Hedge fund selling hits 18-month high

Hedge fund selling hits 18-month high


Hedge funds have embarked on their largest selling spree in a year and a half as market uncertainty drives many investors to sell shares as fears over the stability of many Western economies grow.

By Harry Wilson, Financial Services Correspondent
Published: 5:47PM BST 19 May 2010

In a sign of the speed with which market sentiment has deteriorated over the last month, hedge funds have made a dramatic switch from their biggest buying spree in more than two years to become big sellers once again, according to UBS.

The latest data from UBS's prime brokerage business, which handles the Swiss bank's dealings with hedge funds, shows that as of the end of last week selling by funds was at its highest monthly level since January 2009.

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Hedge funds have been blamed for much of the recent volatility in world markets, with the German government prompting chaos on Wednesday with its ban on short-selling in the shares of 10 major Germany financial institutions, including Allianz, Commerzbank and Deutsche Bank.

Based on the UBS data, hedge fund selling of bank shares has been relatively muted, with most of the net selling focused around the IT, consumer services and transport, telecoms, and metals and mining sectors.

From heavy selling earlier in the year, hedge fund and long-only investors' buying of bank shares has picked up in the last two months, leading some to question why the German government decided to institute its ban now.

Pedro de Noronha, managing partner of hedge fund firm Noster Capital, said the ban was "ridiculous".

"All it proves is how scary it is to have people who are unsophisticated in financial markets imposing regulations on products they don't understand," said Mr de Noronha.

To compound the sense of victimisation felt by hedge funds, the announcement of the ban came on the same day that European Union finance ministers voted through tough new industry regulations in a move widely seen as more political grand standing than considered law making.

The Alternative Investment Fund Managers directives will put hedge funds under a new super-regulator for the first time, despite repeated criticism from industry trade bodies.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7741612/Hedge-fund-selling-hits-18-month-high.html

Fear is gripping markets: economists

Fear is gripping markets: economists

EOIN BLACKWELL
May 19, 2010 - 7:44PM
AAP

Fear and uncertainty, not market fundamentals, drove the Australian dollar to an eight-month low on Wednesday and pushed the domestic share market into the red, economists say.

Fears over US and German regulatory reform, the European debt crisis and the Australian government's resource rent tax saw the local dollar hit an eight-month low of 85.17 US cents on Wednesday,

Local shares fell, too, sliding 1.87 per cent to close at a nine-month low at 4,387.1 points for the All Ordinaries index.

Investor sentiment darkened further after the Westpac-Melbourne initiate consumer sentiment index showed a seven per cent slide for May, its biggest percentage drop since the height of the credit crunch in October 2008.

"It's just been one hit after the other," ICAP economist Adam Carr said of the global and domestic concerns.

He said the worries were unfounded with the economic fundamentals of nations in general, and Australia in particular, strengthening.

"The US is seeing what looks like a V-shaped recovery," he said.

"Everyone is waiting for the fall to come in China and it's not going to happen.

"When you look past all the hysteria, the Australian economy, employment, both are going at a very strong rate and interest rates are only about average."

Yet the headlines have been dominated over the past week by the uncertainty surrounding Europe.

A 750 billion euros ($A1.06 trillion) bailout package for debt-laden EU nations like Greece initially calmed markets last week.

But the mood didn't last long amid renewed speculation the crisis could spread and slow EU growth.

4Cast Financial Markets economist Michael Turner said it was hard to see how Europe could escape its debt woes without serious structural damage.

"The way people are expressing that at the moment is through the euro and the stock market," he said.

The Euro was trading at 1.2215 US cents at Wednesday's close, compared with 1.3240 US cents on May 1.

The euro is still above its long-term average of 118 US cents, Mr Turner said.

"It certainly goes a long way to show how fearful markets are with the way all this plays out."

Investor uncertainty reignited on Tuesday when Germany's securities market regulator, Bafin, banned naked short selling of certain securities - often cited as key factor leading to the 2008 financial crisis.

In the US, meanwhile, proposed reforms to the financial regulations that govern Wall Street are before the US Senate and are being fought over Democrats and Republicans.

But it's all just noise, ICAP's Adam Carr said.

"If you're pessimistic over Europe then you might as well quit your job, buy a gun, get some land and learn how to farm," he said.

"Because if you're going to be pessimistic on Europe, then you have to write off the US and write off Japan."

ANZ senior rates strategist Tony Morriss said the safe-haven bond market should to do well amidst the uncertainty and fear.

"I think on the sentiment at the moment you'd sell on any sort of rally in currency, which means that bonds should be supported."

© 2010 AAP

Mining tax 'contagion' set to spread globally

Mining tax 'contagion' set to spread globally
May 20, 2010 - 10:39AM

Australia’s planned 40 per cent tax on mining "super profits" has set a benchmark for other countries weighing higher levies, reducing earnings forecasts for BHP Billiton and Rio Tinto and the attraction of mining stocks.

“It could create what the miners are now describing at a global level as a type of tax contagion,” said Tom Price, commodities analyst with UBS in Sydney. “They might levy a new tax at the miners in Brazil. Canada is another mineral province and South Africa.”

BHP, the world’s largest mining company, Xstrata and Rio said they are reviewing projects in Australia, the No. 1 exporter of coal and iron ore, after the federal government unveiled the tax earlier this month, saying a country’s resources belong to the people. Citigroup analyst Craig Sainsbury said Canada, Peru and Chile may be next.

“Resource nationalism” is a major risk facing miners in the next few years, Evy Hambro, manager of BlackRock Investment Management’s flagship World Mining Fund said last month.

Chile, the biggest copper exporter, is proposing a temporary rise in mining taxes to help pay for earthquake reconstruction that may cost BHP, Xstrata and Anglo American $US1.2 billion ($1.4 billion) in the next two years. Brazil, the second-biggest iron ore exporter, may tax shipments of the commodity or raise royalties, Energy and Mining Minister Edison Lobao has said.

‘Markets suicide’

The Australian tax plan is “global financial markets suicide,” according to Charlie Aitken, the executive director of Southern Cross Equities, the equal top ranked predictor of BHP’s share price performance of 17 analysts, according to data compiled by Bloomberg.

Mining companies’ earnings may be cut by almost a third when the tax starts in 2012, Moody’s Investor Services said this week. The tax would be broadly credit negative for the sector and raise uncertainty for some companies over the short-to-medium term, Moody’s said.

The tax may also prompt European and Scandinavian nations to seek a greater share of revenue from production, Magnus Ericsson, a senior partner at Raw Materials Group, a mining data and analysis company, said. The proposal will make Australian mines the highest taxed in the world, according to Minerals Council of Australia.

“Economies, particularly European economies, are going to have to deal with deficits,” said Jamie Nicol, chief investment officer at Dalton Nicol Reid in Brisbane. “They are going to look at some sort of innovative tax solutions to try and claw back some of that.”

Levy wars

Nations that resist may attract investment. South Africa taxes mining companies at 33 per cent, Canada 23 per cent and China 30 per cent compared with a forecast 58 per cent in Australia after the tax, according to Citigroup data.

Treasurer Wayne Swan has said he “strongly disagrees” with claims the tax will damage miners. China’s demand for Australian metals will outweigh higher taxes, according to AMP Capital Investors, a unit of the country’s largest pension plan provider, which hasn’t changed its industry assessment.

Rio, the world’s third-largest mining company, this month said it will spend $US401 million to boost iron ore output in Canada, citing the “attractiveness of investing” in the North American nation. BHP has said the tax would stymie investment.

Fortescue, Australia’s third-largest iron ore exporter, this week placed $US15 billion of projects on hold, citing the tax.

“It doesn’t matter if it’s the Congo or Sudan, or it’s Australia or Canada, these projects require commitments by governments that are 30 years and when they move the goal posts they will have a serious rippling effect,” said Frank Holmes, chief investment officer of US Global Investors. “They could stifle the world.”

Bloomberg

Behind the drama in Europe lies a global crisis

Behind the drama in Europe lies a global crisis


The euro is under threat – along with our entire free-market system, warns Edmund Conway.

By Edmund Conway
Published: 7:49PM BST 19 May 2010

Comments 23 | Comment on this article

Angela Merkel, the German Chancellor, followed the unilateral German shorting ban with a warning that the euro was in danger, urging the EU speed up supervision of financial markets.Photo: Getty

It is now accepted, even by Angela Merkel, that as Europe battles its financial crisis, the very fate of the euro is at stake. Her belated discovery of this home truth is welcome, but she does not go far enough. The real concern is that the crisis bubbling on the other side of the Channel represents a make-or-break moment for globalisation.

If that sounds rather exotic, consider two apparently separate events from the past couple of days. The first features George Osborne. While things have gone pretty well back home for the new Chancellor, he is already having trouble in Europe, where the Commission has been fighting not only to de-claw the hedge fund industry – against British wishes – but also to impose new rules on its member states.

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The Commission's latest idea is that every European finance minister (including Osborne) should be compelled to send his Budget plans to Brussels for approval before announcing them to his own MPs and citizens. The rationale is that if there is to be a central bail-out fund for stricken European nations, there should be someone in the middle making sure no one misbehaves. Osborne, understandably, was having none of it, using his inaugural European summit to insist that when it came to a country's budget, "the national parliament must be absolutely paramount".

The second event took place a few thousand miles away in Washington, where the US Senate voted 94:0 to prevent the International Monetary Fund from using its cash to help countries that are inextricably trapped in a debt spiral. Though barely reported on this side of the Atlantic, this vote could have enormous consequences – such as preventing the fund from providing its share of the grand European bail-out package announced with such fanfare last week, which amounts to a third of the trillion-dollar total.

Though superficially unconnected, the two events share a similar theme: for the first time in many years, the technocrats who run our economies are realising that the main barrier to resolving a crisis and reinstating business-as-usual is not so much our ability to afford it, but our populations' willingness to pay.

As long as things were going well, economies were growing rapidly, and affluence was increasing, it was easy for politicians to pretend that when it came to economics, national borders didn't much matter any more. But now the chips are down, nationalism is back.

The rule of thumb here is as follows: of the three aims we have been striving towards in recent history – democracy, national sovereignty and global free trade – you cannot have any more than two at any one time. 

• Want to run your country as an independent state, open to the whims and volatility of the free markets? The voters will punish you at the ballot box. 
• Insist that your nation has full control of its own affairs? Then you have to jettison any plans to play a full part in the global economy. 
• Want democracy and globalisation? Then you have to suborn your sovereignty.

This is what Professor Dani Rodrik of Harvard University calls the "policy trilemma", and it is what lay behind the breakdown of the last era of globalisation, which coincided with the Industrial Revolution. Under the British Empire, free trade flourished, reinforced by the gold standard (in some senses a precursor to the euro) and the Royal Navy.

However, this only came about because most politicians were able to ignore their citizens' protectionist impulses. The first decades of the 20th century brought not only the First World War but also a mass electorate; when Churchill tried to revive the gold standard in the 1920s, at the cost of deflation and depression in the UK, the public revolted. Churchill called the blunder his "worst ever mistake".

Scarred by the beggar-thy-neighbour policies of the 1930s, John Maynard Keynes could only contemplate a "globalisation-lite" as he rebuilt the world's economic structure after the Second World War. But the Bretton Woods system, which intentionally suppressed the free market through capital controls, lasted only so long. Liberalisation went into overdrive with the fall of the Berlin Wall and the opening-up of China. Yet the resulting system is actually something of a patchwork. Europe exemplifies the problem: the continent is a hodge-podge of nations trying to disguise itself as a completely liberalised market. Unfortunately, its people have different ideas: the Germans are furious about the Greek bail-out; the British insist on remaining on the sidelines.

Perhaps recognising the danger of alienating her voters, Mrs Merkel has now taken what might be a first step towards curtailing economic globalisation, by banning the short-selling of German banks. Some worry that a return to capital controls is the next step in the European effort to prevent meltdown. Others suspect that the European Central Bank has already intervened in the markets to prop up the euro.

Quite what the real plan is remains to be seen. Most likely, there isn't one – yet. But unless they intend to embrace totalitarianism, Europe's members will eventually have to abandon either their national sovereignty or globalisation itself. Given the continent's size, and our reliance on it as our largest trading partner, this is not a drama we can afford to ignore.

http://www.telegraph.co.uk/finance/comment/edmundconway/7742164/Behind-the-drama-in-Europe-lies-a-global-crisis.html

Elizabeth Warren: a tough sheriff who oversees the US TARP bail-out fund.

Elizabeth Warren: a tough sheriff in finance's Wild West


Elizabeth Warren, who oversees the US TARP bail-out fund, blames America’s housing downturn on the banking industry and 'the bizarre way’ many mortgages were created .


By James Quinn, in Washington DC
Published: 5:30PM BST 19 May 2010

With the US Capitol's dome glistening in the fading moonlight behind her, Professor Elizabeth Warren is wolfing down one half of an Egg McMuffin.

Sat on the edge of a sofa in a television studio green room – ahead of at least six "on camera" interviews – at just gone 6am, she coyly apologises for needing to "charge her batteries".

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Although it's dark outside, and having been up until 1am the night before – after two days of meetings with the Treasury, the Federal Reserve and her own oversight committee – the woman charged with overseeing the Treasury's $700bn (£471bn) bank bail-out fund is far from tired.

Having spent the majority of her working life focusing on middle-class families and bankruptcies – her day job is as a law professor at Harvard Law School, where she has taught for the last 18 years – it's little surprise that she's looking out for middle America in her temporary role to point out the good and bad of the Troubled Asset Relief Programme (TARP).

"We can't have a robust economy when we're looking at 1m foreclosures," she says. "Our economy just can't take this." Citing statistics that show almost one in four US mortgages is under water, she notes that government attempts to help those in trouble have failed, saying that for every borrower who has avoided foreclosure, another 10 lost their homes.

"Today we've got a [housing] market that won't heal itself, and if it doesn't heal, we'll all be paying this year, next year, and for years to come."

Prof Warren points out that the original idea behind the bail-out fund was to buy parcels of toxic mortgages burning holes in banks' balance sheets: "Part of what we're trying to accomplish is to remind Treasury that it should be about mortgage foreclosures, that's the trigger for the crisis that has not yet been resolved."

She blames the housing downturn on the very banking industry which was the recipient of half of the first wave of the $700bn fund, and "the bizarre way" many mortgages that are now delinquent were created, with "first mortgages on top of second mortgages" and individuals given home loans they could never afford.

Little surprise then that she is the most ardent supporter of a strong consumer financial protection agency as part of the current financial reform legislation winding its way through the US Senate.

Noting that there are currently seven US regulators who have some form of oversight over consumers – the largest being the Fed – she wants an independent agency to look out for middle America.

"I want Senators to have to vote 'yes' or 'no' on an agency with real muscle. I'm not interested in some pretend agency that lets everyone congratulate themselves when in fact it won't make any real difference."

At that point, Senator Richard Shelby, a leading Republican, walks by en route to his own interview and tells Warren: "You're doing good things."

It's ironic as the senator is blocking Democrat proposals for a consumer agency, saying it is "an incredible expansion of the government's reach without any basis in the current crisis".

Prof Warren knows she faces an uphill struggle, and admits that a year ago pushing through such a consumer body would have been easier: "The crisis had started with bad credit policies... I thought it would be the least contentious part of regulatory reform."

Part of the difficulty, she says, is that as banks' finances have recovered, and with foreclosures off the front pages, the problems of the past are further from the minds of those making the decisions. "When only the insiders are part of the conversation, then every policy that results is helpful only to insiders," she retorts.

A career academic, Prof Warren, 60, took up her current position in November 2008 when Senator Harry Reid, the Democrat leader in the Senate, asked her to chair the committee. A key part of her job has involved pointing out what she believes is wrong with not only the consumer agency proposals but other parts of the regulatory framework. On the need for a way to winding-up large institutions without wasting taxpayer funds, Prof Warren would like to see an authority that is "tough enough that it truly liquidates these financial institutions in an orderly way".

She adds: "They need to understand the consequence of their mistakes is that the shareholders are wiped out, the top management is fired and creditors take a haircut."

She is equally unrelenting when it comes to derivatives legislation, speaking of a "huge shadow market" born out of investment banks' realisation that there is little money to be made in equities because of greater efficiencies and transparency.

"The notion that a portion of our economy, which is so significant, can simply trade wildly with no transparency, with no clarity in how that market operates, is dangerous. If we didn't learn that over the last year-and-a-half, then we must have rocks for brains."

As she winds her way across Washington, stopping off for a photo shoot followed by a series of meetings, and talking to The Daily Telegraph along the way, she jokes that she's "a lot more fun in the classroom as nobody's taping" but it's clear she enjoys her role grand-standing on behalf of the American people.

That's why she taken the oversight panel on the road with stops in towns across America. "It's enough sometimes just to tear your heart out. The people who show up and want to talk always have something interesting, something personal, to say."

Prof Warren clearly has little time for the US capital's lobbyists and the banks they represent. "This is the new Wild West, the place where extraordinary profits can be made and the bonuses that come from them are to be sought," she says. "Remind me, what ARE they for? Business as usual? Because that did so well for us, right?"

Though effervescent and approachable, she dodges the question when asked if she would like to head the consumer protection agency – a role for which she is clearly well suited and often tipped for.

When pressed, she points out that she has spent her "whole career" on consumer protection and the middle classes, who "have [been] squeezed to the point that as a country we face the real possibility that our middle class could collapse."

In the next breath, she says: "You need a lot of things, and a leader is one of them. But I really don't want to make this about me."

But as a woman of the people – with a penchant for McDonald's morsels rather than Washington power breakfasts – she would say that, wouldn't she?

Professor Elizabeth Warren's CV

Age 60
Role Chair, Congressional Oversight Panel on TARP
Day job Leo Gottlieb Professor of Law, Harvard University
Family Married, two grown-up children
Education University of Houston; Rutgers University
Tipped for Chair, future Consumer Financial Protection Agency


http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7740307/Elizabeth-Warren-a-tough-sheriff-in-finances-Wild-West.html

Euro crisis biggest test - Merkel

Euro crisis biggest test - Merkel
May 20, 2010 - 7:03AM

Germany rocks world markets

Germany's ban on risky trading sent ripples of shock through the markets, stunning investors and sending the euro back down to a four-year low.

Chancellor Angela Merkel has called for a radical overhaul of Europe's fiscal rules along German lines, warning of "incalculable consequences" for the European Union if the euro were to fail.

Defending Germany's part in a near trillion US dollar package to prevent the troubles of debt-ridden Greece spreading to the rest of Europe, she said the single currency was facing an "existential test" as it plunges on the markets.

"The current crisis facing the euro is the biggest test Europe has faced in decades, even since the Treaty of Rome was signed in 1957," she said in a speech in parliament on Wednesday, referring to the treaty that created the European Union.

"This test is existential and it must be overcome ... if the euro fails, then Europe fails," she said, facing frequent heckling and jeers from opposition parties.

"The euro is in danger. If we do not avert this danger, then the consequences are incalculable and the consequences for the whole of Europe are also incalculable," she cautioned.

To overcome the turmoil that has battered the euro, the German chancellor proposed a "new stability culture" in Europe.

"We need a comprehensive overhaul of the Stability and Growth Pact," the rules stating that EU countries should keep budget deficits below three per cent of gross domestic product (GDP) and debt below 60 per cent of GDP.

"The rules must be geared to the strongest, not to the weakest ... our (German) stability culture is tried and tested."

German Finance Minister Wolfgang Schaeuble will on Friday propose a raft of measures to tighten the rules at a meeting with EU president Herman Van Rompuy.

Merkel said that European funds could be withheld from fiscal sinners and voting rights withdrawn. She also said that an "ordered sovereign insolvency procedure" needed to be established in Europe.

She confirmed a decision made on Tuesday by Germany's securities market regulator to ban so-called naked short-selling in the shares of 10 financial institutions and eurozone government bonds.

Naked short-selling is when investors sell securities they do not own and have not even borrowed, hoping to be able to buy them back later at a lower price, thereby earning a profit.

She said the ban would be in place until Europe-wide regulations were agreed, prompting scorn from market players.

Saying that Merkel had "thrown her toys from the pram" in a fit of pique, Howard Wheeldon from BGC partners in London said she appeared "determined to undermine the euro and the euro economy at this particularly difficult time.

"It seems to me that all the German chancellor has managed to do by this affront to market integrity is succeed in fuelling more fears that the European sovereign debt crisis may just be even worse than it looks," he said.

The euro hit a new four-year low against the dollar after the move was announced.

Merkel also reiterated that she would campaign at the Group of 20 leading industrial powers for an international tax on the financial markets.

Schaeuble later told a parliamentary committee: "If we can get that through on the global level, then good. That would be ideal. If that does not work, then we must look to the Europe (European Union)."

"And if we have a problem with Britain, then I think we should try it with the eurozone," he added.

Frank-Walter Steinmeier, parliamentary head of the opposition Social Democrats, attacked Merkel for her conduct in the crisis, branding her "powerless and helpless."

Germany's parliament is expected to vote Friday on the country's share of the 750 billion euros ($A1.06 trillion) eurozone bailout package, which could be as much as 150 billion euros ($A211.83 billion).

Merkel's party has a clear majority in the parliament, meaning the package is certain to pass.

AFP

Singapore's GDP rockets 39% as Asian trade soars

Singapore's GDP rockets 39% as Asian trade soars
May 20, 2010 - 12:26PM

Singapore's economy expanded at a faster pace than initially estimated last quarter as rising global demand boosted manufacturing and the opening of the island's first casino spurred tourism.

Gross domestic product grew an annualised 38.6 per cent from the previous three months in the first quarter, compared with an April estimate of 32.1 per cent, the trade ministry said in a statement today. That was more than the 33.4 per cent increase economists were expecting.

From a year ago, the economy expanded by 15.5 per cent, the highest quarterly growth on record. Singapore's economy shrank by 1.3 per cent last year, revised data shows after a previously reported contraction of 2 per cent.

Officials said the strong rebound from its worst-ever recession last year will be helped by a broad-based recovery in the United States and buoyant growth in large Asian economies such as China.

"The data from Singapore and around the region underscore that so far, the rebound in exports and production has been much better than what people have been expecting," said David Cohen of Action Economics.

Mr Cohen predicts the economy could grow up to 10 per cent this year, above the government's forecast of 7-9 per cent and notwithstanding the risks from the debt troubles in Europe.

Bubble risks

However, the government warned of risks from asset price bubbles in Asia and the fallout from Europe's debt crisis.

If asset prices correct too sharply in China, it could have "negative spillover'' effects on regional economies, Ravi Menon, permanent secretary at the trade ministry, told reporters in Singapore today.

"Should investor sentiments wane or if more monetary tightening measures are introduced, sharp asset price corrections could follow,'' the ministry said. "If these risks materialise, they could affect the global recovery and negatively impact Singapore.''

Singapore private home prices rose 5.6 per cent in the first quarter from the last three months of 2009 despite government policies such as higher down payment requirements for mortgages.

Ong Chong Tee, deputy managing director at the Monetary Authority of Singapore, the city-state's central bank, indicated the government will use administrative rather than broad measures to curb runaway property prices.

"It is much better not to use monetary policy, which is a blunt instrument, but to use much more targeted, preventive, administrative or even fiscal measures to address this," he said.

Japan, Malaysia

Growth is also accelerating in other parts of Asia. Japan said today its economy expanded at the fastest pace in three quarters in the period ended March 31 as an export-led recovery spreads to consumer and business spending. Neighboring Malaysia last week reported a first-quarter expansion that was the quickest in a decade.

Singapore's non-oil domestic exports will probably gain between 15 per cent and 17 per cent in 2010, from a previous projection of as much as 12 per cent, the trade promotion agency said today.

Singapore's government expects the economy to grow as much as 9 per cent this year.

The Monetary Authority of Singapore, which uses the currency instead of interest rates to conduct monetary policy, said April 14 it will "re-centre the exchange rate policy band at the prevailing level'' of the Singapore dollar, shifting to a stronger range for the currency to trade in. The central bank guides the Singapore dollar against a basket of currencies within an undisclosed band.

The Singapore dollar, which rose as much as 1.2 per cent on the day the new currency stance was announced, has since weakened amid the European debt crisis. It traded at $US1.3977 against its US counterpart in early trade, falling 2.1 per cent this month.

Manufacturing and tourism

Manufacturing, which accounts for about a quarter of Singapore's economy, climbed 32.9 per cent from a year earlier last quarter, after gaining 2.2 per cent in the three months through December. That compares with the April estimate of 30 per cent.

Singapore's visitor arrivals are surging as resorts run by Las Vegas Sands Corp. and Genting Singapore Plc attract tourists to their roulette tables, shops and hotels. The Singapore Tourism Board expects to lure as many as 12.5 million visitors this year.

The island's services industry grew 10.9 per cent last quarter from a year earlier, after climbing a revised 3.7 per cent in the previous three months. The construction industry gained 13.7 per cent, compared with a revised 11.5 per cent increase in the fourth quarter.

Bloomberg News, Reuters

Dutch Lady sees higher revenue, profit this year

Dutch Lady sees higher revenue, profit this year
By Vasantha GanesanPublished: 2010/05/20

DUTCH Lady Milk Industries Bhd (3026) expects to grow both revenue and net profit this year and to possibly pay as much dividend as it did in 2009.

In the year to December 31 2009, Dutch Lady posted a record net profit of RM60.4 million on the back of RM691.85 million in revenue.

The dairy manufacturer also paid a gross dividend of 86 sen per share in 2009, which translates to RM42 million in total.

Recently appointed managing director Sebastian Van Den Berg said the improving economy will be reflected in consumer behaviour and spending trend which he expects will contribute to the dairy market growth.
Moreover, the company will raise its advertisement and promotion budget this year to push sales.

"We will increase it by 20 per cent this year," Van Den Berg said a press conference following its annual general meeting in Petaling Jaya, Selangor, yesterday.

Dutch Lady saw its net profit jump by 41.6 per cent in 2009 compared with the previous year, supported largely by favourable skimmed milk powder price.

However, the price of the commodity, the main dairy raw material, is currently rising.

Van Den Berg expects the commodity's price to increase to over US$3,000 (RM9,720) per tonne this year compared with US$2,100 (RM6,804) in the fourth quarter of 2009.

The stronger ringgit will help cushion an increase as imports will be cheaper. Dutch Lady imports 95 per cent of its dairy needs.

Dutch Lady does not expect to raise the price of its products at least until August 2010.

"We are not sure yet. We will try our utmost best not to. But I can't promise that there will be no price increase ... not before August (at least)," he said.

Dutch Lady has forward purchased its skimmed milk needs that will last it until August or September this year.

On dividends, the group has announced a gross dividend of 45 sen per share. The remaining quantum will be announced later based on the performance of the company.

In the first quarter to March 31 2010, Dutch Lady saw net profit swell to RM20.81 million from RM8.75 million in the corresponding period of 2009.

Dutch Lady shares climbed 16 sen before closing at RM12.46 at the end of trading yesterday.

Read more: Dutch Lady sees higher revenue, profit this year http://www.btimes.com.my/Current_News/BTIMES/articles/agmdutch/Article/#ixzz0oQOWiqkY

RM26.3b market cap lost over 4 days

RM26.3b market cap lost over 4 days


Written by Surin Murugiah
Thursday, 20 May 2010 00:02


KUALA LUMPUR: A combination of weakness on Wall Street, the European debt crisis, worries of tighter financial regulation and negative news flow from one of the larger companies on Bursa Malaysia Securities drove the FBM KLCI to its steepest decline on May 19 since March 30, 2009.

The lingering uncertainty over the global economic well-being also resulted in the FBM KLCI losing 38.69 points over the last four trading days, and wiping off RM26.27 billion in overall market capitalisation on Bursa Securities.

On May 19, Asian markets fell while European indices, worried by the effectiveness of the measures adopted in Europe to arrest the debt crisis as well as Germany’s decision to ban naked short-selling on selected stocks, mostly opened lower.

At the close on May 19, Singapore’s Straits Times Index fell 2.45% to 2,774.54, Hong Kong’s Hang Seng Index lost 1.83% to 19,578.98, Japan’s Nikkei 225 fell 0.54% to 10,186.84, the South Korean Kospi fell 0.8% to 1,630.08, Taiwan’s Taiex Index fell 0.34% to 7,559.16, and the Shanghai Composite Index shed 0.27% to 2,587.81.

On the local front, the FBM KLCI declined for the fourth consecutive trading day and fell 1.65% or 21.94 points to 1,308.23, the biggest single day drop since March 30 last year when it fell 1.82%.

Trading volume was 781.53 million shares valued at RM1.4 billion. Losers thumped gainers by 689 to 135, while 175 counters traded unchanged.

Crude palm oil futures for the third month delivery fell RM10 per tonne to RM2,435 while crude oil fell US$1.14 (RM3.71) per barrel to US$68.27 as at 6.30pm.

The top eight laggards on the 30-stock FBM KLCI accounted for 16.52 points of the index’s decline, while PPB GROUP BHD [], whose 18.4% associate company Wilmar International’s Indonesian subsidiaries had been reported to be under probe for alleged unlawful value-added tax-restitution claims, saw RM1.21 billion erased from its market capitalisation.

PPB fell 5.79% or RM1.02 to RM16.60, the sharpest decline since Oct 24, 2008 when it fell 6.71%. Its market capitalisation fell to RM19.68 billion from RM20.89 billion.

Among the losers, IOI CORPORATION BHD [] fell 26 sen to RM5; CIMB Group Holdings Bhd 17 sen to RM7.04, PUBLIC BANK BHD [] 16 sen to RM11.78, AMMB HOLDINGS BHD [] 14 sen to RM4.86, GENTING BHD [] 12 sen to RM6.77, MALAYAN BANKING BHD [] nine sen to RM7.49, while SIME DARBY BHD [] lost eight sen to RM8.18.

Maybank Investment Bank Bhd head of retail research and chief chartist Lee Cheng Hooi said fundamentals were not really that good, adding that stripping out inventory re-stocking (IRS), 8% out of Malaysia’s 1Q10 10.1% gross domestic product year-on-year growth was due to the IRS.

He pointed out the negative news flow, including Sime Darby’s cost overruns, the reports on Wilmar, as well as Wah Seong Corp’s Socotherm bid setback had affected market sentiment.

“Markets in the world are falling like nine-pins. Asia is down about 2.5% today. The FBM KLCI broke the 1,315 support level; this means we will see 1,300 very soon, maybe by May 20,’ he said, adding that markets might be turbulent for the next few months.

Lee said risks were high and rewards meagre, and advocated that investors sell most stocks and step aside, adding it was better to have more cash.

Inter-Pacific Research Sdn Bhd head Anthony Dass said the eurozone debt crisis would not leave Asia unscathed, and thus could force financial institutions to be more cautious in their lending, raise financial volatility in the financial market and hurt export demand.

“We fear the low interest–free environment in euro will feed into Asia, compounding liquidity issues that will flare asset prices. For countries like Malaysia, the widening fiscal gap may alleviate short-term pressure,” he said.

MIDF Research head Zulkifi Hamzah said it was difficult to quantify the extent to which local factors accounted for the lacklustre market condition now.

“The BN’s loss of its Sibu parliamentary seat may be unexpected, but political risk for Malaysia had been elevated since the last general election and swings in by-elections should no longer be surprising,” he said.

“Several instances of corporate misadventure such as Sime’s substantial provision and the latest being Wilmar’s predicament in Indonesia which affected PPB’s share price also contributed to the drag on the market.

“Otherwise, earnings for the quarter ended March are decent, with some significant surprises, especially that of Maybank,” he said.

However, he said putting things into perspective, the decline in FBM KLCI was nowhere near as severe as it had been made out to be.

“From the year’s high of 1,346.92, the FBM KLCI has given back less than 3%. If it is a correction, then it can be considered a healthy one and is an opportunity to accumulate.

“The fact remains that the strength of the ringgit reflects the fundamentals of the economy and the weak spots in the world today are in the West, and not Asia,” he said.

http://www.theedgemalaysia.com/business-news/166427-rm263b-market-cap-lost-over-4-days.html

Dutch Lady sees substantial growth, eye on raw material prices

"Dutch Lady Malaysia posted strong financial performances despite the challenges being presented through softer consumer demand, competitive pricing factors, rising raw material prices, escalating labour costs and many other incidentals," van den Berg told reporters after yesterday's meeting.

For FY09, the shareholders of Dutch Lady would be eligible for dividends - normal and special - amounting to $42 million.  The final dividends stand at 10 sen per share less tax and five sen per share tax exempt and are expected to be paid in July.

A special interim dividend of 30 sen per share less tax, amounting to RM14.4 million, is also payable in July.


----

Dutch Lady sees substantial growth, eye on raw material prices
Tags: Bas van den Berg | Dutch Lady Milk Industries Bhd

Written by The Edge Financial Daily
Wednesday, 19 May 2010 23:26


KUALA LUMPUR: DUTCH LADY MILK INDUSTRIES BHD [] expects the dairy market to show substantial growth this year although challenges will remain, particularly in further increases in dairy raw material prices.

"In line with the positive outlook of the Malaysian economy, for 2010, we expect the dairy market to show substantial growth. Consumer confidence is catching up and this will be reflected in consumer behaviour. At the same time, 2010 promises to be a challenging year due to world dairy raw material prices.

"We have seen significant increases in (prices of) raw materials in the past six months, and based on the current outlook, we expect further price hikes this year," Dutch Lady Malaysia's managing director Bas van den Berg said in a statement on Wednesday, May 19 that was issued in conjunction with the company's AGM here.

For its first quarter ended March 31, 2010, the results of which were announced on Tuesday, Dutch Lady Malaysia posted a 139% rise in net profit to RM20.8 million from RM8.7 million a year earlier, while gross profit rose 40.3% to RM64.4 million. Pre-tax profit rose 122% to RM28.2 million from RM12.7 million.

Dutch Lady Malaysia said it posted its highest earnings ever in its 47th year corporate history as a public-listed company for its financial year ended Dec 31, 2009 (FY09), with a 42% rise in pre-tax profit to RM82.4 million from RM57.8 million in the previous year, while net profit rose 41.7% to RM60.4 million from RM42.6 million.

Revenue fell 2.7% to RM691.8 million from RM711.6 million due to lower selling prices coupled with softer consumer spending.

"Across the globe, 2009 proved to be a most challenging period as companies, industries and even governments grappled to stay afloat during one of the worst economic recessions in recent decades.

"Dutch Lady Malaysia posted strong financial performances despite the challenges being presented through softer consumer demand, competitive pricing factors, rising raw material prices, escalating labour costs and many other incidentals," van den Berg told reporters after yesterday's meeting.

For FY09, its shareholders would be eligible for dividends — normal and special — amounting to RM42 million. The final dividends stand at 10 sen per share less tax and five sen per share tax exempt and are expected to be paid in July.

A special interim dividend of 30 sen per share less tax, amounting to RM14.4 million, is also payable in July.

"Coupled with intense market competition and the company's mission I presented earlier, we will definitely be looking closely at the raw material price development," said van den Berg.

Earlier at the AGM, its shareholders were also briefed on the e-dividend service wherein cash dividends will be deposited straight into their respective bank accounts instead of via the traditional cheques.

http://www.theedgemalaysia.com/business-news/166425-dutch-lady-sees-substantial-growth-eye-on-raw-material-prices.html

A quick look at Mieco (19.5.2010)

A quick look at Mieco (19.5.2010)
http://spreadsheets.google.com/pub?key=tz7RWE_u6IqoXzZIK5kBx9A&output=html

Greece gets $18bn from EU; to repay debt

Greece gets $18bn from EU; to repay debt
REUTERS, May 19, 2010, 12.03am IST

ATHENS: Greece received a 14.5 billion euro ($18 billion) loan from the European Union on Tuesday and can now repay its immediate debt, but still faces a mammoth task to claw its way out of recession.

Concerns that other EU countries such as Portugal and Spain could follow Greece and need aid from the bloc have hit the euro, while investors are still watching Athens to see whether its austerity plan will stave off the risk of default. The EU and IMF agreed at the beginning of the month to lend Greece 110 billion euros ($137 billion) over three years to help it pay billions in expiring debt after being shut out of financial markets by the high cost of borrowing.

With 5.5 billion euros already delivered by the IMF, Greece has now received the first 20-billion euro tranche of the loans, the Greek finance ministry said in a statement. Athens now can and will repay an 8.5 billion 10-year euro bond which matures on Wednesday, a government official said. "Greece no longer has the liquidity anxiety, it will not need to go to markets to borrow to pay salaries and pensions," EFG Eurobank economist Gikas Hardouvelis said. Greece will be paying interest of around 5%, well below current market yields of well over 7% for Greece's 3-year bonds.

Though it has gained a breathing space, Greece must now convince markets it can rein in its deficits so that it can eventually start borrowing again. "The programme has been designed so that Greece is able to stay away from the financial markets through the end of 2011 and the first quarter of 2012. We don't expect that to be the case, we want to come back to markets much sooner," finance minister George Papaconstantinou said in Brussels.

Socialist Prime Minister George Papandreou's government has already implemented sizeable public sector wage cuts and raised taxes in return for the EU/IMF bailout.

Stocks fall, euro at 4-yr low, oil dips

AP, May 18, 2010, 12.32am IST


NEW YORK: Stocks fell for a third day on Monday on growing concerns that Europe's debt problems will hamper a global rebound. The Dow Jones industrial average fell about 80 points in late morning trading. The Dow fell 81.4 points, or 0.8%, to 10,538.6. It has fallen seven of the last nine days.

Stocks fell after the euro, which is used by 16 countries in Europe, fell to a four-year low. Investors are questioning whether steep budget cuts in countries including Greece, Spain and Portugal will hinder an economic recovery in Europe and in turn, the US traders are also concerned that loan defaults could ripple through to banks in stronger countries like Germany and France.

The austerity measures are required under a nearly $1 trillion bailout programme the European Union and International Monetary Fund agreed to last week. The rescue package provides access to cheap loans for European countries facing mounting debt problems.

The euro fell to as low as $1.223 early Monday before moving higher. The plunging euro has been driving trading around the globe in recent days. The weakness in the euro has helped boost the value of safe-haven investments like the dollar, Treasuries and gold. It has also driven commodities like oil lower.

Oil fell below $70 a barrel for the first time since February. Oil is priced in dollars so a stronger dollar deters investment in oil. Crude oil fell $1.76 to $69.8 per barrel on the New York Mercantile Exchange. That hit shares of energy companies.

A disappointing report on regional manufacturing from the New York Federal Reserve weighed on sentiment. A forecast from home-improvement retailer Lowe's Cos also fell short of expectations. The questions about Europe overshadowed other news and dominated trading. Investors in the US who had been growing more confident about a rebound in this country now are questioning whether the problems in Europe will disrupt a recovery.


http://timesofindia.indiatimes.com/Biz/International-Business/Stocks-fall-euro-at-4-yr-low-oil-dips/articleshow/5942500.cms

From Times Online

May 19, 2010

How to play China’s growth - buy fertiliser

Leo Lewis, Asia Business Correspondent

Investment managers from more than 400 of the world’s largest pension, hedge and sovereign wealth funds were told yesterday how to play the long-term growth of China, recurring water shortages and Beijing’s dread of social unrest: buy fertiliser.

The recommendation, made at a CLSA Securities forum in Shanghai, came amid rising concern over the immediate prospects of the Chinese economy and dismally performing stocks on both Hong Kong and mainland markets.

The past few days have seen new forecasts from analysts suggesting that, at least in the present cycle, Chinese growth has passed its peak and that the banking sector’s astronomical levels of new lending in 2009 may evolve into bad loan problems for companies and local governments.

But China’s need to feed its population, argued CLSA’s Simon Powell, will remain a constant and worsening environmental circumstances will only make it more difficult. Behind the glitter of growing cities and hum of factories, China still has to feed 20 per cent of the world’s population with only 7 per cent of its arable land and fresh water.

Realistically, and given Beijing’s absolute resolve to be self-sufficient, huge increases in fertiliser use are the only way to bridge the gap between demand and supply. That fact is already well appreciated in rural China. Since 1978, Chinese fertiliser use has risen sixfold and the country already uses 30 per cent of all fertiliser produced in the world. Even then, per hectare use is still less than half that of Germany or Japan, leaving vast scope for increase.

The presentation concluded with several stock ideas, including China Blue Chemical and Qinghai Salt Lake Potash.

Food consumption in China’s swelling cities has doubled since 2002 and shows little sign of slowing. The dietary taste for meat - and the large quantities of grain needed to feed livestock - is soaring. Even in rural China, food consumption has grown relentlessly at over 13 per cent per year for the past decade.

But even as rising wealth has increased the overall appetite, China’s famed economic growth is making the business of feeding everyone harder. Farmland has shrunk by 6 per cent since 1996 and industry, admitted China’s Ministry of Land recently, has left more than 10 per cent of total arable land contaminated. Large parts of the country are suffering desertification, over 150 Chinese cities have populations over one million and construction is encroaching on high-quality arable land. Months of drought have crippled farming in the south and water shortage is chronic.

“If the decline [in farmland] continues, the country’s grain safety and social stability will be endangered,” Mr Powell said. “China’s industrialisation targets are not yet complete and the country is only halfway to the urbanisation level it aspires to. Hence it will be difficult to prevent further reductions in China’s arable land-bank over the next three years or so.”

The effect, he added, would be significant rises in crop prices and mounting pressure and incentives for farmers to increase their yields dramatically. All three major forms of artificial fertiliser - nitrogen, potassium and phosphorous - will be in hot demand.

But added to that underlying demand will be the bigger structural efforts of Beijing to ensure food security: one of the central pillars of CLSA’s pitch. Generous subsidies are expected to remain firmly in place. Efforts to impose consolidation in the farming sector have already begun, implying larger farms and greater fertiliser use. In 2008 the National Development and Reform Commission announced six policies to boost agriculture: four were related to fertiliser.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article7130379.ece