Wal-Mart’s India departure, a sign of things to come?

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

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Wal-Mart’s decision this week to end a six-year joint venture with Indian conglomerate Bharti Enterprises is a blow to the government’s drive to attract foreign investment and could force other global retailers to re-think their expansion plans into the country, analysts say.

As the world’s largest retailer, Wal-Mart’s foray into India’s USD 500 billion retail segment has been closely watched by other global players looking to crack the promising yet challenging market.

The companies, which jointly operate 20 wholesale stores, sought to open full retail outlets in the country but ultimately decided to relinquish that plan. Wal-Mart will buy out Bharti’s 50 percent stake in the venture.

“The Indian government has acquired a very poor reputation among global multinationals for creating considerable uncertainty regarding the approval processes and also the taxation framework for FDI [foreign direct investment] into India,” said Rajiv Biswas, senior director and Asia chief economist at IHS.

“We are seeing a retreat by foreign multinationals from their investment plans in India,” he added, citing South Korean steelmaker Posco’s decision in July to scrap a proposed steel project in the India state of Karnataka due to long approval delays.

Following Wal-Mart’s announcement, Tesco — Britain’s biggest grocer — told CNBC TV-18 on Thursday that it is awaiting further policy clarity before making a decision regarding investing in the country.

While the Indian government has taken several steps to ease foreign investment rules in the past year and a half — such as allowing foreign supermarket chains to enter the country and own up to 51 percent in their local operations — there are many strings attached to its policies.

For example, it’s mandatory for companies to bring in at least USD 100 million worth of investment, split between the front and back end, and source at least 30 percent of their products from local companies. This creates problems for multinational firms that have global quality standards to adhere to.

Arvind Singhal, chairman of consultancy firm Technopak Advisors says foreign players’ limited interest in investing in India isn’t a surprise given the government’s restrictive policies.

“It’s not about the lack of desire to invest; it’s the practicality of implementing investment plans with government conditions. For example, if you’re a Walgreens or Foot Locker, you don’t need to put that kind of investment into the back end. This condition is onerous,” he said. “Hopefully, this will put pressure on the government to relook at its policies.”

 Singhal, however, sees Wal-Mart’s decision to continue its wholesale venture in the country despite its challenges as a positive signal. India allows full foreign ownership in cash-and-carry or wholesale operations.

“Macro indicators of the world are such that India does offer some kind of promise. Frustration is there, but the opportunity is still attractive enough,” he said.

Despite the allure of some 1.2 billion consumers and growth levels that are superior to that of developed nations, many India watchers say it will take some time before the country sees a pickup in FDI, particularly with the uncertainty of the 2014 general elections looming.

“The nearer we get to the election, the more likelihood any investment plans will be on the back burner,” said Radhika Rao, economist at DBS.

Three key reforms are urgently needed, Biswas said, noting that tax law for foreign investment should be rewritten to remove uncertainty regarding taxation of FDI, the approval process needs to be streamlined, and the restrictions on key sectors like retail should to be changed to make the regulations workable for foreign firms.

“Unfortunately the current Indian government seems to be in a state of denial about the need for such far-reaching reforms,” he said.

Read more: Wal-Mart to go solo in India, calls off JV with Bharti

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North Korea to open multimillion-dollar ski resort

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

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Poverty-stricken North Korea is gearing up to open a multimillion-dollar ski resort that is planned to be equipped with multilevel ski runs, two hotels, cable cars, and even a helipad.

The luxury resort, which is located a four-hour drive from the capital city Pyongyang in Masik Pass, is slated to formally open on October 10, the 68th anniversary of the Workers’ Party of Korea.

However, it appears that there is still work to be done in the resort, which has been under construction for the past 10 months. According to a report published by the Associated Press, the main hotel buildings appeared to be little more than shells and potholes filled the main access roads when visited by a reporter in late-September.

The prospect of a weekend on the ski slopes will be far out of reach for the majority of North Korea’s 24.7 million population, which earns on average USD 1,800 per year, according to the CIA World Factbook.

Kim Tae Yong, the secretary-general of North Korea’s ski association estimates there are 5,500 North Korean skiers in the country.

“Entrance fees are expected to be set at around USD 50. The average person in North Korea couldn’t afford to spend that,” said Simon Cockerell, general manager of Beijing-based Koryo Tours – a tour company specializing in North Korean travel.

Cockerell, who visited the project site in late-August, said it will be open to foreigners as well.

“In the region, the intensive population with the money to ski lies in South Korea, however they don’t have access to the country,” he said. “Foreign tourist numbers are still low, there will be about 6,000 Western tourists visiting the country this year.”

Kelvin Chan, head of country research at Euromonitor said the move is unlikely to drive tourists to visit North Korea, rather, it will be another attraction that tour organizers can add to their itineraries during the winter months.

“Only the adventurous travelers will choose to go to North Korea. After all, there are many ski resorts in neighboring countries such as China, South Korea and Japan,” he said.

The ski complex is believed to the pet project of the country’s leader Kim Jong-un, who reportedly enjoyed the sport as teenager while studying in Switzerland.

But building it hasn’t been an easy task. The country, for example, has faced trouble obtaining ski lifts because of sanctions imposed in March to make it illegal to sell goods to the recluse nation.

Last month, the Swiss government revoked plans for a company to sell North Korea USD 7.7 million worth of lifts and cable car equipment, according to AP.

Kim called the move “a pity,” the AP reported, but assured the resort would have three lifts by the end of the year. “We can make nuclear weapons and rockets,” he said. “We can build a ski lift.”

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Where are the ultra-rich finding their next home?

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

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The French Riviera hasn’t lost its cachet, topping the list of prime residential enclaves for the ultra-wealthy, according to research from Savills.

Cote d’Azur ranks highest on the Prime Enclave Index, ranking properties on average prices of luxury properties and hotels as well as exclusivity and global draw, according to research produced by Candy and Candy, Savills World Research and Deutsche Asset and Wealth Management.

“This sought-after region is the ultimate and most expensive leisure enclave for home transactions among the ultra-wealthy, attracting buyers from across Europe, North America and most actively at present, from the Middle East and Russia,” the report said.

A typical five-bedroom luxury property there costs around USD 28.5 million, outstripping nearby Monaco, which ranked fifth on the list with a USD 25.0 million price tag on a similar property, the report said.

Rounding out the top twenty places the ultra-rich want their next home are many of the usual haunts, such as Aspen in the US, St. Barts in the Caribbean and Italy’s Venice as well as a few off the beaten path, such as the Seychelles, the Maldives and Emirates Hills in Dubai.

Most of the ultra-high-net-worth individuals hail from North America, but they tend to stick closer to home, primarily doing their extra home shopping in the Caribbean and North American hot spots, the report said.

Like their North American counterparts, the Middle Eastern ultra-rich also tend to buy their extra homes closer to home, looking in Dubai and Abu Dhabi, although they’re also beginning to nibble in the Mediterranean, according to the research.

Russian wealth drives luxury property buying in many of the European destinations, but it`s also active in the Caribbean, it said.

But the one growing group of ultra-rich you won’t find high up on the list are the Chinese.

Chinese home buyers tend to focus on cities, and the chances for capital appreciation are generally weighed carefully, said Paul Tostevin, an associate at Savills World Research, in the report.

“Current cultural norms mean that indoor leisure pursuits are favored over sun and sea and, as a consequence, Chinese buyers have been found to seek a different product to those from the West,” he said, although he noted Hainan, an island in the South China Sea, part of which has been dubbed the “Chinese Riviera,” has been an exception.

Asian buyers in general tend to consider additional home purchases as part of an investment portfolio, the report noted. “A number of our clients have looked into buying properties in France and backed out at the last minute because they weren’t comfortable with the tax and legal systems – they’d rather just stay in a beautiful hotel when they are in Paris,” Mahesh Satya, Deutsche Asset and Wealth Management’s Head of Lending in Asia Pacific, said in the report.

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Singapore economy contracts in third quarter

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

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Singapore’s economy shrank 1 percent on a quarter-on-quarter basis in the July to September period, slowing sharply from double-digit growth in the previous three months.

The slowdown, however, was less severe than anticipated as analysts had expected a contraction of 3.6 percent, according to a Reuters poll.

Also read: Why Singapore’s economy looks set for a contraction

On a year-on-year basis, the economy grew a better-than-expected 5.1 percent, compared with forecasts for a rise of 3.8 percent.

The deceleration in growth was partly driven by the manufacturing sector, with activity slowing in July and August due to weakness in the electronics and pharmaceutical industries.

Financial services were also a drag, as equity and foreign exchange market activities fell on concerns over the Federal Reserve winding down its monetary stimulus and the threat of military intervention in Syria.

According to the Monetary Authority of Singapore (MAS), the country’s de facto central bank, economic activity should resume an expansion trend in the quarters ahead as “the external environment continues to improve.”

Also read: Singapore jumps to second spot in global IPO activity

It projects overall gross domestic product (GDP) growth will be around 2.5-3.5 percent in 2013, and is likely to remain around these levels in 2014.

The MAS kept its monetary policy stance unchanged, maintaining a “modest and gradual” appreciation of the Singapore dollar, as expected. It sets monetary policy by allowing the local currency to rise or fall against an undisclosed basket of currencies.

“Barring a significant deterioration in global demand conditions, the labor market will remain tight, and exert further upward pressures on MAS core inflation as firms pass on accumulated costs to consumer prices,” the MAS said in its policy statement on Monday.

Also read: Singapore home prices could fall 20 percent by 2015: Barclays

“MAS will therefore maintain its policy of a modest and gradual appreciation of the Singapore dollar policy band. There will be no change to the slope of the policy band, and the level at which it is centered,” it said.

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Meet the Ferrari guru who turns rusted metal into millions

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

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You might not expect billionaires to be lining up in their private jets to fly into Neenah, Wis., but they are. The man they want to meet with is Wayne Obry, one of the top Ferrari restorers in the country and his garage, Motion Products, has a year-and-a- half long waiting list just to get your car in the front door.

There are very few things in the world that money can’t buy, but it cannot get your Ferrari to the front of the line at Wayne’s garage — even if you’re a billionaire.

“Just because you have a couple of bucks, you can influence what we’re doing? You can change the commitments I’ve made to my other billionaire customers? Doesn’t happen,” Wayne explained.

But Wayne’s restorations are so good, his clients don’t mind the wait. Wayne is a Ferrari magician. He can turn junkyard-worth hunks of metal into multimillion-dollar award-winning works of art.

Wayne is a humble guy and doesn’t like to talk about money, but the average cost for a full restoration can be half a million dollars or more. Most collectors bring their Ferraris to Wayne for restoration because it’s their hobby … they aren’t looking to flip the car for a profit.

But, one of Wayne’s restorations, a 1953 Ferrari 340/375 MM recently sold at auction for USD 12.8 million—that’s a pretty hefty pay out … even for the super rich.

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Apple is not immune to PC bloodbath

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

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It’s no secret that PC sales have been, well, bad for awhile now. Sales of Apple’s Mac computers, however, have held fairly well up for the most part.

That may be shifting.

In the third quarter, Mac sales dropped 11 percent to 1.9 million from the period a year earlier, according to an IDC report. What’s more, Apple was the only company among the top five US vendors to post a decline in shipments.

“The PC market in general has been in six quarters of consecutive decline, and it’s getting cannibalised by tablet sales,” BGC Financial’s Colin Gillis told CNBC on Thursday.

“You go back and the peak actually happened in September of 2011. PC sales as a total are down 17 percent since then, and if you add up the numbers, it correlates with tablet sales. Tablets are cheaper, tablets are easier and the PC may wind up becoming more of a relegated, niche product.”

For Apple, it use to be all about the “halo effect,” Gillis said. Consumers would buy the iPhone or iPad, and Apple bet the consumers would get pulled into the entire ecosystem and begin buying MacBook Pros or MacBook Airs. But, that halo effect is fading, Gillis said on “Squawk on the Street.”

(Read more: Ditching Apple for Android? What you need to know)

“So on the one hand, we have a nice new revenue stream for tablets, and on the other hand we have PC sales slumping and that is a negative,” said Gillis, who has a USD 500 price rating on Apple stock.

(Read more: Why I don’t like Apple stock: Gabelli )

In addition to iPad sales cannibalizing Mac sales, Apple also has to worry about its tablet competition. Amazon, Google even Microsoft are offering tablets priced below Apple’s iPad.

(Read more: Samsung’s curved phone; new Apple iPads?)

“Price competition is impacting Apple in the tablet space. It’s the same pattern as phones. Android tablets have now crossed over the 50 percent line taking market share from Apple,” Gillis said.

Apple’s highest margin product is still the iPhone, followed by the iPad and then Macs. Gillis said that he sees only a few catalysts left for Apple, which includes a deal with China Mobile.

(Read more: Apple, China Mobile deal may be coming soon)

“Apple knows its niche,” he said. “They keep their prices high. They are trying to keep their margins intact, but unfortunately they are going to lose a segment of the marketplace. It’s just, it is what it is.”

—By CNBC’s Cadie Thompson. Follow her on Twitter
@CadieThompson

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Why gold is set for a 20% rally

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

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Amid uncertainty in the US and risk aversion in global markets, gold’s performance as a traditional safe-haven has proved lackluster. Yet one strategist reckons the precious metal could rally as much as 20 percent in the next one to three months.

Sean Hyman, editor of the Ultimate Wealth Report, a financial newsletter, says the reason for the bullish call is partly based on a view that under Janet Yellen the Federal Reserve is likely to maintain its hefty monetary stimulus, fueling inflation and boosting demand for gold as an inflation hedge.

US President Barack Obama on Wednesday nominated Yellen, the Fed’s Vice Chairman, to replace Ben Bernanke when he steps down as Fed chief in January.

“Gold is having a traditional pull-back and I think we will have another run up to the USD 1,500, USD 1,600 level in the next one or two or three months,” Hyman told CNBC Asia’s “Squawk Box” on Thursday.

Also read: Obama nominates Janet Yellen to lead US Federal Reserve

A move to USD 1,600 would imply a gain of almost 23 percent from current levels around USD 1,302 per ounce.

Gold has been stuck in a narrow range roughly between USD 1,280 and USD 1,320 since a budget impasse in Washington triggered a partial shutdown of the government on October 1. It is down about 22 percent in the year-to-date.

Uncertainty about the budget stalemate and fears about a looming deadline to raise the debt ceiling have supported gold. But the precious metal has not received the same boost as other safe-havens such as the Japanese yen, which hit a two-month peak against the dollar this week.

Also read: As lengthy shutdown looms, why isn’t gold rallying?

“This (move in gold) is a very curious development,” said Gaurav Sodhi, resources analyst at the Intelligent Investor. “If you had asked a couple of weeks ago what would happen to gold in the event of the current situation, every gold analyst would have said gold should move higher because historically that’s what happens at times of economic and political uncertainty.”

Simona Gambarini, associate director of research at ETF Securities, told CNBC earlier this week that the gold trade was not necessarily over and that most investors were on the sidelines waiting to see how US developments pan out.

Hyman said that ultimately gold would respond to the jitters about a looming debt ceiling as well as the outlook for US monetary policy.

“Yellen will have the same concepts as Bernanke. So money will continue to be printed, the economy stimulated and interest rates kept low as possible and that’s going to stimulate inflation, be good for commodities and bad for the dollar,” he said.

Markets, which had been braced for a scaling back of the Fed’s USD 85 billion-a-month bond-buying program, were taken by surprise last month when the central bank opted to maintain its monetary stimulus.

Also read: Fed battled over ending bond-buying: Minutes

“I’m not a gold bug, I don’t think every day and any day is a day to own gold, but I do feel we are now in that phase to own gold,” Hyman said.

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The ‘sexy’ central banker who’s causing a stir

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

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In his first month as Reserve Bank of India Governor, Raghuram Rajan has helped restore calm to volatile markets and a battered rupee. And it seems that investors are not the only ones impressed.

Rajan has been the subject of much debate in the local media over the past few weeks, with the words “rock star” and “sex symbol” bandied about.

“The local press is saying that because Rajan is `sexy` he will do a better job as central bank governor,” says Kelly Teoh, a market strategist at trading firm IG in Singapore. “Caring about your appearance has become more acceptable, but the focus on Rajan also reflects how we`ve become focused on looks and style.”

Indian columnist and novelist Shobhaa De, writing about the 50-year old central banker last month, said: “It`s not often one gets an RBI Guv [Governor] who makes hearts go `dhak dhak` each time he strides into a room.”

She`s not the only one who has focused on Rajan`s appearance: A recent article on Indian news website IBN Live highlighted how the local press and social media had focused at great length on Rajan`s “jawline, tailored suits and classy looks.”

It went on to contrast Rajan`s appearance to previous RBI governors to help explain why Rajan deserves to be compared with Bollywood movie start Ranbir Kapoor.

Rajan is not the only central banker that has had his appearance scrutinized as closely as his comments on the economy.

Mark Carney, who became Bank of England Governor in July, for instance has had his appearance likened to those of American film star George Clooney. Carney`s style also got a vote of confidence from leading men`s magazine GQ.

And in the US, where Janet Yellen was nominated on Wednesday to be the next chairman of the Federal Reserve, an opinion piece in the Los Angeles Times commented that one more thing to admire about the central banker was her shock of gray hair.

Rajan, a well-respected economist who previously worked at the International Monetary Fund, fell under immediate pressure to stabilize a battered rupee and restore confidence when he became RBI chief in early September.

The rupee hit a record low against the US dollar in late August, bearing the brunt of a sell-off in emerging markets amid fears about an unwinding of US monetary stimulus. India`s wide-current account, sluggish economic growth and slow pace of reforms exacerbated the rupee`s woes.

Rajan has helped soothe markets by outlining measures to shore up the battered currency. The rupee has recovered about 10 percent of its value from its record low, while India`s benchmark stock index rose to a three-week high on Thursday.

“Rajan has a lot of credibility and this has been one thing the market has focused on.He has been pro-active and we think he should remain so despite the fact that the Indian government heads into an election [next year],” said Teoh.

– CNBC.Com`s Dhara Ranasinghe; Follow her on Twitter @DharaCNBC

Copyright 2011 cnbc.com

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Are investors ignoring much bigger global risks?

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

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Bigger risks to the global economy have been overlooked in recent weeks amid intense focus on US politics, UK based research house Capital Economics warned.

With the US government shutdown set to enter its tenth day Thursday, speculation about the fallout from a potential debt default was center stage.

However, given the extremely low chances of a default and the fact that a default would likely turn out to be “less apocalyptic than many assume,” Capital Economics said other risks to the global economy required greater scrutiny.

“With all eyes on the US debt ceiling drama, the world`s more intractable economic problems may get overlooked… The unresolved debt and competitiveness problems of the euro zone and the structural slowdown in emerging economies are more serious problems than those of the US,” said Andrew Kenningham, senior economist at Capital Economics.

Given its fundamental problems, the euro zone “still poses the biggest risk to the global recovery,” Kenningham said.

The euro zone climbed out of a one-and-a-half year recession in the second quarter of this year, as better growth in Germany and France boosted the overall growth figures. However, growth in the peripheral countries remains lackluster, and it is this trend that has Capital Economics` Kenningham most worried.

“Peripheral countries are unlikely to achieve the growth rates needed to reduce their high rates of unemployment, and progress towards fiscal and banking union is likely to remain painfully slow,” he said.

Kenningham added that investors have been so focused on what a default by the world`s largest economy could mean for markets, they are ignoring the fact that the next sovereign default is far more likely to come from the euro zone than from the US.

And aside from the euro zone, structural issues faced by some of the major emerging economies were also a major concern for Capital Economics.This week the International Monetary Fund revised down its growth projections for the emerging world to 4.5 percent this year, from its previous forecast of 5.5 percent in January, and to 5.1 percent for 2014, from 5.9 percent.

But Kenningham said the IMF has been slow to recognize worsening conditions in the region.

“These countries` key problems are structural and can only be addressed by politically difficult reforms,” he said, specifying that China needed to boost household consumption and liberalize its financial system, while India, Russia and Brazil need to improve their investment climates.

“As progress on these structural reforms is likely to be sluggish at best, we expect the trend growth rate in emerging economies to remain well below its pre-crisis rate for the foreseeable future,” he said.

Capital Economics also said that markets had overreacted to the prospect of the wind down of the Fed`s flow of easy money. They expect the Fed`s exit from quantitative easing to be gradual, keeping interest rates near zero for at least two more years.

“Even if monetary conditions tighten in the US, they need not necessarily do so in other advanced economies. Most emerging economies should also be able to cope with a shift in global capital flows,” said Kenningham, adding the caveat that India, Turkey and South Africa could face further currency volatility.

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

Copyright 2011 cnbc.com

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Global PC sales tank to lowest level since 2008

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

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Global personal computer (PC) shipments tanked almost 9 percent on-year during the third quarter – a period of historically strong demand – to the lowest level in five years, according to a new report by Gartner.

“The third quarter is often referred to as the ‘back-to-school’ quarter for PC sales, and sales this quarter dropped to their lowest volume since 2008,” said Mikako Kitagawa, principal analyst at technology research firm Gartner.

PC shipments totaled 80.3 million units in the July-September period marking the sixth straight quarter of declining worldwide shipments.

(Read more: PC sales in China will get crushed this year: IDC)

The continued shift from PCs to tablets for daily content consumption is weighing on demand in both developed and emerging markets, the firm said.

“A greater availability of inexpensive Android tablets attracted first-time consumers in emerging markets, and as supplementary devices in mature markets,” said Kitagawa.

China’s Lenovo retained its crown as the top global PC maker with 17.6 percent market share in the third quarter, followed closely by Hewlett Packard (HP) with 17.1 percent market share.

“The upcoming holiday sales season will be a key battlefield for both companies,” Gartner said, noting that HP recorded its first positive shipment growth since the first quarter of 2012.

(Read more: Is the tablet market cooling off?)

While Lenovo held on to the number one position, weakness in its home market dampened the company’s overall growth. Robust growth in North America and Europe, the Middle East and Africa, however, helped to offset the softness, the firm said.

Taiwan-based Acer and Asus, the world’s 5th and 6th largest PC makers, meanwhile, suffered a sharp fall in shipments of 22.6 and 22.5 percent on-year in the third quarter as both companies shift their focus away from PCs to other device markets.

Shares of Acer and Asus fell 0.5 and 1.5 percent, respectively, on Thursday, while shares of Lenovo gained 0.9 percent.

— CNBC’s Ansuya Harjani; Follow her on Twitter @Ansuya_H

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