The Rise of the ‘Aztec Tiger’: Under a charismatic new leader, Mexico is roaring toward a turnaround

April 26, 2013, 7:33 p.m. ET

The Rise of the ‘Aztec Tiger’

Under a charismatic new leader, Mexico is roaring toward a turnaround

By NICOLAS BERGGRUEN and NATHAN GARDELS

Two decades ago, one of Mexico’s leading social critics proclaimed Los Angeles “the heart of the Mexican dream.” Pedro P. agreed, leaving behind his native Oaxaca for work as a gardener in the city’s San Fernando Valley. After 14 years as an undocumented immigrant, however, Pedro, age 44, is heading home at the end of April, drawn by an economic resurgence south of the border that has led some observers to label Mexico the “Aztec tiger.” Read more of this post

China Top Leaders Warn on Financial Risks as Rebound Falters as PSC, China’s top decision-making group, held a special economy-focused session, the first time since 2004

Chinese leaders more worried about financial risks than slower growth

Kate Mackenzie

| Apr 26 07:59 | 14 comments | Share

China’s Politburo Standing Committee, the country’s top decision-making group, held a special session yesterday to discuss the economy — apparently the first time they’ve held this sort of economy-focused meeting since 2004, according to Xu Gao at China Everbright Securities (via Bloomberg).

So what came out of it? It’s always hard to tell, but it probably wasn’t good news for anyone hoping for big stimulus measures.

The official Xinhua report is here and its headline suggests some worry at the economic growth rate. “China needs to cement its domestic economic growth momentum and guard against potential risks in financial sectors,” seems to be the key line, from the third paragraph, although it goes on to point out that Q1′s 7.7 per cent growth that had many China watchers worried was in fact higher than the 7.5 per cent official target. Read more of this post

Japan casino lobby in legalization push; market could out-strip Vegas

Japan casino lobby in legalization push; market could out-strip Vegas

7:14am EDT

By Nathan Layne and Farah Master

TOKYO/HONG KONG (Reuters) – After Singapore, Japan?

A pro-casino group of Japanese lawmakers has tapped an influential member of the ruling Liberal Democratic Party (LDP) as its leader and plans to submit legislation this year aimed at opening the world’s third-largest economy to casino gambling. Although casinos are illegal, Japanese are already active gamblers, and a pinball-like game called pachinko generates some $200 billion in revenue each year – about the same as Toyota Motor Corp. Japan is often touted as the next major casino market after Chinese enclave Macau, the world’s biggest gambling hub, which raked in revenue of $38 billion last year.

A large and wealthy population coupled with a proximity to Shanghai and Beijing has the potential to transform Japan into a lucrative gaming center, providing tax revenues to shore up the state’s ailing finances, analysts say. Broker CLSA estimates Japan’s gaming market could be worth at least $10 billion if two large-scale integrated resorts are approved – more than Singapore’s $5.9 billion and Las Vegas’ $6.2 billion in 2012. Read more of this post

Perverse advantage; A new book lays out the scale of China’s industrial subsidies

Perverse advantage; A new book lays out the scale of China’s industrial subsidies

Apr 27th 2013 | Shanghai |From the print edition

CHINA is the workshop to the world. It is the global economy’s most formidable exporter and its largest manufacturer. The explanations for its success range from a seemingly endless supply of cheap labour to an artificially undervalued currency. A provocative new book* by Usha and George Haley, of West Virginia University and the University of New Haven respectively, points to another reason for China’s industrial dominance: subsidies.

The Chinese government does not report all subsidies made to domestic industrial firms, so the Haleys plugged the holes with information from industry analysts, policy documents, non-governmental outfits and companies themselves. By looking at the gaps between end-user prices and benchmark prices, they have cobbled together numbers on many of the subsidies enjoyed by the biggest industrial state-owned enterprises (SOEs).

On their conservative calculations, China spent over $300 billion, in nominal terms, on the biggest SOEs between 1985 and 2005. This help often came in the form of cheap capital and underpriced inputs unavailable to international rivals. The glass industry got soda ash for a song, for example. The auto-parts business got subsidies worth $28 billion from 2001 to 2011 through cheap glass, steel and technology; the government has promised another $10.9 billion by 2020. The subsidies to the paper industry topped $33 billion from 2002 to 2009. All industrial SOEs benefited from energy subsidies. Read more of this post

The cold wind of competition sweeps the legal-services market

The cold wind of competition sweeps the legal-services market

Apr 27th 2013 |From the print edition

“THE one great principle of the English law is to make business for itself,” noted Charles Dickens. These days many lawyers are struggling to do so. Few people are buying or selling houses. Divorces have been declining steadily for the past ten years. There is less crime. Legal aid is being trimmed. As a result, the proliferation of lawyers has slowed. This month the Law Society, which represents solicitors in England and Wales, announced that the number of firms and private practitioners had dropped for the first time. To make matters worse, competition is increasing.

Britain’s legal industry was once tightly regulated. Only qualified lawyers, typically operating in partnerships, were permitted to offer legal services. That changed in 2007, when the Legal Services Act allowed non-lawyers to own, run or invest in legal businesses. The first licence for an “alternative business structure”, as the new, looser arrangement is awkwardly known, was issued in March 2012. A year on, Britain’s legal market is beginning to churn. Read more of this post

WisdomTree Powers Ahead, Shares up 85% This Year; why the ETF company is one of the brightest spots in the asset management industry

April 26, 2013, 10:25 A.M. ET

WisdomTree Powers Ahead, Shares up 85% This Year

By Brendan Conway

The ascent of WisdomTree Investments (WETF) continues. This morning’s earnings report gives a few more signs why the company is one of the brightest spots in the entire asset management industry. The only publicly traded firm selling ETFs and ETFs alone reported a 53% jump in total revenue last quarter and a six-fold rise in net income. The period’s 60% growth in assets under management from a year earlier is more than twice the pace of the ETF industry’s 27% growth during 2012.

It’s not as if the company is sacrificing profitability to build up assets. WisdomTree’s average ETF advisory fee held steady at 0.54%. Costs rose, but gross margins still expanded to 72% from 63% a year earlier. Investors have responded. Shares are up nearly 85% year-to-date, including a 5% jump this morning, to $11.43.  Read more of this post

Southeast Asia’s 2015 unity dream collides with reality; “This kind of exercise – highly ambitious, short time-lines – simply works to fracture the organization further.”

Southeast Asia’s 2015 unity dream collides with reality

Thu, Apr 25 2013

By Stuart Grudgings

BANDAR SERI BEGAWAN, Brunei (Reuters) – Southeast Asian nations have quietly begun to row back on a deadline of forming an “economic community” by 2015, confirming what many economists and diplomats have suspected for years as the diverse group hits tough obstacles to closer union.

Rather than referring to the end of 2015 as a firm goal, officials at this year’s first summit of leaders of the Association of Southeast Asian Nations (ASEAN), whose 10 members range from glitzy Singapore to impoverished Myanmar, prefer to call it a “milestone” to be built on in years ahead.

In so doing, they are bowing to the reality of slow progress and even some regression on politically sensitive goals, such as eliminating non-tariff barriers and lowering obstacles to the free flow of labor in the diverse region of 600 million people. Read more of this post

Milk Smugglers Top Heroin Courier Arrests in Hong Kong

Milk Smugglers Top Heroin Courier Arrests in Hong Kong

For border officials in Hong Kong, baby formula trumps heroin.

Since the former British colony on March 1 restricted outbound travelers to two 2-pound cans each, a syndicate has been cracked and more people have been arrested for smuggling milk powder than were detained all of last year for carrying heroin.

The reason? Mainland Chinese demand for the formula, fueled by distrust of locally made food after product- safety scandals that included the deaths of at least six babies due to tainted milk. The U.K. and New Zealand are among countries that restricted milk sales as bulk purchases of brands such as Danone (BN)’s Aptamil and Mead Johnson Nutrition Co. (MJN)’s Enfamil caused local shortages.

“Most of them only have one child, and the child is the most important thing in their life,” James Roy, a Shanghai- based analyst China Market Research Group, said of Chinese parents, most of whom are subject to the government’s one-child policy. “They want to be extra careful.”

The crackdown on milk buyers gives Danone (BN), Nestle SA (NESN), and Mead Johnson an opportunity increase their market share in China at the expense of domestic rivals such as China Mengiu Dairy Co. (2319) and Inner Mongolia Yili Industrial Group Co. (600887) Read more of this post

Calpers Tops $260 Billion as It Recoups $95 Billion Loss but still short $87 billion, or about 26 percent, of meeting its long-term commitments, and has had to ask the state and struggling cities to contribute more

Calpers Tops $260 Billion as It Recoups $95 Billion Loss

The California Public Employees’ Retirement System reached a market value of $260.8 billion in assets, surpassing the high set before the global financial crisis wiped out more than a third of its wealth.

The largest U.S. pension, with half of its money in equities, passed its pre-recession high of $260.6 billion on Oct. 31, 2007, according to a posting today on its website. The fund returned 13 percent in 2012, about the same gain as the Standard & Poor’s 500-stock index.

“The fund is stabilizing and the lessons we’ve applied from the past are paying off,” Chief Investment Officer Joe Dear said by e-mail. “But as remarkable as this number is, we are long-term investors and try to not get too excited when things are good or too discouraged when things are bad.”

Calpers isn’t alone in seeing gains. The 100 largest public pensions in the U.S. had $2.9 trillion in assets in the fourth quarter of 2007, according to U.S. Census Bureau data. That dropped to $2 trillion in 2009 and rebounded to almost $2.8 trillion as of Sept. 30. Even with its gains, the Sacramento-based pension is still short $87 billion, or about 26 percent, of meeting its long-term commitments, and has had to ask the state and struggling cities to contribute more. Read more of this post

Japan’s state-backed funds take risks, but what are the rewards? Possible risks to Japanese taxpayers were on full display last year when Elpida Memory failed only three years after it was saved with a 30 billion yen investment

Japan’s state-backed funds take risks, but what are the rewards?

Thu, Apr 25 2013

By Junko Fujita and Chikako Mogi

TOKYO (Reuters) – As part of Japan’s economic revival plan, the new government has added $3.2 billion to the spending power of state-linked funds investing in Japanese companies, effectively acting as venture capitalists much to the chagrin of private equity firms.

Critics argue the government largesse – the state funds spending power has now gone up to some $34 billion – will crowd out private equity in a country that desperately needs risk-taking investors to revitalize a corporate sector struggling to maintain its global competitive edge. Read more of this post

Japans’s Scary Lesson on Slashing Interest Rates; Politicians, bankers, investors and businesspeople alike get addicted to free money all too easily and clamor for more

Japans’s Scary Lesson on Slashing Interest Rates

Christine Lagarde wants her staff at the International Monetary Fund to examine what might happen to the global economy when central banks begin to raise interest rates. She’s wasting their time.

If Japan has taught us anything, it’s that slashing rates to zero and beyond is a lot easier than returning them to normalcy. Japan is on its sixth central-bank governor since its bubble burst in 1990, and like his predecessors, Haruhiko Kuroda is doubling down on quantitative easing. Why? Politicians, bankers, investors and businesspeople alike get addicted to free money all too easily and clamor for more.

Once central banks start embracing assets such as corporate debt, commercial paper, mortgage-backed securities, exchange- traded funds, real-estate trusts and the like, monetary officials tend to get stuck. That’s especially so in nations carrying large, and growing, debt burdens. Read more of this post

Malaysian Chinese May Abandon Prime Minister Najib as Fear of Riots Repeat Ebbs

Malaysian Chinese May Abandon Najib as Fear of Riots Repeat Ebbs

Malaysian businessman Stanley Thai says he’s joining thousands of fellow ethnic Chinese citizens in abandoning support for Prime Minister Najib Razak and voting for the opposition for the first time in elections next month.

“Why are the Chinese against the government — it’s simple,” Thai, 53, owner of medical glove-maker Supermax Corp. (SUCB), said in an interview last month. “We don’t want our children to suffer what we suffered, deprived from education, from career opportunities, from business opportunities.”

Chinese, who make up about a quarter of Malaysia’s population, are growing intolerant of affirmative-action programs for Malays propagated by Najib’s alliance of parties, the most recent national poll indicates. Any mass defection by Chinese voters raises the risk of the ruling coalition’s first election loss since it was formed after 1969 race riots.

The violence of 1969 helped persuade many Chinese to back Barisan Nasional, which Najib has led since 2009, as they accepted racial preferences for Malays as the cost of peace. Thai said thinking changed when the government’s electoral take sank in 2008 with little sign of renewed social unrest. “Everyone said, ‘Wow, the time has come,’” he said. Read more of this post