Month: May 2012

Greece to exit Euro, new currency to fall 60%: Citi

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Greece will leave the euro zone next year and the country’s new currency will “immediately fall by 60%,” according to Citi chief economist Willem Buiter.

Greek officials have repeatedly stressed that the country will be running out of cash by the end of June, after which it would be unable to make debt payments and pay civil wages and pensions. An election is scheduled for June 17 after inconclusive results of the May 6 polls meant a government could not be formed.

The Troika of international lenders – the European Union, the European Central Bank  , and the International Monetary Fund – are waiting to see what government will result from the elections next month before disbursing more aid.

“The elections (on June 17th) will not produce a viable government that can follow the troika plan, leading to a stalemate between the Greek government and official creditors, and to the suspension of EFSF-IMF funding,” Buiter wrote in Citi’s latest Global Economic Outlook.

However, analysts caution that a default wouldn’t automatically lead to an expulsion of Greece from the euro zone.

As UBS writes in a recent report: “There is plenty of precedent for defaulting inside a monetary union, so [a Greek] exit should not be assumed to be automatic.”

Limited Cash Reserves

But Citi explains a Greek exit from the euro zone is closely linked with its limited cash reserves, which may be depleted well before the year end: “A Greek EMU exit could be triggered by the government’s need to print money to cover its spending.”

Citi adds that Greece’s new currency will immediately fall 60% versus the euro and “remain depreciated by 50 to 60% for the next five years.”

Based on this scenario, the bank believed that Greece’s real gross domestic product  will shrink by about 10% in 2013. However, it could rebound by 4% to 5% in 2015-2016, as gains in cost competitiveness revive exports, especially tourism, Citi wrote.

Addressing Spain’s banking sector troubles, Citi expects “some kind of troika program for Spain to be agreed this year or in early 2013.” Its main goal will be to fund a recapitalization of the banks, though there is a chance it could be used for the funding of the fiscal deficit as well, according to Citi.

On Thursday, Spain’s Prime Minister Mariano Rajoy reiterated the country had no “interest and no need” for a recapitalization of its banking sector through the European rescue fund.

Hours later the Spanish economy minister Luis de Guindos confirmed that Bankia, the country’s fourth-biggest lender, will be fully nationalized, with a 9 billion euros (USD 11 billion) capital injection through Spain’s state-backed bailout fund.

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Prada to benefit as Chinese buyers turn ‘sophisticated’

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As the high-end Chinese consumer becomes more discerning in a slowing luxury goods market, analysts say Hong Kong-listed Italian fashion house Prada can face up to the challenge given its attractive product mix and store expansion plans, forecasting huge gains for the company`s stock over the next 12 months.

Erwan Rambourg, Head of Consumer Brands Research at HSBC, says as consumers in China – the second-largest market in the world for luxury goods after the US – become more “sophisticated” and “demanding,” Prada’s product range that includes pure leather bags and smaller logos, is turning out to be more appealing than those of competitors Louis Vuitton and Gucci.

“Chinese consumers are moving away from logo driven brands such as Louis Vuitton and Gucci. Prada looks like a edgy, newcomer with higher image potential,” Rambourg said.

“Prada’s presence in China is limited, which helps them have a more exclusive image. There is first mover disadvantage for companies like Louis Vuitton, they can only lose share,” he added. While Prada has 19 retail outlets in China, Gucci has 48 stores.

China, Prada’s largest market, accounted for 30% of overall global sales in the fiscal year that ended in January 31, 2012. Revenue from “like-for-like” or existing stores in China grew 40% for the Milan-based retailer last year compared to 16% in North America.

The growth in China`s luxury goods market is expected to slowdown from a heady 50% achieved in 2011 to 15-20% this year, according to a CLSA estimate. But the slowdown in sales growth at Prada will be less severe. The brokerage expects Prada`s sales growth in existing stores to slow to 11% in the current fiscal year ending January 31, 2013 from 23% last year.

According to Rambourg, Prada`s strategy of launching “flash collections” – which involves updating products on a monthly basis – will help it ride out the slowdown in the overall market. “It keeps their offering fresh and enables them to respond to changing trends quickly.”

Huge Upside for the Stock

Rambourg has upgraded the stock to overweight from neutral this week, setting a price target of HK$ 53 (USD 6.82) – marking a 15% upside over the next 12 months.

According to Aaron Fischer, analyst for consumer brands at CLSA, Prada’s shift in “product mix” away from women`s wear and shoes towards leather goods, which carry wider margins, is positive for the company`s earnings.

He adds that the company’s expansion of its retail network will also be a key driver of earnings. Out of the 80 retail outlets set to be launched this year, 40 of them are expected to be located in emerging markets, with 12-15 of them in China.

Fischer has a 12-month price target of HK$ 68.70 for the stock, forecasting a 47% upside from current levels.

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Buying Sanofi shares = Short euros?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Looking to short the euro? You could buy shares of Sanofi, the world`s fourth-largest drug company by sales, because of a majority of the company`s sales are outside the Euro-area, while its costs are mostly denominated in euros.

The French drugmaker has about a third of its business in the US, and less than that in Europe, Chris Viehbacher, the company`s CEO told CNBC Asia`s “Squawk Box” on Wednesday. According to Reuters, just 27% of its annual sales were generated in Europe last year.

“So we`re diversified from a market point of view,” Viehbacher said. “We are also relatively insulated from all of the euro issues. You could consider us short euros. We have 75% of our revenue outside the euro zone.”

Best known for Plavix, a blood-thinning drug, the company is now expanding in emerging markets including China, India and Brazil. According to Sanofi, sales in emerging markets rose more than 10% last year to 10 billion euros (USD 12.72 billion), or 30.3% of total sales.

Sanofi`s shares, which have fallen more than 5% since the beginning of the year, gained about 16% last year even as the broader CAC 40 Index (Euronext Paris: .FCHI) fell nearly 17%. Sanofi closed almost 2% higher in Paris on Tuesday.

Beat Wittmann, CEO of Dynapartners, a Zurich-based asset manager, says Sanofi is a good investment because of its growing presence in emerging markets.

“People look for yield, and they are the ideal way to play globalization,” Wittmann told CNBC. “From an investor`s point of view, they are a very defensive investment. They offer good yield.”

The company already pays a 5% dividend yield and CEO Viehbacher said the company`s payout ratio, which measures the amount of earnings paid to shareholders, is moving to 50%.

But the company is also facing challenges. Plavix, its best-selling drug, ran out of patent protection last week and will face increasing competition from cheaper generic copies. Viehbacher said he expects a fall of 12-15% in the company`s earnings per share this year.

By CNBC`s Jean Chua.

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Facebook short-sellers in front of ‘Freight Train’: Analyst

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Investors looking to short Facebook stock are getting “in front of a freight train,” analyst Laura Martin of Needham and Co. told CNBC.

Martin initiated coverage of Facebook Wednesday with a buy rating and a USD 40 per share price target – that’s a 29% premium to Tuesday’s closing price.

Facebook traded higher in Wednesday’s trading session after a rough three days that saw the stock as high as USD 45 before dropping right through the USD 38 offer price.

Today short-sellers got their first real crack at Facebook. But Martin advised against it in an interview on CNBC. “Facebook is a global platform. There are four potential revenue streams.”

In Wednesday`s analyst note, Martin identified those four revenue streams.

1. Payments: We envision a world where PayPal loses a portion of its revenue and credit card companies lose a portion of their fees to Facebook credits over time.
   
2. Advertising: Advertisers can have home pages, apps and/or buy advertising on FB to try to engage with all of FB`s 900 million monthly active users.
   
3. E-commerce: Certain online retailers allow consumers to identify the products or services that interest them by tagging them.
   
4. Video Upside: We attended the Digital NewFronts in NYC in April and were struck by the enormous growth of original scripted premium video that is being produced in Hollywood, directly for the Internet.

One of the intangibles for Facebook, as Martin sees it, is the company`s brain power. Facebook has “the smartest people in American with the highest risk tolerance. We`ve seen [employee] exoduses from Yahoo, from Google, from the more established Silicon Valley juggernauts into Facebook, and they`ve had the pick of the litter for three years.”

But not everyone sees Facebook as positively as Martin.

In fact, Michael Wolff, contributing editor at Vanity Fair and columnist for the Guardian, wrote about what he calls The Facebook Fallacy:

“At the heart of the Internet business is one of the great business fallacies of our time: that the Web, with all its targeting abilities, can be a more efficient, and hence more profitable, advertising medium than traditional media. Facebook, with its 900 million users, valuation of around USD 100 billion, and the bulk of its business in traditional display advertising, is now at the heart of the heart of the fallacy.”

Wolff made his case in an interview with CNBC`s “Street Signs“.

Disclaimer

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Would you buy a eurobond? ‘Not the be-all end-all’

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Eurobonds may be hailed by some as a potential solution to the Greek debt crisis, but likely would be met by skepticism in the open market.

Issuing Eurobonds backed by the 17 euro-zone member nations would be aimed at lower rates to decrease borrowing costs for troubled nations such as Greece, Portugal and Spain.

But the mechanics of the bonds – specifically, their duration, how they would be guaranteed and the difficulty in issuing them while not violating euro zone membership requirements – could make them a tough sell to fixed income investors.

“There appears to be a high regard by market participants about eurobonds as a solution. The real question for me is, are they?” says Kevin Ferry, co-founder of Cronus Futures Management in Chicago. “Even though I do think there will be a near-term euphoric reaction to their issuance, I’m not so sure that they`re the be-all end-all that the market intends them to be.”

Because of its massive debt problem, Greece is on the cusp of leaving the euro zone so it can devalue its currency and thus cheapen its debt.

Economists worry, though, that a messy Greek debt default – the country owes nearly half a trillion dollars – will reverberate not only across Europe but also could cause a global economic slowdown. Once Greece leaves, that could encourage other debt-laden nations to follow suit.

As such, Europe`s leaders are groping for solutions, with the most recent being issuing bonds that would help Greece out of its predicament. Germany, though, objects due in large part from internal political pressure against bailing out fiscally irresponsible nations.

“From the German point of view, they’ve moved away from saying Eurobonds will never happen,” Sarah Hewin, head of research for Europe at Standard Chartered Bank, told CNBC Europe. “The position is that they could happen at some point in the future. But first of all there needs to be much closer fiscal integration. So Eurobonds in their view is not going to be the solution for the current crisis.”

In the interim, European Union leaders, at a dinner in Brussels, are expected to approve so-called project bonds aimed at infrastructure projects. The move is seen as a compromise as officials debate the wisdom of Eurobonds.

“It’s likely we get some sort of incremental step toward mutualization of debt via cosponsored bonds in the near future,” said Scott A. Maher, managing director and head of global portfolio management at Pimco, the Newport Beach, Calif. firm that runs the largest bond fund in the world. Maher, in an email response, said he considers large-scale issuance “unlikely.”

“Key is whether they would be `joint and several` (the strong form) or whether they would limit liability of each government to a certain percentage of losses (as EFSF bonds do now for instance),” he said. “Even if this were the case, and even if issuance size might be small, market would react very favorably to a move in this direction.”

While he thinks there is a good chance at issuing the euro bonds, Ferry doubts whether it is a long-term solution.

“What you have now is something that already exists in a certain way,” he says. “Right now, the problem is the plumbing – what would flow through it. What you have with talk of a divorce and talk of a drachma is a focus on what`s going to flow through.”

The natural focus of the bond would be a low yield to keep borrowing cheap. But Ferry and other say the offering would have to provide at least some yield incentive to pull people away from the global debts of choice – specifically the US Treasury and the German bund, both of which are yielding at or near historic lows.

There also would need to be some assurance that Eurobonds would be more than just a stop-gap measure.

“Obviously it`s a solution, but I still don`t think it addresses the more fundamental problems of fiscal coordination,” says Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco. “It`s just another Band-Aid at this point.”

Rupert did not comment directly on whether her firm would buy the Eurobonds, but said debt problems around the world have investors in government issuance justifiably scared.

“There really aren`t good solutions,” she said. “Somebody or probably a lot of somebodys are going to get hurt. We need to stop spending. We just can`t continue to float our way out of these problems.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Despite downgrade, no urgency for Japan to deal with debt

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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With Japan awash in cheap funding provided by domestic savings and local banks continuing to park their cash in government bonds, analysts tell CNBC the country faces no urgency in dealing with its rising public debt, despite the latest ratings cut by Fitch.

The ratings agency downgraded Japan`s sovereign rating by one notch on Tuesday, to A-plus from AA, citing the country`s rising debt-to-GDP ratio. But markets seem to be shrugging off the news; the yen strengthened against the dollar on Wednesday morning and 10-year government bond yields were relatively unchanged at 0.86%.

The likelihood of a Europe style debt crisis for the world`s third-largest economy remains low, say analysts, because over 90% of government debt is domestically owned.

“For as long as Japan`s debt is well-held by local savers and local investors – 93% – the impact, I think, on risk assets is going to be quite marginal,” John Woods, Chief Investment Officer, Citi Private Bank told CNBC`s “The Call” on Wednesday.

Those low yields, however, also mean policy makers are under no pressure to deal with total debt that is more than twice as large as the country`s USD 5 trillion economy. Japan`s government has submitted plans to double the sales tax by 2015 but the law could split the ruling party and force early election, according to Reuters.

“As long as these yields remain at such historically low levels, the impetus for the government to meaningfully change and reform its environment is going to be quite limited,” Woods said.

Government bond yields are also unlikely to rise any time soon because the Bank of Japan is still in the midst of easing monetary policy by buying even more JGBs.

“The BOJ is buying more government bonds than the government is issuing,” Martin Schulz, senior economist, Fujitsu Research Institute pointed out.

Ratings agencies, meanwhile, have had to balance the strong liquidity position that Japan finds itself in with the worsening outlook on solvency.

“At A , we are not saying that Japan is likely to experience a fiscal, funding crisis by any means”, Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch said in a phone interview on Wednesday. ” However the debt ratio will continue to climb and therefore the risk to the credit profile from public finances will continue to climb.”

Thomas Bryne, senior vice president at Moody`s Investor Service, said on CNBC`s “Asia Squawk Box” Wednesday that his firm had issued plenty of negative commentary since it downgraded Japan in August last year.

“We`re concerned about the slippage in exports, perhaps the slippage in current account surplus, probably more concerned about the slippage in the fiscal deficit and we also note that attempts to put Japan on a long-term sustainable fiscal track are still partial and tentative,” he said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Facebook ‘classic example of investor greed’: Expert

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Facebook`s dismal initial public opening was a product of greed and dangerous investing in “fad” Internet social networks, Vanguard CEO Jack Bogle told CNBC Tuesday.

As the Facebook IPO continues to get slammed in the open market, the famed buy-and-hold value investor and index fund advocate expressed little sympathy for the wave of negative headlines Facebook is enduring.

“This is a classic example of investor greed, including institutional greed and underwriter greed and company greed,” he said on CNBC`s “Street Signs” program. “So the message is, when all the parties to a transaction are greedy, this is the kind of outcome you can expect.”

Facebook debuted on the market Friday and priced at USD 38, at the top end of its expected range. But trading opened a half-hour later than scheduled because of technical glitches at the Nasdaq trading platform, and the momentum only got worse from there.

While the stock finished its first day slightly higher, it got crushed on Monday, losing about 11%, followed by another substantial loss Tuesday.

For Bogle, the slide in the much-hyped Facebook is typical of the perils investors face when trying to pick individual stocks.

“Nobody can predict their price performance, nobody can predict their future value,” he said. “While nobody can predict the future price of the total stock market, we can predict its future performance, which depends clearly and 100 percent on how the underlying American economy does, how corporations do in the long run.”

While acknowledging that US growth is likely to be slower than in the past, he said betting on the economy is still safer than putting faith in startups and IPOs.

“Stocks can do what they wish and to some extent the market can do what it wishes,” Bogle said. “But when you look back at the grand wave of IPOs, the new economy and Internet and information age back in the late `90s and early 2000s, it`s a fad. It`s in the price of the stock and people are looking for a free ride upward in the new world. Truth be told, the old world persists in making its reality felt.”

“I remain buttressed somewhat by Facebook and the other Internet and social network companies that are lined up out there,” he added. “Watch out. It`s a dangerous game.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

No Preparations in Greece for leaving Euro: Papademos

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Former Greek Prime Minister Lucas Papademos says there are no preparations underway in Greece for possibly exiting the Euro.

In a brief conversation with CNBC, he also said he is not aware of any specific preparations in European institutions or other European countries.

However, he “cannot exclude the possibility” that countries are making preparations due to increased fear of such an event, driven by the country`s inconclusive elections in early May. Papademos still believes greece leaving the euro is an event “unlikely to materialize,” and also called it an “unwanted scenario.”

The euro fell sharply in late US trading and the stocks dropped sharply from their highs when some brief headlines crossed the wires, leading to confusion about whether Greece was making contingency plans for a Euro exit.

Papademos spoke to CNBC after the market closed, past 1am Athens time to elaborate on the headlines. Papademos was prime minister until just a few weeks ago, and helped lead the country through the largest debt restructuring in history and helped implement a new bailout agreement for the country.

A former central banker, Papademos told CNBC that “pressure on the banks has eased” in recent days. There were and still are fears in the market that their might be runs on banks if Greek citizens believe a euro exit is coming. But Papademos suggested deposit out-flows had slowed.

Greece is in the process of recapitalizing its banks with the help of 50 billion euros in bailout money from its European partners. Just this evening, the banks reached a “subscription agreement” with the Helleneic Financial Stability Fund which will allow for the first disbursement of 18 billion euros within the week. Papademos believes the recapitalization will help restore confidence in Greek banking system because it will allow Greek banks to fund through ECB once again.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Europe could trip up Wall Street bulls

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Headline risk from Europe could trip up Wall Street`s bulls Wednesday.

As markets looked forward to Wednesday`s European leaders summit, clarification from former Greek Prime Minister Lucas Papademos could also sway sentiment.

After the market closed, Papademos told CNBC there are no preparations underway in Greece for possibly exiting the euro, adding that he is not aware of any specific preparations in European institutions or other European countries.

US stocks took a hit on an earlier report that Papademos said there`s a real risk Greece could leave the euro. It also pulled down the euro to session

a late day report Tuesday quoting former Greek Prime Minister Lucas Papademos totally deflated what was left of a two-day rally in stocks. It also pulled down the euro to session lows.

Stocks sank into negative territory, but finished the day with just slight losses. The Dow was down 1 at 12,502, while the SandP was up less than 1 point at 1,316, and the Nasdaq was down 8 at 2,839.

Dell could prove to be a weight on the Nasdaq Wednesday after falling nearly 13% after Tuesday`s close on disappointing earnings news. Hewlett-Packard, which reports earnings after Wednesday`s bell, fell more than 2.5% in sympathy in the afterhours market. Dell said its first quarter was mixed and its consumer business was challenged.

But it`s the EU leaders meeting investors have been anticipating, and the markets will be hostage to any news from there. However, expectations for any real developments are low.

“They may not have the large bullet people are talking about, but we are going to see if they discuss any measures to help growth or maintain that austerity pledge. Germany doesn`t want to be seen financing any budget deficits,” said Brian Kim, currency strategist at RBS.

There had been some expectations that the group could discuss a new euro bond, after French President Francois Hollande said he would raise the idea over the weekend. But even if discussed, it does not seem likely to be approved. A senior German official, quoted by the AP, said euro bonds are not the right path and can`t be part of a growth strategy.

_PAGEBREAK_

What to Watch

New home sales and FHFA home price data are reported at 10 am ET. The Treasury auctions USD 32 billion in 5-year notes at 1 pm.

Earnings are expected from Toll Brothers, Bank of Montreal, Hormel, Big Lots and American Eagle ahead of the opening bell. Besides Hewlett-Packard, Pandora, NetApp, PVH and Synopsys report after the closing bell.

Oil markets will be paying careful attention to the talks in Baghdad between Iran and six nations on Iran`s nuclear program. Government oil inventory data is released at 10:30 am.

Losing Face on Facebook

Both Nasdaq and Morgan Stanley defended their handling of the Facebook IPO Tuesday, as pressure mounted on both, and Facebook shares continued to slide. The Financial Industry Regulatory Authority plans to review allegations that Morgan Stanley shared negative news before the IPO with institutional investors. Massachusetts meanwhile has issued a subpoena to Morgan Stanley related to the allegations.

Morgan Stanley, in a statement, said it did nothing wrong when its analyst, like other analysts at underwriting firms, lowered estimates on Facebook after reading an SEC filing made by the company, days ahead of the offering.

Nasdaq, meanwhile, held a call with its customers late in the day. “My intention was to make clear that we believed we had a good solution in place and that if we had known that our solution was inadequate, we would have fixed the issue with the right solution going forward,” said Eric Noll, Nasdaq head of transaction services, in a statement.

Noll was quoted by the Wall Street Journal as saying Nasdaq has been in talks with Facebook since the IPO and the conversations are ongoing. He also said It`s not clear whether everyone will get “dollar on the dollar,” according to the Journal. Some traders say they are still waiting to find out the status of customer orders made early Friday when Nasdaq systems fumbled.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Alibaba needs ‘Cash Coffer’ to compete in China: Pro

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As Alibaba Group`s buyback of half of Yahoo`s stake paves the way for a possible public listing for the Chinese internet giant, one strategist tells CNBC if the company wants to stay competitive in the domestic market it needs to expand, for which it must raise a lot of capital.

“Alibaba Group needs to raise substantial amount of capital for it to maintain a dominant position in the e-commerce space. Not just maintain but really expand their competitive position,” Jiong Shao, Regional Head of Internet and Chief China Strategist at Macquarie told CNBC Asia`s “The Call.”

Chinese startups like 360buy.com, which raised USD 1.5 billion last year from a group of investors, along with online services firm Tencent`s recent “huge push” into e-commerce could erode Alibaba Group`s market share, according to Shao.

“Without a very solid cash coffer, Alibaba Group could potentially lose its competitive advantage in this area,” he said.

The company, which runs the popular online marketplace Taobao, will pay Yahoo USD 7.1 billion for 20% of its 40% stake. Yahoo initially bought the 40 percent stake for about USD 1 billion in 2005.

Reuters reported on Monday that Yahoo had built in incentives in the deal for Alibaba to hold an initial public offering by the end of 2015. According to the report Alibaba would buy back half of Yahoo`s remaining stake – a 10 percent holding – at the IPO price or allow Yahoo to sell those shares in the offering before end-2015.

According to Shao, if plans announced in February to privatize the company`s struggling subsidiary Alibaba.com are finalized, a group IPO could in be the works between next year and 2015.

“Alibaba.com is the worst asset they have,” Shao said, referring to a 25% year-on-year drop in first quarter profit for China`s largest listed e-commerce firm.

He adds, “Now that Alibaba.com is back to being privatized, they`re just going to list the whole company, instead of listing a bunch of different entities of the company.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow