Month: September 2012

Steep slide in oil prices shows loss of ‘faith’ in QE

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

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Crude oil’s biggest drop in two month’s this week signals investors are deeply skeptical about whether recent stimulus efforts by global central banks – including last week’s announcement by the US Federal Reserve of a third round of quantitative easing – will have a meaningful impact on restoring growth, analysts and traders told CNBC.

The positive effect of the Fed’s much-awaited stimulus announced last week wore off more quickly than many thought in the oil markets, which are considered a leading indicator of future economic activity.

“The oil market is telling us there is not much faith in another round of QE,” said John Licata, Chief Energy Strategist for Blue Phoenix Inc., an independent energy research and consulting company.

US crude futures and the equivalent Brent benchmark hit four-month highs last Friday, boosted by Fed action earlier in the week. But a reversal came swiftly with US crude dropping USD 7 a barrel in the past straight three sessions this week. An afternoon selloff – USD 3 a barrel in a matter of minutes – on Monday was considered so precipitous it prompted an investigation by the US regulators.

Rumors of a release of US strategic petroleum reserves were blamed for the price drop though many said prices simply ran up too fast in the prior week creating “overbought conditions” that were now being adjusted as markets re-considered the merits of recent central bank stimulus.

“QE isn’t good for stimulating the economy but it is good for commodities like oil,” said Sean Hyman, Editor of the Ultimate Wealth Report. “The pullback was a good bit of profit taking in my opinion because most assets ran up so much over the past few sessions before that. I`m still bullish on oil.”

‘Chicken Feed’

Tom James, Director and Co-founder of Navitas Resources, said technical indicators looked “overbought” at the end of last week and added: “The muted reaction we could see in oil on the dollar drop after the Fed announcement last week was a warning that oil was struggling.” Still, the medium and long term trend is still intact, James said, “so buy the dip.”

Weiss Research Natural Resources Analyst Sean Brodrick correctly predicted Wednesday`s “pullback to test support around USD 92 a barrel.” October US crude futures settled at USD 91.98 and Brodrick warned that the run of selling may not be over. “In this market, which is delirious on the high-speed chicken feed of QE that Ben (Bernanke) is injecting into Wall Street’s main vein, we could see a pullback to USD 89.”

Mike Harrowell, Senior Resource Analyst at BBY, told CNBC Asia`s ‘Squawk Box`’ on Thursday “QE of itself means little.”

“A declining US dollar is positive for US-based dollar prices and that`s about it,” he added. “The oil market is not driven by perceptions of debasement of currencies; it`s driven by supply demand events. What I think you`ve seen quite clearly is the Saudis have come out to say that we will cap the oil price but around about these levels.”

Harrowell touched upon a key point. The post-QE jump in oil prices seemed to spur Saudi Arabia, the de facto ‘central bank’ of oil, into talking prices lower. Oil came under further pressure on Tuesday when a senior Gulf source said Saudi Arabia is working to lower oil prices, producing around 10 million barrels per day, Reuters reported. Ali al-Naimi, Saudi Arabia`s oil minister, had said on Sept. 10 that OPEC`s top exporter was worried about high oil price and would take steps to moderate them.

“The Saudis have made quite clear…that this year they could produce between 12.5 and 12.7 million barrels a day,” said Johannes Benigni is Managing Director of JBC Energy GmbH. “We have had heard Mr. Naimi say many times in spring this year that they could put that oil to work. So, for us it`s pretty clear the Saudis are happy to produce 10. “

Overall, the oil markets are showing a vote of no-confidence in stimulus in the short term though the view is not unanimous. Kevin Kerr of Kerr Trading International described the recent price drop as “a hiccup,” adding “cheap dollars sloshing around are long-term bullish, especially for energy.”

-By CNBC`s Sri Jegarajah

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

US fiscal cliff trumps EU crisis as top worry: Survey

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

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A looming fiscal problem in the US is now identified as the top tail risk for investors, marking the first time in 17 months that Europe’s debt crisis was not seen as the biggest concern for fund managers, a monthly survey by Bank of America/Merrill Lynch shows.

The US “fiscal cliff,” a combination of tax hikes and spending cuts set to come into force in January 2013, was identified by 35 percent of respondents as the largest risk going forward, up from 26 percent in August.

In contrast, 33 percent of the respondents rated the euro zone debt crisis as their biggest concern, down from 48 percent in August. The survey of 186 fund managers, who oversee a combined USD 524 billion, was conducted from Sept. 7 to 13.

“Investors now view the US ‘fiscal cliff’ as a greater threat than the euro zone – and the upcoming election is putting these fears into sharper focus,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said in a report, referring to the US presidential election that takes place in November.

Unless U.S. lawmakers reach a compromise to avoid the impact of the so-called fiscal cliff, the US economy could face a sharp slowdown in growth, the Congressional Budget Office has warned.

Concerns over the fiscal health of the US government are reflected in the asset-allocation decisions of the fund managers surveyed by Bank of America/Merrill Lynch.

For the third straight month, investors reduced their holdings in US equities, with 11 percent overweight in September, compared to 13 percent in the previous month.

In addition to worries over the outlook for the economy, 58 percent of investors feel that US stocks are overvalued – the highest level since 2004. The SandP 500 stock index, which has risen 16 percent this year, is trading at around 14 times forward earnings. This is much higher than its peers in Europe, with the UK’s FTSE 100, for example, trading at 11.5 times forward earnings.

European equities have been the primary beneficiary of the rotation out of the US market, with asset allocators turning overweight the region’s stocks for the first time since April 2011.

“We have seen a 25 percent rally in European stocks from the June low, but sentiment on Europe has only just turned positive. Any extension of the rally is likely to be led by sector rotation and buying of unloved, domestically exposed stocks,” said John Bilton, European Investment Strategist at BofA Merrill Lynch Global Research.

The European Central Bank’s latest efforts to contain the currency bloc`s prolonged debt crisis – through a plan for unlimited bond-buying – have helped comfort investors.

Downbeat on Japan

According to the survey results, 24 percent of investors say Japan is the country they most want to reduce their exposure to – double the level in August.

A large factor behind this is strength in the yen, which 68 percent of the respondents in the survey perceive to be overvalued.

A strong yen, which has gained more than 5 percent against the US dollar over the past six months, is a threat to the economy and its exporters. A stronger currency erodes the repatriated profits of exporters and makes their goods less competitive.

Worries over the outlook for the Japanese economy prompted the country’s central bank to announce aggressive monetary easing measures on Wednesday. That action pushed the yen broadly lower.

The Bank of Japan expanded its asset buying and loan program, currently its key monetary easing tool, by 10 trillion yen (USD 127 billion) to 80 trillion yen, targeted at purchases of government bonds and treasury discount bills.

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

Will the Indian rupee stage a big turnaround in 2012?

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

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The Indian rupee has been among the major beneficiaries of the government’s latest economic reform efforts – gaining over 2% against the dollar over the past week – and analysts say this may trigger a greater rebound in the beleaguered currency, which could rise as much as 8% by the year-end.

A combination of positive domestic drivers alongside an improvement in global liquidity conditions, as a result of easing by central banks in the West, will drive the currency higher this year, say experts.

Unlike India`s stock market, which has been among the best performing in Asia, the rupee (Exchange: INR=) has been badly hit by concerns over the country`s twin deficits – both current account and fiscal – and slowing economic growth, which hit 5.5% in the second quarter. Between February and July this year, the rupee depreciated 12% against the US dollar.

Radhika Rao, Economist at financial research firm Forecast, says the rupee could touch 50 against the greenback by the end of 2012, an increase of 8%, as investors cheer reforms to boost foreign investment.

Last Friday, the Indian government announced a slew of long over-due measures to boost investment, including approving foreign direct investment (FDI) in broadcast, multi-brand retail and aviation, together with partial privatization of four state-run industries. This came on the heels of a cut in fuel subsidies a day earlier.

These measures drove the rupee to 53.66 against the dollar on Monday – its highest level in four months. The currency has since pulled back slightly trading around 54.

Rao adds the rupee is likely to gain support from monetary easing by the Reserve Bank of India (RBI) in the coming months. The central bank, which has kept its benchmark rate on hold since April, is widely expected to cut rates by 25 basis points before the end of the year, according to a Reuters poll.

While a rate cut is typically negative for a currency, such a move would help strengthen the rupee as it would be seen as positive for growth, she said.

Paul Mackel, Head of Asian Currency Research at HSBC, is also optimistic on the rupee’s outlook, forecasting the currency to touch 52 against the dollar in the near-term, before appreciating further to 49 in 2013.

“The rupee deserves to be on a better footing versus the U.S. dollar on the back of these measures, although there still are implementation risks,” he said.

The Indian government has a history of flip-flopping on policies in the face of political pressure. In December 2011, for example, the government unveiled plans for FDI in multi-band retailing, only to back away from it days later.

Daniel Hui, Head of Emerging Markets Asia FX Strategy at JP Morgan, who also expects the rupee to reach 52 over the next month, says recent monetary stimulus announced by the Federal Reserve will help boost risk currencies in Asia that have been out of favor with investors.

“The rupee has been oversold for the past year. The Fed and also the European Central Bank taking away some of the global tail risk has given the go ahead for the rupee to start recovering,” he said.

However, Jonathan Cavenagh, Senior FX Strategist, Westpac Institutional Bank, says it`s still early days to assess the impact of the new reforms on the currency.

“It would take 3-6 months to see how much FDI is likely to come into India, and what kind of impact that will have,” he said.

By CNBC`s Ansuya Harjani

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

How many iPhones must Apple sell to keep the street happy?

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

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Apple needs to sell about six million iPhone 5 units by the end of this weekend to ease investors’ concern about supply constraints, said Peter Misek, Jefferies managing director and senior technology analyst, Tuesday.

“If they do anything greater than six million, it will be a huge positive,” Misek said on CNBC`s Squawk on the Street.

Wall Street has been concerned that there are still “significant supply constraints,” that would limit Apple to only being able to produce about five to six million of the new phones before the end of the month, he added.

“So if we get a six million unit number, that will really lay a lot of those concerns,” Misek said. He expects the tech giant to sell about eight million iPhone 5 units, including pre-orders, by the end of the first weekend.

Tavis McCourt, an analyst for Raymond James, also said he expects Apple to sell about 8 million iPhones during the time period leading up to the last day of Apple`s fourth quarter, which is Sept. 29.

The iPhone maker announced Monday that it already had two million pre-orders for the iPhone 5 during the first 24 hours it was available online.

Apple`s stock reached USD 700 a share for the first time in after-hours trading Monday and the stock closed at a record high of USD 701.91 Tuesday. But the stock could still go higher, analysts said.

More Upside for Tech Giant

With more products in the pipeline, Apple will continue to have more upside, Misek said.

“It`s really tough to get off the train right now, you`ve got the iPad mini, which we think is going to be a blockbuster. iPhone 5 is already a mania, so we`ve got a really good runway here,” he said.

While Apple has not confirmed it is making an iPad mini, Misek said he expects the smaller tablet sometime in October.

James Altucher, founder of Stockpicker.com, said Apple`s new products could “easily” push the company`s stock price to USD 1,000.

A deal with China Mobile would also be an upside catalyst for Apple, however, the iPhone maker could face challenges striking an agreement with the Chinese company because it is controlled by the Chinese government and they ultimately decide which carrier gets which handsets, Misek said.

“China mobile has the most subscribers and the government wants to even out the subscribers,” Misek said. “So they want China Telecom and Unicom to gain subscribers for mobile on purpose because China Mobile is so big, so that`s really the challenge that Apple is facing with mobile.”

A deal with the Japanese wireless carrier Docomo would also spur the stock on, Misek said. The company is larger than Verizon and has a huge 4G LTE network, he said.

“Don`t underestimate Docomo… They are bleeding describers in Japan like crazy because they don`t have an iPhone, so that could be a big subscriber boost as well,” he said.

Apple`s Headwinds

Yet, while Apple is expected to continue its growth, there is still a bear case for Apple, said Zach Shafran, an analyst for Ivy Science and Technology Fund, Tuesday.

“The bear case obviously is that growth slows, there`s more competition, they can`t continue to charge these kinds of prices,” Shafran said on CNBC`s Squawk on the Street. “Clearly, when you get this big and you do this well this fast, you know the growth rate is going to slow.”

Amazon`s new Kindle Fire HD is a headwind for Apple as it moves into the first quarter, Altucher said.

“The Kindle Fire that is coming out November 20 actually is feature for feature a better tablet tablet than the iPad. So I think that could be a headwind Q1 of next year,” Altucher said on CNBC`s Street Signs.

While there are some bearish cases for the tech giant, there`s still plenty of room for the company to grow as it keeps new products in the pipeline, Shafran said.

“These guys keep innovating, they keep providing better services. And in some ways they are just getting started,” 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

Dollar index headed for rapid collapse: Chart

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

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Quantitative easing is really another word for currency wars. A weak US currency puts continued pressure on the Japanese Yen, the Chinese Yuan, the South Korean Won, the Australian dollar and other currencies.

Cheap money also fuels speculation and this money quickly drifts into commodity markets and the ETFs that help propel commodity market speculation. This is inflationary for food prices.

The lower the US dollar the greater the intensity of currency wars. The break below the key uptrend line on the Dollar Index chart was an early warning of the third round of quantitative easing (QE3). The most important question now is to use the chart to examine the potential downside limits of a QE3 weakened US dollar.

The US Dollar Index is a basket of currencies. They are the Euro, yen, British Pound, Canadian dollar, Swiss Franc and Swedish Krona. The Dollar Index is used as a measure of the strength or weakness of the US dollar. There are three significant features on the weekly Dollar Index chart. The first feature is the uptrend line that started in September 2011.

One year later, in September 2012, the Dollar Index fell below this uptrend line. The weekly close below this uptrend line was the first signal of a major change in the trend direction. It came before the announcement of QE3, last week. Traders had good warning to move to the correct side of the new market trend by closing long side trades.

This advance warning was also delivered by commodity markets, as discussed last week in our column on the London Metal Exchange price moves.

The second significant feature is the support level near 79. This provided both support and resistance in 2011 and 2012. Temporary consolidation behavior may develop at this level. There is a low probability this level will provide strong support after the announcement of QE3 so traders will use the consolidation as an opportunity to build short side positions.

The third significant feature is historical support near 74.5. This is the upper edge of a consolidation band between 73.5 and 74.5. This is the downside target for the Dollar Index following a fall below 79. This target can be reached very rapidly over three to four weeks. A rapid collapse of the US dollar puts immediate pressure on other dollar-linked currencies.

There is a very low probability the US dollar will resume its uptrend. The move below the value of the uptrend line and a fall below 79 confirm that a new downtrend has developed. The weakness in the US Dollar will hurt export dependent economies and companies.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on CNBC`s Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. We welcome all questions, comments and requests.

CNBC assumes no responsibility for any losses, damages or liability whatsoever suffered or incurred by any person, resulting from or attributable to the use of the information published on this site. User is using this information at his/her sole risk.

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 languish as retail investors give up

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

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While a cooling economy and falling corporate profits are often cited as reasons for the poor performance of Chinese stocks, increasingly contributing to the downtrend is the disappearance of the retail investor.

Stocks on the mainland staged one of their worst performances this year, with the Shanghai Composite Index tanking nearly 13% in the last six months, making the market the biggest laggard among its Asian peers.

“The stock market in China is manipulated too much, making it more like gambling rather than investing. The market always goes in an unreasonable way that contradicts our financial knowledge,” 31-year-old Hong, who runs a medical equipment trading company in the coastal city of Wuxi, told CNBC.

Hong, who requested to be identified by only his last name, began investing in mainland stocks during the bull run of 2006, but earlier this year exited all his equity positions owing to the “volatility in the markets.”

Retail investors account for around 80% of the turnover at China’s two stock exchanges in Shanghai and Shenzhen. Combined turnover at these two bourses fell 32% year-on-year in the first six months of 2012, according Shanghai-based consulting firm Z-Ben Advisors.

Another indicator of falling interest is the decline in the number of retail broker accounts being opened. Approximately 360,000 such accounts were opened in July, less than half of the 790,000 opened in the same month last year, according to a Nomura report.

Individual investors in China’s domestic stock markets are finding it increasingly difficult to make money in the current environment, forcing them to cash out of their investments and put their money in less volatile alternatives, including property and wealth management products, say experts.

“It takes strength to remain optimistic in this market, people are trading less because they are fed up with the ups and downs in the stock market,” said Howhow Zhang, head of research at Z-Ben Advisors.

Even a slew of government stimulus measures over the past two weeks, including the USD 150 billion-plus in infrastructure spending and incentives for exporters, have failed to drive a sustainable turnaround in the market. While this did lead to a temporary rally in the first week of September, it soon fizzled out.

“The government has been sending positive policy signals … but everyone’s stopped paying attention,” Zhang said.

As investors shift away from risky assets, like equities, Zhang says he has seen a significant rise in demand for fixed-income products this year.

Hong, for example, has since put his money in different investment products offered by his bank, which earn him an annual return of 5% to 9%.

“A lot of investment firms are launching short-term bond funds which give you returns of 4% to 5% a year,” Zhang added.

Unlike the equity market, China’s bond market has been thriving. Chinese bond funds enjoyed their largest-ever net inflows in the second quarter this year, according to Reuters, raising total bond fund assets to an all-time high.

Retail Interest Has Peaked

This loss of interest among retail investors is not a short-term phenomenon. According to Hong Kong-based Wendy Liu, head of China equity research at Nomura, retail interest in A-shares – those traded on local stock exchanges – has in fact peaked.

Based on a study, which looks at historical A-share fund flows, retail broker accounts and money raised by mutual funds, among other data points, Liu said retail investment into domestic shares reached its highest point in 2007.

“Household ownership of stocks, stock funds, and stock accounts saw their biggest increases in 2007. Subsequent net increases in 2008, 2009, 2010 have been modest (in comparison),” Liu said.

Chinese stocks entered a bull run between 2006 and 2007, when the Shanghai Composite hit a peak of 6,124.04 in October 2007. The market has not seen those levels since, trading in the range of 2,145 to 2,530 over the past year, and experts say there is no catalyst for it to return to those levels in the foreseeable future.

Role of Foreign Investors Limited

While China has stepped up efforts to expand foreign participation in the Chinese market, overseas investors continue to play a small role.

Foreign investors require a license under the qualified foreign institutional investor program, known as QFII, to access its financial markets.

In April, the government increased the investment quota under the QFII program to USD 80 billion from USD 30 billion previously. In total, China has granted QFII licenses to 181 foreign investors, 149 of whom have combined quotas of USD 28.53 billion, according to Reuters.

“That’s a very small amount, less than a couple of days turnover in the market … the average daily turnover is around 70 billion yuan (USD 11 billion),” Philip Chan, director at Shenyin Wanguo Securities, said.

Luring Investors Back

For retail investors to return to the market, there has to be a significant rebound in domestic stocks of around 15% to 20% over the course of one month, said Zhang, who has a “neutral” outlook on Chinese equities.

He added, however, that low valuations and the completion of the leadership transition later this year could provide some support to the market.

“When the new regime is elected, it will remove a lot of uncertainty in the system that will make investors more comfortable to assume a little bit more risk,” Zhang said.

-By CNBC’s Ansuya Harjani

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

India’s ‘Big Bang’ reforms fail to impress ratings agencies

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

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The so-called big bang reforms unveiled by the Indian government to contain its budget deficit, boost growth and ward off a credit downgrade have failed to impress ratings agencies, with both Moody`s and Standard and Poor`s wary about the implementation of these new measures.

Last Friday, the Indian government announced a slew of long over-due measures to boost investment and prop up the rupee. These included allowing foreign direct investment (FDI) in broadcast, multi-brand retail and aviation, together with partial privatization of four state-run industries. This came on the heels of a cut in fuel subsidies a day earlier.

While these announcements saw Indian equities and the rupee rally, analysts at credit ratings agencies reacted to the good news with caution.

“The Indian government`s recent announcement on foreign direct investments is encouraging, but at this stage it is still uncertain whether these measures can be implemented,” Standard and Poor`s Director of Sovereign Ratings, Takahira Ogawa, said.

Over the weekend, many political parties opposed these investor-friendly reforms as they perceive them to be anti-poor, giving rise to fears that the government may yet again be forced to roll back on these measures.

Atsi Sheth, Vice President, Sovereign Risk Group at Moody`s Investors Service also has doubts over whether the government will go ahead and implement these reforms.

“The effect of the reforms on the government`s credit profile is minimal because they are either too small to have material sovereign credit benefits or carry rollback risks that outweigh any credit positive benefits,” Sheth said.

The Indian government has a history of flip-flopping on policies in the face of political pressure. In December 2011, for example, the government unveiled plans for FDI in multiband retailing, only to back away from it days later.

While Moody`s has maintained its stable outlook on India, SandP and Fitch earlier this year cut their outlook to negative, warning that the country risks losing its investment-grade status if measures weren`t taken to better its investment climate and reign in the fiscal deficit.

While Sheth agrees the government`s recent efforts reflect a willingness to tighten its budget, the diesel price hike, for example, will have a limited impact on its fiscal position.

According to Moody`s calculations, the move to cut fuel subsidies will reduce the government`s fiscal deficit by just 0.1% in terms of its gross domestic product (GDP).

“We still expect a slowdown in government revenue growth and the high cost of food, fertilizer and fuel subsidies to cause the government to exceed its fiscal deficit target of 5.1% of GDP to 5.8%,” Sheth said.

He says a broader reform of the overall subsidy system would have a more positive impact on the country`s credit profile, but that is unlikely to take place anytime soon.

While the government`s move to lift the ban on foreign airlines from investing in domestic carriers is positive for the country`s private sector airlines, it will have minimal implications for the sovereign credit profile because it does not extend to the state-owned Air India, according to Sheth.

“Air India has drawn heavily on government financial support for its operations in recent years and measures to diminish that fiscal burden would be credit positive,” she said.

According to SandP`s Ogawa the economic impact from FDI in multi-brand retailing may also be less than expected, as it has been left to the state governments whether they want to implement it or not.

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

Chinese billionaires lost 1/3rd of wealth in past yr: Study

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

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Chinese billionaires lost almost a third of their combined wealth in the past year as Asia’s mega rich experienced the biggest drop in their total net worth compared to anywhere else in the world, a new study shows.

The group saw their fortunes shrink by a whopping USD 160 billion from August 1, 2011 to July 31st this year, according to an annual study by wealth intelligence firm Wealth-X released Monday, largely due to the poor performance of its equity market with the benchmark Shanghai Composite Index falling 20% in that period.

“A key driver in their wealth diminishing was, in general, equities, which were down… so too were the valuations-and that makes a substantial part of their net worth,” Mykolas Rambus, CEO of Wealth-X told CNBC on Monday.

In total, the population of China’s ultra-high net worth (UHNW), which are individuals with assets worth USD 30 million and above, shrank by 2.3% in the past year, while their combined wealth decreased nearly 7% to USD 1.6 trillion. That compares to a 3.3% gain in the combined wealth of such individuals in the US, which saw their net worth hit almost USD 8.3 trillion this year.

Rambus says individuals holding assets in real estate and manufacturing in China’s coastal provinces were the hardest hit as factory production moved inland.

“If you pick a region like Guangdong, there’re still a number of individuals who held substantial assets-factories, properties, raw goods, you name it-who are all staring at diminished demand; empty factories in some cases,” he said.

On the whole, the wealth of the UHNW individuals across Asia fell by nearly 7% to USD 6.3 trillion in the past year, led mainly by declines in the continent’s three biggest economies China, Japan and India, which account for about 75% of its ultra-rich population.

India’s mega-rich population saw the largest decline-not just in the region but in the world-with 485 people leaving the ranks of the UHNW.

“The Indian equity markets, which have significant impact on the local UHNW population, declined by 8% during the measuring period while the Indian rupee declined by 25%,” the report said.

Rambus, however, notes that the findings do not indicate that there are an increased number of UHNW individuals who have gone bankrupt, rather, “it’s just that their prospects aren’t exiting and the value of their assets has diminished as a result of what’s happening in the markets.”

Meanwhile, Japan, which is home to the highest number of super-wealthy people in Asia at 12,830, saw the largest decline in their combined wealth globally with a decrease of USD 195 billion in the past year.

The key reasons behind the decline were a slumping equity market, which fell 16% during the period, and weak property and manufacturing sectors, which compounded the fallout from Japan’s 2011 earthquake and tsunami, the report said.

“It’s a one after another shock for Japan and frankly, this is to a degree somewhat of the policies in the last many years coming to roost, being accelerated by the events that happened in Japan in the last two years,” Rambus said. “So you have a number of individuals who are taking money out of Japan, looking for new investment opportunities offshore.”

While latest figures point to a slowdown in wealth growth in Asia, Rambus remains optimistic on the region, which he says is experiencing a “temporary dip.”

“The long term trajectory is still the same, there’s still lots of wealth being created in Asia,” Rambus said. “There’s no question about it, it’s just distribution and temporary lull in the markets.”

– By CNBC’s Rajeshni Naidu-Ghelani

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, Japan can’t afford to let crisis worsen: Pros

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

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Some Japanese firms like Panasonic and Canon shut down factories in China on Monday after violent protests over a territorial dispute. But regional strategists say the disruption to business will be short-lived as the two trade partners cannot afford to let the situation get out of hand.

Japan`s decision last week to buy disputed East China Sea islands from a private Japanese owner has led to angry mob attacks over the weekend against Japanese businesses in China.

The dispute over the islands – called the Senkaku by Japan and the Diaoyu by China – intensified last week when China sent six surveillance ships to the area in response to Japan`s purchase.

“The dispute is clearly serious. But temporary factory closures are not the same as permanent closures. Local (Chinese) governments will also be wary of the impact for exports, jobs, and tax revenues as a result of factory closures,” Ben Simpfendorfer, Managing Director of Silk Road Associates, an investment consultancy specializing in China, told CNBC.

He added that the real fallout should be assessed “over months, not days.”

China is Japan`s largest trading partner, with bilateral trade in 2011 growing 14.3% to a record USD 345 billion, according to Chinese government data, and both countries are seeking to increase trade with each other as demand from the United States and Europe continues to weaken.

The two nations are “hugely interdependent,” says Nicholas Smith, Director of CLSA in Tokyo. “Neither can afford the damage this spat has caused. Wage rates have been growing at 20% a year in China, and economic growth is faltering. The Japanese may well use these riots as an excuse to redirect their investment to other parts of Asia where the costs are lower.”

Japan`s Nissan Motor said earlier this month that sales in China had been affected owing to the brewing tensions between the two countries. CEO Carlos Ghosn also told CNBC last week that the dispute was “worrying” and that the firm was doing all it could to “lobby” for a resolution.

On Monday US Defense Secretary Leo Panetta, who is on a visit to Tokyo, called upon the two nations to resolve their dispute. Japanese Foreign Minister Koichiro Gemba also said Japan was seeking to keep a lid on the dispute. Meanwhile, China said it would protect Japanese citizens and properties.

But if the dispute was to worsen, Graham Bibby, CEO of Richmond Asset Management in Hong Kong, says China would have the upper hand.

“I just look at the economics behind it and a lot of the manufacturing from Japan relies on rare earths and most of the rare earths they get are from China,” Bibby told CNBC. “And the last time this sort of squabble came up, China said no more rare earths so no more Toyotas and no more smartphones. So at the end of the day, they`ve got the upper hand.”

In 2010, China temporarily stopped exports of rare earths used in high-tech manufacturing to Japan after it arrested a fishing boat captain whose trawler collided with two Japanese patrol boats off the same islands.

Copyright 2011 cnbc.com

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

Fed juices stocks – but what could bring out the bears?

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

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Stocks could stay on an upward trajectory for the time being, while bruised bears sniff out the next trouble spot for markets.

The Federal Reserve’s new round of quantitative easing and promise to keep policy easy well into the future propelled stocks and other risk assets higher, putting the Dow less than five percent away from its all-time high in the past week.

“For a period of time, the markets will give the central banks the benefit of the doubt,” said Barry Knapp, head of US equity portfolio strategy at Barclays. “You would expect the downside would be limited over the next six weeks or so, but there’s some major questions about the effectiveness, from a macroeconomic standpoint.”

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In the coming week, US home sales and manufacturing data will be the focus, plus a flurry of regional Fed presidents take to the circuit with speeches on the economy and monetary policy.

Treasury yields zipped higher in the past week as investors debated the outcome of the Fed’s plan to buy USD 40 billion in mortgages a month. Yields climbed in part because the Fed is shifting its focus to mortgages, but also as the dollar fell and risk assets rallied. The 10-year was yielding 1.869% late Friday, its highest level since May 10.

“This sort of Fed action is meant to turn the corner. It’s debatable it’s going to work but in the meantime, people are going to give the Fed the benefit of the doubt,” said George Goncalves, Treasury strategist at Nomura Americas. Goncalves expects to see the 10-year yield move to 2%, but he says investors will continue to buy dips and yields should not rise significantly unless the economy improves.

He expects the bond market to be very focused on the economic reports, such as existing home sales and housing starts Wednesday and the Philadelphia Fed survey and jobless claims Thursday, since the market will be attempting to second guess the Fed’s take on the economy.

“They basically have taken over the bond market — Treasurys and mortgages are the biggest markets in the world. They’re willing to use fixed-income markets to subsidize the equity market,” he said. “I think the market is just digesting the implications of a hyperactive Fed that is willing to pull all stops, which means there should be some inflationary pressure priced into the Treasury market.”

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Even with the stock market sailing higher, risks abound. Traders are watching the violence in the Middle East that resulted in the death of the US Ambassador to Libya and three others this past week. Oil prices surged above USD 100 Friday morning but gave up some gains on speculation that there would be crude stocks released from the Strategic Petroleum Reserve. (Read More: Muslim World in Turmoil: From Libya to Yemen)

Europe will also stay in the headlines, as traders watch Spain inch toward a financial bailout. A test for Spain comes Thursday when it auctions longer duration bonds for the first time since the European Central Bank announced its bond purchase program.

What Could Halt Rally?

Stocks have racked up double-digit gains since June, despite prognosticators’ expectations that the market was heading for a summer sell off. The Dow gained 2.2% this past week, to 13,593, its highest close since Dec. 10, 2007. The Dow has gained 12% since hitting its 2012 low June 4. The S&P 500 this past week jumped 1.9% to 1465, its best close since Dec. 31, 2007, and the Nasdaq gained 1.5% to 3183, its best close since March, 2000. The Russell 2000 played catch-up with a 2.7% rally to finish the week at 864.

Fears of the fiscal cliff — the year-end expiration of Bush-era tax cuts and automatic spending cuts — top the list of lingering concerns that could halt the market’s climb. But there are others, including earnings slowdown. The weakening dollar, however, could help the earnings of multinationals.

“By our reckoning, the third quarter is going to be the trough,” said Richard Bernstein, CEO of Richard Bernstein Capital Management. “The rates of change should actually run more positive unless we hit a profit recession …The problems that you’re seeing I would argue are more related to the dollar and weakness around the world. Domestic companies seem to be doing okay.” Bernstein said he remains bullish and does not see warning signs of a bear trend.

Other concerns are election-related.

“I think the key for the election basically is the Congressional outcome, particularly the Senate, because the market is focused now on what happens with tax policy on dividends and capital gains. The market is looking for a Republican outcome,” said David Bianco, Deutsche Bank chief equity strategist. “If it gets one, I think the rally continues.” Republicans favor keeping the lower capital gains and dividend tax rates that expire Dec. 31, unless extended, and Bianco expects a post-election selloff if Democrats retain control of the Senate.

For now, he is also looking for an increase in volatility and a minor pullback, of about five percent after the summer run-up. “I don’t think now is the time to be chasing this rally,” he said.

Knapp said he thinks the market will begin to sputter if Wall Street-favored Republican presidential hopeful Mitt Romney starts to fall behind in the polls. “I don’t think there’s a lot of downside risk in the next four to six weeks, unless the polls go extremely south,” he said. “If the polls go toward the GOP, there’s not a lot of downside to the market for the rest of the year.”

Rising gasoline prices are also a concern, Knapp said. “If prices keep rising, that’s going to be bad for core growth, and we could have a very un-Merry Christmas this year,” he said.

© 2012 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