Here Comes the Next Hot Emerging Market: the U.S.

Updated April 19, 2013, 4:07 p.m. ET

Here Comes the Next Hot Emerging Market: the U.S.

By JASON ZWEIG

The investment visionary who coined the term “emerging markets” and helped launch the first funds to invest in developing countries thinks he has spotted what you might call the next great emerging market. It is called “the United States.”

Antoine van Agtmael is arguably the founding father of emerging-markets investing. He still is an evangelist for investing in parts of Africa, Asia, Latin America and other less-developed regions, where he thinks the future remains bright. But he believes the U.S. is at the beginning of an industrial revitalization that most analysts only have begun to recognize. Read more of this post

Congestion pushes Chinese on to their bikes

April 19, 2013 5:14 am

Congestion pushes Chinese on to their bikes

By Patti Waldmeir in Hangzhou, China

For decades under communism, owning a private car was an impossible dream inChina. Now that the dream has come true for tens of millions of Chinese, they are waking up each day to a life of traffic jams and smog. Beijing’s air pollution has been so bad recently that it has captured headlines around the world – yet the capital has far from the dirtiest air in China. More and more mainland cities can boast world-class traffic congestion, parking shortages and commuting times, auto analysts say.

Under Chairman Mao Zedong, schoolchildren were taught that these were the ills associated with capitalism, but China’s urban planners were no match for half a century of pent-up demand from first-time car buyers. The country, whose showpiece industry event – the Shanghai Auto Show – starts this weekend, is now the world’s largest car market. And it is paying the price. With more than half of all Chinese living in cities, “smog and clog” are becoming big political issues. Even washing all those cars is exacerbating the country’swater shortage, according to a report last week from a Chinese NGO. The impact is so high that some cities are even thinking the unthinkable: sending China back to its roots as a nation of cyclists. Read more of this post

1,424 listed firms in China got RMB57bn in subsidies last year

1,424 listed firms in China got RMB57bn in subsidies last year

Staff Reporter,  2013-04-20

The production line of Chongqing Iron & Steel, which got US$320 million in subsidies in 2012. (Photo/Xinhua)

The Chinese government last year provided 57 billion yuan (US$9.2 billion) in subsidies to 1,424 listed firms, with state enterprises receiving 70% of the funds.

BOE, a major flat panel display maker, took over 1.6 billion yuan (US$259 million) in government subsidy last year, when its accumulated net loss topped 8 billion yuan (US$1.3 billion), compared with total capital of 30 billion yuan (US$4.8 billion). China Ocean Service received 900 million yuan (US$145 million) last year, just a fraction of its staggering net loss of 9.6 billion yuan (US$1.55 billion).

Despite the rigorous financial screening for IPO plans, there are still over 700 firms lining up to list their shares on China’s stock market. “Share listing enables a company to raise funds by floating new shares and entitles it to various incentives from municipal governments, amounting to millions, tens of millions, or even one hundred millions of yuan,” said an executive with a listed securities firm. Read more of this post

Graduate schools stung by drop in Chinese applications

Graduate schools stung by drop in Chinese applications

Fri, Apr 19 2013

(Reuters) – Slowing graduate-school enrollments, including a 5 percent decline in applications from China for fall 2013, are hurting the revenues of many U.S. universities, Moody’s Investors Service said on Friday.

In a commentary, Moody’s said graduate school enrollments for the coming autumn term increased by just 1 percent, or the smallest increase in 11 years, according to data from the Council of Graduate Schools.

Private universities took the biggest blow, with applications from typically higher-paying international students off 4 percent. Public universities saw international applications go up 3 percent, Moody’s said.

Applications from China, the largest exporter of graduate students to the United States, were off 5 percent. Read more of this post

Luxury Slumps in Switzerland; glut of high-end developments and shrinking employment in the banking industry have led to a downturn in the upscale real-estate market

April 18, 2013, 10:45 p.m. ET

Luxury Slumps in Switzerland

A glut of high-end developments and shrinking employment in the banking industry have led to a downturn in the upscale real-estate market; slow sales at the Löwenbräu high-rise

Mobimo Tower is a luxury high-rise with units priced between $1.4 million and $7.4 million. After two years, about one-third of the residences remain unsold.

By MARTA FALCONI

When Mobimo Holding AG MOBN.EB +0.48% opened a 24-story luxury tower in one of Zurich’s trendiest neighborhoods, Chief Executive Christoph Caviezel expected the building’s glitzy condominiums to sell fast.

Snapshot: Zurich

• Population: 380,500
• Cost of living: Switzerland is currently experiencing mild deflation. Prices fell on average 0.7% in 2012, compared with a gain of 0.2% the year before.
• Average high-low temperatures: January: 37.8°/26.4°F July: 77°/55°F
• Biggest deal: Two detached houses sold for more than $32 million apiece last year.
• Notable neighbors: Singer Tina Turner lives along the Gold Coast of Lake Zurich. Swiss bank UBS board member Rainer-Marc Frey reportedly bought a condo in the Mobimo Tower.
• Conversation pieces: Zurich West, where the Mobimo Tower and the Löwenbräu high-rise were built, was formerly the city’s industrial center. Now it’s peppered with bars, restaurants and boutiques. Cultural events are often hosted in refurbished industrial sites. The Gold Coast along Lake Zurich has lured wealthy residents drawn to its quiet neighborhoods and stunning water views. The area got its nickname from the evening sunshine that bathes the area year-round.

Two years later, a third of the Mobimo Tower’s 53 units remain unsold even though they sport panoramic views, high-end fixtures and access to an on-site health club. Mobimo hopes the condominiums, which reportedly cost between 1.3 million and 7 million Swiss francs ($1.4 million and $7.4 million), will be sold by the end of 2014, a year later than previously expected.

Poor sales at the $268 million tower, its flagship property, have prompted the Lucerne, Switzerland-based developer to scrap plans for a similar luxury complex on the shores of Lake Zurich. Mobimo has already sold the land earmarked for that development, which was planned for a sun-splashed area dubbed the Gold Coast.

“It makes no sense to build more apartments in the high-price range,” Mr. Caviezel said in an interview.

Mobimo and other Swiss developers have been caught by a sudden swing in Zurich’s real-estate market. A glut of high-end developments and shrinking employment in the banking industry have hit high-end real estate hard. Efforts by the central bank, which began requiring banks in February to put an additional 1% of mortgage-related exposures aside as part of a capital cushion, are also weighing on the market. The Swiss franc is little changed compared with other currencies.

The shift has come fast for Zurich, which has been among the world’s most buoyant markets for several years. Historically low interest rates—about 1.5% for a five-year, fixed-rate mortgage—and an influx of wealthy foreigners helped push prices of upscale condominiums to nearly $2,000 per square foot, according to analysts at Credit Suisse CSGN.VX +1.03% . Confident that prices would keep rising, buyers often committed to purchases before construction of a site was completed.

Now condominium prices in the canton of Zurich, which houses Switzerland’s biggest city and the country’s financial hub, are slowing. Condo prices rose 6.5% last year, but that was down from 9.4% the previous year and 7.1% in 2010, according to Wüest & Partner, a property consultant. Analysts at Credit Suisse say price growth will “slow considerably” this year, although it will remain positive.

Properties listed for $2 million or more stayed on the market for more than 90 days in the fourth quarter of 2012, compared with more than 60 days in the third quarter, according to Wüest & Partner.

“The golden times of the last two or three years are gone now,” said Thomas Rieder, a senior economist at Credit Suisse, who says slimmer paychecks in the financial industry have weighed on the market. “It’s not so easy anymore to sell property at any price you want.”

PSP Swiss Property, PSPN.EB +0.96%a Zug-based developer, is also struggling to complete sales in its Löwenbräu high-rise, a 20-story tower built on the site of a former brewery and just down the road from the Mobimo Tower.

Though sales opened nearly three years ago, roughly 22% of the complex’s 58 units remain empty. PSP even chopped the tower’s glamorous 6,028-square-foot penthouse in two, hoping the smaller units would be easier to sell. So far, neither of the condominiums has found a buyer.

PSP CEO Luciano Gabriel said his company wasn’t planning to cut prices yet but acknowledged prices in the luxury segment have been “not very realistic.” PSP is shifting back to commercial developments, its historic strength.

Allreal, ALLN.EB +0.90% a developer with commercial and residential properties in the greater Zurich area, is also changing tack, moving back to the midlevel residential market after a luxury project overlooking Lake Zurich struggled to attract buyers. Just seven of the project’s 23 units have sold, despite a desirable location in the leafy village of Meilen, about 10 miles outside of the city center.

“Looking back a few years, such a project would have been sold out in no time,” said Matthias Meier, a company spokesman. Allreal also has another luxury project along the shore of the lake that will be completed in 2014. Prices for condos there go from about $1.4 million to $5.2 million.

Mobimo, too, is refocusing on projects that will appeal to middle-class Swiss families, a move that means a lower price point. The company is working on a complex of 50 apartments in Zurich that will likely sell at about $1,000 per square foot, roughly half the price tag for luxury developments.

Mr. Caviezel, the Mobimo chief executive, says he’s bracing for a more challenging environment. With tighter credit and fewer high-paid banking jobs, he says it will take longer for the company to sell out its big projects. Amid regulatory changes in the banking industry, UBS, UBSN.VX +3.23% the country’s biggest bank by assets, has reported that its head count in Switzerland fell to about 22,400 as of the end of last year, from roughly 23,200 in 2011. Credit Suisse, too, has cut jobs as it restructures its operations, reducing head count world-wide by 2,300 jobs during past year.

“We’ve been a little bit spoiled in the past, with apartments that could be sold even before they were finished,” said Mr. Caviezel. “Now it takes more time.”

Low-interest-rate environment exposes seniors to fraudsters; “Right now, because of interest rates, the fraudulent sellers aren’t having any issues finding a buyer who wants to believe the lie.”

Low-interest-rate environment exposes seniors to fraudsters

By Ylan Q. Mui, Friday, April 19, 2:37 AM

Senior citizens are being lured into riskier investments — and often outright scams — as carefully laid retirement plans have been scuttled by five years of low interest rates.

Government regulators and advocacy groups say unscrupulous dealers are taking advantage of a growing fear among seniors that they will run out of money in their final years of life. That’s in large part because many seniors have parked their cash in safe investments, such as government bonds, where returns have barely kept pace with inflation. As a result, their savings are stagnating as their life expectancy grows — and that is making many older Americans increasingly desperate.

In Georgia, state regulators nabbed a man last year who bilked seniors out of nearly $16 million by promising to generate high returns with investments in foreign currencies. In South Carolina, regulators are pressing charges against a former insurance agent who they say was able to scam 17 people out of more than $1 million by advertising certificates of deposit with returns of just 4 percent. A similar scheme in Virginia attracted more than $11 million from seniors hoping to beat bank interest rates that have fallen below 1 percent.

“What we really have now is a combination of the fraudulent seller with the needy buyer,” said A. Heath Abshure, commissioner of the Arkansas Securities Department and president of the North American Securities Administrators Association. “Right now, because of interest rates, the fraudulent sellers aren’t having any issues finding a buyer who wants to believe the lie.” Read more of this post

What Exactly Did Obama Say To Wall Street’s CEOs Last Thursday at 11am ET? S&P 500, Gold and Crude Oil All Peaked at 11am

What Exactly Did Obama Say To Wall Street’s CEOs Last Thursday?

Tyler Durden on 04/18/2013 22:06 -0400

Correlation is not causation; but coincidence means you’re on the right path. Looking at the charts of Stocks, Commodities, and Precious Metals, we wonder just what it was that President Obama said at his 11am ET White House meeting last Thursday… Equity markets soared out of the gate on the 11th. Jobless claims beat expectations handily (shaking off the previous week’s concerns) and all was well in the world… until just after 11am ET (when the CEOs of Wall Street’s big banks – for no apparent reason – met with President Obama)… and this happened… Gold also peaked at just after 11am ET… as did Crude oil… So what did Obama tell them?

Cola Wars, China Style

04.19.2013 14:47

Cola Wars, China Style

The government and a private company are battling in the market – and in court – over the country’s favorite soft drink

By staff reporter Qu Yunxu

(Guangzhou) — Eighteen years ago, a Hong Kong businessman named Chan Hung-to took a sip of an herbal tea produced by a government factory in Guangzhou and tasted the future – a beverage that he imagined could be the Coca-Cola of China. The sweet, cold drink called Wanglaoji herbal tea is an acquired taste, a blend of seven medicinal herbs and flowers, including honeysuckle, mint and chrysanthemum. Chan succeeded in making it China’s favorite drink. After licensing the tea’s name and recipe, he took it out of its dowdy green package, put it in an iconic red can with a bold golden logo and spent millions of yuan on massive marketing campaigns. By 2009, it was outselling even Coke in the country. Now, Chan and his erstwhile government partners are locked in a series of bitter trademark battles. While the court hearing for the latest lawsuit is waiting to be held, the real story of Wanglaoji may be that winning in the marketplace is more important than winning in court. But whether Chan can maintain market share if he loses the rights to use the bright red can design is a question worth billions of yuan. Feng Zhimin, a senior executive at Chan’s firm, says they are almost ready to throw in the towel on legal action. “If we lose this case again, there is no justice. We will give up,” he says. Read more of this post

Two-thirds of all $100 bills live outside America

Most $100 Bills Live Outside The U.S.

by JACOB GOLDSTEIN, April 17, 201312:00 PM

The world loves the U.S. dollar.

When, say, a South African businessman buys supplies from China, he pays in U.S. dollars. When central banks hold foreign reserves, they favor dollars. And, all over the world, when things start to get crazy, people start putting $100 bills under the mattress. In fact, as of 2011, roughly two-thirds of all $100 bills were held outside the U.S., according to anestimate by Ruth Judson, an economist at the Fed.

Read more of this post

Snoozebox (ZZZ), portable hotels made of stackable containers that have housed fans at events, has gained 55 percent since its IPO last May, outperforming European hoteliers such as Accor and InterContinental

Snoozebox Portable Hotels Conceived in Misery of Rain at Le Mans

When Ignis Asset fund manager David Clark first heard of Snoozebox (ZZZ), portable hotels made of stackable containers that have housed fans at events such as the Le Mans 24-hour car race, he wanted to kick himself. Instead, he made sure Ignis was the biggest investor. “When I first came across it I had ‘duh’ moment,” Clark said in a phone interview. “It doesn’t take a genius to figure out the numbers of places that hold events but don’t have the accommodations for people to stay in.” Ignis now holds 14 percent of Snoozebox Holdings Plc’s shares.

Snoozebox, which transports rooms equipped with flat-screen TVs, Wi-Fi and running hot water to sporting and music events across the U.K. and beyond, may almost triple its revenue this year, said Simon French, an analyst at Panmure Gordon & Co., who recommends buying the stock. The London-based company may report 5.4 million pounds ($8.3 million) in sales for 2012 when it releases earnings April 23, he said.

The stock has gained 55 percent since its initial public offering last May, outperforming European hoteliers such as Accor SA (AC) and InterContinental Hotels Group Plc. (IHG) The MSCI Europe Hotels, Restaurants and Leisure Index has advanced about 14 percent. The shares rose 8.3 yesterday after Snoozebox said it won a contract to supply accommodation for 1,350 personnel at the G8 summit in Northern Ireland in June. Chief Executive Officer Robert Breare said the trick is to transport — by air, land or sea — 40 to 400 prebooked rooms that are placed steps from the action. Read more of this post

Australia: Crackdown on shadow banking after a spate of failures among finance companies that accepted debentures, including the $660 million collapse of Banksia last year

Crackdown on shadow banking

April 19, 2013 – 2:23PM, Clancy Yeates

The financial regulator is proposing tougher rules on non-bank finance companies that accept retail deposits after a string of collapses in the “shadow banking” sector. In new proposals published today, the Australian Prudential Regulation Authority said it would restrict companies that operate outside the Banking Act from using terms such as “deposit” and “at call” accounts. Currently there are no restrictions on use these phrases by finance companies, which are regulated much more lightly than banks. Under the proposed changes, APRA said it would remove an exemption that allows finance companies to use these terms, to avoid confusion among retail investors. It also said it would require debenture products to have a minimum maturity of 31 days. The crackdown comes after a spate of failures among finance companies that accepted debentures, including the $660 million collapse of Banksia last year.

Yoshinoya Japan slashes beef bowl prices

Yoshinoya slashes beef bowl prices

KYODO, APR 19, 2013

Yoshinoya Holdings Co. on Thursday cut prices for its mainstay “gyudon” beef-on-rice bowls to take advantage of eased restrictions on beef imports from the United States. The relaxation of strict import curbs in February is allowing the stable procurement of cheaper beef suitable for gyudon, the company said. Yoshinoya slashed beef bowl prices by ¥100 to match its two biggest rivals — Zensho Holdings Co.’s Sukiya chain and Matsuya Foods Co. — which are currently charging ¥280 for a standard bowl. The price of a large bowl dropped by ¥40 to ¥440, while the extra large bowl fell by ¥90 to ¥540. The price cuts are expected to produce about 30 percent more customers and a 15 to 20 percent boost in sales, the firm said. Prices for other ingredients, however, are starting to rise, thanks to Prime Minister Shinzo Abe’s “Abenomics” policies. Players in the fast-food industry say that lower gyudon prices are the key to winning market share.

Buffett’s China BYD mulls leaner, greener “re-birth” plan

Exclusive: China’s BYD mulls leaner, greener “re-birth” plan

Thu, Apr 18 2013

By Norihiko Shirouzu

SHANGHAI (Reuters) – BYD Co, one of the better known Chinese brands thanks to a stake held by billionaire U.S. investor Warren Buffett, may stop making conventional gasoline-fuelled cars within two years and focus on ‘new energy’ battery models as part of a “re-birth plan” to arrest a slump in sales.

Shares in BYD, which once harbored long-term ambitions to be as big as Toyota Motor Corp, have tumbled by almost three quarters since a late-2009 peak, as net profit crumbled to just 81.4 million yuan ($13.15 million) last year from 3.8 billion yuan four years ago. Read more of this post

Is Pepsi better off without Pepsi? The slowing drinks business is seen as a drag on Pepsi’s growing snacks business

Is Pepsi better off without Pepsi?

By Gina Chon @GinaChon April 18, 2013

Did Pepsi CEO Indra Nooyi throw activist investors a bone today? During the call to discuss the company’s latest earnings, Nooyi said Pepsi is exploring “sensible opportunities to unlock incremental value through meaningful structural alternatives.” “Unlocking value” and “structural alternatives” are sometimes the jargon words used when considering a breakup.

Whether Pepsi, which makes an array of soft drinks, energy drinks, and snacks, goes that far remains to be seen. Nooyi said she won’t discuss the plans until next year. But she did note that the cola category, which includes Pepsi’s namesake products, has been tough as people drift away from sugary drinks for health reasons. That has brought down the performance of its North American beverage business.

Activist investor Ralph Whitworth of Relational Investors is among (paywall) the shareholders who have been pushing Pepsi to do something about its slow-growing beverage unit. One suggestion is separating that drinks business into an independent company. Investors are continuing to press for this, according to sources.

The slowing drinks business is seen as a drag on Pepsi’s growing snacks business. Today’s reported earnings beat analysts’ estimates because sales went up of products like Lays potato chips, Doritos, and Stacy’s pita chips. That gives investors even more ammunition to push for a breakup. Whitworth has discussed a separation of the North American beverage business with Nooyi in the past. Read more of this post

110 million defective condoms in Ghana: the latest example of China’s dangerous counterfeit trade

110 million defective condoms in Ghana: the latest example of China’s dangerous counterfeit trade

By Gwynn Guilford @sinoceros April 18, 2013

China’s $250 billion knock-off trade doesn’t just mean fewer handbag sales for LVMH, or a hit to the DVD sales market. It can also have potentially lethal consequences.

Take, for example, counterfeit condoms, 110 million of which the Food and Drugs Authority of Ghana has impounded over the last week due to poor quality. Testing revealed the condoms to have holes and break under pressure. It also found that they were unusually small and insufficiently lubricated.

And those hole-riddled, flimsy, undersized condoms were made in China, the FDA confirmed Tuesday, identifying Henan Xibei Latex Company Ltd. as the manufacturer. (Here’s the company’s Alibaba.com profile, should you be in the market for defective protection). On top of that, Yenghana reports that the leaky condoms are counterfeit, and that the purported manufacturer, BeSafe, has never sold its products in Ghana.

This isn’t the first time that a Chinese company has been implicated in selling faulty or knock-off condoms. They’ve been bedeviling global public health officials for more than a decade (examples here, here, here and here). Read more of this post

Going local: Japanese carmakers turn to Chinese parts for China market; “Things like the endurance of an auto part are very hard to check unless you actually apply them in cars on the road.”

Going local: Japanese carmakers turn to Chinese parts for China market

Thu, Apr 18 2013

By Kazunori Takada

SHANGHAI (Reuters) – When Nissan Motor Co Ltd (7201.T:Quote, Profile, Research, Stock Buzz) was preparing to launch the Venucia marque with its China venture partner two years ago, it sourced more components locally to keep costs down – and was sent mislabeled parts and sun visors that melted in the heat.

The quality of Chinese-made car parts has since improved and, facing tougher competition in what is now the world’s biggest autos market, Nissan and its Japanese rivals Toyota Motor Corp (7203.T: Quote, Profile, Research,Stock Buzz) and Honda Motor Co Ltd (7267.T: Quote, Profile, Research, Stock Buzz) are having to increase the locally made content in their cars.

This is a big step for Japanese automakers that have built a global reputation for quality through close relationships with known and trusted suppliers, many of whom they own and control and with whom they jointly design and develop components. Read more of this post