China’s bullish stock market may undergo correction
China’s stock market has been forecast to remain bullish in 2008 but might dip in the medium and short term, the Chinese Academy of Science (CAS) said in its latest report.
The market would face a tight fund supply since several medium and small companies had gone public every week since October 2007, it said.
Since November 2007, more large and small shareholders of previously non-tradable shares sold their shares, the value of which exceeded 200 million yuan (27.5 million U.S. dollars).
Generally, a bullish market cycle lasts from 17 to 24 months, but China’s bullish market had continued for 29 months from June 6, 2005, to November 2007.
The report, however, pointed out the stock market would remain bullish this year in a whole after the correction.
The Chinese economy would continue its rapid growth over the next few years and the earning growth of listed companies was expected to exceed 20 percent or even 30 percent in 2008, the report said.
As long as the Chinese currency of Renminbi continued to appreciate, the bullish stock market will not end, it said.
Many stocks might undergo correction but still had the possibility of going up, the report said.
China and Prince Alwaleed to invest in Citigroup: report
Fri Jan 11, 2008
NEW YORK (Reuters) - Saudi Arabian Prince Alwaleed bin Talal, Citigroup’s (C.N: Quote, Profile, Research) largest individual shareholder, will inject new cash as the largest U.S. bank grapples with heavy mortgage market losses, the Wall Street Journal reported on its Web site on Friday.
Citigroup shares rose about 2 percent in extended market trading. The stock on Friday closed up 1.6 percent to $28.56 on the New York Stock Exchange trade.
Alwaleed, who has owned his Citi stake since the early 1990s and helped engineer a previous rescue plan for the bank more than a dozen years ago, is likely to keep his total stake in the bank below 5 percent to avoid regulatory scrutiny, the newspaper said.
In addition, the China Development Bank is expected to invest $2 billion in Citigroup, WSJ reported, adding other investors could inject additional capital.
Altogether, the bank is hoping to raise $8 billion to $10 billion from a number of investors, including the Chinese bank and Alwaleed, WSJ said.
Citigroup spokeswoman Shannon Bell declined to comment.
In November, Citi said it agreed to sell up to 4.9 percent of itself for $7.5 billion worth of equity units to The Abu Dhabi Investment Authority only weeks after its former chief executive officer, Charles Prince, left amid news of the heavy losses related to bad bets on mortgage securities and an ailing housing markets.
Beijing may revamp its initial public offering system to make it in line with Hong Kong’s method to let more individual investors profit from lucrative new share sales. The regulators are studying a mechanism in which each subscriber will be given at least one board lot of shares in a new offering, sources say.
The China Securities Regulatory Commission found itself in hot water late last year when retail investors fumed over the woeful performance of PetroChina’s listing.
Powerful institutions cashed in on November 5 when PetroChina’s shares climbed on their trading debut, leaving retail investors with an empty bag when the stock kept falling afterwards.
A CSRC spokesman yesterday declined to comment on the reform of the offer subscription system. “If there are new rules, they will be unveiled accordingly,” he said.
On the mainland, retail investors bid against cash-rich institutional investors in a lottery system for a tranche that makes up 70 per cent of the shares on offer. The remaining 30 per cent is set aside for institutional and corporate investors only and allotment is decided by the issuer.
That system effectively puts quick money into institutional investors’ pockets since they usually get most of the shares and a handsome gain is almost guaranteed as companies tend to underprice their stocks in new offerings.
Only two offerings posted a loss in their Shanghai debuts last year while the rest generated a return of 186.9 per cent on average on their first day of trade, Thomson Financial said.
Overall, the 124 companies listed in Shanghai last year yielded an average return of 203 per cent by the end of last month, it said.
However, retail investors hoping to chase short-term gains by buying listing shares in the secondary market could get burned as not all stocks could extend gains after their debut.
PetroChina saw its A shares soar 163.23 per cent on their debut but was followed by a long downward spiral. Yesterday, the shares were at 30.76 yuan, or 30 per cent off the peak achieved during their first trading day.
Even if stocks continue to rise in subsequent trades, there is a daily limit of 10 per cent, while price movement is not capped on debuts, allowing those with new shares to make quick gains.
Enshrined by the policies of safeguarding small investors’ interests, CSRC officials were determined to phasing out the current initial offering system, sources said.
In Hong Kong, some firms allot at least one lot to every subscriber regardless of the size of money tied up in the offering.
Also, in a typical offering in Hong Kong, 10 per cent of the offered shares is required to be set aside for retail investors, which can rise to 50 per cent if the deal is 100 times or more oversubscribed. The retail portion is smaller in mega deals.
“Among all the options, the Hong Kong-style IPO system looks feasible and reasonable,” said Wu Kan, a fund manager at Dazhong Insurance. “Still, it will be some time before it is implemented as the regulators will have to solve a few problems.”
The Securities Times said the Hong Kong share offering system was in line with the Communist Party’s policy.
US-listed Macau casino stocks on losing streak after hitting peaks
Neil Gough Jan 12, 2008
Shares in United States-listed Macau casino operators have been on a serious losing streak for the past three months.
From their October peaks to their troughs this week, shares in Lawrence Ho Yau-lung’s Melco PBL Entertainment, Sheldon Adelson’s Las Vegas Sands Corp and Steve Wynn’s Wynn Resorts have all lost almost half their market value. Each of the three firms relies on its Macau business for between 50 and 100 per cent of total profit.
Even MGM Mirage, which owns 17 properties in the US and last month opened its first joint-venture Macau casino with Mr Ho’s sister, Pansy Ho Chiu-king, has seen its share price fall by more than 30 per cent.
Worries over the US economy and consumer spending in Las Vegas are partly to blame. But why would investors fold their bets on a market like Macau, which grew 48 per cent last year to more than 82 billion patacas or US$10 billion in casino revenue?
“Despite the phenomenal growth in Macau gaming revenues, there is a solid camp of ‘not enough’ Macau bears in the US,” said Robert LaFleur, a gaming analyst at Susquehanna Financial Group. “There are nagging concerns about the Macau market growing fast enough to absorb all the new supply.”
In the US, gaming has been traditionally viewed as a recession-resistant industry. Bill Lerner, a gaming analyst at Deutsche Bank, calculates commercial casino revenues grew an average 17 per cent per year during the most recent four US recessionary periods from 1980 to 2001. That compares with average annual growth of 13 per cent during the 20-year period.
“Gaming has become a mainstream entertainment alternative and, unlike other discretionary options, the customer has a chance to come out ahead - which has been an appealing dynamic in a wide band of economic periods,” Mr Lerner wrote in a research note.
But given the new-found importance that casino companies now place on the non-gaming revenues, which account for half the turnover on the Las Vegas Strip, the action on the tables may no longer be enough to ride out the storm.
Mr LaFleur said: “There are some serious questions about how demand for US$300 rooms, US$200 dinners, US$100 shows and gambling will hold up in a downturn. This model has never been tested before.”
Contrary to providing a buffer to gaming firms in the event of a US downturn, a presence in Macau appears to be adding worries about a squeeze on profit margins.
Supply continues driving demand in the territory, but is growing at a much faster pace than casino revenue. The number of gaming tables in Macau rose 63.6 per cent in the year to September to 3,992 units.
The slot machine tally more than doubled from a year earlier to 11,510 units, while revenue increased only 64 per cent.
The greatest concern is over margins in the VIP gaming segment, which accounted for 67 per cent of all casino revenues in Macau in the year to September. Melco PBL’s Crown Macau recently raised junket commissions to their highest known levels, and rivals are expected to follow or risk losing VIP market share.
“The fear is that property margins will suffer and that everyone’s earnings expectations for the Macau properties of MGM, Las Vegas Sands, Wynn and the others are too high,” said Mr LaFleur. “Valuations have come in quite a bit and are starting to look attractive, but nobody wants to get into these names and then see another 20 per cent drop.”
The Tianjin government had applied to the State Council to set up a 50 billion yuan shipping industry fund in an attempt to turn the coastal city into a leading trade and shipping centre on the mainland, a source said.
The fund, if approved, will be the largest industry fund in the country. Its aim is to buy cargo vessels and lease them to global shipping firms.
In 2006, Beijing approved Tianjin’s plan to set up the country’s first industry fund, the 20 billion yuan Bohai Industry Investment Fund, as well as other smaller ones in various regions last year.
Centrans Group Holdings, a Hong Kong-based logistics and financial firm, would be the proposed fund’s general partner and would invite a few investors as limited partners, the source said.
Several key firms in the finance and shipping sectors had expressed interest, he added.
“The project has been formally submitted to the State Council for a final review, and I think it will go ahead pretty soon barring any unexpected events,” the source said.
Tianjin officials yesterday declined to comment.
The fund plan was first floated in May last year as the Tianjin government was eager to establish itself as a leader in the direct-financing market.
Tianjin’s Binhai New District, a 2,200 square kilometre area between the municipal area and the coast, received State Council approval in June 2006 to run a pilot reform programme on new financial policies. Tianjin authorities picked direct financing as a main target.
The launch of a shipping industry fund would boost Tianjin’s role as a preferred market for direct financing, said Liang Qi, an economics professor with Nankai University.
“International shipping is an area that has long been dominated by foreign companies. Most Chinese shipping companies have to pay high premiums to rent vessels because they don’t have the money to finance themselves.”
By providing financing directly, the fund could guarantee a handsome profit while boosting Chinese shippers’ bargaining power. A larger fleet could also enhance the nation’s national security when international disputes occurred, he added.
“It can issue bonds, list its ships on the stock market or even sell those ships for a faster return. The investment won’t disappear as many other industrial funds do when their invested firms go bankrupt.”
Dense fog and smog have choked central and coastal areas, worsening passenger congestion, cargo delays, health problems and crime rates in the most developed and densely populated parts of the country.
The hazardous weather, rare in terms of its scale and persistence, has lasted since Monday and could be a result of accelerated global warming, air pollution and some natural, coincidental factors, according to a senior Shanghai weather official.
A cold front accompanied by strong winds, frost and a sizeable temperature drop due to sweep over the mainland today is likely to bring an end to the dreaded miasma, the National Meteorological Centre said.
But to hundreds of thousands of passengers who were delayed in the last few days, the relief will be anything but timely.
In Shanghai, more than 200 flights were cancelled or delayed yesterday, and in Hangzhou an unprecedented 20,000 passengers were held up at Xiaoshan airport. More than 100 flights scheduled to Nanning were aborted, media reported.
Fog and smog also caused poor visibility for several days in central regions such as Hunan , Hubei , Sichuan and Chongqing as well as Guangxi , Guangdong and Yunnan .
Even flights in provinces with good weather were severely affected. In Changchun , in Jilin province , where the sky was clear, air travellers waited in vain for a large number of flights to the affected areas to take off.
The air chaos comes just after a statement from Li Jiaxiang , newly appointed chief of the General Administration of Civil Aviation of China, on the need for timely arrivals and departures, and airlines to ensure much higher standards.
In Chengdu , highway robbery surged under the cover of the thick fog, with traffic police reporting a surge in the crimes.
Seafood prices also rose in some cities as air-freighted supplies dwindled, local media said.
The number of patients in Shanghai hospitals almost reached a record high over the past two days as people sought treatment for respiratory conditions, the Jiefang Daily reports.
The Chinese government is set to legalise horse racing, and even betting, as the ruling Communist Party loosens controls on practices it once banned as feudal, colonial and backward.
The sprawling industrial city of Wuhan in central China, once a European “concession” or colonial settlement, will be the first to open a race-track next year.
Gambling, apart from a state sports lottery, has been banned on the mainland since the Communist takeover in 1949.
The decision is a response to a market-driven explosion in traditional popular culture, at least where it does not touch on politics.
The Orient Lucky Horse Group, the company granted the first licence to run races, said the venture would start small, with jockey clubs around the country invited to put forward 250 horses to compete.
A spokesman said the State Sports General Administration had granted the licence from September - immediately after the Beijing Olympics - but that the first races would not be held until next year.
“The proposal for betting on horse racing is being reviewed and discussed,” a spokesman for the China Sports Lottery Administration Centre said.
“Betting” might not take the form regularly associated with racing elsewhere. Punters may have to pay to compete in an “intelligence competition” in which those who correctly identify the best horse in advance will be rewarded with prizes.
Racing was stopped after the civil war partly because of its colonial reputation. It was introduced by the British who dominated the foreign “concessions” in China in the 19th and early 20th century. Racing lived on in Hong Kong, where it remains both the focus of society life and of the only permitted form of gambling in the territory.
The Jockey Club is to help Wuhan develop a code of rules.
The government’s change of heart is most likely dictated by an acceptance of reality, with millions of mainland Chinese every year pouring into the other post-colonial enclave, Macau, where casinos are the main industry, and the realisation that it is better to find some way of profiting from the national love of gambling.
A bull that was swept into a raging river during floods in Australia earlier this week survived a 56-mile trip downstream before being rescued.
Barney, a two-year-old brahman bull, ended up in the Tweed River in New South Wales during torrential rains on Sunday morning, his owner Dianne Baxter said.
She said Barney was believed to be dead until authorities told her later that day that he had been rescued.
Mrs Baxter said that park rangers had rescued the exhausted animal at the river’s mouth near the ocean and used its identification tags to track down the owners.
“It’s just a shame that Barney can’t talk and tell us the experience he went through,” she told a local television channel.
“He would have been travelling with all the logs and tree trunks and fences, it would have been a horrendous trip.”
Mrs Baxter said that Barney, now back at the family farm, was physically fine but jittery.
SHANGHAI - SWIMMING, driving BMW cars and holidaying in France are among the preferred lifestyle choices for China’s wealthiest people, according to an annual survey released yesterday.
Swimming edges out travelling as the favourite form of recreation for the 660 Chinese US-dollar millionaires interviewed, said the fourth report of the Preferred Lifestyle and Brands of China’s Richest.
Golfing ranks third in the list of most-favoured recreational activities as China’s rich view it as a good chance to socialise with their peers, according to the report compiled by Shanghai-based accountant Rupert Hoogewerf.
The report said the rich acquired their wealth mainly from the manufacturing, real estate and tertiary industries, and most of them are in the 31-45 age group. Out of the 660 surveyed, 104 have net wealth of more than US$10 million (S$14 million).
France is considered the best foreign travel destination by the millionaires while Yunnan province in southern China is seen as the best domestic luxury destination.
And for some, travelling around the world is not enough - 18 per cent are interested in a space tour.
They also pick German carmaker BMW as the best overall luxury brand, followed by French luxury goods maker Louis Vuitton and German carmaker Daimler’s Mercedes-Benz.
Cartier tops the jewellery brand list while British financial group HSBC is considered the best bank for offshore personal banking.
The report said 68 per cent of the millionaires, surveyed between May and November last year, are confident about the outlook for China’s booming economy for the next two years.
Stocks and property are the top two investment options, selected by 33 per cent and 26 per cent of millionaires respectively, it said.
Thirty-six per cent of the millionaires prefer to collect modern artwork while only 16 per cent favour antiques, because of difficulty in telling apart counterfeits from genuine articles.
Move causes some inconvenience but trading largely not affected: Dealers
DEALERS and remisiers linked to local brokers in Singapore no longer have access to live values of the newly revamped Straits Times Index (STI) on their trading terminals.
This is because these brokers have opted not to connect their machines to the live data feed that supplies the index values, even though it is currently being offered free of charge by the index’s owners.
The Straits Times understands that the problem boils down to a dispute over the cost of the feed.
Under a new partnership, Singapore Press Holdings (SPH), Singapore Exchange (SGX) and London’s index specialists FTSE relaunched the STI on Thursday, along with 18 other new FTSE ST indexes.
Prior to this week’s relaunch, the STI was calculated by SGX and distributed together with its stock prices feed. But from Jan 10, the revamped STI and the new FTSE ST index series are calculated by FTSE and distributed separately.
The new-look STI now has 30 component stocks instead of 47, and the new FTSE ST indexes include those that track mid-cap and small-cap stocks, as well as sectors such as property and finance.
According to FTSE deputy chief executive Donald Keith, the three index partners intend to eventually charge local brokers for the live feed that supplies the index values.
But for now, they have offered the feed free of charge.
‘The live data feed is being offered to Singapore brokers for free, and the three partners intend to re-evaluate this arrangement only after at least a year,’ said Mr Keith.
‘The brokers just have to sign up and their traders will get the data live on their trading terminals.
‘Unfortunately, they have declined to sign up.’
Broking houses contacted yesterday by The Straits Times chose to remain mum and did not want to shed any light on why they spurned the free live feed.
OCBC Securities’ managing director, Mr Hui Yew Ping, who as chairman of the Securities Association of Singapore (SAS) is said to have led the negotiations, was tight-lipped. The SAS is an association comprising local brokers.
Spokesmen from DBS Vickers and Phillip Securities also declined to comment.
Meanwhile, traders and remisiers said that although the lack of an index data feed inconveniences them somewhat, stock trading has not been affected.
One dealer said: ‘We’re now getting live STI values mainly from the websites or the Bloomberg terminal.’
Live values of the new STI and 18 indexes are available for free at the websites of SPH, SGX, NextView and ShareInvestor.
‘But one problem with using the websites is that we have to refresh the page to get updated figures,’ he added.
Quick access to live data is key to traders. Society of Remisiers (Singapore) president Albert Fong said: ‘We’re in a fast-moving industry in which prompt information is crucial. Now, we’ve been inconvenienced.’
The SGX is working with the Society of Remisiers to put the real-time numbers on its website.
Charging for index data is prevalent in most major financial markets, including New York, London, Tokyo and Hong Kong.
And there is a reason why such data attracts a fee, said FTSE’s Mr Keith.
‘FTSE compiles stock indexes all around the world. I can tell you that there’s tremendous work involved in maintaining and revamping an index, as well as creating new indexes that the market will find useful. All this comes at a cost.’
The revamped STI has a re-created history going back to 1999, while the new indexes have been running on a trial basis since October last year.
Mr Keith added: ‘The index partners are commercial organisations and can’t be expected to give it out free. The issue is whether there’s value for money and I’m confident about the value of the package we are providing.’
He noted, for example, that the index partners are now providing data for 19 indexes that offer ‘unparallelled coverage of the Singapore market’ - instead of just the STI.
Industry watchers are hoping that the issue will be resolved soon.
Securities Investors Association of Singapore president David Gerald said: ‘I hope an amicable resolution can be found as soon as possible in the interest of all concerned, especially the retail investors.’
UNTIL recently, investors were enamoured of Chinese shipbuilders listed on the Singapore bourse.
And why not? China’s booming economy has led to an acute shortage of vessels that can move the commodities it needs to feed its hungry industries.
This, in turn, caused the Baltic Dry Index - a key measure of commodity shipping costs - to more than double last year.
Alleviating the shortage was a huge construction boom in China for bulk carriers and other types of vessels, as Chinese shippers built up their fleets.
This helped transform Chinese shipyards, which had previously been well-known for scrapping vessels, into shipbuilders.
In many ways, Yangzijiang Shipbuilding - listed on the Singapore Exchange only last April - epitomised this shipbuilding construction frenzy in China. Within six months, its share price almost trebled to $2.74 from its initial public offering (IPO) price of 95 cents.
And until November, some dealers were expecting Yangzijiang to cross the $3 mark before long.
However, fears of a global slowdown, as well as a barrage of IPOs by other Chinese shipbuilders, have dampened investors’ appetites for Yangzijiang.
In the past two months, the Baltic Dry Index has fallen by 24.5 per cent, causing a corresponding 32 per cent drop in Yangzijiang’s share price. A US$1.36 billion (S$1.95 billion) order last month to build 20 container ships for Cosco Container Lines helped stem the decline in the shipbuilder’s share price for a while.
Since last week though, sentiment towards Yangzijiang and other Chinese shipbuilders has been spooked once again by a further 6 per cent fall in the Baltic Dry Index.
As investors scrambled for the exit, unnerved by concerns that the red-hot demand for commodities in China might be cooling off, Yangzijiang lost 7.1 per cent, or 13 cents, to $1.71 yesterday.
Call for China to urgently unify its aviation market
Report dampens hopes of reviving deal between SIA and China Eastern
By Chua Chin Hon
BEIJING - CHINA should ‘urgently unify’ its civil aviation market, the official Xinhua news agency said in a commentary that could spell more bad news for the ill-fated Singapore Airlines-China Eastern tie-up.
Singapore Airlines (SIA) has said it will not give up hopes after China Eastern shareholders rejected its proposed HK$7.2 billion (S$1.32 billion) deal this week.
But the Xinhua article - the first official response on the contentious deal - appeared to confirm market talk that Beijing would instead consolidate key domestic players to create a ‘supercarrier’.
‘China needs to urgently unify its aviation market and create a national network of aviation routes that can act as the ‘runway’ for the country to soar globally,’ said the Xinhua commentary on Thursday.
The article also warned cryptically that the mainland’s economic security and aviation market could be threatened if the dominance of the three main state-owned airlines was undermined.
‘Air China, China Southern and China Eastern are the main driving forces of the domestic aviation market and safeguard the foundation of the domestic economy,’ it said.
‘If they cannot attain their goals of becoming bigger, better and stronger and gain a foothold in this globalised market, then the security of the domestic civil aviation system would be weakened.’
Observers say this is a clear reference to concerns among some Chinese officials that a SIA-China Eastern tie-up will not only affect Air China’s bottom line but also hurt its plan for a bigger presence in the key aviation hub of Shanghai.
China Eastern is headquartered in Shanghai, and a tie-up with SIA would have given the Singapore carrier an important foothold in the city, where Air China is only the No. 3 player.
Merrill Lynch analyst Paul Dewberry wrote in a recent research note: ‘Air China’s one key area of weakness is Shanghai, which given its location, large population and concentration of commerce could ultimately become the most powerful hub in China.’
Chinese state media reported separately this week that Air China’s parent company, China National Aviation Holding Company (CNAHC), would submit a proposal in two weeks for a ‘partnership’ - rather than a merger - with China Eastern.
Bloomberg reported yesterday that this alliance could see the two Chinese airlines swap shares in a cross-shareholding plan, though no details were available.
The Xinhua commentary also quoted an unidentified CNAHC official as saying that a partnership between Air China and China Eastern would be an ‘alliance of two strong players with the aim of raising the competitiveness of Chinese airlines’.
The official also dismissed concerns that a domestic consolidation would hurt consumers’ interest by creating a monopoly in the Chinese market.
He was quoted by Xinhua as saying: ‘Ninety-six airlines from across the world fly to China and, domestically, there are more than 40 airlines, of which less than 10 are owned or controlled by the government.
‘China’s domestic aviation market is a highly competitive one.’
NEW YORK (Reuters) - New York prosecutors are investigating whether Wall Street banks withheld information about the risks stemming from subprime loan-linked investments, The New York Times reported on Saturday.
Citing people with knowledge of the matter, the newspaper said the inquiry, begun last summer by state Attorney General Andrew Cuomo, was focusing on how banks bundled billions of dollars of exception loans and other subprime debt into complex mortgage investments.
Charges could be filed as soon as the coming weeks, the Times said. Connecticut Attorney General Richard Blumenthal told the newspaper he was also conducting a review and cooperating with New York officials.
The federal Securities and Exchange Commission is also investigating, the Times said.
Reports commissioned by Wall Street banks raised alerts about the high-risk loans, known as exceptions, which fell short of even the lax credit standards of subprime mortgage companies and the Wall Street firms, the newspaper said, but the banks failed to disclose those details to credit-rating agencies or investors.
The inquiries highlight Wall Street’s leading role in igniting the mortgage boom that has imploded with a burst of defaults and foreclosures. The crisis is sending shock waves through the financial world, and several big banks are expected to disclose additional losses on mortgage-related investments when they report earnings next week.
EXCEPTION LOANS
Industry officials say the so-called exception loans make up anywhere from 25 percent to 80 percent of the $1 trillion subprime mortgage market among portfolios they had seen, the Times said.
The banks also failed to disclose how many exception loans were backing the securities they sold, with underwriters using such words as “significant” or “substantial,” securities law requires banks to disclose all pertinent facts about securities they underwrite, the report said.
Blumenthal said the disclosures in the banks’ securities filings appeared to be “overbroad, useless reminders of risks,” the Times said.
“They can’t be disregarded as a potential defense,” the newspaper quoted him as saying. “But a company that knows in effect that the disclosure is deceptive or misleading can’t be shielded from accountability under many circumstances.”
New York state law would allow for criminal as well as civil charges, the Times said.
Cuomo declined to comment, but the Times said he had subpoenaed Wall Street banks including Lehman Brothers and Deutsche Bank, as well as major credit-rating companies Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. Mortgage consultants including Clayton Holdings in Connecticut and the Bohan Group, based in San Francisco, were also subpoenaed.
Officials at Wall Street banks and the American Securitization Forum declined to comment, the Times said, while credit-rating firms would not say they had been subpoenaed, but that they were generally not provided due diligence reports even when they asked for them.
Does strict due diligence guarantee a successful IPO?
By TEH HOOI LING
THE Singapore Exchange believes that investment banks which have very strict due diligence processes will tend to bring in better quality companies to the market. This is why it is going to be very selective in qualifying the full sponsors - those responsible for bringing companies for listing on its new board, Catalist.
So which of the investment banks have had the best record in the last three years?
Before we go into the detailed results, let's set the stage with some big picture numbers.
Just under 150 companies were admitted to the main board of the SGX between 2005 and 2007. For Sesdaq, it was 36.
More than half these companies - 56 per cent for the main board and 58 per cent for Sesdaq - underperformed the SES All Shares Index from the time they were listed to Jan 9, 2008.
Now on to the records of the various investment banks.
Surprisingly, all the local banks' corporate finance outfits did not have a very good history of bringing better performing companies to the market.
For example for DBS, of the five companies it brought to the main board in 2005, only one - Asia Enterprise Holdings - managed to outperform the broad market. The rest - Longcheer, Genting International, Electrotech and CDW - had all fared worse than the market. These are IPOs where DBS was the sole issue manager.
The average annualised returns of the five IPOs is 14 percentage points worse than the SES All Shares Index. The median is -10 per cent.
In that year, OCBC brought three companies to the main board. All three - Ban Leong Technologies, Karin Technology and Union Steel - under-performed the market.
Meanwhile, UOB Asia had four main board IPOs in 2005. Only one - C&O Pharmaceutical just about edged ahead of the general market by 1.3 per cent. The rest, Sarin Tech, Advanced Integrated Manufacturing and Pacific Healthcare chalked up returns of 10 to 36 percentage points lower than the market.
All its three Sesdaq companies in that year also fell significantly behind the market - in excess of 30 percentage points - in terms of share price performance.
Their general record in 2006 also left much to be desired, although OCBC did hit the jackpot with Jiutian. Between its IPO and Wednesday this week, the stock has outperformed the market by a whopping 160 percentage points.
Last year was not much better. Arguably, the investment bank which has the best performance in the past three years is HL Bank.
Senior Correspondent My study also found that when the market got heated in 2006 and 2007, investment banks tended to stay conservative in pricing their IPOs ... There were huge gains on the first day of trading, the average was 33 per cent gain on debut in 2006 and 50 per cent in 2007, this compares with just 2.9 per cent in 2005.
There are more hits than misses when it comes to the companies it helped go public.
In 2005, it managed the IPO of China Sky Chemical and Sinopipe Holdings. The former outpaced the market by 45 percentage points, while the latter performed in line with the market.
No escaping duds
Three out of its five IPOs outpaced the market. There, is however, no escaping the duds. In that year, Fabchem had turned out to be one, and so did Sun East. Last year, it was responsible for bringing China Oilfield to Singapore. And up till this week, that counter is ahead of the market by 48 percentage points.
Even for Sesdaq listing, HL Bank has brought more winners and losers to investors.
Hong Leong Finance had a very good record in 2005. It hit the bull's eye in all three deals that it did - Fragrance Group, BH Global Marine and China Wheel. Each has outperformed the market by 92, 52 and 11 percentage points respectively.
However, the outfit did not have any deals in the last two years.
Another two investment banks which had brought more winners than losers to the market are Westcomb and Stirling Coleman.
Ironically, they are two of the firms which have been censured before by the exchange for supposedly not being stringent enough in their due diligence work.
Westcomb brought eight companies to the main board and nine to Sesdaq in 2005. Out of that, five from each board have beaten the general market returns.
It did only one deal in 2006, and that was Swiber. The stock has turned out to be a multi-bagger for investors. It has risen by eight times compared with its IPO price.
One of two of its Sesdaq deals in 2006 also turned out to be a super performer. Sitra Holdings has returned 344 per cent since its debut on the second board in November 2006.
Westcomb's record in 2007 also stands out. Out of the four deals it did - three for main board and one for Sesdaq - three outperformed the market by a big margin.
As for Stirling Coleman, it has its hits and misses. But the hits more than make up for the misses.
My study also found that when the market got heated in 2006 and 2007, investment banks tended to stay conservative in pricing their IPOs. As a result, there were huge gains on the first day of trading. The average was 33 per cent gain on debut in 2006 and 50 per cent in 2007. This compared with just 2.9 per cent in 2005.
However big foreign issue managers like UBS and Credit Suisse were rather aggressive in pricing their IPOs. This resulted in issues which didn't leave much on the table for IPO investors, or worse, issues which fell underwater on the first day of trading.
UBS's Babcock and Brown dropped below its IPO price by 4.7 per cent on its first day of listing on Dec 20, 2006. The Swiss bank's two other issues - MacarthurCook Industrial REIT and Parkway Life REIT - last year also ended below their offer prices by 3.3 per cent and 7 per cent res respectively.
The average first-day performance for Credit Suisse's two IPOs in 2006, meanwhile, was a mere 4.6 per cent and its lone IPO in 2007 chalked up a first-day gain of 8.7 per cent. Again, these are issues where the banks are the sole managers.
So, as seen from the study, having a strict due diligence process at the IPO stage does not necessarily guarantee a market-beating issue.
China’s demand for gambling puts the squeeze on Macau
By Evan Osnos January 13, 2008
MACAU — The world’s busiest casino town is straining to handle the affections of the world’s largest population.
By the boatload, gamblers gripping Chinese passports jostle off ferries and cram, sardinelike, into a customs building in this once-sleepy former Portuguese colony on China’s coast. They line up, hundreds deep on a weekend morning, for an entry stamp. Then they line up again for scarce taxis or catch shuttle buses into a town bristling with new casinos, fountains and resorts.
“I think it’s become overwhelming,” said David Green, a casino expert for accounting firm PricewaterhouseCoopers in Macau. “The infrastructure isn’t really cut out to deal with that.”
On a patch of land just one-sixth as large as Washington, D.C., Macau surpassed sprawling Las Vegas last year in gaming revenues, thanks to a growing deluge of mainland Chinese tourists. They are transforming this place faster than imperialism and organized crime ever did.
Indeed, the city that caused W.H. Auden in the 1930s to despair that “nothing serious can happen here” is being reborn as an economic tiger. Even compared to mainland China, with its skyrocketing growth of more than 10 percent per year, Macau stands out: Its economy grew last year by 30 percent.
But with more dizzying expansion already under way, the speed and scale of change are testing Macau’s capacity to adapt.
“It’s been crazy,” said Paulo Azevedo, who has lived in Macau for 15 years and is publisher of the magazine Macau Business. “We used to have this sort of Mediterranean, laid-back quality of life,” Azevedo added.
Macau comprises a peninsula and two islands located one hour’s ferry ride from Hong Kong. For the last four centuries, Portugal ran the territory as a freewheeling bazaar and imperial outpost, trading silk, sandalwood, porcelain, opium, arms and other goods, all with a spirit of unabashed seediness. The colony was a “weed from Catholic Europe,” as Auden put it.
The expansion of gaming in the 1960s didn’t help. Macau became known for corruption and gangland violence, a demimonde inhabited by figures such as kingpin “Broken Tooth,” finally locked up in 1999. By the 1990s, Macau’s casinos, long a monopoly held by billionaire Stanley Ho, had slipped so far that the crown jewel, the Hotel Lisboa, struck one visitor as having “the ambience of a minimum-security prison.”
Macau returned to Chinese control in 1999, as a semiautonomous region akin to Hong Kong. Beijing’s handpicked leaders embarked on an overhaul, investing in infrastructure and opening the gaming industry to competition. The first foreign-owned casino opened in 2004: the Sands Macao, owned by Las Vegas tycoon Sheldon Adelson.
As luck would have it, an obscure immigration change gave the Sands a blessed start: In 2003, after the SARS virus dampened tourism, China experimented with allowing its citizens to visit Macau and Hong Kong without mandating that they be part of a tour group. The Chinese flooded to Macau, the closest place to gamble from the mainland, where it is illegal.
Within a single year, the Sands Macao had paid for its own construction. By the end of last year, tourism had nearly quadrupled in a decade to 27 million people annually, according to figures released Wednesday. More than half of them — and by far the fastest-growing segment — are from mainland China.
Less than $90 a night
For a growing Chinese middle class still getting used to foreign travel, Macau packages can be had for less than $90 a night, including air fare from Beijing to Hong Kong. Chinese travel agents say the law doesn’t let them peddle gambling-focused trips, so they finesse it.
“We never put ‘visiting casinos’ on the tour schedule,” said Guo Yu, a marketing manager at China Comfort Travel in Beijing. “Nor is a tour guide allowed to lead tourists to a casino, but if tourists personally want to go to casinos, we can do nothing about it.”
On the immense, half-lit gaming floor at the Sands Macao, virtually all the customers are Chinese, speaking in dialects that mark them as being from China’s north or south. Most of them hunch around baccarat, roulette or dice tables. (Blackjack and poker aren’t popular, and neither are slot machines.)
The drink of choice is tea or soy milk, because the gamblers prefer to stay sharp. Superstitions are common in this part of the world, so gaming rooms are designed to incorporate the lucky number 8 into styling and carpets, while the unlucky numbers 13, 14 and 4 (known to hasten assorted catastrophes) are avoided. Likewise, tables and dealers that acquire the dreaded taint of unluckiness can sit idle for hours.
In the lobby, posters announce upcoming attractions that wouldn’t be out of place in Nevada: a reunion tour by The Police and a heavyweight prizefight between two paunchy has-beens. Indeed, Macau is attracting visits by American boxing promoters intent on finding a Chinese outpost that might make up for the sport’s ailing popularity in the U.S.
“I couldn’t believe what I saw. It’s unbelievable,” promoter Arthur Pelullo of Philadelphia said of his first visit. “They make the casinos in Vegas look small. ... There were people everywhere. It’s like they were giving something away.”
Signs of growing pains
For local businesses in Macau, the boom is not trouble-free. Restaurants and shops face rapidly rising rents and a labour shortage. The resident population numbers only half a million, and casinos can afford to pay the most. Meanwhile, congestion on downtown sidewalks already threatens to lend Macau’s charming plazas and colonial streets the grace of a shopping mall.
There are other signs of growing pains. A group of more than 100 mainland tourists from a gritty industrial city sparked a riot last summer, claiming that their guides were forcing them to spend too much on shopping and gambling. The incident touched off a round of soul-searching in Macau about the impact of tourism on the region’s character, though it did not exactly end with a decision to cool growth.
“You’ll hear people say, ‘Well it doesn’t matter because there are millions more where they came from,”” Green said.
For now, Las Vegas faces little risk of being eclipsed by Macau, which has yet to build the convention centres, luxury retail shops and entertainment arenas that triggered Vegas’ mega-growth beyond gambling. So far, Macau leads Vegas only in casino receipts.
But Macau’s plans are formidable, as it strains to be a bit less Atlantic City and a bit more Monte Carlo. A vast new development on reclaimed land has been named the Cotai Strip and staked out with plans for at least 12 hotels that would more than double the city’s total rooms.
“We’re still in the beginning,” said Azevedo, the publisher. “This is nothing yet.”
Commodity prices soar as wave of money hits markets
January 12, 2008 Carl Mortished, World Business Editor
A wave of money is flooding into the commodity markets, adding more lustre to gold and pointing a spotlight on obscure markets such as coffee, cocoa and palm oil, as investors take fright from credit risk and the looming spectre of recession.
Gold and platinum hit new records yesterday as traditional investors sought out safe havens for cash in troubled times. Concern over emerging signs of recession in the United States depressed the price of crude oil, which seesawed in indecision yesterday, but coffee and cocoa soared as investors searched for the next commodity stars.
The price of Robusta coffee futures gained $25 to $2,039 per tonne in London, the highest level for nine and a half years. Cocoa was also in demand, rising to £1,148 per tonne, a four-year high, as speculative funds sought exposure to soft commodities.
Palm oil also hit a record price as evidence emerged in official statistics that floods in Malaysia had affected output. The price of palm oil, used in both food and cosmetics, has risen 8 per cent in less than a fortnight with continuing concern about its use as a biofuel crop and burgeoning demand from the food industry.
“It’s a global warming hedge,” said Tim Bond, head of asset allocation at Barclays Capital, of the new fashion for soft commodities. “The last three to four years has seen a rebirth of institutional interest in commodities.”
From buying global commodity indices, funds have moved to futures in oil and metals and latterly to green and soft commodities, such as wheat and corn or cocoa and coffee. Commodities fell deeply out of fashion in the 1990s but rising affluence in Asia is putting pressure on food supplies, while climate change is threatening food production.
From almost zero allocation, funds have given commodities a big slice of their portfolios. “People doing portfolio optimisation find they need between 10 per cent and 20 per cent,” Mr Bond said.
After the initial surge in oil and base metals, wheat, corn and soya are in demand and the search is now on for the next commodity to catch fire. Sudakshina Unnikrishnan, Barclays’ soft commodities expert, believes it may be cotton. A massive price gain in wheat, which tripled in value in a year, is expected to lead to more planting by farmers and land is switching from cotton to wheat production. “I think the fundamentals for cotton are very strong,” she said.
US market statistics show rising levels of speculative activity in the soft commodities. “Most of these commodities are seeing strong growth in hot money interest. The fundamentals are so compelling,” said Ms Unnikrishnan. Many food commodities remain as much as 50 per cent off their peak prices, despite recent gains.
Moreover, the soft commodities can move in a countercyclical direction, Mr Bond said.
Fear of recession sent oil falling by a dollar yesterday after an initial bounce caused by comments on Thursday from Ben Bernanke, Chairman of the Federal Reserve, who promised “substantial action” from central banks to head off a downturn. At $93 per barrel, the US light crude futures contract is off 7 per cent from its milestone of $100 on January 3.
However, gold and platinum yesterday reached records of $898 and $1,568 per ounce respectively. On Tuesday, US soybean futures reached a record of $13.06 per bushel.
Low Supplies, High Prices Cause Concern Among Asian Wheat Importers
11 January 2008 By Naomi Martig, Hong Kong
Low global wheat supplies and skyrocketing prices on several agricultural commodities are causing concern in countries that rely on grain imports for many of their staple dishes. Several large wheat-producing countries, such as China and Russia, are reducing exports. As Naomi Martig reports from VOA's Asia News Center in Hong Kong, the restrictions are affecting countries that import grain to feed their people.
Wheat prices are more than 50 percent higher than a year ago. The price is being driven by lower production, increased demand from more affluent communities, and a spillover from increases in overall food prices. Both importing and exporting countries, rich and poor alike, are beginning to take measures to ensure they have enough food, at affordable prices.
This month, China began a temporary quota policy on exports of wheat, corn and rice flour. The ministry of finance has also announced export taxes, as high as 25 percent, on various staples, including wheat, corn, rice and soybeans. In Russia, officials have ordered a 40 percent export tax on types of grain. Abdolreza Abbassian is the Secretary for the Intergovernmental Group for Grains at the Food and Agricultural Organization in Rome. He says the most recent harvests in China and Russia were good, but both are concerned about protecting their own markets.
"They realize their grains could end up in the world market that has such a high demand because of shortages coming from other exporters, so these countries, supplies could end up in the world market, leave the country, and therefore eventually also result in higher prices in their own countries, despite their own good production," he said.
While the goal of such taxes and quotas is to stabilize domestic food prices, Abbassian says the restrictions are putting pressure on countries that rely on such imports, such as Malaysia and Indonesia.
"The countries which are importing from these exporters are, of course, the first casualties because they have to source their needs from elsewhere, and that elsewhere means a more expensive wheat for sure," he said. "Chinese were producing wheat that was very, very competitive. Their wheat flour prices in the region in southeast Asia something like 30 to 50 percent below prices of the same commodities coming in, let's say, from Australia or from the U.S."
Analysts say reduced exports from China are likely to raise prices of staples like flour and bread in Southeast Asia, which is already facing reduced shipments from drought-hit Australia, another major wheat exporter. In India, officials have scrapped import duties on wheat flour to try to keep a lid on prices, and government leaders in several countries are concentrating on controlling inflation of food prices, for fear of unrest in low-income communities.
Abbassian says there is likely to be relief in 2008, as farmers are already responding to high prices and will be planting more grains for the next harvest. But until then, he says it is important for governments, especially in poorer countries, to implement temporary measures to ensure their populations can afford enough food.
US EQUITIES WEEK AHEAD: What Lurks Ahead For The Big Banks
11 Jan 2008 By Danielle Le Grand
NEW YORK -(Dow Jones)- When the nation's biggest banks start reporting their fourth-quarter earnings - or losses - next week, investors will be just as focused on the industry's outlook for the year ahead as they will on the quarter's figures. Are there problems still waiting to ambush the battered sector and the wider economy, and are the banks well placed to deal with them?
Citigroup Inc. (C) and Merrill Lynch & Co. (MER) - which collectively wrote down $10.1 billion of supbrime-related mortgage assets in the third quarter - report fourth-quarter results in which they may absorb as much as $25 billion of additional write-downs.
Citigroup, whose shares plummeted about 48% in the last 12 months, is expected to unveil a loss on Tuesday of $1 a share. Merrill, whose stock is down about 45% in the past year, will follow on Thursday with a likely loss of $4.57 a share, according to median estimates of analysts polled by Thomson Financial.
Other big banks, including JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) - which each report Wednesday - are expected to eke out profits that are substantially lower than in the fourth quarter of 2006. Wells Fargo, in November, said it would take a $1.4 billion provision in the fourth quarter for loan losses.
Washington Mutual Inc. (WM) reports earnings Thursday, after last month saying that it now expects its fourth-quarter provision for loan losses to be between $1.5 billion and $1.6 billion. WaMu and JPMorgan investors alike will also want to know whether reports of "very preliminary" talks between the banks will lead to a merger.
TD Ameritrade Holding Corp. (AMTD) releases its fiscal first-quarter results Thursday, with analysts expecting earnings per share of 39 cents on revenue of $623 million, according to Thomson Financial. And Knight Capital Group Inc. (NITE) reports fourth-quarter results Wednesday.
CIT Group Inc. (CIT) Friday indicated it would post a fourth-quarter loss amid boosting loan-loss provisions by $300 million and writing off the remaining goodwill from getting into the student-loan business. CIT reports Thursday.
Detroit Rolls Out The Green Carpet At Auto Show
The North American International Auto Show in Detroit kicks off Sunday and the green theme is expected to dominate, with fuel prices rising and the government enacting tough mileage standards.
But while more fuel-efficient models are on the agenda, so are the big drivers for Detroit's profits - pickup trucks. Ford Motor Co. (F) and Chrysler LLC will be showing off their redesigned versions of full-size pickups. General Motors Corp. (GM) will show its latest hybrid technology, but also a souped-up Corvette. The show usually gives auto stocks a bit of a kick, but that may be a stretch this year as the backdrop is gloomy. Auto sales, which took a hit in 2007, are expected to be down even more in 2008 thanks to a slowing economy.
A host of auto suppliers and auto makers will make presentations - some of which will include 2008 outlooks - at the Auto Analysts of New York conference in Detroit from Wednesday though Friday. Among the major companies presenting are General Motors, Ford, Johnson Controls Inc. (JCI), Lear Corp. (LEA), Visteon Corp. (VC), Magna International Inc. (MGA), American Axle & Manufacturing Holdings Inc. (AXL), BorgWarner Inc. (BWA), TRW Automotive Holdings Corp. (TRW), ArvinMeritor Inc. (ARM) and Tenneco Inc. (TEN).
Tech Attention To MacWorld, IBM, Intel Earnings
Now that the Consumer Electronics Show is over, the industry's attention shifts to consumer-electronics giant Apple Inc. (AAPL) and the MacWorld Conference & Expo that begins Monday and runs through the week.
The highlight of the San Francisco show comes Tuesday, when Chief Executive Steve Jobs delivers a keynote address, during which he's expected to unveil a new lineup of ultra-slim laptops and an online movie-rental business.
Jobs often uses MacWorld to set the tone for Apple's efforts for the upcoming year and unveils the company's key upcoming products, such as the iPhone, which was revealed at last year's event.
Meanwhile, technology giants International Business Machines Corp. (IBM) and Intel Corp. (INTC) release earnings next week, offering insights into the state of tech spending in the U.S.
IBM shares have fallen 16% over the past three months as concerns increased about a slowdown in such spending, especially from financial-services companies, a sector where IBM gets 30% of its revenue, according to Thomas Weisel. IBM reports its fourth-quarter results Thursday.
Intel, meanwhile, is expected to post solid fourth-quarter results Tuesday, highlighted by a projected 12% jump in revenue. Some, though, expect a conservative 2008 outlook from Intel, based on the larger economic concerns.
Rival chip maker Advanced Micro Devices Inc. (AMD) is expected to report a significant loss next week as it continues to struggle because of stiffer competition from Intel and the cost of a major acquisition.
Investors Tune In To GE Chief Immelt
General Electric Co. (GE) will provide something of a barometer on the industrial economy when the conglomerate reports fourth-quarter results Friday.
Chief Executive Jeff Immelt was upbeat when he delivered his 2008 outlook in early December, saying he expects strong global growth to continue offsetting slower spending by U.S. consumers.
But, with economic indicators deteriorating since then, analysts will be scrutinizing his comments Friday for evidence of a change in tone. Wall Street also will be listening closely for GE's view of the ongoing strike by Hollywood writers and its potential impact on the conglomerate's NBC Universal unit.
GE is expected to post fourth-quarter earnings of 68 cents a share on about $47.35 billion in revenue.
Genentech, Forest Labs Report; FDA Decides On Tysabri
Genentech Inc. (DNA), the largest biotech company by market capitalization, will report fourth-quarter earnings Monday, with analysts expecting earnings of 67 cents a share on revenue of $2.97 billion, according to Thomson Financial. The company's growth is expected to slow in coming years, though label expansion for cancer drug Avastin could change that expectation. Analysts expect Avastin sales of about $616 million for the quarter.
Drug maker Forest Laboratories Inc. (FRX) will report fiscal third-quarter results Tuesday with analysts looking for earnings of 75 cents a share on revenue of $946.5 million. News to watch includes sales of antidepressant Lexapro, its flagship drug, and any updates on its pipeline or licensing plans as Lexapro faces patent expiration in 2012.
The Food and Drug Administration is expected to decide, likely on Monday, on whether to approve multiple sclerosis treatment Tysabri, co-developed by Elan Corp. (ELN) and Biogen Idec Inc. (BIIB) for treating Crohn's disease in patients for whom other therapies have failed.
Airline Earnings Take Off
Major U.S. airlines begin reporting fourth-quarter earnings next week, with AMR Corp. (AMR) on Wednesday, and Continental Airlines Inc. (CAL) on Thursday. AMR is likely to report a loss for the quarter (the mean estimate is for a 61-cent-per-share loss), a weak one for the industry, on slowing revenue as the carrier cuts domestic capacity. Continental is seen with a narrow loss of 2 cents a share. For full-year 2007, the U.S. airline industry is expected to be in the black. But investors are most interested in the tantalizing possibilities of airline mergers, including a possible hookup between Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWA), Delta and UAL Corp. (UAUA), or Continental and UAL.
Housing Starts, Retail Sales, CPI, PPI On Tap
Economic data next week - forecast to show weakness in retail sales, industrial production, housing starts and consumer sentiment - will add to the worries about recession. Meanwhile, Federal Reserve Chairman Ben Bernanke and his teammates are expected to continue to cement the market's speculation of a 50-basis-point cut this month, with more coming down the road.
The bank admits it cannot value its credit crunch exposure as it attempts to justify a £6bn emergency cash injection
UBS moved today to head off a shareholder revolt over its emergency capital injection of SwFr13 billion (£6 billion) from a Singapore sovereign wealth fund and a mystery Middle East investor.
The financing raised objections among some shareholders who have threatened to vote down the deal at a special meeting next month unless they were given more details.
The bank wrote to shareholders today to explain why the funding was vital.
Switzerland's biggest bank and the world's largest wealth manager revealed the full extent of its financial plight, which it admitted today remains unquantified.
It admitted that it had considered a rights issue but rejected it on the grounds of "cost, complication and time".
The bank said it had feared international credit agencies might downgrade its ratings, which would further weaken UBS's funding position and drive up its cost of borrowing on the wholesale money markets.
UBS also publicly acknowledged that it had concerns about the possibility of "increased unease" among its clients and stakeholders due to the sheer size of its losses at the hands of the market turbulence.
"In view of these adverse market developments, it became increasingly evident that substantial additional writedowns would be required," the bank wrote, in reference to a sustained money market liquidity crisis during October, November and into December.
"We then knew that we faced the risk that the sheer size of these numbers, the resulting reduction in our capital ratios and any remaining uncertainty about the ultimated value of our positions could lead to an increased unease for clients and other stakeholders."
UBS has been among the hardest hit of the world's investment banks by the credit crunch after writing down up to $13 billion as a result of its exposure to sub-prime mortgages in America.
Late last year it said the Government of Singapore Investment Corporation would be injecting SwFr11 billion for a stake of about 9 per cent.
An unnamed Mideast investor, thought to be the Saudi Arabian Monetary Agency, would plough in a further SwFr2 billion for an additional small shareholding, it said.
UBS has maintained that it needs the capital to shore up its financial strength. "During 2008, the environment for financial markets, especially in the US, is uncertain, and we need to manage through this period from a position of financial strength," UBS said.
A spokesman for the bank denied UBS was worried about a shareholder rebellion. He said UBS was updating investors about the terms of the financing and the letter was in line with its desire to be transparent.
Investors accounting for two-thirds of UBS's share capital need to approve a capital issue in order for the funding to go ahead.
Bernanke says central bank ready to take 'substantive additional action' to cut interest rates in order to support lagging economy.
By Paul R. La Monica, CNNMoney.com editor at large
January 11 2008
NEW YORK -- Federal Reserve Chairman Ben Bernanke said in a speech Thursday that the central bank is prepared to continue lowering interest rates in order to help keep the economy on track.
He also reiterated that the Fed does not believe the economy will slip into a recession this year.
"We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," Bernanke said in prepared remarks before the Women in Housing and Finance and Exchequer Club in Washington, D.C.
However, some economists suggested that rate cuts may be too late to stop a recession. But stocks, which had been trading lower before the speech, rebounded modestly in the afternoon and soared following reports that Bank of America (BAC, Fortune 500) was in talks to buy embattled mortgage lender Countrywide Financial (CFC, Fortune 500).
Read Bernanke's prepared remarks Wall Street interpreted Bernanke's comments to mean that there is now an increased likelihood the Fed will lower its key federal funds rate by a half percentage point, to 3.75 percent, at the conclusion of its two-day meeting on Jan. 30.
"A half-point cut is certainly on the table and it's about time. The Fed has a lot of work to do," said James Glassman, senior economist with JPMorgan Chase.
To that end, investors are pricing in a 92 percent chance that the Fed will lower rates by a half-point on Jan. 30, according to federal funds futures listed on the Chicago Board of Trade.
"The Fed has changed course. It has moved from a limited loosening mode designed to mitigate the impact on the financial markets to more aggressive loosening aimed at stimulating growth," said Chris Probyn, chief economist with State Street Global Advisors in Boston.
Recession may already be here Probyn said he expects a half-point cut later this month followed by a quarter-point cut at its next meeting in March and did not rule out further cuts at meetings in April and June as well.
But Bernanke's speech comes as more and more economists are saying that the economy is either already in a recession or on its way toward entering one. Bernanke stopped short of describing current conditions as a recession in his prepared remarks but he did paint a bleak picture for the economy in 2008.
"Downside risks to growth have become more pronounced. Notably, the demand for housing seems to have weakened further, in part reflecting the ongoing problems in mortgage markets," Bernanke said.
"In addition, a number of factors, including higher oil prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending as we move into 2008," he added.
Economic pain likely to linger During a question-and-answer session, Bernanke said the Fed is not currently forecasting a recession in 2008. Instead, he said the Fed expects growth to slow.
He added though, that it is difficult to make a determination about whether an economy is in recession until after the fact.
Probyn agreed. And he said that if the economy is already in a recession or close to one, a rate cut later this month would be too little, too late. The best the Fed can do now is to take steps to ensure that the recession does not last long.
"If we do have a recession, it would be quite mild and probably in the first half of the year. Nothing the Fed does today can do anything about that," Probyn said. "But rate cuts may stimulate growth by late summer and into the end of the year."
Glassman, however, said that the Fed may have waited far too long to cut rates aggressively and that even if the economy doesn't dip into a recession, there could be a prolonged slump since the job market has weakened in a relatively short period of time.
"When you have to step up the pace of easing and you're doing it after unemployment has been rising, you're not exactly ahead of the curve," he said.
In case of emergency, slash rates Bernanke discussed inflation as well, but he said that "inflation expectations appear to have remained reasonably well anchored," and suggested that rising oil and food prices "may be a negative influence on growth" in addition to putting pressure on inflation measures.
That comment appears to give more evidence to those who think the Fed is now more concerned about a recession than rampant inflation.
"Obviously, inflation is a concern but for the Fed, you're better off front-end loading rate cuts now," said John Derrick, director of research with U.S. Global Investors Inc, a money management firm based in San Antonio. "If you have to take them back later and raise rates to deal with inflation, you deal with that then."
As such, some market strategists and economists have even suggested in the past few days that the Fed could cut rates in an unscheduled meeting before January 30.
Bernanke did not comment in his remarks about whether a rate cut before Jan. 30 was possible. But he did say that the Fed "must remain exceptionally alert and flexible, prepared to act in a decisive and timely manner and, in particular, to counter any adverse dynamics that might threaten economic or financial stability."
Bernanke also said the central bank's new auction program, which it announced in December as a way to loan money to banks in need of cash at a rate below the Fed's discount rate, appears to be a success and could "become a useful permanent addition to the Fed's toolbox."
The Fed has already conducted two auctions for a combined $40 billion and will be loaning $60 billion more later this month through two additional auctions.
The media king’s purchase of Dow Jones & Co. has delivered some unwanted cargo in the form of a long-running libel suit.
In July of 2006, the Far Eastern Economic Review, reduced to a monthly shadow of its weekly former self, published a long and contentious interview with Chee Soon Juan, the harried leader of the opposition Singapore Democratic Party. The magazine promptly found itself the recipient of a letter from Drew & Napier, the lawyers for the autocratic minister mentor Lee Kuan Yew, and his son, Prime Minister Lee Hsien Loong, demanding an apology.
The Review refused to apologize, and for a year and a half a libel suit has been dragging its way through the Singapore courts. The only suspense is over how big the judgment will be against the magazine. The Lee family has never lost a libel suit in its own courts. And there’s the problem for media mogul Rupert Murdoch, who paid US$6.8 billion for a controlling interest in Dow Jones & Co. which, in addition to publishing the Review, also owns the Wall Street Journal and its international editions.
Unlike many of his competitors, Murdoch's titles have never experienced a Singapore libel action. The city-state has rather been regarded by Murdoch’s News Corp as a place to raise money and do business – notably in 2001 when Murdoch briefly entered into a joint venture with Singapore's state-owned telecom company SingTel (then run by a son of Lee Kuan Yew) in an unsuccessful bid for Hong Kong's leading telecom company, when they were outmaneuvered by Beijing and Li Ka-shing’s son, Richard.
But with this libel headache now on Murdoch's desk, Singapore faces a media company run by a dominant individual who is an archly pragmatic dealmaker when it suits him. That could mean wriggle room for legal negotiation except that, with libel, the Lees always want absolute victory.
As an example of the Lees’ thirst for judicial blood, many international news organizations, including Time Magazine, the (pre-Murdoch) Asian Wall Street Journal, The International Herald Tribune, Business Week, Bloomberg and the Financial Times have lost suits in Singapore.
The Review’s sudden defiance is rare indeed. The presumption of a loss is such that media companies routinely settle promptly and apologize. The most recent, last November, was the Financial Times, which settled for unspecified damages and apologized in a case that according to non-Singaporean legal scholars contained no libel. As with the FT, management usually decides that a quick settlement limits expensive legal bills –and possibly even higher damages if Lee lawyers insist mid-trial that publicly heard evidence has further harmed sensitive reputations, which prevents airing of issues that may be germane to the case. In an earlier case involving the Review, the Anglo-Australian constitutional lawyer Geoffrey Robertson’s cross-examination of the elder Lee was so rigorous that a Singaporean judged awarded additional damages for his discomfort in the witness box.
The Lees have been the dominant political family in Singapore since the 1950s, about the same time Murdoch has been in charge of News Corp. Both have helped build institutions of about the same size; News Corp's market worth approaches US$100 billion, Singapore's GDP is bigger. Both are expert at projecting power, and neither brook any challenge to their authority, although media critics accuse Murdoch of knuckling under to Chinese authorities, for instance dropping the British Broadcasting System from Star TV’s stable of cable news programs broadcast in China, in an effort to curry favor. In addition, Andrew Neil, the feisty one-time editor of Murdoch’s Sunday Times in London, lost his job after Malaysia’s then-Prime Minister Mahathir Mohamed took issue with the paper in 1994, just after Murdoch bought Star TV.
In the current case, the Review had argued, pre-Murdoch, that since it did not have an office or staff in Singapore, it should not be subject to Singapore law. It wanted the matter heard in Hong Kong, where it is based, and where it feels it would get a fairer hearing.
In a letter to Singapore's Information Ministry, which has sought a bond from the Review in lieu of presumed damages and Singaporean jurisdiction over the Review, Dow Jones's lawyers argue "its imposition on the Review, merely for the sake of making it easier for senior ministers of the Singapore Government to recover personal damages in a libel action, would be deeply regretted by all who care for the rule of law in your country. It is an exorbitant and unlawful demand that even totalitarian states have never sought to impose on media."
And that is where the matter has largely stayed since mid-2006, an exchange of testy lawyers' letters as Singapore throws out the Review's attempts to end the action.
But then came Murdoch's successful bid for Dow Jones last year. Murdoch put in a new team, and much of the management that previously backed the Review's feistier approach to Singapore is no longer around.
The status of the case is unclear. Outwardly, it seems as if nothing has changed, and for now a Murdoch-owned Review is still taking on the Singaporeans. The articles and letters remain posted at FEER.com and the Review editors say it is still live, referring the matter to Dow Jones lawyers, who do not respond.
The matter is pregnant with the notion of what constitutes credibility – Singapore's own sense of it and News Corp's in the court of public opinion after the critical shellacking it received en route to the Dow Jones win.
Singapore's legal system is also under scrutiny. The US embassy in Singapore has frequently expressed concern about "the ruling party's use of the court system to intimidate political opponents.” The Australian lawyer Stuart Littlemore, who has observed Singapore libel cases for the International Commission of Jurists, says "the Singapore leadership has a long-standing record of using the High Court as a mechanism for silencing its opponents – by suing them for statements that, in any comparable jurisdiction, would be seen as part of a robust political debate inseparable from democratic freedoms, and by being awarded such unconscionably high damages and costs as to bankrupt the defendants, forcing them out of parliament.”
Credibility was at the heart of the Murdoch bid for Dow Jones. There were numerous critics, notably in its own newsrooms, and including some members of the publisher's controlling Bancroft family (which quickly put aside its gripes in accepting the generous offer). The critics said Murdoch and his company had insufficient credibility to be custodians of venerable media assets like The Wall Street Journal and The Far Eastern Economic Review.
News Corporation prevailed after a searing battle in which Murdoch's personal and corporate reputation was assailed, almost to the point of him pulling out. Murdoch himself said bitterly that he was treated like a "genocidal tyrant.”
A significant aspect of the appeal of Dow Jones to Murdoch is its underplayed assets in booming Asia, a region where Singapore interests are hugely influential, both politically and commercially, and where Murdoch thinks he can add much value absorbing Dow Jones into the rest of the News empire. But just as Murdoch has been cited as providing the type of media Asia does not want, notably by China, wealthy Singapore is often cited as a regional development model, particularly in effective one-party states like China and through Central Asia. Singapore is an important, if sometimes self-serving, voice in the so-called Asian Values debate. It will be fascinating to see how the battle plays out, mindful of the messages it could send around a region where state control of media is evolving. Democracy and civil society are aching to burst out, but debilitating libel cases clearly are not yet dead, At least not in the Lees’ Singapore.
Portions of this article appeared previously in the Sydney Morning Herald.
Three bears took on a lone bull at a real estate conference debate in New York this week. Guess who won?
By Les Christie January 10 2008
NEW YORK -- Even a few months ago, it seemed like a good idea to hold a debate between real estate bulls and bears.
But with home sales spiraling and the outlook getting gloomier, it was hard to find a single optimist at a recent panel discussion on the forecast for the housing market.
"We're facing the worst housing recession in U.S. history," according to Nouriel Roubini, an economics professor at New York University and co-founder of RGE Monitor, an economic research and analysis firm. He predicted peak-to-bottom national home price losses of 30 percent.
Roubini joined a group of three other real estate experts at the Real Estate Connect NYC 2008 conference in New York Wednesday for a discussion titled, "The Housing Debate: Bull vs. Bear."
"There will be 10 million houses with negative equity," he said, where the owners will owe more on their mortgages than the properties are worth, giving them less incentive to keep making payments. Many will walk away, he said, depressing markets further.
The housing turndown, according to Roubini, was the initial trigger for a broad economic decline. "We're in an economy-wide recession already, one that will be much more severe than those of 1991 or 2001," he said.
Although housing only accounts for 5 percent of the economy, he noted, the slump has already reduced consumption, which makes up two-thirds of it. Consumers are no longer tapping home equity, and they're cutting back on spending.
And credit problems are no longer confined to subprime loans, according to Roubini. They've spread to near-prime mortgages, prime, auto loans and junk bonds, with losses that could reach trillions of dollars.
The five stages of grief
Another bear on the panel was Barry Ritholtz, chief executive of market-watcher Ritholtz Research. He placed the real estate slump in the framework of Elisabeth Kübler-Ross' five stages of grief: anger, denial, bargaining, depression and acceptance.
Ritholtz said we've just about worked through the denial stage, which was exemplified by the National Association of Realtors first saying there was no housing slump, then that it would be contained (the soft landing scenario), and then that it would be limited to housing.
Now, said Ritholtz, "We're in the bargaining stage," where he said we'll promise to never speculate on real estate again if God will only let us sell our properties now.
Next will come depression and finally acceptance. "That," said Ritholtz, "is when you should start to buy again."
Recession? Bring it on
The third bear was Noah Rosenblatt, founder of UrbanDigs.com, a blog that covers macro-economic trends and their impact on New York real estate. He not only predicted a strong recession but said he's looking forward to it.
"If you're a value guy, are you buying now? No," he said. "It would be like catching a falling knife. It's a credit crisis and we're going to see a lot worse before it gets better."
For Rosenblatt, a recession would clear out all the bad loans and foreclosure problems, and then the market could return to normal.
One solution, according to Ritholtz, is to get rid of brokerage CEOs who have a vested interest in holding bad loans they acquired on their watch and replace them with those who don't.
"They'll say, 'Hey! This isn't my crap. Get rid of it,'" said Ritholtz. By jettisoning the bad baggage quickly and taking a write-off, they'll move through the cycle sooner.
Where's the bull?
With three big bears in the midst, the housing debate's "Goldilocks" kept a low profile.
"I'm going to be as positive as possible, but I'm not going to make myself sound like an idiot," said Dottie Herman, CEO of Prudential Douglas Elliman, a broker specializing in New York City residential properties.
According to Herman, many of the markets that will experience the worst downturns are the same ones that enjoyed substantial run-ups. But, she added, it would also create "opportunities for people to buy."
HK shrs drop on report of Merrill losses, HSBC hit
By Rita Chang
HONG KONG, Jan 11 (Reuters) - Most Hong Kong stocks fell on Friday as investors sought to cash in following a report that financial services giant Merrill Lynch is expected to suffer higher-than-forecasted losses from soured mortgage investments.
Shares in mainland telecoms players took the spotlight amid rising speculation that China had approved a long-awaited restructuring of the telecom industry.
Global lender HSBC Holdings (0005.HK) dropped to fresh two-year lows while export play Li & Fung (0494.HK) and global fashion retailer Esprit Corp (0330.HK) both slid for the fifth straight session.
"The risks of a U.S. recession are increasing; sentiment is not good," said Patrick Shum, strategist at Karl Thomson Securities.
Strategists now say odds are rising that the 26,000 level, which has been a solid support level for the benchmark Hang Seng Index, could be breached. Indeed, Thursday's remarks by Federal Reserve chairman Ben Bernanke suggesting aggressive rate cuts were ahead did not bolster the market.
The Hang Seng Index .HSI closed down 1.3 percent, or 363.85 points, to end at 26,867.01, down 2.4 percent for the week.
The China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, fell 1.2 percent, or 193.94 points, to end at 15,833.75, for a 0.4 percent weekly loss.
"There's still a lot of uncertainly related to global market stability due to writedowns and subprime exposures, SIV (structured investment vehicle) exposures, exposures to the U.S. bond insurers," said Michele Barlow, a Merrill Lynch credit strategist.
US-based Merrill Lynch (MER.N) may suffer $15 billion in losses, almost twice the company's original estimate, the New York Times reported on Friday.
The day's most heavily traded stock, HSBC earlier tapped lows not seen since Nov. 2005 before ending down 2.1 percent at HK$123.6.
Among telecoms, China Telecom (0728.HK) ramped up earlier this week on speculation of an industry reshuffle that would see the country's top fixed-line provider acquire mobile assets to compete with the dominant China Mobile (0728.HK).
Investors pocketed gains in China Telecom, depressing shares 5.1 percent to HK$6.64, while China Mobile suffered further losses, down almost 1 percent at HK$133.90.
But China Unicom (0762.HK), the country's No.2 wireless operator which is expected to sell some of its mobile assets to China Telecom, shot up 6.6 percent to HK$18.68 in heavy trade.
Europe-focused Esprit, in another day of active trade, was whacked 4.1 percent to HK$96. Li & Fung, which counts the U.S. as its top market, slumped nearly 6 percent to HK$25.35.
Hong Kong Exchanges and Clearing (0388.HK), a proxy for investor sentiment, also took a beating to end down 2.6 percent at HK$204.20.
Asia's top oil refiner Sinopec Corp (0386.HK) tumbled 2.6 percent to HK$10.48 in another session of heavy selling, a day after China said it would intervene to brake rising prices.
Decliners beat advancers by about three to one. Mainboard turnover was HK$128.7 billion (US$16.5 billion) compared to Thursday's HK$123.3 billion.
23 comments:
China’s bullish stock market may undergo correction
China’s stock market has been forecast to remain bullish in 2008 but might dip in the medium and short term, the Chinese Academy of Science (CAS) said in its latest report.
The market would face a tight fund supply since several medium and small companies had gone public every week since October 2007, it said.
Since November 2007, more large and small shareholders of previously non-tradable shares sold their shares, the value of which exceeded 200 million yuan (27.5 million U.S. dollars).
Generally, a bullish market cycle lasts from 17 to 24 months, but China’s bullish market had continued for 29 months from June 6, 2005, to November 2007.
The report, however, pointed out the stock market would remain bullish this year in a whole after the correction.
The Chinese economy would continue its rapid growth over the next few years and the earning growth of listed companies was expected to exceed 20 percent or even 30 percent in 2008, the report said.
As long as the Chinese currency of Renminbi continued to appreciate, the bullish stock market will not end, it said.
Many stocks might undergo correction but still had the possibility of going up, the report said.
China and Prince Alwaleed to invest in Citigroup: report
Fri Jan 11, 2008
NEW YORK (Reuters) - Saudi Arabian Prince Alwaleed bin Talal, Citigroup’s (C.N: Quote, Profile, Research) largest individual shareholder, will inject new cash as the largest U.S. bank grapples with heavy mortgage market losses, the Wall Street Journal reported on its Web site on Friday.
Citigroup shares rose about 2 percent in extended market trading. The stock on Friday closed up 1.6 percent to $28.56 on the New York Stock Exchange trade.
Alwaleed, who has owned his Citi stake since the early 1990s and helped engineer a previous rescue plan for the bank more than a dozen years ago, is likely to keep his total stake in the bank below 5 percent to avoid regulatory scrutiny, the newspaper said.
In addition, the China Development Bank is expected to invest $2 billion in Citigroup, WSJ reported, adding other investors could inject additional capital.
Altogether, the bank is hoping to raise $8 billion to $10 billion from a number of investors, including the Chinese bank and Alwaleed, WSJ said.
Citigroup spokeswoman Shannon Bell declined to comment.
In November, Citi said it agreed to sell up to 4.9 percent of itself for $7.5 billion worth of equity units to The Abu Dhabi Investment Authority only weeks after its former chief executive officer, Charles Prince, left amid news of the heavy losses related to bad bets on mortgage securities and an ailing housing markets.
Beijing weighs change of share offering system
12 January 2008
Beijing may revamp its initial public offering system to make it in line with Hong Kong’s method to let more individual investors profit from lucrative new share sales.
The regulators are studying a mechanism in which each subscriber will be given at least one board lot of shares in a new offering, sources say.
The China Securities Regulatory Commission found itself in hot water late last year when retail investors fumed over the woeful performance of PetroChina’s listing.
Powerful institutions cashed in on November 5 when PetroChina’s shares climbed on their trading debut, leaving retail investors with an empty bag when the stock kept falling afterwards.
A CSRC spokesman yesterday declined to comment on the reform of the offer subscription system. “If there are new rules, they will be unveiled accordingly,” he said.
On the mainland, retail investors bid against cash-rich institutional investors in a lottery system for a tranche that makes up 70 per cent of the shares on offer. The remaining 30 per cent is set aside for institutional and corporate investors only and allotment is decided by the issuer.
That system effectively puts quick money into institutional investors’ pockets since they usually get most of the shares and a handsome gain is almost guaranteed as companies tend to underprice their stocks in new offerings.
Only two offerings posted a loss in their Shanghai debuts last year while the rest generated a return of 186.9 per cent on average on their first day of trade, Thomson Financial said.
Overall, the 124 companies listed in Shanghai last year yielded an average return of 203 per cent by the end of last month, it said.
However, retail investors hoping to chase short-term gains by buying listing shares in the secondary market could get burned as not all stocks could extend gains after their debut.
PetroChina saw its A shares soar 163.23 per cent on their debut but was followed by a long downward spiral. Yesterday, the shares were at 30.76 yuan, or 30 per cent off the peak achieved during their first trading day.
Even if stocks continue to rise in subsequent trades, there is a daily limit of 10 per cent, while price movement is not capped on debuts, allowing those with new shares to make quick gains.
Enshrined by the policies of safeguarding small investors’ interests, CSRC officials were determined to phasing out the current initial offering system, sources said.
In Hong Kong, some firms allot at least one lot to every subscriber regardless of the size of money tied up in the offering.
Also, in a typical offering in Hong Kong, 10 per cent of the offered shares is required to be set aside for retail investors, which can rise to 50 per cent if the deal is 100 times or more oversubscribed. The retail portion is smaller in mega deals.
“Among all the options, the Hong Kong-style IPO system looks feasible and reasonable,” said Wu Kan, a fund manager at Dazhong Insurance. “Still, it will be some time before it is implemented as the regulators will have to solve a few problems.”
The Securities Times said the Hong Kong share offering system was in line with the Communist Party’s policy.
US-listed Macau casino stocks on losing streak after hitting peaks
Neil Gough
Jan 12, 2008
Shares in United States-listed Macau casino operators have been on a serious losing streak for the past three months.
From their October peaks to their troughs this week, shares in Lawrence Ho Yau-lung’s Melco PBL Entertainment, Sheldon Adelson’s Las Vegas Sands Corp and Steve Wynn’s Wynn Resorts have all lost almost half their market value. Each of the three firms relies on its Macau business for between 50 and 100 per cent of total profit.
Even MGM Mirage, which owns 17 properties in the US and last month opened its first joint-venture Macau casino with Mr Ho’s sister, Pansy Ho Chiu-king, has seen its share price fall by more than 30 per cent.
Worries over the US economy and consumer spending in Las Vegas are partly to blame. But why would investors fold their bets on a market like Macau, which grew 48 per cent last year to more than 82 billion patacas or US$10 billion in casino revenue?
“Despite the phenomenal growth in Macau gaming revenues, there is a solid camp of ‘not enough’ Macau bears in the US,” said Robert LaFleur, a gaming analyst at Susquehanna Financial Group. “There are nagging concerns about the Macau market growing fast enough to absorb all the new supply.”
In the US, gaming has been traditionally viewed as a recession-resistant industry. Bill Lerner, a gaming analyst at Deutsche Bank, calculates commercial casino revenues grew an average 17 per cent per year during the most recent four US recessionary periods from 1980 to 2001. That compares with average annual growth of 13 per cent during the 20-year period.
“Gaming has become a mainstream entertainment alternative and, unlike other discretionary options, the customer has a chance to come out ahead - which has been an appealing dynamic in a wide band of economic periods,” Mr Lerner wrote in a research note.
But given the new-found importance that casino companies now place on the non-gaming revenues, which account for half the turnover on the Las Vegas Strip, the action on the tables may no longer be enough to ride out the storm.
Mr LaFleur said: “There are some serious questions about how demand for US$300 rooms, US$200 dinners, US$100 shows and gambling will hold up in a downturn. This model has never been tested before.”
Contrary to providing a buffer to gaming firms in the event of a US downturn, a presence in Macau appears to be adding worries about a squeeze on profit margins.
Supply continues driving demand in the territory, but is growing at a much faster pace than casino revenue. The number of gaming tables in Macau rose 63.6 per cent in the year to September to 3,992 units.
The slot machine tally more than doubled from a year earlier to 11,510 units, while revenue increased only 64 per cent.
The greatest concern is over margins in the VIP gaming segment, which accounted for 67 per cent of all casino revenues in Macau in the year to September. Melco PBL’s Crown Macau recently raised junket commissions to their highest known levels, and rivals are expected to follow or risk losing VIP market share.
“The fear is that property margins will suffer and that everyone’s earnings expectations for the Macau properties of MGM, Las Vegas Sands, Wynn and the others are too high,” said Mr LaFleur. “Valuations have come in quite a bit and are starting to look attractive, but nobody wants to get into these names and then see another 20 per cent drop.”
Tianjin eyes 50b yuan shipping industry fund
Jan 12, 2008
The Tianjin government had applied to the State Council to set up a 50 billion yuan shipping industry fund in an attempt to turn the coastal city into a leading trade and shipping centre on the mainland, a source said.
The fund, if approved, will be the largest industry fund in the country. Its aim is to buy cargo vessels and lease them to global shipping firms.
In 2006, Beijing approved Tianjin’s plan to set up the country’s first industry fund, the 20 billion yuan Bohai Industry Investment Fund, as well as other smaller ones in various regions last year.
Centrans Group Holdings, a Hong Kong-based logistics and financial firm, would be the proposed fund’s general partner and would invite a few investors as limited partners, the source said.
Several key firms in the finance and shipping sectors had expressed interest, he added.
“The project has been formally submitted to the State Council for a final review, and I think it will go ahead pretty soon barring any unexpected events,” the source said.
Tianjin officials yesterday declined to comment.
The fund plan was first floated in May last year as the Tianjin government was eager to establish itself as a leader in the direct-financing market.
Tianjin’s Binhai New District, a 2,200 square kilometre area between the municipal area and the coast, received State Council approval in June 2006 to run a pilot reform programme on new financial policies. Tianjin authorities picked direct financing as a main target.
The launch of a shipping industry fund would boost Tianjin’s role as a preferred market for direct financing, said Liang Qi, an economics professor with Nankai University.
“International shipping is an area that has long been dominated by foreign companies. Most Chinese shipping companies have to pay high premiums to rent vessels because they don’t have the money to finance themselves.”
By providing financing directly, the fund could guarantee a handsome profit while boosting Chinese shippers’ bargaining power. A larger fleet could also enhance the nation’s national security when international disputes occurred, he added.
“It can issue bonds, list its ships on the stock market or even sell those ships for a faster return. The investment won’t disappear as many other industrial funds do when their invested firms go bankrupt.”
Fog brings air, road travel chaos
Jan 12, 2008
Dense fog and smog have choked central and coastal areas, worsening passenger congestion, cargo delays, health problems and crime rates in the most developed and densely populated parts of the country.
The hazardous weather, rare in terms of its scale and persistence, has lasted since Monday and could be a result of accelerated global warming, air pollution and some natural, coincidental factors, according to a senior Shanghai weather official.
A cold front accompanied by strong winds, frost and a sizeable temperature drop due to sweep over the mainland today is likely to bring an end to the dreaded miasma, the National Meteorological Centre said.
But to hundreds of thousands of passengers who were delayed in the last few days, the relief will be anything but timely.
In Shanghai, more than 200 flights were cancelled or delayed yesterday, and in Hangzhou an unprecedented 20,000 passengers were held up at Xiaoshan airport. More than 100 flights scheduled to Nanning were aborted, media reported.
Fog and smog also caused poor visibility for several days in central regions such as Hunan , Hubei , Sichuan and Chongqing as well as Guangxi , Guangdong and Yunnan .
Even flights in provinces with good weather were severely affected. In Changchun , in Jilin province , where the sky was clear, air travellers waited in vain for a large number of flights to the affected areas to take off.
The air chaos comes just after a statement from Li Jiaxiang , newly appointed chief of the General Administration of Civil Aviation of China, on the need for timely arrivals and departures, and airlines to ensure much higher standards.
In Chengdu , highway robbery surged under the cover of the thick fog, with traffic police reporting a surge in the crimes.
Seafood prices also rose in some cities as air-freighted supplies dwindled, local media said.
The number of patients in Shanghai hospitals almost reached a record high over the past two days as people sought treatment for respiratory conditions, the Jiefang Daily reports.
China to legalise horse racing and betting
By Richard Spencer in Beijing
12 January 2008
The Chinese government is set to legalise horse racing, and even betting, as the ruling Communist Party loosens controls on practices it once banned as feudal, colonial and backward.
The sprawling industrial city of Wuhan in central China, once a European “concession” or colonial settlement, will be the first to open a race-track next year.
Gambling, apart from a state sports lottery, has been banned on the mainland since the Communist takeover in 1949.
The decision is a response to a market-driven explosion in traditional popular culture, at least where it does not touch on politics.
The Orient Lucky Horse Group, the company granted the first licence to run races, said the venture would start small, with jockey clubs around the country invited to put forward 250 horses to compete.
A spokesman said the State Sports General Administration had granted the licence from September - immediately after the Beijing Olympics - but that the first races would not be held until next year.
“The proposal for betting on horse racing is being reviewed and discussed,” a spokesman for the China Sports Lottery Administration Centre said.
“Betting” might not take the form regularly associated with racing elsewhere. Punters may have to pay to compete in an “intelligence competition” in which those who correctly identify the best horse in advance will be rewarded with prizes.
Racing was stopped after the civil war partly because of its colonial reputation. It was introduced by the British who dominated the foreign “concessions” in China in the 19th and early 20th century. Racing lived on in Hong Kong, where it remains both the focus of society life and of the only permitted form of gambling in the territory.
The Jockey Club is to help Wuhan develop a code of rules.
The government’s change of heart is most likely dictated by an acceptance of reality, with millions of mainland Chinese every year pouring into the other post-colonial enclave, Macau, where casinos are the main industry, and the realisation that it is better to find some way of profiting from the national love of gambling.
Bull survives 56-mile trip down flooded river
12 January 2008
A bull that was swept into a raging river during floods in Australia earlier this week survived a 56-mile trip downstream before being rescued.
Barney, a two-year-old brahman bull, ended up in the Tweed River in New South Wales during torrential rains on Sunday morning, his owner Dianne Baxter said.
She said Barney was believed to be dead until authorities told her later that day that he had been rescued.
Mrs Baxter said that park rangers had rescued the exhausted animal at the river’s mouth near the ocean and used its identification tags to track down the owners.
“It’s just a shame that Barney can’t talk and tell us the experience he went through,” she told a local television channel.
“He would have been travelling with all the logs and tree trunks and fences, it would have been a horrendous trip.”
Mrs Baxter said that Barney, now back at the family farm, was physically fine but jittery.
The floods have now receded.
Jan 12, 2008
China’s rich love to swim and drive BMWs: Survey
SHANGHAI - SWIMMING, driving BMW cars and holidaying in France are among the preferred lifestyle choices for China’s wealthiest people, according to an annual survey released yesterday.
Swimming edges out travelling as the favourite form of recreation for the 660 Chinese US-dollar millionaires interviewed, said the fourth report of the Preferred Lifestyle and Brands of China’s Richest.
Golfing ranks third in the list of most-favoured recreational activities as China’s rich view it as a good chance to socialise with their peers, according to the report compiled by Shanghai-based accountant Rupert Hoogewerf.
The report said the rich acquired their wealth mainly from the manufacturing, real estate and tertiary industries, and most of them are in the 31-45 age group. Out of the 660 surveyed, 104 have net wealth of more than US$10 million (S$14 million).
France is considered the best foreign travel destination by the millionaires while Yunnan province in southern China is seen as the best domestic luxury destination.
And for some, travelling around the world is not enough - 18 per cent are interested in a space tour.
They also pick German carmaker BMW as the best overall luxury brand, followed by French luxury goods maker Louis Vuitton and German carmaker Daimler’s Mercedes-Benz.
Cartier tops the jewellery brand list while British financial group HSBC is considered the best bank for offshore personal banking.
The report said 68 per cent of the millionaires, surveyed between May and November last year, are confident about the outlook for China’s booming economy for the next two years.
Stocks and property are the top two investment options, selected by 33 per cent and 26 per cent of millionaires respectively, it said.
Thirty-six per cent of the millionaires prefer to collect modern artwork while only 16 per cent favour antiques, because of difficulty in telling apart counterfeits from genuine articles.
AGENCE FRANCE-PRESSE
Jan 12, 2008
Brokers turned down free live STI feed, says FTSE
Move causes some inconvenience but trading largely not affected: Dealers
DEALERS and remisiers linked to local brokers in Singapore no longer have access to live values of the newly revamped Straits Times Index (STI) on their trading terminals.
This is because these brokers have opted not to connect their machines to the live data feed that supplies the index values, even though it is currently being offered free of charge by the index’s owners.
The Straits Times understands that the problem boils down to a dispute over the cost of the feed.
Under a new partnership, Singapore Press Holdings (SPH), Singapore Exchange (SGX) and London’s index specialists FTSE relaunched the STI on Thursday, along with 18 other new FTSE ST indexes.
Prior to this week’s relaunch, the STI was calculated by SGX and distributed together with its stock prices feed. But from Jan 10, the revamped STI and the new FTSE ST index series are calculated by FTSE and distributed separately.
The new-look STI now has 30 component stocks instead of 47, and the new FTSE ST indexes include those that track mid-cap and small-cap stocks, as well as sectors such as property and finance.
According to FTSE deputy chief executive Donald Keith, the three index partners intend to eventually charge local brokers for the live feed that supplies the index values.
But for now, they have offered the feed free of charge.
‘The live data feed is being offered to Singapore brokers for free, and the three partners intend to re-evaluate this arrangement only after at least a year,’ said Mr Keith.
‘The brokers just have to sign up and their traders will get the data live on their trading terminals.
‘Unfortunately, they have declined to sign up.’
Broking houses contacted yesterday by The Straits Times chose to remain mum and did not want to shed any light on why they spurned the free live feed.
OCBC Securities’ managing director, Mr Hui Yew Ping, who as chairman of the Securities Association of Singapore (SAS) is said to have led the negotiations, was tight-lipped. The SAS is an association comprising local brokers.
Spokesmen from DBS Vickers and Phillip Securities also declined to comment.
Meanwhile, traders and remisiers said that although the lack of an index data feed inconveniences them somewhat, stock trading has not been affected.
One dealer said: ‘We’re now getting live STI values mainly from the websites or the Bloomberg terminal.’
Live values of the new STI and 18 indexes are available for free at the websites of SPH, SGX, NextView and ShareInvestor.
‘But one problem with using the websites is that we have to refresh the page to get updated figures,’ he added.
Quick access to live data is key to traders. Society of Remisiers (Singapore) president Albert Fong said: ‘We’re in a fast-moving industry in which prompt information is crucial. Now, we’ve been inconvenienced.’
The SGX is working with the Society of Remisiers to put the real-time numbers on its website.
Charging for index data is prevalent in most major financial markets, including New York, London, Tokyo and Hong Kong.
And there is a reason why such data attracts a fee, said FTSE’s Mr Keith.
‘FTSE compiles stock indexes all around the world. I can tell you that there’s tremendous work involved in maintaining and revamping an index, as well as creating new indexes that the market will find useful. All this comes at a cost.’
The revamped STI has a re-created history going back to 1999, while the new indexes have been running on a trial basis since October last year.
Mr Keith added: ‘The index partners are commercial organisations and can’t be expected to give it out free. The issue is whether there’s value for money and I’m confident about the value of the package we are providing.’
He noted, for example, that the index partners are now providing data for 19 indexes that offer ‘unparallelled coverage of the Singapore market’ - instead of just the STI.
Industry watchers are hoping that the issue will be resolved soon.
Securities Investors Association of Singapore president David Gerald said: ‘I hope an amicable resolution can be found as soon as possible in the interest of all concerned, especially the retail investors.’
Yangzijiang sinks as Baltic Dry Index falls
UNTIL recently, investors were enamoured of Chinese shipbuilders listed on the Singapore bourse.
And why not? China’s booming economy has led to an acute shortage of vessels that can move the commodities it needs to feed its hungry industries.
This, in turn, caused the Baltic Dry Index - a key measure of commodity shipping costs - to more than double last year.
Alleviating the shortage was a huge construction boom in China for bulk carriers and other types of vessels, as Chinese shippers built up their fleets.
This helped transform Chinese shipyards, which had previously been well-known for scrapping vessels, into shipbuilders.
In many ways, Yangzijiang Shipbuilding - listed on the Singapore Exchange only last April - epitomised this shipbuilding construction frenzy in China. Within six months, its share price almost trebled to $2.74 from its initial public offering (IPO) price of 95 cents.
And until November, some dealers were expecting Yangzijiang to cross the $3 mark before long.
However, fears of a global slowdown, as well as a barrage of IPOs by other Chinese shipbuilders, have dampened investors’ appetites for Yangzijiang.
In the past two months, the Baltic Dry Index has fallen by 24.5 per cent, causing a corresponding 32 per cent drop in Yangzijiang’s share price. A US$1.36 billion (S$1.95 billion) order last month to build 20 container ships for Cosco Container Lines helped stem the decline in the shipbuilder’s share price for a while.
Since last week though, sentiment towards Yangzijiang and other Chinese shipbuilders has been spooked once again by a further 6 per cent fall in the Baltic Dry Index.
As investors scrambled for the exit, unnerved by concerns that the red-hot demand for commodities in China might be cooling off, Yangzijiang lost 7.1 per cent, or 13 cents, to $1.71 yesterday.
Jan 12, 2008
Call for China to urgently unify its aviation market
Report dampens hopes of reviving deal between SIA and China Eastern
By Chua Chin Hon
BEIJING - CHINA should ‘urgently unify’ its civil aviation market, the official Xinhua news agency said in a commentary that could spell more bad news for the ill-fated Singapore Airlines-China Eastern tie-up.
Singapore Airlines (SIA) has said it will not give up hopes after China Eastern shareholders rejected its proposed HK$7.2 billion (S$1.32 billion) deal this week.
But the Xinhua article - the first official response on the contentious deal - appeared to confirm market talk that Beijing would instead consolidate key domestic players to create a ‘supercarrier’.
‘China needs to urgently unify its aviation market and create a national network of aviation routes that can act as the ‘runway’ for the country to soar globally,’ said the Xinhua commentary on Thursday.
The article also warned cryptically that the mainland’s economic security and aviation market could be threatened if the dominance of the three main state-owned airlines was undermined.
‘Air China, China Southern and China Eastern are the main driving forces of the domestic aviation market and safeguard the foundation of the domestic economy,’ it said.
‘If they cannot attain their goals of becoming bigger, better and stronger and gain a foothold in this globalised market, then the security of the domestic civil aviation system would be weakened.’
Observers say this is a clear reference to concerns among some Chinese officials that a SIA-China Eastern tie-up will not only affect Air China’s bottom line but also hurt its plan for a bigger presence in the key aviation hub of Shanghai.
China Eastern is headquartered in Shanghai, and a tie-up with SIA would have given the Singapore carrier an important foothold in the city, where Air China is only the No. 3 player.
Merrill Lynch analyst Paul Dewberry wrote in a recent research note: ‘Air China’s one key area of weakness is Shanghai, which given its location, large population and concentration of commerce could ultimately become the most powerful hub in China.’
Chinese state media reported separately this week that Air China’s parent company, China National Aviation Holding Company (CNAHC), would submit a proposal in two weeks for a ‘partnership’ - rather than a merger - with China Eastern.
Bloomberg reported yesterday that this alliance could see the two Chinese airlines swap shares in a cross-shareholding plan, though no details were available.
The Xinhua commentary also quoted an unidentified CNAHC official as saying that a partnership between Air China and China Eastern would be an ‘alliance of two strong players with the aim of raising the competitiveness of Chinese airlines’.
The official also dismissed concerns that a domestic consolidation would hurt consumers’ interest by creating a monopoly in the Chinese market.
He was quoted by Xinhua as saying: ‘Ninety-six airlines from across the world fly to China and, domestically, there are more than 40 airlines, of which less than 10 are owned or controlled by the government.
‘China’s domestic aviation market is a highly competitive one.’
New York probes Wall St. banks over suprime data
Jan 12, 2008
NEW YORK (Reuters) - New York prosecutors are investigating whether Wall Street banks withheld information about the risks stemming from subprime loan-linked investments, The New York Times reported on Saturday.
Citing people with knowledge of the matter, the newspaper said the inquiry, begun last summer by state Attorney General Andrew Cuomo, was focusing on how banks bundled billions of dollars of exception loans and other subprime debt into complex mortgage investments.
Charges could be filed as soon as the coming weeks, the Times said. Connecticut Attorney General Richard Blumenthal told the newspaper he was also conducting a review and cooperating with New York officials.
The federal Securities and Exchange Commission is also investigating, the Times said.
Reports commissioned by Wall Street banks raised alerts about the high-risk loans, known as exceptions, which fell short of even the lax credit standards of subprime mortgage companies and the Wall Street firms, the newspaper said, but the banks failed to disclose those details to credit-rating agencies or investors.
The inquiries highlight Wall Street’s leading role in igniting the mortgage boom that has imploded with a burst of defaults and foreclosures. The crisis is sending shock waves through the financial world, and several big banks are expected to disclose additional losses on mortgage-related investments when they report earnings next week.
EXCEPTION LOANS
Industry officials say the so-called exception loans make up anywhere from 25 percent to 80 percent of the $1 trillion subprime mortgage market among portfolios they had seen, the Times said.
The banks also failed to disclose how many exception loans were backing the securities they sold, with underwriters using such words as “significant” or “substantial,” securities law requires banks to disclose all pertinent facts about securities they underwrite, the report said.
Blumenthal said the disclosures in the banks’ securities filings appeared to be “overbroad, useless reminders of risks,” the Times said.
“They can’t be disregarded as a potential defense,” the newspaper quoted him as saying. “But a company that knows in effect that the disclosure is deceptive or misleading can’t be shielded from accountability under many circumstances.”
New York state law would allow for criminal as well as civil charges, the Times said.
Cuomo declined to comment, but the Times said he had subpoenaed Wall Street banks including Lehman Brothers and Deutsche Bank, as well as major credit-rating companies Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. Mortgage consultants including Clayton Holdings in Connecticut and the Bohan Group, based in San Francisco, were also subpoenaed.
Officials at Wall Street banks and the American Securitization Forum declined to comment, the Times said, while credit-rating firms would not say they had been subpoenaed, but that they were generally not provided due diligence reports even when they asked for them.
Business Times - 12 Jan 2008
Does strict due diligence guarantee a successful IPO?
By TEH HOOI LING
THE Singapore Exchange believes that investment banks which have very strict due diligence processes will tend to bring in better quality companies to the market. This is why it is going to be very selective in qualifying the full sponsors - those responsible for bringing companies for listing on its new board, Catalist.
So which of the investment banks have had the best record in the last three years?
Before we go into the detailed results, let's set the stage with some big picture numbers.
Just under 150 companies were admitted to the main board of the SGX between 2005 and 2007. For Sesdaq, it was 36.
More than half these companies - 56 per cent for the main board and 58 per cent for Sesdaq - underperformed the SES All Shares Index from the time they were listed to Jan 9, 2008.
Now on to the records of the various investment banks.
Surprisingly, all the local banks' corporate finance outfits did not have a very good history of bringing better performing companies to the market.
For example for DBS, of the five companies it brought to the main board in 2005, only one - Asia Enterprise Holdings - managed to outperform the broad market. The rest - Longcheer, Genting International, Electrotech and CDW - had all fared worse than the market. These are IPOs where DBS was the sole issue manager.
The average annualised returns of the five IPOs is 14 percentage points worse than the SES All Shares Index. The median is -10 per cent.
In that year, OCBC brought three companies to the main board. All three - Ban Leong Technologies, Karin Technology and Union Steel - under-performed the market.
Meanwhile, UOB Asia had four main board IPOs in 2005. Only one - C&O Pharmaceutical just about edged ahead of the general market by 1.3 per cent. The rest, Sarin Tech, Advanced Integrated Manufacturing and Pacific Healthcare chalked up returns of 10 to 36 percentage points lower than the market.
All its three Sesdaq companies in that year also fell significantly behind the market - in excess of 30 percentage points - in terms of share price performance.
Their general record in 2006 also left much to be desired, although OCBC did hit the jackpot with Jiutian. Between its IPO and Wednesday this week, the stock has outperformed the market by a whopping 160 percentage points.
Last year was not much better. Arguably, the investment bank which has the best performance in the past three years is HL Bank.
Senior Correspondent My study also found that when the market got heated in 2006 and 2007, investment banks tended to stay conservative in pricing their IPOs ... There were huge gains on the first day of trading, the average was 33 per cent gain on debut in 2006 and 50 per cent in 2007, this compares with just 2.9 per cent in 2005.
There are more hits than misses when it comes to the companies it helped go public.
In 2005, it managed the IPO of China Sky Chemical and Sinopipe Holdings. The former outpaced the market by 45 percentage points, while the latter performed in line with the market.
No escaping duds
Three out of its five IPOs outpaced the market. There, is however, no escaping the duds. In that year, Fabchem had turned out to be one, and so did Sun East. Last year, it was responsible for bringing China Oilfield to Singapore. And up till this week, that counter is ahead of the market by 48 percentage points.
Even for Sesdaq listing, HL Bank has brought more winners and losers to investors.
Hong Leong Finance had a very good record in 2005. It hit the bull's eye in all three deals that it did - Fragrance Group, BH Global Marine and China Wheel. Each has outperformed the market by 92, 52 and 11 percentage points respectively.
However, the outfit did not have any deals in the last two years.
Another two investment banks which had brought more winners than losers to the market are Westcomb and Stirling Coleman.
Ironically, they are two of the firms which have been censured before by the exchange for supposedly not being stringent enough in their due diligence work.
Westcomb brought eight companies to the main board and nine to Sesdaq in 2005. Out of that, five from each board have beaten the general market returns.
It did only one deal in 2006, and that was Swiber. The stock has turned out to be a multi-bagger for investors. It has risen by eight times compared with its IPO price.
One of two of its Sesdaq deals in 2006 also turned out to be a super performer. Sitra Holdings has returned 344 per cent since its debut on the second board in November 2006.
Westcomb's record in 2007 also stands out. Out of the four deals it did - three for main board and one for Sesdaq - three outperformed the market by a big margin.
As for Stirling Coleman, it has its hits and misses. But the hits more than make up for the misses.
My study also found that when the market got heated in 2006 and 2007, investment banks tended to stay conservative in pricing their IPOs. As a result, there were huge gains on the first day of trading. The average was 33 per cent gain on debut in 2006 and 50 per cent in 2007. This compared with just 2.9 per cent in 2005.
However big foreign issue managers like UBS and Credit Suisse were rather aggressive in pricing their IPOs. This resulted in issues which didn't leave much on the table for IPO investors, or worse, issues which fell underwater on the first day of trading.
UBS's Babcock and Brown dropped below its IPO price by 4.7 per cent on its first day of listing on Dec 20, 2006. The Swiss bank's two other issues - MacarthurCook Industrial REIT and Parkway Life REIT - last year also ended below their offer prices by 3.3 per cent and 7 per cent res respectively.
The average first-day performance for Credit Suisse's two IPOs in 2006, meanwhile, was a mere 4.6 per cent and its lone IPO in 2007 chalked up a first-day gain of 8.7 per cent. Again, these are issues where the banks are the sole managers.
So, as seen from the study, having a strict due diligence process at the IPO stage does not necessarily guarantee a market-beating issue.
China’s demand for gambling puts the squeeze on Macau
By Evan Osnos
January 13, 2008
MACAU — The world’s busiest casino town is straining to handle the affections of the world’s largest population.
By the boatload, gamblers gripping Chinese passports jostle off ferries and cram, sardinelike, into a customs building in this once-sleepy former Portuguese colony on China’s coast. They line up, hundreds deep on a weekend morning, for an entry stamp. Then they line up again for scarce taxis or catch shuttle buses into a town bristling with new casinos, fountains and resorts.
“I think it’s become overwhelming,” said David Green, a casino expert for accounting firm PricewaterhouseCoopers in Macau. “The infrastructure isn’t really cut out to deal with that.”
On a patch of land just one-sixth as large as Washington, D.C., Macau surpassed sprawling Las Vegas last year in gaming revenues, thanks to a growing deluge of mainland Chinese tourists. They are transforming this place faster than imperialism and organized crime ever did.
Indeed, the city that caused W.H. Auden in the 1930s to despair that “nothing serious can happen here” is being reborn as an economic tiger. Even compared to mainland China, with its skyrocketing growth of more than 10 percent per year, Macau stands out: Its economy grew last year by 30 percent.
But with more dizzying expansion already under way, the speed and scale of change are testing Macau’s capacity to adapt.
“It’s been crazy,” said Paulo Azevedo, who has lived in Macau for 15 years and is publisher of the magazine Macau Business. “We used to have this sort of Mediterranean, laid-back quality of life,” Azevedo added.
Macau comprises a peninsula and two islands located one hour’s ferry ride from Hong Kong. For the last four centuries, Portugal ran the territory as a freewheeling bazaar and imperial outpost, trading silk, sandalwood, porcelain, opium, arms and other goods, all with a spirit of unabashed seediness. The colony was a “weed from Catholic Europe,” as Auden put it.
The expansion of gaming in the 1960s didn’t help. Macau became known for corruption and gangland violence, a demimonde inhabited by figures such as kingpin “Broken Tooth,” finally locked up in 1999. By the 1990s, Macau’s casinos, long a monopoly held by billionaire Stanley Ho, had slipped so far that the crown jewel, the Hotel Lisboa, struck one visitor as having “the ambience of a minimum-security prison.”
Macau returned to Chinese control in 1999, as a semiautonomous region akin to Hong Kong. Beijing’s handpicked leaders embarked on an overhaul, investing in infrastructure and opening the gaming industry to competition. The first foreign-owned casino opened in 2004: the Sands Macao, owned by Las Vegas tycoon Sheldon Adelson.
As luck would have it, an obscure immigration change gave the Sands a blessed start: In 2003, after the SARS virus dampened tourism, China experimented with allowing its citizens to visit Macau and Hong Kong without mandating that they be part of a tour group. The Chinese flooded to Macau, the closest place to gamble from the mainland, where it is illegal.
Within a single year, the Sands Macao had paid for its own construction. By the end of last year, tourism had nearly quadrupled in a decade to 27 million people annually, according to figures released Wednesday. More than half of them — and by far the fastest-growing segment — are from mainland China.
Less than $90 a night
For a growing Chinese middle class still getting used to foreign travel, Macau packages can be had for less than $90 a night, including air fare from Beijing to Hong Kong. Chinese travel agents say the law doesn’t let them peddle gambling-focused trips, so they finesse it.
“We never put ‘visiting casinos’ on the tour schedule,” said Guo Yu, a marketing manager at China Comfort Travel in Beijing. “Nor is a tour guide allowed to lead tourists to a casino, but if tourists personally want to go to casinos, we can do nothing about it.”
On the immense, half-lit gaming floor at the Sands Macao, virtually all the customers are Chinese, speaking in dialects that mark them as being from China’s north or south. Most of them hunch around baccarat, roulette or dice tables. (Blackjack and poker aren’t popular, and neither are slot machines.)
The drink of choice is tea or soy milk, because the gamblers prefer to stay sharp. Superstitions are common in this part of the world, so gaming rooms are designed to incorporate the lucky number 8 into styling and carpets, while the unlucky numbers 13, 14 and 4 (known to hasten assorted catastrophes) are avoided. Likewise, tables and dealers that acquire the dreaded taint of unluckiness can sit idle for hours.
In the lobby, posters announce upcoming attractions that wouldn’t be out of place in Nevada: a reunion tour by The Police and a heavyweight prizefight between two paunchy has-beens. Indeed, Macau is attracting visits by American boxing promoters intent on finding a Chinese outpost that might make up for the sport’s ailing popularity in the U.S.
“I couldn’t believe what I saw. It’s unbelievable,” promoter Arthur Pelullo of Philadelphia said of his first visit. “They make the casinos in Vegas look small. ... There were people everywhere. It’s like they were giving something away.”
Signs of growing pains
For local businesses in Macau, the boom is not trouble-free. Restaurants and shops face rapidly rising rents and a labour shortage. The resident population numbers only half a million, and casinos can afford to pay the most. Meanwhile, congestion on downtown sidewalks already threatens to lend Macau’s charming plazas and colonial streets the grace of a shopping mall.
There are other signs of growing pains. A group of more than 100 mainland tourists from a gritty industrial city sparked a riot last summer, claiming that their guides were forcing them to spend too much on shopping and gambling. The incident touched off a round of soul-searching in Macau about the impact of tourism on the region’s character, though it did not exactly end with a decision to cool growth.
“You’ll hear people say, ‘Well it doesn’t matter because there are millions more where they came from,”” Green said.
For now, Las Vegas faces little risk of being eclipsed by Macau, which has yet to build the convention centres, luxury retail shops and entertainment arenas that triggered Vegas’ mega-growth beyond gambling. So far, Macau leads Vegas only in casino receipts.
But Macau’s plans are formidable, as it strains to be a bit less Atlantic City and a bit more Monte Carlo. A vast new development on reclaimed land has been named the Cotai Strip and staked out with plans for at least 12 hotels that would more than double the city’s total rooms.
“We’re still in the beginning,” said Azevedo, the publisher. “This is nothing yet.”
Commodity prices soar as wave of money hits markets
January 12, 2008
Carl Mortished, World Business Editor
A wave of money is flooding into the commodity markets, adding more lustre to gold and pointing a spotlight on obscure markets such as coffee, cocoa and palm oil, as investors take fright from credit risk and the looming spectre of recession.
Gold and platinum hit new records yesterday as traditional investors sought out safe havens for cash in troubled times. Concern over emerging signs of recession in the United States depressed the price of crude oil, which seesawed in indecision yesterday, but coffee and cocoa soared as investors searched for the next commodity stars.
The price of Robusta coffee futures gained $25 to $2,039 per tonne in London, the highest level for nine and a half years. Cocoa was also in demand, rising to £1,148 per tonne, a four-year high, as speculative funds sought exposure to soft commodities.
Palm oil also hit a record price as evidence emerged in official statistics that floods in Malaysia had affected output. The price of palm oil, used in both food and cosmetics, has risen 8 per cent in less than a fortnight with continuing concern about its use as a biofuel crop and burgeoning demand from the food industry.
“It’s a global warming hedge,” said Tim Bond, head of asset allocation at Barclays Capital, of the new fashion for soft commodities. “The last three to four years has seen a rebirth of institutional interest in commodities.”
From buying global commodity indices, funds have moved to futures in oil and metals and latterly to green and soft commodities, such as wheat and corn or cocoa and coffee. Commodities fell deeply out of fashion in the 1990s but rising affluence in Asia is putting pressure on food supplies, while climate change is threatening food production.
From almost zero allocation, funds have given commodities a big slice of their portfolios. “People doing portfolio optimisation find they need between 10 per cent and 20 per cent,” Mr Bond said.
After the initial surge in oil and base metals, wheat, corn and soya are in demand and the search is now on for the next commodity to catch fire. Sudakshina Unnikrishnan, Barclays’ soft commodities expert, believes it may be cotton. A massive price gain in wheat, which tripled in value in a year, is expected to lead to more planting by farmers and land is switching from cotton to wheat production. “I think the fundamentals for cotton are very strong,” she said.
US market statistics show rising levels of speculative activity in the soft commodities. “Most of these commodities are seeing strong growth in hot money interest. The fundamentals are so compelling,” said Ms Unnikrishnan. Many food commodities remain as much as 50 per cent off their peak prices, despite recent gains.
Moreover, the soft commodities can move in a countercyclical direction, Mr Bond said.
Fear of recession sent oil falling by a dollar yesterday after an initial bounce caused by comments on Thursday from Ben Bernanke, Chairman of the Federal Reserve, who promised “substantial action” from central banks to head off a downturn. At $93 per barrel, the US light crude futures contract is off 7 per cent from its milestone of $100 on January 3.
However, gold and platinum yesterday reached records of $898 and $1,568 per ounce respectively. On Tuesday, US soybean futures reached a record of $13.06 per bushel.
Low Supplies, High Prices Cause Concern Among Asian Wheat Importers
11 January 2008
By Naomi Martig, Hong Kong
Low global wheat supplies and skyrocketing prices on several agricultural commodities are causing concern in countries that rely on grain imports for many of their staple dishes. Several large wheat-producing countries, such as China and Russia, are reducing exports. As Naomi Martig reports from VOA's Asia News Center in Hong Kong, the restrictions are affecting countries that import grain to feed their people.
Wheat prices are more than 50 percent higher than a year ago. The price is being driven by lower production, increased demand from more affluent communities, and a spillover from increases in overall food prices. Both importing and exporting countries, rich and poor alike, are beginning to take measures to ensure they have enough food, at affordable prices.
This month, China began a temporary quota policy on exports of wheat, corn and rice flour. The ministry of finance has also announced export taxes, as high as 25 percent, on various staples, including wheat, corn, rice and soybeans. In Russia, officials have ordered a 40 percent export tax on types of grain. Abdolreza Abbassian is the Secretary for the Intergovernmental Group for Grains at the Food and Agricultural Organization in Rome. He says the most recent harvests in China and Russia were good, but both are concerned about protecting their own markets.
"They realize their grains could end up in the world market that has such a high demand because of shortages coming from other exporters, so these countries, supplies could end up in the world market, leave the country, and therefore eventually also result in higher prices in their own countries, despite their own good production," he said.
While the goal of such taxes and quotas is to stabilize domestic food prices, Abbassian says the restrictions are putting pressure on countries that rely on such imports, such as Malaysia and Indonesia.
"The countries which are importing from these exporters are, of course, the first casualties because they have to source their needs from elsewhere, and that elsewhere means a more expensive wheat for sure," he said. "Chinese were producing wheat that was very, very competitive. Their wheat flour prices in the region in southeast Asia something like 30 to 50 percent below prices of the same commodities coming in, let's say, from Australia or from the U.S."
Analysts say reduced exports from China are likely to raise prices of staples like flour and bread in Southeast Asia, which is already facing reduced shipments from drought-hit Australia, another major wheat exporter. In India, officials have scrapped import duties on wheat flour to try to keep a lid on prices, and government leaders in several countries are concentrating on controlling inflation of food prices, for fear of unrest in low-income communities.
Abbassian says there is likely to be relief in 2008, as farmers are already responding to high prices and will be planting more grains for the next harvest. But until then, he says it is important for governments, especially in poorer countries, to implement temporary measures to ensure their populations can afford enough food.
US EQUITIES WEEK AHEAD: What Lurks Ahead For The Big Banks
11 Jan 2008
By Danielle Le Grand
NEW YORK -(Dow Jones)- When the nation's biggest banks start reporting their fourth-quarter earnings - or losses - next week, investors will be just as focused on the industry's outlook for the year ahead as they will on the quarter's figures. Are there problems still waiting to ambush the battered sector and the wider economy, and are the banks well placed to deal with them?
Citigroup Inc. (C) and Merrill Lynch & Co. (MER) - which collectively wrote down $10.1 billion of supbrime-related mortgage assets in the third quarter - report fourth-quarter results in which they may absorb as much as $25 billion of additional write-downs.
Citigroup, whose shares plummeted about 48% in the last 12 months, is expected to unveil a loss on Tuesday of $1 a share. Merrill, whose stock is down about 45% in the past year, will follow on Thursday with a likely loss of $4.57 a share, according to median estimates of analysts polled by Thomson Financial.
Other big banks, including JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) - which each report Wednesday - are expected to eke out profits that are substantially lower than in the fourth quarter of 2006. Wells Fargo, in November, said it would take a $1.4 billion provision in the fourth quarter for loan losses.
Washington Mutual Inc. (WM) reports earnings Thursday, after last month saying that it now expects its fourth-quarter provision for loan losses to be between $1.5 billion and $1.6 billion. WaMu and JPMorgan investors alike will also want to know whether reports of "very preliminary" talks between the banks will lead to a merger.
TD Ameritrade Holding Corp. (AMTD) releases its fiscal first-quarter results Thursday, with analysts expecting earnings per share of 39 cents on revenue of $623 million, according to Thomson Financial. And Knight Capital Group Inc. (NITE) reports fourth-quarter results Wednesday.
CIT Group Inc. (CIT) Friday indicated it would post a fourth-quarter loss amid boosting loan-loss provisions by $300 million and writing off the remaining goodwill from getting into the student-loan business. CIT reports Thursday.
Detroit Rolls Out The Green Carpet At Auto Show
The North American International Auto Show in Detroit kicks off Sunday and the green theme is expected to dominate, with fuel prices rising and the government enacting tough mileage standards.
But while more fuel-efficient models are on the agenda, so are the big drivers for Detroit's profits - pickup trucks. Ford Motor Co. (F) and Chrysler LLC will be showing off their redesigned versions of full-size pickups. General Motors Corp. (GM) will show its latest hybrid technology, but also a souped-up Corvette. The show usually gives auto stocks a bit of a kick, but that may be a stretch this year as the backdrop is gloomy. Auto sales, which took a hit in 2007, are expected to be down even more in 2008 thanks to a slowing economy.
A host of auto suppliers and auto makers will make presentations - some of which will include 2008 outlooks - at the Auto Analysts of New York conference in Detroit from Wednesday though Friday. Among the major companies presenting are General Motors, Ford, Johnson Controls Inc. (JCI), Lear Corp. (LEA), Visteon Corp. (VC), Magna International Inc. (MGA), American Axle & Manufacturing Holdings Inc. (AXL), BorgWarner Inc. (BWA), TRW Automotive Holdings Corp. (TRW), ArvinMeritor Inc. (ARM) and Tenneco Inc. (TEN).
Tech Attention To MacWorld, IBM, Intel Earnings
Now that the Consumer Electronics Show is over, the industry's attention shifts to consumer-electronics giant Apple Inc. (AAPL) and the MacWorld Conference & Expo that begins Monday and runs through the week.
The highlight of the San Francisco show comes Tuesday, when Chief Executive Steve Jobs delivers a keynote address, during which he's expected to unveil a new lineup of ultra-slim laptops and an online movie-rental business.
Jobs often uses MacWorld to set the tone for Apple's efforts for the upcoming year and unveils the company's key upcoming products, such as the iPhone, which was revealed at last year's event.
Meanwhile, technology giants International Business Machines Corp. (IBM) and Intel Corp. (INTC) release earnings next week, offering insights into the state of tech spending in the U.S.
IBM shares have fallen 16% over the past three months as concerns increased about a slowdown in such spending, especially from financial-services companies, a sector where IBM gets 30% of its revenue, according to Thomas Weisel. IBM reports its fourth-quarter results Thursday.
Intel, meanwhile, is expected to post solid fourth-quarter results Tuesday, highlighted by a projected 12% jump in revenue. Some, though, expect a conservative 2008 outlook from Intel, based on the larger economic concerns.
Rival chip maker Advanced Micro Devices Inc. (AMD) is expected to report a significant loss next week as it continues to struggle because of stiffer competition from Intel and the cost of a major acquisition.
Investors Tune In To GE Chief Immelt
General Electric Co. (GE) will provide something of a barometer on the industrial economy when the conglomerate reports fourth-quarter results Friday.
Chief Executive Jeff Immelt was upbeat when he delivered his 2008 outlook in early December, saying he expects strong global growth to continue offsetting slower spending by U.S. consumers.
But, with economic indicators deteriorating since then, analysts will be scrutinizing his comments Friday for evidence of a change in tone. Wall Street also will be listening closely for GE's view of the ongoing strike by Hollywood writers and its potential impact on the conglomerate's NBC Universal unit.
GE is expected to post fourth-quarter earnings of 68 cents a share on about $47.35 billion in revenue.
Genentech, Forest Labs Report; FDA Decides On Tysabri
Genentech Inc. (DNA), the largest biotech company by market capitalization, will report fourth-quarter earnings Monday, with analysts expecting earnings of 67 cents a share on revenue of $2.97 billion, according to Thomson Financial. The company's growth is expected to slow in coming years, though label expansion for cancer drug Avastin could change that expectation. Analysts expect Avastin sales of about $616 million for the quarter.
Drug maker Forest Laboratories Inc. (FRX) will report fiscal third-quarter results Tuesday with analysts looking for earnings of 75 cents a share on revenue of $946.5 million. News to watch includes sales of antidepressant Lexapro, its flagship drug, and any updates on its pipeline or licensing plans as Lexapro faces patent expiration in 2012.
The Food and Drug Administration is expected to decide, likely on Monday, on whether to approve multiple sclerosis treatment Tysabri, co-developed by Elan Corp. (ELN) and Biogen Idec Inc. (BIIB) for treating Crohn's disease in patients for whom other therapies have failed.
Airline Earnings Take Off
Major U.S. airlines begin reporting fourth-quarter earnings next week, with AMR Corp. (AMR) on Wednesday, and Continental Airlines Inc. (CAL) on Thursday. AMR is likely to report a loss for the quarter (the mean estimate is for a 61-cent-per-share loss), a weak one for the industry, on slowing revenue as the carrier cuts domestic capacity. Continental is seen with a narrow loss of 2 cents a share. For full-year 2007, the U.S. airline industry is expected to be in the black. But investors are most interested in the tantalizing possibilities of airline mergers, including a possible hookup between Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWA), Delta and UAL Corp. (UAUA), or Continental and UAL.
Housing Starts, Retail Sales, CPI, PPI On Tap
Economic data next week - forecast to show weakness in retail sales, industrial production, housing starts and consumer sentiment - will add to the worries about recession. Meanwhile, Federal Reserve Chairman Ben Bernanke and his teammates are expected to continue to cement the market's speculation of a 50-basis-point cut this month, with more coming down the road.
UBS confronts shareholder funding revolt
January 11, 2008
Miles Costello
The bank admits it cannot value its credit crunch exposure as it attempts to justify a £6bn emergency cash injection
UBS moved today to head off a shareholder revolt over its emergency capital injection of SwFr13 billion (£6 billion) from a Singapore sovereign wealth fund and a mystery Middle East investor.
The financing raised objections among some shareholders who have threatened to vote down the deal at a special meeting next month unless they were given more details.
The bank wrote to shareholders today to explain why the funding was vital.
Switzerland's biggest bank and the world's largest wealth manager revealed the full extent of its financial plight, which it admitted today remains unquantified.
It admitted that it had considered a rights issue but rejected it on the grounds of "cost, complication and time".
The bank said it had feared international credit agencies might downgrade its ratings, which would further weaken UBS's funding position and drive up its cost of borrowing on the wholesale money markets.
UBS also publicly acknowledged that it had concerns about the possibility of "increased unease" among its clients and stakeholders due to the sheer size of its losses at the hands of the market turbulence.
"In view of these adverse market developments, it became increasingly evident that substantial additional writedowns would be required," the bank wrote, in reference to a sustained money market liquidity crisis during October, November and into December.
"We then knew that we faced the risk that the sheer size of these numbers, the resulting reduction in our capital ratios and any remaining uncertainty about the ultimated value of our positions could lead to an increased unease for clients and other stakeholders."
UBS has been among the hardest hit of the world's investment banks by the credit crunch after writing down up to $13 billion as a result of its exposure to sub-prime mortgages in America.
Late last year it said the Government of Singapore Investment Corporation would be injecting SwFr11 billion for a stake of about 9 per cent.
An unnamed Mideast investor, thought to be the Saudi Arabian Monetary Agency, would plough in a further SwFr2 billion for an additional small shareholding, it said.
UBS has maintained that it needs the capital to shore up its financial strength. "During 2008, the environment for financial markets, especially in the US, is uncertain, and we need to manage through this period from a position of financial strength," UBS said.
A spokesman for the bank denied UBS was worried about a shareholder rebellion. He said UBS was updating investors about the terms of the financing and the letter was in line with its desire to be transparent.
Investors accounting for two-thirds of UBS's share capital need to approve a capital issue in order for the funding to go ahead.
The Fed to the rescue
Bernanke says central bank ready to take 'substantive additional action' to cut interest rates in order to support lagging economy.
By Paul R. La Monica, CNNMoney.com editor at large
January 11 2008
NEW YORK -- Federal Reserve Chairman Ben Bernanke said in a speech Thursday that the central bank is prepared to continue lowering interest rates in order to help keep the economy on track.
He also reiterated that the Fed does not believe the economy will slip into a recession this year.
"We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," Bernanke said in prepared remarks before the Women in Housing and Finance and Exchequer Club in Washington, D.C.
However, some economists suggested that rate cuts may be too late to stop a recession. But stocks, which had been trading lower before the speech, rebounded modestly in the afternoon and soared following reports that Bank of America (BAC, Fortune 500) was in talks to buy embattled mortgage lender Countrywide Financial (CFC, Fortune 500).
Read Bernanke's prepared remarks
Wall Street interpreted Bernanke's comments to mean that there is now an increased likelihood the Fed will lower its key federal funds rate by a half percentage point, to 3.75 percent, at the conclusion of its two-day meeting on Jan. 30.
"A half-point cut is certainly on the table and it's about time. The Fed has a lot of work to do," said James Glassman, senior economist with JPMorgan Chase.
To that end, investors are pricing in a 92 percent chance that the Fed will lower rates by a half-point on Jan. 30, according to federal funds futures listed on the Chicago Board of Trade.
"The Fed has changed course. It has moved from a limited loosening mode designed to mitigate the impact on the financial markets to more aggressive loosening aimed at stimulating growth," said Chris Probyn, chief economist with State Street Global Advisors in Boston.
Recession may already be here
Probyn said he expects a half-point cut later this month followed by a quarter-point cut at its next meeting in March and did not rule out further cuts at meetings in April and June as well.
But Bernanke's speech comes as more and more economists are saying that the economy is either already in a recession or on its way toward entering one. Bernanke stopped short of describing current conditions as a recession in his prepared remarks but he did paint a bleak picture for the economy in 2008.
"Downside risks to growth have become more pronounced. Notably, the demand for housing seems to have weakened further, in part reflecting the ongoing problems in mortgage markets," Bernanke said.
"In addition, a number of factors, including higher oil prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending as we move into 2008," he added.
Economic pain likely to linger
During a question-and-answer session, Bernanke said the Fed is not currently forecasting a recession in 2008. Instead, he said the Fed expects growth to slow.
He added though, that it is difficult to make a determination about whether an economy is in recession until after the fact.
Probyn agreed. And he said that if the economy is already in a recession or close to one, a rate cut later this month would be too little, too late. The best the Fed can do now is to take steps to ensure that the recession does not last long.
"If we do have a recession, it would be quite mild and probably in the first half of the year. Nothing the Fed does today can do anything about that," Probyn said. "But rate cuts may stimulate growth by late summer and into the end of the year."
Glassman, however, said that the Fed may have waited far too long to cut rates aggressively and that even if the economy doesn't dip into a recession, there could be a prolonged slump since the job market has weakened in a relatively short period of time.
"When you have to step up the pace of easing and you're doing it after unemployment has been rising, you're not exactly ahead of the curve," he said.
In case of emergency, slash rates
Bernanke discussed inflation as well, but he said that "inflation expectations appear to have remained reasonably well anchored," and suggested that rising oil and food prices "may be a negative influence on growth" in addition to putting pressure on inflation measures.
That comment appears to give more evidence to those who think the Fed is now more concerned about a recession than rampant inflation.
"Obviously, inflation is a concern but for the Fed, you're better off front-end loading rate cuts now," said John Derrick, director of research with U.S. Global Investors Inc, a money management firm based in San Antonio. "If you have to take them back later and raise rates to deal with inflation, you deal with that then."
As such, some market strategists and economists have even suggested in the past few days that the Fed could cut rates in an unscheduled meeting before January 30.
Bernanke did not comment in his remarks about whether a rate cut before Jan. 30 was possible. But he did say that the Fed "must remain exceptionally alert and flexible, prepared to act in a decisive and timely manner and, in particular, to counter any adverse dynamics that might threaten economic or financial stability."
Bernanke also said the central bank's new auction program, which it announced in December as a way to loan money to banks in need of cash at a rate below the Fed's discount rate, appears to be a success and could "become a useful permanent addition to the Fed's toolbox."
The Fed has already conducted two auctions for a combined $40 billion and will be loaning $60 billion more later this month through two additional auctions.
Will Rupert Murdoch Knuckle Under to Singapore?
Eric Ellis
11 January 2008
The media king’s purchase of Dow Jones & Co. has delivered some unwanted cargo in the form of a long-running libel suit.
In July of 2006, the Far Eastern Economic Review, reduced to a monthly shadow of its weekly former self, published a long and contentious interview with Chee Soon Juan, the harried leader of the opposition Singapore Democratic Party. The magazine promptly found itself the recipient of a letter from Drew & Napier, the lawyers for the autocratic minister mentor Lee Kuan Yew, and his son, Prime Minister Lee Hsien Loong, demanding an apology.
The Review refused to apologize, and for a year and a half a libel suit has been dragging its way through the Singapore courts. The only suspense is over how big the judgment will be against the magazine. The Lee family has never lost a libel suit in its own courts. And there’s the problem for media mogul Rupert Murdoch, who paid US$6.8 billion for a controlling interest in Dow Jones & Co. which, in addition to publishing the Review, also owns the Wall Street Journal and its international editions.
Unlike many of his competitors, Murdoch's titles have never experienced a Singapore libel action. The city-state has rather been regarded by Murdoch’s News Corp as a place to raise money and do business – notably in 2001 when Murdoch briefly entered into a joint venture with Singapore's state-owned telecom company SingTel (then run by a son of Lee Kuan Yew) in an unsuccessful bid for Hong Kong's leading telecom company, when they were outmaneuvered by Beijing and Li Ka-shing’s son, Richard.
But with this libel headache now on Murdoch's desk, Singapore faces a media company run by a dominant individual who is an archly pragmatic dealmaker when it suits him. That could mean wriggle room for legal negotiation except that, with libel, the Lees always want absolute victory.
As an example of the Lees’ thirst for judicial blood, many international news organizations, including Time Magazine, the (pre-Murdoch) Asian Wall Street Journal, The International Herald Tribune, Business Week, Bloomberg and the Financial Times have lost suits in Singapore.
The Review’s sudden defiance is rare indeed. The presumption of a loss is such that media companies routinely settle promptly and apologize. The most recent, last November, was the Financial Times, which settled for unspecified damages and apologized in a case that according to non-Singaporean legal scholars contained no libel. As with the FT, management usually decides that a quick settlement limits expensive legal bills –and possibly even higher damages if Lee lawyers insist mid-trial that publicly heard evidence has further harmed sensitive reputations, which prevents airing of issues that may be germane to the case. In an earlier case involving the Review, the Anglo-Australian constitutional lawyer Geoffrey Robertson’s cross-examination of the elder Lee was so rigorous that a Singaporean judged awarded additional damages for his discomfort in the witness box.
The Lees have been the dominant political family in Singapore since the 1950s, about the same time Murdoch has been in charge of News Corp. Both have helped build institutions of about the same size; News Corp's market worth approaches US$100 billion, Singapore's GDP is bigger. Both are expert at projecting power, and neither brook any challenge to their authority, although media critics accuse Murdoch of knuckling under to Chinese authorities, for instance dropping the British Broadcasting System from Star TV’s stable of cable news programs broadcast in China, in an effort to curry favor. In addition, Andrew Neil, the feisty one-time editor of Murdoch’s Sunday Times in London, lost his job after Malaysia’s then-Prime Minister Mahathir Mohamed took issue with the paper in 1994, just after Murdoch bought Star TV.
In the current case, the Review had argued, pre-Murdoch, that since it did not have an office or staff in Singapore, it should not be subject to Singapore law. It wanted the matter heard in Hong Kong, where it is based, and where it feels it would get a fairer hearing.
In a letter to Singapore's Information Ministry, which has sought a bond from the Review in lieu of presumed damages and Singaporean jurisdiction over the Review, Dow Jones's lawyers argue "its imposition on the Review, merely for the sake of making it easier for senior ministers of the Singapore Government to recover personal damages in a libel action, would be deeply regretted by all who care for the rule of law in your country. It is an exorbitant and unlawful demand that even totalitarian states have never sought to impose on media."
And that is where the matter has largely stayed since mid-2006, an exchange of testy lawyers' letters as Singapore throws out the Review's attempts to end the action.
But then came Murdoch's successful bid for Dow Jones last year. Murdoch put in a new team, and much of the management that previously backed the Review's feistier approach to Singapore is no longer around.
The status of the case is unclear. Outwardly, it seems as if nothing has changed, and for now a Murdoch-owned Review is still taking on the Singaporeans. The articles and letters remain posted at FEER.com and the Review editors say it is still live, referring the matter to Dow Jones lawyers, who do not respond.
The matter is pregnant with the notion of what constitutes credibility – Singapore's own sense of it and News Corp's in the court of public opinion after the critical shellacking it received en route to the Dow Jones win.
Singapore's legal system is also under scrutiny. The US embassy in Singapore has frequently expressed concern about "the ruling party's use of the court system to intimidate political opponents.” The Australian lawyer Stuart Littlemore, who has observed Singapore libel cases for the International Commission of Jurists, says "the Singapore leadership has a long-standing record of using the High Court as a mechanism for silencing its opponents – by suing them for statements that, in any comparable jurisdiction, would be seen as part of a robust political debate inseparable from democratic freedoms, and by being awarded such unconscionably high damages and costs as to bankrupt the defendants, forcing them out of parliament.”
Credibility was at the heart of the Murdoch bid for Dow Jones. There were numerous critics, notably in its own newsrooms, and including some members of the publisher's controlling Bancroft family (which quickly put aside its gripes in accepting the generous offer). The critics said Murdoch and his company had insufficient credibility to be custodians of venerable media assets like The Wall Street Journal and The Far Eastern Economic Review.
News Corporation prevailed after a searing battle in which Murdoch's personal and corporate reputation was assailed, almost to the point of him pulling out. Murdoch himself said bitterly that he was treated like a "genocidal tyrant.”
A significant aspect of the appeal of Dow Jones to Murdoch is its underplayed assets in booming Asia, a region where Singapore interests are hugely influential, both politically and commercially, and where Murdoch thinks he can add much value absorbing Dow Jones into the rest of the News empire. But just as Murdoch has been cited as providing the type of media Asia does not want, notably by China, wealthy Singapore is often cited as a regional development model, particularly in effective one-party states like China and through Central Asia. Singapore is an important, if sometimes self-serving, voice in the so-called Asian Values debate. It will be fascinating to see how the battle plays out, mindful of the messages it could send around a region where state control of media is evolving. Democracy and civil society are aching to burst out, but debilitating libel cases clearly are not yet dead, At least not in the Lees’ Singapore.
Portions of this article appeared previously in the Sydney Morning Herald.
Housing: No room for bulls
Three bears took on a lone bull at a real estate conference debate in New York this week. Guess who won?
By Les Christie
January 10 2008
NEW YORK -- Even a few months ago, it seemed like a good idea to hold a debate between real estate bulls and bears.
But with home sales spiraling and the outlook getting gloomier, it was hard to find a single optimist at a recent panel discussion on the forecast for the housing market.
"We're facing the worst housing recession in U.S. history," according to Nouriel Roubini, an economics professor at New York University and co-founder of RGE Monitor, an economic research and analysis firm. He predicted peak-to-bottom national home price losses of 30 percent.
Roubini joined a group of three other real estate experts at the Real Estate Connect NYC 2008 conference in New York Wednesday for a discussion titled, "The Housing Debate: Bull vs. Bear."
"There will be 10 million houses with negative equity," he said, where the owners will owe more on their mortgages than the properties are worth, giving them less incentive to keep making payments. Many will walk away, he said, depressing markets further.
The housing turndown, according to Roubini, was the initial trigger for a broad economic decline. "We're in an economy-wide recession already, one that will be much more severe than those of 1991 or 2001," he said.
Although housing only accounts for 5 percent of the economy, he noted, the slump has already reduced consumption, which makes up two-thirds of it. Consumers are no longer tapping home equity, and they're cutting back on spending.
And credit problems are no longer confined to subprime loans, according to Roubini. They've spread to near-prime mortgages, prime, auto loans and junk bonds, with losses that could reach trillions of dollars.
The five stages of grief
Another bear on the panel was Barry Ritholtz, chief executive of market-watcher Ritholtz Research. He placed the real estate slump in the framework of Elisabeth Kübler-Ross' five stages of grief: anger, denial, bargaining, depression and acceptance.
Ritholtz said we've just about worked through the denial stage, which was exemplified by the National Association of Realtors first saying there was no housing slump, then that it would be contained (the soft landing scenario), and then that it would be limited to housing.
Now, said Ritholtz, "We're in the bargaining stage," where he said we'll promise to never speculate on real estate again if God will only let us sell our properties now.
Next will come depression and finally acceptance. "That," said Ritholtz, "is when you should start to buy again."
Recession? Bring it on
The third bear was Noah Rosenblatt, founder of UrbanDigs.com, a blog that covers macro-economic trends and their impact on New York real estate. He not only predicted a strong recession but said he's looking forward to it.
"If you're a value guy, are you buying now? No," he said. "It would be like catching a falling knife. It's a credit crisis and we're going to see a lot worse before it gets better."
For Rosenblatt, a recession would clear out all the bad loans and foreclosure problems, and then the market could return to normal.
One solution, according to Ritholtz, is to get rid of brokerage CEOs who have a vested interest in holding bad loans they acquired on their watch and replace them with those who don't.
"They'll say, 'Hey! This isn't my crap. Get rid of it,'" said Ritholtz. By jettisoning the bad baggage quickly and taking a write-off, they'll move through the cycle sooner.
Where's the bull?
With three big bears in the midst, the housing debate's "Goldilocks" kept a low profile.
"I'm going to be as positive as possible, but I'm not going to make myself sound like an idiot," said Dottie Herman, CEO of Prudential Douglas Elliman, a broker specializing in New York City residential properties.
According to Herman, many of the markets that will experience the worst downturns are the same ones that enjoyed substantial run-ups. But, she added, it would also create "opportunities for people to buy."
HK shrs drop on report of Merrill losses, HSBC hit
By Rita Chang
HONG KONG, Jan 11 (Reuters) - Most Hong Kong stocks fell on Friday as investors sought to cash in following a report that financial services giant Merrill Lynch is expected to suffer higher-than-forecasted losses from soured mortgage investments.
Shares in mainland telecoms players took the spotlight amid
rising speculation that China had approved a long-awaited restructuring of the telecom industry.
Global lender HSBC Holdings (0005.HK) dropped to fresh two-year lows while export play Li & Fung (0494.HK) and global fashion retailer Esprit Corp (0330.HK) both slid for the fifth straight session.
"The risks of a U.S. recession are increasing; sentiment is not good," said Patrick Shum, strategist at Karl Thomson Securities.
Strategists now say odds are rising that the 26,000 level, which has been a solid support level for the benchmark Hang Seng
Index, could be breached. Indeed, Thursday's remarks by Federal
Reserve chairman Ben Bernanke suggesting aggressive rate cuts
were ahead did not bolster the market.
The Hang Seng Index .HSI closed down 1.3 percent, or 363.85 points, to end at 26,867.01, down 2.4 percent for the week.
The China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, fell 1.2 percent, or 193.94 points, to end at 15,833.75, for a 0.4 percent weekly loss.
"There's still a lot of uncertainly related to global market stability due to writedowns and subprime exposures, SIV (structured investment vehicle) exposures, exposures to the U.S.
bond insurers," said Michele Barlow, a Merrill Lynch credit
strategist.
US-based Merrill Lynch (MER.N) may suffer $15 billion in losses, almost twice the company's original estimate, the New York Times reported on Friday.
The day's most heavily traded stock, HSBC earlier tapped lows not seen since Nov. 2005 before ending down 2.1 percent at HK$123.6.
Among telecoms, China Telecom (0728.HK) ramped up earlier this week on speculation of an industry reshuffle that would see the country's top fixed-line provider acquire mobile assets to compete with the dominant China Mobile (0728.HK).
Investors pocketed gains in China Telecom, depressing shares 5.1 percent to HK$6.64, while China Mobile suffered further losses, down almost 1 percent at HK$133.90.
But China Unicom (0762.HK), the country's No.2 wireless operator which is expected to sell some of its mobile assets to China Telecom, shot up 6.6 percent to HK$18.68 in heavy trade.
Europe-focused Esprit, in another day of active trade, was whacked 4.1 percent to HK$96. Li & Fung, which counts the U.S. as its top market, slumped nearly 6 percent to HK$25.35.
Hong Kong Exchanges and Clearing (0388.HK), a proxy for investor sentiment, also took a beating to end down 2.6 percent at HK$204.20.
Asia's top oil refiner Sinopec Corp (0386.HK) tumbled 2.6 percent to HK$10.48 in another session of heavy selling, a day after China said it would intervene to brake rising prices.
Decliners beat advancers by about three to one. Mainboard turnover was HK$128.7 billion (US$16.5 billion) compared to Thursday's HK$123.3 billion.
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