Chinese govt think tank forecasts GDP growth rising 8.5% in Q3
China's gross domestic product will grow about 8.5 percent in the third quarter from a year earlier, picking up from the second quarter's 7.9 percent pace.
That's according to a Chinese government think-tank, the State Information Centre or SIC.
The bullish forecast comes against a background of anxiety in world markets that Chinese growth might falter as a boom in fiscal spending and bank lending peters out.
The SIC said growth in bank credit would "normalise" in coming months but warned that any abrupt slowdown in lending would leave many state-backed projects unfinished and result in a new crop of non-performing loans.
New lending will rebound to about 73 billion US dollars in August after shrinking to in July.
The SIC says China would stick to its "proactive" fiscal policy and "appropriately loose" monetary stance in the second half of the year.
It added that the Chinese economy has bottomed out but is still growing below potential, mainly due to weak exports
China Said to Plan Tightening of Capital Requirements for Banks
Aug. 21 (Bloomberg) -- China plans to tighten capital requirements for banks, threatening to curb the record lending that’s fueled a 60 percent rally in the nation’s stock market, three people familiar with the matter said.
The China Banking Regulatory Commission sent a draft of rule changes to banks on Aug. 19 requiring them to deduct all existing holdings of subordinated and hybrid debt sold by other lenders from supplementary capital, said the people, who have seen the document. Banks have until Aug. 25 to give feedback, said the people, who declined to be identified as the matter is private.
As a result, banks may need to rein in lending or sell shares to lift capital adequacy ratios to the 12 percent mandated by the regulator. Chinese stocks briefly entered a so- called bear market this week on concerns the government would stymie new loans that exceeded $1 trillion in the first half. A news department official at the regulator declined to comment by phone and didn’t immediately respond to a faxed inquiry.
“This move will cut one of the most important funding sources for banks,” said Sheng Nan, an analyst at UOB Kayhian Investment Co. in Shanghai. Banks will “have to either raise more equity capital or slow down lending and other capital consuming businesses to stay afloat.”
China’s banks have sold 236.7 billion yuan ($34.6 billion) of subordinated bonds so far this year, almost triple the amount issued during all of 2008. The banking regulator estimates about half of the subordinated bonds in circulation are cross-held among banks.
Record Lending
Those debt sales came as new loans rose to a record 7.37 trillion yuan in the first half. About 1.16 trillion yuan of loans were invested in stocks in the first five months of this year, China Business News reported on June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council, China’s cabinet.
“I’m worried about a correction in a market that has been driven by cheap money,” Devan Kaloo, who oversees $11.5 billion as head of global emerging markets at Aberdeen Asset Management Ltd., said Aug. 19.
China’s benchmark Shanghai Composite Index almost doubled during the first seven months of this year through Aug. 4, after falling 65 percent in 2008. Since reaching this year’s high on Aug. 4, it’s plummeted 15 percent. The index on Aug. 19 briefly fell 20 percent from this year’s high, the threshold for a bear market, before ending the day down 19.8 percent. The gauge rebounded yesterday, rising 4.5 percent.
Credit Concerns
The weighted average capital adequacy ratio of 205 commercial Chinese banks at the end of 2008 was 12 percent, up 3.7 percentage points from a year earlier, according to the industry’s annual report. The weighting was strongly affected by the nation’s five-largest banks, which account for 52 percent of assets in the industry.
The banking regulator has indicated it’s concerned about excessive credit creation. Last month, the commission ordered lenders to raise reserves against non-performing loans, to ensure loans for fixed asset investments go to projects that support the real economy and announced plans to tighten rules on working capital loans.
Banks are allowed to count subordinated bonds they sell as supplementary or lower-Tier 2 capital. In the event of bankruptcy, holders of subordinated notes receive payment only after other debt claims are paid in full.
The regulator’s rule change requires banks to subtract all existing holdings of subordinate bonds issued by other lenders from their own subordinated bonds being counted as supplementary capital.
Hybrid Bonds
In addition, the new rules also limit the amount of subordinated or hybrid bonds banks can hold, the people said. A bank’s holding of subordinated and hybrid bonds issued by a single bank can’t exceed 15 percent of its core capital, the people said. Holdings of all subordinate and hybrid bonds issued by banks can’t exceed 20 percent of core capital.
The regulator has called on small publicly traded banks to have a minimum capital adequacy ratio of 12 percent by year’s end, up from the current 10 percent. The ratio, a measure of how much in losses a bank can absorb, is calculated by dividing capital by risk-weighted assets. A bank’s risk-weighted assets are comprised partly of loans.
After deducting subordinated bonds issued by other banks, lenders must either raise core capital or reduce their loans to meet the capital adequacy ratio requirements.
“It’ll be hard for commercial banks to sell subordinate bonds because much of the debt is sold to their counterparts,” said Xu Xiaoqing, a bond analyst at China International Capital Corp. in Beijing. “This rule would tighten lending by commercial banks, especially small and medium sized banks that have relatively less capital.”
WASHINGTON (AFP) - - A comprehensive recovery strategy by US President Barack Obama's administration has steered the world's largest economy from the brink of collapse, his economic pointman said Thursday.
"We've traveled a long way from January. Back then, across the country for the first time in many of our lives, our economy was on the verge of collapse," Treasury Secretary Timothy Geithner said.
"Today, because of a comprehensive strategy enacted by President Obama, we are back from the brink," he said in a speech in Ohio, among states reeling from recession since December 2007.
Geithner said the pace of economic decline and job loss had slowed while banks that borrowed taxpayer funds to avert collapse were starting to pay the government back.
Credit markets were also starting to unfreeze and the housing market -- epicenter of the financial crisis that drove the economy to near-collapse -- was starting to stabilize, he said.
"And, overall, widespread fear is giving way to emerging confidence."
But Geithner cautioned of the long road ahead to restore sustained economic growth.
"We have a long way to go, but we are starting to see signs of stability, and these signs mark the first steps to recovery," he said.
Referring to the recovery in Ohio in particular, he said in January the state was losing jobs at a rate of 100,000 a month but by last month, the rate had "slowed sharply" to 30,000.
"That's 30,000 too many, and unemployment is still to high," he added.
Japanese share prices fell 1.28 per cent in morning trade on Friday as a stronger yen sparked renewed jitters about the outlook for Asia's biggest economy, dealers said.
The benchmark Nikkei-225 index dropped 133.10 points to 10,250.31 by the lunch break. The broader Topix index of all first section shares lost 11.37 points, or 1.19 per cent, to 947.22.
KUALA LUMPUR
At 9.30 am on Friday, there were 128 gainers, 98 losers and 132 counters traded unchanged on the Bursa Malaysia.
The FBM-KLCI was at 1,163.70 up 0.27 of a point, the FBMACE was at 4,213.40 up 11.83 points, and the FBMEmas was at 7,870.44 up 5.33 points.
Turnover was at 60.535 million shares valued at RM79.451 million.
HONG KONG
Hong Kong share prices ended the morning 1.58 per cent lower on Friday, tracking a decline on regional bourses, dealers said.
The benchmark Hang Seng Index finished the session down 321.51 points at 20,007.35. Turnover was HK$35.25 billion (S$6.58 billion).
SHANGHAI
Chinese shares rose 0.73 per cent by midday on Friday on news that August's new yuan loan growth will likely rebound from July, dealers said.
The Shanghai Composite Index, which covers both A and B shares, was up 21.16 points at 2,932.74.
The state-run China Securities Journal reported on Friday that August new yuan loans could total around 500 billion yuan (106 billion dollars), up from July's 355.9 billion yuan, which could quell concerns over tightening credit.
'Optimism over China's long-term macro health should stop markets from suffering further steep losses in the near term,' Shenyin and Wanguo Securities analyst Li Youxuan told Dow Jones Newswires.
The Shanghai A-share index rose 22.15 points, or 0.72 per cent, to 3,078.12, while the Shenzhen A-share index added 13.01 points, or 1.30 per cent, to 1,017.38.
Investors welcome signs of optimism in the day's economic news, with bank and tech issues leading the way.
By Alexandra Twin, CNNMoney.com senior writer
Last Updated: August 20, 2009: 6:00 PM ET
NEW YORK (CNNMoney.com) -- Stocks rallied Thursday, with financial and technology shares spearheading the advance as a report showing surprise growth in the manufacturing sector and gains in overseas markets propelled Wall Street.
The Dow Jones industrial average (INDU) climbed 71 points, or 0.8%. The S&P 500 (SPX) index added 11 points, or 1.1%. The Nasdaq composite (COMP) rose 20 points, or 1%.
A worse-than-expected jobless claims report unnerved investors in the early going, but the surprise rise in manufacturing reversed any losses, giving the market support for the rest of the session.
Financial shares were buoyant, with the KBW Bank (BKX) index gaining 2.9%. Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) were among the stocks boosting the index.
AIG (AIG, Fortune 500) rallied 21% after the insurer's new CEO said he expects the company to pay back the billions in loans it has taken to stay afloat.
Stocks managed to advance Wednesday, in the middle of a choppy week on Wall Street. After topping out at fresh 2009 highs last week, investors have struggled to push stocks higher this week. Between the March 9 lows and last week, the S&P 500 rallied 50%.
But bets that the economy is stabilizing have been undercut lately by worries about the jobs market and its impact on the already hard-hit consumer.
"A lot of what we've seen over the last five or six weeks has been the result of investor anxiety about not having jumped in ahead of the upturn," said Tom Hepner, vice president and financial advisor for Ruggie Wealth Management. "But I think the market, on an S&P 500 earnings basis, is ahead of itself."
He said that absent a big rise in revenue growth in the second half of the year --which doesn't seem to be brewing -- the market is wildly overvalued relative to corporate profit forecasts.
Stocks are likely to "crab sideways" over the next few weeks, before suffering a setback in the fall, he said.
Friday brings reports on July existing home sales and July state-by-state employment. Also, Federal Reserve Chairman Ben Bernanke will speak at the Kansas City Fed's economic symposium in Jackson Hole, Wyo., starting at 10 a.m. ET. His talk is expected to be about the past year in crisis for the financial markets.
Economy: The day brought a mix of economic news, including reports on manufacturing and the labor market.
The Philadelphia Fed index, a regional reading on manufacturing, climbed to plus 4.2 in August from negative 7.5 in July. Economists expected it to improve to negative 2. Any reading that is positive implies expansion in the sector.
Also on the upside, the Conference Board said its index of leading economic indicators (LEI) rose 0.6% in July after rising a revised 0.8% in June. LEI was expected to have risen 0.7%.
But the number of Americans filing new claims for unemployment rose last week versus forecasts for a drop. The Department of Labor reported 576,000 new claims last week from a revised 561,000 in the previous week. Forecasts were for claims to drop to 550,000, according to a Briefing.com survey of economists.
A report from the Mortgage Bankers Association said 13% of Americans are either late on their mortgage payments or in foreclosure, a record-high number.
World markets: Asian markets rebounded Thursday, reassuring investors after a plunge in China's main market Wednesday. The Chinese market has lost about 20% over the last two weeks, raising worries about China's economy. China is a big buyer of American and European products.
Oil: U.S. light crude oil for September delivery fell 89 cents to settle at $72.94 a barrel on the New York Mercantile Exchange, after rising nearly 5% Wednesday.
Bonds: Treasury prices gained, lowering the yield on the benchmark 10-year note to 3.42% from 3.45% Wednesday. Treasury prices and yields move in opposite directions.
Other markets: COMEX gold for December delivery fell $2.10 to settle at $942.70 an ounce.
In currency trading, the dollar fell versus the euro and gained against the Japanese yen.
Market breadth was positive. On the New York Stock Exchange, winners beat losers seven to three on volume of 1.05 billion shares. On the Nasdaq, advancers topped decliners eight to five on 2 billion shares.
Buy Emerging-Market Stocks on Dip, Credit Suisse Says (Update1)
By Shiyin Chen
Aug. 19 (Bloomberg) -- Investors should buy emerging-market stocks amid declines this month because valuations aren’t expensive even after their gains this year, according to Credit Suisse Group AG.
Shares in developing nations are trading at about 12.7 times reported earnings, just 5 percent higher than the levels seen at the start of previous rallies, Credit Suisse analysts Sakthi Siva and Kin Nang Chik said in a report. Global emerging market stocks may offer an “upside potential” of 25 percent in the next 12 months, they added.
The MSCI Emerging Markets Index has slipped 4.2 percent from this year’s high set on Aug. 3, trimming gains so far in 2009 to 46 percent. Indexes in developing nations account for all 10 of the world’s best performers this year, led by Peru, Indonesia and Sri Lanka, Bloomberg data show.
“The starting point of this rally was more depressed global emerging market valuations,” the analysts wrote. “With August seasonally the worst month for global emerging markets, we suggest buying on the dips in August.”
Emerging-market shares are trading at about 1.9 times book value, “marginally below” their historical averages, the Credit Suisse analysts said. Dividend yield of 2.7 percent is higher than their long-term averages, they added.
Economic Growth
Investors should buy emerging market stocks and sell equities in developed nations short because emerging economies will have faster economic growth and their shares are cheaper, Societe Generale SA said this week.
The MSCI Emerging Markets Index trades at 13.86 times the bank’s 12-month earnings forecast, below the 15.89 multiple for MSCI’s EAFE Index of developed stocks, wrote Rebecca Cheong, senior equity derivatives strategist for Societe Generale in New York. Emerging economies may expand by 4.8 percent next year, compared with 3 percent for developed nations and 2.2 percent for the U.S., economists at the French bank estimate.
“Even after production improves from historically low levels, healthy consumer demand will still be needed for a real recovery, which has not yet” occurred in developed markets, Cheong wrote. “With little hope of immediate strong export pick- up, countries will need to rely on internal growth, which is more favorable for emerging-market countries based on recent retail numbers.”
To contact the reporter on this story: Shiyin Chen in Bangkok at schen37@bloomberg.net
Hong Kong is Out of Recession; and HSI Will Reach a New High in 2011!
August 19, 2009
Hong Kong is officially out of recession in 2Q 2009 and the economy expanded 3.3% quarter-on-quarter.
Author : iFAST Research Team
Chart 1: Five-year Performance of the JCI, KLCI and STI
Chart 2: Price of Coal and Crude Palm Oil
Keynotes
Hong Kong is officially out of recession in 2Q 2009
Benign interest rate environment supports a sustainable economic recovery
Current estimates are reasonable,, but too conservative in our opinion
We expect earnings to stay flat in 2009, and rise by 21.1% in 2010 and 23.5% in 2011
Our 2011 HSI target: 30,000 – 37,000
The Hong Kong economy has been in recession since the third quarter of 2008, after negative quarter-on-quarter GDP growth for two consecutive quarters (2Q 08and 3Q 08). In the first quarter of 2009, the economy shrank 7.8% quarter-on-quarter, which was even worse than the second quarter of 2003 amidst the outbreak of SARS. Four consecutive quarters of declining GDP have been recorded between 2008 and 2009. Though it’s not comparable to the 1998 Asian Financial Crisis when Hong Kong suffered from five consecutive quarters of decline, these figures still suggest the current downturn to be one of the worst recessions on record.
However, we believe that the worst has passed and the recovery has taken place. The economy expanded 3.3% quarter-on-quarter in the second quarter of 2009, the fastest pace in almost six years. The figure has beaten the market consensus of 1.2% growth, marking an economic turnaround. On the year-on-year basis, the second quarter GDP growth was still negative; however, the contraction has reduced to -3.8% from -7.8% in the first quarter.
In terms of the GDP components, exports was up more than expected by 11.6% quarter-on-quarter while a largest rise in nearly six years was recorded in consumer spending. The rebound has also enticed the corporations into spending more. Hence, corporate investment (non-seasonally adjusted) climbed 3.4% in the second quarter. It shows the economy has stopped deteriorating and is on course for an early recovery from the recession.
A Faster-than-Expected Recovery
Recently, there are more encouraging signs of a faster-than-expected recovery. For example, Hong Kong exports fell by the least in seven months in June 2009. The positive growth of exports is expected to be seen as early as August 2009. In addition, the Purchasing Managers’ Index rose for a ninth consecutive month in July 2009 while retail sales showed a smaller year-on-year decline in recent months as consumer confidence improved. Home sales also surge to a 17-month high as low interest rate encourages buyers to enter the market. These economic figures, as prelude, signal that a sustainable recovery for Hong Kong is under way.
Benign Interest Rate Environment Supports the Sustainable Economic Recovery
Since March 2009, strong capital inflows have continued to keep the Hong Kong Dollar spot rate to stay on the 7.75 strong side of the convertibility zone. In order to maintain the exchange-rate stability, Hong Kong Monetary Authority has injected HKD into the market, directly boosting the aggregate balance of the local interbank market. The historical low interest rate contributed by the excessive liquidity help to justify the local asset markets rally in the past few months.
Property prices in Hong Kong climbed as the Centa-city Leading Index which tracks secondary residential property prices showed an increase of 25% since 2009 as at 27 July 2009. The property transaction also rose by a large margin of 58% in the same period to 14039, hitting one and a half years’ high. Hang Seng Index surged over 34% year-to-date as at 14 August 2009. The balance sheet effects and the wealth effects of asset prices have made positive contribution on the local consumption and corporate investment.
Besides, the abundant liquidity led by the net capital inflow has lowered the borrowing costs. It could help to support a modest recovery in domestic credit in the second quarter of 2009 following the two consecutive quarter drops. We expect the easing liquidity situation and the improving economic activity to increase the money multiplier and gradually accelerate the recovery of bank loans, hence supporting a sustainable recovery of the economy.
Revision of Earnings Outlook
The earnings season has been kicked off, with Hong Kong listed companies reporting results for the second quarter of 2009. HSBC Holdings, Europe’s biggest bank, which had been expected to post a US$600 million loss, surprisingly reported a pre-tax profit of US$3.35 billion in the first half of 2009. Hong Kong’s property developer, Chung Kong Holdings reported a 5% growth in net profit year-on-year in the first half of 2009.
In addition, out of the 12 Hang Seng Index’s member swhich reported its second-quarter or first half earnings, 7 of them (i.e,-more than half) reported earnings better than the consensus estimation. The earnings surprise (as compared to consensus) varies from 6.8% to 335%. As Hong Kong and Asia have just passed the inflection point of the economic cycle, we believe that the consensus is slow in their forecasts, and will likely revise earnings and the target prices upwards a few quarters down the road as corporate earnings and economic data surprise to the upside.
Table 1: Top 10 weighting members in the Hang Seng Index
From 18 July 2009 - 17 August 2009
FY 2010 Earnings Estimation Revisions
No. of revised up
No. of revised down
Total coverage
HSBC Holdings PLC
1
3
4
China Mobile Ltd
2
0
2
China Construction Bank Corp
4
0
4
Bank of China Ltd
4
1
5
Industrial & Commercial Bank of China
3
2
5
China Life Insurance Co Ltd
2
1
3
CNOOC Ltd
2
1
3
PetroChina Co Ltd
2
0
2
Sun Hung Kai Properties Ltd
1
1
2
Hong Kong Exchanges and Clearing Ltd
5
1
6
Source: Bloomberg and iFAST Compilations
Table 1 shows the earnings revision in last month. There are a total of 36 earnings forecast revisions for 2010 earnings for the top 10 weightings for the Hang Seng Index. 72% of the revision has led to an upward adjustment. It shows that analysts are becoming more optimistic for companies’ profitability in 2010. We believe that more earnings revision is coming in the second half of 2009.
According to the market consensus, as of 17 August 2009, the earnings growth in 2009 is estimated to drop by 2.7%. It will climb in 2010 and 2011 by 18.3% and 20.4% respectively (see Table 1 and Chart 2). Based on the aggressive earnings revision as shown in table 1, we believe that the current market consensus estimated earnings is still too conservative. Table 2 and Chart 2 show our in-house estimated earnings growth for the next 3 years. We are looking forward to seeing the market’s earnings integer to beat 2007’s level by 2011.
Table 2: iFAST Estimated Earnings Growth for the next 3 years
EPS Estimates
2009
2010
2011
Consensus
1208
1430
1722
% Growth
-2.66%
18.34%
20.44%
iFAST Estimates
1241
1503
1856
% Growth
0.00%
21.10%
23.50%
Source: Bloomberg, iFAST Compilations
Table 3: Hang Seng Index to reach its all time high in 2011!
Scenario Analysis
2009
2010
2011
Earnings Integer
1241
1503
1856
PE Level
16X
19858
24048
29703
18X
22341
27055
33415
20X
24823
30061
37128
Source: Bloomberg, iFAST Compilations
On 31 October, 2007, Hang Seng Index reached an all-time high and closed at 31,638 points. Based on the estimated earnings growth, we will see the Hang Seng Index to reach its all time high again by 2011 at 33,400 point if we based on a fair value PE multiple of 18X. A PE level of 18X incorporated the relatively higher valuation among the Chinese H-Share and Red Chips in the index. The H-Share and Red Chips accounted for more than half of the market capitalisation of the Hang Seng Index. In fact, our target range for the Hang Seng Index for 2011 is from 30,000 (conservative) to 37,000 (aggressive)!
As at 17 August 2009, estimated PE for Hong Kong is at 16.2X and 13.9X for 2009 and 2010 respectively. We are still bullish on the Hong Kong market due to its attractive valuation and potential earnings growth in the next 3 years. We maintain Hong Kong market at a “very attractive” rating of 4.5 stars.
Aug. 20 (Bloomberg) -- U.S. stocks rose for a third day as American International Group Inc. said it expects to repay the government and data on manufacturing and economic indicators added to evidence the recession may be ending.
AIG rallied 13 percent for the top gain in the Standard & Poor’s 500 Index after Chief Executive Officer Robert Benmosche said the company also hopes it will be able to “do something for our shareholders as well.” Google Inc. added 3 percent after being added to Goldman Sachs Group Inc.’s “conviction buy” list.
The S&P 500 added 0.5 percent to 1,001.39 at 10:06 a.m. in New York. The Dow Jones Industrial Average rose 20.4 points, or 0.2 percent, to 9,299.56. The Nasdaq Composite Index increased 0.6 percent to 1,981.3.
Stock-index futures fell before the open of exchanges as the Labor Department said applications for jobless benefits rose to 576,000 in the week ended Aug. 15 from a revised 561,000 the week before. The number of people collecting benefits the week earlier was little changed at 6.24 million.
The S&P 500 has climbed 47 percent from a 12-year low in March amid speculation the worst of the recession has passed. Edward McKelvey, a senior economist at Goldman Sachs, said yesterday the contraction may already be over. He cited the gain in industrial production in July, helped by the government’s cash-for-clunkers program, along with the likelihood that output will continue to grow because of depleted inventories.
Google, the owner of the world’s most popular search engine, climbed 1.9 percent to $452.44.
Per-share profits topped analysts’ estimates by an average of 9.9 percent for the companies in the S&P 500 that have reported results since June 17, data compiled by Bloomberg shows. Earnings slid 29 percent on average, a record eighth straight quarter of falling profits.
Aug. 20 (Bloomberg) -- European and Asian stocks climbed, led by the biggest surge in Chinese shares since March, as commodities advanced and investors speculated that a U.S. gauge of leading economic indicators rose. U.S. index futures gained.
Royal Dutch Shell Plc, Europe’s biggest oil company, and BHP Billiton Ltd. added more than 1.1 percent as crude traded near the highest level since June and copper gained. UBS AG advanced 1.4 percent after the Swiss government said it plans to sell its $5.6 billion stake in the country’s biggest bank.
Europe’s Dow Jones Stoxx 600 Index climbed 1.2 percent at 8:20 a.m. in London. The gauge has rallied 45 percent since March 9 as companies from GlaxoSmithKline Plc to Intel Corp. reported better-than-estimated results and Germany and France unexpectedly returned to economic growth. The increase left the measure valued at 40.2 times the profits of its companies, near the most expensive level since 2003, weekly data compiled by Bloomberg show.
The MSCI Asia Pacific Index increased 1.2 percent, while China’s Shanghai Composite Index rallied 4.5 percent after briefly falling into a bear market yesterday. Standard & Poor’s 500 Index futures expiring in September added 0.5 percent before a report that may show U.S. leading economic indicators climbed in July for a fourth straight month.
Shell gained 1.1 percent to 1,605.5 pence and BHP Billiton rose 1.4 percent to 1,556 pence. Oil traded at $72.35 a barrel, near the highest since June as U.S. inventories declined the most in 15 months. Copper rallied from a two-week low in London.
UBS Share Sale
UBS gained 1.4 percent to 16.98 Swiss francs. The Swiss government said it plans to sell its 6 billion-franc ($5.63 billion) investment in the bank by today after signing an agreement with the U.S. yesterday over data on bank clients suspected of evading taxes.
Brambles Ltd. jumped 3.6 percent to A$7.15 in Australia. The world’s biggest supplier of pallets said annual net income fell 30 percent to $452.6 million, exceeding analysts’ estimates.
Bank of Communications Ltd. gained 1.7 percent to HK$9.22 in Hong Kong. China’s fourth-largest lender said net income for the second-quarter was little changed at 7.62 billion yuan ($1.1 billion). That’s higher than the average estimate of 7.24 billion yuan from nine analysts in a Bloomberg survey.
Rio Tinto Group added 1.5 percent to 2,345.5 pence even as the world’s third-largest mining company said first-half profit tumbled 65 percent to $2.5 billion after copper, iron ore and aluminum prices fell.
Rio’s Chief Executive Officer Tom Albanese said the company is in “early-stage” talks with Aluminum Corp. of China on cooperation on operations. He spoke today on a conference call.
Royal Ahold NV climbed 3.7 percent to 8.45 euros. The biggest Dutch food retailer posted second-quarter profit that beat analysts’ estimates as price cuts lured more shoppers.
Holcim Ltd. gained 5.1 percent to 68.8 francs. The world’s second-largest cement maker said second-quarter profit fell 35 percent to 453 million Swiss francs. That beat a median estimate of 436 million francs of seven analysts surveyed by Bloomberg News.
Aug. 19 (Bloomberg) -- The worst U.S. recession since the 1930s may already be over, according to Edward McKelvey, a senior economist at Goldman Sachs Group Inc. in New York.
The gain in industrial production in July, the first in nine months, and the likelihood that output will continue to grow because of depleted inventories is “the best” signal that the contraction is over, McKelvey wrote in an e-mail to clients yesterday.
The Business Cycle Dating Committee of the National Bureau of Economic Research, the Cambridge, Massachusetts-based private research group charged with calling turns in the economy, determined the current downturn started in December 2007. A June trough means the contraction would have lasted 18 months, making it the longest since the Great Depression.
“The upturn in industrial production reported for July suggests that June could wind up being the NBER cycle low,” McKelvey wrote. The projection was “highly tentative” and “a lot has to happen before we can state this conclusion with conviction,” he said.
A gain in gross domestic product this quarter and sustained increases in total sales adjusted for inflation, together with further increases in production, would help cement the verdict, McKelvey said.
The NBER committee defines a recession as a “significant” decrease in economic activity over a sustained period of time. The decline would be visible in GDP, payrolls, industrial production, sales and incomes.
Cash-for-Clunkers
The government’s cash-for-clunkers program is among the reasons production, GDP and sales are all likely to increase this quarter, McKelvey said.
General Motors Co. announced yesterday it called back 1,350 union workers, its biggest one-time increase in jobs since 2006, as it boosts second-half production. GM will add shifts at plants in the Canadian province of Ontario and in Lordstown, Ohio. The production changes add about 60,000 units to GM’s fourth-quarter plans, Mark LaNeve, the vice president overseeing U.S. sales, said in a conference call.
The job market, which is likely to deteriorate further, is the one component that may not confirm the contraction is over, McKelvey said.
For that reason, McKelvey said the task of predicting when recessions begin and end is “counterproductive” since most Americans will continue to feel glum as the jobless rate climbs and payrolls fall.
Calling the end of the downturn comes “with considerable misunderstanding -- bordering on distrust and disdain -- from those who are experiencing recession by their own definition at first hand,” he said.
“This is not to say that identifying recessions is pointless, but merely to suggest that a more natural criterion” for determining the length of contractions would be “a period during which unemployment rises significantly,” McKelvey said.
Aug. 19 (Bloomberg) -- Money managers jumped back into equities this month and reduced their holdings of cash as risk appetite returned to levels not seen since the last bull market, a Merrill Lynch & Co. survey showed.
Respondents, who together manage $554 billion, increased their holdings in global equities as optimism on economic growth and corporate earnings rose to the highest level in more than five years.
The MSCI World Index, a gauge of 23 developed nations, has rebounded 51 percent since March 9 as companies from Goldman Sachs Group Inc. to Intel Corp. reported better-than-expected earnings.
The Organization of Economic Cooperation and Development said today that the economies of its 30 members collectively stopped shrinking in the second quarter as Japan joined France and Germany in exiting recession.
“People have had to admit that the global economy is improving,” said Patrik Schowitz, a European equity strategist at Bank of America Securities-Merrill Lynch.
“A lot of investors missed out on the March rally, which had become increasingly painful, so they have had to throw in the towel,” he said at a press briefing today in London.
A net 34 percent of the 204 fund managers who participated in the survey were “overweight” equities this month as cash holdings diminished. That’s up from 7 percent in July and is at the highest level since October, 2007, the month in which the MSCI World peaked at the end of the last bull market.
Risk Appetite Jumps
The average cash position among respondents dropped to 3.5 percent, the lowest proportion since July 2007, compared with 4.7 percent last month. The report’s risk and liquidity indicator, a measure of risk appetite among investors, jumped to 41 percent, a two-year high.
“Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March,” said Michael Hartnett, New York-based co-head of international investment strategy at Bank of America-Merrill Lynch. Though “a nagging lack of conviction about the durability of the recovery remains.”
A net 75 percent of respondents believe the world economy will strengthen in the next 12 months, the highest reading since November 2003. Even so, four out of five investors forecast “below-trend growth.”
Optimism on corporate earnings continued to improve, with 70 percent of money managers predicting corporate earnings will rise in the coming year, the highest proportion since January 2004. That compares to 51 percent who held that opinion in July.
The survey was conducted from Aug. 7 to Aug. 12. As of January, Merrill Lynch changed the format of its survey and no longer publishes full historical data.
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