Yuan weakness adds wrinkle to EM debt concerns

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

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Yuan weakness may put a spike in some companies` carry trades, adding another wrinkle of concern even as currency volatility has put emerging market corporate balance sheets under the microscope amid rising offshore debt loads.

“We have warned investors that the level of corporate indebtedness within emerging markets would mean that a close eye should be kept on corporate solvency,” Jefferies said in a note.

With Shanghai Chaori Solar Energy becoming the first Chinese company to default on its offshore bonds, the role of yuan carry trades – or bets that the Chinese currency would continue to appreciate – are also a concern, the bank said.

The yuan, also known as the renminbi, unexpectedly weakened recently, depreciating around 1.4 percent against the US dollar since the beginning of February. The move caught many investors off guard as yuan appreciation was widely seen as a one-way bet. The currency has attracted considerable foreign investor demand in recent years on its steady appreciation and relative stability.

Jefferies noted companies such as palm oil player Wilmar International have benefitted from the yuan`s appreciation.

“In 2013, Wilmar paid a net interest expense of only US$19 million on US$14 billion of net debt on its books. This is because it earned over 5 percent interest income on its US$12 billion of renminbi deposits while paying just 2.2 percent interest on US$26 billion of largely U.S. dollar-denominated short-term debt,” the bank said. “If the renminbi appreciation trend were to reverse, as it has done recently, Wilmar`s net interest expense could potentially spike, unless its treasury moves quickly to mitigate the exposure.”

The figures may be subject to some interpretation. “We will not be able to confirm the figures in the Jefferies report as they are the analysts` own calculations,” a Wilmar corporate communications representative said via email.

But the investment bank noted that overall, Hong Kong banks have loaned over $400 billion since the US began its quantitative easing program or around 20-25 percent of its annual gross domestic product every quarter since 2010.

“Some of this lending has been through Dim Sum bonds, loans and trade financed. Wilmar`s financial actions are probably just the tip of the iceberg,” Jefferies said.

Concerns over the level of emerging market corporate debt have been heightened as many emerging market currencies have weakened as the US Federal Reserve began unwinding its quantitative easing program.

Data from the Bank for International Settlements (BIS) show emerging markets` international corporate bond issuance rose to around USD 335.6 billion in 2013 from USD 151.5 billion in 2010, even as the average credit quality has been deteriorating.

“In an environment of rising global interest rates and emerging market currency depreciation, this hard currency debt could become increasingly difficult for borrowers to repay,” Nomura said in a note last week.

To be sure, not everyone believes the level of corporate debt in emerging markets is a matter of great concern.

“The BIS are sort of leverage scolds,” said Tim Condon, head of research for Asia at ING Financial, adding he isn`t concerned the corporate debt levels will become a macro issue.

He noted the renminbi has appreciated, with few interruptions, for around eight years. “That is bound to have attracted some speculative positions behind it,” he said. “I`m sure some corporates have done too much of that – and some individuals – but I`m not sure micro distress is a macro problem.”

He`s not alone. “As global interest rates rise, emerging market corporate debt costs will rise,” noted Lorraine Tan, director of equity research at SandP Capital IQ. But she added, while that would make it more difficult for companies to raise capital ahead, “I don`t think it should impede current instruments.”

She expects rates will rise in “baby steps,” and that it wouldn`t be quickly enough to sink Asian companies. Within China, savings rates are also still controlled by the government and those rates also aren`t likely to move quickly enough to become a major risk factor, she noted.

-By CNBC.Com`s Leslie Shaffer; Follow her on Twitter @LeslieShaffer1
Copyright 2011 cnbc.com

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No sign of flight MH370 as search efforts doubled

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

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The mystery surrounding Malaysia Airlines flight MH370 mounted on Tuesday as the search effort involving 10 countries expanded its reach.

More than 70 aircraft and ships are involved in the search, which has so far failed to find any sign of the Boeing aircraft that lost contact with air traffic control en route to Beijing from Kuala Lumpur on Saturday.

(Read more: Why a high-tech jet is so hard to find)

“There are no traces and no objects that we have picked up from the sea that comes from the aircraft concerned,” Azharuddin Abdul Rahman, director general of Malaysia’s Civil Aviation Department, told CNBC in a telephone interview.

“I hope everybody will stay patient, we are doing our work, we are intensifying our search and we will not stop until we find something from the aircraft,” he added.

The search area radius for the missing plane has been expanded to 100 nautical miles to cover a larger area of the Gulf of Thailand between Malaysia and Vietnam. Some experts say that search area should be expanded even further.

Amid reports about possible sightings of debris, one compelling lead turned out to be inconclusive. Malaysia’s authorities said late on Monday that oil slicks spotted off the coast of South Vietnam were not connected to the missing plane.

“We have inputs around the world from satellite images, so far we have received two reports this morning,” said Azharuddin, adding the reports have proved inconclusive.

News conference postponed

A news conference scheduled for 10 am local time on Tuesday was postponed indefinitely, suggesting that Malaysian authorities have no new news to offer at this stage.

“The mere fact that this is still a search and rescue [operation] rather than a disaster, underlines how uncertain the authorities are as to what could have happened to this airplane,” Alistair Newton, senior political analyst at Nomura told CNBC.

Malaysia’s chief investigator told CNBC he could not say at this stage whether the nature of the operation would change from search and rescue.

“We have to have a very deep analysis of what is going on, what is expected for the next few days,” Azharuddin said.

Flight MH370 disappeared early on Saturday, about an hour into its flight from Kuala Lumpur, after climbing to a cruising altitude of 35,000 feet.

The aircraft carrying 227 passengers and 12 crew members had people from 14 nationalities including at least 152 Chinese, 38 Malaysians, seven Indonesians, six Australians, five Indians, four French and three Americans, according to Malaysia Airlines.

“It’s actually beyond perplexing,” said Mark Weiss, civil aviation lead at defense consulting firm The Spectrum Group. “I did fly the Boeing 777… I am very familiar with the aircraft, and being familiar with the aircraft I am very uncomfortable, that airplane just doesn’t fall out of the sky.”

 Adding to the mystery of the Malaysia Airlines plane is news that at least two people on board were traveling on passports stolen from an Austrian and an Italian. According to media reports, authorities are investigating those passengers’ thumb prints.

(Read more: Passports are weak link in overseas airports)

Focus on emergency transmitter

Experts voiced their concern that no signal from the aircraft’s emergency locator transmitter had yet been located.

“The emergency locator transmitter is probably continually pinging now. It’s perhaps in a great depth of water, and the search is located far afield if they are not currently locating that,” said Weiss at The Spectrum Group.

(Read more: Will Malaysian Airlines investors endure tragedy?)

 “If you remember what happened on the Air France 447 flight, it was a number of days before they found wreckage and it was quite some time before they were able to get the pinging from the electronic transmitter,” he added, referring to the Air France flight that went missing over the Atlantic in 2009.

Assistance teams from the U.S. National Transportation Safety Board (NTSB), Boeing and U.S. Federal Aviation Administration arrived in Malaysia on Monday to help in the investigation.

“They [the NTSB team] would work in conjunction with them [Malaysian authorities] in trying to determine a trajectory pattern based on whatever radar info is available and try to narrow down a search area to the most likely places.” said Greg Feith, a former senior air safety investigator at the NTSB in Denver, Colorado.

— Follow us on Twitter @CNBCWorld

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Investment quandary in a hostile world

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

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The economic fallout from the political and military instabilities we now see in East Asia and Central Europe is the result of failures to properly manage the changing security environment.

These are not the usual forecasting failures.

There has been nothing sudden and unpredictable about China`s growing political clout as a result of its extraordinary economic development. That long and gradual process, starting in the late 1970s, was vigorously supported by American and European technological transfers and their open markets for exports produced by western joint-ventures in China.

Russia is a similar story, except that it got fewer joint-ventures and an unbalanced trade with the West, consisting of Russian energy and raw material exports and huge imports of European technology and consumer goods.

There was nothing intellectually impenetrable about the possibility that, at some point, these countries` economic development would lead to serious security challenges to the existing world order. Both countries have unresolved border issues and scores to settle of the dethroned superpowers.

If a management consultant looked at this as a problem in a corporate environment, the verdict would most likely be that those who now seem shocked by the strategic challenges posed by the resurging China and Russia are guilty of hubris and complacency – nice euphemisms the financial markets would simply label as “wrong calls.”

But the people paying for that kind of public service may be less forgiving. Their mood would probably be aptly captured by Ibsen`s famous line: “But, good Lord!–you can never pretend that it is right that the stupid folk should govern the clever ones …”

Lack of Russia experts?

To deflect the looming blame game, some influential US media are already spinning the view that nobody is responsible for this. It`s all back to the former US Defense Secretary Donald Rumsfeld`s (affectionately known as “Rummy”) idea that “stuff happens.” The argument of the moment is that more than four months of Ukraine`s violent insurrection caught people out because “the US does not have enough Russia specialists.”

Clearly, a disingenuous claim if there ever was one.

The trouble is that Ukraine is just the latest in the line of potentially virulent flashpoints. What will happen to “frozen conflicts” that could flare-up in Georgia, Moldova and Nagorno-Karabakh (involving Armenia and Azerbaijan)?

And what will be the response to Russia`s apparent desire to reunite the post-Soviet space through its Euro-Asian Community, where Russia, Kazakhstan and Belarus have already created a closely knit customs union? Armenia is now in accession talks, with other countries in the region not far behind.

The former U.S. Secretary of State Hillary Clinton warned that the U.S. opposes these Russian designs. At a press conference in Dublin, Ireland, on December 6, 2012 she said (only a few hours before meeting her Russian counterpart) that: “There is a move to re-Sovietize the region… But let`s make no mistake about it. We know what the goal is and we are trying to figure out effective ways to slow down or prevent it.” Ukraine definitely looks like a good test of that policy.

Sanctions are warfare by other means

A similar test continues in Asia. Washington`s original “pivot to Asia,” subsequently changed to “rebalancing to Asia,” has been qualified as a move to counter China`s growing economic and political importance in the Asia-Pacific. That was no news to Beijing; it knew all about it for quite some time, and it needed no particular message to understand the security implications of 60 percent of U.S. naval assets being positioned in its neighborhood.

That is the context in which the world is now facing the possibility of a much more serious military conflagration in East Asia than anything that could happen in Ukraine. Indeed, daily skirmishes in the South China Sea can easily ignite, through “accident” or “miscalculation,” a Sino-Japanese war, drawing in the U.S. by virtue of its guarantees of Japan`s security. And then picture this: A conflict between the two fiercely resentful powers with nuclear warheads on their intercontinental ballistic missiles.

Or think of an “accident” during North Korean missile launches and massive military drills in and around the Korean Peninsula.

It, therefore, sounds odd when voices of concern are now raised about this year`s 12.2 percent increase in China`s military spending. It seems like people are wondering what China is preparing for.

And it is even more surprising that, in spite of this, the “international community” expects China and Russia to cooperate in the political settlement of (a) the war-ravaged Syria, (b) the seemingly insoluble Arab-Israeli conflict, (c) Iran`s suspected nuclear ambitions, (d) the volatile inter-Korean relations, (e) the post-NATO Afghanistan and (f) the factions-torn, proxy wars in the bombed out Iraq.

That is an explosive agenda for what Russians strangely call “partners” – people pretending that the guns they have pointed at each others` temples are full of blanks.

But countries spoiling for massive sanctions – as now seems to be the case — are not firing blanks. To paraphrase the Prussian general von Clausewitz, sanctions, stock market and currency attacks are warfare by other means.

Investment implications

Investors have to realize that in that kind of hostile world Rummy`s “stuff” can easily happen. And one does not have to be paranoid to think that Ibsen`s earlier quoted line clearly alludes to such a possibility.

So, what are investors to do?

The safest first principle could be: Stay local as much as possible.

But watch the fallout from sanctions and martial games. If (admittedly a big “if”) the reason prevails, your equity portfolio may still benefit from the expansionary monetary policies in the US, the euro area and China.

Blanket statement to stay away from fixed-income instruments may no longer apply for sanctions-distorted financial markets. In such a fragmented world, good quality bonds, if you can find any, could be part of a temporary flight to safety.

I also wish to repeat my positive outlook for gold. Having read so far, you might guess that my optimism about the yellow metal is based on growing geopolitical instabilities.

Energy prices could also shoot up. Ukraine has already practically defaulted on $1.89 billion it owes to Russia`s Gazprom. The huge pipeline system running through Ukraine could soon be shut down to leave the Central Europe in a deep freeze, as was the case for 20 days in the early months of 2009.

Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.

Follow the author on Twitter @msiglobal9

Copyright 2011 cnbc.com

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

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

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Copper’s ‘fall out of bed’ underscores China woes

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

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Copper prices fell to their lowest level in four years on the Shanghai Futures Exchange on Monday, after tanking 5 percent, a move which analysts say underscores China`s bleak outlook following weak data and the country`s first ever corporate debt default.

(Read More: What that China debt default means to the market )

The most heavily traded copper futures contract on the Shanghai Futures Exchange fell 5 percent – its daily limit – to 46,670 yuan (USD 7618) a tonne.

The move followed a steep fall in the price of copper futures on the Comex division of the New York Mercantile Exchange on Friday. May futures tumbled 4.2 percent to USD 3.0825 a pound, the heftiest one-day drop since December 2011, and the lowest level since July.

Analysts closely watch copper prices as a barometer for global risk appetite, as it is sensitive to macro-economic developments.

“I am a little bit concerned by it [copper`s fall],” Jonathan Barratt, chief investment officer at Ayers Alliance, told CNBC Asia`s Squawk Box on Monday.

“The [China] data wasn`t that impressive, and when you combine that with [last week`s bond] default, it presents a weak picture in terms of demand and ongoing ripples that that will cause. So copper did fall out of bed, which I think was something that was expected,” he added.

Copper contracts for delivery May 14, on the Commodities Exchange Centre (CEC), over the past five days.

Copper`s swoon comes against a backdrop of worry about slowing Chinese demand, which has seen prices slump 9.2 percent year to date. China, the world`s largest copper importer, accounts for around 40 percent of global demand.

According to the Shanghai Futures Exchange, copper stockpiles increased for an eighth straight week last week, their longest rising streak in two years.

“Any kind of weakness in demand is going to highlight the fact that the market is potentially reaching a tipping point between supply and demand,” said Ric Spooner, chief market analyst for CMC Markets in Australia.

“Broadly speaking, leaving out the global financial crisis, a shortage of copper caused by the growth of China has kept prices strong. Now as copper production is growing faster than demand, the market`s slight deficit could turn into a slight surplus – which will have a big impact on prices,” he said, adding that in his view copper`s fair value sits between USD 2.75 and USD 3 a pound.

“Copper prices normally see strong technical support at USD 3, if we break below that it could move lower,” Spooner added.

Official data released over the weekend showed China moved into a trade deficit for the first time in 11 months after exports fell 18.1 percent on year in February, provoking concern over the health of the world`s second largest economy.

Adding to the pain was benign inflation data showing consumer prices rose 2 percent in February, the slowest rate in 13 months. News last week of China`s first corporate bond default in at least 17 years delivered another hefty blow.

– By CNBC`s Katie Holliday: Follow her on Twitter @hollidaykatie
Copyright 2011 cnbc.com

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

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Malaysia authorities: ‘Puzzled’ over fate of MH370

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

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Malaysian investigators said on Monday that they have still not found anything that could be parts of missing Malaysia Airlines flight MH370 as the search effort entered its third day.

Azharuddin Abdul Rahman, the director-general of Malaysia`s Department of Civil Aviation, said hijacking had not been ruled out and all possibilities were being explored in the disappearance of the plane, which he described as an “unprecedented aviation mystery.”

“We remain puzzled,” he told a news conference in the Malaysian capital Kuala Lumpur. “To confirm what happened to this ill-fated aircraft, we need to see parts of the aircraft. We have not secured any parts of the aircraft today.”

The next update from the Malaysian authorities is due at 4 pm local time.

Flight MH370 disappeared early on Saturday, about an hour into its flight from Kuala Lumpur to Beijing, after climbing to a cruising altitude of 35,000 feet.

International police agency Interpol confirmed on Sunday that two passengers on the flight had used stolen Austrian and Italian passports, raising fears about a possible terrorist attack. Separately, Malaysian authorities said on Monday that five passengers did not board the flight.

About 40 ships and roughly 34 aircraft from countries including the U.S., China, Australia and Singapore are taking part in the search effort for the plane carrying 227 passengers and 12 crew members.

“I think fundamentally, they are searching in the wrong location,” Scott Hamilton, founder of Seattle-based aviation consultancy Leeham, told CNBC.

“If the plane has gone down anywhere along the intended flight path, I feel very confident we would have seen debris. The fact that you haven`t seen debris suggests to me the airplane crashed some place else, whether on land or some place else in the water,” he said. 

Verifying reports

According to a report in the Wall Street Journal on Monday, a search and rescue plane from Vietnam spotted fragments of the missing Malaysian plane including parts of the door. Other reports focused on oil slicks that may have come from the plane.

Reuters meanwhile reported a senior source as saying that officials investigating the disappearance of the jet suspect it may have disintegrated in mid-flight.

Reports regarding the missing plane have not been verified, the Malaysian authorities said.

Highlighting the lack of information about the plane`s fate, a U.S. Navy P-3 aircraft capable of covering 1,500 square miles every hour swept the northern part of the Strait of Malacca on Monday, on the other side of the Malay peninsula where the Malaysia Airlines flight last made contact, Reuters reported.

Fuad Sharuji, vice president of operations control at Malaysia Airlines, said the airline had received several pieces of information that may be related to the missing aircraft but have so far proved inconclusive.

“At the moment, we are as desperate as anyone else to find evidence at all,” he told CNBC Asia`s “Squawk Box.”

Mystery

No distress signal was sent from the lost plane, which experts said suggested a sudden failure or explosion. Malaysia`s air force have said radar tracking showed the plane may have turned back from its route before it went missing.

“Certainly something unexpected happened and it had to be catastrophic in nature in order to prevent the crew from communicating it,” said John Goglia, former member of the National Transportation Safety Board in the U.S. “That doesn`t rule out mechanical failure and it doesn`t rule out some sort of activity by person or persons unknown.”

Analysts were drawing parallels to Air France flight 447, which crashed in the Atlantic midway through a flight in 2009 without sending a distress signal.

“You can only draw on previous crashes and I draw on ones I have worked on and there are many similarities to Air France 447,” said Mary Schiavo, an aviation attorney at Motely Rice and a former inspector general of the U.S. Department of Transportation.

“Except that there`s one glaring dissimilarity and that is that we`ve got no information from the plane. And working on Air France 447, we were aided by the fact that the airplane itself sent information back to base,” she said.

The Malaysia Airlines jet last had contact with air traffic controllers 120 nautical miles off the east coast of the Malaysian town of Kota Bharu, about an hour after take-off.

Distraught

Distraught families of loved ones on the Malaysia Airlines flight meanwhile continued to await news.

“The last time I heard from my son, he called before the flight to say he would be home before 9 am,” Lu Zhanzhong, the father of one passenger told CNBC in Beijing.

Another upset relative said: “My grandparents were on the plane and they were nearly 80 years old, we don`t have much hope.” 

Families voiced their frustration about the lack of information, while there was also some anger towards Chinese authorities and the absence of senior officials at the Beijing crisis center where friends and relatives awaited news of loved ones.

The annual session of the National People`s Congress, China`s top legislature, is taking place in Beijing. China has sent ships to help in the search effort.

“Malaysia Airlines` primary focus at this point in time is to care for the families. This means providing them with timely information, travel facilities, accommodation, meals, medical and emotional support. The costs for these are all borne by Malaysia Airlines,” Malaysia Airlines said in a statement.

It has said people of 14 nationalities were among the 227 passengers, including at least 152 Chinese, 38 Malaysians, seven Indonesians, six Australians, five Indians, four French and three Americans.

In Kuala Lumpur, shares of Malaysian Airlines dived almost 18 percent to hit a record low as markets reacted to the news of the missing Boeing 777 aircraft.

“This is one of the safest planes ever built in the history of the business and of course the weather in the area was quite clear. So I think we can probably rule out some kind of technical failure of the equipment,” said Richard Aboulafia, vice president of analysis at Teal Group Corporation, a firm which offers aerospace and defense industry market analysis.

“I think we are looking at some kind of human event unfortunately. Definitely the two passengers traveling on false passports is a red flag…That`s undoubtedly where the focus of the investigation is going to turn as soon as we know more about the location of the crash site,” he said.

Boeing has said it is monitoring the situation and has sent officials to help in the investigation.

– Reuters contributed to this report 

Copyright 2011 cnbc.com

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

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

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

Just how big will the messaging app industry get?

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

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Mobile messaging apps are poised for explosive revenue growth over the coming years, according to Macquarie, as they expand offerings beyond basic chat services in order to monetize rapidly growing user bases.

The bank forecasts the messing app universe – which includes WhatsApp, Japan`s Line and China`s WeChat among others – will generate almost USD 25 billion in annual revenue by 2017, up from under USD 1 billion last year.

The forecast is based on the projection that the user base of messaging apps will grow to 2.9 billion users from 1 billion-plus currently.

“[Chat apps] are increasingly evolving into advertising networks, games platforms and other services,” Macquarie analysts, led by David Gibson, wrote in a report.

This is particularly the case with the Asian messaging services, which have placed more emphasis on revenue generation by enriching basic chat functionality, with payment services, game centers and sticker stores.

“Asian chat apps are not just messaging services but evolving to full social services that are encroaching on existing social network(s),” they added.

On top of these additional services, increased revenue will come from advertising. “We think chat apps could help accelerate the shift to mobile advertising as they shift to monetization,” Macquarie said.

Line: an underappreciated app

Macquarie says the earnings potential for Line – Japan`s most popular messaging app – remains “underappreciated.”

“Line has the biggest revenue opportunity of the chat apps from a games/advertising perspective because its… home base of Japan is the largest mobile games market in the world and because 85 percent of its user base is outside Japan, which could be monetized,” the bank said.

Line, which had led the push towards monetization, brought in around  USD 335 million in revenue last year, according to Reuters. By 2017, the bank estimates it will generate USD 2.2 billion.

“Line in particular is not sitting still with its offering and continues to expand the services that are offered next to the core messaging service like manga, utilities, radio, ecommerce (C2C,B2C), calls and sponsored accounts (like on Twitter),” the bank said.

This will pose an interesting challenging for WhatsApp, which has vowed not to resort to advertising or games to drive revenue, on top of its annual $0.99 fee.

Analysts expect the Facebook-owned messaging service could add functionality around voice, video, potentially payments to ramp up monetization over time, instead.

“We believe these expanding services are pushing into Facebook`s realm and beyond and hence WhatsApp may struggle stay relevant to its users,” the bank said.

-By CNBC`s Ansuya Harjani. Follow her on Twitter @Ansuya_H

Copyright 2011 cnbc.com

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

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

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

Global debt markets hit USD 100 trillion-mark

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

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Global debt markets burgeoned to an estimated USD 100 trillion last year, according to the Basel-based Bank of International Settlements (BIS), which also highlighted a growing decline in cross-border lending since the start of the financial crisis.

The BIS – known as the central bank of central banks – released its latest statistics from mid-2013 on Sunday showing the USD 100 trillion debt issuance figure had risen from a figure of USD 70 trillion in mid-2007 with governments being the largest providers.

Read More: Rare bond default warning in China a good thing?

The stock of public debt securities reached USD 43 trillion in June 2013, about 80 percent higher than in mid-2007. Debt issuance by non-financial corporates grew at a similar rate, albeit from a lower base,” analysts Andreas Schrimpf and Branimir Gruic said in the report released on Sunday.

The BIS noted that since the financial crash of 2008 there has been a shift in how money is borrowed — increasingly through debt markets rather than bank lending. With the financial sector curbing lending and opting for more deleveraging, governments have issued debt in their place to kickstart their economies and bail out the financial sector.

The sheer scale of global debt markets is going to remain a very significant factor in the future, according to Bill Blain, a senior fixed income broker at Mint Partners, who predicts that it will keep growing as long as there is demand. He said that new regulations ensure that the financial sector will remain in a “trough” but governments would keep the trend going despite reining back on spending.

This rise in debt issuance only poses a problem if inflation was to rise sharply while there was still slack in the economy, according to Peter Chatwell, an interest rate strategist at Credit Agricole Corporate. This would then force central banks to tighten policy forcefully and destabilize the recovery, he added.

Watch: Bubble building in high-yield corporate debt: Pro

Schrimpf and Gruic noted that sluggish lending from the financial sector – who traditionally lend to international markets – has left a dent in cross-border investment in global debt securities. The share of debt securities held by cross-border investors either as reserve assets or via portfolio investments fell from around 29 percent in early 2007 to 26 percent in late 2012, they said.

“This reversed the trend in the pre-crisis period, when it had risen by 8 percentage points from 2001 to a peak in 2007. It suggests that the process of international financial integration may have gone partly into reverse since the onset of the crisis,” they said in the report.

This is a “headache” for policy-makers, according to Kit Juckes, global head of foreign exchange strategy at Societe Generale. Banks are increasingly drawing their business in to their home countries – a move that is not helpful for growth, and reflects investor and bank caution as a result of the great recession and the European peripheral crisis, he said.

“It isn’t healthy to see money flow less freely around the global economy, but on a positive note, this is likely to be ever so slowly reversed and normalized in the years ahead,” he said, adding that as deleveraging enters its final stages “re-globalization” instead of deeper “balkanization” would occur.

Read More: ‘Doom loop’ spells danger for Europe’s debt markets

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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

Bitcoin pits the gold bugs vs the ‘techno geeks’

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

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At first glance, one might expect bitcoin to be something that would unite opponents of so-called fiat currencies—the government-printed dollars, yen and euros that form the backbone of global commerce but aren’t backed by hard commodities like gold.

But that’s not proving be the case. Not everyone who believes in currencies backed by gold believes in bitcoin.

“The main problem with bitcoin is it doesn’t solve the problem of fiat money,” said Peter Schiff, CEO of Euro Pacific Capital and a staunch defender of gold. “You have no store of value in bitcoin because there’s no value to store.”

The endorsement of bitcoin by marquee investors like Richard Branson, the Winklevoss twins and Marc Andreessen has done little to assuage skeptics who doubt bitcoin’s potential as a long-term complement or competitor to gold.

Read more: Head of virtual currency exchange found dead in Singapore

In addition to its lack of security and its short history, Schiff argued that for the virtual currency to rival gold or regular money, it would need to be widely accepted as a form of payment. The government would also have to see it as a store of value, something that hasn’t happened yet.

“If you want to open it up to the masses, you have to make it acceptable to the government. But that sacrifices everything that makes the currency attractive” including its anonymity, he said.

Bitcoin “is not an efficient payment system,” Schiff said, other than to those he derided as “Libertarian techno-geeks. It’s tulip mania 2.0,” he said, referencing the notorious 17th century speculative bubble in flowers that took place in Holland. Schiff said he believes the same fate awaits the cryptocurrency in a matter of years.
‘Gold, gold and nothing but gold’

One thing is certain: Bitcoin has seen vertigo-inducing volatility. Last year, the currency surged to a record high above $1,100, only to crash below $500 in the wake of the collapse of Mt.Gox, the largest bitcoin exchange. Late last week, the cryptocurrency flirted with $700.

On most policy topics, gold standard advocates still agree more than they disagree, especially when it comes to monetary policy and the perils of deficit spending.

Still, if it’s not yet leading to a full-fledged schism, bitcoin has at least prompted a sharp debate between the old guard and the new.

Read more: ‘Real’ bitcoin creator: ‘I am not Dorian Nakamoto’

The cryptocurrency’s enthusiasts, such as Austin Alexander of the Bitcoin Center in New York City, say with time and greater credibility, bitcoin can be more widely adopted. Traditionalists, he added, are fixated on “gold, gold and nothing but gold.”

It will take years, Alexander said, for bitcoin “to compare to something like gold, which has had thousands of years of [convertibility], to develop into a mature payment mechanism.”

 Steve H. Hanke, professor of applied economics at The Johns Hopkins University and a scholar at the libertarian Cato Institute, pointed to bitcoin’s volatility and lack of security. He called it “the speculative asset of the century.”

Hanke, who directs the Troubled Currencies Project for Johns Hopkins and Cato, views the virtual currency’s popularity as more computer science than economic theory. He said supporters were “computer geek” dilettantes with little appreciation for the historical evolution of currency.

“The ignorance of money is phenomenal,” Hanke said, adding that bitcoin’s biggest champions are “Silicon Valley kind of guys. None of this crowd has a clue about money and banking.”

Read more: Bitcoin’s back to the wall as it fights to survive

Although he considers himself bullish on electronic money, Hanke thinks bitcoin is too volatile—and its open-source code too insecure—to function as a challenger to fiat currencies.

“The wave of the future is virtual currencies, but as a means of transaction” like PayPal, credit and debit cards, said Hanke, who argued that a stable currency must be linked to a physical commodity to ward off hyperinflation.

“Stability is everything when it comes to currency … and bitcoin is very unstable, and very volatile.”

—By CNBC’s Javier E. David. Follow him on Twitter @TeflonGeek.

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Malaysia Airlines won’t ground B777 fleet, CEO says

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

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Despite being hit by the worst disaster in its forty one-year history when a Boeing 777-200ER jet en route to Beijing disappeared from radar on Saturday, Malaysia Airlines said it won’t ground the remaining 14-strong B777 fleet.

Replying to questions from CNBC at a Sunday press conference, MAS chief executive Ahmad Jauhari Yahya said he remained “very confident” of the “despatch ability and reliability” of the Boeing 777-200 fleet.

Jauhari echoed earlier remarks from Azharuddin Abdul Rahman, Malaysia’s Director General of Civil Aviation, who said his department hasn’t issued any order to MAS to stop flying the jets despite the incident. The search for the missing aircraft, which disappeared from radar in the small hours of Saturday morning, entered its second day Sunday and now involves at least six nations.

Read more: Amid anxiety, search continues for missing Malaysia flight

Aviation experts told CNBC that because MAS had not yet found any debris – or the black box flight recorder – they could not reconstruct the plane, determine exactly went wrong and establish a reasonable case to ground the B777 fleet.

“If you get a suspicion it’s a design flaw or a component failure and could cause a failure of the same component in the same type of plane” then an airline may decide to stop flying the affected model, said Andrew Herdman, director general of Association of Asia Pacific Airlines (AAPA).

Boeing, the airline’s manufacturer, has sent a technical team to Malaysia to help investigating authorities piece together – figuratively and quite literally – what befell flight MH370.

Read more at NBCNews.com: Stolen passports trigger terror concerns

Herdman said the structural safety and integrity of the Boeing wide-body jet was solid: “There’s no suspicion about the type itself,” he said. “The 777 is the workhorse of the fleet. They’re operating across the world, it has an exemplary safety record and is a reliable safe aircraft. We’re looking at something really unique here, something highly unusual affecting this particular flight.”

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

Could Draghi’s upbeat tone send euro flying higher?

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

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The euro is set to power higher, even after jumping to a two-month high against the US dollar on Thursday following upbeat comments from European Central Bank (ECB) President Mario Draghi, analysts told CNBC.

The central bank kept rates unchanged at 0.25 percent at Thursday`s policy meeting. In the post-meeting press conference the ECB President dampened expectations that a shift in monetary policy was on the cards.

“The ongoing recovery is expected to proceed, albeit it at a slow pace,” Draghi told journalists in Frankfurt, Germany. He reiterated that the euro zone was facing a “prolonged period of low inflation,” but declined comparisons with Japan, which suffered deflation during the 1990s.

“We believe the situation is different,” Draghi added, saying that the ECB was different from the Bank of Japan in that it had taken “early decisive action” to tackle economic stagnation.

His comments sent the common currency roughly 1 percent higher to USD 1.3873, a level not seen since December, before it fell back slightly. The euro also gained sharply against the yen, rising 1.6 percent to touch a high of 142.910.

“I do see the euro moving higher, we had quite a bit of technical damage done right after the ECB press conference, as we broke through the USD 1.38 barrier,” Michael Woolfolk, senior FX strategist at BNY Mellon, told CNBC Asia`s Squawk Box on Friday.

“The market is now probing into what the new ceiling is going to be for the new trading range, it wouldn`t surprise me to see the euro testing the USD 1.40 level in the next week or two,” he added.

The euro gained 2.3 percent against the dollar in February, as worries that the ECB could move to loosen monetary policy to address inflation concerns have proved unfounded.

Draghi also explained at the press conference how the bank`s gross domestic product (GDP) growth forecasts had been revised up to 1.2 percent for 2014, a tenth of a percent higher than the December forecast.

Meanwhile, the bank`s inflation forecast for 2014 was also revised down a tenth of a percent from December to 1 percent. Although inflation targets were lowered, traders were still encouraged that the bank`s long-term targets would be met and deflation would be avoided.

Kathleen Brooks, research director for UK and E.M.E.A. at Forex.com, said markets had been factoring in the risk that Draghi could talk down the euro at the meeting, much like he did back in February 2013, when he triggered an 800 pip decline over the next six weeks.

“Instead the upward revision to the growth and Q4 2016 inflation outlooks has triggered a rally in the euro, which is now at its highest level of 2014 so far,” she said.

Draghi said inflation would reach 1.7 percent by the end of 2016, within sight of the bank`s 2 percent target.

“A weekly close above USD 1.3830 – a critical area of resistance…would be an extremely bullish development that could trigger another leg higher for this pair,” she said, adding that a move to USD 1.40 would be a key psychological level.

However, according to Tom Williams, sales trader at Go Markets, even though Draghi`s inflation forecast gave traders an immediate boost, he said there was a risk the euro will fall in the long term.

“The euro is unlikely to remain supported unless data can prove that the block can grow in line with forecasts and levels of unemployment will not spiral out of control,” he added.

Jeffrey Halley, senior manager of FX Trading at Saxo Capital Markets, added that although Friday`s US non-farm payrolls data could prompt the euro to pop up to USD 1.40, the surge would be short-lived.

“I expect the euro will head back down below USD 1.38 fairly quickly and we`d see US Treasurys get sold as well in anticipation of further tightening from the Fed [Federal Reserve] down the line,” added Halley.

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

Copyright 2011 cnbc.com

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

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