settlement and Commodity Center.
Mr. Sterligov, 42, is one of the great characters of Russian capitalism. In his mid-20s, on the eve of the Soviet Union’s collapse, he was a freewheeling, chain-smoking commodities trader surrounded by leggy assistants.
But Mr. Sterligov sat out the oil-fueled prosperity of recent years. After a failed run against Vladimir V. Putin in the 2004 presidential election, he retreated to a log house outside Moscow, opting for the beard and boots of a Russian shepherd. In August, intimations of the financial crash lured him out of the woods.
He plans to use a computer database to create chains of six or seven enterprises having difficulty selling their products for cash, in which the last firm on the chain would pay the first in a single cash transaction.
It is the kind of multiparty barter that rose to prominence in the 1990s, when managers of factories across Russia devised complex barter chains to keep the maximum number of enterprises in business when none had cash to pay their bills. A computer, he said, can do the same job faster and more efficiently.
“What was in the past will remain in the past,” Mr. Sterligov said in an interview last month, from the 26th-floor suite he has rented in a Moscow high-rise. “We are making a step into the future.”
So far, economists doubt that barter will grow to the level it reached in the 1990s. Earlier in the transition to a market economy, industrialists still had little monetary stake in their businesses but were dependent on the prestige that went with executive positions, said Andrei Yakovlev of the Higher School of Economics here. They had little incentive to cut costs, and barter deals kept them going for five years, he said.
Now, business owners and managers “are really trying to reduce costs and reduce inefficiency,” Mr. Yakovlev said. Interest in barter, he said, is more likely to come from regional governments, which have the most to lose from high unemployment.
Barter is a side effect of tight monetary policy, said Mr. Popov, who is teaching at Carleton University in Ottawa. Russia is in the grip of a liquidity crisis. As in the mid-1990s, the government has made it a priority to shore up the economy by buying up rubles, hoping to avoid the panicky sell-off that comes with rapid devaluation. The ruble has gradually slid from 23.4 to the dollar in early August, before Russia’s war in Georgia, to 36.2 to the dollar last week.
As a result, the money supply continues to contract, and some enterprises turn to barter to survive. “We are stepping for the second time on the same rake,” Mr. Popov said. “The second time is a greater sin.”
Long-term macroeconomic trends, however, are the last thing manufacturers were thinking about in recent weeks.
The Hyundai factory in Taganrog, the southern seaport where Chekhov was born, rolled out a barter promotion on its Web site, offering to trade vehicles for “raw materials,” “high-tech equipment” or “other liquid goods, including finished products of various branches of industry.” Gleb Korotkov, a spokesman for the factory, said he could not be specific about what goods were meant, saying it was a “commercial secret.”
Barter deals seem to be spreading fastest in construction industries. Dmitri Smorodin, who runs a large St. Petersburg building firm, said he thought for two months before announcing in late January that he was willing to accept barter items — including food products — as payment for construction work.
He said he hoped that adopting the strategy early in the crisis would give him an edge over his competitors.
“Food we would happily accept, because it’s easy to sell,” he said. “Of course, money is always preferable.”
In contrast, Uralchem, a fertilizer producer, refused payment in grain and beef, because the company conforms to international financial reporting standards in its reports to shareholders, said Andrei Kocherov, a spokesman for Uralchem, which was founded in 2007. The modern accounting system would preclude barter, he said.
Meanwhile, in Bashkortostan, a republic in southwestern Russia, local development officials publicly encouraged businesses to develop barter chains.
Sergei Ryazanov, 30, a businessman from the Siberian city of Surgut, took out an advertisement a month ago offering to barter excess metal piping. So far, he has not been impressed by the offers he has received; he said people were not desperate enough to drop prices. He is looking for a truly liquid commodity, something universal, like gasoline. Even underwear, which, he said, “is much more liquid than automobiles.”
He was intrigued by Mr. Sterligov’s idea, though he questioned the wisdom of planning a career in barter. “It will take him a couple years to get it right,” Mr. Ryazanov said. “And then, in two years, liquidity will be back.”
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|From: Sam Citron||2/9/2009 9:18:58 AM|
|A Hard-Liner Gains Ground in Israel [NYT]|
By ETHAN BRONNER
JERUSALEM — Last year, he suggested publicly that Egypt’s president “go to hell.” In the Israeli parliamentary elections, to be held Tuesday, he is running on a vow to require Arab citizens to sign a loyalty oath. As his campaign slogan asserts with a sly wink at Jewish voters, Avigdor Lieberman “knows how to speak Arabic.”
Mr. Lieberman does not know Arabic and will not, by all polls and predictions, become the next prime minister. But his popularity has been climbing so steeply that his party is now expected to come in third, making him a likely power broker with an explosive and apparently resonant political message: Israel is at risk not only from outside but also from its own Arab population.
“It no longer matters whether Lieberman will get 19 seats, as some polls indicate, or merely 15,” noted the political commentator Sima Kadmon in Friday’s Yediot Aharonot newspaper. “He is the story of this election campaign.”
The front-runner and likely prime minister remains Benjamin Netanyahu of the conservative Likud Party. Close behind him is Tzipi Livni, the foreign minister and leader of the centrist Kadima Party. Until recently, Defense Minister Ehud Barak, leader of the left-of-center Labor Party, was in third, having been bolstered by Israel’s recent war in Gaza.
Now Mr. Lieberman’s Yisrael Beitenu (Israel Is Our Home) holds that slot. He and his party, who have drawn support away from Likud, may well be part of an eventual coalition government or lead the opposition.
Most of the political establishment, including members of the Likud, Kadima and Labor Parties, are furious and afraid of either possibility because they broadly consider Mr. Lieberman a demagogue. They fear that his focus on a normally submerged paradox of political life here — how a state made up of Jews and Arabs can define itself as both Jewish and democratic — undermines a delicate coexistence. They say he is drawing in Israeli Jews who feel the country needs a greater display of power to survive.
“I am afraid of this guy, and I dislike him,” said Shmuel Sandler, dean of social sciences at Bar Ilan University, an institution that emphasizes Jewish identity and values. “He appeals to simple-minded voters. Average Israelis feel that we have given up territory, and at the same time the Arabs don’t want to accept the Jewish nature of the state.”
Israel’s military assault on the Hamas rulers of Gaza has helped Mr. Lieberman in two ways. First, he presents himself as a strongman eager to confront Israel’s enemies. At the same time, Israeli Arabs sympathetic to Gaza protested the war, which incensed many Jews.
“The biggest boost his campaign had were pictures of Israeli Arabs waving Hamas flags during the Gaza war and shouting ‘Death to the Jews,’ ” noted Abe Selig, a reporter for The Jerusalem Post who has been covering Mr. Lieberman.
But he is not classically right wing — he is less doctrinaire about land and is not religious — and his iconoclasm seems to be drawing voters from surprisingly diverse political tendencies.
An immigrant from the Soviet Union — he was born in Moldova and moved here in the late 1970s — Mr. Lieberman, 50, wants to ease the paths of those of his fellow immigrants who are children of mixed marriage and looked down upon by the rabbinate.
Unlike many on the far right, he favors a two-state solution with the Palestinians. He wants to trade away parts of Israel that are heavily Arab to the future Palestinian state in exchange for close-in Jewish settlement blocs in the West Bank. He lives in such a settlement near Bethlehem.
His loyalty oath would require all Israelis to vow allegiance to Israel as a Jewish, democratic state, to accept its symbols, flag and anthem, and to commit to military service or some alternative service. Those who declined to sign such a pledge would be permitted to live here as residents but not as voting citizens.
Currently Israeli Arabs, who constitute 15 percent to 20 percent of the population, are excused from national service. Many would like to shift Israel’s identify from that of a Jewish state to one that is defined by all its citizens, arguing that only then would they feel fully equal.
Mr. Lieberman says that there is no room for such a move and that those who fail to grasp the centrality of Jewish identity to Israel have no real place in it.
Oddly, Mr. Lieberman and those who support him often say that the loyalty oath mirrors an American practice, apparently mistaking the naturalization process for a universal requirement for all United States citizens. For example, Uzi Landau, the party’s No. 2, said recently, “In the United States, whoever wants to be a citizen has to pledge allegiance to the country and its Constitution, know the anthem, be familiar with the flag and its history.”
Taken together, Mr. Lieberman’s proposals aim toward an ethnically purer Jewish state, in many ways a classically conservative goal. But his willingness to give up land where Israel is narrowest, and around Jerusalem, for the sake of reducing the Arab population contravenes a basic tenet of many on the right: that Israel must not get any smaller because the land belongs to it and because strategically that would be risky.
The result of such mix-and-match ideas is that Mr. Lieberman has drawn followers not only from the large number of Russian speakers but also from the many who are attracted to his anti-establishment tendencies, as well as the young.
“I was a supporter of Labor all my life,” said Idan Tzadok, a 24-year-old student from Haifa. “I was raised in a kibbutz, but when I came to university I woke up. I saw these people in Israel who go with the Palestinian flag.
“Peace in Israel will come when all Israelis will go to the army,” he said, adding of several Arab members of Parliament, “I am not going to pay the paycheck of these people who go and support Hamas.”
In an unscientific survey of 10 high schools across Israel, Mr. Lieberman’s party took first place followed closely by Likud, Kadima and then Labor.
Alex Miller, a member of Mr. Lieberman’s party, told the newspaper Haaretz that it was natural that the party’s message would appeal to the young.
“Loyalty is the most burning issue for the youth,” he said. “They’re about to go in the army and therefore national honor is important to them. They want someone whose word is good, who stands behind his principles. Avigdor Lieberman projects strength.”
Mr. Lieberman began his political career working for Likud, becoming campaign chairman in the 1990s for Mr. Netanyahu and director general of his office when he was prime minister. He later formed Yisrael Beitenu, winning election to Parliament as its party leader. He has held several ministerial portfolios but only for short periods because of his tendency to fall out of favor with those in power.
Lately he has also come under investigation for the business practices of a company owned by his daughter, including allegations of money laundering, fraud and breach of trust. The police have said they believe that the daughter, Michal Lieberman, was serving as a front for her father.
Mr. Lieberman said he welcomed the investigation because the more he was seen as pursued by the establishment, the more popular he became. The investigation, he said, would add four seats to his party’s take.
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|From: Sam Citron||2/9/2009 10:02:23 AM|
|Second wave of credit crunch may come if foreign lenders ditch debt market|
By Craig Stephen
Last update: 4:22 p.m. EST Feb. 8, 2009
HONG KONG (MarketWatch) -- Last week the head of Hong Kong's Monetary Authority Joseph Yam warned local legislators that Financial Tsunami Part II could soon hit Hong Kong and other Asian markets.
He has said this a couple of times, and investors seem unmoved as share prices both here and in China both finished the week higher.
Perhaps Yam's pronouncements don't carry the sway of a Fed Chairman but they are worrying enough to take a closer looking at, and may offer clues to the upcoming Hong Kong Budget.
One explanation could be Yam is just feeling a bit down after the HKMA Exchange Fund lost a record HK$74.9 billion ($9.66 billion) last year.
Yam has also been in the firing line for letting Hong Kong residents buy HK$20 billion of now-worthless Lehman Brothers-backed mini-bonds on his watch. Hardly the finale he might have wished for as he gets set to retire this year from his job as the world's highest-paid central banker, with a cool HK$11 million in salary.
It could be argued there are encouraging signs the worst of the financial crises is behind us. We have had global bailout packages for banks, loan guarantees and mega stimulus packages.
But if we look at previous crises in Hong Kong, it could pay to be on guard. While the Asian financial crisis 12 years ago started in Thailand and spread around the region domino-style, the final act took another year to play out, with a crescendo of selling in Hong Kong.
Yam's argument runs that, while the global financial system has been patched up to avert a collapse, Asian economies have in the meantime weakened considerably, leaving them exposed as the huge leverage built up in the boom days unwinds.
Here he is talking not about collateralized debt obligation or other exotic derivatives, but rather the wholesale corporate debt market.
Hong Kong is possibly a uniquely international banking market, with the world's 500 largest banks doing business here, according to HKMA records. This vast pool of liquidity is one reason Hong Kong is credited as the biggest foreign direct investor in China. This year it's estimated up to US$22 billion of syndicated corporate loans will mature here, and foreign lenders account for roughly 40% of that.
The worry now is that foreign banks, beset with problems at home, will baulk at rolling over these loans. This could potentially trigger a wave of corporate collapses.
Yam describes this as the danger of "financial protectionism," where foreign banks are going to focus on lending in their own backyard.
Perhaps this is an understandable consequence of the post-credit-crunch financial world. Will banks bailed out by U.S. or U.K. taxpayers still have an appetite to lend working capital to a manufacturer in Guangdong to save jobs there?
Going by the size of the international finance sector in Hong Kong, it would leave a big gap if such capital retreats.
Yam did say, however, that Hong Kong is in a strong position -- the HKMA Exchange Fund topped $202 billion at end of 2008, of which $129.9 billion was foreign currency.
He also added -- rather ambiguously -- that the government will look at providing assistance if troubles materialize. Perhaps there will be some business-friendly packages when Budget Day arrives on Feb. 27.
It will be worth considering how HSBC Holdings (HBC:
HSBC Hldgs Plc is positioned. HSBC serves as Hong Kong's de facto central bank and was one of the first to warn back in September that this credit crunch would be worse than the one a decade ago.
It is likely to be under pressure to pick up the slack if foreign lenders retreat.
HSBC in the past has stepped in when local banks got into trouble, such as by taking over Hang Seng Bank. HSBC also avoided taking funds from the U.K. government, but it is now facing speculation it needs more capital.
Whatever assistance the HKMA or government comes up with is likely to be politically charged. Hong Kong corporations are not, by and large, wholly institutionally owned like in Western markets, but rather are controlled by family tycoon shareholders. Any direct assistance may expose the government to charges of bailing out the corporate elite at a time when ministers say there is nothing in the kitty for give-aways for the wider population.
Hong Kong's South China Morning Post even carried an opinion piece saying the government shouldn't run an economic stimulus package. That probably reflects the look-out-for-yourself ethos in Hong Kong. And in the corporate world, when things get tough, Hong Kong usually plays by the laws of jungle: Ailing firms die or are swallowed up by the bigger guys.
Perhaps this was why, last month, stalled legislation for a new bankruptcy protection law was resurrected.
It will be worth watching closely if Yam's warnings on financial protectionism come true and what, if anything, the Hong Kong government might do about it.
Some legislators suggested a good start would be to review salaries at the HKMA.
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|From: Sam Citron||2/9/2009 3:09:25 PM|
|Japan’s Investors Savor Strong Yen in Hunt for Assets (Update3)|
By Ron Harui
Feb. 9 (Bloomberg) -- Daiwa SB Investments Ltd. is urging clients to put their money into Brazil, Mexico and Turkey after the yen’s 55 percent gain against their currencies made emerging markets a bargain. A year ago, it wasn’t recommending any developing nation funds.
“A lot of assets have gotten extremely cheap and Japanese investors are looking to park their money somewhere,” said Kenichiro Ikezawa, who oversees about $3 billion as a fund manager at the second-largest brokerage in Tokyo. “Emerging markets including Brazil, Mexico and Turkey look attractive. We would like to invest more in such countries.”
After a year when the yen rallied against 177 currencies, Japan’s biggest money managers say the best is over in the foreign exchange market. The nation’s investors bought 940 billion yen ($10.3 billion) more international stocks and bonds than they sold in the five days to Jan. 31, the seventh week of net purchases, according to the Ministry of Finance.
Japanese companies are also taking advantage of the strengthening currency, spending record amounts on mergers and acquisitions outside the country. The total value of overseas takeovers more than tripled to $76.8 billion last year, according to data compiled by Bloomberg.
The yen rallied 60 percent against the Brazilian real, 55 percent versus the Mexican peso, and 62 percent against the Turkish lira in 2008 as the global economic slump led investors to pull billions of dollars out of emerging-market assets to repay low-cost loans funded in Japan’s currency.
‘Wave’ of Selling
Now, traders expect a turnaround. The yen may fall 18 percent this year to as low as 112 against the dollar from 91.52 today as domestic investors find bargains outside the country, said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., an arm of Japan’s largest publicly listed lender. His target is weaker than the median forecast for a 6 percent decline to 98 by year-end, according to a Bloomberg News survey of 48 analysts.
“A wave of yen-selling orders is starting to hit the market,” Shimizu said. “Banks are stepping up the amount of investment trusts focused on overseas assets.”
Mizuho Asset Management Co. wants to increase holdings of dollar-, euro- and Australian dollar-denominated sovereign debt, said Akira Takei, who helps oversee the equivalent of $42.5 billion as head of non-yen bonds at the unit of Japan’s second- largest bank in Tokyo.
“Foreign yields look attractive right now,” Takei said. “There are still some risks, so I’d rather stick with sovereign bonds. The yen may decline to 112 versus the dollar this year. I certainly don’t expect the dollar to plummet.”
The dollar weakened the most in two decades last year.
The strategy is similar to the so-called carry trade, where investors borrow in countries with low rates and invest in nations with higher borrowing costs.
The carry trade dominated foreign exchange markets in 2005 and 2006 as declining volatility and rising risk appetites spurred investors to sell yen and buy Australian and New Zealand dollars as well as South African rand and Brazilian reais.
Japan’s target rate is 0.1 percent. An expansion of the carry trade helped push the yen down 13 percent in 2005 versus the U.S. dollar. The collapse of credit markets and almost $1.1 trillion of losses and writedowns at the world’s biggest financial companies triggered a flight from higher-yielding assets last year, when the yen strengthened 23 percent.
Emerging-market assets are appealing to Japanese because those nations suffered only a fraction of the credit-market losses that pushed the U.S., euro region and Japan into recession. In a Jan. 28 report, the International Monetary Fund said while the global economy is likely to shrink 0.5 percent this year, emerging markets will grow an average of 3.4 percent.
“Emerging countries still have the impression of doing better relative to the developed world,” said Kimihiko Tomita, head of foreign exchange in Tokyo at State Street Bank & Trust Co., a unit of the world’s largest money manager for institutions. “Japanese investment trusts and individuals are still interested in emerging markets.”
Brazil is one of the favorites because its benchmark interest rate is 12.75 percent, Tomita said. It takes only 40.89 yen to buy a Brazilian real, down from 69.67 yen as recently as Aug. 6. The country’s interest rate is the highest in the world, accounting for inflation, even after the central bank cut borrowing costs last month for the first time since September.
The world’s 10th-largest economy received a record $45.1 billion in foreign direct investment last year, including $8.1 billion in December, more than twice the forecast in a Bloomberg survey of 13 economists.
Japanese investors may earn a 25 percent total return this year on Brazil’s local-currency bonds, should the median forecast for the yen in a Bloomberg survey of analysts prove accurate. Anyone who bought the country’s 10 percent notes due January 2014 at the start of the year would gain 13 percent from the yield on the securities. Yen-based buyers would get another 12 percent from currency appreciation, based on the forecast for 44.34 yen to the real by year-end.
That same bet would have resulted in a loss of 24 percent in 2008.
Emerging-market bonds offer the best way to gain from the yen’s strength, said Hideo Shimomura, who helps oversee the equivalent of $44.3 billion as chief fund manager at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest bank.
The extra yield investors demand to own bonds of developing nations instead of Treasuries was at 6.40 percentage points today, up from 1.46 percentage points in the first half of 2007, according to JPMorgan Chase & Co.
“Sovereign bonds in the Middle East, South America, South Africa, and Turkey are popular,” Tokyo-based Shimomura said, forecasting yen may fall as low as 100 to the dollar this year. “Brazil, for example, has relatively sound fundamentals and is likely to keep luring funds pretty easily.”
The yen’s five-month advance versus the dollar leaves more room for appreciation, and emerging-assets will get even cheaper as the global recession deepens, said Jun Fukashiro, a senior fund manager at Toyota Asset Management Co. in Tokyo, who helps oversee about $10 billion in assets.
“We want to wait on investments in emerging markets,” Fukashiro said. “Foreign bonds are attractive given that the global economy is still deteriorating but this isn’t a time to aggressively get into emerging-market debt.”
Mexico’s economy will shrink 1.2 percent this year, according to the average forecast of 31 economists surveyed by the central bank Jan. 20-29. Brazil’s growth will slow to 2 percent, the weakest since 2003, a central bank survey published Jan. 26 found. Latin America’s gross domestic product will contract 0.5 percent, JPMorgan said in a report Feb. 4.
The MSCI Emerging Markets Index is down 1 percent this year, after slumping 54 percent in 2008, its biggest annual decline in at least two decades.
“We think it is unlikely that the Japanese will be rushing into overseas markets any time soon,” a team of analysts at Citigroup Inc. wrote in a note to clients on Feb. 5. “The risk- reward of overseas investment is not what it once was. Interest- rate differentials are closing fast and foreign-exchange volatility remains high.”
Japanese companies are increasing their overseas investments as the stronger yen boosts their purchasing power.
International acquisitions by Japanese firms climbed to $76.8 billion last year from $23.1 billion in 2007, beating the previous record of $57.1 billion set in 2006, according to data compiled by Bloomberg. The figures include debt assumed in the purchases.
Nomura Holdings Inc., the nation’s largest brokerage, bought the non-American businesses of Lehman Brothers Holdings Inc. in October after the U.S. investment bank collapsed the previous month. Tokyo-based Nomura said the purchase would cost $2 billion. Asahi Breweries Ltd., Japan’s top-selling beermaker, spent $667 million buying a majority stake in China’s Tsingtao Brewery Co. in January, after the Tokyo-based brewer purchased the Australian beverage operations of Cadbury Plc for 550 million pounds ($811 million) in December.
Last month, Tokyo drugmaker Astellas Pharma Inc. made a $1 billion bid for Palo Alto, California-based CV Therapeutics Inc., adding to the $9.2 billion Japanese firms spent buying U.S. pharmaceutical and biotech companies last year.
“If companies can secure enough funding, the appreciation of the yen gives them a good chance of exploring business opportunities outside Japan,” said Toshiro Yanagiya, Tokyo- based general manager of securities business division at Aozora Bank Ltd. “We are likely to see plenty more such deals in the year ahead.”
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|From: Sam Citron||2/13/2009 2:14:49 PM|
|Oh, Canada! |
Canada Stocks Lead as Barrick Surges, Banks Forgo Aid (Update2)
By John Kipphoff
Feb. 13 (Bloomberg) -- Canada is beating the biggest stock markets this year as the global recession prompts investors to buy its gold producers and banks.
The Standard & Poor’s/TSX Composite Index of shares traded in Toronto has fallen 2.7 percent, less than stocks in the U.S., Australia, Spain, the U.K., Germany, Hong Kong, France, Switzerland and Japan. The median drop among benchmark gauges in the biggest developed countries this year is 7.3 percent.
Barrick Gold Corp. and 11 other Canadian producers surged 5.2 percent as a group in 2009. Bank shares fell 8 percent, the second-best performance among the biggest economies, which averaged a 13 percent loss. Lenders in the S&P 500 plunged 42 percent this year.
“The biggest driver is the confidence in gold as an asset class,” said Frank Holmes, who oversees about $2 billion as chief executive officer of U.S. Global Investors Inc. in San Antonio. “It also has a different banking system that’s very deposit driven, and banks that have a broad deposit base in Canada have done better than those in the U.S.”
Toronto-based Barrick, the world’s biggest gold producer, is benefiting as investors boosting their inflation forecasts buy the precious metal as a hedge against consumer price increases. A gauge of inflation projections for the next decade, derived from yields on 10-year Treasury notes, climbed to 1.23 percent from 0.12 percent on Jan. 5.
Ninth Annual Gain
In the same period, gold added 9.2 percent to $936.80 an ounce in New York, the highest price since July. It gained in six of the past eight days and is rising for the ninth straight year.
Peter Schiff, who oversees about $1 billion as president of Euro Pacific Capital in Darien, Connecticut, said as much as 20 percent of his clients’ assets are invested in Canada, mostly in mining and energy companies. He’s betting inflation will cause gold to rise to more than $1,500 an ounce this year.
“A strong gold price will be helpful to the economies that have a big mining industry,” Schiff said. Canada is the world’s seventh-biggest gold producer.
Barrick surged 109 percent to C$44.95 since sinking to a five-year low in October. Kinross Gold Corp. and Yamana Gold Inc. also more than doubled in three months. They are among gold companies worldwide that sold more than $2 billion in stock since November. Iamgold Corp. is up 194 percent from its Oct. 23 low. Kinross, Yamana and Iamgold are all based in Toronto.
‘Count On’ Gold
The rally lifted gold producers to 11 percent of the S&P/TSX yesterday, the highest weighting in Canada’s benchmark compared with monthly values since 1996, according to Howard Silverblatt, S&P’s senior index analyst in New York.
“Gold is the only thing you can count on,” said Andrew Martyn, who helps manage about C$420 million ($337 million) at Toronto-based Davis-Rea Ltd.
The World Economic Forum says Canada’s banks are the soundest because they speculated less on mortgage assets that have proved toxic. Canada’s banks, which account for about 6.7 percent of the industry’s worldwide market value, suffered only 1.5 percent of the $817 billion in mortgage-related losses reported globally.
As Canada’s banks wrote down $12.5 billion since 2007, its six biggest lenders, including Royal Bank of Canada and Toronto- Dominion Bank, attracted new investment, selling C$9.2 billion in stock and bonds as a group since October.
Unlike their global counterparts, which have accepted almost $500 billion in bailouts, Canada’s banks have done without direct government aid. While Canada is providing guarantees on more than C$200 billion in bank debt and has bought mortgage bonds to boost lending, none have required taxpayer-funded cash injections.
“There is a sense that the Canadian banks are much better regulated and in stronger shape,” said Quincy Krosby, Hartford, Connecticut-based chief investment strategist at Hartford Financial Services Group Inc. The firm has $346 billion in assets. “The Canadian market has come on the radar screen over the last month or so.”
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