Archive for January, 2011

Asia stocks fall and oil nears $100 on Egypt fears

Sunday, January 30th, 2011 | Finance News

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HONG KONG (Reuters) – Brent crude futures climbed near $100 a barrel on Monday and Asian stocks fell, hit by fears of unrest throughout the Middle East sparked by deadly protests in Egypt.

More than 100 people have been killed during six days of protests in Egypt aimed at toppling President Hosni Mubarak.

A wider conflagration in the region could threaten the flow of oil at a time when policymakers in emerging markets are already bedeviled by high food and fuel prices and some developed economies are gaining momentum.

"To the extent that the instability continues, investor reaction will most likely push oil and Treasury bond prices higher, and global equities lower." Mohamed El-Erian, co-chief investment officer at bond giant PIMCO, told Reuters.

"The situation in Egypt is very fluid."

For now, investors watched closely for any sign of growing instability in the Middle East. U.S. S&P 500 futures were up 0.2 percent after Wall Street closed down 1.8 percent on Friday, while U.S. Treasury futures were flat on the day.

The U.S. dollar, yen and Swiss franc, which all gained on Friday in reaction to the escalating Egyptian situation were largely stable, with protesters in Cairo camped out and calling for Mubarak to step down after 30 years of rule.

The prospect of more expensive energy bills in high growth emerging markets added to unease about rising inflation among investors, who had last week pulled money out of developing equity markets for the first time in more than a month.

Emerging Asian currencies, down broadly on Monday, will be tested this week ahead of Lunar New Year holidays, with focus on inflation data from Indonesia, South Korea and Thailand due on Tuesday.

Japan's Nikkei share average (.N225) was down 1.2 percent, at one point hitting its lowest since early December 2010.

Japan's biggest gas and oil developer Inpex Corp (1605.T) gained 2.7 percent in heavy trade, becoming the second biggest gainer on the Nikkei.

The MSCI Asia Pacific ex-Japan stock index (.MIAPJ0000PUS) fell 1 percent, with selling scattered across the consumer discretionary, industrial and materials sectors.

Stocks in Indonesia and the Philippines were the hardest hit, with benchmark indexes falling 2.1 and 2.6 percent, respectively. These markets were among last year's biggest gainers in Asia and the latest bout of risk reduction has made investors more willing to take profits.

Egyptian markets and bankers were shuttered on Monday.

OIL HEADS TO $100

U.S. crude for March delivery was trading at around $90 a barrel after hitting a high of $90.87 a barrel early in the session. Focus would likely be on Brent futures though, where the lead month contract was trading just shy of $100 a barrel.

"For the global economy, Egypt is less important, though it does matter for access to the Suez Canal, a key oil distribution route," ANZ Bank economist Sharon Zollner said in a note to clients.

"The greater fear is that the turmoil could spread to other Middle East countries, including even Saudi Arabia. If that happens, then all bets on oil prices are off."

In the currency market, the euro was largely stable at $1.3605. The euro has rallied for three weeks and risen to two-month highs, though the Egyptian turmoil as well as risks surrounding a European Central Bank meeting on Thursday may press it against major support at $1.3535 this week.

Gold and other precious metals are traditionally seen as safe havens at times of geopolitical uncertainty. Spot gold was steady in early trade at $1,339 per ounce as more investors saw it as relatively cheap after the metal touched a near four-month low on Friday.

(Additional reporting by Jennifer Ablan in NEW YORK and Adrian Bathgate in WELLINGTON; Editing by Alex Richardson)

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Japan industrial production up for second month

Sunday, January 30th, 2011 | Finance News

TOKYO – Japan's industrial production expanded for a second straight month in December, as strengthening global demand injected companies with renewed confidence.

Factory output rose 3.1 percent from November, the Ministry of Economy, Trade and Industry said Monday. Driving the gains were export-reliant industries including transport equipment, electronic devices and steel.

Monday's figure beat Kyodo news agency's average market forecast for a 3 percent rise and prompted the ministry to upgrade its assessment of industrial production — a key barometer of Japan's economic health.

It now says output "shows signs of an upward movement." Last month, it described industrial production as "weakened."

The result marked the strongest monthly showing of 2010 and indicates that overseas demand is starting to accelerate, sparking the manufacturing sector. Global appetite for Japanese goods, particularly from China, has served as a critical lifeline for the country's recovery amid lackluster domestic demand.

A steady slowdown in export growth between February and October last year, as well as a strong yen, had triggered concerns that the economy was faltering. Industrial production also declined for five consecutive months between June and October.

Analysts are more bullish about 2011.

Last week, the central bank upgraded its economic outlook for the fiscal year ending March 31. It now expects real gross domestic product to expand 3.3 percent, up from 2.1 percent forecast in October.

Government data last week showed that exports from the world's third-largest economy rose 13 percent in December from a year earlier, accelerating for the second straight month.

Japanese automakers last week also reported robust production gains in 2010. Nissan Motor Co. said global output surged 37 percent, with production in Japan up 27 percent.

December's industrial production survey points to further growth this month, with output forecast to rise 5.7 percent. February output is projected to slip 1.2 percent.

The report also shows that shipments were up 1.1 percent in December from a month earlier, and inventories expanded 1.4 percent.

Goldman Sachs economist Chiwoong Lee notes concern about rising inventories of LCD televisions, washing machines and other home appliances eligible for the government's "eco-points" consumer subsidy program, which is scheduled to expire in March.

"Yet, even if production falls back in March on the end of eco-points, we still think the stronger global picture, especially growing exports on stronger U.S. consumption, will drive improvement in production," Lee said in a note to clients.

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ICBC leads charge as Chinese banks go global

Sunday, January 30th, 2011 | Finance News

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BEIJING (AFP) – ICBC, the world's largest bank by market value, is proving the most aggressive Chinese bank in expanding abroad, serving Chinese firms that are increasingly active globally after the financial crisis.

Of the country's "big four" banks, ICBC is leading the way as Chinese lenders restart plans that were put on hold by the global crisis and seize new opportunities left in its wake.

Bank of China fulfilled that role in the 1980s, but times have changed as Chinese firms have been widely encouraged to invest abroad and Beijing seeks to boost the global profile of the yuan, the experts say.

"BoC and ICBC are roughly at parity in terms of overseas activity. But it does indeed appear that ICBC is emerging as the most international of the Chinese banks," IHS Global Insight analyst Adam Breen told AFP.

For Andy Xie, an independent economist based in Shanghai, the process is the logical result of the global expansion by Chinese companies, which are branching out to secure vital natural resources and explore new markets.

"Even Chinese companies of medium size are going global. If Chinese banks don't offer them services offshore, then they might switch to other banks like HSBC that have both a China presence and an international presence," Xie said.

This month alone, ICBC opened branches in Paris, Amsterdam, Madrid, Milan and Brussels -- following on from existing offices in London, Moscow, Frankfurt and Luxembourg.

In December, it extended its reach to Pakistan. The month before, reports said ICBC was eyeing a takeover of South Korea's Kwangju Bank. It already has two branches in Seoul and one in the port city of Busan.

In addition the bank took advantage of this month's high-profile visit to the United States by President Hu Jintao to announce it had signed a $140 million deal to buy a majority stake in the US subsidiary of Bank of East Asia.

If the agreement gets approval from US banking regulators, ICBC will become the first Beijing-controlled financial institution to acquire retail bank branches in the United States.

ICBC, which employs 386,000 people worldwide and has more than 200 million customers, now has more than 160 branches outside mainland China and more than 16,000 in the country, according to its website.

Experts say Chinese banks' global expansion is only just beginning.

"It is rapid expansion only from a very low base," explained Michael Pettis, a professor of finance at Tsinghua University in Beijing.

"China is the second-largest economy in the world but in terms of outward direct investment, it is probably eighth or ninth."

At first, the banks will serve Chinese companies looking to invest in or buy local businesses, before they target foreign enterprises doing business with the Asian economic powerhouse, experts say.

Eventually, they will be viable competitors to local banks, mainly by offering more cost-effective service, Pettis told AFP.

"The Chinese banks might become competitive in a few years, and they will probably be competitive where the Japanese were competitive in the 1980s and that is because they provide low funding cost," he said.

ICBC chairman Jiang Jianqing told the Wall Street Journal at last week's World Economic Forum that the bank's focus for now would be "mainly on emerging markets, which have good prospects for growth".

"For the American market, we are walking in a very careful way," Jiang said.

Breen, a specialist on China's banking sector, said the "big four" should focus on developing economies, "where competition is lower, economic growth potential is greater, and the existing domestic banks are less sophisticated".

In developed countries, "their best option is to purchase existing banks in those sectors if they want to expand there," Breen said.

But he cautioned that "major regulatory obstacles" could block Chinese banks' path in nations such as the United States, where most analysts expect ICBC to face a lengthy process to win approval for the Bank of East Asia deal.

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