The Sinodependency index: Is exposure to China still a good thing?

The Sinodependency index

Declaration of Chindependence

For an American multinational, is exposure to China still a good thing?

Jul 20th 2013 | SYDNEY |From the print edition

BEFORE the global financial crisis, emerging economies like China aspired to “decouple” themselves from the rich world, hoping that local demand and regional trade would sustain them even if Western markets faltered. After the crisis, rich economies aspired to couple themselves with China, one of the few sources of growth in a moribund world. Carmakers in Germany, iron-ore miners in Australia and milk-powder makers in New Zealand all benefited enormously from exports to the Middle Kingdom. Every company needed a China story to tell. But as China slows and America gradually recovers, those stories are becoming less compelling. Some of them are turning into cautionary tales. Exposure to China does not always endear a firm to investors, as GlaxoSmithKline, a British pharmaceutical giant embroiled in a corruption scandal in the country, is now discovering. As a rough gauge of multinational exposure to China, The Economist in 2010 introduced the Sinodependency index, a stockmarket index that weights American multinationals according to their China revenues. The latest version of the index includes all of the members of the S&P 500 index that provide a usable geographical breakdown of their revenues. The weight of each of these 133 firms in the index reflects their market capitalisation multiplied by China’s share of their revenues. A company worth $100 billion that derives 10% of its revenues from China has the same weight as one worth $20 billion deriving half of its revenues from China. Where firms report their revenues for Asia-Pacific but not for China, the index assumes that China’s share of regional revenues matches its share of regional GDP. The biggest members of the index are Apple, with an 11% weight in 2013, followed by Qualcomm (8.3%) and Intel (7%). Most of the firms in the index are more dependent on China now than they were. China accounted for 11.2% of their revenues on average in 2012, compared with 9.8% in 2009. Read more of this post

Investors Struggle With Cash Conundrum: Respected investment pros are scouring the world for cheap stocks and bonds, and coming up empty. They are left holding cash, preferring to dilute returns rather than risk buying near the top

Jul 21, 2013

Investors Struggle With Cash Conundrum

By E.S. Browning

Charles de Vaulx has an investment idea: cash.

That may seem an odd choice, since cash earns less than inflation, making it a money-losing proposition. But Mr. de Vaulx, who oversees $17.8 billion as chief investment officer at International Value Advisers in New York, has been boosting his cash position. He is having trouble finding stocks he considers cheap and won’t buy overvalued stocks. He considers bonds even more overvalued than stocks, leaving him perched on a lumpy cash pillow. Other value-oriented investors have made similar choices, led by Berkshire Hathaway Inc. BRKB +0.29% chief executive Warren Buffett. Mr. Buffett is sitting on $49 billion, his biggest cash hoard ever, according to Berkshire’s latest quarterly report. It is an odd spectacle. Teams of respected investment pros are scouring the world for stocks and bonds they can buy on the cheap, and coming up empty. They are left holding some cash, telling their investors and shareholders they prefer to dilute their returns now rather than risk losing a lot by buying near the top. Read more of this post

Hong Kong Brokers Drive Cabs as Competition Forces Locals Out

Hong Kong Brokers Drive Cabs as Competition Forces Locals Out

Hong Kong, Asia’s second-biggest stock market, may see 25 percent of its local brokerages close as trading and fees plunge, and competition from banks intensifies, a securities association said.

The number of local broking firms may decline to 300 from about 400 in the next five years, Mofiz Chan, a spokesman of the Hong Kong Securities & Futures Professionals Association, said in a telephone interview. Read more of this post

Foreign Capital Outflows Hit China in June; Net Outflow Was First Since November, Contributing to Credit Crunch

Updated July 22, 2013, 7:27 a.m. ET

Foreign Capital Outflows Hit China in June

Net Outflow Was First Since November, Contributing to Credit Crunch

BEIJING—Foreign capital flowed out of China in June as economic growth slowed and a rise in the Chinese currency stalled, contributing to a credit crunch that briefly strained the nation’s banking system. The credit crunch has eased considerably since last month as the central bank injected liquidity in the interbank market, where banks lend funds to each other, but the squeeze raised doubts about the strength of China’s banking and financial system. The net outflow of foreign capital in June was the first since November. The People’s Bank of China and financial institutions sold a net 41.2 billion yuan ($6.71 billion) worth of foreign currency in June compared with net purchases of 66.86 billion yuan in May, according to Wall Street Journal calculations based on central bank data released Monday. Read more of this post

Beijing Lending Shift May Force Banks to Raise Capital; China’s banks will need up to $100 billion in new funding over the next two years following Beijing’s move to shake up lending

July 21, 2013, 12:06 p.m. ET

Beijing Lending Shift May Force Banks to Raise Capital

Removal of Floor on Loan Rates Is Seen Hitting Smaller Lenders Hardest

LINGLING WEI

BEIJING—China’s banks will need up to $100 billion in new funding over the next two years following Beijing’s move to shake up lending, according to an analysis by a research firm, and that could spur banks to tap investors for capital even amid growing worries over the strength of their balance sheets. China’s central bank on Saturday removed a government floor on the interest rates banks can charge their clients for credit, allowing financial institutions to price loans at whatever level they want. Authorities hope the action will foster competition among banks and result in easier access to loans for businesses and individual borrowers, especially small and private manufacturers long shunned by big state-owned lenders.  Read more of this post

China’s rate reform adds to concerns for bank investors as eventual industry overhaul will deprive the banks of virtually risk-free profits

China’s rate reform adds to concerns for bank investors

12:16am EDT

By Pete Sweeney and Gabriel Wildau

SHANGHAI (Reuters) – Beijing’s move to scrap the floor on lending rates is not yet a game-changer for Chinese banks, but it may have just started the countdown to an eventual industry overhaul which will deprive the banks of virtually risk-free profits.

China bank stocks mostly fell on Monday, the first trading session following the rate reform announced late on Friday. An index of banks listed in Shanghai was down 1.7 percent in late morning trading, compared with a decline of 0.4 percent for the broader Shanghai Composite Index .SSEC.SS. Read more of this post

Senior provincial officials seek financial help from China’s finance ministry, even from provinces considered economically sound such as Guangdong

Senior provincial officials seek help from China’s finance ministry

Staff Reporter

2013-07-18

Several senior provincial-level officials have personally sought financial support from China’s Ministry of Finance, with officials from provinces considered economically sound such as Guangdong, also voicing similar demands, reports Shanghai’s National Business Daily. Amid an economic slowdown, provincial officials have made visits to the Ministry of Finance with the aim of receiving central government benefits to bolster their regions. The list includes Guo Gengmao, secretary of the CPC Henan Provincial Committee, Xie Fuzhan, the governor of Henan, Zhou Benshen, secretary of the CPC Hebei Provincial Committee, and the governor of Guangdong Zhu Xiaodan. Read more of this post

The path of bankruptcy which crippled the once booming industrial city of Detroit is now being followed by certain cities in China

Detroit clones cropping up around China

Staff Reporter

2013-07-21

The path of bankruptcy which crippled the once booming industrial city of Detroit is now being followed by certain cities in China. These cities, such as Ordos and Wenzhou, develop rapidly without considering market demand and become “ghost towns,” according to the China Securities Journal.

The difference between Detroit and ghost towns in China, said Yang Shaofong, chairman of Chinese property developer Conworld, is that the latter will never go bankrupt because Beijing will always bail them out through policy support. Many of the ghost towns are actually already bankrupt. Read more of this post

How to Make an Audit Report Useful

Updated July 22, 2013, 12:00 a.m. ET

How to Make an Audit Report Useful

Auditors’ letters are boring and uninformative. In the future they may still be boring, but at least they’ll say something.

Face it: It is going to be pretty hard to ever make audit reports scintillating reading. But they definitely could be made a lot more informative. Audit reports are those tedious letters in which a company’s outside auditor attests that its financial statements are accurate. In fact, they’re so tedious, and offer so little information, that most investors can be forgiven for skipping them. But now many want to revamp the reports so they provide more information about the auditor’s findings—from potential risks that could affect the financial statements to areas of the audit that the auditor thinks are particularly important. The graphic at left (click to enlarge) is a mock-up prepared by The Wall Street Journal of what a revamped audit report might look like, drawing on ideas suggested by regulatory agencies and accounting groups around the world. There is no uniform agreement on what changes to make, and no revamp will incorporate all these ideas. U.S. audit regulators haven’t even issued a formal proposal yet indicating which ideas they will pursue. Though a revamped report would still be jargon-filled—and probably longer because of the suggested additions—investors might get more out of it. In other words, at least the tedium might be worth it.

When you’re rattled by collateral, do the Fed taper talk; it seems increasingly that Taper talk was forced upon the Fed for market operational reasons rather than anything to do with economic conditions being ripe for a pullback in easing

When you’re rattled by collateral, do the Fed taper talk

Izabella Kaminska

| Jul 19 10:02 | 11 comments | Share

Tim Duy, professor of practice at the department of economics at the University of Oregon, is confusing Brad DeLong, professor of economics at Berkeley, with his observation that the Fed seems to be striving to change the mix but not the level of outright accommodation. This, at least, seems to be the motivation for taper talk. We’re less confused, and quite like what Duy is saying. Note the following (our emphasis):

Bernanke is talking as if the goal is to change the mix of monetary policy but not the level of accommodation, essentially trading some reduced accommodation from ending asset purchases for additional accommodation by extending the forward guidance on interest rates. But why? If the level of accommodation is the same, does the mix matter? That’s an interesting question – does the Fed have research saying the mix matters, and why? I can see two reasons. One is that somehow asset purchases have a more negative distortionary impact. Another is that there exists an internal bias in the FOMC against expanding the balance sheet. Arguably, some elements of both where on display in Bernanke’s testimony today: Read more of this post

At-home beauty device market grows

2013-07-21

At-home beauty device market grows

By Rachel Lee

Laser 4X, a hair removal device made by Tria Beauty, is designed for at-home use

The country’s at-home beauty device market has been expanding gradually over, creating a new approach to beauty and skin care. Using high-tech, easy-to-use home beauty devices, consumers can now perform procedures like facial rejuvenation, cellulite and fat reduction, acne treatment and hair removal at home. Some popular at-home devices are Nu Skin’s ageLOC Galvanic Body Trio, a spa device that contours, smoothens and firms the body, and Unix Electronics’s Style Cube,  a hairstyling device. Read more of this post

Korea: Republic of Workaholics

2013-07-21

Korea: Republic of Workaholics

Long working hours make workers unhappy

By  Kim Bo-eun

Korea is notorious for being a country of workaholics, having one of the world’s highest numbers of annual working hours per employee. While the government and leading conglomerates have been cutting back on working hours and lengthening breaks, small- and medium-sized companies still face the miserable reality of all work and no play. Korea still has one of the lowest numbers of legally guaranteed vacation days. Even then, employees rarely use up all of their vacation days due to the workaholic culture, and when they do go on their short vacations, they are prone to be stress-ridden. Read more of this post

Malaysian-listed China firms losing lustre? “Investors just do not trust China stocks and they are quite justified in doing so”

Bursa-listed China firms losing lustre?

By Lidiana Rosli

Published: 2013/07/22

KUALA LUMPUR: China-based companies that are listed on Bursa Malaysia are having a tough time attracting investors and retaining their stock prices after being listed.

Almost all of the nine China-based companies, namely XingQuan International Sport Holdings, China Automobile Parts Holdings, HB Global Ltd, China Stationery Ltd, XiDeLang Holdings, K-Star Sports Ltd, China Ouhua Winery Ltd, Maxwell International Holdings and Multi Sports Holdings, are trading below their initial public offering (IPO) price as at July 19’s market close. An analyst told Business Times that low investor confidence and possibly “justified stigma” are the reasons for the lacklustre performance. “Frankly speaking, investors just do not trust China stocks and they are quite justified in doing so,” said the analyst, on condition of anonymity.  Read more of this post

The Bond Boom—and Beyond: Low rates drew a flood of corporate debt issues in recent years. But is the run over?

Updated July 22, 2013, 12:00 a.m. ET

The Bond Boom—and Beyond

Low rates drew a flood of corporate debt issues in recent years. But is the run over?

The record-breaking bond market has been very, very good to corporate borrowers. Companies around the globe have been rushing to issue new debt, encouraged by the lowest interest rates since the 1950s. New bond issues set a record last year, the average yield for high-yield junk bonds in early May fell below 5% for the first time, and Apple Inc.’sAAPL -1.58% recent $17 billion offering was the largest in history. Borrowers have been taking advantage of cheap debt to refinance more expensive short-term obligations, pushing the ratio of long-term to total borrowing to record highs. Many, like Apple, are using bond proceeds to benefit shareholders through increased dividends or stock buybacks. Read more of this post

Spectre of rising household debt in Malaysia

Spectre of rising household debt in Malaysia

Monday, Jul 22, 2013

Daljit Dhesi

The Star/Asia News Network

PETALING JAYA – Although the latest measures introduced by Bank Negara to rein in household debt would ensure a sound and sustainable household sector, more is needed to prevent debt from reaching alarming levels, said economists.

The household debt in Malaysia, which stands at about 83 per cent of gross domestic product (GDP), is higher than many other countries in the region like the Philippines, Indonesia, Singapore, Hong Kong and Japan. If not prevented, it could put a damper on the country’s 5 per cent-6 per cent projected GDP growth this year. Read more of this post

Snack War: Peltz vs. Rosenfeld

July 21, 2013, 4:46 p.m. ET

Snack War: Peltz vs. Rosenfeld

Mondelez CEO Is Familiar With Investor’s Efforts to Reshape Companies

JULIE JARGON

Irene Rosenfeld can’t seem to shake activist investor Nelson Peltz. First, Mr. Peltz’s Trian Fund Management LP pushed her in 2007 to sell underperforming brands such as Post cereals while she was chief executive of Kraft Foods Inc. Then in 2010, with Ms. Rosenfeld still as CEO, Kraft made a $19.4 billion acquisition of British chocolate maker Cadbury PLC, two years after Cadbury separated its drink and candy businesses at Trian’s urging. After the Cadbury deal, Mr. Peltz and his partners used their stake in Kraft to press the company to split in two. The separation of Kraft’s North American groceries unit and international snack business occurred last year, with the snack business renamed asMondelez International Inc. MDLZ +0.36% Now, Trian’s machinations are threatening to bedevil Ms. Rosenfeld yet again. Mr. Peltz last week proposed to merge PepsiCo Inc.’s PEP -0.45% snack business with Mondelez, where Ms. Rosenfeld became chairman and CEO under the changes at Kraft.

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