SHANGHAI, Feb 26 - China Eastern Airlines formally rejected a proposed tie-up with flag carrier Air China, pledging on Tuesday to instead continue seeking another strategic investor.
Echoing public comments by China Eastern executives, the airline said China National Aviation Corp, parent of Air China, had not made a sincere or considered proposal that would benefit shareholders.
“In the absence of sincerity, planning and mutual trust, it would be hard to create a basis for cooperation,” China Eastern said in a statement that also quoted criticism of the proposal by its lawyers and advisers Shenyin & Wanguo Securities.
China Eastern said it would not give the proposal further consideration.
Last month, CNAC proposed a strategic partnership between Air China and China Eastern, which it said could bring China Eastern a cash injection of $1.9 billion and involve a broad tie-up between the two airlines’ operations.
CNAC’s approach helped convince a China Eastern shareholders’ meeting to reject the proposed sale of a 24 percent stake in China Eastern to Singapore Airlines and Singaporean investment firm Temasek [TEM.UL] for $920 million.
China Eastern said on Tuesday it would continue seeking a strategic investor to boost its management expertise and international competitiveness. But it did not say whether it still hoped to revive the Singapore Airlines deal.
Singapore Air: Offer For China Eastern Still On The Table
2008/02/27
SINGAPORE (Dow Jones)--Singapore Airlines Ltd. said Wednesday that its HK$3.80 per share offer to buy a stake in China Eastern Airlines Corp. is still valid.
“Our proposal for recapitalisation of China Eastern Airlines is still on the table. It is exactly the same as the one announced in September 2007 and put to shareholders in January 2008. There is no new bid,” Singapore Airlines spokesman Stephen Forshaw told Dow Jones Newswires.
China eastern said late Tuesday that it won’t consider a bid put forward by the parent company of rival Air China Ltd., China National Aviation Holding Co.
China Eastern said in a statement CNAHC’s proposal has failed to demonstrate “sincere intentions” and thorough planning. The company added that it also raised issues such as uncertainty as to whether the Chinese government would support the partnership, and whether any antitrust issues would be raised.
Air China successfully blocked a deal earlier this year whereby Singapore Airlines and its parent Temasek Holdings would buy a 24% stake in China Eastern. The Beijing-based airline put forth its own proposal, saying it would offer at least HK$5 per China Eastern share.
“We look forward to continuing our discussions with China Eastern about taking the proposal forward. The timing remains a matter for them, but we hope that shareholders will appreciate that the offer is a fair and reasonable one, and will help recapitalise China Eastern quickly to meet the competitive demands of the China aviation sector,” Forshaw said.
Singapore Airlines remains its preferred company to partner with, the China Eastern statement said, citing Singapore Airlines’ profitability, reputation for customer service, and route and cost synergies the two airlines would share.
“CEA’s primary objectives of introducing a strategic investor are to gain access to world-class management know-how and to improve its management, operation efficiency and profitability for the protection of the long-term benefits of all its shareholders,” it said.
Dollar Falls to Record Low of $1.50 per Euro on Rate Outlook
By Kosuke Goto and Stanley White
Feb. 27 (Bloomberg) -- The dollar fell to a record low of $1.50 per euro on speculation Federal Reserve Chairman Ben S. Bernanke today will indicate the U.S. central bank is prepared to keep lowering interest rates.
The currency is headed for its second straight monthly decline on expectations a U.S. government report today will show a drop in new home sales, bolstering the Fed's case for cutting its 3 percent target for the overnight lending rate between banks. The euro climbed to a six-week high against the yen as traders bet the European Central Bank will keep its 4 percent benchmark rate unchanged in coming months.
``We're going into a new leg of dollar weakness,'' Tony Morriss, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd., Australia's third-biggest bank, said in an interview with Bloomberg Television. ``The Federal Reserve is sending a pretty clear signal they need to support growth.''
The U.S. currency touched $1.5047 per euro, the lowest since the European single currency was introduced in 1999, before trading at $1.4991 as of 10:46 a.m. in Tokyo from $1.4974 in late New York yesterday. It was little changed at 107.22 yen. The euro rose to 160.73 yen from 160.67. The dollar may fall to $1.53 per euro in the next three months, Morriss said.
The U.S. dollar slid against 11 of the 16 most-active currencies before Bernanke delivers his semi-annual testimony to the House Financial Services Committee at 10 a.m. in Washington today. Fed Vice Chairman Donald Kohn said yesterday turmoil in credit markets and the possibility of slower economic growth pose a ``greater threat'' than inflation.
Commodities Fallout
The slump in the dollar pushed oil prices to a record yesterday and increased the cost of buying wheat, sugar, copper, cotton and cocoa. Asian currencies rallied, with China's yuan posting the biggest gain in a week. Chinese Premier Wen Jiabao yesterday told visiting U.S. Secretary of State Condoleezza Rice a stable dollar is good for the U.S. and the rest of the world, Xinhua news agency reported.
The greenback has lost about a quarter of its value in the past five years, according to the Fed's U.S. Trade Weighted Major Currency Dollar index, which comprises seven currencies of U.S. trading partners. The index declined 0.6 percent to 72.06 yesterday, approaching a three-month low set on Nov. 26. The weaker dollar has made U.S. goods cheaper abroad, boosting exports to a record and shrinking the nation's trade deficit last year for the first time since 2001.
All of the 10 most actively-traded currencies in Asia outside Japan gained against the dollar today, led by the Taiwan dollar with a 0.5 percent rally to NT$31.071. Indonesia's rupiah rose 0.4 percent to 9,068 and the Singapore dollar climbed 0.3 percent to S$1.4018. The yuan advanced 0.1 percent to 7.1484.
`Crunch Time'
``It's crunch time for the dollar,'' said Yuji Saito, head of foreign-exchange sales in Tokyo at Societe Generale SA, a unit of France's second-largest bank by market value. ``Bernanke may know that monetary policy alone cannot support the slowing U.S. economy.''
The U.S. currency may fall to $1.51 per euro and 106.80 yen today, Saito forecast.
The dollar will rebound to $1.48 per euro by the end of March, according to the median forecast in a Bloomberg News survey of 41 analysts. Merrill Lynch & Co., the third-biggest U.S. securities firm, is the most bearish, predicting it will fall to $1.57 per euro by March-end.
New home sales dropped 0.7 percent to an annual pace of 600,000 last month, according to the Bloomberg survey median estimate before today's Commerce Department report.
`Shifting Away'
The dollar may fall at least another 10 percent on a trade- weighted basis, said Kenneth Rogoff, an economics professor at Harvard University in Cambridge, Massachusetts, and formerly chief economist at the International Monetary Fund.
``We're seeing demand shifting away from the U.S. to Europe and Asia,'' he said.
The U.S. will expand 1.5 percent this year, compared with a 4.1 percent rate for the global economy, the Washington-based IMF said in January.
Futures on the Chicago Board of Trade show traders see a 96 percent chance the U.S. central bank will reduce the 3 percent target rate for overnight lending between banks by 50 basis points at their March 18 meeting, and a 4 percent likelihood of a quarter-point cut. The Fed has already cut rates five times since Sept. 18.
ECB on Hold
The euro gained as the Munich-based Ifo institute yesterday said its business climate index rose to 104.1 in February, from 103.4 in January. The median estimate in a Bloomberg survey was for a drop to 102.9. After the report, traders pared bets the ECB will lower its target from the current 4 percent level.
``Germany's business sentiment was unexpectedly strong,'' said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany's second-largest bank. ``The ECB is likely to keep borrowing costs unchanged instead of cutting rates as some had expected.''
The euro may rise to 161.40 yen today, Muramatsu forecast.
The odds of the ECB lowering borrowing costs fell yesterday, with the implied yield on the Euribor futures contract for June rising 4 basis points to 4.15 percent. The yield averaged 0.18 percentage point more than the ECB's benchmark from 1999 until August. A basis point is 0.01 percentage point.
TOKYO (AP) -- Sony and Sharp are tying up in the flat-panel TV business, with Sony investing in a Sharp plant for making liquid crystal displays, both sides said in a statement.
Sony Corp. had fallen behind in developing flat panel TVs, and does not make its own liquid crystal displays for its TVs. It has been buying LCD panels from a joint venture it has with Samsung Electronics Co. of South Korea.
With the latest partnership with Sharp, it can hope to ensure a stable panel supply for its TVs.
Demand for slimmer and bigger TVs is growing around the world. Although the televisions use various panel technologies, LCD is the leading technology so far along with plasma display panels.
Sony President Ryoji Chubachi and Sharp President Mikio Katayama will hold a joint news conference at a Tokyo hotel later in the day, according to the companies.
Japan's business daily The Nikkei reported in its Tuesday editions that Sony plans to invest 100 billion yen (US$926 million) in a plant Sharp Corp. is building to make panels for flat TVs.
But the companies said the amount of investment was still undecided. They will set up a joint venture for producing the displays, and Sharp will take a 66 percent stake and Sony 34 percent, they said.
Sony's cash investment would be a plus for Sharp's 380 billion yen (US$3.5 billion) new plant for making panels for larger 40-inch, 50-inch and 60-inch flat TVs.
Construction began in December, and the plant is expected to be running by March 2010.
Sony shares rose more than 1 percent Tuesday on the Tokyo Stock Exchange. Sharp ended unchanged.
Analysts said the move was positive for both companies, as it would give Sony more of an option in buying panels for its TVs called Bravia, while Sharp can reduce the investment burden for panel production.
Both Sharp and Samsung make flat TVs under their own brands, and Sony, Sharp and Samsung are competing for their piece of the global flat-TV pie.
Some surveys have shown Sony momentarily leading in LCD TV sales, but Samsung is now believed to be No. 1.
Osaka-based Sharp, which is struggling to gain overseas brand recognition, still trails Samsung and Sony. Sharp's Aquos brand of LCD TVs is extremely popular in Japan.
Sony management failed to recognize how quickly slimmer TVs would take off, partly because of the huge success it had enjoyed in developing and selling high-quality old-style televisions.
Its failure in flat TVs was a major reason for its faltering earnings several years ago. Sony has staged a comeback recently under the leadership of Howard Stringer, a Welsh-born American who became chief executive in 2005.
In December, Toshiba Corp. said it will team up with Sharp to buy LCD panels for Toshiba flat-panel TVs.
At that time, Toshiba said it will drop panel-making from its business, selling its stake in a joint venture panel maker, led by Matsushita Electric Industrial Co., which makes Panasonic brand products.
Matsushita, the world's leading maker of plasma TVs, has been strengthening in-house production of panels, including LCD displays, counting on solid flat-panel TV sales in coming months. Matsushita is also supplying Japanese electronics maker Hitachi Ltd. with LCD panels.
On Monday, Standard and Poor's Ratings Services raised its outlook on Sony to "stable" from "negative," citing improved profits at its core electronics unit and gradual recovery in its struggling PlayStation 3 video game operations.
Beijing urged to heed risk of unrest from labour law
More consultation needed for guidelines, experts say
Denise Tsang in Dongguan Feb 26, 2008
Beijing risks provoking social unrest if it fails to better balance the interests of employers and employees when hammering out guidelines for the controversial labour contract law.
The new law, which took effect on January 1, has triggered conflict over the responsibilities and rights of employers and employees, leading to a wave of disputes and shutdowns in manufacturing hubs along the Yangtze River and in the Pearl River Delta.
Although introduced to protect the interests of both parties by binding them in a black and white contract, market observers say the handling of the law has been poor.
Beijing should hold further consultations with factory owners and workers before disclosing new implementation details of the law, said Priscilla Leung Mei-fun, a lawyer and associate professor of law at City University.
“The new law has caused a lot of confusion,” Ms Leung said. “There have been disputes between workers and factory owners and factories have been pushed out of business.”
She said the bigger the number of factory closures, the more job losses and the higher the chance of social unrest.
“Beijing should learn from the lessons of riots and unrest in France a couple of years ago when the country rolled out a pro-worker labour law,” she said.
Many terms of the contract law were inclined to protect employees’ interests, leaving employers with higher costs and liabilities.
The law has led to the demise of more than 10,000 mostly Hong Kong-owned factories in the Pearl River Delta. Those factories are also facing a stronger yuan, soaring raw material and production costs and unfavourable state policies on exports and tax refunds.
Ms Leung said some aspects of the law lacked flexibility and were draconian. They include requiring employers to report to the authorities in advance plans to lay off more than 20 workers and planned negotiations with labour unions. In addition, employers are not allowed to transfer workers between units.
Heavy penalties are imposed on employers that breach the new law, including doubling the monthly pay of a worker if the firm fails to enter into a contract with the employee.
“After talking to the law drafters in Beijing recently, I have found that the controversial consequences such as lay-offs and shutdowns of factories were beyond their expectations,” Ms Leung said. “Local governments should step in and help out because it is not just a legal and economic problem, but a social issue.”
Hong Kong Small and Medium Enterprises Association chairman Danny Lau Tat-pong said the labour contract law was too rigid, citing the limits placed on overtime work. He said many factories dared not take orders due to shortened working hours. Hence their earnings were hit.
Rising factory floor tensions could worsen in the run-up to the May 1 promulgation of a new set of rules for mediation and arbitration, some lawyers said.
The arbitration bill was open to abuse as workers would be allowed to file claims or complaints against their bosses for free, said Jane Li Jianzhuan, a lawyer with Zhuhai-based law firm D&S. “It could lead to more disputes.”
Never mind those investments in Barclays and Merrill Lynch – at least Temasek’s 19 per cent holding in Standard Chartered is looking clever. Since the Singapore government fund bought its original stake in March 2006, the UK-listed bank has outperformed its global banking peers by about 25 per cent. On a three-year view, it has trounced them by more than 50 per cent. Nor should yesterday’s full-year results give Temasek cause for concern: contrary to the now-familiar sound of subprime explosions, Standard Chartered’s management just about stopped short of breaking into song.
And why not? Management has bet the bank on the fast-growing bits of the world and, so far, this strategy is paying off. Income and profit growth, for the main wholesale and consumer businesses, was pretty much double-digit across the board. Hong Kong, Singapore and India were particularly strong. Naturally, there are some growing pains: settling down the expensive acquisition of First Korea Bank is proving tricky and costs are up in countries where Standard Chartered is pushing hard. Not surprisingly, customers in Pakistan seem to have things on their minds other than paying back loans.
Investors, as they have done for years, love the story. Standard Chartered’s shares were up 8 per cent by the close. Its forward price/earnings ratio of 14 times is now more than twice that of many rivals. Does that make sense? It certainly shows how much perceptions have changed that a bank exposed to China and Nigeria is considered less risky than one geared to the US. That may be true today but there is still a real danger that “recoupling” occurs.
Standard Chartered’s drawers are stuffed with deposits and it is well capitalised. If there is any risk that Asia might slow, right now is the window for Standard Chartered to transform itself by bagging a bargain in the more-pedestrian but gigantic markets of the US and Europe. Temasek may well cry foul but, at the right price, its investment would end up a much better balanced bank – with barely less fizz.
Citigroup May Post First-Quarter Loss, Whitney Says
By Bradley Keoun and Charles Penty
Feb. 25 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank by assets, may post its second-straight quarterly loss and fall short of profit estimates for the year because of writedowns on home-equity loans and junk-grade corporate loans, Oppenheimer & Co.'s Meredith Whitney said.
Whitney, whose downgrade of Citigroup last year triggered an 8 percent decline in the company's stock price, said the bank may report a loss of $1.6 billion, or 28 cents a share, for the first quarter, compared with a profit of about $5 billion, or $1.01, a year earlier. Her prediction today compares with the 45-cent per- share average gain expected by analysts surveyed by Bloomberg. Goldman Sachs Group Inc. analyst William Tanona said Citigroup may have to take a writedown of as much as $12 billion.
The rate of loan losses is ``grossly underestimated by consensus estimates'' at Citigroup and other U.S. banks, Whitney wrote. ``Core fundamentals are rapidly deteriorating.'' She cut her per-share prediction for 2008 earnings by more than 70 percent to 75 cents. The New York-based company's shares could fall more than 36 percent to less than $16, she wrote.
Citigroup fell 38 cents, or 1.5 percent, to $24.74 at 4:10 p.m. in New York Stock Exchange composite trading. The shares have declined about 16 percent this year.
The lender posted a $9.8 billion loss for the fourth quarter, the widest in its 196-year history, after writing down subprime mortgage-linked collateralized debt obligations. The value of those securities plummeted last year as investors shunned debt linked to the least creditworthy borrowers. Vikram Pandit stepped in as chief executive officer in December, after Charles O. ``Chuck'' Prince was forced to resign.
Dividend Prediction
Whitney, 38, was among the first analysts to gauge the depth of Citigroup's losses, writing in a note last October that the bank may have to cut dividend payments to shareholders for the first time since the 1990s. In January, the bank slashed its dividend by 41 percent, reversing a pledge made by its executive- committee chairman, former U.S. Treasury Secretary Robert Rubin, to preserve the shareholder payout.
Citigroup may have additional writedowns this quarter on CDOs, along with losses on more than $43 billion of junk or ``leveraged'' loans, Whitney said. The bank may also face charges on more than $50 billion of residential mortgages granted to customers who borrowed in excess of 90 percent of the value of their homes, Whitney wrote. Credit-card loans also are prone to higher defaults.
Asset Sales
Citigroup may have to sell $100 billion of assets to free up capital, Whitney said. The lender will ``likely be forced to sell what it can and not what it should,'' she wrote.
The bank may write down as much as $12 billion from the value of fixed-income assets in the first quarter, cutting earnings per share 63 percent to 15 cents from a prior estimate of 40 cents, Goldman analyst Tanona wrote in a report dated today.
Tanona also reduced profit estimates for Merrill Lynch & Co., Lehman Brothers Holdings Inc., Morgan Stanley, Bear Stearns Cos., and JPMorgan Chase & Co., as bonds and loans they own lose value.
He cut first-quarter earnings per share estimates by 75 percent for Bear Stearns, 73 percent for Lehman Brothers, 24 percent for Morgan Stanley and 27 percent for JPMorgan Chase. All the firms are based in New York.
In a separate report, Whitney and colleague Kaimon Chung also cut their earnings estimates on large U.S. East Coast banks by an average of 29 percent for 2008 and 13 percent for 2009.
Crackdown closes China’s biggest plastic bag factory
BEIJING (AFP) — China’s largest plastic bag factory has shut down because of a government environmental campaign that will dramatically curb their use, state media reported Tuesday.
Huaqiang, which employs 20,000 people, stopped production at its factory in central Henan province last month, Xinhua reported, quoting local government officials and management at the plant.
“Over 90 percent of our products are on the limit list,” Xinhua quoted a management official as saying, referring to a central government edict that will see ultra-thin plastic bags banned from June 1.
“As a result, the only way forward for the factory is closure.”
The factory, which is owned by Guangzhou-based Nanqiang Plastic Industrial, had a production capacity of 250,000 tons of plastic bags worth 2.2 billion yuan (305 million dollars) every year, the report added.
Last month, the government announced shoppers would have to pay for plastic bags at supermarkets and other shops from June 1.
The State Council, or cabinet, also said the production, sale and use of ultra thin bags would be banned completely.
The overuse of plastic bags in China is a major problem.
In the booming southern city of Shenzhen, at least 1.75 billion plastic bags are used each year, according to previous data.
Shenzhen’s environmental protection department said the bags were posing a huge environmental problem, as they generally did not decompose for 200 years, while some never would at all, Xinhua reported.
China Consumer Confidence Fell in February with Stock Market Fall and Snow Storms; Investment Confidence Rebounded
SHANGHAI, China, Feb. 27 /Xinhua-PRNewswire/ -- Xinhua Finance eziData China Consumer Confidence Index (CCCI) was updated today, with the survey results showing that consumer confidence fell by another one point to 95.8 in February after a stabilization in January, affected by the sharp stock market falls starting mid-to-late January and the snow storm disasters in the southern part of China right before the Chinese New Year.
Consumer sentiment on current conditions fell 1 point in February, led by a fall in the purchase intention for durable goods probably caused by the fall in the stock market. Current personal finances, on the contrary, improved for the second consecutive month. Consumer expectations fell further from their peak in July, dropping 0.9 point in February. Among the three components of the overall expectations index, both the index measuring personal finances in one year and the index measuring business outlook in one year fell, while the index measuring business outlook in five years rose slightly.
Under the support of the Xinhua Finance family, Xinhua Finance eziData China Consumer Confidence Index is produced monthly by eziData, a local provider of China consumer data, and in association with Dr. Richard Curtin. Dr. Curtin is Research Professor and Director of the Consumer Sentiment Surveys at the University of Michigan’s Institute of Social Research. The survey this month was conducted through 1,541 telephone interviews from February 1 to 4, and 15 to 17, 2008 (avoiding the Chinese New Year holidays). April 2007 survey results are set as the benchmark value of 100. More on the survey methodology can be found in the accompanying section.
The sharp stock market falls after mid January had caused significant losses to the investment returns on the part of the consumers, with a sharp month-on-month drop in cumulative 12-month investment returns only next to the drop seen in November 2007. However, consumer’s expectations on the future of the stock market did not collapse in February. Instead, it rebounded slightly after a plunge posted the month before, suggesting sufficient confidence among average investors in the current stock index for a rebound.
As the government control on the real estate market deepened, overall consumer sentiment on house buying in the year ahead plunged in February, indicating a further decline on the part of the buyers.
Consumer sentiment in February failed to retain the rebounding trend shown in January and fell in all three major cities, with the largest drop occurring in Guangzhou.
Sentiment among Beijing consumers plunged by 3.1 points to 96.3 to create a record low, with both current conditions and future expectations falling.
Sentiment among Shanghai consumers remained the lowest among the three major cities for the third month in a row, with a 1.9-point drop to reach 92.8, as an improvement in current conditions -- which was the second rise in a row -- failed to offset a drop in future expectations.
The largest fall in consumer sentiment in February occurred in Guangzhou, with a 4.5-point plunge to reach 93.5. Again, both current conditions and future expectations declined, with all the five components constituting the overall consumer confidence index dropping.
As neither the stock market falls nor the snow storms are likely to continue in the long run, it is expected that the consumer confidence has reached its bottom in February. Should no emergencies occur in the short run, the confidence is likely to rebound in March.
Hong Kong’s Economy to Cool as World Growth Slows, Tsang Says
Feb. 27 (Bloomberg) -- Hong Kong’s economic expansion will slow in 2008, Financial Secretary John Tsang said, after the city reported the fastest expansion in seven quarters.
Gross domestic product grew 6.7 percent in the three months ended Dec. 31 from a year earlier, Tsang said today in his budget speech. The expansion will slow to between 4 percent and 5 percent this year, he said.
Hong Kong, a trade hub for mainland China, is relying on domestic consumption that’s been boosted by falling interest rates and unemployment at a nine-year low to help sustain growth. Export gains may keep slowing as the U.S. economy skirts a recession, crimping global demand.
“Hong Kong’s economy will likely slow further this year as exports weaken and uncertainty in the financial markets rises,’’ said Joe Lo, senior economist at Citigroup Inc. in Hong Kong. “Domestic demand has been strong enough to support growth and hopefully that will continue.’’
For 2007, GDP grew 6.3 percent from a year earlier, after gaining a revised 7 percent in 2006. That was more than the 6.2 percent median estimate of nine economists surveyed by Bloomberg.
“Hong Kong is now faced with the risk of a global economic slowdown coupled with rising inflation,’’ Tsang said. “I am cautiously optimistic about Hong Kong’s economic prospects.’’
The pace of inflation may accelerate to 3.4 percent from 2 percent in 2007, he said, citing rising food costs.
Consumer Spending
Hong Kong’s buffer against a sharper slowdown is consumer spending driven by a low jobless rate, tax cuts and record tourist numbers.
Hennes & Mauritz AB, Europe’s second-largest clothing retailer, opened its first stores in Hong Kong last year to tap consumer spending. Outlets in the city have been “successful,’’ it said last month.
Retail sales rose 10.1 percent in 2007 from a year earlier, the biggest increase in 15 years, after adjusting for inflation. Tourist arrivals gained 11.6 percent to a record 28 million. Unemployment was 3.4 percent at the end of January.
Declining borrowing costs have also fuelled consumption. HSBC Holdings Plc, Standard Chartered Bank Plc and other lenders have cut borrowing costs six times since September, following similar moves by the U.S. Federal Reserve. The city’s interest rates track U.S. changes because the Hong Kong dollar is pegged to its U.S. counterpart.
Stock Market
Still, a volatile stock market poses a threat to consumer spending. The benchmark Hang Seng Index of shares has fallen about 12 percent this year after gaining 39 percent in 2007.
The outlook for exports is worsening. Shipments overseas grew 9.2 percent in 2007 from a year earlier, the smallest gain in five years, according to information previously published on a government Web site.
Former Federal Reserve Chairman Alan Greenspan said this week a possible recession in the U.S. this year may be deeper than the last two contractions.
Sales to the U.S., Hong Kong’s largest export destination after China, fell 0.8 percent in 2007, the first decline in four years.
China’s slowing export growth may be another brake for Hong Kong. Most Chinese exporters forecast falling orders and export earnings in 2008 as a shortage of money in the U.S. and Europe weakens demand, China’s central bank says.
Hong Kong’s economy will probably grow 5 percent this year, according to the Bloomberg News survey of economists.
BEIJING - CHINA has labelled the United States the world’s largest importer of smuggled Chinese relics, and demanded the country do more to combat the trade, state media reported.
China has repeatedly called on museums in Western countries to return artefacts taken by European and American archaeologists and adventurers, often crudely hacked out of caves and tombs.
Mr Shan Jixiang, director of the State Administration of Cultural Heritage, called on the United States to sign a memorandum of understanding with China to speed up cooperation in preventing relics’ theft and illegal trade.
‘Among other countries, we want most to sign such an agreement with the US. We have worked on it for more than four years but the process has been slow recently,’ the China Daily quoted Mr Shan as saying on Wednesday.
Mr Shan said signing an MOU had been supported by American archaeologists and scholars, but ‘influential museum directors and collectors’ had been against it.
They had ‘held the incorrect view that these Chinese cultural properties in the US have become part of American culture because they were there for a long time,’ Mr Shan said.
He said they should ‘come and see how invaluable murals were cruelly cut into pieces and taken away, and how ancient tombs were raided’.
Demand for Chinese art has soared among international collectors in recent years, with auctions of both modern and ancient artefacts achieving record sales.
But China has a mixed record on protecting its cultural relics. During the chaos of the 1966-76 Cultural Revolution, many priceless artefacts that were not taken to Taiwan at the end of the civil war in 1949 were destroyed by Mao Zedong’s Red Guards. -- REUTERS
Dollar Hits 5-day Low Against Yen, Slightly Off New Record Low Versus Euro [EUR/USD]
February 27, 2008
Extending yesterday's downtrend, the US dollar hit a 5-day low against the yen in early Asian trading on Wednesday. On the other hand, the dollar traded slightly higher against its European counterparts during this time.
The dollar plunged to a fresh record low against the euro yesterday after disappointed consumer confidence and house prices data increased speculation that the world's largest economy has slipped into recession. The dollar also declined against the other major currencies.
The US Conference Board reported that its consumer confidence index fell much more than expected in February, dropping to 75.0, from a downwardly revised 87.3 in January. Analysts were expecting the index to drop 82.0 this month.
House prices in U.S. fell 9.1% on year in December and were down 2.1% compared to the previous month. The monthly decline exceeded analysts' expectations of a 1.5% drop from November to December.
Earlier yesterday, the U.S. Labor Department said its producer price index rose 1.0% in January following a 0.3% decrease in December. Economists had been expecting a more modest increase of about 0.3% compared to the 0.1% decrease originally reported for the previous month. The faster than expected wholesale price growth is likely to add to recent concerns about the outlook for inflation and the possibility that the economy is headed for a period of stagflation.
The dollar reversed its direction against the euro after hitting a new record low of 1.5046 at about 5:20 pm ET Tuesday. The dollar reached 1.4981 per euro by about 7:20 pm ET, compared to yesterday's New York session close of 1.4972.
Apart from the dollar, the euro surged against most other majors yesterday amid an unexpected climb in German IFO business climate data. The Munich-based IFO research institute reported that the German business climate index unexpectedly rose in February, climbing to 104.1 from 103.4 in January. Economists expected the reading to decline to 102.9.
In early Asian trading on Wednesday, the dollar strengthened slightly against the pound. At about 9:35 pm ET, the dollar reached a high of 1.9842 per pound, moving up from a 25-day low of 1.9893 hit at 5:20 pm ET Tuesday. The pound-dollar pair closed yesterday's deals at 1.9873.
The Bank of England Deputy Governor Rachel Lomax hinted yesterday that the outlook for the UK economy looks very different now from a year ago, with inflation projected to rise sharply in coming months. Taking note of some powerful global forces in play in financial markets, in commodity markets and in the world's largest economies, the BoE official stated that their impact on the UK economy is “highly uncertain”.
After hitting a new record low of 1.0705 at 5:20 pm ET Tuesday, the dollar rebounded against the Swiss currency. The dollar-franc pair reached 1.0763 by about 7:30 pm ET, compared to yesterday's New York session close of 1.0755.
Against the Aussie, the greenback slumped to a new multi-month of 0.9354 in early Asian deals on Wednesday. The aussie-greenback pair closed yesterday's deals at 0.9338.
The US currency also plummeted to a new record low of 0.8183 versus its New Zealand counterpart by about 5:45 pm ET Tuesday. But the greenback bounced back thereafter and hit 0.8125 at 9:00 pm ET, compared to yesterday's close of 0.8172.
Statistics New Zealand reported today that the number of building consents authorized in January 2008 declined 7.3% from the same period last year. The agency said that 1,743 new dwelling unit consents were authorized last month, a decline of 137 from January 2007. Consents for new apartments fell by 16 units to 203.
On the other hand, the US currency largely bounced between 0.9802 and 0.9822 against the Canadian dollar during early Asian trading today. The greenback-loonie pair, which touched a 2-month low of 0.9781 at 2:45 pm ET yesterday, strengthened slightly thereafter and closed the day's deals at 0.9806.
The loonie climbed against the greenback yesterday, bolstered by rising commodities prices and speculation that Canada will maintain its interest rate advantage over the US for the foreseeable future. Crude oil soared to another record close on Tuesday in U.S. trading.
The US Federal Reserve Vice-Chairman Donald Kohn spoke about economy Tuesday, discussing the effects of “continued sizable increases in the prices of food, energy, and other commodities” and their impact on rising inflation. Despite his cautious guidance that growth will pick up and inflation will decline, Kohn acknowledged that there are risks to this forecast. Kohn attempted to soothe worried financial markets, affirming a now common statement from Federal Reserve Chairman Ben Bernanke.
German import price index, GfK consumer confidence survey, Euro-zone M3 money supply and the British Q4 GDP are expected to drive deals in the upcoming European session.
The US durable goods orders and the existing home sales for January have been slated for release in the New York session. However, investors keenly await Fed Chairman Ben Bernanke's testimony before the House Financial Services Committee on the state of the U.S. economy, which is scheduled for 10:00 am ET.
Q. I have read some columns by Paul Krugman in the New York Times and elsewhere. He seems to be really down on the U.S. economy.
A. Krugman is an economist at Princeton University. He has been pessimistic about the U.S. economy for a long, long time.
Krugman holds the distinction of being the most partisan columnist in the country for liberals (Ann Coulter holds the distinction on the conservative side). This comes from an analysis by www.lyinginponds.com , which examined the columns of various writers and found that Krugman’s contained 603 negative comments about Republicans versus just 31 positive comments (a 20-to-1 ratio). Coulter made 463 negative comments about Democrats and only 10 positive comments (a 46-to-1 ratio).
Krugman has predicted a recession nine times during the past seven years of the Bush administration, according to an analysis done by University of Michigan economics and finance professor Mark Perry.
Here are some of the quotes Perry found in Krugman columns:
• “We have a sluggish economy, which is, for all practical purposes, in recession ...” – Paul Krugman, May 2003
• “An oil-driven recession does not look at all far-fetched.” – Paul Krugman, May 2004
• “A mild form of stagflation – rising inflation in an economy still well short of full employment – has already arrived.” – Paul Krugman, April 2005
• “If housing prices actually started falling, we’d be looking at an economy pushed right back into recession. That’s why it’s so ominous to see signs that America’s housing market ... is approaching the final, feverish stages of a speculative bubble.” – Paul Krugman, May 2005
• “But based on what we know now, there’s an economic slowdown coming.” – Paul Krugman, August 2006
• “This kind of confusion about what’s going on is what typically happens when the economy is at a turning point, when an economic expansion is about to turn into a recession.” – Paul Krugman, December 2006
• “Right now, statistical models ... give roughly even odds that we’re about to experience a formal recession. ... The odds are very good – maybe 2-to-1 – that 2007 will be a very tough year.” – Paul Krugman, December 2006.
Eventually, Krugman may be correct in a recession call, just as a stopped clock tells the correct time a small portion of
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Eric Tyson is the author of the best-sellers “Investing for Dummies” and “Personal Finance for Dummies” (Wiley). This Investors’ Guide column is distributed through King Features Syndicate Inc. You may write to Tyson at eric@tyson.com.
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Paul Krugman On Housing
February 27, 2008
Paul Krugman said the housing slump in the US could take up to two years to work through, and that up to 20 million mortgages could be underwater if house prices decline by 30% between now and 2010 – which Krugman believes could well occur.
Housing is illiquid and people are reluctant to sell, factors which will prolong the pain. In contrast, stock collapses tend to be short and violent, points out Krugman. Political considerations could also draw out the process, such as freezing foreclosures, or bailing out homebuyers. It took six years for the South California housing bubble to work itself out in the early 1980s, said Krugman, who believes the national housing bubble of recent years is much worse. He noted that real estate prices in California had given up all their gains by the end of the recession. “The recession in the US could be L-shaped or U-shaped, but it won’t be V-shaped like the Asian financial crisis,” said Krugman, “because the US seems to intent on adopting some of the same strategies as Japan adopted in the 1990s.” In other words, rather than permit a savage purging of the system, the policymakers might decide to ‘buy time’ rather than solve the problem. The housing bubble inflated to historically unprecedented proportions between 2004 and 2007, aided by securitisation and collateralised debt obligation (CDO) techniques, said Krugman.
A common ratio of judging the severity of housing bubbles is the price:rent ratio, which is the average cost of ownership divided by the rental income the house would fetch as a buy-to-let property. The higher the figure, the worse the bubble. At its peak, the price-to-rent figure was 1.5 in Southern California. In the national market in 2005, it was 2.3, said Krugman. “The inevitable collapse of the housing bubble has lead to the worst outlook in the housing market since the Great Depression,” said Krugman, pointing out that housing starts have collapsed to their lowest level since 1991.
The housing market was seriously weakened by the sale of sub-standard mortgages, encouraged by securitisation and CDO techniques. Nobody knows the final bill, but Krugman guesses banks may have lost up to US$1 trillion on such products. The decline in house prices may wipe US$8 trillion off GDP, and much of that will be financed by the financial system (the lender) rather than the borrower, estimates Krugman.
Banks do not appear to be in fatal trouble, says Krugman. But stress in the system is showing up in the shadow banking system, where new institutions have adopted banking functions, such as extending credit, but away from the sharp eye of the regulator. Krugman says that auction rate securities are a good example of how the stress can appear in obscure but important parts of the financial system.
Auction rate securities, with their weekly auctions, appeared to offer liquidity and high yields to investors, but the market froze when investors panicked and headed simultaneously for the exits. As a result, the Metropolitan Museum of Art in New York and certain student loan bodies have seen the rates they are paying on their loans shoot up. Such crises have led to a wave of bankruptcies of shadow banking institutions, which Krugman described as a “stealth banking crisis”.
The only reason the US did not sink into recession last year is because of the export recovery off the back of the drastically weaker dollar, says Krugman. However, further credit bombs will be exploding for a while yet, for example in the commercial real estate market, he estimates. Krugman was sceptical that interest rate cuts will help get the economy back on track. The Federal Reserve has far less ammunition to cut rates than in previous recessions. The Fed started cutting rates when they were only 5.5% last year. In the last two economic crises, rates were around 8% before the Fed started to cut rates. “The problem is that the economic situation looks worse this time, but there is less scope for interest rates to be cut,” he comments. To cut rates by the same extent as in the last recession, estimates Krugman, rates would have to fall to zero – the same level as they were in Japan for many years after the bubble started to collapse in 1990. That leaves the Bush administration’s tax rebate checks, being posted to every citizen to stimulate the economy. But Krugman believes this cash did not go to the poorest members of society, who would be sure to spend it. Better off people will simply save it, he estimates.
Krugman believes it would have been wiser to spend the money on food stamps and more generous unemployment benefits. One option could be to carry out a huge infrastructure building programme, which would be another similarity to Japan. But if the Republican Party wins the next election with Senator John McCain becoming president, Krugman believes it is unlikely this would happen.
Recent US housing figures reported for January 2008:
- Median existing-home price was US$201,100 in January, down 4.6% from a year ago -Total housing inventory rose 5.5%.
- At the end of January, existing homes available for sale were 4.19 million, a 10.3-month supply at the current sales pace (up from a 9.7-month supply in December).
- Single-family home sold at an annual rate of 4.34 million in January. This is 22.4% below January 2007.
- Existing condominium and co-op sales dropped 6.5%, and are 30.2% below the year ago levels. The median existing condo price (US$220,400) is only 1.0% lower than January 2007.
- Existing-home sales in the Northeast fell 3.6 percent to an annual rate of 810,000 in January, and are 25.7 percent below a year ago. The median price in the Northeast was US$270,800, up 3.1 percent from January 2007.
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Paul Robin Krugman is a liberal professor of economics and international affairs at Princeton University. He is also an author and a columnist for The New York Times, writing a twice-weekly op-ed for the newspaper since 2000. Krugman is well known in academia for his work in trade theory, which provides a model in which firms and countries produce and trade because of economies of scale and for his textbook explanations of currency crises and New Trade Theory. He was a critic of the New Economy of the late 1990s. Krugman also criticized the fixed exchange rates of the island Asia nations and Thailand before the 1997 Asian financial crisis, and of investors such as LTCM that relied on the fixed rates just before the 1998 Russian financial crisis. Krugman is generally considered a neo-Keynesian, with his views outlined in his books such as Peddling Prosperity. His International Economics: Theory and Policy (currently in its seventh edition) is a standard textbook on international economics without calculus. In 1991 he was awarded the John Bates Clark medal by the American Economic Association. He is among the 50 best economists in the world according to IDEAS/RePEc.
Developers led by China Resources are forming private equity funds as credit tightens
Peggy Sito Feb 27, 2008
Mainland property developers are setting up real estate fund management units to attract overseas capital as the central government tightens lending. Taking advantage of their expertise in the domestic market, mainland companies have decided to compete with international investment banks such as Morgan Stanley and ING by forming their own private equity fund management arms.
State-owned conglomerate China Resources Holdings is blazing the path for its domestic peers. It has formed a unit, Harvest Capital Partners, to run two private equity real estate funds with a combined size of about US$1 billion, encompassing the Greater China market, including Hong Kong and Macau.
China Overseas Holdings, a unit of the country’s construction ministry, also plans to set up a private equity real estate fund management unit by the middle of this year.
Last month, Shenzhen developer Gemdale Corp said it would form a joint venture with Swiss banking giant UBS to develop projects on the mainland, which is also seen as a way of drawing international funding.
Property consultants and analysts believe more mainland companies will follow suit as credit tightens.
“Most of the sizeable companies have put this idea on their agenda,” said Citic Securities director Wang Deyong.
“Developers usually borrow 70 per cent of overall development costs from banks. Developers now have to think of other funding methods as banks are tightening lending.”
Mainland banks tightened property-related loans to cool the overheating market last year and analysts expect banks will continue to face stricter controls from Beijing on approving property lending this year.
“I believe that mainland companies will seek to attract capital from other sources to drive their development programmes, especially if debt remains less available,” said David Watt, the chairman of DTZ’s North Asia division.
DTZ is a placement agent for Harvest Capital’s real estate fund.
Harvest Capital chief executive Ren Rong said the unit was formed as “supplementary to the development capacity of China Resources group.”
While saying that the group was not a direct result of the tightening credit environment, Mr Ren said: “It is a natural way for developers to maximise their development capacity.
“We are a step ahead [among other developers].”
Mr Ren said the company, formed in May 2006, had launched two overseas funds, including one focused on Middle East cash. It has invested in seven projects in Beijing, Chongqing, Guiyang and Hong Kong, involving 70 per cent of the raised fund. It will announce more deals in Tianjin and Wuhan shortly.
Among the projects, only one is related to China Resources Holdings.
Mr Ren expects to see a lot of co-operation with China Resources Land and China Vanke - two real estate arms of China Resources Holdings. “Provided, of course, that those projects would bring good returns to the funds,” he said.
This private equity fund approach of rasing funds is now being adopted by leading developer China Overseas.
Wu Jianbin, the head of China Overseas Finance Investment, a unit of China Overseas, said the company would form a real estate fund to speed up the group’s investments on the mainland.
“It will be the first task of China Overseas Finance Investment,” Mr Wu said, adding that the fund would be launched in the coming months.
China Overseas Finance Investment was formed last year as a vehicle to seek opportunities in the global investment and finance markets for the group - including listed units China Overseas Land & Investment and China State Construction International - according to Mr Wu, who is also the executive director of China Overseas Land & Investment.
He said overseas investors, especially from the Middle East, expressed strong interest in the mainland property market.
Jones Lang LaSalle regional director Lau Chun-kong said the trend of setting up fund management units showed the strong confidence of developers in the mainland market.
“No company would think of such funding method for expansion amid a slowing market,” said Mr Lau.
Tentative signs of an improvement in global liquidity are starting to emerge, says David Shairp, global strategist at JPMorgan Asset Management.
He says that JPMAM’s gauge of global liquidity, which takes in the US monetary base and the Federal Reserve’s custody holdings on behalf of other central banks, has picked up significantly in the past few weeks.
The surge in global liquidity has been driven by increased central bank holdings of bonds, he says, which may be because they want to stop their currencies appreciating.
“As with any good murder mystery story, this is a classic whodunnit,” Mr Shairp says.
“It is less likely to be the Chinese authorities, given the recent increased pace of currency appreciation, but rather Opec central banks, which have probably benefited from the rise in oil prices from the end of January.”
He believes a continuation of this trend would be encouraging as rising liquidity could help reduce currency market volatility, which would be consistent with a tentative rebuilding of risk appetite.
“Recent equity flow data have also pointed at this, with signs that global fund managers have been dipping tentative toes in markets and buying some selected cyclical sectors as a means of adding risk into portfolios.
“These are baby steps, but any further rise in global liquidity could speed up this process.”
The dollar sank to a new low against the euro after the chairman of the Federal Reserve Bank said Wednesday that the U.S. would encounter more sluggish economic activity in the coming weeks and months.
"The economic situation has become distinctly less favorable" since the summer, the Fed chief told the House Financial Services Committee, a sign markets took to be evidence of yet more interest rate cuts by the U.S. central bank which pushed the euro higher.
Lower interest rates can jump-start a nation's economy, but may weigh on its currency as traders transfer funds to countries where they can earn higher returns.
Shortly after his testimony, the euro surged to a record $1.5105 before falling back slightly to $1.5043 in afternoon trading, from the $1.4967 it bought in late trading Tuesday in New York.
The surging euro makes it more expensive for Americans visiting Europe, but makes U.S. shopping more appealing to Europeans.
Since Bernanke's last such assessment last summer, the housing slump has worsened, credit problems have intensified and the job market has deteriorated. Bernanke said that the confluence of these factors has turned people and businesses alike toward a more cautious attitude toward spending and investment.
This, he said, has further weakened the economy.
That is in contrast to Europe where, despite the roaring euro, growth is still on track, albeit slightly slower, and markets are optimistic that should the U.S. go into recession, the continent would be able to weather any such slowdowns.
The European Central Bank, which has left its own rates unchanged since last summer, is expected to keep them at 4 percent when it meets next week.
"The U.S. economy is still in a weak period and we cannot estimate how long that is going to go on and the market is counting on the Fed lowering the interest rates even further and on the fact that the ECB is going to keep them where they are," Christoph Schmidt, an analyst with N.M. Fleischhacker Trading Bank in Frankfurt told AP Television News.
He said that the divergent interest rates were "good for the euro and bad for the dollar."
In other trading, the British pound soared as high as $1.9971 before falling back to $1.9895, up from $1.9862 late Tuesday. The dollar fell to 106.30 Japanese yen from 107.26 yen.
Along with the rise in the British pound, which is nearing $2 again, the surging euro will not be kind to Americans visiting Europe - they will have to pay more for hotel rooms in Rome, entrance fees at the Louvre and chocolates in Belgium.
On the other hand, the stronger euro makes shopping trips to the U.S. more appealing to Europeans.
A higher euro also makes goods from the euro-zone more expensive for customers abroad, or cuts into manufacturers' profits if they try to keep the U.S. dollar price of products constant.
In Paris, France's budget minister Eric Woerth said that the "very high" euro was "a handicap for our exports."
In Germany, the record level is not expected to have any lasting negative effect on the country's economy, the chief economist of Germany's Chambers of Commerce, said.
"We can't yet speak of a threshold of pain for German exporters," Volker Treier told Dow Jones Newswires. The levels are a "currently rather temporary deflection" which aren't yet hurting Germany's economy.
Howard Archer, the chief British and European economist for Global Insight, said the euro's strength is not likely to weaken anytime soon, given that any "worsening in U.S. interest-rate differentials dilutes a key support for the dollar."
He also said that weaker growth prospects in the U.S., coupled with its deficit will "exert a significant downward influence" in the long term and cause some countries to shift more of their reserves from dollars to other currencies, including the euro.
"In addition, there is the very real possibility that several countries could switch a proportion of their foreign currency reserves out of U.S. dollars over time," he said.
The euro's latest march upward was buoyed by a string of disappointing economic reports out of the U.S. on Tuesday, including the New York-based Conference Board's Consumer Confidence Index, which fell to 75 in February from 87.3 in January, its lowest level since February 2003.
Meanwhile, the U.S. Labor Department reported that wholesale inflation rose by 1 percent in January - more than analysts estimated - on rising oil and food costs. Finally, Standard & Poor's reported that U.S. home prices fell 8.9 percent in the last three months of 2007 from a year earlier, its sharpest drop ever.
Astonishing 5 million shares were bought in - offering important lessons for the market
By R SIVANITHY February 27, 2008
ON MONDAY, the shares of CapitaLand's service residence unit Ascott Group jumped 11 cents to $1.84. This may not seem remarkable, since the Straits Times Index rose 16 points that day to 3,064.
But when you consider that CapitaLand is looking to buy out all shareholders and delist Ascott at $1.73 a share, that there are no competing offers on the table, that the entire deal is for all intents and purposes uncontested and will proceed as planned, you have to wonder: why the sudden jump?
The answer lies in that most opaque of market segments, the Singapore Exchange's (SGX's) buying-in market. This is the part of the market in which SGX forcibly covers naked short-selling positions undertaken four trading days earlier at progressively higher prices until all positions are filled.
On Monday, an astonishing five million Ascott shares were bought in at between $1.75 and $2.01, a huge amount that clearly led to the spike in the ready market.
In other words, this was a case of the tail wagging the dog - intense upward pressure in a secondary portion of the market led to a spillover rise in the primary market.
Working backwards by four trading days from Monday, we find the five million short sale was done last Tuesday, Feb 19, when an unusually large 10.1 million Ascott shares traded at $1.73-1.74.
Assuming all were sold at $1.73 and the buying-in was at the average of $1.75-$2.01 or $1.88, the short-sellers would have suffered a loss of about 15 cents a share or $750,000 in total - very painful.
Sophisticated player
The obvious question to ask is: Since there was no apparent reason to expect Ascott's shares to fall significantly below $1.73, who in their right mind would have undertaken such a large, naked short sale?
The size suggests a sophisticated player with considerable financial clout, since very few retail players would have the guts or money to take on that kind of risk. Still, why take such a gamble when the odds were heavily against winning?
The close proximity to the closure date of the offer, which was yesterday, suggests one possibility: Were the short sellers gambling on CapitaLand failing to obtain the necessary percentage it needed to accomplish the takeover- cum-delisting?
If so, the unknown parties miscalculated badly on two counts. First, any post-takeover fall would only have occurred after Tuesday and not Monday, so the naked short should have been done last Wednesday, not Tuesday.
Second, the odds were overwhelmingly in favour of CapitaLand succeeding in the first place, so the chances of the deal being scuttled were remote to say the least.
We'll probably never know who the shorts were or why they did what they did. But the Ascott incident does highlight the importance of the buying-in market in daily proceedings, which in turn raises questions of transparency and fairness.
Making fast bucks
Some 3.7 million Ascott shares were done on Monday in the ready market at prices up to $1.84. The buyers were most likely shareholders who first sold into the buying-in market and were looking to immediately replenish their shares in the ready market at presumably lower prices and therefore make very fast bucks in the process.
The point to note is this: If there was good money to be made as in the case of Ascott's buying-in, then perhaps there should have been full disclosure of the amounts to be bought at a time early enough to give brokers the chance to alert clients who may be holding Ascott shares.
The same applies to all buying-in exercises - dealers have long complained that when buying-in starts at 11.30am every day, there is a scramble to contact clients because nobody knows what needs to be bought-in beforehand. Not only are buying-in names not released in advance, neither are quantities.
Buying-in names appear on the dot at 11.30am with some - but not all - quantities, and according to anecdotal evidence from dealers, all hell breaks loose thereafter as everyone tries to beat everyone else to sell in the buying-in market.
Perhaps if SGX adopts the Malaysian practice of releasing the names and amounts of stocks to be bought-in a half-hour before the market opens, trading in this segment can be more transparent and orderly.
Crude prices spiked above $102 a barrel for the first time Wednesday ahead of a closely watched oil inventory report and as the dollar's continued slide drove more money into energy futures.
The report by the Energy Department's Energy Information Administration, due out later in the morning, was expected to show the nation's crude oil stocks rose last week by 2.4 million barrels, marking the seventh straight week of gains. Prices could move quickly if that forecast proves far from the mark.
The dollar slumped to a new low against the euro, reaching $1.51 and pushing investors to oil and other commodities as a hedge against inflation. For the time being, investors are ignoring the plentiful supplies of oil.
That helped drive the price for light, sweet crude for April delivery up as high as $102.08 a barrel in electronic trading on the New York Mercantile Exchange before slipping back to $100.83, or 5 cents lower.
The contract on Tuesday jumped $1.65 to settle at $100.88 a barrel, a record close.
Negative economic news continued Wednesday when the Commerce Department reported that new factory orders for big-ticket manufactured goods tumbled 5.3 percent in January. The worse-than-expected drop was the indicator's biggest decline in five months.
"Crude has cracked through the $100 level again and that's driven by financial investors moving money into commodities markets," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "We are therefore seeing these strong prices that have really little to do with oil market fundamentals," he said.
The Schork Report, edited by Stephen Schork, also attributed part of the climb to the weakness of the U.S. currency, noting, "outside of the dollar woes, there is no other reasonable driver behind this move."
In London, Brent crude was flat at $99.47 a barrel on the ICE Futures exchange, below the intraday record of $100.30 a barrel set earlier in the session.
The EIA report was also expected to show gasoline inventories rose by 400,000 barrels while supplies of distillates, which include heating oil and diesel, fell by 1.8 million barrels last week, according to a Dow Jones Newswires poll of analysts.
In other Nymex trading Wednesday, heating oil futures fell nearly 2 cents to trade at $2.8059, while gasoline futures fell by 2.57 cents to $2.5248.
Natural gas futures lost more than 10 cents, fetching $9.097 per 1,000 cubic feet.
Russia Quietly Starts to Shift Its Oil Trade Into Rubles
By ANDREW E. KRAMER February 27, 2008
MOSCOW — Americans surely found little to celebrate when the price of oil settled above $100 a barrel last week.
They could, though, be thankful that oil is still priced in dollars, making the milestone of triple-digit oil prices noteworthy at all.
Russia, the world’s second-largest oil-exporting nation after Saudi Arabia, has been quietly preparing to switch trading in Russian Ural Blend oil, the country’s primary export, to the ruble from the dollar. Industry analysts and officials, however, say that this change, if it comes, is still some time off.
The Russian effort began modestly this month, with trading in refined products for the domestic market.
Still, the effort to squeeze the dollar out of Russian oil sales is yet another project notable for swagger and ambition by the Kremlin, which has already wielded its energy wealth to assert influence in Eastern Europe and former Soviet states.
“They are serious,” said Yaroslav Lissovolik, the chief economist at Deutsche Bank in Moscow. “This is something they are giving priority to.”
Oil trading is nearly always denominated in dollars. When Middle Eastern oil is sold to Asia, for example, the price is set in dollars.
Similarly, Russia’s large trade with Western Europe and the former Soviet states in crude oil and natural gas is conducted in dollar-denominated contracts. Gazprom, the natural gas monopoly, set the price of gas in Ukraine at $179 per 1,000 cubic meters in 2008, for example. There are no proposals yet to switch gas pricing away from dollars.
As a result, companies and countries that buy petroleum products are encouraged to hold dollar reserves to pay for their supplies, coincidentally helping the American economy support its trade deficit.
Russia would like to change this practice, at least among its customers, as a means of elevating the importance of the ruble, a new source of national pride after gaining 30 percent against the dollar during the current oil boom.
In a speech on economic policy this month, Dmitri A. Medvedev, a deputy prime minister and the likely successor to President Vladimir V. Putin in elections on March 2, said Russia should seize opportunities created by the weak dollar.
“Today, the global economy is going through uneasy times,” Mr. Medvedev said. “The role of the key reserve currencies is under review. And we must take advantage of it.” He asserted that “the ruble will de facto become one of the regional reserve currencies.”
Other oil-exporting countries are also chafing at dealing in the weakening dollar.
Since 2005, Iran, the world’s fourth-largest oil exporter, has tried to open a commodity exchange to trade oil in currencies other than the dollar. The Iranian ambassador to Russia said Iran might choose rubles to free his country from “dollar slavery.”
To be sure, some economists have dismissed the project as improbable, given the exotic nature of a security — oil futures contracts denominated in rubles — that would blend currency risk with the dollar-based global oil market.
Ruble-denominated futures contracts for Ural Blend, the main Russian grade, would be attractive only if the dollar continues to depreciate, said Vitaly Y. Yermakov, research director for Russian and Caspian energy at Cambridge Energy Research Associates.
“There is a big distance between the desire to trade commodities for rubles and the ability to do so,” he said.
All this has not stopped the Kremlin from trying.
In a sign of the government’s seriousness, a new glass-and-marble high-rise home for a ruble-denominated commodity exchange is rising this spring in a prestigious district in St. Petersburg, Russia’s second-largest city after Moscow. The exchange will occupy three floors of the 16-story tower on Vasilievsky Island, one of the islands that make up the historic city center.
The director of the St. Petersburg exchange, Viktor V. Nikolayev, said that the intention was to move slowly and gain market acceptance; the government will not strong-arm sellers or buyers onto the exchange, even in an industry dominated by the state.
Web-based trading for refined products like gasoline or diesel is being introduced in three phases for domestic customers, beginning with government buyers like the Russian navy or municipal bus companies. Private brokers will be allowed to trade in March; futures contracts will be introduced in April.
Mr. Nikolayev said no timeline had been established for trading for export on the exchange, which also handles grain, sugar, mineral fertilizer, cement and esoteric financial products like Russian government beef and pork import quotas — all in rubles.
“We are in Russia, and the currency is rubles, not euros, not dollars,” he said. “We don’t want to depend on the rise or fall of the dollar.”
“We will trade in rubles, to strengthen the ruble,” he said.
Yangzijiang call to be issued as shipyard faces pressures
GOH ENG YEOW 27 February 2008
SHIPYARDS seem to have lost their lustre, despite producing record-breaking, full-year profits and boasting fat order books that should keep them occupied for years.
One good example of a shipyard falling out of investors’ favour is China-based Yangzijiang Shipbuilding.
It reported on Monday a full-year profit of 869.5 million yuan (S$171.03 million), well above analysts’ expectations. Instead of getting a fillip from investors, however, its share price fell yesterday by two cents to $1.21 on a volume of 67.6 million shares.
Overall, the Singapore market made modest gains yesterday.
The reason for investors’ cagey-ness, according to DBS Vickers, is the more challenging environment that shipyards face this year.
Order books at shipyards are strong, it noted. Yangzijiang’s book, in particular, has grown from US$5.5 billion to US$7 billion (S$7.73 billion to S$9.84 billion) in the past three months alone.
“But margins have peaked and forward margins will be impacted by rising steel and labour costs, and the strengthening of the yuan against the greenback, given that the bulk of the contracts are in US dollars,” DBS Vickers said.
These have placed Yangzijiang at a greater risk because its vessels will be delivered only up to five years from now, even though the contracts are priced at current market rates.
Traders, however, can look forward to big swings in the warrant price, as the underlying mother share comes under pressure from concerns over the steel and currency risks Yangzijiang faces.
To ensure that traders get plenty of warrant choices, Deutsche Bank is launching a fresh call on Yangzijiang on Friday. This will give holders the option to buy into the share at $1.40 until August.
Yesterday, the most actively traded Yangzijang warrant was a call issued by Merrill Lynch that fell 0.5 cents to 16 cents, with a volume of 1.56 million units.
Traders need to use two warrants and pay a strike price of $1.30 to get one Yangzijiang share. The call expires in July.
Dalian Shipbuilding braces for slowing orders on fears of US recession
February 27, 2008
(DALIAN, China) - China's No 1 shipyard expects rosier 2008 earnings after having secured better prices, but warned yesterday of slowing orders for new ships as a United States economic recession threatens to crimp global trade.
Going south?: The world's No 4 builder of ocean-faring vessels, is keeping a wary eye on an industry that China increasingly dominates. But it expects earnings improvement after shifting client focus.
Dalian Shipbuilding Industry Co Ltd, the world's No 4 builder of ocean-faring vessels, is keeping a wary eye on an industry that China increasingly dominates, vice-president Zhang Tao said in an interview.
It hopes to ride out any downturn by focusing on serving state-backed Chinese clients and focusing more on the oil tankers and mid-sized container ships it specialises in, he added.
'We're keeping a close eye on whether the market has started to turn south after the boom of past years,' Mr Zhang said. 'We have our running shoes ready. When the bear comes, we will run faster than our rivals. Last year, we had some low-priced orders to fill. But contracts for this year's production were all secured at good prices,' he said at his offices in the frigid north-eastern port city of Dalian.
To be sure, China's shipbuilders are enjoying their best years ever with orders queuing up to 2009/2010, and heavy demand and capacity constraints at shipyards propping up ship prices.
Hong Kong-listed Guangzhou Shipyard said recently that it expected net profit to triple in 2007.
But fears of a US slump have raised longer-term concerns and walloped shipbuilders' shares, sending Guangzhou Shipyard 36 per cent lower in the past three months and hurting rivals JES International and Yangzijiang Shipbuilding .
And the pace of business was definitely decelerating. Orders this year are unlikely to match the record Dalian Shipbuilding set in 2007, said Mr Zhang, without disclosing its order book. And cancellations had begun to emerge, he added.
Clarkson Research estimated the firm kept orders on hand for 119 vessels with a total capacity of 15.28 million deadweight tonnes (dwt) as of the end of 2007, keeping it busy until 2011.
Flourishing international trade had driven strong demand for ships of all shapes and sizes in past years. But analysts say that demand could slow amid a decelerating US economy, while capacity is expanding not just in China but also in South Korea, India and Vietnam.
Dalian Shipbuilding plays a major role in Beijing's plan to hoist China atop the global shipbuilding sector. The country won over 40 per cent of the world's ship orders in 2007, putting it on track to become the world's largest shipbuilding nation by 2011.
That growth has triggered other problems: the domestic market now faced severe shortages of components, engines, talent and management. More generally, shipbuilders are grappling with the rising cost of raw materials such as steel.
No wonder Mr Zhang is taking a cautious approach.
'A sharp drop in ship prices is unlikely this year, but ship turnover should be lower than last year,' said the executive who joined the firm in 1988, when the shipping market was just as tough.
Dalian Shipbuilding has now started to see termination of shipbuilding contracts, he added without elaborating.
Analysts say that Chinese shipbuilding technology still seriously lags the more experienced Koreans. But Mr Zhang said that his firm could build a VLCC (very large crude carrier) in 11 months, similar to international rivals.
As a core unit of the China Shipbuilding Industry Corp (CSIC), the country's No 2 state ship construction group, it delivered 32 vessels totalling 3.1 million dwt, worth 15.26 billion yuan (S$2.98 billion), in 2007, Mr Zhang said.
The shipyard, which cranks out mammoth oil tankers and container vessels, plans to deliver 36 vessels with a total of 3.19 million dwt of capacity this year.
'The shipbuilding market was also very bad from 1997 to 2002 because of the Asian financial crisis. The market was dead and no new orders surfaced,' he said.
An increasing number of Chinese shipyards are hatching plans to tap equity markets, to fund expansions. Dalian Shipbuilding's state parent is considering an initial public offering to raise up to US$928 million, state media reported last year.
CSIC plans to fold 16 units, including Dalian Shipbuilding, into one giant listing vehicle and float it either in Shanghai or Shenzhen, newspapers said. -- Reuters
24 comments:
China Eastern rejects proposal for Air China tie
SHANGHAI, Feb 26 - China Eastern Airlines formally rejected a proposed tie-up with flag carrier Air China, pledging on Tuesday to instead continue seeking another strategic investor.
Echoing public comments by China Eastern executives, the airline said China National Aviation Corp, parent of Air China, had not made a sincere or considered proposal that would benefit shareholders.
“In the absence of sincerity, planning and mutual trust, it would be hard to create a basis for cooperation,” China Eastern said in a statement that also quoted criticism of the proposal by its lawyers and advisers Shenyin & Wanguo Securities.
China Eastern said it would not give the proposal further consideration.
Last month, CNAC proposed a strategic partnership between Air China and China Eastern, which it said could bring China Eastern a cash injection of $1.9 billion and involve a broad tie-up between the two airlines’ operations.
CNAC’s approach helped convince a China Eastern shareholders’ meeting to reject the proposed sale of a 24 percent stake in China Eastern to Singapore Airlines and Singaporean investment firm Temasek [TEM.UL] for $920 million.
China Eastern said on Tuesday it would continue seeking a strategic investor to boost its management expertise and international competitiveness. But it did not say whether it still hoped to revive the Singapore Airlines deal.
Singapore Air: Offer For China Eastern Still On The Table
2008/02/27
SINGAPORE (Dow Jones)--Singapore Airlines Ltd. said Wednesday that its HK$3.80 per share offer to buy a stake in China Eastern Airlines Corp. is still valid.
“Our proposal for recapitalisation of China Eastern Airlines is still on the table. It is exactly the same as the one announced in September 2007 and put to shareholders in January 2008. There is no new bid,” Singapore Airlines spokesman Stephen Forshaw told Dow Jones Newswires.
China eastern said late Tuesday that it won’t consider a bid put forward by the parent company of rival Air China Ltd., China National Aviation Holding Co.
China Eastern said in a statement CNAHC’s proposal has failed to demonstrate “sincere intentions” and thorough planning. The company added that it also raised issues such as uncertainty as to whether the Chinese government would support the partnership, and whether any antitrust issues would be raised.
Air China successfully blocked a deal earlier this year whereby Singapore Airlines and its parent Temasek Holdings would buy a 24% stake in China Eastern. The Beijing-based airline put forth its own proposal, saying it would offer at least HK$5 per China Eastern share.
“We look forward to continuing our discussions with China Eastern about taking the proposal forward. The timing remains a matter for them, but we hope that shareholders will appreciate that the offer is a fair and reasonable one, and will help recapitalise China Eastern quickly to meet the competitive demands of the China aviation sector,” Forshaw said.
Singapore Airlines remains its preferred company to partner with, the China Eastern statement said, citing Singapore Airlines’ profitability, reputation for customer service, and route and cost synergies the two airlines would share.
“CEA’s primary objectives of introducing a strategic investor are to gain access to world-class management know-how and to improve its management, operation efficiency and profitability for the protection of the long-term benefits of all its shareholders,” it said.
Dollar Falls to Record Low of $1.50 per Euro on Rate Outlook
By Kosuke Goto and Stanley White
Feb. 27 (Bloomberg) -- The dollar fell to a record low of $1.50 per euro on speculation Federal Reserve Chairman Ben S. Bernanke today will indicate the U.S. central bank is prepared to keep lowering interest rates.
The currency is headed for its second straight monthly decline on expectations a U.S. government report today will show a drop in new home sales, bolstering the Fed's case for cutting its 3 percent target for the overnight lending rate between banks. The euro climbed to a six-week high against the yen as traders bet the European Central Bank will keep its 4 percent benchmark rate unchanged in coming months.
``We're going into a new leg of dollar weakness,'' Tony Morriss, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd., Australia's third-biggest bank, said in an interview with Bloomberg Television. ``The Federal Reserve is sending a pretty clear signal they need to support growth.''
The U.S. currency touched $1.5047 per euro, the lowest since the European single currency was introduced in 1999, before trading at $1.4991 as of 10:46 a.m. in Tokyo from $1.4974 in late New York yesterday. It was little changed at 107.22 yen. The euro rose to 160.73 yen from 160.67. The dollar may fall to $1.53 per euro in the next three months, Morriss said.
The U.S. dollar slid against 11 of the 16 most-active currencies before Bernanke delivers his semi-annual testimony to the House Financial Services Committee at 10 a.m. in Washington today. Fed Vice Chairman Donald Kohn said yesterday turmoil in credit markets and the possibility of slower economic growth pose a ``greater threat'' than inflation.
Commodities Fallout
The slump in the dollar pushed oil prices to a record yesterday and increased the cost of buying wheat, sugar, copper, cotton and cocoa. Asian currencies rallied, with China's yuan posting the biggest gain in a week. Chinese Premier Wen Jiabao yesterday told visiting U.S. Secretary of State Condoleezza Rice a stable dollar is good for the U.S. and the rest of the world, Xinhua news agency reported.
The greenback has lost about a quarter of its value in the past five years, according to the Fed's U.S. Trade Weighted Major Currency Dollar index, which comprises seven currencies of U.S. trading partners. The index declined 0.6 percent to 72.06 yesterday, approaching a three-month low set on Nov. 26. The weaker dollar has made U.S. goods cheaper abroad, boosting exports to a record and shrinking the nation's trade deficit last year for the first time since 2001.
All of the 10 most actively-traded currencies in Asia outside Japan gained against the dollar today, led by the Taiwan dollar with a 0.5 percent rally to NT$31.071. Indonesia's rupiah rose 0.4 percent to 9,068 and the Singapore dollar climbed 0.3 percent to S$1.4018. The yuan advanced 0.1 percent to 7.1484.
`Crunch Time'
``It's crunch time for the dollar,'' said Yuji Saito, head of foreign-exchange sales in Tokyo at Societe Generale SA, a unit of France's second-largest bank by market value. ``Bernanke may know that monetary policy alone cannot support the slowing U.S. economy.''
The U.S. currency may fall to $1.51 per euro and 106.80 yen today, Saito forecast.
The dollar will rebound to $1.48 per euro by the end of March, according to the median forecast in a Bloomberg News survey of 41 analysts. Merrill Lynch & Co., the third-biggest U.S. securities firm, is the most bearish, predicting it will fall to $1.57 per euro by March-end.
New home sales dropped 0.7 percent to an annual pace of 600,000 last month, according to the Bloomberg survey median estimate before today's Commerce Department report.
`Shifting Away'
The dollar may fall at least another 10 percent on a trade- weighted basis, said Kenneth Rogoff, an economics professor at Harvard University in Cambridge, Massachusetts, and formerly chief economist at the International Monetary Fund.
``We're seeing demand shifting away from the U.S. to Europe and Asia,'' he said.
The U.S. will expand 1.5 percent this year, compared with a 4.1 percent rate for the global economy, the Washington-based IMF said in January.
Futures on the Chicago Board of Trade show traders see a 96 percent chance the U.S. central bank will reduce the 3 percent target rate for overnight lending between banks by 50 basis points at their March 18 meeting, and a 4 percent likelihood of a quarter-point cut. The Fed has already cut rates five times since Sept. 18.
ECB on Hold
The euro gained as the Munich-based Ifo institute yesterday said its business climate index rose to 104.1 in February, from 103.4 in January. The median estimate in a Bloomberg survey was for a drop to 102.9. After the report, traders pared bets the ECB will lower its target from the current 4 percent level.
``Germany's business sentiment was unexpectedly strong,'' said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany's second-largest bank. ``The ECB is likely to keep borrowing costs unchanged instead of cutting rates as some had expected.''
The euro may rise to 161.40 yen today, Muramatsu forecast.
The odds of the ECB lowering borrowing costs fell yesterday, with the implied yield on the Euribor futures contract for June rising 4 basis points to 4.15 percent. The yield averaged 0.18 percentage point more than the ECB's benchmark from 1999 until August. A basis point is 0.01 percentage point.
Sony tying up with Sharp to make LCD panels
February 26, 2008
TOKYO (AP) -- Sony and Sharp are tying up in the flat-panel TV business, with Sony investing in a Sharp plant for making liquid crystal displays, both sides said in a statement.
Sony Corp. had fallen behind in developing flat panel TVs, and does not make its own liquid crystal displays for its TVs. It has been buying LCD panels from a joint venture it has with Samsung Electronics Co. of South Korea.
With the latest partnership with Sharp, it can hope to ensure a stable panel supply for its TVs.
Demand for slimmer and bigger TVs is growing around the world. Although the televisions use various panel technologies, LCD is the leading technology so far along with plasma display panels.
Sony President Ryoji Chubachi and Sharp President Mikio Katayama will hold a joint news conference at a Tokyo hotel later in the day, according to the companies.
Japan's business daily The Nikkei reported in its Tuesday editions that Sony plans to invest 100 billion yen (US$926 million) in a plant Sharp Corp. is building to make panels for flat TVs.
But the companies said the amount of investment was still undecided. They will set up a joint venture for producing the displays, and Sharp will take a 66 percent stake and Sony 34 percent, they said.
Sony's cash investment would be a plus for Sharp's 380 billion yen (US$3.5 billion) new plant for making panels for larger 40-inch, 50-inch and 60-inch flat TVs.
Construction began in December, and the plant is expected to be running by March 2010.
Sony shares rose more than 1 percent Tuesday on the Tokyo Stock Exchange. Sharp ended unchanged.
Analysts said the move was positive for both companies, as it would give Sony more of an option in buying panels for its TVs called Bravia, while Sharp can reduce the investment burden for panel production.
Both Sharp and Samsung make flat TVs under their own brands, and Sony, Sharp and Samsung are competing for their piece of the global flat-TV pie.
Some surveys have shown Sony momentarily leading in LCD TV sales, but Samsung is now believed to be No. 1.
Osaka-based Sharp, which is struggling to gain overseas brand recognition, still trails Samsung and Sony. Sharp's Aquos brand of LCD TVs is extremely popular in Japan.
Sony management failed to recognize how quickly slimmer TVs would take off, partly because of the huge success it had enjoyed in developing and selling high-quality old-style televisions.
Its failure in flat TVs was a major reason for its faltering earnings several years ago. Sony has staged a comeback recently under the leadership of Howard Stringer, a Welsh-born American who became chief executive in 2005.
In December, Toshiba Corp. said it will team up with Sharp to buy LCD panels for Toshiba flat-panel TVs.
At that time, Toshiba said it will drop panel-making from its business, selling its stake in a joint venture panel maker, led by Matsushita Electric Industrial Co., which makes Panasonic brand products.
Matsushita, the world's leading maker of plasma TVs, has been strengthening in-house production of panels, including LCD displays, counting on solid flat-panel TV sales in coming months. Matsushita is also supplying Japanese electronics maker Hitachi Ltd. with LCD panels.
On Monday, Standard and Poor's Ratings Services raised its outlook on Sony to "stable" from "negative," citing improved profits at its core electronics unit and gradual recovery in its struggling PlayStation 3 video game operations.
Beijing urged to heed risk of unrest from labour law
More consultation needed for guidelines, experts say
Denise Tsang in Dongguan
Feb 26, 2008
Beijing risks provoking social unrest if it fails to better balance the interests of employers and employees when hammering out guidelines for the controversial labour contract law.
The new law, which took effect on January 1, has triggered conflict over the responsibilities and rights of employers and employees, leading to a wave of disputes and shutdowns in manufacturing hubs along the Yangtze River and in the Pearl River Delta.
Although introduced to protect the interests of both parties by binding them in a black and white contract, market observers say the handling of the law has been poor.
Beijing should hold further consultations with factory owners and workers before disclosing new implementation details of the law, said Priscilla Leung Mei-fun, a lawyer and associate professor of law at City University.
“The new law has caused a lot of confusion,” Ms Leung said. “There have been disputes between workers and factory owners and factories have been pushed out of business.”
She said the bigger the number of factory closures, the more job losses and the higher the chance of social unrest.
“Beijing should learn from the lessons of riots and unrest in France a couple of years ago when the country rolled out a pro-worker labour law,” she said.
Many terms of the contract law were inclined to protect employees’ interests, leaving employers with higher costs and liabilities.
The law has led to the demise of more than 10,000 mostly Hong Kong-owned factories in the Pearl River Delta. Those factories are also facing a stronger yuan, soaring raw material and production costs and unfavourable state policies on exports and tax refunds.
Ms Leung said some aspects of the law lacked flexibility and were draconian. They include requiring employers to report to the authorities in advance plans to lay off more than 20 workers and planned negotiations with labour unions. In addition, employers are not allowed to transfer workers between units.
Heavy penalties are imposed on employers that breach the new law, including doubling the monthly pay of a worker if the firm fails to enter into a contract with the employee.
“After talking to the law drafters in Beijing recently, I have found that the controversial consequences such as lay-offs and shutdowns of factories were beyond their expectations,” Ms Leung said. “Local governments should step in and help out because it is not just a legal and economic problem, but a social issue.”
Hong Kong Small and Medium Enterprises Association chairman Danny Lau Tat-pong said the labour contract law was too rigid, citing the limits placed on overtime work. He said many factories dared not take orders due to shortened working hours. Hence their earnings were hit.
Rising factory floor tensions could worsen in the run-up to the May 1 promulgation of a new set of rules for mediation and arbitration, some lawyers said.
The arbitration bill was open to abuse as workers would be allowed to file claims or complaints against their bosses for free, said Jane Li Jianzhuan, a lawyer with Zhuhai-based law firm D&S. “It could lead to more disputes.”
Standard Chartered
FT.com
February 26 2008
Never mind those investments in Barclays and Merrill Lynch – at least Temasek’s 19 per cent holding in Standard Chartered is looking clever. Since the Singapore government fund bought its original stake in March 2006, the UK-listed bank has outperformed its global banking peers by about 25 per cent. On a three-year view, it has trounced them by more than 50 per cent. Nor should yesterday’s full-year results give Temasek cause for concern: contrary to the now-familiar sound of subprime explosions, Standard Chartered’s management just about stopped short of breaking into song.
And why not? Management has bet the bank on the fast-growing bits of the world and, so far, this strategy is paying off. Income and profit growth, for the main wholesale and consumer businesses, was pretty much double-digit across the board. Hong Kong, Singapore and India were particularly strong. Naturally, there are some growing pains: settling down the expensive acquisition of First Korea Bank is proving tricky and costs are up in countries where Standard Chartered is pushing hard. Not surprisingly, customers in Pakistan seem to have things on their minds other than paying back loans.
Investors, as they have done for years, love the story. Standard Chartered’s shares were up 8 per cent by the close. Its forward price/earnings ratio of 14 times is now more than twice that of many rivals. Does that make sense? It certainly shows how much perceptions have changed that a bank exposed to China and Nigeria is considered less risky than one geared to the US. That may be true today but there is still a real danger that “recoupling” occurs.
Standard Chartered’s drawers are stuffed with deposits and it is well capitalised. If there is any risk that Asia might slow, right now is the window for Standard Chartered to transform itself by bagging a bargain in the more-pedestrian but gigantic markets of the US and Europe. Temasek may well cry foul but, at the right price, its investment would end up a much better balanced bank – with barely less fizz.
王冠一： 嚴 重 內 傷 欲 蓋 彌 彰
27-2-2008
剛 剛 話 完 「 有 心 人 」 除 屢 出 口 術 吹 水 外 ， 如 果 有 不 理 想 的 經 濟 數 據 或 壞 消 息 ， 看 看 又 有 何 招 數 托 市 ？
果 然 ， 美 國 1 月 二 手 房 屋 銷 售 跌 0.4% 至 按 年 489 萬 間 ， 是 99 年 自 有 紀 錄 以 來 最 低 ， 美 股 本 來 奄 奄 一 息 ， 突 然 爆 出 評 級 機 構 標 普 不 再 將 全 美 最 大 債 保 商 MBIA 列 入 觀 察 行 列 ， 並 聲 稱 第 二 大 債 保 商 Ambac 雖 然 仍 待 觀 察 ， 但 或 不 需 要 被 降 級 。
此 話 一 出 ， 美 股 即 時 如 食 了 「 春 藥 」 般 勁 彈 ， 3 大 指 數 收 市 升 1.05% 至 1.53% 不 等 ， 又 係 來 一 招 臨 尾 踢 高 ， 不 過 不 知 大 家 有 沒 有 留 意 ， 升 幅 最 勁 的 道 指 ， 30 隻 成 份 股 中 有 29 隻 錄 得 上 升 ， 只 有 一 隻 斯 人 獨 憔 悴 下 跌 ， 便 是 花 旗 銀 行 是 也 ！ 為 甚 麼 ？ 原 來 基 金 公 司 Oppenheimer 的 分 析 員 Meredith Whitney 女 士 （ 此 君 因 早 前 貼 中 花 旗 會 減 派 股 息 而 名 噪 一 時 ） 發 出 報 告 ， 預 測 花 旗 全 年 每 股 盈 利 由 2.7 美 元 ， 大 幅 調 低 至 75 美 仙 ， 理 由 是 花 旗 未 來 將 再 為 次 按 虧 損 作 出 巨 額 撇 賬 ， 不 排 除 變 賣 1000 億 美 元 資 產 ， 股 價 或 由 目 前 的 25 美 元 下 跌 至 16 美 元 ， 咁 大 件 事 ， 股 市 照 升 如 儀 ， 有 心 人 真 有 辦 法 ！
高 盛 籲 沽 房 貸 美 房 利 美
另 外 高 盛 將 兩 大 半 官 方 按 揭 公 司 之 推 介 ， 由 「 中 立 」 變 為 「 沽 出 」 ， 原 因 是 房 貸 美 （ Freddie Mac ） 或 須 撇 賬 42 億 美 元 ， 最 大 的 房 利 美 （ Fannie Mae ） 亦 要 撇 26 億 ， 此 兩 家 公 司 將 於 本 周 發 表 第 4 季 業 績 ， 看 看 又 如 何 ？ 還 有 高 盛 還 大 幅 調 低 美 林 、 大 摩 和 貝 爾 斯 登 及 雷 曼 兄 弟 之 盈 利 預 測 。 如 果 彈 出 盤 數 唔 靚 ， 又 睇 有 心 人 有 何 伎 倆 ？ 隻 「 無 形 之 手 」 托 極 唔 ， 難 道 是 義 肢 乎 ？
Citigroup May Post First-Quarter Loss, Whitney Says
By Bradley Keoun and Charles Penty
Feb. 25 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank by assets, may post its second-straight quarterly loss and fall short of profit estimates for the year because of writedowns on home-equity loans and junk-grade corporate loans, Oppenheimer & Co.'s Meredith Whitney said.
Whitney, whose downgrade of Citigroup last year triggered an 8 percent decline in the company's stock price, said the bank may report a loss of $1.6 billion, or 28 cents a share, for the first quarter, compared with a profit of about $5 billion, or $1.01, a year earlier. Her prediction today compares with the 45-cent per- share average gain expected by analysts surveyed by Bloomberg. Goldman Sachs Group Inc. analyst William Tanona said Citigroup may have to take a writedown of as much as $12 billion.
The rate of loan losses is ``grossly underestimated by consensus estimates'' at Citigroup and other U.S. banks, Whitney wrote. ``Core fundamentals are rapidly deteriorating.'' She cut her per-share prediction for 2008 earnings by more than 70 percent to 75 cents. The New York-based company's shares could fall more than 36 percent to less than $16, she wrote.
Citigroup fell 38 cents, or 1.5 percent, to $24.74 at 4:10 p.m. in New York Stock Exchange composite trading. The shares have declined about 16 percent this year.
The lender posted a $9.8 billion loss for the fourth quarter, the widest in its 196-year history, after writing down subprime mortgage-linked collateralized debt obligations. The value of those securities plummeted last year as investors shunned debt linked to the least creditworthy borrowers. Vikram Pandit stepped in as chief executive officer in December, after Charles O. ``Chuck'' Prince was forced to resign.
Dividend Prediction
Whitney, 38, was among the first analysts to gauge the depth of Citigroup's losses, writing in a note last October that the bank may have to cut dividend payments to shareholders for the first time since the 1990s. In January, the bank slashed its dividend by 41 percent, reversing a pledge made by its executive- committee chairman, former U.S. Treasury Secretary Robert Rubin, to preserve the shareholder payout.
Citigroup may have additional writedowns this quarter on CDOs, along with losses on more than $43 billion of junk or ``leveraged'' loans, Whitney said. The bank may also face charges on more than $50 billion of residential mortgages granted to customers who borrowed in excess of 90 percent of the value of their homes, Whitney wrote. Credit-card loans also are prone to higher defaults.
Asset Sales
Citigroup may have to sell $100 billion of assets to free up capital, Whitney said. The lender will ``likely be forced to sell what it can and not what it should,'' she wrote.
The bank may write down as much as $12 billion from the value of fixed-income assets in the first quarter, cutting earnings per share 63 percent to 15 cents from a prior estimate of 40 cents, Goldman analyst Tanona wrote in a report dated today.
Tanona also reduced profit estimates for Merrill Lynch & Co., Lehman Brothers Holdings Inc., Morgan Stanley, Bear Stearns Cos., and JPMorgan Chase & Co., as bonds and loans they own lose value.
He cut first-quarter earnings per share estimates by 75 percent for Bear Stearns, 73 percent for Lehman Brothers, 24 percent for Morgan Stanley and 27 percent for JPMorgan Chase. All the firms are based in New York.
In a separate report, Whitney and colleague Kaimon Chung also cut their earnings estimates on large U.S. East Coast banks by an average of 29 percent for 2008 and 13 percent for 2009.
谭绍兴： 三 月 有 望 打 破 闷 局
27-2-2008
日 本 电 影 有 「 罗 生 门 」 ， 近 日 内 地 股 市 则 有 「 融 资 门 」 或 「 再 融 资 门 」 ！
据 报 道 ， 由 年 初 至 今 ， 已 先 后 有 40 多 间 内 地 企 业 提 出 再 融 资 预 案 ， 准 备 从 内 地 股 市 集 资 高 达 2600 亿 元 人 民 币 ， 不 禁 令 内 地 股 民 患 上 「 融 资 恐 惧 症 」 。 不 少 投 资 者 在 一 听 闻 某 公 司 有 融 资 传 言 ， 便 即 沽 货 离 场 ， 引 致 本 已 处 于 弱 势 的 内 地 股 市 ， 进 一 步 偏 软 。
内 地 不 断 有 大 型 上 市 公 司 相 继 有 再 融 资 传 言 ， 市 场 已 有 不 少 声 音 希 望 有 关 部 门 对 这 些 融 资 事 件 高 度 重 视 ， 并 采 取 积 极 措 施 加 以 解 决 。 前 日 中 国 证 监 会 亦 终 于 在 其 网 站 内 对 这 些 准 备 作 巨 型 融 资 的 公 司 点 名 发 出 措 词 严 厉 的 批 评 ， 并 表 示 会 对 这 些 融 资 申 请 ， 进 行 严 格 审 核 。
这 次 中 国 证 监 会 的 出 招 能 否 扭 转 国 内 股 市 之 跌 势 ， 有 待 观 察 。 但 假 若 上 市 公 司 仍 一 意 孤 行 ， 依 循 正 确 的 程 序 申 请 ， 相 信 这 些 庞 大 的 融 资 行 动 ， 不 容 易 在 短 时 间 内 消 散 ， 故 昨 日 内 地 股 市 并 未 有 出 现 如 市 场 预 期 的 大 反 弹 ， 上 证 综 合 指 数 亦 仅 微 升 45 点 。 但 总 算 暂 时 结 束 连 跌 4 日 的 市 况 。
期 待 控 业 绩 救 大 市
周 一 亚 洲 区 股 市 普 遍 回 升 ， 日 股 更 劲 升 400 多 点 （ 2 月 25 日 ） ， 在 以 往 ， 港 股 大 都 会 随 之 飙 升 ， 但 由 于 受 内 地 股 市 拖 累 ， 令 港 股 未 能 上 升 ， 直 至 美 股 大 反 弹 ， 终 于 令 港 股 上 扬 ， 指 得 以 再 度 逼 近 250 日 平 均 线 （ 23800 点 ） ， 惟 成 交 依 然 疏 落 ， 全 日 仅 得 686 亿 元 。
大 笨 象 控 （ 005 ） 将 在 下 周 一 公 布 业 绩 ， 在 过 往 ， 控 的 成 绩 表 往 往 是 港 股 升 跌 的 转 捩 点 ， 足 以 令 港 股 由 升 转 跌 ， 或 由 跌 转 升 ， 正 如 去 年 3 月 ， 在 控 公 布 业 绩 后 ， 带 动 港 股 止 跌 回 升 重 拾 升 势 ， 故 这 次 假 若 控 的 业 绩 并 不 太 差 劲 ， 相 信 可 为 近 日 沉 闷 的 市 况 ， 带 来 一 点 利 好 冲 击 ， 届 时 港 股 可 望 出 现 一 次 较 强 的 反 弹 。
自 周 一 开 始 ， 期 指 的 交 投 已 大 为 增 加 ， 相 信 机 构 投 资 者 正 逐 步 转 仓 及 调 期 ， 笔 者 估 计 ， 3 月 港 股 可 望 有 小 阳 春 。
内 地 基 建 股 毛 利 不 高
昨 日 谈 到 中 铁 建 时 ， 由 于 篇 幅 所 限 ， 有 一 点 尚 未 谈 到 的 ， 就 是 其 毛 利 率 。 由 于 中 铁 建 的 工 程 承 包 业 务 ， 需 要 采 购 大 量 原 材 料 ， 例 如 钢 材 、 水 泥 、 沙 石 及 木 材 等 ， 这 些 原 材 料 大 约 占 销 售 成 本 50% ， 近 期 原 材 料 价 格 上 涨 ， 再 加 上 市 场 竞 争 激 烈 ， 令 中 铁 建 的 毛 利 率 持 续 下 降 ， 由 2004 年 的 10.06% ， 下 降 至 去 年 1-11 月 的 9.54% （ 注 ： 这 毛 利 率 仍 略 高 于 中 铁 ， 390 ） ， 可 见 内 地 的 基 建 工 程 虽 然 庞 大 ， 但 在 竞 争 激 烈 下 ， 这 些 基 建 股 的 毛 利 率 并 不 太 高 ， 暂 时 来 讲 ， 以 中 交 建 （ 1800 ） 的 11% 毛 利 率 相 对 较 为 吸 引 ！
Crackdown closes China’s biggest plastic bag factory
BEIJING (AFP) — China’s largest plastic bag factory has shut down because of a government environmental campaign that will dramatically curb their use, state media reported Tuesday.
Huaqiang, which employs 20,000 people, stopped production at its factory in central Henan province last month, Xinhua reported, quoting local government officials and management at the plant.
“Over 90 percent of our products are on the limit list,” Xinhua quoted a management official as saying, referring to a central government edict that will see ultra-thin plastic bags banned from June 1.
“As a result, the only way forward for the factory is closure.”
The factory, which is owned by Guangzhou-based Nanqiang Plastic Industrial, had a production capacity of 250,000 tons of plastic bags worth 2.2 billion yuan (305 million dollars) every year, the report added.
Last month, the government announced shoppers would have to pay for plastic bags at supermarkets and other shops from June 1.
The State Council, or cabinet, also said the production, sale and use of ultra thin bags would be banned completely.
The overuse of plastic bags in China is a major problem.
In the booming southern city of Shenzhen, at least 1.75 billion plastic bags are used each year, according to previous data.
Shenzhen’s environmental protection department said the bags were posing a huge environmental problem, as they generally did not decompose for 200 years, while some never would at all, Xinhua reported.
China Consumer Confidence Fell in February with Stock Market Fall
and Snow Storms; Investment Confidence Rebounded
SHANGHAI, China, Feb. 27 /Xinhua-PRNewswire/ -- Xinhua Finance eziData China Consumer Confidence Index (CCCI) was updated today, with the survey results showing that consumer confidence fell by another one point to 95.8 in February after a stabilization in January, affected by the sharp stock market falls starting mid-to-late January and the snow storm disasters in the southern part of China right before the Chinese New Year.
Consumer sentiment on current conditions fell 1 point in February, led by a fall in the purchase intention for durable goods probably caused by the fall in the stock market. Current personal finances, on the contrary, improved for the second consecutive month. Consumer expectations fell further from their peak in July, dropping 0.9 point in February. Among the three components of the overall expectations index, both the index measuring personal finances in one year and the index measuring business outlook in one year fell, while the index measuring business outlook in five years rose slightly.
Under the support of the Xinhua Finance family, Xinhua Finance eziData China Consumer Confidence Index is produced monthly by eziData, a local provider of China consumer data, and in association with Dr. Richard Curtin. Dr. Curtin is Research Professor and Director of the Consumer Sentiment Surveys at the University of Michigan’s Institute of Social Research. The survey this month was conducted through 1,541 telephone interviews from February 1 to 4, and 15 to 17, 2008 (avoiding the Chinese New Year holidays). April 2007 survey results are set as the benchmark value of 100. More on the survey methodology can be found in the accompanying section.
The sharp stock market falls after mid January had caused significant losses to the investment returns on the part of the consumers, with a sharp month-on-month drop in cumulative 12-month investment returns only next to the drop seen in November 2007. However, consumer’s expectations on the future of the stock market did not collapse in February. Instead, it rebounded slightly after a plunge posted the month before, suggesting sufficient confidence among average investors in the current stock index for a rebound.
As the government control on the real estate market deepened, overall consumer sentiment on house buying in the year ahead plunged in February, indicating a further decline on the part of the buyers.
Consumer sentiment in February failed to retain the rebounding trend shown in January and fell in all three major cities, with the largest drop occurring in Guangzhou.
Sentiment among Beijing consumers plunged by 3.1 points to 96.3 to create a record low, with both current conditions and future expectations falling.
Sentiment among Shanghai consumers remained the lowest among the three major cities for the third month in a row, with a 1.9-point drop to reach 92.8, as an improvement in current conditions -- which was the second rise in a row -- failed to offset a drop in future expectations.
The largest fall in consumer sentiment in February occurred in Guangzhou, with a 4.5-point plunge to reach 93.5. Again, both current conditions and future expectations declined, with all the five components constituting the overall consumer confidence index dropping.
As neither the stock market falls nor the snow storms are likely to continue in the long run, it is expected that the consumer confidence has reached its bottom in February. Should no emergencies occur in the short run, the confidence is likely to rebound in March.
Hong Kong’s Economy to Cool as World Growth Slows, Tsang Says
Feb. 27 (Bloomberg) -- Hong Kong’s economic expansion will slow in 2008, Financial Secretary John Tsang said, after the city reported the fastest expansion in seven quarters.
Gross domestic product grew 6.7 percent in the three months ended Dec. 31 from a year earlier, Tsang said today in his budget speech. The expansion will slow to between 4 percent and 5 percent this year, he said.
Hong Kong, a trade hub for mainland China, is relying on domestic consumption that’s been boosted by falling interest rates and unemployment at a nine-year low to help sustain growth. Export gains may keep slowing as the U.S. economy skirts a recession, crimping global demand.
“Hong Kong’s economy will likely slow further this year as exports weaken and uncertainty in the financial markets rises,’’ said Joe Lo, senior economist at Citigroup Inc. in Hong Kong. “Domestic demand has been strong enough to support growth and hopefully that will continue.’’
For 2007, GDP grew 6.3 percent from a year earlier, after gaining a revised 7 percent in 2006. That was more than the 6.2 percent median estimate of nine economists surveyed by Bloomberg.
“Hong Kong is now faced with the risk of a global economic slowdown coupled with rising inflation,’’ Tsang said. “I am cautiously optimistic about Hong Kong’s economic prospects.’’
The pace of inflation may accelerate to 3.4 percent from 2 percent in 2007, he said, citing rising food costs.
Consumer Spending
Hong Kong’s buffer against a sharper slowdown is consumer spending driven by a low jobless rate, tax cuts and record tourist numbers.
Hennes & Mauritz AB, Europe’s second-largest clothing retailer, opened its first stores in Hong Kong last year to tap consumer spending. Outlets in the city have been “successful,’’ it said last month.
Retail sales rose 10.1 percent in 2007 from a year earlier, the biggest increase in 15 years, after adjusting for inflation. Tourist arrivals gained 11.6 percent to a record 28 million. Unemployment was 3.4 percent at the end of January.
Declining borrowing costs have also fuelled consumption. HSBC Holdings Plc, Standard Chartered Bank Plc and other lenders have cut borrowing costs six times since September, following similar moves by the U.S. Federal Reserve. The city’s interest rates track U.S. changes because the Hong Kong dollar is pegged to its U.S. counterpart.
Stock Market
Still, a volatile stock market poses a threat to consumer spending. The benchmark Hang Seng Index of shares has fallen about 12 percent this year after gaining 39 percent in 2007.
The outlook for exports is worsening. Shipments overseas grew 9.2 percent in 2007 from a year earlier, the smallest gain in five years, according to information previously published on a government Web site.
Former Federal Reserve Chairman Alan Greenspan said this week a possible recession in the U.S. this year may be deeper than the last two contractions.
Sales to the U.S., Hong Kong’s largest export destination after China, fell 0.8 percent in 2007, the first decline in four years.
China’s slowing export growth may be another brake for Hong Kong. Most Chinese exporters forecast falling orders and export earnings in 2008 as a shortage of money in the U.S. and Europe weakens demand, China’s central bank says.
Hong Kong’s economy will probably grow 5 percent this year, according to the Bloomberg News survey of economists.
China blasts US role in illegal relics trade
BEIJING - CHINA has labelled the United States the world’s largest importer of smuggled Chinese relics, and demanded the country do more to combat the trade, state media reported.
China has repeatedly called on museums in Western countries to return artefacts taken by European and American archaeologists and adventurers, often crudely hacked out of caves and tombs.
Mr Shan Jixiang, director of the State Administration of Cultural Heritage, called on the United States to sign a memorandum of understanding with China to speed up cooperation in preventing relics’ theft and illegal trade.
‘Among other countries, we want most to sign such an agreement with the US. We have worked on it for more than four years but the process has been slow recently,’ the China Daily quoted Mr Shan as saying on Wednesday.
Mr Shan said signing an MOU had been supported by American archaeologists and scholars, but ‘influential museum directors and collectors’ had been against it.
They had ‘held the incorrect view that these Chinese cultural properties in the US have become part of American culture because they were there for a long time,’ Mr Shan said.
He said they should ‘come and see how invaluable murals were cruelly cut into pieces and taken away, and how ancient tombs were raided’.
Demand for Chinese art has soared among international collectors in recent years, with auctions of both modern and ancient artefacts achieving record sales.
But China has a mixed record on protecting its cultural relics. During the chaos of the 1966-76 Cultural Revolution, many priceless artefacts that were not taken to Taiwan at the end of the civil war in 1949 were destroyed by Mao Zedong’s Red Guards. -- REUTERS
Dollar Hits 5-day Low Against Yen, Slightly Off New Record Low Versus Euro [EUR/USD]
February 27, 2008
Extending yesterday's downtrend, the US dollar hit a 5-day low against the yen in early Asian trading on Wednesday. On the other hand, the dollar traded slightly higher against its European counterparts during this time.
The dollar plunged to a fresh record low against the euro yesterday after disappointed consumer confidence and house prices data increased speculation that the world's largest economy has slipped into recession. The dollar also declined against the other major currencies.
The US Conference Board reported that its consumer confidence index fell much more than expected in February, dropping to 75.0, from a downwardly revised 87.3 in January. Analysts were expecting the index to drop 82.0 this month.
House prices in U.S. fell 9.1% on year in December and were down 2.1% compared to the previous month. The monthly decline exceeded analysts' expectations of a 1.5% drop from November to December.
Earlier yesterday, the U.S. Labor Department said its producer price index rose 1.0% in January following a 0.3% decrease in December. Economists had been expecting a more modest increase of about 0.3% compared to the 0.1% decrease originally reported for the previous month. The faster than expected wholesale price growth is likely to add to recent concerns about the outlook for inflation and the possibility that the economy is headed for a period of stagflation.
The dollar reversed its direction against the euro after hitting a new record low of 1.5046 at about 5:20 pm ET Tuesday. The dollar reached 1.4981 per euro by about 7:20 pm ET, compared to yesterday's New York session close of 1.4972.
Apart from the dollar, the euro surged against most other majors yesterday amid an unexpected climb in German IFO business climate data. The Munich-based IFO research institute reported that the German business climate index unexpectedly rose in February, climbing to 104.1 from 103.4 in January. Economists expected the reading to decline to 102.9.
In early Asian trading on Wednesday, the dollar strengthened slightly against the pound. At about 9:35 pm ET, the dollar reached a high of 1.9842 per pound, moving up from a 25-day low of 1.9893 hit at 5:20 pm ET Tuesday. The pound-dollar pair closed yesterday's deals at 1.9873.
The Bank of England Deputy Governor Rachel Lomax hinted yesterday that the outlook for the UK economy looks very different now from a year ago, with inflation projected to rise sharply in coming months. Taking note of some powerful global forces in play in financial markets, in commodity markets and in the world's largest economies, the BoE official stated that their impact on the UK economy is “highly uncertain”.
After hitting a new record low of 1.0705 at 5:20 pm ET Tuesday, the dollar rebounded against the Swiss currency. The dollar-franc pair reached 1.0763 by about 7:30 pm ET, compared to yesterday's New York session close of 1.0755.
Against the Aussie, the greenback slumped to a new multi-month of 0.9354 in early Asian deals on Wednesday. The aussie-greenback pair closed yesterday's deals at 0.9338.
The US currency also plummeted to a new record low of 0.8183 versus its New Zealand counterpart by about 5:45 pm ET Tuesday. But the greenback bounced back thereafter and hit 0.8125 at 9:00 pm ET, compared to yesterday's close of 0.8172.
Statistics New Zealand reported today that the number of building consents authorized in January 2008 declined 7.3% from the same period last year. The agency said that 1,743 new dwelling unit consents were authorized last month, a decline of 137 from January 2007. Consents for new apartments fell by 16 units to 203.
On the other hand, the US currency largely bounced between 0.9802 and 0.9822 against the Canadian dollar during early Asian trading today. The greenback-loonie pair, which touched a 2-month low of 0.9781 at 2:45 pm ET yesterday, strengthened slightly thereafter and closed the day's deals at 0.9806.
The loonie climbed against the greenback yesterday, bolstered by rising commodities prices and speculation that Canada will maintain its interest rate advantage over the US for the foreseeable future. Crude oil soared to another record close on Tuesday in U.S. trading.
The US Federal Reserve Vice-Chairman Donald Kohn spoke about economy Tuesday, discussing the effects of “continued sizable increases in the prices of food, energy, and other commodities” and their impact on rising inflation. Despite his cautious guidance that growth will pick up and inflation will decline, Kohn acknowledged that there are risks to this forecast. Kohn attempted to soothe worried financial markets, affirming a now common statement from Federal Reserve Chairman Ben Bernanke.
German import price index, GfK consumer confidence survey, Euro-zone M3 money supply and the British Q4 GDP are expected to drive deals in the upcoming European session.
The US durable goods orders and the existing home sales for January have been slated for release in the New York session. However, investors keenly await Fed Chairman Ben Bernanke's testimony before the House Financial Services Committee on the state of the U.S. economy, which is scheduled for 10:00 am ET.
Why Washington’s rescue cannot end crisis story
Don't invest in economist's gloomy forecasts
February 20, 2008
Q. I have read some columns by Paul Krugman in the New York Times and elsewhere. He seems to be really down on the U.S. economy.
A. Krugman is an economist at Princeton University. He has been pessimistic about the U.S. economy for a long, long time.
Krugman holds the distinction of being the most partisan columnist in the country for liberals (Ann Coulter holds the distinction on the conservative side). This comes from an analysis by www.lyinginponds.com , which examined the columns of various writers and found that Krugman’s contained 603 negative comments about Republicans versus just 31 positive comments (a 20-to-1 ratio). Coulter made 463 negative comments about Democrats and only 10 positive comments (a 46-to-1 ratio).
Krugman has predicted a recession nine times during the past seven years of the Bush administration, according to an analysis done by University of Michigan economics and finance professor Mark Perry.
Here are some of the quotes Perry found in Krugman columns:
• “We have a sluggish economy, which is, for all practical purposes, in recession ...” – Paul Krugman, May 2003
• “An oil-driven recession does not look at all far-fetched.” – Paul Krugman, May 2004
• “A mild form of stagflation – rising inflation in an economy still well short of full employment – has already arrived.” – Paul Krugman, April 2005
• “If housing prices actually started falling, we’d be looking at an economy pushed right back into recession. That’s why it’s so ominous to see signs that America’s housing market ... is approaching the final, feverish stages of a speculative bubble.” – Paul Krugman, May 2005
• “But based on what we know now, there’s an economic slowdown coming.” – Paul Krugman, August 2006
• “This kind of confusion about what’s going on is what typically happens when the economy is at a turning point, when an economic expansion is about to turn into a recession.” – Paul Krugman, December 2006
• “Right now, statistical models ... give roughly even odds that we’re about to experience a formal recession. ... The odds are very good – maybe 2-to-1 – that 2007 will be a very tough year.” – Paul Krugman, December 2006.
Eventually, Krugman may be correct in a recession call, just as a stopped clock tells the correct time a small portion of
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Eric Tyson is the author of the best-sellers “Investing for Dummies” and “Personal Finance for Dummies” (Wiley). This Investors’ Guide column is distributed through King Features Syndicate Inc. You may write to Tyson at eric@tyson.com.
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Paul Krugman On Housing
February 27, 2008
Paul Krugman said the housing slump in the US could take up to two years to work through, and that up to 20 million mortgages could be underwater if house prices decline by 30% between now and 2010 – which Krugman believes could well occur.
Housing is illiquid and people are reluctant to sell, factors which will prolong the pain. In contrast, stock collapses tend to be short and violent, points out Krugman. Political considerations could also draw out the process, such as freezing foreclosures, or bailing out homebuyers. It took six years for the South California housing bubble to work itself out in the early 1980s, said Krugman, who believes the national housing bubble of recent years is much worse. He noted that real estate prices in California had given up all their gains by the end of the recession. “The recession in the US could be L-shaped or U-shaped, but it won’t be V-shaped like the Asian financial crisis,” said Krugman, “because the US seems to intent on adopting some of the same strategies as Japan adopted in the 1990s.” In other words, rather than permit a savage purging of the system, the policymakers might decide to ‘buy time’ rather than solve the problem. The housing bubble inflated to historically unprecedented proportions between 2004 and 2007, aided by securitisation and collateralised debt obligation (CDO) techniques, said Krugman.
A common ratio of judging the severity of housing bubbles is the price:rent ratio, which is the average cost of ownership divided by the rental income the house would fetch as a buy-to-let property. The higher the figure, the worse the bubble. At its peak, the price-to-rent figure was 1.5 in Southern California. In the national market in 2005, it was 2.3, said Krugman. “The inevitable collapse of the housing bubble has lead to the worst outlook in the housing market since the Great Depression,” said Krugman, pointing out that housing starts have collapsed to their lowest level since 1991.
The housing market was seriously weakened by the sale of sub-standard mortgages, encouraged by securitisation and CDO techniques. Nobody knows the final bill, but Krugman guesses banks may have lost up to US$1 trillion on such products. The decline in house prices may wipe US$8 trillion off GDP, and much of that will be financed by the financial system (the lender) rather than the borrower, estimates Krugman.
Banks do not appear to be in fatal trouble, says Krugman. But stress in the system is showing up in the shadow banking system, where new institutions have adopted banking functions, such as extending credit, but away from the sharp eye of the regulator. Krugman says that auction rate securities are a good example of how the stress can appear in obscure but important parts of the financial system.
Auction rate securities, with their weekly auctions, appeared to offer liquidity and high yields to investors, but the market froze when investors panicked and headed simultaneously for the exits. As a result, the Metropolitan Museum of Art in New York and certain student loan bodies have seen the rates they are paying on their loans shoot up. Such crises have led to a wave of bankruptcies of shadow banking institutions, which Krugman described as a “stealth banking crisis”.
The only reason the US did not sink into recession last year is because of the export recovery off the back of the drastically weaker dollar, says Krugman. However, further credit bombs will be exploding for a while yet, for example in the commercial real estate market, he estimates. Krugman was sceptical that interest rate cuts will help get the economy back on track. The Federal Reserve has far less ammunition to cut rates than in previous recessions. The Fed started cutting rates when they were only 5.5% last year. In the last two economic crises, rates were around 8% before the Fed started to cut rates. “The problem is that the economic situation looks worse this time, but there is less scope for interest rates to be cut,” he comments. To cut rates by the same extent as in the last recession, estimates Krugman, rates would have to fall to zero – the same level as they were in Japan for many years after the bubble started to collapse in 1990. That leaves the Bush administration’s tax rebate checks, being posted to every citizen to stimulate the economy. But Krugman believes this cash did not go to the poorest members of society, who would be sure to spend it. Better off people will simply save it, he estimates.
Krugman believes it would have been wiser to spend the money on food stamps and more generous unemployment benefits. One option could be to carry out a huge infrastructure building programme, which would be another similarity to Japan. But if the Republican Party wins the next election with Senator John McCain becoming president, Krugman believes it is unlikely this would happen.
Recent US housing figures reported for January 2008:
- Median existing-home price was US$201,100 in January, down 4.6% from a year ago -Total housing inventory rose 5.5%.
- At the end of January, existing homes available for sale were 4.19 million, a 10.3-month supply at the current sales pace (up from a 9.7-month supply in December).
- Single-family home sold at an annual rate of 4.34 million in January. This is 22.4% below January 2007.
- Existing condominium and co-op sales dropped 6.5%, and are 30.2% below the year ago levels. The median existing condo price (US$220,400) is only 1.0% lower than January 2007.
- Existing-home sales in the Northeast fell 3.6 percent to an annual rate of 810,000 in January, and are 25.7 percent below a year ago. The median price in the Northeast was US$270,800, up 3.1 percent from January 2007.
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Paul Robin Krugman is a liberal professor of economics and international affairs at Princeton University. He is also an author and a columnist for The New York Times, writing a twice-weekly op-ed for the newspaper since 2000.
Krugman is well known in academia for his work in trade theory, which provides a model in which firms and countries produce and trade because of economies of scale and for his textbook explanations of currency crises and New Trade Theory. He was a critic of the New Economy of the late 1990s. Krugman also criticized the fixed exchange rates of the island Asia nations and Thailand before the 1997 Asian financial crisis, and of investors such as LTCM that relied on the fixed rates just before the 1998 Russian financial crisis. Krugman is generally considered a neo-Keynesian, with his views outlined in his books such as Peddling Prosperity. His International Economics: Theory and Policy (currently in its seventh edition) is a standard textbook on international economics without calculus. In 1991 he was awarded the John Bates Clark medal by the American Economic Association. He is among the 50 best economists in the world according to IDEAS/RePEc.
Mainland firms turn to foreign cash
Developers led by China Resources are forming private equity funds as credit tightens
Peggy Sito
Feb 27, 2008
Mainland property developers are setting up real estate fund management units to attract overseas capital as the central government tightens lending.
Taking advantage of their expertise in the domestic market, mainland companies have decided to compete with international investment banks such as Morgan Stanley and ING by forming their own private equity fund management arms.
State-owned conglomerate China Resources Holdings is blazing the path for its domestic peers. It has formed a unit, Harvest Capital Partners, to run two private equity real estate funds with a combined size of about US$1 billion, encompassing the Greater China market, including Hong Kong and Macau.
China Overseas Holdings, a unit of the country’s construction ministry, also plans to set up a private equity real estate fund management unit by the middle of this year.
Last month, Shenzhen developer Gemdale Corp said it would form a joint venture with Swiss banking giant UBS to develop projects on the mainland, which is also seen as a way of drawing international funding.
Property consultants and analysts believe more mainland companies will follow suit as credit tightens.
“Most of the sizeable companies have put this idea on their agenda,” said Citic Securities director Wang Deyong.
“Developers usually borrow 70 per cent of overall development costs from banks. Developers now have to think of other funding methods as banks are tightening lending.”
Mainland banks tightened property-related loans to cool the overheating market last year and analysts expect banks will continue to face stricter controls from Beijing on approving property lending this year.
“I believe that mainland companies will seek to attract capital from other sources to drive their development programmes, especially if debt remains less available,” said David Watt, the chairman of DTZ’s North Asia division.
DTZ is a placement agent for Harvest Capital’s real estate fund.
Harvest Capital chief executive Ren Rong said the unit was formed as “supplementary to the development capacity of China Resources group.”
While saying that the group was not a direct result of the tightening credit environment, Mr Ren said: “It is a natural way for developers to maximise their development capacity.
“We are a step ahead [among other developers].”
Mr Ren said the company, formed in May 2006, had launched two overseas funds, including one focused on Middle East cash. It has invested in seven projects in Beijing, Chongqing, Guiyang and Hong Kong, involving 70 per cent of the raised fund. It will announce more deals in Tianjin and Wuhan shortly.
Among the projects, only one is related to China Resources Holdings.
Mr Ren expects to see a lot of co-operation with China Resources Land and China Vanke - two real estate arms of China Resources Holdings. “Provided, of course, that those projects would bring good returns to the funds,” he said.
This private equity fund approach of rasing funds is now being adopted by leading developer China Overseas.
Wu Jianbin, the head of China Overseas Finance Investment, a unit of China Overseas, said the company would form a real estate fund to speed up the group’s investments on the mainland.
“It will be the first task of China Overseas Finance Investment,” Mr Wu said, adding that the fund would be launched in the coming months.
China Overseas Finance Investment was formed last year as a vehicle to seek opportunities in the global investment and finance markets for the group - including listed units China Overseas Land & Investment and China State Construction International - according to Mr Wu, who is also the executive director of China Overseas Land & Investment.
He said overseas investors, especially from the Middle East, expressed strong interest in the mainland property market.
Jones Lang LaSalle regional director Lau Chun-kong said the trend of setting up fund management units showed the strong confidence of developers in the mainland market.
“No company would think of such funding method for expansion amid a slowing market,” said Mr Lau.
Tentative signs of an improvement in global liquidity are starting to emerge, says David Shairp, global strategist at JPMorgan Asset Management.
He says that JPMAM’s gauge of global liquidity, which takes in the US monetary base and the Federal Reserve’s custody holdings on behalf of other central banks, has picked up significantly in the past few weeks.
The surge in global liquidity has been driven by increased central bank holdings of bonds, he says, which may be because they want to stop their currencies appreciating.
“As with any good murder mystery story, this is a classic whodunnit,” Mr Shairp says.
“It is less likely to be the Chinese authorities, given the recent increased pace of currency appreciation, but rather Opec central banks, which have probably benefited from the rise in oil prices from the end of January.”
He believes a continuation of this trend would be encouraging as rising liquidity could help reduce currency market volatility, which would be consistent with a tentative rebuilding of risk appetite.
“Recent equity flow data have also pointed at this, with signs that global fund managers have been dipping tentative toes in markets and buying some selected cyclical sectors as a means of adding risk into portfolios.
“These are baby steps, but any further rise in global liquidity could speed up this process.”
Dollar sinks to low against euro
By Matt Moore
Feb. 27, 2008
The dollar sank to a new low against the euro after the chairman of the Federal Reserve Bank said Wednesday that the U.S. would encounter more sluggish economic activity in the coming weeks and months.
"The economic situation has become distinctly less favorable" since the summer, the Fed chief told the House Financial Services Committee, a sign markets took to be evidence of yet more interest rate cuts by the U.S. central bank which pushed the euro higher.
Lower interest rates can jump-start a nation's economy, but may weigh on its currency as traders transfer funds to countries where they can earn higher returns.
Shortly after his testimony, the euro surged to a record $1.5105 before falling back slightly to $1.5043 in afternoon trading, from the $1.4967 it bought in late trading Tuesday in New York.
The surging euro makes it more expensive for Americans visiting Europe, but makes U.S. shopping more appealing to Europeans.
Since Bernanke's last such assessment last summer, the housing slump has worsened, credit problems have intensified and the job market has deteriorated. Bernanke said that the confluence of these factors has turned people and businesses alike toward a more cautious attitude toward spending and investment.
This, he said, has further weakened the economy.
That is in contrast to Europe where, despite the roaring euro, growth is still on track, albeit slightly slower, and markets are optimistic that should the U.S. go into recession, the continent would be able to weather any such slowdowns.
The European Central Bank, which has left its own rates unchanged since last summer, is expected to keep them at 4 percent when it meets next week.
"The U.S. economy is still in a weak period and we cannot estimate how long that is going to go on and the market is counting on the Fed lowering the interest rates even further and on the fact that the ECB is going to keep them where they are," Christoph Schmidt, an analyst with N.M. Fleischhacker Trading Bank in Frankfurt told AP Television News.
He said that the divergent interest rates were "good for the euro and bad for the dollar."
In other trading, the British pound soared as high as $1.9971 before falling back to $1.9895, up from $1.9862 late Tuesday. The dollar fell to 106.30 Japanese yen from 107.26 yen.
Along with the rise in the British pound, which is nearing $2 again, the surging euro will not be kind to Americans visiting Europe - they will have to pay more for hotel rooms in Rome, entrance fees at the Louvre and chocolates in Belgium.
On the other hand, the stronger euro makes shopping trips to the U.S. more appealing to Europeans.
A higher euro also makes goods from the euro-zone more expensive for customers abroad, or cuts into manufacturers' profits if they try to keep the U.S. dollar price of products constant.
In Paris, France's budget minister Eric Woerth said that the "very high" euro was "a handicap for our exports."
In Germany, the record level is not expected to have any lasting negative effect on the country's economy, the chief economist of Germany's Chambers of Commerce, said.
"We can't yet speak of a threshold of pain for German exporters," Volker Treier told Dow Jones Newswires. The levels are a "currently rather temporary deflection" which aren't yet hurting Germany's economy.
Howard Archer, the chief British and European economist for Global Insight, said the euro's strength is not likely to weaken anytime soon, given that any "worsening in U.S. interest-rate differentials dilutes a key support for the dollar."
He also said that weaker growth prospects in the U.S., coupled with its deficit will "exert a significant downward influence" in the long term and cause some countries to shift more of their reserves from dollars to other currencies, including the euro.
"In addition, there is the very real possibility that several countries could switch a proportion of their foreign currency reserves out of U.S. dollars over time," he said.
The euro's latest march upward was buoyed by a string of disappointing economic reports out of the U.S. on Tuesday, including the New York-based Conference Board's Consumer Confidence Index, which fell to 75 in February from 87.3 in January, its lowest level since February 2003.
Meanwhile, the U.S. Labor Department reported that wholesale inflation rose by 1 percent in January - more than analysts estimated - on rising oil and food costs. Finally, Standard & Poor's reported that U.S. home prices fell 8.9 percent in the last three months of 2007 from a year earlier, its sharpest drop ever.
COMMENTARY
The 'short' answer to Ascott price jump
Astonishing 5 million shares were bought in - offering important lessons for the market
By R SIVANITHY
February 27, 2008
ON MONDAY, the shares of CapitaLand's service residence unit Ascott Group jumped 11 cents to $1.84. This may not seem remarkable, since the Straits Times Index rose 16 points that day to 3,064.
But when you consider that CapitaLand is looking to buy out all shareholders and delist Ascott at $1.73 a share, that there are no competing offers on the table, that the entire deal is for all intents and purposes uncontested and will proceed as planned, you have to wonder: why the sudden jump?
The answer lies in that most opaque of market segments, the Singapore Exchange's (SGX's) buying-in market. This is the part of the market in which SGX forcibly covers naked short-selling positions undertaken four trading days earlier at progressively higher prices until all positions are filled.
On Monday, an astonishing five million Ascott shares were bought in at between $1.75 and $2.01, a huge amount that clearly led to the spike in the ready market.
In other words, this was a case of the tail wagging the dog - intense upward pressure in a secondary portion of the market led to a spillover rise in the primary market.
Working backwards by four trading days from Monday, we find the five million short sale was done last Tuesday, Feb 19, when an unusually large 10.1 million Ascott shares traded at $1.73-1.74.
Assuming all were sold at $1.73 and the buying-in was at the average of $1.75-$2.01 or $1.88, the short-sellers would have suffered a loss of about 15 cents a share or $750,000 in total - very painful.
Sophisticated player
The obvious question to ask is: Since there was no apparent reason to expect Ascott's shares to fall significantly below $1.73, who in their right mind would have undertaken such a large, naked short sale?
The size suggests a sophisticated player with considerable financial clout, since very few retail players would have the guts or money to take on that kind of risk. Still, why take such a gamble when the odds were heavily against winning?
The close proximity to the closure date of the offer, which was yesterday, suggests one possibility: Were the short sellers gambling on CapitaLand failing to obtain the necessary percentage it needed to accomplish the takeover- cum-delisting?
If so, the unknown parties miscalculated badly on two counts. First, any post-takeover fall would only have occurred after Tuesday and not Monday, so the naked short should have been done last Wednesday, not Tuesday.
Second, the odds were overwhelmingly in favour of CapitaLand succeeding in the first place, so the chances of the deal being scuttled were remote to say the least.
We'll probably never know who the shorts were or why they did what they did. But the Ascott incident does highlight the importance of the buying-in market in daily proceedings, which in turn raises questions of transparency and fairness.
Making fast bucks
Some 3.7 million Ascott shares were done on Monday in the ready market at prices up to $1.84. The buyers were most likely shareholders who first sold into the buying-in market and were looking to immediately replenish their shares in the ready market at presumably lower prices and therefore make very fast bucks in the process.
The point to note is this: If there was good money to be made as in the case of Ascott's buying-in, then perhaps there should have been full disclosure of the amounts to be bought at a time early enough to give brokers the chance to alert clients who may be holding Ascott shares.
The same applies to all buying-in exercises - dealers have long complained that when buying-in starts at 11.30am every day, there is a scramble to contact clients because nobody knows what needs to be bought-in beforehand. Not only are buying-in names not released in advance, neither are quantities.
Buying-in names appear on the dot at 11.30am with some - but not all - quantities, and according to anecdotal evidence from dealers, all hell breaks loose thereafter as everyone tries to beat everyone else to sell in the buying-in market.
Perhaps if SGX adopts the Malaysian practice of releasing the names and amounts of stocks to be bought-in a half-hour before the market opens, trading in this segment can be more transparent and orderly.
Oil Spikes Above $102 a Barrel
February 27, 2008
Crude prices spiked above $102 a barrel for the first time Wednesday ahead of a closely watched oil inventory report and as the dollar's continued slide drove more money into energy futures.
The report by the Energy Department's Energy Information Administration, due out later in the morning, was expected to show the nation's crude oil stocks rose last week by 2.4 million barrels, marking the seventh straight week of gains. Prices could move quickly if that forecast proves far from the mark.
The dollar slumped to a new low against the euro, reaching $1.51 and pushing investors to oil and other commodities as a hedge against inflation. For the time being, investors are ignoring the plentiful supplies of oil.
That helped drive the price for light, sweet crude for April delivery up as high as $102.08 a barrel in electronic trading on the New York Mercantile Exchange before slipping back to $100.83, or 5 cents lower.
The contract on Tuesday jumped $1.65 to settle at $100.88 a barrel, a record close.
Negative economic news continued Wednesday when the Commerce Department reported that new factory orders for big-ticket manufactured goods tumbled 5.3 percent in January. The worse-than-expected drop was the indicator's biggest decline in five months.
"Crude has cracked through the $100 level again and that's driven by financial investors moving money into commodities markets," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "We are therefore seeing these strong prices that have really little to do with oil market fundamentals," he said.
The Schork Report, edited by Stephen Schork, also attributed part of the climb to the weakness of the U.S. currency, noting, "outside of the dollar woes, there is no other reasonable driver behind this move."
In London, Brent crude was flat at $99.47 a barrel on the ICE Futures exchange, below the intraday record of $100.30 a barrel set earlier in the session.
The EIA report was also expected to show gasoline inventories rose by 400,000 barrels while supplies of distillates, which include heating oil and diesel, fell by 1.8 million barrels last week, according to a Dow Jones Newswires poll of analysts.
In other Nymex trading Wednesday, heating oil futures fell nearly 2 cents to trade at $2.8059, while gasoline futures fell by 2.57 cents to $2.5248.
Natural gas futures lost more than 10 cents, fetching $9.097 per 1,000 cubic feet.
Russia Quietly Starts to Shift Its Oil Trade Into Rubles
By ANDREW E. KRAMER
February 27, 2008
MOSCOW — Americans surely found little to celebrate when the price of oil settled above $100 a barrel last week.
They could, though, be thankful that oil is still priced in dollars, making the milestone of triple-digit oil prices noteworthy at all.
Russia, the world’s second-largest oil-exporting nation after Saudi Arabia, has been quietly preparing to switch trading in Russian Ural Blend oil, the country’s primary export, to the ruble from the dollar. Industry analysts and officials, however, say that this change, if it comes, is still some time off.
The Russian effort began modestly this month, with trading in refined products for the domestic market.
Still, the effort to squeeze the dollar out of Russian oil sales is yet another project notable for swagger and ambition by the Kremlin, which has already wielded its energy wealth to assert influence in Eastern Europe and former Soviet states.
“They are serious,” said Yaroslav Lissovolik, the chief economist at Deutsche Bank in Moscow. “This is something they are giving priority to.”
Oil trading is nearly always denominated in dollars. When Middle Eastern oil is sold to Asia, for example, the price is set in dollars.
Similarly, Russia’s large trade with Western Europe and the former Soviet states in crude oil and natural gas is conducted in dollar-denominated contracts. Gazprom, the natural gas monopoly, set the price of gas in Ukraine at $179 per 1,000 cubic meters in 2008, for example. There are no proposals yet to switch gas pricing away from dollars.
As a result, companies and countries that buy petroleum products are encouraged to hold dollar reserves to pay for their supplies, coincidentally helping the American economy support its trade deficit.
Russia would like to change this practice, at least among its customers, as a means of elevating the importance of the ruble, a new source of national pride after gaining 30 percent against the dollar during the current oil boom.
In a speech on economic policy this month, Dmitri A. Medvedev, a deputy prime minister and the likely successor to President Vladimir V. Putin in elections on March 2, said Russia should seize opportunities created by the weak dollar.
“Today, the global economy is going through uneasy times,” Mr. Medvedev said. “The role of the key reserve currencies is under review. And we must take advantage of it.” He asserted that “the ruble will de facto become one of the regional reserve currencies.”
Other oil-exporting countries are also chafing at dealing in the weakening dollar.
Since 2005, Iran, the world’s fourth-largest oil exporter, has tried to open a commodity exchange to trade oil in currencies other than the dollar. The Iranian ambassador to Russia said Iran might choose rubles to free his country from “dollar slavery.”
To be sure, some economists have dismissed the project as improbable, given the exotic nature of a security — oil futures contracts denominated in rubles — that would blend currency risk with the dollar-based global oil market.
Ruble-denominated futures contracts for Ural Blend, the main Russian grade, would be attractive only if the dollar continues to depreciate, said Vitaly Y. Yermakov, research director for Russian and Caspian energy at Cambridge Energy Research Associates.
“There is a big distance between the desire to trade commodities for rubles and the ability to do so,” he said.
All this has not stopped the Kremlin from trying.
In a sign of the government’s seriousness, a new glass-and-marble high-rise home for a ruble-denominated commodity exchange is rising this spring in a prestigious district in St. Petersburg, Russia’s second-largest city after Moscow. The exchange will occupy three floors of the 16-story tower on Vasilievsky Island, one of the islands that make up the historic city center.
The director of the St. Petersburg exchange, Viktor V. Nikolayev, said that the intention was to move slowly and gain market acceptance; the government will not strong-arm sellers or buyers onto the exchange, even in an industry dominated by the state.
Web-based trading for refined products like gasoline or diesel is being introduced in three phases for domestic customers, beginning with government buyers like the Russian navy or municipal bus companies. Private brokers will be allowed to trade in March; futures contracts will be introduced in April.
Mr. Nikolayev said no timeline had been established for trading for export on the exchange, which also handles grain, sugar, mineral fertilizer, cement and esoteric financial products like Russian government beef and pork import quotas — all in rubles.
“We are in Russia, and the currency is rubles, not euros, not dollars,” he said. “We don’t want to depend on the rise or fall of the dollar.”
“We will trade in rubles, to strengthen the ruble,” he said.
WARRANT WATCH
Yangzijiang call to be issued as shipyard faces pressures
GOH ENG YEOW
27 February 2008
SHIPYARDS seem to have lost their lustre, despite producing record-breaking, full-year profits and boasting fat order books that should keep them occupied for years.
One good example of a shipyard falling out of investors’ favour is China-based Yangzijiang Shipbuilding.
It reported on Monday a full-year profit of 869.5 million yuan (S$171.03 million), well above analysts’ expectations. Instead of getting a fillip from investors, however, its share price fell yesterday by two cents to $1.21 on a volume of 67.6 million shares.
Overall, the Singapore market made modest gains yesterday.
The reason for investors’ cagey-ness, according to DBS Vickers, is the more challenging environment that shipyards face this year.
Order books at shipyards are strong, it noted. Yangzijiang’s book, in particular, has grown from US$5.5 billion to US$7 billion (S$7.73 billion to S$9.84 billion) in the past three months alone.
“But margins have peaked and forward margins will be impacted by rising steel and labour costs, and the strengthening of the yuan against the greenback, given that the bulk of the contracts are in US dollars,” DBS Vickers said.
These have placed Yangzijiang at a greater risk because its vessels will be delivered only up to five years from now, even though the contracts are priced at current market rates.
Traders, however, can look forward to big swings in the warrant price, as the underlying mother share comes under pressure from concerns over the steel and currency risks Yangzijiang faces.
To ensure that traders get plenty of warrant choices, Deutsche Bank is launching a fresh call on Yangzijiang on Friday. This will give holders the option to buy into the share at $1.40 until August.
Yesterday, the most actively traded Yangzijang warrant was a call issued by Merrill Lynch that fell 0.5 cents to 16 cents, with a volume of 1.56 million units.
Traders need to use two warrants and pay a strike price of $1.30 to get one Yangzijiang share. The call expires in July.
China shipyard warns of sector slump
Dalian Shipbuilding braces for slowing orders on fears of US recession
February 27, 2008
(DALIAN, China) - China's No 1 shipyard expects rosier 2008 earnings after having secured better prices, but warned yesterday of slowing orders for new ships as a United States economic recession threatens to crimp global trade.
Going south?: The world's No 4 builder of ocean-faring vessels, is keeping a wary eye on an industry that China increasingly dominates. But it expects earnings improvement after shifting client focus.
Dalian Shipbuilding Industry Co Ltd, the world's No 4 builder of ocean-faring vessels, is keeping a wary eye on an industry that China increasingly dominates, vice-president Zhang Tao said in an interview.
It hopes to ride out any downturn by focusing on serving state-backed Chinese clients and focusing more on the oil tankers and mid-sized container ships it specialises in, he added.
'We're keeping a close eye on whether the market has started to turn south after the boom of past years,' Mr Zhang said. 'We have our running shoes ready. When the bear comes, we will run faster than our rivals. Last year, we had some low-priced orders to fill. But contracts for this year's production were all secured at good prices,' he said at his offices in the frigid north-eastern port city of Dalian.
To be sure, China's shipbuilders are enjoying their best years ever with orders queuing up to 2009/2010, and heavy demand and capacity constraints at shipyards propping up ship prices.
Hong Kong-listed Guangzhou Shipyard said recently that it expected net profit to triple in 2007.
But fears of a US slump have raised longer-term concerns and walloped shipbuilders' shares, sending Guangzhou Shipyard 36 per cent lower in the past three months and hurting rivals JES International and Yangzijiang Shipbuilding .
And the pace of business was definitely decelerating. Orders this year are unlikely to match the record Dalian Shipbuilding set in 2007, said Mr Zhang, without disclosing its order book. And cancellations had begun to emerge, he added.
Clarkson Research estimated the firm kept orders on hand for 119 vessels with a total capacity of 15.28 million deadweight tonnes (dwt) as of the end of 2007, keeping it busy until 2011.
Flourishing international trade had driven strong demand for ships of all shapes and sizes in past years. But analysts say that demand could slow amid a decelerating US economy, while capacity is expanding not just in China but also in South Korea, India and Vietnam.
Dalian Shipbuilding plays a major role in Beijing's plan to hoist China atop the global shipbuilding sector. The country won over 40 per cent of the world's ship orders in 2007, putting it on track to become the world's largest shipbuilding nation by 2011.
That growth has triggered other problems: the domestic market now faced severe shortages of components, engines, talent and management. More generally, shipbuilders are grappling with the rising cost of raw materials such as steel.
No wonder Mr Zhang is taking a cautious approach.
'A sharp drop in ship prices is unlikely this year, but ship turnover should be lower than last year,' said the executive who joined the firm in 1988, when the shipping market was just as tough.
Dalian Shipbuilding has now started to see termination of shipbuilding contracts, he added without elaborating.
Analysts say that Chinese shipbuilding technology still seriously lags the more experienced Koreans. But Mr Zhang said that his firm could build a VLCC (very large crude carrier) in 11 months, similar to international rivals.
As a core unit of the China Shipbuilding Industry Corp (CSIC), the country's No 2 state ship construction group, it delivered 32 vessels totalling 3.1 million dwt, worth 15.26 billion yuan (S$2.98 billion), in 2007, Mr Zhang said.
The shipyard, which cranks out mammoth oil tankers and container vessels, plans to deliver 36 vessels with a total of 3.19 million dwt of capacity this year.
'The shipbuilding market was also very bad from 1997 to 2002 because of the Asian financial crisis. The market was dead and no new orders surfaced,' he said.
An increasing number of Chinese shipyards are hatching plans to tap equity markets, to fund expansions. Dalian Shipbuilding's state parent is considering an initial public offering to raise up to US$928 million, state media reported last year.
CSIC plans to fold 16 units, including Dalian Shipbuilding, into one giant listing vehicle and float it either in Shanghai or Shenzhen, newspapers said. -- Reuters
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