Month: December 2014

Japan underperforms after mixed bag of economic data

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

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Asian bourses largely rose amid thin post-Christmas trading, as markets in Australia, Hong Kong, Indonesia and the Philippines remain shut. With Wall Street closed for the holiday season as well, attention was on a flurry of monthly indicators released by Japan ahead of trade opening.

For the month of November, Japan’s industrial output posted a surprise drop, while inflation continued to slow, offering fresh signs that efforts to resuscitate the country’s stalled economy aren’t proceeding smoothly.

Manufacturing fell 0.6 percent on-month in November, compared with a Reuters poll forecasting a 0.8 percent rise and October’s 0.4 percent rise. Meanwhile, core inflation, which includes energy but not fresh food, rose 2.7 percent on-year in November, in line with expectations from a Reuters poll, but marked the fourth straight month of declines.

Once the effects of an April sales tax hike are stripped out, core inflation was 0.7 percent in the month, slowing from October’s 0.9 percent and well below the 2 percent inflation target set by the Bank of Japan (BOJ).

Nikkei slips 0.2 percent

On the final trading day of the week, Japanese shares were lackluster following the release of a mixed bag of economic data. The benchmark Nikkei 225 index extended Thursday’s losses to inch down 0.2 percent, as the yen dropped modestly against the greenback to trade at 120.21. Meanwhile, the broader Topix was little moved.

Exporters languished as a stronger currency weighed. Canon was the biggest loser, plunging more than 3 percent while Honda and Nikon slumped 1.5 and 0.6 percent each.

Large-caps traded mixed; Fast Retailing, owner of clothes brand Uniqlo, lost 0.7 percent and Softbank crept up 0.2 percent.

Sumitomo Mitsui Financial Group halved gains to 0.6 percent by 0925 SIN/HK, after one of its units, Sumitomo Mitsui Banking (SMBC), announced that it would be buying Citigroup’s Japanese retail banking business for about 40 billion yen ($333 million) on Thursday.

Kospi adds 0.3 percent

South Korea’s Kospi index edged up after being shut on Thursday for the Christmas holiday, while the junior Kosdaq index added 0.3 percent.

Energy plays traded higher, as oil prices moved up in early Asian trade after news that a rocket hit a storage tank at Libya’s biggest oil port. S-oil advanced nearly 1 percent while SK Innovation notched up 0.1 percent.

Rest of Asia

China’s Shanghai Composite index opened modestly above the flatline while Taiwanese shares elevated 0.2 percent. Singapore’s Straits Times index eased 0.2 percent early Friday.

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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

Asian currencies set for a wild ride in 2015

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

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Asian currencies could be in for a wild ride in 2015, with central bank policy on track for further divergence as the Federal Reserve prepares to raise interest rates, analysts say.

“The US Federal Reserve will be hiking interest rates next year, while some Asian central banks will be acting in the opposite direction. Growth momentum is firmly in favor of the US, while structural and cyclical slowdowns in certain parts of Asia will see growth differentials narrow,” ANZ said in a note last week.

The Federal Reserve is widely expected to hike interest rates in July after unwinding its quantitative easing program this year, according to CNBC`s latest Fed survey of economists, strategists and fund managers, released last week.

By contrast, most of Asia`s central banks are easing. The People`s Bank of China cut interest rates for the first time in two years in October, while the Bank of Korea cut rates to a record low that month. Meanwhile, the Bank of Japan remains committed to its massive stimulus effort, while calls for rate cuts in Thailand and Australia are growing.

ANZ forecasts 3 percent depreciation in Asian currencies over 2015, “a similar decline to that seen in 2014,” noting that “risks are tilted towards a larger depreciation should tighter US monetary policy lead to larger portfolio outflows from the region.”

Saxo Capital Markets agrees.

“The world`s major central banks and economies are entirely out of sync and the oil price collapse has added a dramatic new geopolitical and economic twist to global markets,” Saxo`s head of foreign-exchange strategy John Hardy said in a note last week. He anticipates “US dollar strength on US outperformance” next year.

Catalysts for volatility

There are four potential `what if` catalysts for currency volatility next year, according to Hardy: US junk bond outflows, the resignation of European Central Bank (ECB) president Mario Draghi, Chinese yuan devaluation and a substantial weakening in the Japanese yen.

“There are already signs that the junk bond market in the US is under severe strain here late in 2014. Liquidity is terrible in these bonds,” Hardy said. “Junk bonds related to the US shale oil are the most clearly in the danger zone and investor flow out of bonds could see mayhem and see the Fed ceasing all thoughts of hiking rates,” which would see the dollar weaken sharply.

Corporate junk bond funds are on track for their worst performance in six years, according to Reuters, with high-yield mutual funds up 2.8 percent year-to-end-November,while the Merrill Lynch junk bond index dropped 1.6 percent between June and November.

Meanwhile, ECB president Draghi does not have the support needed for the dramatic easing he wishes to use to keep the euro zone out of the deflation danger zone; inflation stood at a five-year low of 0.3 percent on year in November. If Draghi does not get what he wants, he could resign in 2015, which would see the euro jump,Hardy said.

In China, as the risk of deflation rises amid the unwinding of its credit bubble, there`s a risk that China will tear a page from the Bank of Japan`s playbook and devalue the yuan, he said. This would export a wave of deflation to the rest of the world,launching “a whole new and dangerous chapter of the currency wars.”

For the yen, “there is the distinct risk that the Bank of Japan`s new easing program is simply too much and we see a domestic collapse in confidence in the yen in 2015 on an avalanche outflows,” Hardy added.

To rise and fall

The yuan and Malaysian ringgit are the only two Asian currencies that ANZ expects to appreciate against the dollar next year.

“For [yuan], we expect the authorities to maintain a stable to modestly appreciating fix, with the trade surplus and increased investor interest in onshore Chinese assets leading to a stronger yuan,” it said.

“Meanwhile, the December selloff in [the ringgit] on the back of the slump in oil prices looks overdone to us, and we expect the ringgit to correct slightly from its oversold levels,” it added. The US dollar is up around 1.6 percent against the ringgit month-to-date.

At the bottom of the barrel, ANZ tips the Korean won as next year`s likely worst performer in the Asian currency space: “Korea`s export competitiveness is being severely eroded from a weak [yen] and increased competition from China. The won`s real effective exchange rate against the yen is getting close to all-time highs, and a weaker currency is needed.”

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

Asian currencies set for a wild ride in 2015

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

Listen to the Article (6 Minutes)

Asian currencies could be in for a wild ride in 2015, with central bank policy on track for further divergence as the Federal Reserve prepares to raise interest rates, analysts say.

“The US Federal Reserve will be hiking interest rates next year, while some Asian central banks will be acting in the opposite direction. Growth momentum is firmly in favor of the US, while structural and cyclical slowdowns in certain parts of Asia will see growth differentials narrow,” ANZ said in a note last week.

The Federal Reserve is widely expected to hike interest rates in July after unwinding its quantitative easing program this year, according to CNBC’s latest Fed survey of economists, strategists and fund managers, released last week.

By contrast, most of Asia’s central banks are easing. The People’s Bank of China cut interest rates for the first time in two years in October, while the Bank of Korea cut rates to a record low that month. Meanwhile, the Bank of Japan remains committed to its massive stimulus effort, while calls for rate cuts in Thailand and Australia are growing.

ANZ forecasts 3 percent depreciation in Asian currencies over 2015, “a similar decline to that seen in 2014,” noting that “risks are tilted towards a larger depreciation should tighter US monetary policy lead to larger portfolio outflows from the region.”

Saxo Capital Markets agrees.

“The world’s major central banks and economies are entirely out of sync and the oil price collapse has added a dramatic new geopolitical and economic twist to global markets,” Saxo’s head of foreign-exchange strategy John Hardy said in a note last week. He anticipates “US dollar strength on US outperformance” next year.

Catalysts for volatility

There are four potential ‘what if’ catalysts for currency volatility next year, according to Hardy: US junk bond outflows, the resignation of European Central Bank (ECB) president Mario Draghi, Chinese yuan devaluation and a substantial weakening in the Japanese yen.
“There are already signs that the junk bond market in the US is under severe strain here late in 2014. Liquidity is terrible in these bonds,” Hardy said. “Junk bonds related to the US shale oil are the most clearly in the danger zone and investor flow out of bonds could see mayhem and see the Fed ceasing all thoughts of hiking rates,” which would see the dollar weaken sharply.

Corporate junk bond funds are on track for their worst performance in six years, according to Reuters, with high-yield mutual funds up 2.8 percent year-to-end-November,while the Merrill Lynch junk bond index dropped 1.6 percent between June and November.

Meanwhile, ECB president Draghi does not have the support needed for the dramatic easing he wishes to use to keep the euro zone out of the deflation danger zone; inflation stood at a five-year low of 0.3 percent on year in November. If Draghi does not get what he wants, he could resign in 2015, which would see the euro jump,Hardy said.

In China, as the risk of deflation rises amid the unwinding of its credit bubble, there’s a risk that China will tear a page from the Bank of Japan’s playbook and devalue the yuan, he said. This would export a wave of deflation to the rest of the world,launching “a whole new and dangerous chapter of the currency wars.”

Read More: The yen looks like it’s ready to get crushed

For the yen,”there is the distinct risk that the Bank of Japan’s new easing program is simply too much and we see a domestic collapse in confidence in the yen in 2015 on an avalanche outflows,” Hardy added.

To rise and fall

The yuan and Malaysian ringgit are the only two Asian currencies that ANZ expects to appreciate against the dollar next year.

“For [yuan], we expect the authorities to maintain a stable to modestly appreciating fix, with the trade surplus and increased investor interest in onshore Chinese assets leading to a stronger yuan,” it said.

“Meanwhile, the December selloff in [the ringgit] on the back of the slump in oil prices looks overdone to us, and we expect the ringgit to correct slightly from its oversold levels,” it added. The US dollar is up around 1.6 percent against the ringgit month-to-date.

At the bottom of the barrel, ANZ tips the Korean won as next year’s likely worst performer in the Asian currency space: “Korea’s export competitiveness is being severely eroded from a weak [yen] and increased competition from China. The won’s real effective exchange rate against the yen is getting close to all-time highs, and a weaker currency is needed.”

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

All of Warren Buffett’s bad bets add up to a big year

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

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Some of Warren Buffett’s big stocks bets have tanked in 2014, and the market hasn’t let it pass unnoticed. In fact, anytime a stock Buffett owns declines, the “billions being lost” by Warren makes it into the headlines.

With all the fuss over Warren Buffett’s stock-picking prowess, or lack thereof, you might think Berkshire Hathaway has suffered mightily. You’d be wrong, though—way wrong. In fact, Buffett has plenty of reason to smile: Berkshire Hathaway is crushing the S&P 500.

First, a recap of the bad news:

British supermarket chain Tesco took a nosedive and has accounting issues. (Buffett dumped it after his ill-timed bet.)

Some stalwart U.S. stocks owned by Buffett, including Coca-Cola and Exxon Mobil, have limped through the latter stages of the bull market.

Most notably, IBM, which Buffett placed his first big technology sector bet on—and at what skeptics say was a lofty stock multiple—is now under fire for failing to deliver on earnings and being little more, in the skeptical view, than a fading stock reliant on buybacks and dividends.

And just last week, The New York Times noted that Chinese electric car maker BYD—in which Buffett has a significant stake—was tanking.

But now the good news for Buffett. While he may prefer to compete with the index on growth in book value of shares (and act as if all S&P dividends were reinvested when he runs the numbers, since he does not pay a dividend himself), Berkshire is way ahead of the index in market return this year. The S&P 500 was up 12 percent through Monday’s close. Berkshire Hathaway, meanwhile, has generated a 28 percent return year-to-date.

In the prior two years, Berkshire ran basically neck-and-neck in stock performance with the index, barely losing out to the S&P 500 total return in 2013, while earning a narrow victory over the index in 2012, according to Morningstar data.

What’s to explain the divergence between Buffett’s stock and stocks?

While the headlines may not overstate the actual size of potential losses on individual stocks, they do overstate the importance of those losses to Berkshire Hathaway as a corporation. “Most investors overestimate the significance of Berkshire’s equity portfolio,” said Meyer Shields, Stifel analyst.

The bigger Berkshire gets, the more comments made by market pundits, including Buffett himself, on the difficulty he faces in trying to beat the S&P 500. But Shields said, “I also think investors have moved past the ‘disappointment’ of Berkshire’s underperforming the S&P 500 over a five-year period, which probably contributed to past years’ underperformance.”

It’s unlikely there is one single growth driver of Berkshire’s performance in 2014, but possibly the most influential factor in boosting Buffett’s stock is a change in the buyers of the stock.

“It’s not wealthy individuals pushing up the stock. I don’t think they have enough firepower,” said David Rolfe, chief investment officer at Wedgewood Partners—which includes Berkshire Hathaway among its largest portfolio holdings. Morgan Koenig, Wedgewood’s institutional client liaison, added, “We’re seeing increased institutional ownership in a period when high-quality stocks are lagging the broad market.”

In fact, Rolfe said it is the same stocks doing so poorly for Buffett that may offer a partial explanation for why Berkshire Hathaway is doing so well. “IBM, Coke, Exxon … Look at stocks in the mega-cap sector, and look at the ones doing poorly … and you start asking yourself, What else out there is big and part of my potential stock universe and has bulletproof earnings, and the shares aren’t demanding in the context of the sixth year of a bull market?”

The book on Berkshire

If institutions were piling into shares of Berkshire earlier this year, they would have had good reason. Buffett has set a floor on the stock through his recent addition of a share buyback program, which he set at the level of Berkshire Hathaway shares falling below 1.2 times book value.

“That provides a margin of safety,” Koenig said.

Berkshire shares traded very close to that limit earlier this year—they are now trading around 1.5 times book, which, while not nearly as attractive as 1.2 times book, is still not near a 20-year high for the company, Rolfe noted.

Is it already too late for other investors?

Wedgewood trimmed its Berkshire Hathaway position given the stock’s performance. It is still among the investment firm’s top three holdings but has come down from close to 10 percent to a little under 8 percent, Rolfe said.

“While achieving book value of close to 2 times may be a thing of the past given its size, trading in the 1.5 times to 1.7 times range is not out of line,” said Paul Lountzis, president of Lountzis Asset Management, a longtime investor in Berkshire.
Read MoreLearning to buy stocks like Buffett does
Rolfe said that if it traded back down to 1.3 times book value, it would be back to a 9 percent weighting.

Rolfe said many institutions have stayed away from Berkshire historically because they make investments based on sector strategies. Berkshire does not neatly fit into any sector box. “But if I’m an institutional investor and I have to put money to work … maybe I don’t care anymore that it is a conglomerate,” Rolfe said. “To hell with the sector mix. … You have to think of where we are in the stock market now, and Berkshire may be easier to swallow as a holding.”
Other Berkshire boosters

Here are some additional factors that may have contributed to Berkshire’s 2014 run:

Bolt-on acquisitions: There have been a number of deals that are either bolt-on (Van Tuyl, AltaLink, Duracell) or unique to Berkshire (Burger King/Berkshire Hathaway Specialty Insurance), which may be seen as positives. Shields said the Phillips 66 (a deal that occurred at the very end of 2013) and Duracell deals allowed Berkshire to “sell” its stock and buy entire businesses in a tax-efficient way, too. But Lountzis said these are still fairly small, and Rolfe said you don’t tend to see these acquisitions reflected in the stock price before they show up in actual earnings results.

The current operating environment: Berkshire’s underlying divisions are contributing high single-digit if not low double-digit growth, Koenig said. The insurance division in particular has done well this year, as there have not been a lot of weather events requiring payout. That sent the Berkshire insurance float—the cash generated from insurance policies that are ultimately needed for payouts but can be put to work in the market in the interim—up to $83 billion as of Sept. 30.

The future operating environment:

A flight to safety trade in a slowing global growth environment? “Could be, but one of many considerations,” Lountzis said.

A double bet on the U.S.? With a positive outlook for U.S. growth and an improved outlook on the U.S. job market, Berkshire is both a play on the U.S. economic story and an investor in it through its stocks, so it can get twice the benefit, Shields said. Or as Buffett has often said himself, Don’t bet against the U.S.

Copyright 2011 cnbc.com

Also read: How to invest like a ‘greedy’ Buffet

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

Asian shares mixed amid light volumes; BOJ minutes eyed

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

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It was the last trading session before Christmas and across Asia’s bourses, stocks were broadly higher, drawn on by a strong US economic engine. But few traders were stirring, with markets in Australia, Hong Kong and Singapore only open for a half day ahead of tomorrow’s Christmas holiday.

Overnight, Wall Street enjoyed a “Santa rally,” as investors cheered data showing the US economy expanded in the third quarter by the most in 11 years. The Dow Jones Industrial Average closed 0.4 percent higher at 18,024 points – its first finish above the 18,000 level – while the S&P 500 advanced 0.2 percent. However, the Nasdaq Composite fell, snapping a four-session winning streak, as biotechnology names weighed.

A rise in oil prices is also expected to boost sentiment in Asia. US oil rose USD 1.34 to USD 56.60 a barrel on Tuesday on the back of US’s robust third quarter gross domestic product (GDP), supporting expectations of greater demand for crude. Benchmark Brent oil was up USD 1.02 at USD 61.14 a barrel.

Nikkei surges 1.1 percent

Japan’s benchmark Nikkei 225 touched a two-week high on Wednesday after being shut for a holiday in the previous session, as the yen hovered in the 120 territory against the greenback.

That pushed exporters’ stocks higher, with Toyota Motor and Suzuki Motor advancing nearly 2 percent each. Sony, which announced Tuesday it will allow the movie “The Interview” to open in selected theaters on Christmas Day, charged 3.2 percent higher.

Traders will also be looking to the release of the Bank of Japan’s last policy meeting minutes later in the session. The central bank maintained its massive monetary stimulus last Friday and offered a brighter view of the economy to say that it continues to recover moderately with the pain from the sales tax hike in April subsiding.

Mainland indices mixed

On the last trading session before the Christmas holiday, China’s Shanghai Composite index opened down 0.7 percent.

In Hong Kong, the Hang Seng index traded 0.2 percent higher.

ASX rebounds 0.2 percent

Australia’s benchmark S&P ASX 200 index erased early losses to inch above the flatline amid choppy trade in the commodity sector.

Miners were mixed as iron ore prices declined overnight; BC Iron dropped 2.1 percent but Fortescue Metals reversed losses to rise 0.6 percent. Gold stocks also fell, with Evolution Mining dropping nearly 4 percent and Newcrest Mining trading 1.2 percent lower, as spot gold pared gains after a blowout U.S. growth data lifted the dollar.

However, banking majors capped losses as National Australia Bank notched up 0.5 percent while Westpac Banking gained 0.2 percent.

Meanwhile, the Australian dollar recovered modestly from a 4-1/2-year trough against its U.S. counterpart to trade at USD 0.8112 early Wednesday. The local currency fell below the key USD 0.8100 level overnight as demand for iron for construction fell in China and after Australia’s Prime Minister Tony Abbott warned of heightened “terrorist chatter.”

Kospi adds 0.3 percent

South Korea’s Kospi index widened gains an hour into trade as blue-chips advanced, while the junior Kosdaq index inched up 0.5 percent.

The top gainer was Hyundai Motor, which piled on 3 percent on hopes that the automaker will hike its dividend payouts.

LG Electronics climbed 1.2 percent after reports said it is launching a Firefox OS-powered smartphone in Japan. Rival Samsung Electronics traded little changed early Wednesday.

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

Gold is heading toward a critical point: Charts

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

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As gold finishes out a rocky year, its chart is heading toward critical development point, and the yellow metal may fall below USD 1,000 an ounce.

The yellow metal started 2014 at around USD 1,200 an ounce, not too far off its current level of around USD 1,196, but in between it has hit peaks of nearly USD 1,400 and a trough around USD 1,140, after 2013`s long downtrend from opening that year around USD 1,664.

The downtrend line is the most important trend feature of the weekly Comex gold chart. This starts from the high near USD 1,799 in October 2012. Recently, the line uses the high of USD 1,347 in July 2014 as a confirming anchor point for the downtrend line. Any change in the downtrend will require a price breakout above the value of the downtrend line, currently near USD 1,239. The trend line defines the downtrend.

The second important feature of the gold chart is the historical support level near USD 1,180. The gold price did move below this level, but the price developed a consolidation pattern near the USD 1,180 level.

The combination of these two features – the support level and the downtrend line – create a down sloping triangle pattern. The apex of this pattern — when the trend line intersects the support line — is around April 2015.

A sustained move above the value of the trend line will signal a potential change in the trend direction. The first upside target for a successful trend change is near USD 1,400.

Failure to move above the trend line combined with a sustained move below the support level has a downside target near USD 970. Between April 2013 and October 2014, gold traded in a broad sideways trading band between USD 1,180 and USD 1,390. The width of the trading band is measured and this value is projected below support at USD 1,180. The band is USD 210 high and this calculation is used to set a downside target near USD 970.

The calculated target is a little below the long-term historical support and resistance level near USD 980. This suggests there is a high probability that gold will fall to around USD 980 before any new consolidation pattern develops.

The consolidation near USD 1,180 may continue for several weeks. Investors will move into the market when the uptrend breakout or the downtrend continuation is clear. The clear trend direction should develop before April 2015.

The combination of the trend line and the Guppy Multiple Moving Average indicator suggest the trend is still bearish. The long term GMMA remains well separated and this shows investors continue to sell gold.

In addition to a move above the value of the downtrend line, the gold price would also need to move above the upper edge of the long term GMMA to confirm that a new uptrend is developing. The separation in the long term GMMA suggests the downtrend in gold will continue. The downside target is near USD 980.

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 CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

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

Asia’s largest IPO may flounder on debut

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

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Chinese shopping mall developer Dalian Wanda Commercial Properties makes its debut in Hong Kong on Tuesday in what will be Asia`s biggest initial public offering (IPO) this year, but market sentiment is far from strong, according to experts.

The property arm of Chinese billionaire Wang Jianlin`s Dalian Wanda Group, Wanda Commercial Properties, raised $3.7 billion last week after selling 600 million shares at $6.19 each, the higher end of its price range.

The flotation is expected to see Wang regain his title as China`s richest man, a position he held in 2013 before being overtaken by Alibaba founder Jack Ma this year. Wang, who owns 98 percent of the Wanda Group, is currently ranked China`s fourth-richest man, according to Forbes.

“It`s not going to have a blockbuster debut. They will manage to have a flat opening because of the size and valuation. They valued themselves at single-digit PEs [price-to-earnings ratios], cheaper than other property stocks in Hong Kong,” said Jackson Wong, associate director at United Simsen Securities.

Read More Global IPO market booms 50% in 2014

The IPO values the firm at 8.6 times 2015 earnings forecasts, higher than major mainland property players China Resources Land (Hong Kong Stock Exchange: 1109-HK) and China Vanke (: Z2-CN), according to Reuters. The Beijing-based firm has China`s largest commercial property portfolio, with 159 Wanda Plaza shopping centers and 6 Wanda City projects spread out across the country.

“Property stocks are not hot in Hong Kong right now, so I don`t expect a huge opening but it will be better than what most people think. Recent IPOs have had a 10-20 percent drop from their debut price, so this could perform just ok tomorrow,” Wong added.

With China`s real-estate sector currently in a slump, the IPO could ease the company`s high debt burden, a major ratings agency said, a factor that has weighed on Dalian Wanda`s corporate earnings. Net profit in the first six months of the year slumped a 47 percent from the year-earlier period.

Fitch Ratings believes the proceeds from the IPO will reduce Wanda`s leverage from 10.8 times earnings at the end of June to just under 7 times by year-end. Net debt is expected to be trimmed to below 80 billion yuan, from 101 billion five months ago.

“We estimate that Dalian Wanda Commercial Properties` net debt/net capitalization ratio will decline to 38-42 percent at the end of 2014, from 44.5 percent at the end of June 2014,” said Moody`s in a recent report.

“The IPO will also reduce the company`s reliance on debt funding, thereby enhancing its interest coverage,” Moody`s added.

Wanda`s listing raises a concern that has dogged Hong Kong`s IPO market this year: Valuation discounts. Wanda was initially expected to raise $6 billion, but tepid investor interest forced the Beijing- based firm to slash its offering.

Other Hong Kong IPOs have faced similar issues this year, with pork producer WH Group (Hong Kong Stock Exchange: 288-HK) lowering its valuation to $2.3 billion in August from an earlier target of $5.3 billion. In January, Hong Kong Electric cut the size of its planned listing by more than $1 billion.

Rebecca Chan, partner and head of Hong Kong capital markets of KPMG China, told CNBC last week that she doesn`t believe Hong Kong is becoming a discount IPO market, calling lower valuations more of a company-specific situation rather than a broad trend.

“I don`t see that trend at this stage, it`s too early to say whether companies will price at a discount or not,” she said.

The Hong Kong market has raised $27.1 billion from listings this year, placing it second behind the New York Stock Exchange in terms of IPO volume.

KMPG is optimistic on the city`s 2015 IPO outlook, anticipating at least $30 billion to be raised next year from 110 companies.

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

Asian markets on the back foot as oil prices resume decline

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

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Asian stocks saw mixed trading early Tuesday, despite another strong session on Wall Street, as oil prices resumed their downward slide.

US stocks advanced overnight, with technology leading the Dow and S&P 500 to record finishes. The Dow Jones Industrial Average climbed 0.9 percent, rising for a fourth session to end at a record high, while the S&P 500 gained 0.4 percent. The tech-heavy Nasdaq added 0.3 percent.

Meanwhile, US crude’s front month contract settled down 3.3 percent at USD 55.26 a barrel, near session lows, after Saudi Arabia’s powerful oil minister said OPEC would not cut production at any price. Brent fell nearly 2 percent to USD 60 after hitting session bottom at USD 59.93.

Japanese markets are shut for the Emperor’s Birthday holiday.

Mainland indices mixed

China’s Shanghai Composite index skidded 2.2 percent at the open, as traders focused on news that Beijing is investigating possible stock-price manipulation. The securities agency said Friday that it had launched investigations into 18 stocks, but didn’t explain the reasons for the probe at the time. Most of the stocks targeted are those of small-cap companies, such as a maker of automobile tires in eastern China’s Shandong province.

In Hong Kong, the Hang Seng index added 0.2 percent kick off Tuesday near its highest level since December 12.

Dalian Wanda Commercial Properties opened up 0.2 percent to HKUSD 48.10 in its trading debut, compared to its issue price of HKUSD 48. The Chinese real estate developer, owned by billionaire Wang Jianlin, raised USD 3.7 billion making it Hong Kong’s biggest initial public offering since 2010.

Sun Hung Kai Properties gained 0.7 percent after a corruption trial involving company officials concluded last week. A judge is set to announce the sentences, which could see Hong Kong tycoon Thomas Kwok and former high ranking public official Rafael Hui face up to 7 years in jail for each corruption conviction.

ASX loses 0.6 percent

Australian equities appear set to snap a four-day rally early Tuesday. The benchmark S&P ASX 200 index retreated from a five-week high of 5,442 points as weaker commodity prices overnight hurt sentiment.

Energy producers led declines; Santos plunged 2.4 percent, while Woodside Petroleum and Oil Search lost 2 percent, respectively. Miners also put up a dismal showing, with Mount Gibson and BC Iron trading 5.1 and 6.7 percent lower each.

Telstra is in focus after it said it would buy Pacnet for USD 697 million. Shares of Australia’s largest telecom services provider were 0.3 percent weaker early Tuesday.

Meanwhile, the Australian dollar dropped 0.1 percent to trade at USD 0.8125 against the greenback, near multi-year lows.

Kospi flat

South Korean shares saw subdued trade in Tuesday’s morning session after the Kospi index finished near its highest level since December 10 in the previous session. The junior Kosdaq index traded 0.2 percent lower.

Energy plays gave up Monday’s gains to open lower; the country’s largest refiner SK Innovation traded little changed, while S-Oil receded 0.4 percent.

Utility stocks traded mixed after President Park Geun-hye said electricity rates and other public utility costs should come down to reflect falling oil prices last week. Korea Electric Power (KEPCO) dipped 0.1 percent while Korea Gas inched up 0.1 percent.

Steelmaker Posco, which announced that it has completed its lithium production plant in Argentina, fell nearly 1 percent.

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Asia’s largest IPO may flounder on debut

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

Listen to the Article (6 Minutes)

Chinese shopping mall developer Dalian Wanda Commercial Properties makes its debut in Hong Kong on Tuesday in what will be Asia’s biggest initial public offering (IPO) this year, but market sentiment is far from strong, according to experts.

The property arm of Chinese billionaire Wang Jianlin’s Dalian Wanda Group, Wanda Commercial Properties, raised $3.7 billion last week after selling 600 million shares at $6.19 each, the higher end of its price range.

The flotation is expected to see Wang regain his title as China’s richest man, a position he held in 2013 before being overtaken by Alibaba founder Jack Ma this year. Wang, who owns 98 percent of the Wanda Group, is currently ranked China’s fourth-richest man, according to Forbes.

“It’s not going to have a blockbuster debut. They will manage to have a flat opening because of the size and valuation. They valued themselves at single-digit PEs [price-to-earnings ratios], cheaper than other property stocks in Hong Kong,” said Jackson Wong, associate director at United Simsen Securities.

Dalian Wanda Group

The Chengguan Wanda Plaza in Lanzhou, China

Chinese shopping mall developer Dalian Wanda Commercial Properties makes its debut in Hong Kong on Tuesday in what will be Asia’s biggest initial public offering (IPO) this year, but market sentiment is far from strong, according to experts.

The property arm of Chinese billionaire Wang Jianlin’s Dalian Wanda Group, Wanda Commercial Properties, raised $3.7 billion last week after selling 600 million shares at $6.19 each, the higher end of its price range.

The flotation is expected to see Wang regain his title as China’s richest man, a position he held in 2013 before being overtaken by Alibaba founder Jack Ma this year. Wang, who owns 98 percent of the Wanda Group, is currently ranked China’s fourth-richest man, according to Forbes.

“It’s not going to have a blockbuster debut. They will manage to have a flat opening because of the size and valuation. They valued themselves at single-digit PEs [price-to-earnings ratios], cheaper than other property stocks in Hong Kong,” said Jackson Wong, associate director at United Simsen Securities.

Read More: Global IPO market booms 50% in 2014

The IPO values the firm at 8.6 times 2015 earnings forecasts, higher than major mainland property players China Resources Land and China Vanke, according to Reuters. The Beijing-based firm has China’s largest commercial property portfolio, with 159 Wanda Plaza shopping centers and 6 Wanda City projects spread out across the country.

“Property stocks are not hot in Hong Kong right now, so I don’t expect a huge opening but it will be better than what most people think. Recent IPOs have had a 10-20 percent drop from their debut price, so this could perform just ok tomorrow,” Wong added.
A ‘credit-positive’ IPO

With China’s real-estate sector currently in a slump, the IPO could ease the company’s high debt burden, a major ratings agency said, a factor that has weighed on Dalian Wanda’s corporate earnings. Net profit in the first six months of the year slumped a 47 percent from the year-earlier period.

Fitch Ratings believes the proceeds from the IPO will reduce Wanda’s leverage from 10.8 times earnings at the end of June to just under 7 times by year-end. Net debt is expected to be trimmed to below 80 billion yuan, from 101 billion five months ago.

“We estimate that Dalian Wanda Commercial Properties’ net debt/net capitalization ratio will decline to 38-42 percent at the end of 2014, from 44.5 percent at the end of June 2014,” said Moody’s in a recent report.

“The IPO will also reduce the company’s reliance on debt funding, thereby enhancing its interest coverage,” Moody’s added.
What it means for Hong Kong

Wanda’s listing raises a concern that has dogged Hong Kong’s IPO market this year: Valuation discounts. Wanda was initially expected to raise $6 billion, but tepid investor interest forced the Beijing- based firm to slash its offering.

Other Hong Kong IPOs have faced similar issues this year, with pork producer WH Group lowering its valuation to $2.3 billion in August from an earlier target of $5.3 billion. In January, Hong Kong Electric cut the size of its planned listing by more than $1 billion.

Rebecca Chan, partner and head of Hong Kong capital markets of KPMG China, told CNBC last week that she doesn’t believe Hong Kong is becoming a discount IPO market, calling lower valuations more of a company-specific situation rather than a broad trend.

“I don’t see that trend at this stage, it’s too early to say whether companies will price at a discount or not,” she said.

The Hong Kong market has raised $27.1 billion from listings this year, placing it second behind the New York Stock Exchange in terms of IPO volume.

KMPG is optimistic on the city’s 2015 IPO outlook, anticipating at least $30 billion to be raised next year from 110 companies.

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Why 2015 could bring the surprising return of risk

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

Listen to the Article (6 Minutes)

Something funny happened on the way to another huge year for stocks.

With just a week and a half left in 2014, the S&P 500 is up 12 percent, besting nearly everyone’s expectations. Still, the best-performing sectors haven’t been cyclical stocks that generally rise when the broader market is soaring and the economy is growing.

Instead, health care and utilities stocks have led the way, with 27 percent and 23 percent gains for those sectors, respectively.

Now, the big question is whether that trend will turn around in 2015 — setting the stage for a more traditional bull market led by the sort of cyclical stocks that tend to lead in good times and lag in bad.

Over the past year, “people were in search of yield, and that really was the personality of the rally in 2014,” said Jim Iuorio of TJM Institutional Services. “What I want to see is things further out the risk spectrum start to rally, and if that’s the case, that’s when I’ll think that we’re on a risk-on mode.”

BlackRock’s Rosenberg: Stocks will beat bonds in 2015

To Jonathan Golub, RBC’s chief US market strategist, the key issue is that stocks have surged — even as economic growth has been lackluster.

“The real question is, will the economy grow fast enough to support more economically sensitive cyclical names? This is the ninth year in a row where GDP grew under 3 percent,” he pointed out.

In 2015, economists expect growth to finally surpass 3 percent, but “that’s been the expectation for each of those nine years, and we haven’t seen it,” Golub said. “My gut tells me that the economists will prove to be a little bit more optimistic once against.”

For that reason, the analyst is looking for the S&P to return 12 to 15 percent, including dividends, once again. However, he says the rally will likely be led by a mix of cyclical and non-cyclical sectors. Specifically, the strategist favors technology and health care stocks, and is less optimistic about industrials.

Go long on industrials

Conversely, Gina Martin Adams of Wells Fargo recently initiated an “overweight” recommendation on the industrial sector, because she believes that the sector is attractively valued, and is set to enjoy earnings growth.

However, in a Wednesday note explaining her call, Adams acknowledged that the response to her recommendation “has been lukewarm at best, as investors seem to fear lower oil prices and weaker economic prospects overseas.”

Yet the market seems to have a tendency to defy consensus expectations. For instance, few expected that utilities would outperform in 2014, because most believed deeply interest rates were set to rise. They fell sharply instead, making high-dividend utilities names look like a bargain.

Perhaps 2015, then, will be the year that the market defies the expectations of those who say that growth will remain stagnant.

“2015 will be a year that favors cyclical stocks over the defensive names as the economy continues to strengthen,” predicted Jeffrey Saut of Raymond James.

“I believe we are at the stage of the secular bull market where everything is going to work,” he said.

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