Month: October 2013

China dumping Treasurys still a real threat: Roach

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

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Investors are failing to factor in the very real risk of China scaling back on its US government debt holdings, economist Stephen Roach told CNBC.

“Everyone thinks interest rates are going to stay low in the US because the Fed is in the control room… but the Chinese own about 11 percent of the Treasury market right now, and as they start to reduce their purchases of dollar-based assets… [this] will mean higher interest rates,” he told CNBC Asia`s Squawk Box.

The political crisis in Washington that saw a 16-day partial US government shutdown damaged the perception of the US government`s redibility abroad, analysts say, prompting fears that China may reassess its investment in US Treasurys.

China is the world`s largest overseas holder of US government debt; any move to sell out of the asset class could prompt a spike in Treasury yields, and therefore benchmark interest rates. Data from the US Treasury department this week showed that China reduced its holdings in US Treasurys to USD 1.268 trillion in August, down by USD 11.2 billion from July.

According to Roach, as China starts to reduce its savings surplus and accumulate foreign reserves at a slower pace, its demand for dollar-based assets, like Treasurys, will decline.

“China is on the move with a different [economic] model and there are enormous consequences for its purchases of Treasurys and other dollar-based assets as a result. America has got to face up to that,” he said.

China buys US Treasurys as part of its currency management strategy. By recycling its foreign exchange reserves into T-bills, it prevents its domestic currency from rising, which would threaten the competitiveness of its exports.

Most analysts have dismissed fears of China cutting its Treasury holdings, arguing that there is not a large or liquid enough viable alternative. But Roach questioned this argument, noting US investors have become too smug in thinking that China would stick to its holdings for this reason.

“The US is really not focused on the possibility of [China scaling back on Treasurys] because they think very smugly `where else are they going to go?` And where else are the Chinese is going to go… [they will start] directing their savings at supporting their economy not just America`s economy,” he said.

Roach added that the recent political crisis in Washington has meant Chinese investors will be even less inclined to maintain their exposure to US government debt.

“[Chinese currency managers] manage their portfolios on a risk adjusted basis and given the fiasco that Washington just went through, the risk to the ability of Treasurys to hold their value seems to have gone up and they need to make some adjustments accordingly,” said Roach.

“I think this is a prudent decision from the standpoint of many Chinese currency managers,” he added.

Yields on the 10-year Treasurys have spiked over 100 basis points this year after the Federal Reserve first started talking about tapering its USD 85-billion-per-month bond-buying program in late May. Yields on 10-year T-bills were trading at around 2.51 percent in early Asian trading on Friday.

-By CNBC`s Katie Holliday: Follow her on Twitter @hollidaykatie

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

Carry trade back in fashion as easy money prevails

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

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Expectations that the Federal Reserve will keep its easy-money program in place into 2014 have created the “perfect” environment for a revival of the carry trade, say foreign exchange strategists.

“We have conditions that are perfect – low volatility [and a] low interest rate environment. It means that currency traders are going to be looking for risk, high beta and interest rate differential trades,” said Peter Rosenstreich, chief foreign exchange analyst at Swissquote Bank.

Read more: March 2014 most likely date for tapering: Goldman

There is already evidence of increased carry trade activity since September 18, when the US central bank surprised markets with its decision not to taper its asset purchases, say market watchers. A carry trade is when investors borrow in a low yielding currency, such as the yen, to fund investments in higher yielding assets somewhere else.

Nizam Idris, head of strategy, Fixed Income and Currencies at Macquarie cites the Indian rupee as an example of a currency that is benefiting from this trend. The rupee has appreciated around 3 percent against the US dollar since the Federal Open Market Committee met last month as investors look to take advantage of higher interest rates in India.

“For now, in Asia, the Indian rupee and Indonesian rupiah are looking quite attractive in terms of carry – interest rates there are still quite high. Outside of Asia – people are looking at Turkish lira and South African rand,” he said. India`s benchmark interest rate, for example, stands at 7.50 percent, while Indonesia`s is 7.25 percent.

Read more: Emerging market reprieve is only temporary: Pimco

Among the most popular funding currencies at the moment are the US dollar, Japanese yen and Taiwan dollar, Idris said, noting the Taiwan dollar is less volatile than most emerging market currencies and has even lower interest rates than the US

Idris` favorite trades, however, include shorting the Singapore dollar against the Malaysian ringgit, and shorting the US dollar against the Korean won.

As for other high yielding emerging market currencies he noted that there are risks. Brazil, for instance, offers higher yields but the country`s central bank isn`t too keen on seeing its currency appreciate, which presents a potential risk.

Khoon Goh, senior FX Strategist at ANZ , who notes that prevailing theme for FX markets heading into year-end will be seeking yield via carry trades, says his top trade is shorting the yen against the New Zealand dollar.

Read more: Taper talk sets tone for down and out dollar

“It`s one of those classic high-yielding carry trade strategies. The New Zealand economy is actually performing pretty well and the RBNZ [Reserve Bank of New Zealand] looks on track to be the first G-10 central bank to be hike rates early next year,” Goh said.

Strategists, however, warn that increased carry trade activity may not last beyond the next two quarters.

“Taper has been delayed, so carry trades will become fashionable, but this may not be for a long time,” said Idris.

“Carry trade is highly dependent on Fed taper. If money is free like it has been since 2009 when central banks started printing money, then the opportunity cost of not investing is high. When money is longer free you need to look at valuations, and not just anything that gives you a yield,” he noted.

-By CNBC`s Ansuya Harjani; Follow her on Twitter @Ansuya_H

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

Bracing for taper: Why this nation is in a ‘sweet spot’

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

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The Philippines’ economic “sweet spot” may offer protection from the next wave of concerns over when the US Federal Reserve will begin to taper its asset purchases.

Emerging markets have stabilized after a bout of volatility over the May-to-September period as fund outflows on concerns the Fed would begin to taper its USD 85 billion-a-month asset-purchase program have reversed. After the Fed surprised markets with its decision not to begin tapering at its September meeting, many analysts pushed their tapering expectations back to early 2014.

While the tapering concerns hit countries needing to finance current account deficits the hardest, the Philippines has been running a current account surplus.

Also read: In Asia ratings game, guess who just jumped ahead?

“Even if there`s an outflow of capital, the balance of payments would still be expected to show a positive balance,” Amando Tetangco, governor of the Philippines` central bank, Bangko Sentral ng Pilipinas, told CNBC.

In addition, “the external debt of the country has been manageable,” he said. “Our gross international reserves, which are now the equivalent of about one year worth of imports of goods and services, are higher than our external debt. The external debt is just about a fifth of gross domestic product,” he said.

He noted the country also has a strong macroeconomic position.

Also read: Emerging market reprieve is only temporary: Pimco

“There have been structural changes in the economy. For instance, we estimate that the potential output growth has gone up to between 6-8 percent from the previous 4-5 percent. That means the economy can expand faster than what we saw in the past without necessarily leading to overheating,” he said.

The central bank Thursday kept its policy rate unchanged at a record low of 3.5 percent for an eighth consecutive meeting, even though the country`s economy has grown at an around 7 percent rate over the past 12 months, as it expects inflation to hover around 3 percent, the low end of its 3-5 percent target.

Also read: Late Fed taper may do more harm than good for emerging nations

“Benign inflation alongside resilient economic growth leaves BSP in a `sweet spot,`” Mizuho Bank said in a note, adding “robust remittances act as a growth buffer by supporting consumption and increasingly, investment activity (by households) as well.”

Others also say the country is in “sweet spot.” Remittances are being bolstered by better economic conditions in host countries, rising more than expected in August and supporting domestic consumption, noted Trinh Nguyen, an economist at HSBC, in a note. She also expects the increase in exports to continue.

In August, exports climbed 20.2 percent from a year earlier after adding 2.3 percent in July, although exports for January-August were down around 0.8 percent.

Barclays expects the Philippine currency to continue outperforming its peers. “We expect further currency appreciation given the Philippines` strong fundamentals and relatively low vulnerabilities. Strong growth, low inflation, supportive balance of payments, large foreign-exchange reserves, and low levels of external debt provide a constructive fundamental backdrop for the peso.

The peso is also likely to see additional support from the seasonal rise in remittances ahead of year-end,” the bank said in a note.

But the archipelago may not be completely immune to tapering. “The Philippines (like most emerging market countries) is vulnerable to large outflows of capital during periods of global risk aversion despite improved macro and credit fundamentals,” Mizuho noted.

Capital Economics also is concerned that continued low rates will fuel asset bubbles, especially in the property sector. “The stock market also looks overvalued relative to its historical valuations,” it said in a note.

The Philippines’ stock market is trading at 18.6 times its consensus 12-month forward earnings forecast, a nearly 30 percent premium to its long-term average, according to data from Nomura.

– By CNBC`s Leslie Shaffer. Follow her on Twitter: @LeslieShaffer1

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

Five warning signs US stocks are getting too bubbly

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

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Stocks are at record highs and Wall Street is getting feverishly bullish. What could possibly go wrong?

While many analysts really don`t see much that could derail the market`s bull run between now and the end of the year there are some warning signs that investors seem to be ignoring.

“One of the biggest red flags out there is that there don`t seem to be any red flags out there,” said Paul Hickey, co-founder of Bespoke. “For every potential negative, people have a quick explanation to refute it.”

For some bulls, the debt ceiling debate and government shutdown were a blessing in disguise because they pushed back expectations for a tapering of the Federal Reserve`s easing program into next year, meaning lower Treasury yields and sunny skies for stocks. That and the seasonal high that usually drives stocks at the end of the year created a launch pad for optimism around US equities.

We found five warning signs, though analysts say they do not mean the market will necessarily change course soon.

Too bullish?

Investors may be getting a little too bullish and bearishness is fading fast from the market, a contrarian signal. The American Association of Individual Investors` (AAII) sentiment survey Thursday showed the lowest amount of pessimism about the market in 21 months, and the highest optimism in 10 months.

Bearish sentiment, or expectations stocks will decline over the next six months, fell 7.3 percentage points to 17.6 percent, the lowest reading since January, 2012. Bearish sentiment has fallen below its historic average of 30.5 percent five times in seven weeks.

Bullish sentiment rose 2.9 percentage points to 49.2, the highest level of optimism since January 24, and the fifth time in seven weeks that bullish sentiment was above its historic average of 39 percent.

AAII pointed out that this week`s reading is very similar to January, 2012. It noted bullish sentiment was above average for 15 out of 16 weeks from December 15, 2011 through March 29, 2012, and stocks rose 16 percent during that period.

Valuations stretched?

The S&P , up 22.9 percent this year, is now trading at more than 16.5 times earnings, just above the market average of 15.8.

“In the short term, the market is dramatically overbought. From that perspective, the market could flame out but who knows when and at what level,” said Peter Boockvar, chief market analyst at the Lindsay Group. “The boat is very full, and nobody sees dramatic harm for the market no matter what. On top of the market being overbought, earnings growth is two to five percent.”

Hickey said the argument in favor of rising valuations is that the low interest rate environment means stocks should have a higher valuation. “One of the most bullish arguments in favor of the market is valuation. That argument is gone now. We`re not by any means at the extreme. The SandP 500 is about average now,” he said.

Hickey said the P/E on the Russell 2000 is 31.8 times trailing earnings and SandP midcaps are trading at 22 times. “It`s a bull market. The valuation argument isn`t there anymore. Bull markets don`t typically end when you get to average valuations. The reason the (SandP P/E) average is 15 is because the average bull market valuation is much higher and the bear market valuation is much lower. ”

Momentum

Earlier in the week, momentum stocks took a sharp and sudden hit, starting with a dramatic selloff in Netflix, one of the hottest momentum names. It was later reported that investor Carl Icahn sold a big chunk of his Netflix stake. The selloff across dozens of momentum plays was broad as stops were triggered and shorts were forced to cover. It reminded some traders of the flash crash.

“I think that`s potentially a canary for the market,” said Boockvar.

He also pointed to relative strength in the Nasdaq 100. “The 7-day is now above 70,” he said, a level indicating overbought conditions. Relative strength is a momentum indicator that signals overbought and oversold conditions by comparing the magnitude of recent gains to losses.

“The NDX (Nasdaq 100) is 13.3 percent above its 200-day moving average. Anything above 10 is stretched. Probably tomorrow on Amazon and Microsoft  (which reported earnings after Thursday`s close) they`ll be very much higher,” Boockvar said. “In this kind of market you can stay stretched for longer than usual. It just tells you you`re in a high risk market.”

Bubblicious reactions and leadership

Just as momentum stocks had a temporary blowout, some big name stocks are seeing outsized gains — another warning sign, says Boockvar. Google galloped above USD 1,000 a share last week on good earnings news, while Amazon was up more than 8 percent and Microsoft more than 5 percent on earnings news after the bell Thursday. Zynga also jumped 13 percent when it reported a narrower loss.

“I get nervous when I turn on the TV, and everyone`s talking about four digit stocks and Carl Icahn is tweeting,” said Mark Newton, chief technical analyst with Greywolf Execution Partners. Icahn this past week tweeted about his sale of half his Netflix holdings and also about his letter to Apple CEO Tim Cook, seeking a stock buyback.

At the same time, some other names in tech were clobbered after they reported earnings, a warning that an important group representing growth is not seeing smooth sailing. Symantec, F-5 and Akamai were all slammed after earnings disappointments this week, and one of the biggest bombshells of the earnings season was IBM, which has held back the Dow`s gains.

“I`m a little more negative in the short run. I think stocks are showing some signs of peaking out. I expect them to pull back between now and mid-November before we get to move higher,” said Newton.

Newton said another problem is that the financials have tripped up and aren`t showing the leadership they should. Investors this week were again loading up on defensive names, particularly telecoms and utilities. That play also attracted investors hunting yield in strong dividend payers, as bond yields declined.

He also said it`s a negative that the Dow Jones Industrial Average, representing 30 blue chip stocks, is lagging and has not made the new highs seen in the SandP 500, Dow Transports and Russell.

Newton said in a note this week that 10 stocks in the SandP 500 have returned over 90 percent, and two – Best Buy and Netflix – were up more than 250 percent. Other high fliers includeMicron , Delta, Boston Scientific, Celgene and Safeway.

The S&P 500 is up 22.9 percent year-to-date. Newton said lagging sectors can pick up late in the year, and stocks like gold miners could be poised for improvement.

“Stocks like (JC Penney) JCP, (Newmont Mining) NEM, (Cliffs Natural) CLF, (Teradata) TDC, (Peabody Energy) BTU, (Abercrombie and Fitch ) ANF have all fallen shown performance of -25 percent or worse this year. Often times as we reach mid-November we begin to see signs of mean reversion where the past year`s biggest laggards start to outperform and vice versa,” he noted.

Margin buyers

Investors are piling on record debt to buy stocks at record highs , according to new data on the margin accounts of the NYSE Euronext member firms. The data shows that margin debt, used by investors to buy securities, climbed to a new record of USD 401 billion in September. That was 4.8 percent higher than the previous month.

“That`s another warning,” said Boockvar. “Prior to this cycle, it peaked in July, 2007 and before that, it peaked in March 2000 and you know what happened next.”

Whither Stocks?

None of these warning signs alone mean a big sell off is coming, but the complacency that the market will continue to rise is running high.

“It`s almost on auto pilot, and it`s interesting that they`re floating higher,” said Art Cashin, director of floor operations at UBS.

He said there are some warning signs but stocks could still go up. “It gets your antenna up, but it`s not a clear signal in itself. I think we need to get past earnings season and see what happens,” he said.

-By CNBC`s Patti Domm. Follow her on Twitter @pattidomm.

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

What bad, outdated technology is costing companies

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

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Call it a movement of sorts, but employees are increasingly ditching their company issued computers and smartphones in favor of using their own devices to get work done. One big reason: Their company’s tech is, well, terrible.

(Read more: Smashed up your computer? You’re not alone)

“They are primarily doing this because they have better technology at home. Their devices are better than what they would be given at work,” said Jennifer Bélissent, a principal analyst at Forrester who advises CIOs and vendor strategists.

In fact, over 60 percent of employees worldwide report they have used a personal device for work, according to Gartner research.

Not surprisingly, millennials are are at the forefront of the trend.

(Read more: Gen Y seeks work-life balance above all else)

“This new generation of workers has always used their personal devices in their school, and they have never been without these. So they see it as a step backward when they enter the workforce and get a heavy computer or antiquated smartphone,” said David Willis, the head of mobility and communications research for Gartner.

“Companies don’t really have a choice. These young employees are going to attempt to connect devices online whether you like it or not.”

(Read more: Gen Y managers perceived as entitled, need polish)

Adapt or die

But with BYOD on the rise, experts say employers better adapt or risk serious privacy and security issues that could hurt business.

“The big concern with these systems is data leakage,” Willis said. “It’s so easy to connect with the cloud these days, so it’s very easy to spray something out in the public that you didn’t mean to send.”

If companies don’t take steps to make sure devices employees are using are secure, they may also be exposing their network to malware, said Richard Henderson, the security strategist for the security firm Fortinet.

(Read more: US proposes minimal corporate cybersecurity standards)

On the other hand, companies could lose their most talented employees if they aren’t willing to give them better technology or allow them to use their own devices, Willis said.

“The overarching theme here is that companies need to take their heads out of the sand. This isn’t going away, it doesn’t matter how much you want it to be like 1996 again where everyone ran Windows on a Thinkpad. Those days are over,” Henderson said. “Do it or stay mediocre.”

For a long time IT departments argued that managing one type of device for all employees was much more efficient, but that is a myth and they can’t lean on that excuse anymore, Henderson said. Software has advanced so that it is now easy for IT to manage applications across different platforms, including Apple’s iOS and Google’s Android, he said.

“Pandora’s box has kind of been opened there, no matter how much they want to standardize things, they can’t. There’s no going back,” Henderson said.

The cost of BYOD

But embracing BYOD doesn’t mean allowing a free-for-all where employees can access the company network from any device as they please, Henderson said.

A company must first develop a corporate policy that enables the company some access to the employees’ device so that they can keep their network secure.

“If you are going to allow employees to use a certain device if they want to, let them use it,” Henderson said. “But you need to make them aware by allowing them to use this device on the corporate network, they have to relinquish a little bit of control to the company.”

Some of that control includes allowing the employer to install the proper VPN client software that enables the company to wipe the device clean in case it’s stolen, and an antivirus packet, Henderson said. And this means the company will have to make some investments.

According to Gartner Research, by 2016 investments in mobile apps, security, management and support will cost companies more than USD 300 per year per employee.

“There’s no such thing as a free device in this model,” Willis said. “Even if you aren’t paying for the device, employers will still need to spend to protect the devices used.”

But in the long run, BYOD can actually save companies money because they can cut the cost of paying for the wireless service, which usually averages around USD 900 per year per employee, Willis said.

If employers aren’t going to pay up to support BYOD they better be ready to pay to give their employees some better technology.

“Another option is what we call CYOD, or choose your own device. Rather than saying you have to have this particular mobile device or accept an employee bring in any device they please, employers can give their employees a reasonable list of devices to choose from. This allows for flexibility,” Bélissent said.

However, more companies will opt for BYOD, Willis said. According to Gartner research, about 38 percent of companies will be completely BYOD by 2016.

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

Germany summons US over Merkel phone-tapping claims

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

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Germany has summoned the US ambassador in Berlin to answer questions over whether America may have monitored German Chancellor Angela Merkel’s phone calls.

The issue of US surveillance in Europe looks set to dominate a summit of the European Union’s (EU) 28 leaders in Brussels later Thursday.

The meeting between German Foreign Minister Guido Westerwelle and US John B Emerson later Thursday comes a day after Merkel called President Barack Obama to demand clarification about whether her phone had been tapped. Merkel warned that such an action would amount to a ‘serious breach of trust’, according to government spokesperson Steffen Seibert.

But the White House insisted in a statement that it “is not monitoring and will not monitor” Merkel’s phone.

Read more: EU threatens to halt terrorist fund tracking deal with US

US spying a ‘slap in the face’: EU lawmaker

This is like the ‘Cold War’: Europe fumes over US spying

French President Francois Hollande has been pushing for the spying revelations to be put on the agenda when EU heads of state meet in Brussels Thursday for a two-day summit. Documents released by former NSA contractor Edward Snowden revealed that 70 million phone calls made in France over the course of 30 days were recorded, according to a report in Le Monde.

An EU Council spokesperson told CNBC that the topic was not a specific agenda item, but the government leaders will be able to take the conversation in that direction.

Meanwhile, members of the European Parliament have been in uproar in the past few months over reports in German newspaper Der Spiegel that the U.S.’s National Security Agency (NSA) bugged EU offices.

The lawmakers have staged a series of inquiries into the spying allegations. On Wednesday, they voted in favour of suspending a controversial financial data sharing agreement between the European Union (EU) and the U.S. aimed at tracking terrorists’ funds called the Terrorist Finance Tracking Program (TFTP).

This was in response to other reports that those US authorities are monitoring personal money transfer information, including bank and credit card transactions, from a Brussels-based system called SWIFT, which collates global financial transactions.

But EU home affairs Commissioner Cecilia Malmström said the EU-US data-sharing agreement would remain and that there are “no indications that the TFTP Agreement has been violated”.

The move by European politicians to question the US surveillance program is an important moment in the EU-US relationship according to a think tank.

“I think it follows an approach that the European Union has been observing in the last few months to look into the relationship between the EU and US in a very thorough way,” Paolo Balboni, scientific director at the European Privacy Association, told CNBC.

“It is more evidence that the EU is putting US surveillance under the microscope, which I think is a good approach because we need to know what is going on.”

The US has created hostility around the world with Snowden’s spying allegations, first unveiled in The Guardian newspaper.

Italian Prime Minister Enrico Letta discussed claims of US snooping with US Secretary of State John Kerry on Wednesday during talks in Rome.

Meanwhile Brazil’s President Dilma Rousseff cancelled a visit to Washington following allegations that the US intercepted her emails and messages.

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

What keeps Singapore executives up at night

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

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Industry competition, currency volatility and labor costs are the biggest bugbears for Singaporean financial executives, a survey by American Express has found.

According to the American Express Business Momentum survey, industry competition is the top challenge to business growth, with 84 percent of respondents saying it was a concern, followed by currency and interest rate volatility at 76 percent, labor costs at 67 percent and worries over the economic recovery in the West at 60 percent.

Economic growth in Asia`s tenth largest economy has been volatile recently, ranging from a 1.8 percent on-quarter rise in the first quarter, to a 15 percent jump in the second quarter and a 1 percent contraction in the third quarter, making it difficult for local businesses to plan ahead.

The sharp swings have been blamed by the export-focused economy`s dependence on international trade and financial services, and many analysts are forecasting further weakness ahead.

But despite the bleak environment, 53 percent of the respondents were optimistic on Singapore`s growth outlook over the coming year, with most expecting a modest pickup and only a minor percentage seeing a substantial rise.

However, only 42 percent said they expected improvements in the overall economy to translate through to their company`s business performance. Fifteen percent saw conditions deteriorating, with most of these more pessimistic respondents blaming either unfavorable global economic conditions or weak growth in China. The remainder said they expected conditions would stay the same.

In terms of costs, two areas that most financial executives seem to be fretting over are the cost of labor and business travel.

Fifty-seven percent said they expected an increase in labor costs over the coming months, while 37 percent expect labor costs to remain the same. This was largely due to the high turnover of staff and a shortage of manpower, which had led to demand for higher salaries to recruit and retain talent. Thirty-eight percent of respondents also said regulatory requirements like foreign wage levies would lead to higher labor costs.

A key theme which arose from the survey findings was that emerging markets were seen as an important driver of growth, particularly Indonesia, Vietnam, Malaysia and China, with 40 percent pinpointing Indonesia as the hot spot.

To adapt to this trend, around a third of companies were planning to increase travel spending for the purpose of meeting customers and vendors.

Furthermore, one third of companies said they were planning to expand in the next year, the survey found, half of which were open to using cash to fund this growth, while a quarter would borrow from banks and 19 percent would use equity financing.

The survey was designed to gauge the views of Singapore-based senior financial executives at medium-sized enterprises and was compiled via telephone interview in August.

-By CNBC`s Katie Holliday: Follow her on Twitter @hollidaykatie

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

Stop freaking out about the $13 bn JPMorgan settlement

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

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The size of the reported USD 13 billion settlement between the Justice Department and JPMorgan Chase commands awe and attention. It’s also garnering a lot of criticism.

The New York Post portrays it as a kind of bank robbery. The Wall Street Journal describes it as the government “confiscating” half of JPMorgan’s annual earnings to “appease…left-wing populist allies” of the Obama administration.

We still do not know all the details of the tentative settlement or the evidence the government has against the bank. But the initial outburst of horror at the USD 13 billion figure is very likely unwarranted and appears to be based on a fundamental misunderstanding of how damages should be assessed in cases of financial wrongdoing.

Also read: Considering the fairness of JPMorgan’s deal

In the first place, any view about the unprecedented size of the fines needs to be balanced by the unprecedented size of JPMorgan.

The bank now has USD 2.4 trillion in assets. This means there are more opportunities for legal liabilities to arise and a need for larger fines to punish wrong-doing. A fine of a few million dollars—even several hundred million dollars—barely merits a footnote in a JPMorgan earnings report.

In thinking about the size of the potential JPMorgan settlement, it’s helpful to begin with the very basics.

Fines levied by the government should aim to deter undesirable behavior without over-deterring beneficial behavior. We want to avoid outright fraud and negligence without making it impossible for banks to offer mortgage securities to investors.

Many people worry that very large settlements could permanently disrupt the mortgage market.

Extreme fines could make playing the role of issuer just too risky for banks. Or, alternatively, the cost of investigating mortgage quality and compliance with representations and warranties required by investors (and, after the fact, by regulators) may simply be more than the market can bear.

Also read: How the JPMorgan deal could curtail credit.

But this is only one side of equation.

On the other side, there are the potential investors who need to know that banks are properly incentivized to live up to the promises they make when issuing mortgage-backed securities. That there is no room for “efficient fraud” or “efficient negligence” whereby the bank makes more by fraudulent or negligent issuance than loses through fines years later.

Large fines should convince investors that the market in mortgage-backed securities is safe enough to re-enter.

In other words, if we focus on the demand side, strict enforcement of promised credit standards in mortgage-backed securities could lead to looser credit and more mortgage finance availability. Investors will know that the system can be trusted.

Ideally, the fines for the negligence claims would be high enough to incentivize future issuers to properly investigate the underlying mortgages but not so high as to make issuance prohibitive because of possible legal liabilities.

Which is to say, we’d want the fines to exceed to cost of undertaking an investigation into the loans multiplied by the odds of getting away with not investigating—and we’d want that number not to be so high that they make issuance completely uneconomical.

We do not, however, live in the ideal world. In the real world, there may be no actual middle ground on which regulators, investors and issuers can meet.

Fines large enough to convince investors that issuers will be well-behaved may be too large for issuers to bear. There may not be a market for the securitization of any but the safest mortgages.

That would mean that we either have to accept that the market for riskier-mortgages will be tighter for the foreseeable future or allow for continued subsidization of this market through government guarantees.

Instead, however, everyone seems to want to pretend that we live in the ideal world where mortgages are safe, cheap and readily available so long as everyone follows the rules.

But assuming that the admittedly shocking size of the JPMorgan settlement is a sign that regulators are over-reaching is a mistake. In a world of multi-trillion dollar banks taking in scores of billions in revenue, effective deterrence comes with a high price tag.

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

Samsung keeps it simple to overtake Apple

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

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Apple’s biggest smartphone rival, Samsung, has overtaken the Palo Alto-based company when it comes to brand simplicity, a key indicator in determining a firm’s popularity with customers and employees, according to a survey by Siegel & Gale.

The Global Brand Simplicity Index evaluates customers’ experiences with various global brands, and argues that a “simple” brand is vital for a company’s customers as well as its employees, creating a higher level of loyalty and willingness to pay from the former, and increased innovation from the latter.

The survey by Siegel & Gale interviewed 10,000 people in seven countries.

(Read more: Apple leaves Coke flat in global top brand survey)

When it comes to global ranking, Samsung is now ranked eighth, with Siegel & Gale commenting, “Its flagship product, the Android-operated Galaxy, has been stealing iPhone market share with its easy-to-use functionality and elegant design.”

The Samsung/Apple rivalry continues to heat up. Samsung recently launched a new curved smart phone in Korea, a first step for the company’s flexible screen technology that will grace smartwatches and fitness trackers.

Apple meanwhile showed off its new iPad Air and iPad Mini on Tuesday. The new iPad Air weighs only one pound and is 20 percent thinner than its predecessor.

(Read more: Apple reveals new iPad Air, iPad Mini)

Elsewhere in the Global Brand Simplicity Index, European-based supermarket retailer ALDI was ranked first, with Siegel & Gale praising the budget store for focusing on the essentials in its market. It was “trusted by consumers to always deliver the best value and the right amount of product choice.”

ALDI’s no-frills mastery contrasted with Ryanair, which was labeled the least simple global brand, due to its reputation as being “intentionally deceitful in its promises and pricing.”

Ryanair CEO Michael O’Leary came under fire last year in the UK after a mother of two paid around USD 380 at the airport to print off her family’s boarding passes due to a “hidden” Ryanair rule that charges passengers who don’t print off their own tickets.

(Read more: Ryanair CEO: ‘Stupid’ passengers deserve fees)

A respondent for the Siegel & Gale survey described Ryanair’s customer experience as a “minefield.”

Joining ALDI and Samsung in the top ten global brands were Amazon (2), Google (3) and McDonalds (4), with the latter being praised for an accessible menu, transparent pricing and clear, concise messaging. “As concerns about obesity rise, McDonald’s is moving forward with redesigned packaging to include QR codes linked to nutritional information,” the survey noted.

Back down at the bottom with Ryanair was another budget airline, Easyjet, again due to extra costs and surcharges.

(View slideshow: Rising smartphone stars look to outshine Apple)

While Google is ranked third in the list, Google Plus, the social network side of the Internet behemoth, is ranked at number 83.

“Turns out Google Plus is more of a negative than positive—the opposite of the elegant simplicity for which Google is known,” the report stated.”Circles and Hangouts have brought clutter and confusion, and failed to lure users away from social network titan Facebook.”

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ECB’s Draghi: New bank stress tests ‘just the beginning’

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

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The mistakes made by Europe’s banks – and the damage they caused to the euro zone economy – must never be repeated, Mario Dragi, President of European Central Bank (ECB) told CNBC on Wednesday.

He said the latest round of stress tests for banks were ‘just a beginning’ in ensuring the financial sector was on a stronger footing and would not jeopardize government finances again.

“What’s been done in the past must not be repeated again…Things have improved in the banking industry but no, this is not a final point. It’s just a beginning of a new way of doing things,” he said in an interview with CNBC.

“I insist that the primary objective of this exercise is transparency.”

Read more: ECB sets tests to strengthen Europe’s banks

Spain to ‘come out on top’ in stress tests

Germany blamed for banking reform delays

His comments came after the ECB unveiled Wednesday the tough criteria for its stress tests of the euro zone’s banks, designed to analyze lenders’ ability to withstand adverse economic conditions.

The region’s 128 most important banks will undergo an assessment of their risky assets, the quality of their balance sheets, and the amount of capital they hold. These news regulations – which included tougher requirements than some analysts had forecast — caused banking stocks in Europe to fall by over 1 percent on Wednesday.

Draghi said it the ECB was working to “make sure that banks have clean balance sheets that have enough capital.”

“Ultimately the private sector finds it convenient to put money into this industry. That’s the key issue and if this objective is reached, we would not have to worry about them deleveraging.”

Europe’s banks have been at the heart of the euro zone’s financial crisis, after taking on too much debt which turned toxic when borrowers struggled with their repayments. A number of European governments were forced to step in and rescue their struggling institutions – deemed in many cases “too big to fail” – which in turn hit the solvency of these already debt-laden countries.

As such, Draghi said that restoring the health of Europe’s banks was critical to Europe’s “fragile” recovery.

“Let me say that the recovery is still in it’s infancy. It’s gradually progressing but it’s still weak, uneven, and fragile,” he said.

“Banks are crucial in this part of the world and they are the main source of credit for small and medium sized firms. That’s why it’s so important that we make everything that is needed for them to function well.”

The central bank chief also said he was confident that national safety nets – or backstops – were in place to plug any gaps exposed by the stress tests.

“Let me reassure you about the backstops,” he said. “The transparency, the strength of the design of this exercise, the coverage of this exercise should by itself make the leaders reassured that taxpayers money, if needed – and we all hope it’s not going to be needed – is going to be properly used.”

To take the burden of rescuing banks off the shoulders of governments, European leaders agreed to create a system that would move supervision of the financial sector to a European level, and the bank stress tests are seen as an important step towards this “banking union”.

The ECB said it would conclude its review of the banks in October next year, before taking over as the region’s banking watchdog – under the “Single Supervisory Mechanism”  in November 2014.

Europe’s banking union will also feature a common deposit insurance scheme to protect individual savings, and the creation of a single authority with the power to wind down struggling euro zone banks — although this is being opposed by Germany.

The UK’s Prime Minister David Cameron has also expressed skepticism over some aspects of a pan-European banking union ahead of a referendum on membership of the European Union in 2017. But Draghi said he was convinced that Britain should remain a member of the 28-member union.

“I’m absolutely convinced that the UK should stay in the Union, not only for its size and might of the financial sector, but for its history for what the UK is for Europe,” he said. “And as I had a chance to say in a speech in London, we need a more British Europe and more European Britain.”

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