Archive for November, 2008

Isolation shields frontier stock markets from crash (Reuters)

Wednesday, November 26th, 2008 | Finance News

LONDON (Reuters) –
Trading with whiteboards and paper slips, a handful of fledgling stock markets such as Iraq and Ghana have escaped the crash of their more developed rivals -- benefiting in large part from isolation and lack of liquidity.

Ghana's stock exchange is up 60 percent this year according to the official indicator, in sharp contrast to other emerging markets which are down more than 60 percent on the year to date, savaged by recent market turmoil.

The official indicator for Baghdad's Iraqi stock exchange showed it soaring 40 percent in September alone -- the same month Lehman Brothers went bankrupt and other markets nosedived.

Some distrust that figure, but say that overall, Iraqi stocks remain in positive territory this year.

Neither market is electronically traded -- although both aim to become so. Both have been largely overlooked by foreign investors even during the recent boom in frontier markets that preceded the crash.

Godvig Capital fund manager Bjorn Englund -- whose $22 million Babylon fund is the only substantial foreign portfolio investor in the Iraqi bourse -- says the moral for investing in a downturn is clear.

"The lesson is that you shouldn't follow the herd," he told Reuters by telephone from his office in Sweden. "You have to go somewhere where other people are not, where you have the first- mover advantage."

Other markets still up by mid-November included Tunisia and Ecuador, again small markets with little foreign involvement. By contrast, according to index provider MSCI Barra, more mainstream frontier markets from Nigeria to the Middle East have broadly tracked the standard emerging markets index.


The Iraqi stock exchange lost well over half its value after it opened in 2004 following the U.S. invasion the previous year, but has benefited this year from a dramatic fall in sectarian violence and, until recently, from high oil prices.

As world markets tumbled last month, sweaty investors waved and made hand signals at the brokers working behind a low partition. Hotels and banks are the hottest picks among the exchange's 95 listed companies, as investors eye a reconstruction bonanza and the need to house expatriate workers.

Englund said Iraq's isolation from global markets was also key. International investors are often highly leveraged and liable to sudden margin calls, prompting them to pull money from emerging markets across the board regardless of fundamentals.

"There is very little foreign money in the (Iraqi) market so it has not seen the sort of outflows you have had elsewhere," he said. "The exchange has been immune to what has happened in the outside world."

But the market is far from transparent, he warned. He is skeptical of the official main index figures, saying its calculation is opaque and does not always correspond to movements in the main stocks.

The more liquid ISX banking index, which makes up more than 80 percent of turnover, was flat in September and has risen 6.2 percent this year in local currency or 9.6 percent in U.S. dollar terms as the dinar strengthened.


"That is still pretty good when you compare it to what has happened elsewhere," Englund said.

Ghana too has benefited from good local fundamentals, based around recent oil discoveries, good prices for its main gold and cocoa exports, political stability and economic growth, although the market has retreated from its peaks of early October.

The IMF expects Ghana's economic growth to slow to 5.8 percent in 2009 from a projected 6.5 percent this year as the global slowdown hits. But those rates are still well ahead of advanced economies, where 2009 growth is seen below 0.5 percent.

And crude oil production, scheduled for late 2010, should give a boost to what is already one of Africa's more attractive and stable economies for outside investors.

But again, Ghana's relative isolation is key to recent gains.

"There is not the foreign investment here that you get in some markets, and that is why we have not seen the falls you saw in South Africa or Kenya," said Databank analyst Dorothy L. Ametefe from the capital Accra.

She said lack of liquidity in the market was itself limiting the speed of the correction lower, with both foreign and local investors who were trying to sell out finding it almost impossible.

"The problem is that volumes have dried up and it is very difficult to find buyers at these prices," she said. Some days the market is effectively untraded.

But if foreign investors are trying to exit Ghana, they are still coming into Iraq. Englund said they made up almost 18 percent of overall trading volume since August, more than triple the average during the December-February period.

Both markets' transition to electronic trading should deliver greater volatility and ease of access for foreign investors in the hope of facilitating long-term investment -- but that may end the isolation that has protected them.

"There are clear advantages to electronic trade," said Databank's Ametefe. "But it will increase the vulnerability to external events."

(Additional reporting by Kwasi Kpodo in Accra and Mohammed Abbas in Baghdad; Editing by Ruth Pitchford and Sara Ledwith)


GM mulls shedding Pontiac to win aid: report (Reuters)

Wednesday, November 26th, 2008 | Finance News

NEW YORK (Reuters) –
The automaker General Motors Corp (GM.N) is mulling whether to shed its Pontiac, Saab and Saturn brands, as well as its Hummer brand, as part of a plan to win $12 billion of U.S. government loans, Bloomberg News said on Wednesday, citing people familiar with the matter.

GM was not immediately available for comment.

Federal lawmakers last week rejected pleas from GM, Ford Motor Co (F.N) and Chrysler LLC for $25 billion of loans, and asked the automakers to submit detailed turnaround plans.

The lawmakers are scheduled to reconvene during week or December 8 to review any plans and consider aid. Some analysts have said GM's remaining equity value could be essentially wiped out by any government recapitalization.

GM has said it might run short of operating cash by early 2009 if it doesn't find help.

GM directors are scheduled to review a proposal November 30 and December 1, the Bloomberg article said, citing people familiar with the plans.

Shares of GM closed Wednesday up $1.25 at $4.81 after Deutsche Bank analyst Rod Lache said the chances of a bailout have improved because of growing concern that doing nothing would further damage the U.S. economy.

GM's other U.S. brands are Buick, Cadillac, Chevrolet and GMC. The automaker dropped its Oldsmobile brand earlier this decade. Private equity firm Cerberus Capital Management LP (CBS.UL) controls Chrysler.

(Reporting by Jonathan Stempel; Editing by Christian Wiessner)


Tiffany 3Q profit beats view, but outlook lowered (AP)

Wednesday, November 26th, 2008 | Finance News

NEW YORK – Tiffany & Co. on Wednesday reported third-quarter earnings that topped Wall Street expectations, but the luxury goods retailer warned of job cuts and lowered its 2008 outlook as consumers scale back on spending amid a tough economy.

Tighter credit and widespread layoffs have caused many consumers to cut back on non-essentials and the forecast is gloomy for retail's crucial holiday shopping season. Tiffany's strong international sales had typically helped offset recent weakness in the U.S., but the company warns that Europe and Asia remain "challenging."

The weak outlook drove Tiffany shares down as low as $18.61 in early trading, but the stock rose 8 cents to close at $20.91 on nearly double average volume. That's well less than half the $51.13 the stock traded at a year ago.

For the three months ended Oct. 31, the New York-based jeweler earned $43.8 million, or 35 cents per share, less than half its year-ago profit of $101.5 million, or 73 cents per share, which included a gain of 48 cents per share on the sale-leaseback of its Tokyo flagship store. Excluding one-time items, profit actually rose 13 percent in the latest period.

Sales slipped 1 percent to $618.2 million as weak U.S. markets offset increased sales abroad.

The results beat analysts' average profit estimate of 25 cents per share, according to a Thomson Reuters poll, though sales came in shy of Wall Street's $643.8 million forecast.

Mark Aaron, vice president of investor relations, said Tiffany faced a tough economy, frozen credit markets and tumbling equity markets.

"All of this dramatically affected consumer confidence and led to a further pullback in spending in the U.S., as well as initial softening in some of our non-U.S. markets," said Aaron, who spoke to analysts on a conference call.

Sales fell 6 percent at Tiffany's nine stores in New York, including the company's Wall Street store that opened last year in lower Manhattan. A severe market slump and massive layoffs in the financial sector have many jewelers struggling to ring up pricey items. With Wall Street bonuses likely decimated if given at all this year, jewelry stores can't count on bankers to splurge.

Sales in Tiffany's Americas region declined 7 percent to $331.8 million, with "substantial" decreases seen in the number of transactions in every region of the U.S. Same-store sales, or sales at stores open at least one year, dropped 14 percent in the U.S.

Sales at Tiffany's heavily tourist-trafficked New York flagship store, which accounts for 10 percent of the company's overall sales, declined 5 percent during the quarter. That's still better than October's sales plunge of 17 percent at the location.

Overseas, revenue in the Asia-Pacific region rose 3 percent to $206 million, and sales in Europe gained 16 percent to $58.2 million, but the company expects "challenging conditions" in these regions going forward.

Cowen & Co. analyst Laura Champine, who rates shares of Tiffany "Underperform," said inventory in the third quarter jumped 12 percent, which does not bode well for the holiday season, when jewelers record a large portion of sales.

Looking ahead, Tiffany lowered its 2008 earnings outlook to $2.30 to $2.50 per share, with sales expected to be flat to down 2 percent. That's well below analysts' $2.58-per-share outlook and the company's previous estimated range of $2.82 to $2.92.

"It is impossible to know when consumer confidence will be restored," Chief Executive Michael J. Kowalski said.

Kowalski said U.S. sales have further softened this month. With weak consumer demand expected to continue into the crucial holiday shopping season, the company plans to reduce staffing and trim capital spending, including scaling back on new store openings next year. Tiffany did not specify how many jobs it plans to cut.

For the fourth quarter, Kowalski said U.S. same-store sales will drop between 25 percent and 35 percent, with total worldwide sales sliding between 13 percent to 20 percent. Based on fourth-quarter sales of $1.05 billion a year ago, Tiffany expects sales between $917.3 million and $843.7 million, below the $1.05 billion expected by analysts.

Despite weakness in high-end luxury spending, some analysts think Tiffany won't shift its product mix away from fancier diamond and precious gem jewelry to focus mainly on lower-priced silver items and classic pieces.

"I don't think they'll do that," said Stephanie Hoff, senior research analyst with Edward Jones, in a phone interview. "I think they will keep things balanced. I imagine they will watch sales trends and gravitate toward what sells."


AP Business Writer Jennifer Malloy Zonnas in New York contributed to this story.