Month: September 2015

IMF: First-half global growth weak-here’s why

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

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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

IMF: First-half global growth weak here’s why

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

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The International Monetary Fund said Wednesday that the moderate global growth in the first half of the year is reflective of two elements: a slowdown in emerging economies and weak recovery in advanced ones.

“In an environment of rising financial market volatility, declining commodity prices, weaker capital inflows and depreciating emerging market currencies, downside risks to the outlook have risen, particularly for emerging markets and developing economies,” the IMF said in a report.

The analysis comes at a time when global markets have been in flux, with US crude prices closing up nearly 2 percent on Wednesday after falling as much as 4 percent. This move came a day after crude futures settled down nearly 8 percent after a massive three-day rally.

Equities across the globe have also been taken for a ride, with US stocks closing more than 1 percent higher across the board a day after plunging more than 2 percent.

The recent volatility has led the IMF to reiterate its position that advanced economies should maintain “supportive” monetary policies.

“In most advanced economies substantial output gaps and below-target inflation suggest that the monetary stance must stay accommodative. Fiscal policy should remain growth friendly and be anchored in credible medium-term plans,” the IMF said.

In July, the organization said the Fed should hold off on raising rates until it sees higher price and wage inflation, adding that it doesn’t see the central bank reaching its medium-term inflation objective until mid-2017.

“In the United States, growth in the first half of the year was 1.8 percent, compared to 3.8 percent in the 2nd half of 2014,” it said in its latest report.

“Recent revisions in the US national accounts suggest that productivity growth during 2012-14 was lower than previously thought.”

Nevertheless, the IMF added that it believes the second half will show pickup in the U.S. economy as well as other advanced economies, including Europe and Japan.

Emerging markets risks tilted to the downside

The IMF projects economic growth for emerging market economies to slow further, as financial conditions continue to tighten amid lower oil prices and China’s economic slowdown.

“Fueled by a needed correction in residential real estate construction, investment slowed compared to last year, but consumption growth remained steady. As import contracted, net exports contributed positively to growth despite weaker-than-expected exports,” it said.

“The distribution of risks remains to the downside, and a simultaneous materialization of some of these risks would imply a much weaker outlook.”

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

Time to dump global stocks? Or buy more?

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

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Worries about China’s slowing economic growth continue to make markets around the world jittery. But most financial advisors are telling clients to keep their allocations for international stocks and some are even going on a shopping spree.

“We feel that the valuations remain attractive both in developed and especially in emerging market equities, and believe that this is a good opportunity for long-term investors to take advantage of short-term volatility,” said Howard Pressman of Egan, Berger & Weiner in Vienna, Virginia.

With decades to go before retirement, millennials are particularly well-positioned to take advantage of the turmoil, said Tracey Eve Johnson, a certified financial planner and principal at Blue Flag Planning in Tarrytown, New York.

“We find that these clients are usually able to maintain a long-term focus and stay the course during the inevitable periods of market turmoil,” Johnson said.

Many financial advisors prefer foreign stocks because they have different risk and return characteristics than US equities. That can diversify a portfolio and prevent “home bias,” the tendency investors have to invest heavily in the stocks of their own country.

So how much exposure should investors have to global markets? The US had about 36 percent of the world’s market capitalization as of March 2015, according to Bespoke Investment Group. (China had about 9.4 percent.)

That means a portfolio focused solely on U.S. stocks would exclude more than 60 percent of the equity opportunities available worldwide.

“Because my clients are in the U.S. and spending dollars, and also a bit for psychological comfort, I skew the allocation somewhat more toward US equities than the strict market valuations would indicate,” said Charles Levin, a certified financial planner in Wayland, Massachusetts.

He recommends investors put 60 percent of the equity portion of their portfolios in US stocks and 40 percent in international stocks.

US mutual fund investors held, on average, only 27 percent of their total equity allocation in non-U.S. funds as of December 2013, according to an analysis by The Vanguard Group.

Vanguard found that a 20 percent allocation to international stocks is a good starting point for most investors. However, the additional expense of investing in international stocks can be a drag on returns.

Though global markets have become more efficient, costs—such as expense ratios for international stock funds and bid-ask spreads—are usually higher for U.S.investors.

“[I]nternational allocations exceeding 40 percent have not historically added significant additional diversification benefits, particularly accounting for costs. For many investors, an allocation between 20 percent and 40 percent should be considered reasonable,” Vanguard researchers concluded.

To be sure, in a global economy, most large U.S. companies have some exposure to international markets.

Last year, the percentage of total revenue from sales in foreign countries grew among S&P 500 companies after five years of stagnation, according to research from S&P Dow Jones Indices. The overall rate for 2014 was 47.8 percent, up from 46.2 percent in 2013.

S&P 500 sales from Asia grew last year, but not rapidly, with 7.8 percent of S&P 500 sales coming from Asia, up from 7.7 percent in 2013 and 7.5 percent in 2012. Many large US companies do not break out sales for China, however, making it difficult to track exactly how a slowing of Chinese economic growth will affect their earnings.

The key for long-term investors is to have a good mix of international stocks or stock funds that is not concentrated on one region or country, advisors say.

“The turmoil in China only becomes an issue if you are not diversified and overweighted in China,” said Scot Hanson, a certified financial planner at EFS Advisors in Shoreview, Minnesota.

“If the situation in China does matter [to you], you have the wrong plan, strategy and advisor.”

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 stocks turn mixed, with Sydney down nearly 1%

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

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Australian stocks fell into negative turf early Thursday, following a slew of less-than-stellar economic data releases.

Mainland share markets are closed through Monday, as the country commemorates the end of World War Two with an extravagant parade of military firepower on Thursday.

“Respite in global equities may only reflect temporarily allayed concerns about whether the rest of the world was going to catch a cold from China’s sneeze. Away for the Victory Day long weekend today and tomorrow, China’s “bed rest” means that a break from Shanghai stock gyrations will make for much less nail-biting,” analysts from Mizuho Bank wrote in a note.

Major indexes in the US climbed overnight amid volatile trade, after equity markets in China ended Wednesday almost flat on the back of fresh supportive measures from brokerage houses. The Dow Jones Industrial Average and the S&P 500 rallied more than 1.8 percent in the close to end near session highs, while the tech-heavy Nasdaq Composite outperformed with gains of 2.46 percent to pull out of correction territory.

Nikkei jumps 1.7 percent

Japan’s benchmark Nikkei 225 surged from the get-go, thanks to the inspiring handover from Wall Street and renewed weakness in the yen.

It was a broad-based rally, with heavyweight component Fanuc leading the charge. Shares of the industrial robot maker charged 1.1 percent, while Fast Retailing and SoftBank gained around 0.5 percent each.

Among export-oriented plays, Nissan Motor and Toshiba climbed more than 3 percent each. Banks and brokerage houses recouped Wednesday’s losses; Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group advanced nearly 11 percent each, while Nomura Holdings bounced up 0.4 percent.

In the previous session, the Tokyo bourse meandered between gains and losses before eventually closing down 0.4 percent.

ASX drops 0.8 percent

Australia’s S&P ASX 200 index turned negative, as banking and retail-related plays weigh.

Australia and New Zealand Banking, Commonwealth Bank of Australia and National Australia Bank fell nearly 1 percent each. Retailing counters widened losses after July retail sales unexpectedly slipped 0.1 percent on-month, missing expectations for a 0.4 percent rise. Myer, Harvey Norman and JB Hi-Fi lost between 2 and 17 percent.

Energy counters turned mixed as oil prices resumed declines in early Asian trade; Woodside Petroleum pared gains to trade flat, while Santos fell 3.8 percent.

Kospi gains 0.6 percent

South Korea’s Kospi index headed north in early trade, even though advances were relatively modest as revised gross domestic product (GDP) showed the worst quarterly growth in more than six years for the Asia’s fourth-largest economy.

The economy grew a seasonally adjusted 0.3 percent on-quarter in the April-June period, revised central bank data released before the market open showed, unchanged from its earlier estimate. On a year-on-year basis, South Korea’s GDP for the second quarter expanded by 2.2 percent, also unchanged from its earlier estimate released on July 23.

Shares of Samsung Electronics, which will unveil its revamped Gear S2 smartwatch on Thursday, widened gains to 2.1 percent. Among other gainers, LG Display and SK Hynix rose 2.4 and 1.5 percent, respectively.

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 level on the S&P is the ‘Yellen put’?

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

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The ferocity of the equity selloff in recent weeks has caused analysts to question whether there is a level the S&P 500 would need to reach before the US Federal Reserve recommences its bond-buying program.

“Given what’s going on, where’s the Fed put?,” Bob Janjuah, a senior independent client adviser at Nomura, told CNBC Tuesday.

“What level of asset price deflation, as proxied by the S&P, would the Fed say ‘I’m going to ignore that, and I’m going to let that happen, because it’s probably a good thing for it to happen in the long run’?

Read More: Major volatility? Buy Japan: Goldman’s Oppenheimer

The S&P 500 lost 2.96 percent on Tuesday, the third worst day of the year for the index on a percentage basis, and closed at 1,913.85 points.

Janjuah, known for his often bearish views, believes that the figure would be around 1,570 points on the US benchmark which would trigger a move by the Fed. This would be close to the peaks reached in both 2001 and 2007.

Janjuah has touted the idea this year that the Fed will have to implement more quantitative easing despite the central bank currently looking to tighten policy towards the end of 2015. Larry Summers, a former US Treasury Secretary, has also voiced similar opinions as markets tanked aggressively at the start of last week.

This sort of policy is likened to a “put option” which gives investors the option to sell an underlying asset if its reaches a certain price. The term was famously used for Mario Draghi’s bond-buying plans in the euro zone with market watchers commenting that the ECB President was effectively putting a floor under the price of sovereign bonds in the region.

Central banks have been purchasing fixed-income assets in secondary bond markets since the global financial crisis of 2008. The aim is to boost liquidity in the banking sector and thus encourage banks to lend to the wider economy. As well as in the US and euro zone, programs have also been launched in Japan and the UK The Fed completed its third program late last year and has been edging towards hiking its benchmark interest rate in the interim.

Peter Oppenheimer, the chief global equities strategist at Goldman Sachs, currently has a “neutral” stance on US stocks but is cool on the idea that the S&P 500 would see any further plunge that could make the Fed change course.

Read More: S&P 500 may fall further 10-15%: Nomura’s Janjuah

He did, however, concede that the S&P 500 would be “one of the factors” that the Fed would look at if there was a significant drawdown, but added that it was not “principally their focus.”

Quentin Baker, a fixed income derivatives trader at Mako Financial Markets, meanwhile, has predicted a 50 percent fall for the Shanghai Composite over the next six to nine months. He believes that any central bank influence would be able to change sentiment but not necessarily the direction of global stock markets.

“If you said to me, do you think the central bank is going to change the whole psyche of this market and we’re not going to see that kind of move, I would actually argue and say ‘no, I don’t think so’. I think it’s more likely that we are going to see an unwind of that market,” he told, CNBC Wednesday.

He believes, looking at the Chinese market in particular, that an index will rise and fall despite any outside intervention.

“The market will win, the market will go where it wants to go,” he added.

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

Moody’s raises red flag over China’s public finances

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

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Concerned about China’s policy flip-flops, sputtering manufacturing sector, or swooning equity market? Add to that another source of worries: The patchy state of regional finances.

Moody’s Investors Service notes that China’s regional and local government (RLG) debt pile grew by more than one-third between June 2013 and end-2014, citing official data.

In the 18 months between June 2013 and end-2014, RLG debt rose to 24 trillion yuan (USD 3.7 trillion) from 17.9 trillion yuan, according to government statistics published over the weekend.

Twenty-four trillion yuan is equivalent to 38 percent of the country’s gross domestic product (GDP) in 2014, according to Moody’s.

Moody’s underlying concern is that debt levels are rising against a backdrop of falling revenues, potentially making it more difficult for RLGs to fulfill their repayment obligations.

Read More: What’s with China’s mixed policy messages?

“Rising debt levels weaken the RLGs’ credit profiles, leaving them exposed to the effects of China’s slowing economy and the related weakening in revenues, against the backdrop of falling land sales,” the ratings agency wrote in a report.

Between January and July 2015, China’s slower growth rates lowered the RLGs’ budget revenue growth to 9 percent from 11 percent during the same period in the previous year.

“Seven provinces experienced falling revenues, 18 saw single-digit revenue growth, while only six achieved double-digit revenue growth,” Moody’s said.

Land sales, meanwhile, fell by 38 percent in the seven months to 31 July versus 3 percent growth in the same period in 2014, and 45 percent growth in the corresponding period in 2013.

To be sure, not all China watchers were alarmed by the rise in debt levels.

Yang Zhao, China economist at Nomura says while 24 trillion in total debt as of end-2014 is slightly higher than his earlier estimate of 22.6 trillion yuan, is still a “manageable level of general government debt risk.”

Incorporating central government debt of 9.6 trillion yuan, and about 5.1 trillion yuan of “other” debt -such as that of railway companies and asset management companies – the bank estimates overall government debt at about 60.8 percent of GDP as of end-2014.

“This level is not particularly large by international standards,” he said.

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

Intel continues mobile catch-up game with new chips

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

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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

Shanghai leads Asia lower; US index futures up 0.8%

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

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Mainland shares led losses in Asia early Wednesday, tracking offshore losses driven by persisting concerns over the health of China’s economy.

However, Japan’s Nikkei 225 index managed to stage a rebound by mid-morning trade, probably inspired by the near 1 percent rises in the S&P 500 futures and Dow futures in early Asian trade.

Wall Street ended in correction territory overnight, with the major averages closing down nearly 3 percent in their third-largest daily decline for 2015. In their worst start to September in 13 years, the Dow Jones Industrial Average and S&P 500 had their worst first-of-the-month trading day of a month since March 2009. The tech-heavy Nasdaq had its worst first trading day since October 2011.

The steep declines came after two surveys of China’s mammoth manufacturing sector disappointed traders on Tuesday, exacerbating a sell-off in Asian and European stock markets. The official manufacturing purchasing managers’ index (PMI) edged down to 49.7 in August from 50 in July, while the final Caixin/Markit manufacturing purchasing managers’ index (PMI) came in at 47.3 in August, above a preliminary reading of 47.1 but down from 47.8 in July.

Shanghai Comp down 3 percent

China’s Shanghai Composite index extended losses on Wednesday, even as regulators continued to roll out rescue measures to support a wobbly stock market, albeit in an inconsistent manner.

Nine Chinese brokerages have pledged additional funds worth over 30 billion yuan (USD 4.71 billion) to buy shares, Reuters reported citing the China Securities Journal on Wednesday. This came on the back of news that major Chinese brokerages stepped up their contributions to support the stock market Tuesday, according to filings on the Shanghai Stock Exchange website.

According to a Reuters report Tuesday, the People’s Bank of China (PBOC) plans to tighten rules on trading of currency forwards from mid-October, with sources telling the newswire that banks trading currency forwards will be required to set aside reserves from October 15.

Earlier this week, Beijing decided to abandon attempts to boost the stock market through large-scale share purchases, and will instead intensify efforts to find and punish those suspected of “destabilizing the market”, according to senior officials. The news came on the back of estimates from the Financial Times which reported that Beijing reportedly spent $200 billion buying shares to prop up falling equity prices over the past seven weeks.

“It is more that the policy initiatives seem engineered on a daily basis and the plans seem to lack a cohesive, well thought-out process,” IG market analyst Angus Nicholson wrote in a note.

ASX eases 1.1 percent

Australia’s S&P ASX 200 index stayed at a one-week low after gross domestic product (GDP) showed the economy grew at a slower-than-expected pace in the second quarter. The economy expanded 0.2 percent on-quarter in the April-June period, taking the annual rate down to 2.0 percent from the first quarter’s 2.3 percent, missing expectations for a 0.4 percent quarterly expansion and an annual rate of 2.2 percent.

The Australian dollar tumbled to a fresh six-and-a-half-year low on Wednesday, following the GDP data.

Resources names accounted for the biggest losers, with weaker oil prices overnight putting a chokehold on energy producers. Santos and Woodside Petroleum fell more than 2 percent each.

Market bellwether BHP Billiton sagged 2.3 percent.

Nikkei rebounds 0.7 percent

Japan’s benchmark Nikkei 225 turned positive by mid-morning trade, reversing a negative open and recouping modest losses after plummeting 3.8 percent in the previous session.

Export-oriented stocks mostly rebounded, with the help of a 0.6 percent jump in dollar-yen. Suzuki Motor rallied 2.3 percent, while Toyota Motor, Nissan and Honda Motor notched up between 0.5 and 1 percent.

Index heavyweights also helped to underpin the rebound, with Fast Retailing and Fanuc shares bouncing up more than 3 percent each.

Kospi sheds 0.4 percent

South Korea’s Kospi index edged down in early trade, but losses were capped as shares of automakers attracted hefty buy orders.

Hyundai Motor and Kia Motors powered up 2.7 and 3 percent, respectively, while the index’s top weighted stock Samsung Electronics erased losses to bob near the flatline.

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

3 Mins Read

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

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

China impact on emerging markets overstated: Adrian Mowat

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

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Market watchers are overestimating the impact of China’s economic slowdown on emerging markets, JPMorgan’s chief Asian and emerging market equity strategist said Monday.

Emerging markets suffered one of their worst routs on record last week, with investors pulling a combined USD 15.3 billion from bond and equity funds through August 27. The MSCI Emerging Markets Index is down nearly 18 percent year to date.

But JP Morgan’s Adrian Mowat noted the US economy moved higher, and there was little impact on the rest of Asia when Japan’s economy, then the world’s second largest, turned lower in the early 1990s.

“It was an enormous economy that went into this protracted funk, and it made very little difference to the rest of Asia,” he told CNBC’s “Squawk Box.” “I think people overestimate trade linkages.”

Read More: Revealed: the world’s cheapest emerging market

He acknowledged that imports into China are down 15 percent this year but said that slowdown had been happening for some time. In addition, he told CNBC, the impact beyond commodity producers is small, and there could be benefits to commodity importers.

JP Morgan is currently bullish on large emerging markets like China, South Korea, Taiwan and India. Mowat said investors should avoid commodity producers Brazil and Russia, which have entered recession.

China’s stock market has sold off dramatically in recent months, first losing 30 percent in a weeks-long rout that began in June after the Shanghai Composite ran up more than 100 percent during the previous year. It then fell anew earlier this month after China devalued its currency, spreading fear about the country’s growth that sent global equity markets spiraling lower.

Mowat said there is little correlation between China’s stock market and its economy.

“I think what I really hope is that we go back to not caring about Shanghai Comp,” he said. “Remember this was a bear market from 2007 until June last year. The poor market’s only up 45 percent in the last 12 months, and that never seems to come up.”

While the bulk of macroeconomic data from China remains poor, there are bright spots, he said. He noted property sales are up 20 percent, and the real estate market has a more significant impact on the economy.

Read More: Goldman takes a knife to China GDP forecasts

In the end, the emerging market outlook comes back to the Federal Reserve, he said. The central bank is widely expected to lift its benchmark fed funds rate from near zero, possibly as soon as September.

Investors are remaining on the sidelines when it comes to emerging markets because they fear higher borrowing costs will have negative impact, Mowat said. However, history has not always produced that result, he added.

“I’d make people look at 2004. If you bought emerging markets on the day the Fed moved, you made a very large return, and part of that was just an unwinding of people’s fears,” he said.

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

Three reasons why investors remain confident on India

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

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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