Ruchir Sharma: China’s Illusory Growth Numbers; Huge new flows of credit and public investment are delaying needed reforms and inflating a real estate bubble

Ruchir Sharma: China’s Illusory Growth Numbers

Huge new flows of credit and public investment are delaying needed reforms and inflating a real estate bubble.

RUCHIR SHARMA

Oct. 30, 2013 7:09 p.m. ET

Beijing appears to be on track, yet again, to hit its official growth target. According to China’s National Bureau of Statistics, gross domestic product rose 7.8% in the third quarter of 2013, well on its way toward hitting the official target of 7.5% GDP growth for the year. But can these numbers be trusted? Beijing has a long tradition of setting and then claiming to exceed high growth targets, which makes growth appear both rapid and stable. For years, China reported much less volatile economic growth than other developing nations, but lately volatility has all but disappeared. Since the start of 2012, China has reported a GDP growth rate within a few decimal points of the official target—every quarter. Read more of this post

Top Chinese Banks Post Biggest Bad-Loan Surge Since 2010

Top Chinese Banks Post Biggest Bad-Loan Surge Since 2010

China’s top four banks posted their biggest increase in soured loans since at least 2010 as a five-year credit spree left companies with excess manufacturing capacity and slower profit growth amid an economic slowdown. Nonperforming loans at Industrial & Commercial Bank of China Ltd. (601398), China Construction Bank Corp. (939), Agricultural Bank (1288) of China Ltd. and Bank of China Ltd. (3988) rose 3.5 percent in the three months to Sept. 30 from June to a combined 329.4 billion yuan ($54 billion), according to data compiled by Bloomberg News based on third-quarter results. Profit rose to 209 billion yuan. Read more of this post

It’s Time for Chinese Firms to Play Offense Against the Shorts; Boosting transparency from the start can keep investors from questioning the books

It’s Time for Chinese Firms to Play Offense Against the Shorts

Boosting transparency from the start can keep investors from questioning the books.

MATT FORNEY AND PAUL GILLISMatt Forney

Oct. 30, 2013 12:55 p.m. ET

Once again, China has New York on edge. Despite renewed faith in China’s economy, a sudden shock among investors has reversed a steady climb in the share prices Chinese companies listed in the U.S., and rising fears of Chinese firms may even imperil the pending initial public offerings of four Chinese firms that have filed with the Securities and Exchange Commission. The sudden volatility of Chinese stocks comes from one source: short-side attacks. The most prominent shorter, U.S.-based Muddy Waters, struck again last week with its 81-page skewering of NQ Mobile, NQ +11.26% a Chinese maker of mobile-phone security software. The report says the company’s cash balances are misstated, revenues are inflated and customers are non-existent. NQ Mobile denies the allegations and has released information on its bank accounts and taken the extraordinary step of transferring some of its cash to another bank. Read more of this post

China’s talk of reform leaves investors cool toward state giants

China’s talk of reform leaves investors cool toward state giants

5:02pm EDT

By Umesh Desai and Vikram Subhedar

HONG KONG (Reuters) – For all the grand talk of far-reaching reforms when China’s leadership meets early next month, foreign investors have refused to become carried away, with most choosing to shun the country’s mammoth state-owned enterprises (SOEs). The new leadership has been in place for a year, and investors are keen to see its strategy to keep the world’s second largest economy growing, as it enters a more mature phase of slower expansion. Read more of this post

China Companies Line Up for U.S. IPOs

China Companies Line Up for U.S. IPOs

Debut of 58.com Thursday Will Show Market’s Appetite

PAUL MOZUR in Beijing, DANIEL INMAN in Hong Kong and TELIS DEMOS in New York

Oct. 30, 2013 3:45 p.m. ET

When China’s equivalent of Craigslist sells shares in New York on Thursday, it will offer the best indicator yet of whether U.S. investors have found a taste for Chinese stocks again after a two-year case of indigestion. 58.com Inc. is set to list on the New York Stock Exchange on Thursday, the first in a string of Chinese Internet companies looking to debut in the U.S. in coming months. A strong reception for 58.com would indicate that investors have become more comfortable with Chinese shares after alleged accounting fraud at a handful of companies hammered some of these stocks two years ago and led to a broad retreat by U.S. investors. Read more of this post

In the Global Movie Business, China Aims for a Starring Role

In the Global Movie Business, China Aims for a Starring Role

Oct 29, 2013 Strategic Management Asia-Pacific China

“Chinese Titan Takes Aim at Hollywood,” said a New York Times report last month, referring to the plans of Wang Jianlin, China’s wealthiest investor and founder of the $30 billion real estate group Dalian Wanda, to build a movie-themed real estate project in the upscale seaside town of Qingdao. Price tag: 50 billion Yuan ($8 billion). “It is estimated that China’s film box office revenue will surpass North America’s by 2018 and will double it by 2023 — that is why I believe the future of the world’s film industry is in China,” the Times quoted Wang as saying. Read more of this post

Peter Zaldivar’s Hotel Shilla Pitch at Invest For Kids Chicago

Peter Zaldivar’s Hotel Shilla Pitch at Invest For Kids Chicago

Posted: 29 Oct 2013 11:24 PM PDT

Peter Zaldivar’s Presentation at Invest For Kids Chicago

•    International focus; looks for smaller underloved companies
•    Hotel Shilla (008770) 
•    $2.4 billion market cap
•    2 hotels in Korea (10% of sales) and duty free shops (90% of sales)
•    6 locations generate $6 billion of sales
•    Duopoly – 35% versus 50% Lotte (private)
•    Fast growth of 15% and accelerating
•    Barriers to entry are scale and government licenses
•    Chinese are getting richer – number of rich Chinese are growing substantially
•    Korea wants tourism and China is only 90 min away
•    Cosmetic surgery – world center for plastic surgery
•    Most important thing is that they sell luxury brands for less (as in 40% less than in mainland China)
•    South Korea has a tourist police force that verify authenticity
•    Chinese half of customer base and growing at 30% per year
•    More Chinese are getting passports – still less than 10%
•    Yet Hotel Shilla is trading at 17.2x 2014E earnings
•    28% upside in a base case
•    69% upside implied by a slight premium to comps
•    Same P/E as European counterparts would imply a 60% gain

Asian consortium including Korea’s E-Land in exclusive talks to buy Italy’s luxury leather goods brand Bruno Magli

Asian consortium in exclusive talks to buy Italy’s Bruno Magli

2:25pm EDT

MILAN (Reuters) – Italian luxury leather goods brand Bruno Magli said on Tuesday its hedge fund owner Fortelus has begun exclusive talks to sell the entire company to a consortium of Asian investors. Bruno Magli said London-based Fortelus is expected to close the deal with a group of investors including South Korean retailer E-Land and Hong Kong-based private equity firm CDIB Capital in November. The luxury shoe and handbag brand dates back to the early 1900s when two brothers and their sister set up a workshop in their basement with a share capital of 35 old Italian lira, according to the company. E-Land has been acquiring outlets, leisure holdings and fashion brands since 2009, and already owns upmarket Italian bag and wallet maker Mandarina Duck. CDIB Capital is owned by Taiwan-based investment and merchant banking group China Development Financial (2883.TW: Quote, Profile, Research, Stock Buzz).

Coffee drinkers treated to more arabica as prices sink

Coffee drinkers treated to more arabica as prices sink

1:17pm EDT

By Sarah McFarlane

LONDON (Reuters) – Coffee drinkers in Brazil, America, Eastern Europe and the Middle East are expected to down more arabica beans in their brew in the coming year as cheap prices attract additional demand for the higher spec product. A surplus from top grower Brazil after two successive bumper crops helped drag arabica prices to a four-and-a-half-year low this week, which is likely to prompt roasters to increase the use of the bean in their blends. Read more of this post

Trick or Treat? Grain hedgers haunted by the ghost of MF Global

Trick or Treat? Grain hedgers haunted by the ghost of MF Global

6:05pm EDT

By Christine Stebbins

CHICAGO (Reuters) – Two years ago on Halloween thousands of U.S. grain farmers got the scare of their lives when broker MF Global collapsed and more than a billion dollars of their money went missing. MF Global customers have now, through a court-appointed trustee, recovered about 98 percent of the money, which had been in supposedly “safe” margin accounts. The balance is expected by year’s end. Read more of this post

PwC gobbles up Booz & Co as Big 4 rebuild in consulting

PwC gobbles up Booz & Co as Big 4 rebuild in consulting

4:15pm EDT

By Dena Aubin and Kevin Drawbaugh

(Reuters) – PricewaterhouseCoopers said on Wednesday it agreed to buy Booz & Co., ratcheting up an aggressive move by large audit firms back into the lucrative consulting business more than 10 years after U.S. regulators tried to tease apart the two sectors. PwC PWC.UL, one of the world’s Big Four audit firms, said it will buy corporate consultancy Booz for undisclosed terms. Subject to approval by Booz’s partners, the transaction was the latest in a string of similar acquisitions. Read more of this post

Bank stress tests should address government debt holdings: Weidmann; sovereign debt holdings should over the medium term be treated the same way as corporate bonds, which are not treated as a risk-free asset

Bank stress tests should address government debt holdings: Weidmann

3:50pm EDT

DARMSTADT, Germany (Reuters) – The upcoming European bank stress tests should address banks’ holdings of sovereign debt, European Central Bank Governing Council member Jens Weidmann said on Wednesday. The ECB will run a series of checks on banks’ balance sheets before it will take up responsibility as the euro zone’s banking supervisor late next year and Weidmann said the tests would be a success if afterwards trust returned to the sector. “And this should also include for example that the stress test also stresses government bonds, which is currently under discussion,” Weidmann said without providing further detail for how exactly such holdings should be looked at. Weidmann, also the head of Germany’s Bundesbank, said in a speech banks’ sovereign debt holdings should over the medium term be treated the same way as corporate bonds, which are not treated as a risk-free asset. Currently Basel-III bank rules treat sovereign debt as a risk-free asset, which means that banks do not have to allocate extra capital to compensate for a potential loss in value.

Is It Wrong for Shareholder Value to Rule Business Thinking?

Is It Wrong for Shareholder Value to Rule Business Thinking?

Oct 30, 2013 Strategic Management Video

It has been a business maxim for years: Shareholder value trumps all when it comes to measuring corporate success. But by overrating shareholder value, management could focus too much on short-term stock price measures, given that outsized executive compensation often is fueled by stock options. And focusing too much on the short term can hurt a business over the long run, says Eric W. Orts, a Wharton professor of legal studies and business ethics. There are better measures of corporate success, he points out in an interview with Knowledge@Wharton about his new book, Business Persons: A Legal Theory of the Firm.

An edited transcript of the conversation follows. Read more of this post

U.K. Considers 0.75% Cap on Pension-Fund Charges to Help Savers

U.K. Considers 0.75% Cap on Pension-Fund Charges to Help Savers

The U.K. Treasury is to examine the case for capping the fees that pension funds are allowed to charge savers, in an effort to prevent exploitation of a new auto-enrollment system. Starting in April 2015, every employee will be signed up for a pension plan unless he or she opts out. According to the Treasury, this will mean as many as 9 million people saving for a pension for the first time or increasing their savings, and an extra 11 billion pounds ($18 billion) invested each year. Read more of this post