The Hunt for the Never-Been-Done ETF

July 2, 2013, 10:10 p.m. ET

The Hunt for the Never-Been-Done ETF

JOE LIGHT and JASON ZWEIG

Maybe the Wall Street financial-product machine really can run out of new ideas. Just 70 exchange-traded funds and other exchange-traded products were launched from Jan. 1 to June 30, according to IndexUniverse LLC, a research firm in San Francisco. The total is down 44% from 126 in the same period a year earlier. The slide is a sign the market for ETFs—which hold a bundle of investments and boomed in the past decade as a cheaper, tax-efficient alternative to traditional mutual funds—has gotten so saturated fund companies are struggling to come up with niches that aren’t served by existing ETFs. Just this year, companies have launched ETFs that track Nigerian stocks, that use “forensic accounting” to avoid stocks with financial red flags, and that give leveraged exposure to the Brazilian market. Read more of this post

Dividend Stocks Enter New Era of Caution

Updated July 2, 2013, 6:04 p.m. ET

Dividend Stocks Enter New Era of Caution

MATT JARZEMSKY

Jitters about Federal Reserve policy have made investors more cautious about stock sales by companies that pay high dividends, but the window is still open for new offerings. Investors may no longer be rushing to buy just about anything with a high yield at just about any price, as they seemed to be doing at times during the first five months of the year. Yet interest rates are expected to remain exceptionally low even if the Fed begins to scale back its stimulus efforts. That, many analysts and investors say, will continue to fuel a search for yield through dividend stocks, and provide an appetite for new offerings. At the same time, the kind of improved growth outlook that would lead the Fed to taper its easy-money policies could encourage stock sales by companies more sensitive to economic growth. Investors look to shares of these companies because they offer potential for price appreciation. Read more of this post

This is a big deal. Hot money is now fleeing China “abruptly”

This is a big deal. Hot money is now fleeing China “abruptly”

By Matt Phillips @MatthewPhillips July 2, 2013

An important reason why countries like China have capital controls is to keep tidal flows of incoming foreign cash from creating destabilizing asset bubbles. But foreign capital has wormed its way into the mainland anyway. One creative method that got attention recently was phantom sales of “exports” to places like Hong Kong. Investors have salivated over opportunities—even if they are somewhat shadowy—to tap into Chinese growth. But the saliva glands seem to be drying up. Deutsche Bank FX analysts point out that flows of capital have started to change course in recent weeks, and they use so-called “over-invoiced” exports to Hong Kong as a proxy. Analyst at Barclays have also noticed the “abrupt” turn in financial flows into China. In the chart below, they’re looking at estimates of portfolio investment as well as central-bank purchases of foreign currencies. (The way China keeps capital flows in check is by forcing the private sector to convert foreign currencies in to Chinese yuan at the fixed government rate. So you can look at how much foreign currency the People’s Bank of China buys as a proxy for the amount of foreign currency that’s weaseled its way into the country.) We’re in the opening phase of this reversal. And whatever the causes of it might be—fears about the solidity of China’s financial system, slowing growth, the unwinding of the Fed’s easy-money policy—it could have wide-ranging implications. Domestically, the departure of foreign cash from China may have played a role in the recent credit crunch that sent a shiver through China’s banks. Government media minders have told the local press to tone down its coverage of financial worries (paywall), but that will only undermine confidence further. Internationally, if a decline of investment slows China’s economy, large trade partners such as Taiwan and Australia would feel it. Oh, and one other thing. Do you know where China happens to stow all that foreign cash it buy out of the markets? US government bonds. China is the largest foreign buyers of Uncle Sam’s IOUs, which helps finance the US’s persistently large current-account deficit. And coincidentally, last week saw the largest outflow on record from the Federal Reserve’s so-called “custody holdings” of Treasurys. Those are the Treasurys that the Fed holds in accounts for official entities, such as foreign central banks that use US government debt to store foreign exchange reserves. Here’s a look at a Deutsche Bank chart, which suggests that what happens in China will most definitely reverberate outward. Food for thought.

​

China’s Leading Baby Formula Maker Cut Prices on Sweeping Probes

China’s Leading Baby Formula Maker Cut Prices on Sweeping Probes

07-03 11:09 Caijing

The investigation, however, targets more than the six, said a person familiar with the case, adding that dozens of brands could be involved.

Beingmate, a leading Chinese baby formula brand is trimming its products prices on the heel of a sweeping anti-trust investigation targeting both foreign and home brands, in what is believed to be the second shake-up in China’s milk industry following the food scandal in 2008. Read more of this post

Taiwan’s housing bubble is bigger than anyone admits

Taiwan’s housing bubble is bigger than anyone admits

Editorial 2013-07-03

Declining real income and surging housing prices in Taiwan continues to worsen, along with the stagnation in the country’s economy, even though the government has reiterated that it has taken stock and is trying to deal with the situation. Government data show that real income during first four months of this year dropped to a level comparable to 15 years ago, while the average unit price of new housing purchases in Taiwan’s six major metropolitan areas hit a record high of NT$245,000 (US$8,155) per ping (3.3 square meters) during the first quarter. Read more of this post

Gross Caught in TIPS Trap Gundlach Sidestepped in Tumble

Gross Caught in TIPS Trap Gundlach Sidestepped in Tumble

On April 19, three weeks before he called the end of the 30-year bull market in bonds, Bill Gross said he was buying inflation-linked Treasuries, a bet that money printing by the world’s central banks would push up consumer prices.

While Treasuries subsequently fell as he had predicted, so did inflation expectations, amplifying rather than limiting losses for Gross’s Pimco Total Return Fund (PTRAX), which had 12 percent of its $289 billion in Treasury Inflation-Protected Securities at the end of the first quarter. The world’s largest mutual fund fell 4.7 percent in May and June, prompting $9.9 billion in withdrawals last month, the most on record. Read more of this post

Bernanke Denies India to Mexico Rate Cuts as Currencies Sink

Bernanke Denies India to Mexico Rate Cuts as Currencies Sink

Traders who anticipated lower interest rates in developing nations are reversing course as prospects for reduced Federal Reserve economic stimulus sparks the worst rout in emerging-market currencies since 2001.

Just a month ago, central bankers in Mexico, India and South Korea were expected to pare borrowing costs at least once, according to interest-rate swaps data compiled by HSBC Holdings Plc. Now, the measures show no chance of cuts. Poland’s central bank said today that it has ended an easing cycle after lowering the benchmark rate to a record low 2.5 percent. Traders anticipate one more reduction in Hungary, instead of the two they expected a month ago. Read more of this post

Indian rupee record plunge is curbing demolition of obsolete merchant vessels, exacerbating a fleet surplus; “Indian scrap yards buy old tonnage from owners in dollars, but sell the scrap metal to steel mills in rupees”

India-Rupee Slump Seen by Broker ACM as Brake on Ship Demolition

A plunge in the Indian rupee to near a record is curbing demolition of obsolete merchant vessels, exacerbating a fleet surplus in the maritime industry, according to London-based shipbroker ACM Shipping Group Plc. “Indian scrap yards buy old tonnage from owners in dollars, but sell the scrap metal to steel mills in rupees,” ACM senior analyst Marc Pauchet said in a report sent by e-mail today. “Mills are finding it increasingly difficult to meet the prices demanded by recyclers.” The currency of the world’s largest vessel-scrapping nation fell 1 percent to 60.24 per dollar as of 3:12 p.m. in Mumbai today, according to prices compiled by Bloomberg. That’s 0.8 percent away from its record low of 60.765 per dollar on June 26. The shortfall in India’s current account, the broadest measure of trade, widened to a record 4.8 percent of gross domestic product in the year ended March 31, official data show. Ship owners are contending with a fleet surplus across the maritime industry that Clarkson Plc (CKN), largest shipbroker, estimated in March was the largest since the early-1980s. The Baltic Dry Index, an overall measure of commodity freight costs, averaged 847 points this year, its worst start on record, according to the Baltic Exchange in London.

To contact the reporter on this story: Alaric Nightingale in London at anightingal1@bloomberg.net

Cash crunch has shown that financial policy in China is not reliable

July 2, 2013 3:17 pm

Pity the banks after Beijing’s blunt move

By Simon Rabinovitch in Shanghai

Cash crunch has shown that financial policy in China is not reliable

It is unfashionable these days to take the side of banks, especially institutions that are mollycoddled by the state. China’s government-owned banking behemoths are among the most unlikely candidates for compassion. But they deserve more than a little sympathy after the cash crunch of the past three weeks. Read more of this post

S. Korea’s household debts still face fragile structures

S. Korea’s household debts still face fragile structures

English.news.cn   2013-07-03

SEOUL, July 3 (Xinhua) — Growth of household debts in South Korea continued to slow amid efforts to contain further rise, but its debt structure remained fragile due to heavy dependence on high-rate loans, excessive debts compared with debt-servicing capabilities and growing multiple borrowers, data from related authorities showed Wednesday. The country’s household debts reduced 2.2 trillion won from three months earlier to 961.6 trillion won (843 billion U.S. dollars) as of end-March, the first decline in four years, according to reports submitted to lawmakers by the Ministry of Strategy and Finance, Bank of Korea (BOK), the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS). Read more of this post

The Revolving Door of Chinese Politics: A look at how ambitious executives at China’s major state-owned enterprises hope to be transferred to government posts

The Revolving Door of Chinese Politics – Economic Observer Online

By Shen Nianzu (沈念祖)
Issue 626, July 1, 2013
This is an extended abstract of an article that appeared in this week’s edition of The Economic Observer, for more highlights from the EO print edition, click here.
It’s already been 100 days since a new generation of officials have taken up their posts in the country’s State Council. Many of the newly appointed politicians formerly served at executives at some of China’s major state-owned enterprises (SOE).
For example Guo Shengkun (郭声琨), who was recently appointed as Minister of Public Security and also as one of China’s five State Councilors, once served at the CEO and Chairman of Aluminum Corporation of China (Chinalco or 中国铝业公司). Read more of this post

Zong Qinghou built Hangzhou Wahaha Group into a beverage giant, and now he has his sights set on conquering the retail sector

07.03.2013 13:53

Time for a Transformation

Zong Qinghou built Hangzhou Wahaha Group into a beverage giant, and now he has his sights set on conquering the retail sector

By staff reporters Shen Hu, Zhou Qun and intern reporter Wu Yijing

(Hangzhou) — With nearly 70 billion yuan in personal assets, Zong Qinghou, founder and chairman of Hangzhou Wahaha Group Co., is China’s richest man and a talented salesman. Starting his business career by selling cold drinks and ice cream on a bicycle at age 42, Zong created Wahaha in 1989 and made the company the country’s largest beverage producer. Zong is well known for his toughness in business negotiations. In a dispute between Wahaha and its French partner, Groupe Danone, over branding issues several years ago, he mobilized resources in political, social, business and judicial arenas to win the argument. And yet he always says: “My wealth is accumulated by selling bottles of water.” Read more of this post

Listed Chinese firms invest in wealth management products

Listed Chinese firms invest in wealth management products

Staff Reporter

2013-07-03

Amid the credit crunch, many Chinese banks have rolled out wealth management products with high yields, which have attracted numerous investors, including listed firms with idle funds in hand.

According to Industrial Securities, in the third week of June the yield rate of one-month renminbi-denominated wealth management products issued by major banks has risen further to 5.06% per annum, while the rate of four and nine-month products issued by banks limited by shares hit 5.67% and 6.2%, respectively. Read more of this post

Risks of a hard landing for China; Beijing might need to do what its leaders neither want nor expect

July 2, 2013 7:12 pm

Risks of a hard landing for China

By Martin Wolf

Beijing might need to do what its leaders neither want nor expect

The new Chinese leadership is trying to manage one of the most difficult of economic manoeuvres: slowing down a flying economy. Recently, difficulties have become more apparent, with the attempt of the authorities to bring “shadow banking” under control. Yet this is part of a bigger picture: the risk that a slowing economy might even crash. Indeed, the expressed desire of China’s new government to rely on market mechanisms raises the risks. Read more of this post