Month: December 2015

Indian stocks may fall when China ADRs join MSCI EM index

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

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Stocks in South Korea, Taiwan and India could bear the brunt of MSCI’s decision to add 14 US -listed Chinese companies to its Emerging Markets index.

The mainland currently holds a 23.9 percent share in the USD 3.5 trillion market-cap global benchmark, and that’s set to widen to 26.2 percent by next year, following the addition of heavyweight tech names including Alibaba, Baidu and Qihoo 360 Technology.

MSCI will add the companies at half their December 1 free float-adjusted market capitalization—i.e. the value of the shares held by the public—and then include the remainder at its May 2016 semiannual index review.

Once the changes are fully implemented next year, around USD 7 billion could move into these American Depository Receipts (ADRs) as passive funds that track the MSCI index snap up the assets, according to widespread estimates.

Because these funds mimic the MSCI index, investors are likely to rebalance their portfolios to match the new weightings, which could result in the “crowding out” of other markets, strategists say.

South Korea, Taiwan and India hold the highest individual MSCI EM index weightings after China at 16.1 percent, 12.3 percent and 8.4 percent respectively, so they are the most likely to see their weightings reduced in order to make space for the incoming Chinese ADRs.

MSCI has yet to release the new ratios of its country allocations, but the three Asian economies could see an estimated decrease in weight of about 55, 45 and 30 basis points respectively by May 2016, said Tobias Bland, chief executive of Enhanced Investment Products.

“Markets in Korea, Taiwan and India may see a knee jerk reaction at first but we’ll have to wait until passive funds actually add ADRS to their portfolio to assess the real impact,” said Bernard Aw, IG’s market strategist.

But that adjustment process could take at least anywhere from three to six months as foreign fund managers adopt a cautious approach to Chinese stocks amid a slowing domestic economy, Aw added.

Hong Kong stocks on the MSCI EM index, however, could get a long-term boost despite an initial minor cut in weighting since many are directly linked to China, Aw noted. Thus, if investors reallocate portfolio space to Chinese ADRs, they may include more Hong Kong companies as well.

Ultimately, how long the “crowding out” effect lasts depends on how seriously Beijing takes its financial and markets reform agenda, warned Alicia Garcia Herrero, chief economist at Natixis.

“This is a great opportunity for China to show off its reform efforts. These ADRs may be listed in the US  but they are still reflective of the mainland. If investors are unconvinced by Chinese reforms, the ‘crowding out’ effect could reverse and see other emerging markets benefit.”

Market participants have long awaited progress on capital account liberalization and full renminbi convertibility for concrete signs Beijing is serious about transiting into a more market-oriented system.

The same logic applies to the renminbi’s entry into the International Monetary Fund’s basket of reserve currencies on Monday.

While the news did bolster optimism regarding Beijing’s commitment to reforms, it remains to be seen whether the mainland is willing to sacrifice market stability to gain international credibility, according to Herrero.

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

China’s manufacturing contracted in Nov, services improved

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

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The pace of contraction in China’s manufacturing sector slowed in November and the services sector grew, signs that the country’s transition to a consumption-driven economy is back on track after a torrid summer, surveys showed Tuesday.

According to the final Caixin/Markit China Manufacturing Purchasing Managers Index, China’s manufacturing activity contracted for the ninth straight month in November, but more slowly than in October.

The private survey had a reading of 48.6 for November, up from 48.3 in October. Economists had expected the final November reading to be flat on October.

A reading above 50 indicates an expansion in activity, while one below point to a contraction.

Unlike the government’s gauge that concentrates on large firms, Caixin’s survey focuses on smaller and medium-sized companies.

China’s official manufacturing purchasing managers index, released 45 minutes earlier than the Caixin survey results, came in at 49.6 – slightly lower than October’s 49.8, according to data released by the National Bureau of Statistics.

The official figure also missed an economist poll by Reuters that expected a reading of 49.8.

This is the official measurement’s fourth straight month of contraction, taking the reading to a three-year low and fueling persistent concerns about sluggish growth in China despite a long series of stimulus measures, including six interest rate cuts since November 2014.

The official services sector PMI performed better however, with a reading of 53.6 – slightly higher than October’s reading of 53.1, allaying some worries about the slowdown in the world’s second-largest economy. The services sector is the biggest contributor to the GDP.

The rise in the services sector is likely to have been driven by online sales over Singles Day on 11 November, said Nomura in a note.

While weak foreign demand is still weighing on China’s manufacturing activity, the rest of the economy appears to be holding up “reasonably well,” said Capital Economic’s China economist, Julian Evans-Pritchard in a note.

“Overall, the official PMIs paint a nuanced picture. On the one hand they point to continued weakness in manufacturing which looks to have remained a drag on growth last month. On the other hand, there are some hints that accelerating credit growth and fiscal spending, on the back of recent policy easing, may have continued to support investment growth last month,” added Evans-Pritchard.

Some see the slowdown in China’s manufacturing activity as an inevitable step in the economy’s transition.

“The China slowdown basically feels really bad for the rest of the world and it’s going to continue to feel bad. That’s structural, that’s not changing. Everyone is focused on the manufacturing side, the old world, we need to shift gears…and services is all that matters today,” Hayden Briscoe, Director of Asia-Pacific Fixed Income, at AllianceBernstein told CNBC Squawk Box.

“People are still buying, they are still in the services jobs, there are more and more (such) jobs being created,” Briscoe said.

Last week, Chinese premier Li Keqiang said the country was on track to hit its growth target of about 7 percent this year.

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

This is when oil will hit rock bottom: CNBC Survey

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

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OPEC is not expected to take any action this week to prop up oil prices, which have yet to hit rock bottom, according to a new CNBC Oil Survey.

Oil is expected to reach new lows in the first half of next year, according to 46 percent of the analysts and traders surveyed by CNBC. Twenty-nine percent say the bottom could come even sooner, some time this month. Twenty-one percent believe oil has already touched its lows.

Some 70 percent do not believe West Texas Intermediate crude will rise above USD 50 a barrel again before the end of this year, and 58 percent of the survey participants expect it to end the year between USD 40 and USD 50 per barrel. Brent, the international benchmark, is expected to end the year between USD 40 and USD 50 per barrel, according to 67 percent.

The survey was conducted between November 20 and Monday.

One thing the 24 respondents agreed on unanimously was that OPEC members will not cut production at their upcoming meeting on Friday.

OPEC surprised the market last year when it dropped its strategy of using production cuts to support oil prices. It is expected to continue with that strategy even though WTI futures are struggling in the low USD 40s and Brent is hovering near USD 45 per barrel.

“I think it will be more of the same. I think the Saudis are going to continue to get pushback from the non-Gulf members who are in a lot of pain,” said Michael Wittner, global head of oil market research and head of US commodities research at Societe Generale. “Everyone’s in a lot of pain. The Saudis are drawing down their reserves and issuing bonds. So it’s not easy for them either, but they’re in better shape than the likes of Venezuela, Algeria and Nigeria.”

Wittner, in an interview, said he expects the OPEC meeting to be contentious. “From what they’re publicly saying, Iran may want some acknowledgment that they’re going to return,” he said. The sanctions against Iranian oil are expected to be lifted when the final approvals come on its compliance with the nuclear deal reached with the U.S. and five other nations earlier this year.

Read MoreSaudi’s stir speculation, but OPEC less relevant

Iranian oil is already priced into the market, according to a clear majority of respondents – 74 percent; 22 percent believe it has not been priced in.

However, the respondents were more evenly split on the timing of when Iran could return crude to the market in a significant way. About 39 percent expect it to be during the second quarter of next year, while 30 percent expect it to occur during the third quarter. Nine percent said they expect Iran could even come back as soon as the first quarter, while 8 percent said it could be much later — in the fourth quarter of next year or later. Thirteen percent said they were unsure.

OPEC has said it is will reduce production once higher cost producers cut, and even though the U.S. shale industry has been feeling the pain, it continues to produce at a high level.

More than half the respondents expect the U.S. to slightly reduce production by the end of the first half of 2016 from the 9.2 million barrels a day it has recently been producing. Thirty percent see a significant decrease in U.S. production in that time period. Oil production in the U.S. peaked this year at 9.6 million barrels a day, according to government data.

Oversupply and growing inventories continue to pressure prices, according to some of those surveyed.

“We are 211 million barrels above the five-year average. That’s the biggest surplus ever,” said Kyle Cooper, managing director of research at IAFA advisors and Criterion Research. Cooper said the market can only stabilize when supply stops building. Cooper said the U.S. storage of oil and other hydrocarbons is also 189 million barrels ahead of last year.

“Market sentiment remains weak and perhaps overly so,” wrote Helima Croft, chief commodities strategist at RBC Capital Markets. “Key bearish headlines continue to capture the imagination of the market. While fundamentals are far from rosy, supply and demand balances have tightened since the peak oversupply of the summer.”

If OPEC does not cut production as expected, 87 percent see no change in Russian production, while 14 percent see a slight increase. A solid majority, 77 percent, expect China’s oil demand to rise in 2016, while 17 percent expect it to remain unchanged.

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

Euro zone unemployment drops: More for Draghi to mull

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

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Unemployment levels among the 19 countries that use the euro fell slightly in October, giving the European Central Bank (ECB) more food for thought as it meets this week to consider stepping up measures to boost the region’s economic recovery.

The seasonally-adjusted unemployment rate for the euro zone was 10.7 percent in October, down from 10.8 percent in September 2015, and from 11.5 percent in the same month last year, according to data from the European statistics provider Eurostat.

This is the lowest rate recorded in the euro area since January 2012 at the height of the region’s economic and debt crisis. The broader 28-country European Union’s unemployment figures for October were stable on the previous month’s at 9.3 percent.

Nonetheless, in spite of a small improvement in the euro zone’s economy, with gross domestic product and business confidence figures pointing up, unemployment levels have remained stubbornly fixed at around 11 percent.

A drilldown into the figures show that some euro zone countries are faring far worse than others: In October the German jobless level dropped to 4.5 percent, while in Greece the figure is closer to one in four and in Spain it was one in five.

In the euro zone’s so-called peripheral countries — Spain, Italy, Portugal and Greece, youth unemployment statistics are far more concerning than the overall total: In Greece and Spain almost every other person aged under 25 is out of work while in Portugal it is one in three.

The president of the European Central Bank, Mario Draghi, has repeatedly warned that for unemployment and the economy to improve across the euro zone, structural changes — such as making it easier to hire and fire employees and easing the barriers to entry in some restrictive trades such as truck drivers and pharmacists – need to be introduced.

The ECB is meeting in Frankfurt this week to decide whether to step on the gas on the central bank’s massive trillion-euro bond-buying program to help bolster spending and employment in the region.

“October’s fall in euro-zone unemployment suggests that the steady labor market recovery has continued, but joblessness remains too high to stimulate wage growth,” Jennifer McKeown, the senior European economist at Capital Economics said in a note after the data.

She noted that these data – along with the business confidence figures – should do little to dissuade the ECB from announcing stronger policy support on Thursday.

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

OPEC: Are we going to see a Saudi change of heart?

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

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What do you do when you your carefully crafted plan simply doesn’t pay off? Do you abandon it, cut your losses and risk losing face? Or hold on to it, risking even further economic pain?

Ali bin Ibrahim Al-Naimi, the oil minister of Saudi Arabia, must be pondering that very question ahead of the December meeting of the Organisation of Petroleum Producing Countries (OPEC).

Exactly one year ago, Saudi Arabia, OPEC’s biggest producer, caused one of the biggest upheavals in the oil markets. At the 2014 OPEC meeting, it blocked a cut in output, choose to defend its market share in the oil market instead of defending the price in the face of persistent oversupply in the market. Effectively, its aim was to push out the highest cost producers and hope for prices to recover once supply falls. Basic Economics 101.

The following 12 months didn’t exactly go according to Saudi Arabia’s plan — or, for that matter, the economic textbook. Brent crude prices plummeted by 45 percent as US shale production didn’t fall as quickly as anticipated and global oil demand stayed weak. And that slump itself was no smooth ride. Volatility was the overriding theme of the year in oil. Many who had called the bottom in March rejoiced in April when prices rallied by 21 percent , only to see those gains evaporate again in the following months.

One year after – is oil swing producer Saudi Arabia calling it quits and retreating from its risky strategy?

Some comments last week seemed to indicate just that when a Saudi cabinet briefing said the “Cabinet stressed the Kingdom’s role in the stability of the oil market, its constant readiness and continuing pursuit to cooperate with all oil producing and exporting countries.”

The oil price rallied more than 3 percent on these bullish comments.

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

SDR inclusion to help China lure trillion-dollar inflows

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

IMF to include China’s RMB in benchmark SDR currency basket

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

China’s Caixin final manufacturing PMI at 48.6 in November

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

Chinese markets drop as November PMI disappoints

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

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Chinese markets opened in the red after investor sentiment took a hit from private and official November PMI surveys.

Elsewhere, Asian markets saw a bounce back on Tuesday despite a lower finish on Wall Street overnight, as investors eye key data due later this week.

US stocks closed lower on Monday, weighed by retail results. The Dow Jones Industrial Average was down 79 points, or 0.44 percent, at 17,720; the S&P 500 was 10 points, or 0.46 percent, lower at 2,080; and the Nasdaq fell 19 points, or 0.37 percent, to 5,109.

November saw overall gains in US equity markets despite incidents such as the terror attacks in Paris, the shooting down of a Russian warplane, and the worst week for China’s Shanghai Composite since August – all of which contributed to global markets volatility.

The S&P 500 eked out a 0.05 percent gain for November, while the Nasdaq gained more than 1 percent for the month. The Dow Jones industrial average ended the month up 0.3 percent.

Investors are focused on two crucial data due later in the week, before the Federal Open Market Committee meets in mid-December. On Thursday, the European Central Bank (ECB) will announce its monetary policy decision, then on Friday in the US November non-farm payrolls are out.

Chinese markets slip as PMI numbers disappoint

Chinese markets opened lower as investors reacted to official Purchasing Managers Index (PMI) numbers that missed Reuters’ forecasts.

The National Bureau of Statistics reported that China’s manufacturing PMI, a measure of activities in the factory sector, declined marginally, from 49.8 in October to 49.6 in November. The services sector PMI had a reading of 53.6 in November, 0.5 point higher than the previous month, reflecting the country’s gradual shift to a more services-led economy.

The Caixin manufacturing PMI number, released 45 minutes after the official survey results, was up slightly at 48.6 for November. The Caixin survey a closely-watched gauge of nationwide manufacturing activity focuses on smaller and medium-sized companies, which aren’t covered by the official data. A reading above 50 indicates an expansion in activity.

The Shanghai Composite was down 7 points, or 0.22 percent, at 3,439 after the official data was released. The smaller Shenzhen Composite and the tech-heavy Chinext was flat, while the CSI 300 Index was down 0.3 percent.

Chinese brokerages opened in the red, with Founder Securities seeing early loses of 2 percent as the China Securities Regulatory Commission’s investigations of short selling and speculation by brokerage firms continues.

Banking stocks were also down, with major banks recording losses between 0.16 and 2.19 percent. The yuan was flat against the dollar at 6.398.

The Wall Street Journal reported that the Industrial & Commercial Bank of China (ICBC), the country’s largest lender by assets, raised $300 million from a U.S. dollar-denominated bond offering via its Sydney Branch. ICBC’s shares were down 1.95 percent at the open.

Overnight, the International Monetary Fund (IMF) officially admitted the yuan into its Special Drawing Rights (SDR) basket, effective from October 1, 2016, affording it a reserve currency status alongside the dollar, euro, sterling pound, and yen. The yuan will make up 10.92 percent of the basket.

The IMF’s managing director Christine Lagarde said in a press release the decision to include the yuan was “a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems.”

Elsewhere, Chinese metal stocks were firmly in the red as the drop in China’s manufacturing PMI sent metal prices down.

Nikkei back over 19,900 mark

Japan’s Nikkei 225 was trading 170 points, or 0.87 percent, higher at 19,918 ahead of the unveiling of the 2016 fiscal budget.

Data from the Ministry of Finance released on Tuesday showed that Japanese companies raised their spending on equipment and factories by 11.2 percent year-on-year between July and September, indicating some positive sentiment.

Japanese blue chips traded in the green, with shares of Toyota, Sony, Canon, and Mitsubishi Electric gaining between 0.7 and 2.8 percent.

Kospi registers over 1 percent gain

The Seoul Kospi was up 21 points, or 1.06 percent, at 2,012 in morning trade as official data from the Ministry of Trade, Industries and Energy showed South Korean exports contracted for 11th consecutive month in November.

Exports dropped by 4.7 percent on-year to USD 44.43 billion as sluggish global demand continued to weigh, but the lower number still beat expectations. According to a Reuters poll, experts predicted South Korea’s exports to slump further down 8.3 percent on-year.

Imports, on the other hand, fell more drastically, down 17.6 percent on-year to total USD 34.07 billion for November.

Shares on the Kospi appeared relatively unaffected in early trade. Blue chip and tech stocks were trading mostly in the green.

Shares of consumer electronics giant Samsung Electronic was up 1.71 percent after the company announced Dongjin Koh would be the new president of its smartphone business. Koh will take over from the incumbent J.K. Shin, who, Samsung says, will stay on as the head of overall mobile division according to reports.

ASX trades in firmly positive territory

The ASX 200 traded 81 points, or 1.57 percent, higher at 5,248 in morning trade. The Reserve Bank of Australia (RBA) will meet later in the day but analysts do not foresee any changes in Australia’s monetary policy.

Evan Lucas, market strategist at spreadbetter IG, said in a note, “It may be one of the dullest RBA meeting today. Stevens and co have clearly ‘chilled out’ early and already gone on their Christmas holidays, having had a very busy year by their standards. I would be surprised if there are more than a dozen words that differ from the November statement.”

Banks were trading firmly in the green, with ANZ pulling ahead of the pack with gains of 2.17 percent.

Resources producers traded mixed on the back of slumping commodities prices.

Junior miners Mount Gibson and Atlas Iron saw early losses on the back of falling iron ore prices. Shares of Mount Gibson was down 1.32 percent while Atlas Iron recovered some of its early morning loss of over 7 percent to trade 4.8 percent lower. Big miners such as Rio Tinto, BHP Billiton, and Fortescue traded positive.

BHP Billiton shares were up 2.71 percent, after slumping the day before. Brazil’s government filed a civil lawsuit Tuesday morning during Asian trading hours against BHP, Vale, and their joint company Samarco Minerals for 20.2 billion reais (USD 5.2 billion) in damages, following a massive dam failure at a Samarco iron ore mine last month.

Oil producers were mostly in positive territory, with shares of Woodside Petroleum sliding up 1.66 percent.

The Australian dollar traded higher against the US dollar, fetching USD 0.7245.

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