A misleading model: Low bond yields have in the past been bad, not good, for equity returns

A misleading model: Low bond yields have in the past been bad, not good, for equity returns

Aug 3rd 2013 |From the print edition

BULLS tend to find all sorts of reasons for forecasting a higher stockmarket. This is especially true of investment-bank strategists, whose bonuses are likely to get bigger when share prices are rising. Low bond yields are often seized on by equity bulls. A recent research note from Deutsche Bank, for example, suggested there was a straight trade-off between changes in bond yields and the valuation of shares, in the form of the price-earnings ratio or “multiple”. Lower bond yields mean a higher multiple; based on current yields, shares are cheap. It is all remarkably reminiscent of the so-called “Fed model”, much loved by bulls in the 1990s. The model was based on a reference in Alan Greenspan’s 1997 congressional testimony to the close relationship between the ten-year bond yield and the earnings yield (the inverse of the price-earnings ratio) on the S&P 500 index. If the earnings yield was higher than the bond yield, then equities were cheap. Bond yields and earnings yields did indeed seem to move in tandem for about 15 years, and then the relationship broke down completely at around the turn of the century (see top chart). Read more of this post

Thrice-bailed-out Dexia suffers fresh loss

August 7, 2013 10:38 am

Bailed-out Dexia suffers fresh loss

By James Fontanella-Khan in Brussels

Dexia, the Franco-Belgian bank that was one of the biggest victims of the financial crisis, suffered further losses in the first half of 2013, raising fears in Paris and Brussels that the troubled lender could further impact their recession-hit economies. The thrice bailed-out bank on Wednesday reported a net loss of €905m in the first half of 2013, despite enjoying lower funding costs. In the same period a year ago it lost €1.17bn. The performance of Dexia is being closely watched by French and Belgian authorities as their governments own most of the residual bank. They two countries were forced to inject €11bn in fresh capital and provide €90bn in state guarantees to save the bank in the aftermath of the 2008 crisis. Luxembourg also participated in the bailouts but to a lesser degree. Further losses at Dexia – once the world’s biggest lender to municipalities – raises the prospect of fresh capital injections or state guarantees from France and Belgium. Read more of this post

India to milk advantage from curbs on New Zealand dairy products; Nearly 90% of China’s $1.9 billion in milk powder imports last year originated in New Zealand

India to milk advantage from curbs on New Zealand dairy products

5:39am EDT

By Rajendra Jadhav

MUMBAI (Reuters) – India, the world’s biggest milk producer, hopes to seize on a New Zealand dairy product contamination scare to increase its exports and add market share in China and other emerging Asian countries. India’s milk production is likely to rise almost 5 percent in the year to next March to 133 million tons, said R G Chandramogan, managing director of Hatsun Agro Products Ltd, one of the country’s leading milk powder exporters. Traditionally, most of that production stays at home as a protein staple for a population of 1.2 billion, but with domestic demand pegged at around 128 million tons, there should be more milk available to make skimmed milk powder (SMP) for export. The Indian government also usually restricts overseas sales to keep a lid on local prices. Read more of this post

Build it and they might come: A planned Thai mega-project in Myanmar runs into difficulty

Build it and they might come

A planned Thai mega-project in Myanmar runs into difficulty

Aug 3rd 2013 | BANGKOK AND DAWEI |From the print edition

THE Burmese city of Dawei lies 350 kilometres (220 miles) west of the Thai capital, Bangkok. The two are separated by a stretch of mountainous jungle and have never been connected. But over the past five years, Thailand’s biggest construction company, ItalianThai, has cut a swathe through the jungle which, once paved, will cost roughly $1m per kilometre of road. The plan is that it will connect Bangkok with a $50 billion industrial hub and deep-sea port at Dawei on the Andaman Sea.

The project was set in motion by Thaksin Shinawatra, a former Thai prime minister, who was overthrown in a military coup in 2006. When he proposed it he was still in power and it was seen by many as a vanity project that would never get off the ground. After the Burmese government started to open up two years ago, some concluded that Mr Thaksin was in fact a visionary. But although Yingluck Shinawatra, Mr Thaksin’s sister and Thailand’s current prime minister, is soon due to inaugurate the border checkpoint on the road, financial difficulties are once more calling the project into question. Read more of this post

Easy Cash Ebbs for $300 Billion Asean Port-to-Rail Cost

Easy Cash Ebbs for $300 Billion Asean Port-to-Rail Cost: Freight

Emerging Southeast Asian nations need to pour $300 billion into transport links to help ease freight bottlenecks. That just got harder as the prospect of reduced Federal Reserve monetary stimulus pushes up borrowing costs. Indonesia, Thailand, Malaysia and the Philippines require $128 billion of investment in roads, $119 billion for rail, $33 billion in ports and $16 billion for airports through 2020, Goldman Sachs Group Inc. estimates. At the same time, their government bond yields have surged since May as concern the Fed could taper cash injections sparked outflows of foreign capital. The four nations plan about $1 trillion in development spending, partly to improve goods transport performance that declined in all except the Philippines since 2007, based on World Bank rankings. The expenditure is needed to keep up a pace of expansion that averaged more than 6 percent in 2012, closing in on China and beating India for the first time in a decade. Read more of this post

Investors Grow Wary of Indonesia; Protectionism, Slowing Growth Are Worries as Election Approaches

Updated August 6, 2013, 7:14 p.m. ET

Investors Grow Wary of Indonesia

Protectionism, Slowing Growth Are Worries as Election Approaches

BEN OTTO and LAUREN DAVIDSON.

JAKARTA, Indonesia—Investors are souring on Indonesia as growth slows and a contentious election approaches. Indonesia’s economy expanded by just 5.9% in the second quarter, its worst showing since 2010. Prices for commodities exports such as palm oil and coffee are down, driving the trade balance deeper into the red. Inflation hit a 4½-year high in July after the government raised fuel prices. The country’s stocks, bonds and currency, the rupiah, all have sold off this summer as investors pulled cash out of emerging markets amid speculation the Federal Reserve was preparing to wind down its bond buying. The rupiah is down 6% against the dollar since the start of May. Over the same period, yields on 10-year government debt denominated in rupiah jumped to 7.63%, from 5.5%. Yields rise when prices fall. Read more of this post

Earnings disappointment may stall chase for outperforming China stocks

Earnings disappointment may stall chase for outperforming China stocks

12:44am EDT

By Clement Tan

HONG KONG (Reuters) – Chinese companies still able to report healthy profits could see their shares trim sharp gains if earnings disappoint, narrowing a yawning gap with firms struggling to cope with Beijing’s drive to consolidate industries plagued by overcapacity. The signs are starker in onshore markets where sectors such as technology and pharmaceuticals, which are still generating healthy profits, have significantly outperformed the lumbering industrials and materials firms plagued by inefficiency. Slowing growth in China is now a top concern for global investors, who have steadily cut exposure to emerging markets and braced for the risk of a possible hard landing in the world’s second-largest economy. Read more of this post

McDonald’s Franchisees Rebel as Chain Raises Store Fees; ‘‘It is not as profitable a business as it used to be”

McDonald’s Franchisees Rebel as Chain Raises Store Fees

By Leslie Patton – Aug 6, 2013

McDonald’s Corp. (MCD), already struggling to sell burgers in the U.S., now must contend with a brewing franchisee revolt. Store operators say the company, looking to improve its bottom line, is increasingly charging them too much to operate their restaurants — including rent, remodeling and fees for training and software. The rising costs are making franchisees, who operate almost 90 percent of the chain’s more than 14,100 U.S. locations, less likely to open new restaurants and refurbish them, potentially constraining sales.

McDonald’s is “doing everything they can to shift costs to operators,” said Kathryn Slater-Carter, who in June joined other franchisees in Stockton, California, to brainstorm ways of getting the chain to lessen the cost burden. “Putting too much focus on Wall Street is not a good thing in the long run. ‘‘It is not as profitable a business as it used to be,’’ said Slater-Carter, who owns two McDonald’s stores and backs California legislation that would require good faith and fair dealing between parties in a franchise contract. It would also allow franchisees to associate freely with fellow store owners. Read more of this post

Suicidal to buy land at current high prices: Singapore CDL Property Billionaire Chairman Kwek Leng Beng

Suicidal to buy land at current high prices: CDL Chairman

SINGAPORE — Buying land at the prevailing high prices would be “suicidal”, City Developments (CDL) Executive Chairman Kwek Leng Beng said yesterday, as he forecast private home prices to decline 5 per cent over the next year, with the Government’s cooling measures working their way through the market.

BY LEE YEN NEE –

5 HOURS 40 MIN AGO

SINGAPORE — Buying land at the prevailing high prices would be “suicidal”, City Developments (CDL) Executive Chairman Kwek Leng Beng said yesterday, as he forecast private home prices to decline 5 per cent over the next year, with the Government’s cooling measures working their way through the market. Under the law, developers with any foreign ownership — including most of the publicly-listed ones — are subject to Qualifying Certificate (QC) conditions, one of which is that all units must be sold within two years of completion. Developers can apply for an extension for a fee. Read more of this post

First U.S.-Listed Chinese Firm Plans Switch to China; The curious case of a backdoor listing in Shanghai; Reverse A-share mergers

August 6, 2013, 7:56 AM

First U.S.-Listed Chinese Firm Plans Switch to China

A wave of Chinese companies have left the Nasdaq and NYSE in recent years, with their founders vowing to relist somewhere they’re more appreciated. Finally one company has announced plans to relist – but using the same reverse merger technique that got U.S. investors riled up when the same firms went to trade in the U.S. in the first place. China Security & Surveillance Technology, Inc., a Shenzhen-based firm that delisted from the NYSE in 2011, wants to list one of its subsidiaries, China Security & Fire, on the Shanghai stock exchange. According to a public filing, it plans to list part of itself via a sale to Shanghai Feilo Co.600654.SH -0.25% Ltd., a manufacturer of electronic parts for cars already trading on the Shanghai market. Read more of this post

Spotlight on solar panel maker Suntech in test for China

August 6, 2013 6:06 pm

Spotlight on solar panel maker in test for China

By Henny Sender

Close watch on case amid competing priorities

Suntech Power Holdings was once the biggest solar panel maker in the world by production volume, its founder Shi Zhengrong was the richest man in China and the offshore parent company was listed in New York with a market capitalisation of $16bn. Then in March, Wuxi Suntech, its principal subsidiary, filed for bankruptcy under China’s new revitalisation law. Chinese banks are owed about $2.3bn by the mainland entity according to filings as of year-end 2011. Creditors to the offshore parent, a group with claims of almost $600m that includes several hedge funds as well as the IFC arm of the World Bank, are also attempting to recover their loans. The offshore parent has not filed for bankruptcy and is still operating. Read more of this post

India’s Indigenous Languages Drive Wikipedia’s Growth

India’s Indigenous Languages Drive Wikipedia’s Growth

MAHESH SHARMA

posted 16 hours ago

Despite accommodating the world’s second largest English-speaking population behind the United States, it is India’s indigenous language speakers that are creating and consuming the content that is driving Wikipedia’s growth on the subcontinent. The Wikimedia Foundation last year issued a  $440,000 grant to the Bangalore-based Centre for Internet and Society (CIS), which, along with the local Wikimedia chapter, has trained almost 2,500 Indians how to edit and create content in their local languages. While the country’s official languages are Hindi and English (when the country earned its independence in 1947, the states couldn’t agree to be represented by a single local tongue) there are over a thousand recognised dialects, and 22 official languages spoken by over a million people. Read more of this post

Australia and the curious case of the highly politicised interest rates

Australia and the curious case of the highly politicised interest rates

Kate Mackenzie

| Aug 06 08:59 | 11 comments | Share

Politics has definitely been an element in the discussions around who will replace Ben Bernanke at the Fed. That’s probably putting it mildly. But we suspect even the US doesn’t have quite the partisan obsession Australia boasts. Australia’s central bank cut its cash interest rate to 2.5 per cent today, a record low. Australians being a rather highly leveraged bunch, the RBA’s interest rate decisions are almost always reported with focus on the implications for mortgagees. And this cut happened to be made a few days after an election was called which, surprise surprise, is set to be tightly contested… Read more of this post