Month: September 2014

Beware: Wild cards to watch for in 2015

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

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On top of the threat of the US Federal Reserve tightening the screws, the risk of another recession in Europe and a stumbling recovery in Japan, there are a deck of “wild cards” that could trip up the global economy in the coming year, experts warned at the World Economic Forum (WEF) in Tianjin, China.

CNBC shuffles through the pack to see what the world should look out for in 2015.

Global pandemic

A major, under-appreciated risk to the world economy is infectious diseases, says Victor Chu, chairman of Hong Kong based private equity firm First Eastern Investment Group.

“We’re not prepared for another major outbreak of Ebola, SARS or another infectious disease,” Chu told CNBC on the sidelines of WEF in Tianjin, China.

“We need a new global governance structure to allow more experimental drugs to be distributed a lot more quickly than existing arrangements because you don’t know what’s next. Ebola is scary, but the next variation will be scarier,” he added.

Ebola – which was declared an international public health emergency early last month – is already having a serious economic impact on the economies of Guinea, Liberia and Sierra Leone in West Africa, where the outbreak is occurring.

The closure of borders and suspension of flights has begun to hinder trade flows in the region, while tourism is also taking a severe hit.

Sanction tensions

Russian Deputy Prime Minister Arkady Dvorkovich also cited deadly diseases as a potential threat to the world economy, but added that a potential escalation of sanctions on the back of the Ukraine crisis also poses a risk.

“These are couple of things that could turn out to be bad next year, epidemic diseases that could again switch off trade and the movement of people. Or something related to the Ukrainian crisis, like a new round of sanctions may be bring an extra negative to the world economy,” he said.

Concerns around a trade war between Russia, which has been hit with successive sanctions since the crisis in Ukraine erupted back in March, and the West have intensified. In retaliation to its penalties, Moscow recently slapped import bans on a range of European and American agricultural and food products last month and threatened possible sanctions on aerospace, shipbuilding and auto sectors.

China crisis?

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University named uncertainty around the outlook for China as a potential swing factor for the global economy .

“We are sitting in one of them,” Rogoff said when asked what he thought a wild card risk for the global economy in 2015 was.

He added that if China did slow down “more dramatically than people expect, that would be very difficult. The slowdown would be a policy decision to try and slow things down that gets out of hand.”

The slowdown of China’s property market, fast growing corporate debt and rising non-performing loans in the banking sector have raised concerns about the country’s financial stability.

Helping to quell some fears about the trajectory for the mainland economy, Chinese Premier Li Keqiang said during his opening plenary that structural reforms are improving the quality of the country’s economic growth and helping reduce the risk of a hard landing.

The demand’s just not there…

International Monetary Fund Deputy Managing Director Zhu Min pointed to a lack of aggregate demand – or the total demand for final goods and services – in the global economy as a key threat.

“The lack of aggregate demand is the main concern, particularly in advanced economies. They are out of recession but growth is still moderate, so they need aggregate demand,” said Zhu.

However, judging by its latest World Economic Outlook update published in July, the IMF expects relatively smooth sailing ahead. It expects the global economic output to grow 4.0 percent in 2015, up from an estimated 3.4 percent this year, helped by stronger growth in some advanced economies.

Staying on growth, Ashraf Salman, Egypt’s Minister of Investment says what he fears most is that the recovery in the world economy falls off track next year.

“I’m worried about a slowdown in global GDP (gross domestic product) growth which will definitely have an impact of unemployment and cross trade business across the world,” he said.

“I’m not sure how long the global economy can continue on a slow rate of GDP growth and high rate of unemployment,” he added.

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

Iron ore glut: Are shutdowns the only way out?

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

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Spot iron ore prices are at their lowest level since September 2009 amid a flood of excess inventory and waning demand from China, the world`s largest iron ore consumer, and experts say small mine closures may be the only catalyst for higher prices.

“A large share of what is currently produced occurs at a marginal cost that is around the current spot price. If the price falls further, production is likely to be cut back, which would, in turn, limit supply on the market,” sending prices higher, HSBC economists said in a report published Wednesday.

Rio Tinto CEO Sam Walsh echoed that view this week, saying the firm expects global iron ore capacity to fall by 125 million tons, or 10 percent, this year, Reuters reported.

Indeed, there have been several mine closures in China, home to majority of the world`s lower-grade producers. As of June, 20 to 30 percent of domestic mines have been idle, according to the China Metallurgical Mining Enterprise Association.

“As the cost curve rises, it will take lower quality suppliers out of the market, leaving only prominent producers,” Stan Shamu, market strategist at IG, told CNBC.

But how many closures needed for the market to balance out remains unclear: “In China, you might never know. It`s a socialist market economy, the government decides,` said Jonathan Barratt, founder of Barratt`s Bulletin.

Not just China

Australian miners are also at risk of being pushed out of the market.

Most recently, junior iron ore producer Western Desert Resources decided to go into voluntary administration – an insolvency procedure where the directors of a financially troubled company appoint an external administrator – after failing to renegotiate funding from Macquarie for its Roper Bar project in the country`s Northern Territory.

Australia doesn`t have as many low-cost miners as China due to their higher breakeven levels and lower economies of scale, according to IG`s Shamu. Breakeven levels are unsustainable for small miners due to high costs, making it hard to survive, he said.

Shares of second-tier Australian miners have been particularly hard hit; Mount Gibson and BC Iron are down 3 and 6 percent, respectively, for the week.

“Look at the balance sheet of Fortescue. They are starting to hurt if prices remain below USD 80. It`s not just China, soon even Australian producers will start to have issues and they`re highly leveraged,” Barratt said.

Price rebound

Once more small mines close, prices are expected to recover.

“While sentiment remains fragile, the general consensus is that we will reach the $90 mark by year-end and see stability return,” Shamu said.

Brazilian mining company Vale was equally optimistic; CEO and President Murilo Ferreira expects prices to reach USD 95-USD 100 before year-end, he told the Nikkei newspaper on Tuesday.

Meanwhile, HSBC expects prices to average USD 109 per ton over 2014 and rise to USD 105 by 2015.

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

Is Minecraft Microsoft’s winning ticket in mobile?

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

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Microsoft`s potential purchase of Mojang, the Swedish company behind the popular block-building video game Minecraft, may not be a big deal financially, but it could be the winning ticket to expanding its mobile business, analysts said.

The US tech giant is in discussions to buy Mojang for an estimated USD 2 billion, The Wall Street Journal reported earlier this week, a deal analysts don`t expect to impact Microsoft`s profits given that it`s roughly 2 percent of Microsoft`s USD 86 billion cash hoard as of the end of June.

“This is pocket change for Microsoft; they spend more than that in their quarterly dividend. It`s a move that gets headlines but in terms of its impact on Microsoft`s top-line or bottom-line, it`s going to be minor,” said Charles Sizemore, CIO at Sizemore Capital Management.

In 2013, Mojang had total revenue of around USD 330 million and profits of USD 128 million; Minecraft makes up 90 percent of Mojang`s revenues.

Business opportunities

With a 100 million registered users worldwide as of February 2014 and strong profitability, Minecraft could be an opportunity for Microsoft to leverage its mobile and software businesses, Norman Young, senior equity analyst at Morningstar, told CNBC on Thursday.

“It`s a strong signal that Microsoft is pretty invested in mobile strategy and the Windows Phone. They want to be able to offer different games and strategies across different platforms even if they are not the platform. The IP (intellectual property) side of this equation is very important, the fact that this is a gaming platform that can be played on Android, IOS, PCs and different consoles,” Young said.

“They may be overpaying but if they`re smart about it, it`s not just the videogame, it`s leveraging the IP behind the game,” he added.

The deal would be Microsoft`s first multibillion-dollar acquisition since new chief executive Satya Nadella took over earlier this year.

Microsoft made it clear to investors that mobile remains a priority after completing the acquisition of Nokia`s mobile phone business in April.

“We believe the potential acquisition of the ubiquitous Minecraft game (almost 54 million copies sold), would strategically make sense as the company looks for ways to drive users toward its nascent mobile hardware business, where it can leverage and cross-sell a wide range of its higher-margin software,” said Daniel Ives, analyst at FBR Capital Markets, in a report on Thursday.

Mobile versus cloud

But not everyone is convinced; some experts believe the acquisition would go against Microsoft`s concentration on cloud services.

“What`s interesting to me is that Nadella, when he took over Microsoft, said he wanted to make Microsoft first and foremost a cloud and business services company. He really downplayed videogames and here, he seems like he`s doing an about face by making a high profile purchase,” said Charles Sizemore, CIO at Sizemore Capital Management.

In March, Nadella presented his “Mobile First, Cloud First” strategy, focused on developing cloud-enabled software to be deployable on mobile devices.

“My question is: what is his plan? It has to be bigger than just buying this videogame. Is Microsoft planning to turn this into a big franchise? Are they planning to make this the Lego of videogames? I`d like to see more information. Right now, in a vacuum, it does raise a lot of questions,” Sizemore said.

According to FBR Capital Markets, the deal would enable Microsoft to “remain laser-focused on strategic growth areas (cloud/mobile) going forward and continue to capitalize on current momentum from Azure and Office 365 offerings.”

FBR currently has an Outperform rating on the stock.

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

Big screens – key to selling more iPhones in China?

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

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Apple`s share in China`s burgeoning smartphone market faces increasing competition from local players, but a trend towards large-screen phones could give the tech giant a boost, according to IDC.

On Tuesday, unveiled its latest offerings – the iPhone 6 and iPhone 6 Plus, which respectively have 4.7 inch and 5.5 inch screens – far larger than the current 4-inch iPhone 5s.

Apple will tap a growing preference for large-screen smartphones in China, IDC said in a report.

“There is a higher proportion of the younger generations (generation Y and X) [in the population]. The way they use smartphones is different, the percentage using voice is a lot smaller and they tend to use text more, watch video, play games or even buy things… so naturally they`d like to use a bigger-screen phone,” said Kitty Fok, China managing director at IDC.

In 2013, over 20 percent of China`s smartphone market owned larger-screen phones – those with 5 to 7-inch screens – and IDC expects this to increase.

Also read: Fashion world divided on first look at Apple Watch

Demand from China`s lower-tier cities is also driving demand for large-screened smartphones, Fok said. Users in more mature markets located in the tier-1 and 3 cities tend to own both a smartphone and a computer, Fok said, but users in tier-4 and 6 cities tend to have one device for all of their digital needs.

Cities in China are divided up into tiers to reflect population size, development of services and infrastructure, economic size and the cosmopolitan nature of the city. Cities in the higher tiers, such as Shanghai, a tier 1 city, tend to be more developed than a lower tier city like Fushun, a tier 4 city, for example.

“In tier 4-6 cities in China, without full popularization of PCs and tablets, smartphones are often the only devices for people to keep daily connection and entertainment, so bigger screen is more attractive,” she added.

But in terms of affordability, Apple may struggle to compete with local players offering larger screens.

Local smartphone makers in China such as Xiamoi provide a wider variety of larger-screened phones at more affordable prices than international brands, IDC said, catering directly to this market segment.

These local players are reaping the benefits. Domestic player Xiaomi became the leading smartphone vendor in China in the second quarter with a 14 percent market share, knocking Samsung from the top position, according to a report from market research firm Canalys. Samsung had a 12 percent market share, while Apple`s was 6 percent.

Despite increasing competition, Apple has a loyal customer base in China, said IDC`s Fok, who estimates there to be around 50 million iPhone users in China.

The iphone 6 launch could prove perfect timing, she said, especially with its Chinese customer base on the cusp of a “replacement wave.”

“The customer base for Apple is there, so we are expecting a replacement market for the existing Apple user,” said Fok.

“If the new iPhone 6 is going to be on a big screen size option, it is likely to keep the current Apple users, as the users already familiar with the user interface and Apps…The screen size is really one thing which is missing for Apple users in China at the moment,” she said.

Globally, Samsung remained the world`s largest smartphone provider in Q2 with 26 percent market share, ahead of Apple`s 12 percent, Huawei`s 7 percent. Lenovo and Xiaomi both had 5 percent shares.

Earlier this month, Samsung launched the 5.6-inch Galaxy Note Edge and the 5.7-inch Galaxy Note 4.

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

Reprieve for Sterling, but will it last?

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

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Sterling rebounded mid-week as the likelihood of Scotland leaving the United Kingdom began to fade but could see further volatility before the official vote, analysts told CNBC.

A YouGov poll for the Sunday Times published over the weekend showed that the pro-independence `Yes` vote had garnered 51 percent of support, sending the pound spiraling to a 10-month low of USD 1.6050 on Tuesday.

However, the currency rebounded to USD 1.6190 in Asia early Thursday, as a spate of fresh polls indicated a `No` vote is back in favor.

“We continue to believe that when push comes to shove on September 18, the majority in Scotland will vote to remain part of the UK. The speed and velocity of the intraday rebound in GBP/USD suggests that many sterling traders share our view,” said Kathy Lien, managing director at BK Asset Management.

On September 18 Scottish citizens will vote on whether they would like to be independent from the United Kingdom. A vote to break away would lead to negotiations on whether Scotland keeps the pound as its currency, threatening the monetary union.

Questionable poll results

Although poll results have triggered strong currency reactions, their validity is questionable. A Suvation poll for the Daily Record published Wednesday showed the `No` vote was at 53 percent when discounting the 10 percent of people that haven`t made up their mind, giving the pro-UK campaign a six point lead and contradicting the YouGov poll.

“UK polls are notoriously unreliable, especially about such binary issues as independence with voters saying one thing but often doing the opposite in the privacy of the booth,” BK said in a note.

Meanwhile, UK online betting firm Betfair said the probability of a `No` vote remains at 70 percent with 2-5 odds across the board.

“There`s a lot of risk premium in cable at the moment because the stakes are so high, but most investors seem to be ruling out a worst case scenario of a `Yes` vote scenario,” said Sean Callow, senior currency strategist at Westpac.

“I would expect some volatility next week, but we could see a relief rally if we do get a `No` vote,” he added.

After the referendum

Beyond the vote, Callow expects the pound to linger in the low $1.60s before slipping to $1.58 by year-end.

“Sterling is more attractive than the euro  and the yen , but it`s not as competitive against the US dollar, and as long as those [US] rate hike expectations keep creeping up the greenback is going to thrive,” he said.

The dollar has rallied in the past few months as investors price in rate-hike expectations. Next week`s Federal Reserve policy statement will be watched closely for any change in language that could signal a near-term rate hike.

According to Lien, once the referendum has passed, investors should refocus on interest rate expectations, which have been the sterling`s primary driver recently.

On Wednesday, Bank of England Governor (BOE) Mark Carney said “the point where rates need to rise has moved closer,” with BOE members signaling a potential hike next spring.

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

Apple Pay in Asia? Don’t put your money on it

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

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Apple’s new mobile payment system is to set to take the US e-commerce sector by storm but its launch in Asia remains far off, analysts said.

“Apple Pay will probably take at least four years to arrive in Asia,” said Ryan Huang, market strategist at IG in Singapore. Seeing as iTunes was only launched in Asia in 2012, nine years after its US debut, expectations aren’t high for an Asia expansion, he told CNBC in a phone interview.

Late on Tuesday, Apple unveiled a suite of new devices and a payment system called Apple Pay . The platform utilizes near-field-communication (NFC) and will be built into the iPhone 6 and iPhone 6 Plus to store debit and credit card information.

Asia’s cultural mindset towards NFC technology is a key challenge to Apple Pay’s expansion in the region, IG’s Huang said.

Read More Fashion world divided on first look at Apple Watch

“The region has dealt with NFC for a number of years, and it’s been a lackluster takeoff so far. The biggest hurdle is standards. Telecom firms took a long time to collaborate and have only just started to work together. For a long time, there was just one telecom working with Mastercard and another with Visa. It will take a long time for Apple to try and get a pipeline of retailers in Asia to get on board,” he added.

On top of that, consumers need to foot the cost of an NFC-enabled sim card in most Asian countries. “Some cities like Hong Kong are embracing subsidized options, which will be a key driver for NFC growth in the future,” Huang said.

Content concerns

The move comes as more Asian users complain of not receiving enough content from Apple’s content provider, iTunes. Users that open an iTunes account in Asia often don’t get access to the same content as their American peers.

Varying content is a major drawback for the tech giant as it tries to ramp up its presence in the region, Bradley Gastwirth, chief executive officer of ABR Investment Strategy told CNBC on Wednesday.

“It’s very important for Apple to be successful in the Far East, it’s a major part of their growth initiative. Are they going to be successful? It remains to be seen,” he said.

Earlier this year, Apple announced a partnership with China Mobile, the world’s largest mobile operator, to sell iPhones to the network’s estimates 760 million subscribers.

However, not everyone is pessimistic. IHS Technology expects Apple to extend Apple Pay internationally as soon as possible.

“Apple’s product strategy is globally focused and as a result keeps variation in products, models and services to a minimum in order to maximize global-scale economies. Even when it launches in one country first, Apple ensures its product design is suited to selling worldwide as soon as Apple has overcome launch hurdles,” said Jonathan Cassell, senior manager, editorial, in a note.

Content rights, regulatory barriers and securing partnerships and distribution are key reasons for US-only Apple product launches, Cassell said, noting that Apple made 2013’s iPhone models available in over 60 countries within six weeks of its US launch.

Competition for Alibaba?

Experts don’t anticipate much competition for Alibaba’s payments platform, Alipay, already the largest mobile payments processor in the world.

“Apple and Alibaba have different markets. Alibaba will do well in China and Chinese e-commerce and Apple will do better in North America given their massive install base on iTunes,” said Gastwirth.

Read More Mega-IPO to rekindle ‘bromance’ behind Alibaba’s rise

IG’s Huang agreed, saying that AliPay operates in an “enclosed loop.” It’s very dominant in China and thus will be largely insulated from Apple due to regulatory hurdles, he said.

While Alipay is targeted towards Chinese consumers, it’s looking to bring online shopping opportunities outside of the mainland to its users.

In Taiwan, the service has teamed up with a department store to accept payments made by Chinese tourists using the Alipay Wallet app while Singaporean hotel Resorts World Sentosa has become the first vacation sport outside of China to accept Alipay. Most recently, the service partnered with US payments firm Stripe to allow Chinese shoppers tap into US and European businesses.”

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

Should investors brace for another EM sell-off?

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

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Recent weakness in emerging market currencies has sparked worries that they could face a bout of pain reminiscent of last year’s sell-off, analysts told CNBC.

“Everything seems to be going against emerging market currencies right now,” Nizam Idris, currency analyst at Macquarie told CNBC, highlighting a number of headwinds including U.S. dollar strength, China growth worries and structural issues.

Ratings agency Moody’s put Brazil’s credit rating on negative watch on Tuesday citing tepid economic activity, deteriorating government accounts and declining investor confidence, triggering a sell-off across Latin American currencies. Concerns about U.S. interest rates exacerbated the decline; both the Brazilian real and the Colombian peso have lost around 2 percent against the dollar since Monday.

Read More China to become largest economy by 2024

“The Brazilian real, Colombian peso and Chilean peso all got smashed – I think it sends a message that emerging market and commodity currency rating is probably at the end of that up-cycle,” Idris said.

Dollar strength

Most currencies weakened against the US dollar early this week after research published by the San Francisco Fed on Monday indicated that investors expect the Federal Reserve to keep interest rates lower for longer, and to raise them more slowly, than the makers of U.S. monetary policy themselves expect.

“Overall if we do get a scenario where the dollar strengthens more broadly – and we do see that – then it will be pretty hard for most EM currencies to remain resilient… But we don’t see as an aggressive sell-off as we saw last year,” said Dominic Bunning, currency strategist at HSBC.

“The fact that we are seeing this in countries like Brazil is an indication that some of the broader pressures are building on emerging market currencies because of what’s happening in the external picture,” he added.

Read More Emerging markets: The risks markets may be missing

 The China factor

“The second part of the argument for weaker EM is probably China,” Idris said, noting the debate about whether China faces a hard landing will likely continue.

Investors remain concerned about slowing growth in the world’s second-largest economy after gross domestic product growth slowed to 7.4 percent on year in the first quarter. Despite above-view growth of 7.5 percent in the second quarter mixed data on the manufacturing sector, industrial output and retail sales have raised speculation about potential stimulus from the Chinese central bank.

“If we do get weak data out of China, then commodity prices and currencies will come under pressure,” Idris added.

Idris told CNBC Dollar strength has been the main driver of EM currency weakness thus far but said we could soon see a shift to domestic fundamentals meaning there will be more differentiation in the currency moves. He noted that the Malaysian ringgit, New Zealand dollar and Indonesian rupiah would likely come under greater pressure.

Read More Are emerging market equities finally catching up?

Asia vs Latin America

Asian currencies could fare better than their Latin American equivalents in the event of a broader sell-off, Bunning said.

“For a lot of Asian currencies interest rate differentials are a lot higher than they were in the last Fed rate hiking cycle in 2004, whereas in Latin America the interest rate differentials aren’t as positive as they were in the past, so that’s one aspect that favors Asian currencies versus some others in emerging markets,” he added.

Bunning also said that the dynamics of many Asian emerging market economies have shifted somewhat over the past year, relative to where they were during the time of last year’s taper tantrum induced sell-off.

Fundamentals in India, for instance, have improved due to increased foreign direct investment and a narrower current account deficit, Bunning said. Thus a repeat of the Indian rupee’s 26 percent decline against the U.S. dollar last year is unlikely.

Conversely, some emerging market currencies which weren’t as vulnerable last year have become more vulnerable, he said, highlighting the Malaysian ringgit due to the country’s smaller current account surplus on a historical basis.

Indonesia’s rupiah, which was hit hard last year, remains vulnerable due to the country’s widening current account deficit, while the Philippine peso and Thai baht are still vulnerable but to a lesser degree, he added.

Read More Calls to scoop up emerging market assets grow louder

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 low will yen go? Depends on the dollar

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

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The resurgent US dollar has trumped most major currencies in its march higher, not least the Japanese yen, whose recent slide against the greenback is raising policymakers` eyebrows.

Dollar-yen spiked to a six-year high this week, touching a high of 106.46 on Tuesday. The move triggered warnings by Finance Minister Taro Aso and Economics Minister Akira Amari, who cautioned that further sharp declines in the currency are not desirable.

The yen`s near-term outlook hinges on the direction of the US dollar, say analysts, who expect further downside in the Japanese currency.

“The US dollar index  is approaching early 2013 highs, a break of which would see it trade at its highest since 2010. Japan has perhaps been the biggest beneficiary of this,” said Stan Shamu, market strategist at IG.

The greenback has stormed higher on a strengthening American economy and the prospect of higher US interest rates as the Federal Reserve unwinds its easy monetary policy.

“The US is recovering – the question is the pace, and not the direction,” added Callum Henderson, global head of FX research at Standard Chartered.

By contrast, the yen – which has hovered around the 102 level against the dollar for much of this year – saw a pronounced sell-off in the last month, falling over 4 percent against the greenback.

According to Emma Lawson, senior currency strategist at the National Australia Bank, the yen has also been hampered by soft economic data and increasing chatter than the Bank of Japan  (BoJ) may step in with more stimulus to support the economy.

“The yen is an under-performer due to the increased risk of more QQE (quantitative and qualitative easing) from the BoJ, the relative under-performance of the economy and the structural deterioration in the external accounts,” said Lawson, who has a year-end dollar-yen target of 108.

While a weak currency is generally positive for an economy like Japan that relies heavily on exports, the soft yen has yet to boost exports in a big way. Exports rose for the first time in three months in July, but it`s unclear if the momentum will continue as Japanese companies have been slow to expand their businesses.

There are also concerns a weak yen would be counterproductive for corporate Japan as it raises the import costs of fuel and raw materials, although most analysts aren`t too worried at this point.

“A weakening of the currency takes time to work through the economy, but it will be welcomed. The authorities have already warned on sharp moves in the currency – they prefer a weaker yen but not volatile changes. These are typical comments,” said Lawson.

On a technical basis, Stanchart`s Henderson says the dollar-yen`s steady climb this year signals further gains to come.

“Our forecast for the year end is 106 but certainly there is risk to the upside to that,” said Stanchart`s Henderson. “What`s impressive about this rise in dollar-yen is the very gradual nature of it. Typically, when you see the end of the trend, you see accelerated gains. We haven`t seen that yet.”

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

Is JD.com a better buy than Alibaba?

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

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As Chinese internet behemoth Alibaba prepares to list on the New York stock exchange later this month in what is set to be the largest initial public offering in US history, some analysts argue that its main rival JD.com could offer a better bet.

“We prefer the business model of JD.com,” Jeff Dorr, equity analyst at J Capital Research, told CNBC Asia`s ” The Rundown .” “We just feel that with an 80 percent market share [in China] for Alibaba at this stage they can really only grow in line with the market… and with JD.com having 20 percent share we feel that over time there`s room for JD.com to take share and capture greater growth.”

Alibaba`s IPO has been the subject of much anticipation this year, with many analysts viewing the company as an ideal way to tap into China`s fast-expanding e-commerce sector.

On Friday Alibaba – which offers its customers a platform to shop online, sell unwanted goods and make online payments – said it expects to price its IPO between USD 60 and USD 66 per share to raise as much as USD 24.3 billion. At  USD 66 per share Alibaba would be valued at USD 163 billion.

Bumper second-quarter earnings have also helped the company`s investment case. Sales in the second quarter rose 46 percent to USD 2.54 billion, and net income nearly tripled to USD 1.99 billion from the year prior.

JD.com, the second largest e-commerce firm in China, carried out its IPO in May, raising USD 1.78 billion. Its share price has since risen around 70 percent. Its second-quarter earnings weren`t quite as encouraging – its net loss widened to 582.5 million yuan (USD 93.9 million) in the quarter ended June 30.

According to Shiv Putcha, associate director with IDC`s Asia/Pacific Consumer Mobility and Social Consumer Research team, JD.com still represents a more attractive investment despite the second-quarter blip, predominantly because of its backing by Chinese internet giant Tencent  who own an 18 percent stake in the firm.

TenCent owns WeChat – China`s largest messaging app – and plans to link its 355 million users to JD.com through an exclusive shopping channel only available on the messaging application.

“JD is much stronger today on the mobile side through its integration with Tencent and WeChat. Obviously Alibaba is the biggest e-commerce company in China, but it has been lagging Tencent in mobile because of WeChat,” Putcha told CNBC.

“Alibaba`s strength is on the traditional e-commerce side in terms of logistics etc. But if you`re trying to get traction in mobile what you really need is skill but what they have if the online world isn`t quite replicated in mobile… they have a lot of work to do,” he added.

J Capital Research`s Dorr said he also had concerns over Alibaba`s ability to crack the US market. “In the US competition is a bit stiffer than it is in other emerging markets, with Amazon  and eBay firmly entrenched. I do expect that Alibaba will have a more difficult time getting into the US market,” he said.

IDC`s Putcha agreed: “It will be a massive IPO but I don`t see it as an automatic success. They are going into markets with well-established players. The most challenging part will be the execution on the ground, and they are trying to develop their presence in these markets through acquisitions. But these things take time, they will not be a market leader within a year.”

Not all analysts CNBC spoke to saw JD.com as a more attractive investment, however.

“There are a couple of factors working in Alibaba`s favor,” said Ryan Huang, market strategist at IG. “Unlike Alibaba, JD.com has a different business model, where it holds inventory in warehouses – akin to Amazon… Alibaba functions more as a market place listing, so it holds less inventory risk. This is also one reason behind the gap in their profit margins.”

“For the latest quarter ended June, Alibaba`s profit margin was above 40 percent, compared to JD.com`s which was 2 percent. Between the two, an investor looking to bet on China`s e-commerce boom story is likely to find more comfort in Alibaba`s fundamentals,” he added.

Copyright 2011 cnbc.com

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

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

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

A sugar rush may be coming, traders say

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

Listen to the Article (6 Minutes)

Cutbacks in the world`s largest sugar producer could end a multi-year supply glut, sending prices higher next year, according to traders.

Brazilian producers, who accounted for over 40 percent of sugar exports last season according to the US State Department of Agriculture, are closing mills and reducing sugarcane investments following four straight seasons of excess production, sparking bullish calls on the sweetener.

“We reiterate our view that production shortfalls could cause consumption to exceed production in the coming season, leading to a drawdown in inventories built up over the past four years,” Abah Ofon, agricultural commodities research at Standard Chartered told CNBC on Monday.

To boot, sugarcane industry group Unica slashed its 2014-15 output forecast in the country`s Centre South region, which accounts for nearly 90 percent of domestic production, by 1.1 million tons as a result of a drought earlier this year.

Calls for a recovery in sugar prices come even as the overall market mood remains bearish. On Monday, prices fell to a fresh seven-month low of 14.93 cents, well below the 100 day moving average of 17.38. Over the past two weeks, sugar has fallen over 2 percent and is down nearly 9 percent year to date.

In August, the International Sugar Organization (ISO) forecast extended price weakness and a 1.3 million ton production surplus for the year starting in October.

“The ISO believes that, even with the small forecast surplus, global fundamentals are unlikely to support a rise in market values from current values,” the organization said in a report, warning that consumption must outpace supply by at least 3 million tons in order for prices to recover.

Still, the organization noted Brazil`s worsening prospects, forecasting overall output to drop nearly 2 percent next season.

Standard Chartered says the trend in sugar futures justifies its bullish stance: “The futures curve is actually trading in contango, so the market is expecting prices to head higher as we move into next year,” Ofon continued.

The bank is long on sugar`s March 2015 contract and forecasts prices to rise above 18 U.S. cents a pound by year-end.

Recent data support the optimistic mood. In the week to last Tuesday, speculators trimmed net short positions in white sugar options on NYSE Liffe by 117 lots, according to the exchange.

Will prices hit companies?

Higher sugar prices are unlikely to hit food producers, experts say.

“Even with higher prices, there will still be a lot of supply in the market. Of course, companies may hike their prices a little but it won`t be a situation where there`s an outright sugar deficit. The market will just change to a buyer`s market form seller`s market,” said Avtar Sandhu, senior manager of commodities at Phillip Futures.

Phillips expects sugar to hit 19 cents on average in 2015, despite the threat of a stronger dollar amid speculation of higher US interest rates next year. Commodities that have bearish fundamentals will be hit by a strengthening greenback. If sugar`s fundamentals change, it won`t be impacted as much, Sandhu explained.

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