Bamboo Innovator

BRICs Abandoned by Locals With Fund Outflows Highest Since 1996

BRICs Abandoned by Locals With Fund Outflows Highest Since 1996

The 2.5 million rupees ($45,984) Nirav Vora had in the Indian stock market six years ago have plunged by 72 percent. Now the 39-year-old father of two in Mumbai, who depends on investment income for his livelihood, is plowing money into government bonds.

“The confidence of small investors is rock bottom,” Vora said by phone on Feb. 26. “They have no faith in the markets.”

Vora’s exit from equities is being repeated across the biggest emerging markets as disappointing profits and growing state intervention cause stocks to trail global shares for a fourth year. Trading by Brazilian individuals has dropped to the lowest level since 1999, exchange data show. Russian mutual funds posted 16 straight months of outflows, the most since at least 1996, and withdrawals in India are the biggest in more than two years. Chinese investors emptied more than 2 million stock accounts in the past 12 months.

After amassing unprecedented wealth during 14 years of world-beating economic expansion, citizens of the so-called BRIC countries are losing their appetite for shares even as U.S. households return to stocks. While the Dow Jones Industrial Average (INDU) is trading at an all-time high, the MSCI BRIC Index remains 37 percent below its 2007 peak as economic growth disappoints investors and policy makers do little to improve the treatment of minority shareholders. Read more of this post

Hedge-Fund Liquidations Jumped in 2012 on European Crisis

Hedge-Fund Liquidations Jumped in 2012 on European Crisis

Hedge-fund liquidations rose to a three-year high in 2012 as the European debt crisis and concerns about global economic growth hurt performance for the $2.3 trillion industry, according to Hedge Fund Research Inc.

The number of firms shut jumped to 873, the most since 2009, the Chicago-based data provider said in a statement today. Still, the net number of hedge funds increased after money managers started 1,108 firms last year, it said.

Smaller hedge funds have been hardest hit by the global financial turmoil that has made it more difficult to raise money from investors since the collapse of Lehman Brothers Holdings Inc. in 2008. Hedge funds managing more than $5 billion got 65 percent of the $3.4 billion of assets that flowed into the industry in last year’s fourth quarter while firms with less than $1 billion reaped 8.7 percent, Hedge Fund Research said.

“The capital-raising environment continued to be challenging for emerging managers, including both small and mid- sized funds, as well as newly launched funds,” Kenneth Heinz, Hedge Fund Research’s president, said in the statement. “To raise new investor capital, hedge funds must not only demonstrate both superior performance and an innovative strategy, but also increased organizational efficiencies.” Read more of this post

In China, owning an oversized dog is the newest form of political dissent

In China, owning an oversized dog is the newest form of political dissent

By Damien Ma — March 14, 2013

Damien Ma is a fellow at The Paulson Institute, focused on investment and policy programs. Previously, he was a lead China analyst at Eurasia Group, a political risk research and advisory firm.

Most Americans will likely have a preconceived notion of the Chinese relationship with dogs. When a developing country can barely take care of all its own people, animal rights tend to sit very low on the totem pole. But the reality is much more complicated, especially with a burgeoning dog culture associated with the rise of young urban elites with disposable income.

That complex reality is being captured in a soon-to-be-released documentary on China and dogs. The film, Oversized Dogs: Chinese Dog Laws and the People Who Break Them,is ostensibly about what the title suggests. It follows several Beijing residents who own dogs that are technically illegal because they are above the size limit stipulated in an antiquated Beijing law. It’s not just the Chinese capital — these size limitation rules have popped up in other parts of China, yet Chinese dog owners seem to be flouting them with impunity. Beyond the legal issue, dog ownership in China turns out to be an interesting examination of evolving attitudes in Chinese society today. In particular, it indirectly reflects the rise of rights consciousness among the growing legion of Chinese who count themselves among the middle class. Read more of this post

China’s Billionaire Bubble Stands in Xi Jinping’s Way

China’s Billionaire Bubble Stands in Xi Jinping’s Way

Now that Xi Jinping officially holds the reins in Beijing, the world is asking this question: Can China’s new leader revamp an economy that may become the world’s largest during his 10-year term? Here’s an even better one: Will Beijing let him? Much is being made of how quickly Xi is replacing Hu Jintao in China’s fastest formal transfer of power in more than a generation. Although it took Hu almost two years to get all top three positions — president, Communist Party head and chairman of the military commission — Xi has them right out of the gate. The sense is that Xi has been empowered to rebalance an economy that’s producing a dangerous gap between rich and poor. That would sound more plausible if not for China’s billionaire bubble. The real big money in China isn’t in the private sector, but the public one. A March 7 Bloomberg News story dramatized the point: The ranks of the ultra-wealthy in China’s legislature swelled 20 percent this year. The list of China’s 1,000 richest people published by the Shanghai-based Hurun Report contains 90 members of the National People’s Congress. That, Bloomberg calculates, is up from 75 in 2012. It’s worth noting that everyone on the Hurun list had a fortune of at least 1.8 billion yuan ($289.4 million), more than former Republican presidential candidate Mitt Romney.

Chinese politics is proving to be a bit too lucrative for the nation’s own good. Corruption, of course, doesn’t taint every member of Beijing’s inner circle. Yet the vast financial empires being amassed by some and the lack of transparency about wealth among politicians require attention and, where needed, legal action. Xi must break this cycle. As more and more politicians get rich through questionable land grabs, insider trading and old- fashioned rent seeking, there is less incentive to retool the economy. Political will shrinks as overseas bank accounts swell. All that money sloshing around conspires to widen China’s rich- poor divide. But can Xi do it? The plot thickens when you consider Bloomberg’s June story on how Xi’s extended family accumulated a fortune estimated at $376 million. Only time will tell if history remembers Xi as China’s great reformer or the great enricher of a party that’s become communist in name only.

(William Pesek is a Bloomberg View columnist. Follow him on Twitter.)

Buffett’s BYD Threatened by Prius in China Hybrid Shift

Buffett’s BYD Threatened by Prius in China Hybrid Shift

Toyota Motor Corp. (7203)’s Prius hybrid is emerging as the likeliest winner from China’s faltering attempt to dictate the future of world motoring.

Policies favoring Warren Buffett-backed BYD Co. (1211) and other electric-vehicle makers were meant to help China vie for global leadership in a technology the government expected to replace clunkers that run on gasoline. Except, as Chairman Mao Zedong put it, “seek truth from facts,” and the fact is: EVs flopped.

Consumer appetite failed to materialize even with financial incentives that halved the price tag of a BYD e6. The 27,800 EVs on Chinese roads are fewer than 6 percent of the government’s 2015 target — and 0.02 percent of the total civilian fleet. For now, China needs to promote other technologies to cut the tailpipe fumes choking its cities, says one minister.

“We’re very anxious” about worsening air pollution, Miao Wei, industry minister and a three-decade veteran of China’s auto industry, said during last week’s annual National People’s Congress in Beijing. “I’ve never believed that you can gain global leadership in one leap.” Read more of this post

China WMPs raise liquidity, transparency worries; Banks are reportedly now required to finish examining and – where needed – make changes to their capital-pool WMPs before April.

China WMPs raise liquidity, transparency worries

By Elva Muk | 15 March 2013 (2 hours ago)
As the China Banking Regulatory Commission sets out requirements for wealth-management product providers, analysts highlight issues around WMPs.

As China’s banking regulator seeks to limit the risk of wealth management products (WMPs) in the banking sector, some market participants are looking to clarify what they see as the major issues: chiefly liquidity and transparency.

Banks are reportedly now required to finish examining and – where needed – make changes to their capital-pool WMPs before April. If they don’t satisfy the China Banking Regulatory Commission (CBRC), it might consider halting the firm’s WMP business. Read more of this post

Turkey’s $580,000 Taxi Plates Drive Free-Wheeling Market

Turkey’s $580,000 Taxi Plates Drive Free-Wheeling Market

Beyond the polished Fiats and Fords parked at the Oto Center in a remote working class district of Istanbul, traders tout an investment vehicle that has tripled in value over the last nine years: license plates for taxis that fetch about 1.05 million liras ($580,000).

Prices quoted inside stores that act as a private bourse have risen about 10 percent from 885,000 liras a year ago, with the number of permits issued by Istanbul’s government unchanged for two decades even as the population in Turkey’s commercial capital grew, according to the taksiplakasi.com website. The 4,600 liras a month paid by drivers to rent plates add another 5 percentage points of investment income, the website shows.

Slices of permits called plates, wheels and nuts trade like bonds and lure investors wishing to comply with Islam’s ban on earning interest in a country where almost all of the 80 million population is Muslim. The licenses are an alternative to real estate and resemble investments created by bankers in Islamic finance, such as rent certificates.

The market has become so liquid that “one can sell in half an hour and get the cash in less than a week, not much different from the Istanbul Stock Exchange,” Gursoy Atli, sales manager at Kale Ticaret, one of a handful of closely-held companies that trade licenses, said in a phone interview Feb. 19. There is little regulation and no guarantees. Read more of this post

Private Equity Squeezes Out Cash Long After Its Exit

MARCH 13, 2013, 6:26 PM

Private Equity Squeezes Out Cash Long After Its Exit

By LYNNLEY BROWNING

When the Berry Plastics Group, a container and packaging company, went public last October, it generated up to $350 million in tax savings. But the company won’t collect the bulk of the benefits. Rather, Berry Plastics will hand over 85 percent of the savings, in cash, to its former private equity owners.

The obscure tax strategy is the latest technique that private equity firms are using to extract money from their companies, in this case long after the initial public offering.

In a typical buyout, the owners make money by sprucing up the operations and selling the business to another company or public investors. Private equity firms have also found ways to profit before the so-called exit with special one-time dividends and annual management fees.

Now, buyout specialists are increasingly collecting continuing payouts from their former portfolio companies. The strategy, known as an income tax receivable agreement, has been quietly employed in dozens of recent private equity-backed offerings, including those involving PBF Energy, Vantiv and Dynavox. Read more of this post

Indonesia: Buyers and Sellers Blame Govt for Skyrocketing Price of Garlic and Shallots

Buyers and Sellers Blame Govt for Skyrocketing Price of Garlic and Shallots
Jakarta Globe | March 13, 2013

The cost of shallots and garlic has skyrocketed in the past week, causing complaints from buyers and sellers who blame government policy for the increased prices.

Detik.com reported on Wednesday the price of garlic has hit Rp 75,000 per kilogram in some places — more than five times the usual price of Rp 13,000 per kilogram— while the current price of shallots has hit Rp 48,000 per kilogram from the usual Rp 12,000 per kilogram.

In an effort to bring the price down, the Trade Ministry on Thursday announced it would import 29,136 tons of garlic from China and India. Srie Agustina, director general of domestic trade at the Trade Ministry, told Investor Daily over the weekend that the imported garlic would arrive in Jakarta in the next two weeks.

A housewife named Agnes said she’s going to avoid buying shallots and garlic until the price returns to normal.

“Shallot and garlic prices are so high. I usually buy them for Rp 14,000 per kilogram but now it’s Rp 40,000 per kilogram. It’s better if we don’t consume it for a while,” she told beritasatu.com at the Kramat Jati Market on Tuesday. Read more of this post

Former World’s Biggest Solar Panel Maker Suntech Seen Not Getting Bailout From Chinese Government; Wall Street May Lose in $541 Million Suntech Bond Default

Suntech Seen Not Getting Bailout From Chinese Government

China won’t rescue Suntech Power Holdings Co. (STP) from its creditors because the former biggest solar-panel maker needs to retrench along with the rest of the industry, two advisers to government agencies said. Officials in Beijing want to pare excess manufacturing capacity and consolidate the $25 billion global industry that’s led by China, said Li Junfeng, director of the climate-change strategic research division at the government’s National Development and Reform Commission. “The government won’t intervene and shouldn’t,” Li said in an interview. Meng Xiangan, vice chairman of the China Renewable Energy Society, a liaison between the industry and the state, said Suntech should “not rely on government assistance.”

The comments from advisers with knowledge of the Chinese government’s thinking cast doubt on whether Suntech, the largest solar panel manufacturer in 2011, can avoid bankruptcy. The company March 11 said it obtained an agreement from more than 60 percent of bond holders to delay repayment for two months on $541 million of notes due tomorrow. The national government wants to avoid a default, which would be the first for a bond issued by a company based in mainland China. Restructuring the solar industry is one of the first issues confronting Premier Li Keqiang as his administration takes over from Wen Jiabao this month. Read more of this post

Daewoo Shipbuilding to Construct Jackup Rigs to Challenge Keppel

Daewoo Shipbuilding to Construct Jackup Rigs to Challenge Keppel

Daewoo Shipbuilding & Marine Engineering Co. (042660), the world’s second-largest shipbuilder, is bidding to build jackup rigs for the first time in three decades to tap more orders from offshore oil discoveries.

Demand for bigger, more sophisticated rigs that can work under harsher conditions is increasing in the North Sea and other regions, Lee Jae Ha, chief marketing officer at the Seoul- based company, said in an interview. Each unit could be worth as much as $600 million, he said.

Oil discoveries, including in the North Sea, have boosted spending by companies for exploration and production. Daewoo is making a comeback since its last delivery in 1983 into a segment that has been dominated by Keppel Corp. (KEP) and Sembcorp Marine Ltd. (SMM)

“We expect demand for these high-specification heavy-duty rigs to increase this year,” Lee said on March 12. “We have a lot of experience building complex drilling units and that will give us a competitive edge over the Singapore yards.”

Keppel and Sembcorp Marine have a combined 70 percent share of the global market for jackup rigs, which are used in shallow waters with extendable legs that allow them to stand on the ocean floor. Read more of this post

China to Free Currency in 5 Years, Says Hong Kong Exchanges’ Li; central bank Governor Zhou Xiaochuan said yesterday in Beijing that the nation should be on “high alert” over inflation and reiterated gradual reform for the yuan’s convertibility

China to Free Currency in 5 Years, Says Hong Kong Exchanges’ Li

China, the world’s second-largest economy, will open its markets and allow its currency to float within five years, said Charles Li, chief executive officer of Hong Kong Exchanges & Clearing Ltd.

“China has to reform its interest-rate system,” Li said yesterday during a panel discussion at the Futures Industry Association conference in Boca Raton, Florida. The value of the Chinese currency is limited by the government and is only allowed to rise or fall within a narrow range. Li said that system can’t last forever.

Yuan forwards advanced for a seventh day on optimism China will embark on further currency reforms. The yuan traded near a 19-year high against the dollar as central bank Governor Zhou Xiaochuan said yesterday in Beijing that the nation should be on “high alert” over inflation and reiterated gradual reform for the yuan’s convertibility. Read more of this post

HSBC Boosts Mortgage Rates for the first time in 18 months as Hong Kong Cools Property Market

HSBC Boosts Mortgage Rates as Hong Kong Cools Property Market

HSBC Holdings Plc (5) increased Hong Kong mortgage rates for the first time in 18 months after the city’s banking regulator tightened risk rules on concern a property bubble may undermine financial stability.

Home loans priced at the best lending rate will rise to a range of 2.85 percent to 3.15 percent, from 2.6 percent to 2.9 percent, starting tomorrow, according to an e-mailed statement from the bank. The increase is the first since September 2011, Yvonne Chuang, a Hong Kong-based spokeswoman for the second- largest mortgage lender in the city, said by telephone.

The Hong Kong Monetary Authority on Feb. 22 told banks to set the risk weighting for new residential mortgages at 15 percent or more, to ensure lenders’ capital cushions are deep enough. Standard Chartered Plc last week said the measure will increase its home loan funding cost by a range of 20 basis points to 25 basis points, indicating banks may need to boost mortgage rates.

Since taking office in July, Hong Kong Chief Executive Leung Chun-ying has added property taxes, favored local permanent residents over foreigners, tightened mortgage rules and increased supply after home prices doubled in the past four years.

HSBC ranked second in the city’s home loan market last month with a 17 percent share, while Standard Chartered was in fourth position with 13 percent, according to Hong Kong-based mReferral Mortgage Brokerage Services. Read more of this post