Errors of Aggression Catch up with Underwriter; Ping An Securities pursued IPOs with abandon for two years, but sloppy work has resulted in heavy punishment from the regulator

05.14.2013 18:24

Errors of Aggression Catch up with Underwriter

Ping An Securities Co. pursued IPOs with abandon for two years, but sloppy work has resulted in heavy punishment from the regulator

By staff reporters Zhang Bing, Fu Yanyan and Zheng Fei

(Beijing) – Ping An Securities Co. has been slapped with a fine by the securities regulator and will lose its stock underwriting license for three months because of its sloppy work in underwriting the initial public offering of a company that turned out to be a fraud.

This is not the first time the leading underwriter had to swallow a bitter pill for its overly aggressive approach to IPO underwriting in 2010 and 2011, when it beat all other brokerage firms in the country in underwriting revenue. Read more of this post

China: High and dry; Water shortages put a brake on economic growth and stir political discontent

Last updated: May 14, 2013 9:12 pm

China: High and dry

By Leslie Hook

Water shortages put a brake on economic growth and stir political discontent

Holed beneath the waterline: China’s droughts and water shortages are pushing people to leave their homes and join an exodus to the cities

Wang Fuguo, a 63-year-old cotton farmer, does not know when his ancestors began tilling the land in the dusty village of Weijie. But he is fairly sure he will be the last of his family to do so. “They’ve all fled,” he says, looking out from his gate at the abandoned houses that line the village’s only street. The reason is simple. “There’s just no water here,” he says. “If you don’t have water you can’t survive.” His household gets running water for one hour every five days, barely enough to feed a tiny patch of aubergines and supply his family and their dozen sheep. In the face of China’s rapid economic expansion and growing presence on the global stage, it is often forgotten that the country is running out of water. In per capita terms, China’s water resources are just a quarter of the world average. Eight of China’s 28 provinces are as parched as countries in the Middle East such as Jordan and Syria, according to China Water Risk, a consultancy based in Hong Kong. Read more of this post

Why Investors Can’t Imagine a Collapse of the Bond Market

May 14, 2013

Why Investors Can’t Imagine a Collapse of the Bond Market

By Jason Zweig

For years on end, pundits have been predicting the collapse of the bond market, and recently such calls have reached a crescendo – with bond king Bill Gross of Pimco being the latest to sound the death knell.

But investors show almost no inclination to avoid the impending doom: A new survey of investors by BlackRock found that 57% are “worried about rising interest rates” and 53% think bonds are riskier today than a decade ago. Yet fewer than 7% said that “identifying the bond investments that are right for you” would be a major focus for them over the coming year – and 60% said they wouldn’t focus on it at all.

Meanwhile, even as the stock market has shot almost straight up for the past four years, investors appear to be turning their backs on equities. The proportion of Americans who will admit to owning stocks has sunk to 52%, down from 65% in 2007, according to a new Gallup survey.

In short, investors are the prisoners of their past. Read more of this post

James Montier’s Presentation at London Value Conference: GMO Now 50% in Cash

Monday, May 13, 2013

James Montier’s Presentation at London Value Conference: GMO Now 50% in Cash

Continuing our notes from the London Value Investor Conference 2013, the next speaker is James Montier of GMO.  He presented an update on their latest asset allocation model.
GMO Now 50% in Cash
James Montier said that GMO’s 7 year asset allocation model for US stocks is now predicting  negative returns. GMO are now 50% in cash.  While they’ve been known to hold higher levels of cash than most investors, this seems to be taking things a step further.  They still hold some investments in Japan but he  indicated that they are likely to be selling over the next couple of months.
He said that a year ago the model was indicating good returns in Europe but now it only suggests  2.5% real return per annum. He said that they are a bit frightened to follow the model in Europe  because of the leverage at the company level, particularly in the financial sector.
Their model suggests that the best value is in emerging markets where 6% real is forecast. However,  he mentioned that the research by his colleague, Edward Chancellor, which has identified an asset  bubble in Chinese real estate, has made GMO cautious and led them to allocate less to EM than the  model would suggest.
It is clear that at certain times GMO are prepared to overrule their  quantitative asset allocation models when other evidence suggests caution.

Brokers Go Gray as Youth Unsustainable Without Cold Calls

Brokers Go Gray as Youth Unsustainable Without Cold Calls

Alex Freemon was so eager to be a stockbroker after graduating from the Georgia Institute of Technology last year that he said he was happy to go door to door selling mutual funds for Edward Jones & Co.

The brokerage flew him to St. Louis, where he practiced knocking on a model door in a classroom of would-be brokers at the company’s headquarters, then sent him back to Atlanta to walk the streets for 10 hours a day for about $30,000 a year plus commissions. Freemon said he quit in March after realizing he would have to spend five years struggling to meet sales goals before he could focus on helping clients make financial plans.

“Until you actually go out and hit the pavement, it doesn’t really sink in,” said Freemon, 23, who now works as a business analyst at a software company in Atlanta. “It’s not impossible, but it’s definitely not sustainable if you have a family or anything to do besides knocking on doors.”

Breaking into the brokerage business is getting tougher as declining fees make small accounts less profitable and government restrictions on unsolicited calls make phone sales taboo. That’s leaving big firms struggling to replace a retiring generation of advisers who helped accumulate trillions of dollars of assets and generated steady profits for years.

“The only way you can do it is if your dad is rich and he’s got country-club buddies he can send you or you’re a psycho who can work 20 hours a day,” said Josh Brown, who helps oversee about $350 million at Fusion Analytics Investment Partners LLC in New York. Read more of this post

The Resistible Fall of Europe: An Interview with George Soros

George Soros is Chairman of Soros Fund Management and Chairman of the Open Society Foundations. A pioneer of the hedge-fund industry, he is the author of many books, including The Alchemy of Finance and The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means.

The Resistible Fall of Europe: An Interview with George Soros

14 May 2013

Editor’s note: On May 12, George Soros was awarded the Tiziano Terzani Prize for his 2012 book Financial Turmoilpublished in Italy by Hoepli. The following interview is adapted from a press conference held in Udine, Italy, on that occasion.

SOROS: I have been very concerned about Europe. The euro is in the process of destroying the European Union. To some extent, this has already happened, in the sense that the EU was meant to be a voluntary association of equal states. The crisis has turned it into something that is radically different: a relationship between creditors and debtors. And, in a financial crisis, the creditors are in charge. It is no longer a relationship between equals. The fate of Italy, for example, is no longer determined by Italian politics – which is in a crisis of its own, I would say – but rather by the creditor/debtor relationship. That is really what dictates policies.

QUESTION: But the stock markets are apparently in good condition. Why do you think we are in a crisis? Do you think this kind of honeymoon will go on for a long time?

SOROS: The answer is no. We are in what I call a far-from-equilibrium situation. Therefore, it cannot last. But I am not in a position to predict the future. Read more of this post

Malaysian Pension Fund Sold Stocks on Poll Rally: Southeast Asia

Malaysian Pension Fund Sold Stocks on Poll Rally: Southeast Asia

Malaysia’s biggest pension fund sold about 331 million ringgit ($110 million) of shares in the country’s benchmark index as Prime Minister Najib Razak’s election victory sparked the largest rally since 2008.

Employees Provident Fund, which oversees $176 billion for more than 13 million Malaysians, reduced stakes in 20 of the 30 stocks in the FTSE Bursa Malaysia KLCI Index (FBMKLCI) as the gauge jumped 3.4 percent on May 6, regulatory filings compiled by Bloomberg show. The fund’s net sales of UEM Land Holdings Bhd. (ULHB) were the biggest on record for a single day, while the reduction in Public Bank Bhd. (PBK) was the largest in three months.

EPF sold even as Najib’s win in the May 5 election eased concern the first change in leadership since 1957 would disrupt his plans to narrow the budget deficit and boost infrastructure spending. The fund may have taken advantage of foreign purchases to lock in higher prices on its holdings as the KLCI index rose as much as 7.8 percent to a record, said ABN Amro Private Bank’s Daphne Roth. Trading volumes on May 6 were 87 percent higher than the 12-month average, data compiled by Bloomberg show.

“The local funds went in before the election so they are just lowering their holdings and they just want to take profit,” Roth, the Singapore-based head of Asia equity research at ABN Amro Private Bank, which oversees about $207 billion, said by phone yesterday. “They are hoping to come back in when the prices are down.” Read more of this post

The Emergence of Openness: How Firms Learn Selective Revealing in Open Innovation

The Emergence of Openness: How Firms Learn Selective Revealing in Open Innovation

Joachim Henkel TUM School of Management – Technische Universität München (TUM) ; Centre for Economic Policy Research (CEPR)

Simone Schöberl McKinsey & Company Inc.

Oliver Alexy Technische Universität München (TUM), TUM School of Management

March 28, 2013

Open innovation is often facilitated by strong intellectual property rights (IPRs), but it may also function, and even be boosted, when firms deliberately waive some of their IPRs. Yet, extant literature falls short of explaining how firms learn to practice this behavior. To address this question, we conduct an empirical study in a segment of the computer component industry which traditionally has taken a rather proprietary stance. With the advent of the open source operating system Linux, firms increasingly waived their IPRs on software drivers. We trace and analyze this process using both qualitative and quantitative methods. We find that component makers had to go through a learning process to realize that and how selectively waiving IPRs may be beneficial for their business. We uncover customer demand as a trigger, organizational inertia as an obstacle, and positive experiences as subsequent driver of this learning process. We also identify differences between uni-directional and bi-directional openness, and find that firms’ motives relate to how they implement openness. Of particular interest are the important role of an external trigger to rethink an engrained industry practice of strong IP protection, and the development of openness into a new dimension of competition.

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