Month: August 2012

Asian banks fill in gap left by exiting Europe lenders

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

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As European banks continue to pull back in Asia, reeling under the debt crisis back home, regional banks are filling in the gap by buying their assets and increasing lending, say analysts.

“It`s interesting because we were very worried about the effect of European banks in Asia. We know they don`t have enough capital and are gradually withdrawing from the region, selling assets and cutting lending and you wonder whether that is going to be disruptive,” Richard Jerram, Chief Economist at Bank of Singapore, told CNBC Asia`s “Squawk Box.”

“But all the signs we are getting are that regional banks are prepared to buy the assets (of European banks) and increase lending (to corporates), so the damage from that European distress is rather less than it seemed likely a year ago,” he added.

Concerns about a debt crisis in the euro zone have mounted this year, with focus turning to Italy and Spain, where borrowing costs have soared. The worries have rattled global markets as investors weigh the likely fallout of the crisis in Europe on the rest of the world.

“Lending by the continental European banks was more than a third of total Asian cross-border lending pre-Lehman and now that`s down to 20% and it hasn`t really seemed to matter that much,” Jerram said referring to the collapse of Lehman Brothers in 2008 which sent global markets into a tailspin.

Lending by continental European banks to Asia-Pacific stood at USD 356 billion at the end of 2011, according to the latest data from the Bank for International Settlements. That compares with USD 379 billion at the end of 2010 and is down from a peak of around USD 455 billion in June 2008.

Jerram said that instead of leading to shrinking liquidity in Asia, the fall in European bank lending to the region has prompted local banks to step up their lending to corporates in the region and that has been a positive sign.

According to a report published by Standard and Poor`s Rating Services on Tuesday, banks in Singapore, Hong Kong and China have recently shown particularly rapid credit growth overseas and this has outpaced credit growth in their domestic markets.

In Singapore, for example, growth in credit exposure overseas rose to almost 30% in 2011 from just over 10% in 2010. Credit growth in domestic markets has been relatively stable at just over 10% in 2011 and 2010, the SandP report showed.

Europe`s Loss, Asia`s Gain?

Banks in Singapore, Hong Kong and to some extent Japan are all benefiting from a pullback in banking activity by Europe`s banks in Asia, Ritesh Maheshwari, Managing Director for Financial Services Ratings at SandP told CNBC.

Earnings reports from the region`s big banks have helped boost share prices which were dealt a blow last year from concerns about the global economic outlook.

Singapore-based DBS, Southeast Asia`s largest bank, posted a record first-quarter profit and said its expansion in the region would drive the bank`s future earnings. The bank`s income from Singapore rose 15% in the first quarter, while revenue outside Singapore jumped 35% as loans to China soared 81% and lending to India rose 42%. DBS unveils its earnings for the second quarter later this week.

Jerram at Bank of Singapore added that local banks in the region would continue to eye assets up for sale by European banks as they pull back their exposure globally. Malaysia`s CIMB Group is paying about USD 267 million for some of the Asian units of Royal Bank of Scotland.

There are more opportunities for Asian banks: ING Groep, the Dutch financial services group that was bailed out during the financial crisis, is selling its stake in Thailand`s TMB Bank. The stake is valued at about USD 775 million.

Both DBS and Australia`s ANZ have expanded into the region in recent years. In the last two years, DBS, for instance snapped up RBS`s retail and commercial banking businesses in China.

“To the extent that those (assets) are made available by European banks deleveraging, they will be snapped up by Asian banks,” Maheshwari 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

Here’s what Fed may do instead of more QE

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

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While the main question surrounding the Federal Reserve is whether it will enact another round of quantitative easing, the central bank may have a different caliber of weapon at the ready.

A version of the European-style Funding for Lending Scheme has emerged in some quarters as a possibility that would allow the Fed to stimulate the economy in a stealthier way than outright QE would provide.

The Bank of England already has undergone a similar program, and a close facsimile could happen in the US should Fed Chairman Ben Bernanke decide that the economy needs more liquidity in terms of bank-provided credit.

The plan works in a fairly simple manner: In the UK`s case, the BofE is lending short-term government bills to banks, which use the securities as collateral to borrow money from the central bank at a rock-bottom rate – about 0.25% – and then make loans.

Banks can borrow up to 5% of the value of their existing loan books, and the loans from the BofE are four years in duration.

The program is similar to something the Fed tried, with considerable success, during the financial crisis that exploded in 2008.

The Fed is meeting Tuesday and Wednesday and will deliver its policy statement at the conclusion.

“As well as offering clear incentives for UK commercial banks to boost their lending, one of the benefits of the scheme is that, as it only involves a temporary swap of securities, it won`t boost the overall size of the Bank of England`s balance sheet,” Paul Ashworth, chief US economist at Capital Economics, said in a note to clients.

The Fed`s program was called the Term Asset-Backed Securities Loan Facility and allowed primary dealers to borrow Treasury bills from the Fed in exchange for depositing collateral.

Instituting a similar program would be somewhat challenging for the Fed.

For one, the Fed will be out of short-term debt when it wraps up its Operation Twist program by the end of the year. The Twist involves selling short-term debt and buying longer-term notes in an effort to drive down interest rates and spur risk assets.

Also, there are some legal questions over what type of collateral the Fed can accept if it cannot lend T-bills.

Finally, there`s the reality that bank lending actually is increasing at a 5% pace in the US, so critics might say the program isn`t really necessary.

The Fed also may want to avoid one provision of the British program in which it grants the low rates to banks on 5% of their entire loan books, not just new loans.

The latter obstacle was emphasized by Alan S. Blinder, professor of economics and public affairs at Princeton University and former Fed vice chairman, in a Wall Street Journal op-ed piece Wednesday.

Blinder thinks the Funding-for-Lending Scheme is at least worth investigating, reasoning “it just might work, and the US economy certainly could use a boost.”

Ashworth, at Capital Economics, points out that if the Fed adopted the plan and extended the rate to 5% of current loans it would expand the central bank`s balance sheet another USD 300 billion, something unlikely to be popular among Washington lawmakers.

“Nevertheless, it would make sense at a time when the demand for credit appears to be rising and banks are still tightening lending standards for some types of loans,” he said. “As it stands, an FLS is obviously only in the early planning stages. But it will be interesting to see whether the idea develops more support at the Fed.”

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

China’s lower PMI reading masks ‘notable rebound’

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

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China`s official reading of manufacturing activity might have dipped to an eight-month low in July but economists say the figure masks an economy that has already bottomed and on track for a rebound in the second half.

China`s Purchasing Managers` Index fell to 50.1 in July from 50.2 in June, a survey by the National Bureau of Statistics showed on Wednesday. Although this is lower than the 50.3 expected by economists polled by Reuters, some observers tell CNBC that after adjusting for seasonality, the reading shows that the manufacturing sector is actually improving, thanks to the slew of stimulus measures implemented by the Chinese government.

Helen Qiao, Chief Economist for Greater China with Morgan Stanley, said the July reading usually declines by about 0.8 percentage points from June on average every year.

“If it does come out around this level, we would say that after seasonal adjustment, actually this number implies a pretty notable rebound in terms of growth momentum,” Qiao told CNBC Asia`s “Squawk Box” on Wednesday before the release of the number.

The July reading in 2011 slipped to 50.7 from 50.9 in June. In 2010, the reading plunged to 51.2 from 52.1. In 2009, the PMI inched up to 53.3 from 53.2 because it was coming out of the 2008 recession.

Dariusz Kowalczyk, Senior Economist and Strategist for Asia ex. Japan with Credit Agricole, said the reading is consistent with positive growth momentum of industrial output and much better than during the Lehman crisis, when the PMI plunged to the high 30s.

“A drop in the index of inventories of finished goods may mean that de-stocking has ended, which implies that any pick up of demand (stimulus-driven) should translate to higher output,” he said. The finished-goods inventory fell to 48 from 52.3 in June, the official reading on Wednesday showed.

Kowalczyk is sticking to his forecast that China`s economy will expand 8% this year.

“It is worth remembering that the index almost always falls in July,” he said. “Moreover, HSBC PMI rose in July, and so has the average of the two.”

A final reading of the HSBC PMI in July, also released on Wednesday, showed output picking up for the first time in five months. The HSBC PMI rose to a seasonally adjusted 49.3, its highest level since February, little changed from earlier flash estimate of 49.5 and higher than 48.2 in June.

Even then, some economists say the manufacturing sector is still weak and will need more help from the government, especially after the central committee of the Chinese Communist Party signaled on Tuesday that stable economic growth will be a key priority for the rest of the year.

“It is no surprise that the Politburo called for a strong pro-growth policy stance yesterday, singling out exports and employment as areas to be supported,” Credit Agricole`s Kowalczyk said. “We still do not expect another rate cut, but its odds are up to about a third now from a quarter yesterday. We see a fairly imminent 50 basis points RRR (reserve requirement ratio) cut instead and more infrastructure spending.”

Nomura`s Chief China Economist Zhiwei Zhang also expects a 50 basis points cut in the RRR in August and more public spending in the third quarter to boost growth.

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

Bill Gross is latest to join ‘Stocks Are Dead’ club

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

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Stocks will no longer generate the kinds of returns they`ve had over the past century, ending the “cult of equity” that has been Wall Street`s mantra for generations, Bill Gross, managing director at bond giant Pimco, says in his monthly market analysis.

He also predicts the stock market`s consistent annual return will be reduced to a “historical freak” that will never be repeated.

A global economic slowdown will lay waste to the pattern, consistent since 1912, of the market averaging 6.6% annual returns, says Gross, who helps run the Pimco Total Return Fund, the world`s largest bond fund at USD 263 billion.

Thus will fade the “cult of equity” espoused by Wharton professor Jeremy Siegel and his disciples who believe, with the exception of brief bear markets, that stocks are the most consistent game in town, Gross says.

“The cult of equity is dying,” he writes. “Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors` impressions of `stocks for the long run` or any run have mellowed as well.”

Gross is the latest high-profile industry name to pronounce the stock market moribund if not completely dead.

David Rosenberg, the economist and strategist at Gluskin Sheff, used almost identical language to Gross in declaring Monday that the “equity cult is nearly over.”

Morgan Stanley chief market strategist Adam Parker, who sees the market falling 12% by the end of year, said the only reason to buy stocks now is in anticipation that Republican Mitt Romney will win the presidential election in November.

Though strategists at larger investment houses such as Bank of America Merrill Lynch and JPMorgan remain bullish on stocks, investors have taken a dimmer view. They pulled USD 9.4 billion out of stock-based mutual funds last week alone and poured money at near-record numbers into high-yield bonds.

For his part, Gross argues that the return of stocks above the rate of economic growth as measured by gross domestic product cannot be sustained.

“The 6.6% real return belied a commonsensical flaw much like that of a chain letter or yes – a Ponzi scheme,” he says. “If wealth or real GDP was only being created at an annual rate of 3.5% over the same period of time, then somehow stockholders must be skimming 3% off the top each and every year.

“If an economy`s GDP could only provide 3.5% more goods and services per year, then how could one segment (stockholders) so consistently profit at the expense of the others (lenders, laborers and government)?”

Siegel himself, in an interview on CNBC`s “Street Signs” program, faulted Gross` logic that stock returns can`t exceed GDP growth.

“Capital has to give you a return above growth. Even in a no-growth economy you`re going to get some growth on capital,” he said. “So it`s not an anomaly, it`s not inconsistent to get that phenomenon.”

He also acknowledged that the market has been flat for the last 12 years but said that doesn`t cancel out the long-term performance.

“I will grant that the last 10-12 years have been poor years,” Siegel said. “We started from the most overvalued market that we had in the last century and we`ve gone to not the most undervalued one but a market is valued lower than the long-run average.”

But Gross says that the dawn of what the firm has coined the “New Normal” – a prolonged slow-growth period – will thwart gains for both stocks and bonds.

“Together then, a presumed 2% return for bonds and an historically low percentage nominal return for stocks – call it 4%, when combined in a diversified portfolio produce a nominal return of 3% and an expected inflation adjusted return near zero,” he says. “The Siegel constant of 6.6% real appreciation, therefore, is an historical freak, a mutation likely never to be seen again as far as we mortals are concerned.”

The Gross prognostication comes as central bankers in the US and Europe are expected to employ new techniques to spur growth and head off a burgeoning euro sovereign debt crisis. The Federal Reserve begins its two-day meeting Tuesday.

What they may come up with, he speculates, is a concerted policy to continue to inflate asset prices to placate investors.

“Woe to the holder of long-term bonds in the process!” he says. “Similarly for stocks because they fare poorly as well in inflationary periods.”

Future rounds of quantitative easing and other measures are expected to take place around the world to address New Normal slowness.

“Financial repression, QEs of all sorts and sizes, and even negative nominal interest rates now experienced in Switzerland and five other Euroland countries may dominate the timescape,” Gross says. “The cult of equity may be dying, but the cult of inflation may only have just begun.”

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

China stocks to rally until first quarter 2013: Nomura

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

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Chinese stocks could climb as much as 20% by the first quarter of 2013 after having bottomed in early June, and investors looking for a window to buy should dip in now, according to Japanese brokerage Nomura.

However, this will be a short-term bounce, Nomura warned, and the market could give up most of these gains after March. This is because inflation will creep back up to 4% for much of 2013 and China will need to put up with slower growth in order to implement reforms, Research Analysts Wendy Liu and Vicky Fung said in a report published on Monday.

For now, traders looking for a short-term opportunity to buy will benefit from low valuations in the MSCI China Index, which is trading at close to 9 times current earnings, and an economy that is expected to bounce back from a government-engineered slowdown.

“Valuation on the MSCI-China has returned to levels seen during the global financial crisis,” the Nomura analysts said in the report. “More importantly, pro-stability policies in China are starting to show up in certain macro data. While China`s current macro data remain mixed such that many investors hesitate to make a definitive call, we believe that such data will continue to improve in the coming months.”

The MSCI China Index was trading at 52.22 as of July 23, according to latest weekly data from Datastream, Fung said. A slow-down in the economy had weighed on Chinese stocks for much of the year, with GDP growth decelerating to a three-year low of 7.6 percent in the second quarter.

Nomura believes that June was the turning point for both equities and the economy. China`s quarterly GDP growth should improve through the second quarter of 2013, Nomura said. The brokerage forecasts that the Chinese economy would expand 8.1 percent, 8.8 percent, 6 percent and 8.2 percent respectively in the four quarters of 2013.

However, this would also mean that inflation would return to 3 percent in the fourth quarter of 2012 and 4.2 percent for 2013, after hitting a trough of 2.2 percent in June, according to the analysts. A new central government in Beijing to be installed at the end of the year may also sacrifice growth for long-term stability and reforms.

“After a decade of relatively fast GDP growth, overcapacity in multiple sectors, and rising income and wealth gaps, such reshuffling of the economy is necessary,” Liu and Fung said. Beijing may set its 2013 GDP target at 7.5 percent, similar to 2012, they added.

For short-term trades, Nomura favors “tactical” stocks like Baidu, Cathay Pacific, CNOOC, Huaneng, Galaxy and ICBC, which are high beta stocks that it believes will rally until the first quarter of 2013, and may decline after.

The brokerage also recommends a list of so-called `core` holdings, which investors should buy now and hold, including Geely, Want Want, China Life, Sino Biopharm, Zhaojin Mining, Beijing Enterprise and China Mobile. “We believe that these are the stocks worth accumulating on weakness,” Nomura said.

Nomura believes Chinese stocks could rise again in 2014. Despite moderating GDP growth, China will not experience too much social instability, and at some point in 2014, there should be early signs of reform success. For example, the central government would have already taken action by then to recapitalize state banks if needed.

– By CNBC`s Jean Chua.

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