Daniel Yergin: China’s Big Commodity Chill

August 8, 2013, 7:12 p.m. ET

Daniel Yergin: China’s Big Commodity Chill

With the end of the supercycle, copper prices have dropped 30% from their 2011 peak, and iron ore is down 32%.

DANIEL YERGIN

Though it was summertime, a tinge of ice was in the June air at this year’s St. Petersburg International Economic Forum. “There is no magic wand we can wave,” said Russian President Vladimir Putin, acknowledging the abrupt drop in Russia’s growth rate. “Prices for our main exports rose fast” for many years, he told the forum, but now “the situation has changed. There are no magic solutions.” What is giving Russia and many other countries the shivers is the China Chill that is the result of the slowing Chinese economy. It means a recalibration for the world’s exporters, who have come to count on vigorous Chinese demand. It will be a particular challenge for commodity exporters. Over the past decade, they have been the great beneficiaries of the commodity “supercycle”—the combination of accelerating demand and rising commodity prices that have delivered GDP growth. With China’s slowing, the supercycle is over, meaning tough choices ahead. Read more of this post

Norway’s sovereign wealth fund expands its activist role; about 60 per cent invested in equities, the fund owns on average 1.25% of every listed company in the world. Its average stake in European companies is 2.5%

August 8, 2013 11:00 pm

Investor muscle

Norway’s sovereign wealth fund expands its activist role

For most savers, passive investing makes better sense than trying to beat the markets. For the world’s biggest sovereign wealth fund with $760bn or so of assets, passive is hardly an option. Norway’s steps to becoming a more active shareholder are logical – and may benefit other investors as well. When Norway’s SWF received its first injection of North Sea oil revenue in 1996, it was a largely passive, index-tracking investor, which outsourced precise portfolio decisions to external investment managers. This made sense at the time. The amounts invested were relatively small. Investment expertise was still thin at the central bank – the fund’s institutional home. Read more of this post

Chi-X Global and SBI Japannext set sights on South Korea; South Korea is the third-largest equities market in the region after China and Japan by volume

August 8, 2013 12:33 pm

Chi-X Global and SBI Japannext set sights on South Korea

By Jeremy Grant in Singapore and Simon Mundy in Hong Kong

South Korea is set to become the third Asian equities market to open to competition between exchanges and upstart trading venues after Chi-X Global and SBI Japannext, both backed by large banks, said they were exploring entering the country. The moves are a sign that the breaking of longstanding national exchange monopolies and equity market fragmentation – a trend that has swept Europe in the past six years – is gathering pace in Asia. Japan Exchange, formed from the recent merger of the country’s two largest bourses in Tokyo and Osaka, already competes with Chi-X and SBI Japannext in share trading. Australia’s ASX faces off against Chi-X Australia. South Korea is the third-largest equities market in the region after China and Japan by volume, and it offers trading in some of the most liquid stocks such as electronics maker Samsung. Read more of this post

Cash lure to stop firms deserting ETFs in times of stress

August 8, 2013 2:39 pm

Cash lure to stop firms deserting ETFs in times of stress

By Arash Massoudi and Tracy Alloway in New York

On Wall Street, it seems money talks. Three years after the “flash crash” that sent prices of exchange traded funds reeling, US stock exchanges say they have worked out a way to motivate the financial firms that are supposed to ensure smooth trading in ETFs: pay them more.

Two of the biggest venues for trading US ETFs are readying pilot programmes that they hope will encourage better behaviour from the top “market-makers” of the funds – financial firms such as Goldman Sachs and KCG. Read more of this post

After Going All In During Mining Boom, BHP Cuts Its Ambitions

AUGUST 8, 2013, 2:38 PM

After Going All In During Mining Boom, BHP Cuts Its Ambitions

By WILLIAM MACNAMARA

BHP Billiton, the world’s largest mining company, was willing to spend big in early 2012. It was building new mines and upgrading old ones, at a cost of $18 billion. It considered a potential expansion of its copper and uranium mine, Olympic Dam, which could have cost as much as $20 billion. It proposed a deepwater extension of Port Hedland, its iron ore port, an estimated $10 billion or more. But BHP has significantly scaled back its ambitions in the last year, replacing its multibillion-dollar spending spree with an austere program of cost cuts and efficiency drives. It shelved the plans for Port Hedland and Olympic Dam, both in Australia, noting the need to find “a less capital-intensive design.” The mergers and acquisitions department is now referred to as the “D department” internally, to signify its focus on disposals, according to a person close to BHP who spoke on the condition of anonymity. Read more of this post

Russia’s Stimulus Plan: Open the Gulag Gates to unlock the tens of thousands of business owners

August 8, 2013

Russia’s Stimulus Plan: Open the Gulag Gates

By ANDREW E. KRAMER

MOSCOW — A business owner in Russia has a better chance of ending up in the penal colony system once known as the gulag than a common burglar does. More than 110,000 people are serving time for what Russia calls “economic crimes,” out of a population of about three million self-employed people and owners of small and medium-size businesses. An additional 2,500 are in jails awaiting trial for this class of crimes that includes fraud, but can also include embezzlement, counterfeiting and tax evasion. But with the Russian economy languishing, President Vladimir V. Putin has devised a plan for turning things around: offer amnesty to some of the imprisoned business people. Read more of this post

Korea Pension Scraps Minimum Broker Fee to Reduce Trading Costs; The fund holds about 6% of publicly traded shares in the $1.1 trillion equity market

Korea Pension Scraps Minimum Broker Fee to Reduce Trading Costs

South Korea’s National Pension Service, the biggest investor in the country’s equity market, scrapped the minimum fees it pays brokers to execute stock trades as the fund seeks to reduce transaction costs.

NPS, the nation’s largest pension fund, ended its policy of paying a minimum 0.15 percent fee as of last month, Lee Yun Ji, a spokeswoman for the fund in Seoul, said in a phone interview today. Brokers will need to “write down” their fees and the new policy will spur competition for commissions, Lee said. Samsung Securities Co. (016360) and Mirae Asset Securities Co. (037620) retreated in Seoul trading today, while the Kospi Index rose 0.3 percent. Read more of this post

Public Pension Shortfalls Are Everyone’s Problem

Public Pension Shortfalls Are Everyone’s Problem

The pension liabilities that helped bankrupt Detroit have cast a harsh light on similar problems in Chicago and other large American cities, adding urgency to the question of who should close the shortfall. This is a challenge that public-sector workers and retirees shouldn’t bear on their own.

The public pension problem is by now well known. Detroit’s emergency manager estimates its unfunded liabilities at $3.5 billion, about a fifth of the city’s debt. As of last year, Chicago had funded just 36 percent of its pension obligations, while, as of 2011, Philadelphia had put aside just 50 percent of its promised benefits. Read more of this post

Elon Musk’s Fortune Soars $570 Million as Tesla Beats Estimates

Elon Musk’s Fortune Soars $570 Million as Tesla Beats Estimates

Elon Musk’s fortune soared $570 million yesterday as shares of Tesla Motor Inc. (TSLA), the electric-car company he co-founded in 2003, rallied 14 percent after posting second-quarter results that surpassed analysts’ estimates on a surge in Model S sedan deliveries. Musk has a net worth of $7.7 billion, according to the Bloomberg Billionaires Index, up more than 220 percent year-to-date. He’s the world’s 162nd richest person. The company on Wednesday reported an operating profit of 20 cents a share, including 15 cents related to a leasing program. Even without that provision, results exceeded the average of 10 analysts’ estimates for a 20-cent loss, according data compiled by Bloomberg. On its operating basis, Tesla said it will make money all year, even as it expands to Europe and Asia.

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Subaru’s 412% Surge Leads Carmaker to Debate Niche Status

Subaru’s 412% Surge Leads Carmaker to Debate Niche Status: Cars

What car company’s stock has risen the most — fivefold — since the beginning of 2012? Besides Tesla Motors Inc. (TSLA)

It’s Fuji Heavy Industries Ltd., maker of Subaru.

Profits and sales are heading toward records after the company benefited more than most Japanese carmakers from the weakening of the yen and as new models such as the BRZ sports car have become so popular that U.S. consumers need to wait months to get one. The success is leading President Yasuyuki Yoshinaga to worry whether the niche maker of all-wheel-drive vehicles is getting too big. Read more of this post

Assessing the scale of metal warehouse trades

Assessing the scale of metal warehouse trades

Izabella Kaminska | Aug 08 08:59 | 1 comment | Share

Earlier this week Morgan Stanley published an in depth look into the financing warehouse trades in metals — the ones most analysts have been in denial about (at least publicly) for at least five years — and why they are now, thanks to new LME proposals, finally easing. The note is titled: “Beginning of the end in warehouse trades: A game changer for base metals”. There were three notable observations.

First, it’s not just banks that should be blamed for fuelling the queue and inventory over-financing problems. Part of the problem is related to the general demise of independent warehouse operators in the metals industry. That is to say, there aren’t enough warehouse owners who do not have conflicting interests as traders or bankers on top of their warehousing businesses: As has subsequently become clear, domination of a good delivery point through the ownership of the majority of multiple warehouse units licensed to receive a particular metal in a given location is a necessary condition for controlling metal inflow, outflow and associated rental cash flow that is the foundation of warehouse rental and financing deals. In addition, a sizeable balance sheet and an active involvement in physical trading as a means of engaging in inventory finance or warehouse incentive deals became a sufficient condition of this domination. Not surprisingly, the lessons and opportunities provided by the Metro acquisition were not lost on the big physical commodity trading houses, which, in a short space of time from March 2010 onwards, bought the majority of the remaining independent LME warehousing businesses. Read more of this post