BEIJING, March 9 - China’s stock market may have come off the boil but hot money is still likely to be attracted by the country’s appreciating currency and comparatively high interest rates, senior officials said.
Last year China abandoned its strategy of keeping yuan interest rates below those of the dollar in an attempt to cool down stock and property markets that were sucking in money.
But the weak outlook for other markets because of the U.S. subprime crisis, combined with aggressive U.S. rate cuts, have made Chinese markets attractive again.
“Though China’s stock market also suffered some losses due to the global turbulence, I think people in the market, by making comparisons, will prefer to put their money in places where the impact is relatively small,” said Sun Gongsheng, head of the Nanjing branches of the People’s Bank of China and the State Administration of Foreign Exchange .
China’s robust economic outlook also makes it attractive to international speculators, he told reporters on the sidelines of China’s National People’s Congress.
The central bank raised benchmark interest rates six times last year, which, together with other cooling policies, has brought the main stock index down 30 percent from its Oct. 16 peak of 6,124.
China’s foreign exchange reserves jumped by a record $61.6 billion in January to reach $1.59 trillion, renewing the debate on whether Beijing is attracting new flows of speculative money. The increase was twice as great as the combined inflows from the trade surplus and foreign direct investment in the month.
There is now about $500 billion of hot money in China, former statistics chief Li Deshui has estimated, citing unidentified research, according to state media on Saturday.
“Many new changes have happened recently on the global market. And Chinese stocks and property are still one of the few harbours for global capital,” Li said.
“We still haven’t dampened over-expectations on the yuan’s rise and have not effectively controlled large amounts of illegal hot money inflows,” Li told a meeting of the country’s top political consultants.
He called for the government to redouble its efforts to control short-term capital flows.
“Otherwise, our country’s international payments imbalance and excess liquidity will get worse, which will add more uncertainty to growth, push the economy to boil over and build up more inflationary pressures,” Li said.
WHILE most analysts provide invaluable advice to investors, there are some who are not only extremely sloppy in their work but do a disservice to the industry.
For example, take a recent report from CIMB on Hersing, the local franchise holder for property broker ERA and remittance agency Western Union.
In its report of Feb 27, CIMB downgraded the stock to ‘underperform’ and reduced its target price by more than half, from 79 cents a share to 36 cents. That day the stock closed at 52 cents apiece.
This was based on the weaker outlook for the property brokerage business and on ‘investors’ lower risk appetite and poor trading liquidity’. But the report also contained a couple of glaring errors, including a claim that Hersing had posted a pretax loss of $8.5 million on the remittance business and that it had declared a final dividend of only a cent.
Next day, Hersing shares fell.
On Feb 29, CIMB issued another report on the company saying: ‘In a recent discussion, Hersing clarified with us a number of things.’
This time CIMB said that it had ‘erroneously stated’ that Hersing had lost money on its remittance business and that even after stripping out the sale of 49 per cent of Western Union Global Network to its US parent on Oct 10 last year, the company had turned in pretax profits of $2.02 million for the second half of 2007 and $3.04 million for the full year.
CIMB then went on to add: ‘The business (remittance) remains healthy, and with the active participation of WU (Western Union), Hersing’s management expects the business to thrive in FY08, given an influx of blue-collar workers in Singapore on the back of the current construction boom.’
It also noted that Hersing had proposed a special dividend of three cents a share which, together with the final and interim dividend of one cent respectively, took the total dividends for the year to five cents.
CIMB, however, continued to maintain its ‘underperform’ rating on ‘unattractive valuations’ but set a new target price of 40 cents a share, saying that the impact of a weaker real estate brokerage business should be alleviated by growth in Hersing’s remittance and self-storage businesses.
There was not a single word of apology from CIMB despite the fact that Hersing’s release to Masnet had contained all the information of WU’s profitability and the special dividend.
What worries me more is that some investors could have dumped their holdings in Hersing on the basis of the earlier report. What recourse do they have?
For Hersing’s founder and controlling shareholder Harry Chua, the price decline appears to have provided an opportunity to pick up shares on the cheap. Over the last few days, he bought about 3.36 million shares from the open market and transferred another five million shares from his deemed interest holdings through Hong Leong Finance to his direct stake in Hersing.
Sometimes you also wonder how analysts set their price targets for a particular stock. Rarely do you see a price range. So precise are their forecasts that they are often a cause of astonishment to me and my colleagues.
On Jan 14, Kim Eng wrote a piece titled Trash to Treasure on Advance SCT’s business of recycling scrap copper to a reusable state. The analyst in question described the stock as ‘Immaculate collection at a bargain!’ on the basis that there was growing demand for the metal. It recommended a ‘buy’ with a target price of $1.97 a share when it was trading at 90 cents apiece.
After Advance issued its results for FY07, Kim Eng - noting that they were ‘highly disappointing’, with net earnings falling 47 per cent to $4.2 million compared with its earlier forecast of $20.9 million - set a new price target of 60 cents a share when they were trading on the market at around 41 cents apiece.
It also cut its forecasts for FY08 and FY09 by 55-60 per cent due to higher financing and conversion costs of copper and reduced output. Maintaining the ‘buy’ call, Kim Eng now sees the stock as an ‘opportunity to buy on weakness’.
So what happens to those who bought shares at prices higher than 60 cents, based on its earlier recommendation?
0050 GMT [Dow Jones] STOCK CALL: Bear Stearns downgrades Singapore Petroleum (S99.SG) to Peer-Perform from Outperform as share has risen 34.6% since hitting Jan. 24 low of S$5.20; says SPC shares now fairly valued. Raises 2008 year-end target price to S$7.10 from S$6.80 on earnings forecast changes, higher dividend yield assumption. Cuts 2008 forecast EPS 1.5% as expecting lower refining margins on-year, to be partly offset by increased upstream earnings expected from China blocks acquired late last year. Raises 2009-10 EPS forecasts 5.1%, 16.5% on higher upstream contributions, assumed lower tax rate of 13% vs previous 15%. Says now assumes 2008 dividend payout ratio at 60% vs previous 40%, marking "attractive" 2008E dividend yield of 8.6%. Share ended Friday up 0.6% at S$7.05. (LES)
[Dow Jones] Lower soyoil prices likely to drag down CPO futures, traders say. “CBOT soyoil prices ended limit-down Friday, they are limit-down again today during the electronic session,” says trader in Singapore; adds speculative selling to spill over to BMD CPO futures. CBOT May soyoil finished 200 points lower on Friday at 63.33 cents/pound. May trading further 200 points lower, limit-down, on e-CBOT at 61.33 cents/pound. “As of now, the CPO market is driven by bearish soyoil,” says trader in Kuala Lumpur; adds some fresh leads likely from Malaysian Palm Oil Board data on February production, end-month stocks, exports to be released at 0430 GMT. (SAM)
Malaysian Stock Index Plunges 7.8 Percent Amid Political Uncertainty After Election Shock
Monday March 10, 1:46 am ET
KUALA LUMPUR, Malaysia (AP) -- Malaysian stocks plunged Monday amid political uncertainty sparked by the ruling coalition's electoral losses over the weekend.
The Kuala Lumpur Composite Index was down 7.8 percent to 1,195.68 after Prime Minister Abdullah Ahmad Badawi's National Front lost its two-thirds parliamentary majority in Saturday's general elections.
Stocks of companies closely linked to the National Front faced selling pressure amid concerns about the election's impact on government projects and economic policies.
"In the near term, the increased uncertainty brought about by the shift in the political landscape is likely to be negative for sentiment and the stock market," Goldman Sachs said in a report.
The report added that government projects were likely to slow significantly for now, adding that there could also be delays in major economic policies including infrastructure spending.
The National Front held on to 63 percent of the 222 seats in Parliament, slumping from the 91 percent majority it won in 2004 elections. It also lost control of five of Malaysia's 13 states, including Selangor and Penang, the country's two most industrialized states.
* Resumption of outflows — With regional markets down 5% in a week, foreigners are again withdrawing money from Asian equity funds. According to EPFR Global, net outflows totaled US$1.1bn in the five days ended March 5. This is the biggest outflow in five weeks and 8% higher than the average weekly redemption from mid-Dec to late Feb. Year-to-date, net outflows add up to US$9.9bn, or 60% of the 2007 net inflows. Also, 94% of the inflow that came in since July is now under water.
* Redemptions are broad-based; Taiwan remains the winner — Unlike May/June 07 when outflows were mainly from China/Greater China and India funds, more fund categories have been suffering from redemptions this time round. That said, Taiwan funds continue to go against the tide, taking in the largest amount of new money. Taiwan has been the only market with a positive return YTD, compared with a 12% decline for the Asia ex region.
* Believe it or not, global funds less affected by widening credit loss concerns — YTD, net outflows from global equity funds have been just US$3.3bn, i.e. onethird of Asian fund outflows. Two possible explanations: first, Asia is over-valued, and second, high-beta markets are still high-beta markets. When investors become risk-averse amid uncertainties, Asia is not a place for them to park their money.
0901 GMT [Dow Jones] STOCK CALL: UOB KayHian cuts Synear (Z75.SG) target price to S$1.20 from S$2.65 after cutting 2008-09 earnings forecasts 13%, 20% respectively on risks of margin pressure, higher operating cost, lower sales volume due to new plants'' low utilization rates. Notes 4Q07 results disappointing, with turnover edging up 1.3% on-year, net profit declining 50.3% on-year, falling short of house’s, consensus forecasts. Notes sales hurt by product-mix changes due to government’s restriction on bulk sales of frozen dumplings; also, raw material price hikes trimmed gross margin to 32.2% in 2007 from 2006''s 33.6%. However, says "given Synear’s leadership in China’s frozen food segment, enlarged production capacity, expected improvement in the company’s financials from 2Q08 onwards and rosy industry prospects, we maintain our Buy call." Share down 8.6% at S$0.53. (LES)
China Trade Surplus Narrows as U.S. Demand Weakens
By Nipa Piboontanasawat and Li Yanping
March 10 (Bloomberg) -- China’s trade surplus dropped for the first time in almost a year as the worst blizzards in half a century disrupted shipments and U.S. demand weakened.
The gap narrowed 64 percent in February from a year earlier to $8.56 billion, the customs bureau said today on its Web site. The surplus was less than half the $22.5 billion median estimate of 14 economists surveyed by Bloomberg News.
Exports rose 6.5 percent, the slowest pace in almost six years, aiding government efforts to cool the world’s fastest- growing major economy. China’s surplus has caused tension with trading partners and threatens to stoke inflation already at an 11-year high by flooding the financial system with cash.
“The decline is due to weaker demand from overseas and the disruption from the snowstorms -- it’s too early to say that the surplus will keep slowing sharply,” said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong.
For the first two months combined, the surplus narrowed 29 percent to $28 billion from a year earlier. Imports increased 35.1 percent in February, the biggest gain in more than three years, on higher prices for commodities such as crude oil, iron ore and soy beans. In January, exports rose 26.6 percent and imports climbed 27.6 percent.
Accelerating Inflation
China’s producer prices, the cost of goods as they leave the factory, climbed 6.6 percent last month, the fastest pace in more than three years, the government said today. Baoshan Iron & Steel Co. is raising hot-rolled steel prices in the second quarter on raw-material costs.
Economists expect February consumer-price inflation of 7.9 percent, the highest rate in 11 years, according to a Bloomberg News survey.
That figure will be released tomorrow and China may raise interest rates, already at a nine-year high, within days, Ha Jiming, chief economist at China International Capital Corp. said in Beijing today.
The yuan traded near the highest since a dollar link ended in July 2005 on speculation the government will allow further gains to help combat inflation. It was at 7.1069 per dollar as of 4:15 p.m. in Shanghai, compared with 7.1110 on March 7.
“China’s widening trade surplus has been a major source of excess liquidity,” said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong.
Snowstorms, Holiday
Snowstorms swept across parts of China from mid-January, stalling deliveries to ports and disrupting production at companies such as Tongling Nonferrous Metals Group Co., the nation’s largest copper smelter. More than 1.66 million people need new homes after the storms, the government said yesterday.
China’s week-long Lunar New Year holiday also started earlier this year than last, leading exporters to bring some shipments forward to January.
The drop in the pace of export growth also reflected the “abnormally high” 52 percent increase a year earlier, when exporters pushed shipments through early to beat tax increases, Lehman’s Sun said.
Exports of steel products fell 29 percent in February from a year earlier.
Shipments to the U.S., where a housing recession is sapping demand, fell in February to $15.5 billion. That was down from $19.2 billion in January and $16.3 billion a year earlier.
‘Remarkable Rise’
“The remarkable rise in China’s trade surplus is nearing its end,” said Ben Simpfendorfer, a strategist at Royal Bank of Scotland Plc in Hong Kong. “However, the trade surplus will not evaporate abruptly and China will remain a global liquidity provider as it continues to accumulate foreign-exchange reserves.”
Simpfendorfer expects the surplus to “stabilize” this year, rising 7 percent to a record $280 billion from a year earlier. That compares with a 48 percent increase in 2007.
Import growth will stay strong as China ships in materials for utility, railway and housing projects and for reconstruction work after the snowstorms. A stronger currency may rein in exports, and China has already made the biggest gains to be had from joining the World Trade Organization in 2001 and from becoming a bigger supplier to manufacturers in Taiwan, South Korea and Japan, Simpfendorfer said.
China’s economy, the world’s fourth biggest, expanded 11.2 percent in the fourth quarter of 2007 from a year earlier.
“Weaker export and production growth may slow economic growth to below 10 percent in the first quarter,” said Lehman’s Sun.
Lawmakers and manufacturers in the U.S. and Europe say China’s export machine is powered by an undervalued currency. The European Union is trying to restrict imports of more than three dozen Chinese products ranging from textiles and chemicals to ironing boards and bicycles through anti-dumping duties.
SHANGHAI, March 10 - Chinese stocks dropped more than 2 percent on Monday because of fears of a U.S. recession following worse-than-expected U.S. employment data. Banks and steelmakers led the decline.
“No one knows how bad the U.S. economy is, and no one knows how badly that would impact the Chinese economy,” said Yuan Yi, analyst at Shenyin & Wanguo Securities. “Uncertainty is now the biggest risk in the stock market.”
A weaker-than-expected debut by China Railway Construction , which opened at 11.00 yuan, up 21 percent from its IPO price, also dampened the market. The stock ended the morning at 11.60 yuan, still well below analysts’ forecasts for a debut around 13 yuan.
The benchmark Shanghai Composite Index was down 2.56 percent at 4,190.254 points at midday, after hitting a low of 4,123.305.
It is once again testing strong technical support at 4,165 points, the 38.2 percent retracement of its bull run from June 2005. It bounced from near that support twice last month, but analysts do not rule out a clean break if supply/demand conditions in the market remain poor.
Losing Shanghai stocks overwhelmed gainers by 753 to 140, while turnover in Shanghai A shares was moderate at 51.44 billion yuan .
Industrial & Commercial Bank of China , the biggest lender, fell 2.20 percent to 6.22 yuan. Baoshan Iron & Steel Corp , China’s biggest listed steel company, lost 3.21 percent to 15.10 yuan.
“The market is still haunted by big cash calls from companies such as Ping An Insurance,” said Zhang Yang, strategist at Orient Securities.
Ping An slumped 3.72 percent to 65.14 yuan, after hitting a fresh eight-month intra-day low of 64.85 yuan, as the market continued to reacted unfavourably to shareholders’ approval last Wednesday of its $17 billion fund-raising plan.
Pudong Development Bank , which plans an equity sale to raise about $3.5 billion, slumped 4.97 percent to 37.48 yuan.
“With the index at this level, there’s no reason to be too pessimistic as the government is clearly moving to bolster the market,” Zhang said.
Since the securities regulator resuming approving new funds in early February after a five-month halt, it has approved a total of 18. They are expected to bring about 110 billion yuan of fresh money to the stock market, the official Securities Times reported on Monday.
But investors are uncertain how far authorities are willing to go to support the market. One disappointment was a report Monday in the official China Securities Journal quoting Gu Kang, head of the finance ministry’s tax research institute, as saying the government should listen to the opinions of the public and experts before considering a cut in the stock trading tax -- apparently ruling out any quick cut.
Investors also worry that the planned launch in the first half of this year of a Nasdaq-style second board for start-up shares in Shenzhen could divert funds from the existing stock market.
PetroChina , the biggest index component, fell 2.34 percent to 22.11 yuan while refining giant Sinopec slumped 4.20 percent to 15.50 yuan.
Among gainers, shares of CNOOC Engineering rose 0.51 percent to 52.78 yuan after saying 2007 net profit excluding extraordinary items climbed 43 percent to 1.06 billion yuan, as revenues rose 21 percent to 6.03 billion yuan.
SINGAPORE (Dow Jones)--Pay attention the next time a research analyst tells you to sell a stock, because it doesn’t happen that often.
In fact, according to analyst tracker StarMine, just over 13% of Hong Kong listed stocks are rated as sell.
That’s a higher proportion than can be found in Japan, Korea, Singapore, Taiwan and Australia. The smallest proportion of sell ratings, just under 5%, can be found on Korean stocks.
There are some good reasons for this, and some very bad ones. And though broad figures like these mean that good analysts will be lumped in with bad - investors who act on research recommendations should consider the factors that might be influencing them.
In part, the high degree of buy ratings is a reflection of the fact that “markets tend to go up over time - so selling something or being short something over time has been a bad bet,” said Paul Schulte, chief regional equity strategist for Lehman Brothers in Hong Kong.
Indeed the proportion of sell ratings to buy ratings across Asia have fallen over time as stocks have rallied. In March 2003, which is as far back as the data from StarMine goes, about 20% of stocks in Singapore were rated a sell, while about 53% were rated buy.
Last month, just over 8% of stocks were rated sell, compared with nearly 70% being rated buy. And with the Straits Times Index up 126% from March 2003 to Friday, analysts with buy calls have been on the right side of this rally.
Does this mean it’s time for that trend to roll over and the number of sell ratings to rise? Or will analysts maintain optimism in the face of falling prices?
One thing the data reveals is that regardless of which path they take, analysts aren’t particularly nimble, as a group, with ratings changes. About the same proportion of Singaporean companies - 8.4% - were rated a sell in February compared with right after the market’s peak in October - 8.7%.
And of course part of this is relative. Analysts who variously rate stocks - at buy or overweight, or outperform or some other litigation-proof rating - may not be figuring in broad market sentiment. They cannot know, for example, that a weaker-than-expected employment report from the U.S. is going to hit investor sentiment.
“The market may head south because of recession risk, but fundamentals for a company could still remain favourable,” explained Song Seng Wun, economist at CIMB-GK.
A great number of research clients are mutual funds which can only buy and might have to maintain exposure to a certain sector or country at all times. That means, at times, it’s a matter of making the best of a bad situation -- so that buy simply means “if you have to buy then this will probably fare the best.”
That logic, though, may be behind some mixed signals coming out of research houses lately.
Even when analysts have lowered earnings estimates over the past two months, on average, they’ve actually been slightly more likely to raise their ratings on a stock than lower it.
At the same time, when average earnings estimates were raised, the ratings worsened only half as often as they improved.
This preference for buy ratings implies that there’s more going on here than just downright optimism.
Pressure from investment bankers looking to sign deals, or sales departments looking to generate some fee income by encouraging clients to buy, may remain a factor.
It’s certainly been demonstrated in the past. In a 2004 study, Harvard Business School professor Mark Bradshaw found that analyst optimism peaked during periods of fundraising activity by companies. Bradshaw thinks this might be explained by the need for investment banks to cozy up with companies that are likely to tap the capital markets.
It’s worth noting the study was based on behaviour up to the year 2000. Much has changed since then, as a result of regulation and litigation that followed the bursting of the technology bubble.
Still, “I think there is that lingering issue of independence,” said Lehman’s Schulte. “A lot of research departments are increasingly independent,” he notes, but not all are.
But even outside of the interference of other departments at a brokerage there’s a degree of self censorship involved.
“I suppose there’s a greater tendency to first of all cover stocks that you like - so that tends to start off with buy rather than sell,” said CIMB’s Song.
Why? “Access to the company is one thing. Unless there’s a real compelling reason to turn to sell ideas, most analysts perhaps look towards it being easier to keep a favourable recommendation,” Song said.
And, as one analyst in Singapore explained, there remains a fair amount of pressure to stay with the pack. Analysts who step out of the mainstream view but get it wrong have a lot more explaining to do then analysts who remain within the consensus but get it wrong along with everyone else, he said.
This all goes a long way to explaining why sell ratings seem so memorable. When an analyst does decide to rate a stock as sell - they tend to embrace the new rating with fervour.
When Daiwa Institute of Research analyst Soo Kee Ang reiterated an underperform rating on AsiaPharm Group, for example, the research note was titled “run while you can.”
Dow, S&P still remain above bear market threshold despite plunge
(NEW YORK) Recession may well be here, given the dismal February employment report last Friday. But on Wall Street, many investors still are having a hard time deciding how worried they should be.
The Dow Jones industrial average slid 146.70 points, or 1.2 per cent, to 11,893.69 for the day, falling through the low of 11,971 it set on Jan 22 and finishing at its weakest point in 17 months.
Yet, by the classic measure of a bear market - a drop of at least 20 per cent in share prices - the Dow is a holdout: It is down 16 per cent from its record high reached in October.
The broader Standard & Poor’s 500 index also remains above the bear-market threshold, despite mounting evidence of recession. It has lost 17.4 per cent from its October peak.
These numbers are handy enough for gauging the damage done. But what every investor would like to know is: How much worse will it get? If you figure that a 17.4 per cent drop in the S&P 500 is just a prelude to a loss of 40 per cent by the time the market’s sell-off has run its course, you might well opt to take some money off the table and wait it out.
You know what you’re going to hear from much of Wall Street at a time like this.
Brenton Luce, a portfolio manager at hedge fund Lakefront Partners in Cleveland, writes on his blog that investment pros’ usual advice to clients in down markets is to ‘stay long-term focused’. That, he notes, ‘is code for ‘Yes, we have lost you a bunch of money lately. But we hope that the market turns positive soon and we hope that you stick with us until this happens’.’
It wouldn’t be surprising if the blue-chip stocks in the Dow and the S&P 500 were the last refuge for investors who have given up on other sectors of the market. Smaller stocks, for example, now are in bear-market territory, with the Russell 2,000 index of small-company issues off 22.9 per cent from its all-time high set in July.
Still, you might have expected a lot worse, given the trauma in the financial system from the housing bust and its collateral damage.
The credit crunch stemming from banks’ massive losses on delinquent home loans is showing few signs of un-crunching. Money remains very tight, and money is what financial markets need to move up.
The stock market’s slide last week was fuelled in part by worries about Fannie Mae and Freddie Mac, the two government- sponsored mortgage-finance giants that are supposed to help stabilise the housing market by stepping up their purchases of home loans. The companies’ stocks fell last week to their lowest levels in 12 years, and some investors became reluctant to buy their mortgage-backed bonds, which - in theory - are of the highest-quality.
That might have been too much for the Federal Reserve to brook. Last Friday, the central bank announced a major expansion of its emergency lending programme for banks, aiming to ease the credit squeeze.
Some market pros said that investors’ mood might actually improve if Fed officials and the White House would stop talking as if recession were avoidable.
Despite the credit markets’ continued deterioration, some money managers are betting that the stock market won’t get much worse.
A bottom ‘isn’t that far away’, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. He figured that the S&P 500 could fall another 5 per cent or so, which would take it modestly over the 20 per cent loss mark. -- LAT-WP
Credit derivatives turmoil strikes By Robert Cookson and Joanna Chung in London and Michael Mackenzie in New York
Published: March 9 2008 18:42 | Last updated: March 9 2008 18:42
Turmoil in the credit derivatives markets is having an increasingly brutal impact on the wider financial system as a vicious cycle of forced selling drives risk premiums on company debt to new highs.
The trend accelerated on both sides of the Atlantic last week as investors rushed to unwind highly leveraged positions in complex structured products. The cost of protecting US investment grade debt against default soared to a high of 188 basis points, from 80bp in January.
In Europe, the cost of insuring the debt of the 125 investment-grade companies in the benchmark iTraxx Europe index surged to a new high of 156bp, before closing at 146bp on Friday. A move above 150bp would spark the unwinding of structured trades, according to BNP Paribas.
Institutions that lapped up credit risk products in recent years – many financing their purchases through borrowing – are scrambling to reduce their exposure following heavy losses, traders say.
But many investors fear conditions could worsen as hedge funds, banks and other financial institutions come under pressure to cut their losses before conditions deteriorate further.
Liquidating structured credit instruments requires buying large amounts of protection using credit default swaps. This, in turn, drives the cost of protection higher, potentially triggering a chain reaction.
“There is potential for some wild and possibly inexplicable price movements as the unwinds get bigger,” said Mehernosh Engineer, credit strategist at BNP.
The markets are so illiquid that a few trades can lead to sharp movements, producing violent price swings and knock-on effects.
Tim Bond, head of global asset allocation at Barclays Capital, said: “It’s inflicting heavy losses on the banking system, eroding their capital and reducing their ability to lend. The spread widening is so severe, you’re seeing a rise in borrowing rates across the board for everybody except top-quality governments. It’s affecting both the price and availability of credit.”
Some structured credit vehicles have in-built triggers that force them to be liquidated.
Bank of America estimates that if the cost of US investment grade credit insurance rises above 200bp, the unwinding of structures could trigger a jump towards 220bp.
Jim Sarni, portfolio manager at Payden & Rygel, an investment management firm, said: “The market is very concerned about counterparty risk and how stable positions are as they are marked to market as prices keep falling.”
Suki Mann, credit strategist at Société Générale, said companies and consumers were also suffering because of reduced lending as banks hoarded liquidity.
Higher finance costs harm shipping industry By Howard Winn | 10 March 2008
Tighter lending policies will make it more expensive for shipping companies to raise the $300 billion of debt needed to fund outstanding orders for new ships. Some predict borrowers will be able to raise only half this amount.
The subprime-induced credit squeeze will mean higher costs to finance new ships and cancellations of some orders as owners struggle to secure financing, a shipping conference in Hong Kong was told recently.
Graham Porter, managing director of Seaspan Advisory Services, said that, by his reckoning, new ships on order over the next three years totalled some $450 billion-$500 billion and that $300 billion of debt would be needed from ship financing banks.
Porter, who was chairing a panel discussion at the conference organised by Marine Money, thought there would be a shortfall of roughly half this amount.
Last year was a record for debt lending in the marine finance market with $95 billion raised. Panelists thought a similar amount could be raised in 2008. Established ship owners would have little difficulty in obtaining financing –although would have to pay more – but newcomers and speculators would find it difficult.
According to shipping bankers on the panel, financing of a container ship with a 65% debt component could have been arranged at a cost of Libor plus 60bp in the middle of last year, but now it would cost at least Libor plus 100bp, and by the end of the year it might be as high as Libor plus 120bp.
One of the panelists, Andrew Chiang, director of global shipping and logistics for Asia-Pacific at Citi, said the deal would be priced at around Libor plus 100bp-150bp on the assumption the loan would be syndicated.
Financing of a modern VLCC (very large crude carrier), which would have cost Libor plus 80bp last June, would price even higher at anywhere between Libor plus 130bp-180bp, according to the panel.
The boom in shipping in recent years has attracted new players both as owners and as financiers. While demand for new ships has increased dramatically, the increased competition from financiers had brought down financing margins.
But while the credit squeeze that has followed in the wake of the subprime crisis has made it more difficult for banks directly affected by the crisis, it has also created opportunities in the form of higher margins for traditional ship financing banks.
“We went through an abnormal period while the market was booming, now things are getting back to normal," said another panelist, Arnold Wu, who is head of the Asia shipping division at BNP Paribas.
“We are going back to basics. We are going back to the levels and deal structures that we saw in the mid-90s and early 2000s," agreed Charles Reineke, who is a senior vice-president of the global shipping finance group at SMBC. He added that since the subprime crisis, lending decisions faced higher levels of scrutiny. Shipping departments within the banks have to compete for finance and have to justify their lending in terms of return on capital.
Chiang said Citi focuses on the top end of the market and will continue to provide financial support to those owners.
“Pricing has obviously gone up – banks are being a lot more picky. A lot of alternative forms of financing for shipping have today dried up. So you have a scarcity of capital, a very large order book and very large demand. The players in the market will be fighting for that capital,” he said.
Reineke noted that one-and-a-half years ago he had been worried by the prospect of hedge funds, private equity and other alternative sources of funds entering the ship finance market. “They were talking huge numbers – but where has it all gone?”
Kjell Erik Mjos, senior vice-president and advisor with DnB NOR Bank, said those worst affected by tightening credit would be the smaller ship owners and speculators who had made a down payment and placed orders in the hope of selling the vessel before completion. Korean and Indian owners who had been supported by their local banks would also be hurt since this bank lending has virtually dried up. He noted that one Korean owner had cancelled eight new building contracts recently because he was unable to make the down payment.
“That’s just the beginning,” Mjos warned. “Banks can lean back and pick and choose which deals they want to participate in.”
Copyright FinanceAsia.com Ltd., a subsidiary of Haymarket Media Ltd
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China still likely to attract hot money
Reuters - Monday, March 10
BEIJING, March 9 - China’s stock market may have come off the boil but hot money is still likely to be attracted by the country’s appreciating currency and comparatively high interest rates, senior officials said.
Last year China abandoned its strategy of keeping yuan interest rates below those of the dollar in an attempt to cool down stock and property markets that were sucking in money.
But the weak outlook for other markets because of the U.S. subprime crisis, combined with aggressive U.S. rate cuts, have made Chinese markets attractive again.
“Though China’s stock market also suffered some losses due to the global turbulence, I think people in the market, by making comparisons, will prefer to put their money in places where the impact is relatively small,” said Sun Gongsheng, head of the Nanjing branches of the People’s Bank of China and the State Administration of Foreign Exchange .
China’s robust economic outlook also makes it attractive to international speculators, he told reporters on the sidelines of China’s National People’s Congress.
The central bank raised benchmark interest rates six times last year, which, together with other cooling policies, has brought the main stock index down 30 percent from its Oct. 16 peak of 6,124.
China’s foreign exchange reserves jumped by a record $61.6 billion in January to reach $1.59 trillion, renewing the debate on whether Beijing is attracting new flows of speculative money. The increase was twice as great as the combined inflows from the trade surplus and foreign direct investment in the month.
There is now about $500 billion of hot money in China, former statistics chief Li Deshui has estimated, citing unidentified research, according to state media on Saturday.
“Many new changes have happened recently on the global market. And Chinese stocks and property are still one of the few harbours for global capital,” Li said.
“We still haven’t dampened over-expectations on the yuan’s rise and have not effectively controlled large amounts of illegal hot money inflows,” Li told a meeting of the country’s top political consultants.
He called for the government to redouble its efforts to control short-term capital flows.
“Otherwise, our country’s international payments imbalance and excess liquidity will get worse, which will add more uncertainty to growth, push the economy to boil over and build up more inflationary pressures,” Li said.
王冠一: 行 長 職 真 空 股 急 挫
10/3/2008
一 向 扮 「 鷹 」 的 日 本 央 行 行 長 福 井 俊 彥 ， 上 周 主 持 離 任 前 最 後 一 次 議 息 會 議 ， 結 果 好 夢 難 圓 ， 加 不 了 息 ， 只 維 持 利 率 在 0.5 厘 不 變 。
其 實 作 為 負 責 任 及 有 遠 見 的 中 央 銀 行 家 ， 在 製 訂 貨 幣 政 策 時 ， 必 須 以 大 局 為 重 ， 若 果 進 退 失 據 ， 不 難 間 接 製 造 麻 煩 。 瞧 瞧 歐 洲 央 行 行 長 特 里 謝 ， 與 聯 儲 局 主 席 伯 南 克 之 分 野 ， 便 知 歐 美 經 濟 差 異 之 部 份 來 由 ， 前 者 如 履 薄 冰 ， 後 者 後 知 後 覺 ， 或 應 該 說 身 不 由 己 吧 ！
伯 南 克 減 息 不 手 軟
說 開 身 不 由 己 ， 屢 傳 加 息 的 福 井 和 進 退 失 據 的 Ben 哥 ， 是 否 都 有 點 屬 於 此 類 ？ 若 然 如 是 ， 這 央 行 之 所 謂 獨 立 性 便 蕩 然 無 存 。 按 筆 者 估 計 ， 伯 南 克 為 免 主 子 衰 （ 退 ） 收 尾 ， 寧 願 放 棄 通 脹 鬥 士 之 名 ， 也 得 報 知 遇 之 恩 ， 眼 見 經 濟 有 陷 衰 退 之 虞 ， 必 挖 盡 心 思 阻 止 其 發 生 ， 故 減 息 絕 不 手 軟 。 君 不 見 法 興 出 事 ， Ben 哥 適 逢 放 假 日 也 急 跳 出 來 減 息 ， 一 星 期 後 例 會 再 減 ， 9 日 減 1.25 厘 ， 實 屬 罕 見 ， 如 斯 猴 急 ， 又 顯 示 了 甚 麼 ？ 3 月 18 日 再 減 息 幾 可 肯 定 ， 期 貨 市 場 更 反 映 減 0.75 厘 的 機 會 超 過 七 成 ， 美 元 又 怎 不 江 河 日 下 ？
福 井 繼 任 人 仍 未 定
別 以 為 3 月 18 日 是 大 日 子 ， 更 大 日 子 是 3 月 19 日 才 對 。 何 出 此 言 ？
福 井 俊 彥 將 於 3 月 19 日 離 任 ， 到 目 前 為 止 ， 日 本 朝 野 還 未 能 就 繼 任 人 選 達 成 共 識 。 首 相 福 田 康 夫 推 薦 福 井 副 手 武 藤 敏 郎 坐 正 ， 但 卻 遭 控 制 上 議 院 的 在 野 民 主 黨 極 力 反 對 。 央 行 行 長 職 位 需 要 兩 黨 一 致 通 過 才 能 作 實 ， 全 球 第 二 大 經 濟 體 系 央 行 行 長 一 職 出 現 真 空 ， 日 本 大 亂 矣 ！ 睇 上 日 日 本 股 市 及 日 圓 之 急 挫 ， 可 有 端 倪 ？
When analysts are way off the mark
Business Times - 10 Mar 2008
By CONRAD RAJ
WHILE most analysts provide invaluable advice to investors, there are some who are not only extremely sloppy in their work but do a disservice to the industry.
For example, take a recent report from CIMB on Hersing, the local franchise holder for property broker ERA and remittance agency Western Union.
In its report of Feb 27, CIMB downgraded the stock to ‘underperform’ and reduced its target price by more than half, from 79 cents a share to 36 cents. That day the stock closed at 52 cents apiece.
This was based on the weaker outlook for the property brokerage business and on ‘investors’ lower risk appetite and poor trading liquidity’. But the report also contained a couple of glaring errors, including a claim that Hersing had posted a pretax loss of $8.5 million on the remittance business and that it had declared a final dividend of only a cent.
Next day, Hersing shares fell.
On Feb 29, CIMB issued another report on the company saying: ‘In a recent discussion, Hersing clarified with us a number of things.’
This time CIMB said that it had ‘erroneously stated’ that Hersing had lost money on its remittance business and that even after stripping out the sale of 49 per cent of Western Union Global Network to its US parent on Oct 10 last year, the company had turned in pretax profits of $2.02 million for the second half of 2007 and $3.04 million for the full year.
CIMB then went on to add: ‘The business (remittance) remains healthy, and with the active participation of WU (Western Union), Hersing’s management expects the business to thrive in FY08, given an influx of blue-collar workers in Singapore on the back of the current construction boom.’
It also noted that Hersing had proposed a special dividend of three cents a share which, together with the final and interim dividend of one cent respectively, took the total dividends for the year to five cents.
CIMB, however, continued to maintain its ‘underperform’ rating on ‘unattractive valuations’ but set a new target price of 40 cents a share, saying that the impact of a weaker real estate brokerage business should be alleviated by growth in Hersing’s remittance and self-storage businesses.
There was not a single word of apology from CIMB despite the fact that Hersing’s release to Masnet had contained all the information of WU’s profitability and the special dividend.
What worries me more is that some investors could have dumped their holdings in Hersing on the basis of the earlier report. What recourse do they have?
For Hersing’s founder and controlling shareholder Harry Chua, the price decline appears to have provided an opportunity to pick up shares on the cheap. Over the last few days, he bought about 3.36 million shares from the open market and transferred another five million shares from his deemed interest holdings through Hong Leong Finance to his direct stake in Hersing.
Sometimes you also wonder how analysts set their price targets for a particular stock. Rarely do you see a price range. So precise are their forecasts that they are often a cause of astonishment to me and my colleagues.
On Jan 14, Kim Eng wrote a piece titled Trash to Treasure on Advance SCT’s business of recycling scrap copper to a reusable state. The analyst in question described the stock as ‘Immaculate collection at a bargain!’ on the basis that there was growing demand for the metal. It recommended a ‘buy’ with a target price of $1.97 a share when it was trading at 90 cents apiece.
After Advance issued its results for FY07, Kim Eng - noting that they were ‘highly disappointing’, with net earnings falling 47 per cent to $4.2 million compared with its earlier forecast of $20.9 million - set a new price target of 60 cents a share when they were trading on the market at around 41 cents apiece.
It also cut its forecasts for FY08 and FY09 by 55-60 per cent due to higher financing and conversion costs of copper and reduced output. Maintaining the ‘buy’ call, Kim Eng now sees the stock as an ‘opportunity to buy on weakness’.
So what happens to those who bought shares at prices higher than 60 cents, based on its earlier recommendation?
曾淵滄： 長Put短Call的熊市策略
2008-03-10
美股於上個星期四與星期五一連兩天急跌，港股已於上星期五跟隨美股急跌，今日再跌的機會也很大，會不會是「終極一跌」？一般上，股市在長期或中期見底時，總會出現狠狠的一跌，跌後就是一場新牛市或是一場較具規模的大反彈。因此，儘管近幾天股市急跌，依然不改我的中期反彈期待。如果今日出現恐慌性急跌，有興趣的話可以博反彈，不想冒險者也該旁觀，在恐慌情緒下賣掉股票是不明智的。在3月1日《蘋果日報》的投資演講會上，我提出長Put短Call的熊市戰略，過後收到好些讀者電郵希望我再詳細一點談如何Put？如何Call？所謂長Put，是長期持續不斷地不論股市的短期走勢如何，手上都持有一定量的認沽（Put）輪，一直到新的牛市來臨。這種情況有如2003年牛市初期，我買入港交所（388）並長期持有至2007年才開始賣是同樣的道理。既然我們認定熊市已經來臨，就應該長期持Put輪，一來對着自己手上仍然持有的優質股，二來賺點額外的錢。
不須為持貨全面對着
對許多小投資者而言，他們往往喜歡買Call輪而不喜歡買Put輪。我們可以從市面上的Call輪與Put輪的供應數量就可以清楚地看到Call輪遠比Put輪多。也就是因為散戶不喜歡買Put輪，所以在熊市時只能唉聲嘆氣，看着自己的身家財產越來越少，不斷的貶值。如果我們能克服這種不喜歡買Put的心態，我們也能在熊市中獲利，或至少為手上仍然持有的優質股對着保值。其中最理想的組合就是持有匯控（005）正股同時再持有匯控Put輪。匯控派的股息特別高，持正股收股息，但是你又擔心匯控股價會下跌，賺息蝕價也不合算，就可以利用Put來對着保值。你不必全面對着，因為期權金的支出往往高過股息的收入，因此全面對着並不合算，只需要適量的對着就行，目的是為自己紓減壓力。如何在熊市中減壓是成功投資的最重要條件，這可以避免你做出恐慌性拋售的行為。至於短Call，就很容易執行，方法就是每一次當你感覺到市場出現恐慌性拋售時你就不妨買入Call輪，博一博，賭一賭短期內反彈。
0050 GMT [Dow Jones] STOCK CALL: Bear Stearns downgrades Singapore Petroleum (S99.SG) to Peer-Perform from Outperform as share has risen 34.6% since hitting Jan. 24 low of S$5.20; says SPC shares now fairly valued. Raises 2008 year-end target price to S$7.10 from S$6.80 on earnings forecast changes, higher dividend yield assumption. Cuts 2008 forecast EPS 1.5% as expecting lower refining margins on-year, to be partly offset by increased upstream earnings expected from China blocks acquired late last year. Raises 2009-10 EPS forecasts 5.1%, 16.5% on higher upstream contributions, assumed lower tax rate of 13% vs previous 15%. Says now assumes 2008 dividend payout ratio at 60% vs previous 40%, marking "attractive" 2008E dividend yield of 8.6%. Share ended Friday up 0.6% at S$7.05. (LES)
Limit-Down Soyoil May Weigh Heavily On CPO Prices
[Dow Jones] Lower soyoil prices likely to drag down CPO futures, traders say. “CBOT soyoil prices ended limit-down Friday, they are limit-down again today during the electronic session,” says trader in Singapore; adds speculative selling to spill over to BMD CPO futures. CBOT May soyoil finished 200 points lower on Friday at 63.33 cents/pound. May trading further 200 points lower, limit-down, on e-CBOT at 61.33 cents/pound. “As of now, the CPO market is driven by bearish soyoil,” says trader in Kuala Lumpur; adds some fresh leads likely from Malaysian Palm Oil Board data on February production, end-month stocks, exports to be released at 0430 GMT. (SAM)
Malaysian Stocks Plunge After Election
Malaysian Stock Index Plunges 7.8 Percent Amid Political Uncertainty After Election Shock
Monday March 10, 1:46 am ET
KUALA LUMPUR, Malaysia (AP) -- Malaysian stocks plunged Monday amid political uncertainty sparked by the ruling coalition's electoral losses over the weekend.
The Kuala Lumpur Composite Index was down 7.8 percent to 1,195.68 after Prime Minister Abdullah Ahmad Badawi's National Front lost its two-thirds parliamentary majority in Saturday's general elections.
Stocks of companies closely linked to the National Front faced selling pressure amid concerns about the election's impact on government projects and economic policies.
"In the near term, the increased uncertainty brought about by the shift in the political landscape is likely to be negative for sentiment and the stock market," Goldman Sachs said in a report.
The report added that government projects were likely to slow significantly for now, adding that there could also be delays in major economic policies including infrastructure spending.
The National Front held on to 63 percent of the 222 seats in Parliament, slumping from the 91 percent majority it won in 2004 elections. It also lost control of five of Malaysia's 13 states, including Selangor and Penang, the country's two most industrialized states.
曾淵滄： 港商面對滬深穗台競爭
2008-03-10
台灣大選之後，不論誰當選，兩岸關係一定會進一步加強，個人遊、CEPA、QDII及港股直通車政策都可能在台灣出現。將來香港不但要面對上海、深圳、廣州的競爭，也要面對台灣的競爭。
全國人大開幕，溫家寶總理作政府工作報告，報告中直接提到香港的篇幅不多。但是，報告中其他關於內地的施政方針卻與香港息息相關，我們不能不明白。
首先，溫總對內地通脹升溫的事非常關心，在報告中已經下達指令要確保今年通脹率不能超越4.8%，並要求地方官員直接負責。
京促查辦囤積地產
過去，地方官員往往把控制通脹視為中央政府的責任，是中央財經官員負責，財經官員通過控制利率、貨幣供應、中央政府財政預算來控制通脹。現在，溫總要求地方官員執行壓抑通脹的工作，這說明溫總打算以行政手段來壓抑通脹。
通脹之一是房價上漲、租金上漲。溫總要求地方政府出錢興建廉價房屋出租，鼓勵多供應小單位的商品房，查辦囤積土地不開發的房地產商。
長期以來出售土地給房地產商是地方政府的主要收入來源。但是，大量批售土地建房屋的結果是農業用地大量減少，導致農產品供應緊張，農業品價格上漲，這也是通脹的另一個主要因素。因此，溫總也要求地方政府努力發展農業。
房價猛漲租金猛漲
土地就是那麼多，要發展農業就不能建房屋，要建房屋就不能發展農業，去年房地產商一聽到溫總要求全國農耕地的總面積不能再減少，囤積土地不開發的某些房地產商明白，不減少農耕地的結果一定會導致可供建房屋的土地供應減少，囤積土地就是一項最佳的發財之道，土地會因供應減少而漲價，土地漲價，房屋的價格當然也猛漲，進而導致租金也漲，當然向高空發展。把房屋建高是解決土地供應不足的方法，但是，大量房地產商囤積土地則是今年溫總欲打擊查辦的重點。香港不少人投資內地房地產，購買內地房地產企業的股票，今年溫總的施政報告很明顯地要求地方政府打壓在地方上囤積土地的房地產商，這類企業不可不注意。
港商角色應該更新
溫總除了要求地方政府參與打壓通脹之外，中央財經政策也依然不會放鬆，依然適當從緊，貨幣供應會嚴加限制，看來利率還會再上升，這是任何投資內地的香港人不可不知道的趨勢。
溫總另外一項影響香港經濟的報告內容是提高農民工的合理待遇政策。長期以來，農民到城市來工作被稱為農民工，收入低，工作沒保障，沒有城市戶籍，沒有城市人各種各樣的福利。今年溫總的工作報告雖然沒有直接提到農民工的戶籍問題，沒有直接提到新的勞動法。但是，很明顯地，要合理地提高人數眾多的農民工的待遇的方法之一就是通過勞動法保障他們的工作穩定與福利。溫總公開多謝港商在中國整體經濟發展上的貢獻，更特別讚揚港人在雪災時的捐助災民的行動。人大會議開幕前，胡錦濤主席也曾經在全國政協會議上公開讚揚港商的貢獻。
一般而言，領導人公開讚揚你是表示你在過去的貢獻已被肯定。但是，你在過去的角色也該改變了，新的挑戰、新的角色在等你。
靈活應變接受挑戰
因此，港商，特別是工業家們再也不能緬懷過去的日子，緬懷過去的低工資、低成本的生產環境，自恃過去的貢獻而拖慢國家向前發展的步伐。
近年來，珠三角生產成本越來越重，再加上新的勞動法，使到香港工業家們叫苦連天，不斷地要求特區政府協助向中央勸說暫緩執行不利港商的政策。現在，從溫總在人大會議上的工作報告中，我們得明白，向前走，更大範圍地讓更多人享受國家開始富強的成果是中央既定政策，港商有必要在這個政策之下靈活應變，接受挑戰。
還有，隨台灣即將大選，胡主席與溫總先後在全國政協會議及全國人大會議上都向台灣民眾與政治人物釋出善意，進一步加強統戰，團結一切可以團結的人。很明顯，台灣大選之後，不論誰當選，兩岸關係一定會進一步加強，特別是兩岸經濟關係日趨良好指日可成。還有，目前中央送給香港的厚禮如個人遊、CEPA、QDII及將來可能推行的港股直通車政策都可能在台灣出現。很明顯，兩岸經濟往來的加強對香港而言是一項極大的挑戰，將來香港不但要面對上海、深圳、廣州的競爭，也得面對台灣的競爭。
Fun With Flows (Page 1/6)
10 March 2008
Outflow of Billions from Asian Funds Resumes
* Resumption of outflows — With regional markets down 5% in a week, foreigners are again withdrawing money from Asian equity funds. According to EPFR Global, net outflows totaled US$1.1bn in the five days ended March 5. This is the biggest outflow in five weeks and 8% higher than the average weekly redemption from mid-Dec to late Feb. Year-to-date, net outflows add up to US$9.9bn, or 60% of the 2007 net inflows. Also, 94% of the inflow that came in since July is now under water.
* Redemptions are broad-based; Taiwan remains the winner — Unlike May/June 07 when outflows were mainly from China/Greater China and India funds, more fund categories have been suffering from redemptions this time round. That said, Taiwan funds continue to go against the tide, taking in the largest amount of new money. Taiwan has been the only market with a positive return YTD, compared with a 12% decline for the Asia ex region.
* Believe it or not, global funds less affected by widening credit loss concerns — YTD, net outflows from global equity funds have been just US$3.3bn, i.e. onethird of Asian fund outflows. Two possible explanations: first, Asia is over-valued, and second, high-beta markets are still high-beta markets. When investors become risk-averse amid uncertainties, Asia is not a place for them to park their money.
UOB-KH Cuts Synear Target To S$1.20 From S$2.65
10 March 2008
0901 GMT [Dow Jones] STOCK CALL: UOB KayHian cuts Synear (Z75.SG) target price to S$1.20 from S$2.65 after cutting 2008-09 earnings forecasts 13%, 20% respectively on risks of margin pressure, higher operating cost, lower sales volume due to new plants'' low utilization rates. Notes 4Q07 results disappointing, with turnover edging up 1.3% on-year, net profit declining 50.3% on-year, falling short of house’s, consensus forecasts. Notes sales hurt by product-mix changes due to government’s restriction on bulk sales of frozen dumplings; also, raw material price hikes trimmed gross margin to 32.2% in 2007 from 2006''s 33.6%. However, says "given Synear’s leadership in China’s frozen food segment, enlarged production capacity, expected improvement in the company’s financials from 2Q08 onwards and rosy industry prospects, we maintain our Buy call." Share down 8.6% at S$0.53. (LES)
China Trade Surplus Narrows as U.S. Demand Weakens
By Nipa Piboontanasawat and Li Yanping
March 10 (Bloomberg) -- China’s trade surplus dropped for the first time in almost a year as the worst blizzards in half a century disrupted shipments and U.S. demand weakened.
The gap narrowed 64 percent in February from a year earlier to $8.56 billion, the customs bureau said today on its Web site. The surplus was less than half the $22.5 billion median estimate of 14 economists surveyed by Bloomberg News.
Exports rose 6.5 percent, the slowest pace in almost six years, aiding government efforts to cool the world’s fastest- growing major economy. China’s surplus has caused tension with trading partners and threatens to stoke inflation already at an 11-year high by flooding the financial system with cash.
“The decline is due to weaker demand from overseas and the disruption from the snowstorms -- it’s too early to say that the surplus will keep slowing sharply,” said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong.
For the first two months combined, the surplus narrowed 29 percent to $28 billion from a year earlier. Imports increased 35.1 percent in February, the biggest gain in more than three years, on higher prices for commodities such as crude oil, iron ore and soy beans. In January, exports rose 26.6 percent and imports climbed 27.6 percent.
Accelerating Inflation
China’s producer prices, the cost of goods as they leave the factory, climbed 6.6 percent last month, the fastest pace in more than three years, the government said today. Baoshan Iron & Steel Co. is raising hot-rolled steel prices in the second quarter on raw-material costs.
Economists expect February consumer-price inflation of 7.9 percent, the highest rate in 11 years, according to a Bloomberg News survey.
That figure will be released tomorrow and China may raise interest rates, already at a nine-year high, within days, Ha Jiming, chief economist at China International Capital Corp. said in Beijing today.
The yuan traded near the highest since a dollar link ended in July 2005 on speculation the government will allow further gains to help combat inflation. It was at 7.1069 per dollar as of 4:15 p.m. in Shanghai, compared with 7.1110 on March 7.
“China’s widening trade surplus has been a major source of excess liquidity,” said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong.
Snowstorms, Holiday
Snowstorms swept across parts of China from mid-January, stalling deliveries to ports and disrupting production at companies such as Tongling Nonferrous Metals Group Co., the nation’s largest copper smelter. More than 1.66 million people need new homes after the storms, the government said yesterday.
China’s week-long Lunar New Year holiday also started earlier this year than last, leading exporters to bring some shipments forward to January.
The drop in the pace of export growth also reflected the “abnormally high” 52 percent increase a year earlier, when exporters pushed shipments through early to beat tax increases, Lehman’s Sun said.
Exports of steel products fell 29 percent in February from a year earlier.
Shipments to the U.S., where a housing recession is sapping demand, fell in February to $15.5 billion. That was down from $19.2 billion in January and $16.3 billion a year earlier.
‘Remarkable Rise’
“The remarkable rise in China’s trade surplus is nearing its end,” said Ben Simpfendorfer, a strategist at Royal Bank of Scotland Plc in Hong Kong. “However, the trade surplus will not evaporate abruptly and China will remain a global liquidity provider as it continues to accumulate foreign-exchange reserves.”
Simpfendorfer expects the surplus to “stabilize” this year, rising 7 percent to a record $280 billion from a year earlier. That compares with a 48 percent increase in 2007.
Import growth will stay strong as China ships in materials for utility, railway and housing projects and for reconstruction work after the snowstorms. A stronger currency may rein in exports, and China has already made the biggest gains to be had from joining the World Trade Organization in 2001 and from becoming a bigger supplier to manufacturers in Taiwan, South Korea and Japan, Simpfendorfer said.
China’s economy, the world’s fourth biggest, expanded 11.2 percent in the fourth quarter of 2007 from a year earlier.
“Weaker export and production growth may slow economic growth to below 10 percent in the first quarter,” said Lehman’s Sun.
Lawmakers and manufacturers in the U.S. and Europe say China’s export machine is powered by an undervalued currency. The European Union is trying to restrict imports of more than three dozen Chinese products ranging from textiles and chemicals to ironing boards and bicycles through anti-dumping duties.
China stocks tumble, again testing chart support
Reuters - Monday, March 10
SHANGHAI, March 10 - Chinese stocks dropped more than 2 percent on Monday because of fears of a U.S. recession following worse-than-expected U.S. employment data. Banks and steelmakers led the decline.
“No one knows how bad the U.S. economy is, and no one knows how badly that would impact the Chinese economy,” said Yuan Yi, analyst at Shenyin & Wanguo Securities. “Uncertainty is now the biggest risk in the stock market.”
A weaker-than-expected debut by China Railway Construction , which opened at 11.00 yuan, up 21 percent from its IPO price, also dampened the market. The stock ended the morning at 11.60 yuan, still well below analysts’ forecasts for a debut around 13 yuan.
The benchmark Shanghai Composite Index was down 2.56 percent at 4,190.254 points at midday, after hitting a low of 4,123.305.
It is once again testing strong technical support at 4,165 points, the 38.2 percent retracement of its bull run from June 2005. It bounced from near that support twice last month, but analysts do not rule out a clean break if supply/demand conditions in the market remain poor.
Losing Shanghai stocks overwhelmed gainers by 753 to 140, while turnover in Shanghai A shares was moderate at 51.44 billion yuan .
Industrial & Commercial Bank of China , the biggest lender, fell 2.20 percent to 6.22 yuan. Baoshan Iron & Steel Corp , China’s biggest listed steel company, lost 3.21 percent to 15.10 yuan.
“The market is still haunted by big cash calls from companies such as Ping An Insurance,” said Zhang Yang, strategist at Orient Securities.
Ping An slumped 3.72 percent to 65.14 yuan, after hitting a fresh eight-month intra-day low of 64.85 yuan, as the market continued to reacted unfavourably to shareholders’ approval last Wednesday of its $17 billion fund-raising plan.
Pudong Development Bank , which plans an equity sale to raise about $3.5 billion, slumped 4.97 percent to 37.48 yuan.
“With the index at this level, there’s no reason to be too pessimistic as the government is clearly moving to bolster the market,” Zhang said.
Since the securities regulator resuming approving new funds in early February after a five-month halt, it has approved a total of 18. They are expected to bring about 110 billion yuan of fresh money to the stock market, the official Securities Times reported on Monday.
But investors are uncertain how far authorities are willing to go to support the market. One disappointment was a report Monday in the official China Securities Journal quoting Gu Kang, head of the finance ministry’s tax research institute, as saying the government should listen to the opinions of the public and experts before considering a cut in the stock trading tax -- apparently ruling out any quick cut.
Investors also worry that the planned launch in the first half of this year of a Nasdaq-style second board for start-up shares in Shenzhen could divert funds from the existing stock market.
PetroChina , the biggest index component, fell 2.34 percent to 22.11 yuan while refining giant Sinopec slumped 4.20 percent to 15.50 yuan.
Among gainers, shares of CNOOC Engineering rose 0.51 percent to 52.78 yuan after saying 2007 net profit excluding extraordinary items climbed 43 percent to 1.06 billion yuan, as revenues rose 21 percent to 6.03 billion yuan.
Sell Ratings Remain A Rarity Among Analysts
10 March 2008
By Mohammed Hadi
SINGAPORE (Dow Jones)--Pay attention the next time a research analyst tells you to sell a stock, because it doesn’t happen that often.
In fact, according to analyst tracker StarMine, just over 13% of Hong Kong listed stocks are rated as sell.
That’s a higher proportion than can be found in Japan, Korea, Singapore, Taiwan and Australia. The smallest proportion of sell ratings, just under 5%, can be found on Korean stocks.
There are some good reasons for this, and some very bad ones. And though broad figures like these mean that good analysts will be lumped in with bad - investors who act on research recommendations should consider the factors that might be influencing them.
In part, the high degree of buy ratings is a reflection of the fact that “markets tend to go up over time - so selling something or being short something over time has been a bad bet,” said Paul Schulte, chief regional equity strategist for Lehman Brothers in Hong Kong.
Indeed the proportion of sell ratings to buy ratings across Asia have fallen over time as stocks have rallied. In March 2003, which is as far back as the data from StarMine goes, about 20% of stocks in Singapore were rated a sell, while about 53% were rated buy.
Last month, just over 8% of stocks were rated sell, compared with nearly 70% being rated buy. And with the Straits Times Index up 126% from March 2003 to Friday, analysts with buy calls have been on the right side of this rally.
Does this mean it’s time for that trend to roll over and the number of sell ratings to rise? Or will analysts maintain optimism in the face of falling prices?
One thing the data reveals is that regardless of which path they take, analysts aren’t particularly nimble, as a group, with ratings changes. About the same proportion of Singaporean companies - 8.4% - were rated a sell in February compared with right after the market’s peak in October - 8.7%.
And of course part of this is relative. Analysts who variously rate stocks - at buy or overweight, or outperform or some other litigation-proof rating - may not be figuring in broad market sentiment. They cannot know, for example, that a weaker-than-expected employment report from the U.S. is going to hit investor sentiment.
“The market may head south because of recession risk, but fundamentals for a company could still remain favourable,” explained Song Seng Wun, economist at CIMB-GK.
A great number of research clients are mutual funds which can only buy and might have to maintain exposure to a certain sector or country at all times. That means, at times, it’s a matter of making the best of a bad situation -- so that buy simply means “if you have to buy then this will probably fare the best.”
That logic, though, may be behind some mixed signals coming out of research houses lately.
Even when analysts have lowered earnings estimates over the past two months, on average, they’ve actually been slightly more likely to raise their ratings on a stock than lower it.
At the same time, when average earnings estimates were raised, the ratings worsened only half as often as they improved.
This preference for buy ratings implies that there’s more going on here than just downright optimism.
Pressure from investment bankers looking to sign deals, or sales departments looking to generate some fee income by encouraging clients to buy, may remain a factor.
It’s certainly been demonstrated in the past. In a 2004 study, Harvard Business School professor Mark Bradshaw found that analyst optimism peaked during periods of fundraising activity by companies. Bradshaw thinks this might be explained by the need for investment banks to cozy up with companies that are likely to tap the capital markets.
It’s worth noting the study was based on behaviour up to the year 2000. Much has changed since then, as a result of regulation and litigation that followed the bursting of the technology bubble.
Still, “I think there is that lingering issue of independence,” said Lehman’s Schulte. “A lot of research departments are increasingly independent,” he notes, but not all are.
But even outside of the interference of other departments at a brokerage there’s a degree of self censorship involved.
“I suppose there’s a greater tendency to first of all cover stocks that you like - so that tends to start off with buy rather than sell,” said CIMB’s Song.
Why? “Access to the company is one thing. Unless there’s a real compelling reason to turn to sell ideas, most analysts perhaps look towards it being easier to keep a favourable recommendation,” Song said.
And, as one analyst in Singapore explained, there remains a fair amount of pressure to stay with the pack. Analysts who step out of the mainstream view but get it wrong have a lot more explaining to do then analysts who remain within the consensus but get it wrong along with everyone else, he said.
This all goes a long way to explaining why sell ratings seem so memorable. When an analyst does decide to rate a stock as sell - they tend to embrace the new rating with fervour.
When Daiwa Institute of Research analyst Soo Kee Ang reiterated an underperform rating on AsiaPharm Group, for example, the research note was titled “run while you can.”
When will market slide reach bottom?
10 March 2008
Dow, S&P still remain above bear market threshold despite plunge
(NEW YORK) Recession may well be here, given the dismal February employment report last Friday. But on Wall Street, many investors still are having a hard time deciding how worried they should be.
The Dow Jones industrial average slid 146.70 points, or 1.2 per cent, to 11,893.69 for the day, falling through the low of 11,971 it set on Jan 22 and finishing at its weakest point in 17 months.
Yet, by the classic measure of a bear market - a drop of at least 20 per cent in share prices - the Dow is a holdout: It is down 16 per cent from its record high reached in October.
The broader Standard & Poor’s 500 index also remains above the bear-market threshold, despite mounting evidence of recession. It has lost 17.4 per cent from its October peak.
These numbers are handy enough for gauging the damage done. But what every investor would like to know is: How much worse will it get? If you figure that a 17.4 per cent drop in the S&P 500 is just a prelude to a loss of 40 per cent by the time the market’s sell-off has run its course, you might well opt to take some money off the table and wait it out.
You know what you’re going to hear from much of Wall Street at a time like this.
Brenton Luce, a portfolio manager at hedge fund Lakefront Partners in Cleveland, writes on his blog that investment pros’ usual advice to clients in down markets is to ‘stay long-term focused’. That, he notes, ‘is code for ‘Yes, we have lost you a bunch of money lately. But we hope that the market turns positive soon and we hope that you stick with us until this happens’.’
It wouldn’t be surprising if the blue-chip stocks in the Dow and the S&P 500 were the last refuge for investors who have given up on other sectors of the market. Smaller stocks, for example, now are in bear-market territory, with the Russell 2,000 index of small-company issues off 22.9 per cent from its all-time high set in July.
Still, you might have expected a lot worse, given the trauma in the financial system from the housing bust and its collateral damage.
The credit crunch stemming from banks’ massive losses on delinquent home loans is showing few signs of un-crunching. Money remains very tight, and money is what financial markets need to move up.
The stock market’s slide last week was fuelled in part by worries about Fannie Mae and Freddie Mac, the two government- sponsored mortgage-finance giants that are supposed to help stabilise the housing market by stepping up their purchases of home loans. The companies’ stocks fell last week to their lowest levels in 12 years, and some investors became reluctant to buy their mortgage-backed bonds, which - in theory - are of the highest-quality.
That might have been too much for the Federal Reserve to brook. Last Friday, the central bank announced a major expansion of its emergency lending programme for banks, aiming to ease the credit squeeze.
Some market pros said that investors’ mood might actually improve if Fed officials and the White House would stop talking as if recession were avoidable.
Despite the credit markets’ continued deterioration, some money managers are betting that the stock market won’t get much worse.
A bottom ‘isn’t that far away’, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. He figured that the S&P 500 could fall another 5 per cent or so, which would take it modestly over the 20 per cent loss mark. -- LAT-WP
Credit derivatives turmoil strikes
By Robert Cookson and Joanna Chung in London and Michael Mackenzie in New York
Published: March 9 2008 18:42 | Last updated: March 9 2008 18:42
Turmoil in the credit derivatives markets is having an increasingly brutal impact on the wider financial system as a vicious cycle of forced selling drives risk premiums on company debt to new highs.
The trend accelerated on both sides of the Atlantic last week as investors rushed to unwind highly leveraged positions in complex structured products. The cost of protecting US investment grade debt against default soared to a high of 188 basis points, from 80bp in January.
In Europe, the cost of insuring the debt of the 125 investment-grade companies in the benchmark iTraxx Europe index surged to a new high of 156bp, before closing at 146bp on Friday. A move above 150bp would spark the unwinding of structured trades, according to BNP Paribas.
Institutions that lapped up credit risk products in recent years – many financing their purchases through borrowing – are scrambling to reduce their exposure following heavy losses, traders say.
But many investors fear conditions could worsen as hedge funds, banks and other financial institutions come under pressure to cut their losses before conditions deteriorate further.
Liquidating structured credit instruments requires buying large amounts of protection using credit default swaps. This, in turn, drives the cost of protection higher, potentially triggering a chain reaction.
“There is potential for some wild and possibly inexplicable price movements as the unwinds get bigger,” said Mehernosh Engineer, credit strategist at BNP.
The markets are so illiquid that a few trades can lead to sharp movements, producing violent price swings and knock-on effects.
Tim Bond, head of global asset allocation at Barclays Capital, said: “It’s inflicting heavy losses on the banking system, eroding their capital and reducing their ability to lend. The spread widening is so severe, you’re seeing a rise in borrowing rates across the board for everybody except top-quality governments. It’s affecting both the price and availability of credit.”
Some structured credit vehicles have in-built triggers that force them to be liquidated.
Bank of America estimates that if the cost of US investment grade credit insurance rises above 200bp, the unwinding of structures could trigger a jump towards 220bp.
Jim Sarni, portfolio manager at Payden & Rygel, an investment management firm, said: “The market is very concerned about counterparty risk and how stable positions are as they are marked to market as prices keep falling.”
Suki Mann, credit strategist at Société Générale, said companies and consumers were also suffering because of reduced lending as banks hoarded liquidity.
Copyright The Financial Times Limited 2008
Higher finance costs harm shipping industry
By Howard Winn | 10 March 2008
Tighter lending policies will make it more expensive for shipping companies to raise the $300 billion of debt needed to fund outstanding orders for new ships. Some predict borrowers will be able to raise only half this amount.
The subprime-induced credit squeeze will mean higher costs to finance new ships and cancellations of some orders as owners struggle to secure financing, a shipping conference in Hong Kong was told recently.
Graham Porter, managing director of Seaspan Advisory Services, said that, by his reckoning, new ships on order over the next three years totalled some $450 billion-$500 billion and that $300 billion of debt would be needed from ship financing banks.
Porter, who was chairing a panel discussion at the conference organised by Marine Money, thought there would be a shortfall of roughly half this amount.
Last year was a record for debt lending in the marine finance market with $95 billion raised. Panelists thought a similar amount could be raised in 2008. Established ship owners would have little difficulty in obtaining financing –although would have to pay more – but newcomers and speculators would find it difficult.
According to shipping bankers on the panel, financing of a container ship with a 65% debt component could have been arranged at a cost of Libor plus 60bp in the middle of last year, but now it would cost at least Libor plus 100bp, and by the end of the year it might be as high as Libor plus 120bp.
One of the panelists, Andrew Chiang, director of global shipping and logistics for Asia-Pacific at Citi, said the deal would be priced at around Libor plus 100bp-150bp on the assumption the loan would be syndicated.
Financing of a modern VLCC (very large crude carrier), which would have cost Libor plus 80bp last June, would price even higher at anywhere between Libor plus 130bp-180bp, according to the panel.
The boom in shipping in recent years has attracted new players both as owners and as financiers. While demand for new ships has increased dramatically, the increased competition from financiers had brought down financing margins.
But while the credit squeeze that has followed in the wake of the subprime crisis has made it more difficult for banks directly affected by the crisis, it has also created opportunities in the form of higher margins for traditional ship financing banks.
“We went through an abnormal period while the market was booming, now things are getting back to normal," said another panelist, Arnold Wu, who is head of the Asia shipping division at BNP Paribas.
“We are going back to basics. We are going back to the levels and deal structures that we saw in the mid-90s and early 2000s," agreed Charles Reineke, who is a senior vice-president of the global shipping finance group at SMBC. He added that since the subprime crisis, lending decisions faced higher levels of scrutiny. Shipping departments within the banks have to compete for finance and have to justify their lending in terms of return on capital.
Chiang said Citi focuses on the top end of the market and will continue to provide financial support to those owners.
“Pricing has obviously gone up – banks are being a lot more picky. A lot of alternative forms of financing for shipping have today dried up. So you have a scarcity of capital, a very large order book and very large demand.
The players in the market will be fighting for that capital,” he said.
Reineke noted that one-and-a-half years ago he had been worried by the prospect of hedge funds, private equity and other alternative sources of funds entering the ship finance market. “They were talking huge numbers – but where has it all gone?”
Kjell Erik Mjos, senior vice-president and advisor with DnB NOR Bank, said those worst affected by tightening credit would be the smaller ship owners and speculators who had made a down payment and placed orders in the hope of selling the vessel before completion. Korean and Indian owners who had been supported by their local banks would also be hurt since this bank lending has virtually dried up. He noted that one Korean owner had cancelled eight new building contracts recently because he was unable to make the down payment.
“That’s just the beginning,” Mjos warned. “Banks can lean back and pick and choose which deals they want to participate in.”
Copyright FinanceAsia.com Ltd., a subsidiary of Haymarket Media Ltd
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