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G-20 Central Banks Delay Exit as Euro Debt Woes Rattle Markets

June 3, 2010

By Simon Kennedy and Shamim Adam June 4 (Bloomberg) — Group of 20 central banks are delaying their withdrawal of emergency stimulus as Europe’s debt crisis shakes financial markets and threatens to hinder the global recovery. G-20 finance chiefs begin talks today in Busan, South Korea, after central banks from Australia to Canada identified investor reaction to Europe’s indebtedness as a hurdle to higher interest rates. European Central Bank President Jean-Claude Trichet has reversed his exit strategy to combat the euro’s biggest test, while the Federal Reserve’s Charles Evans signaled market stress will delay a rise in U.S. borrowing costs. “Given the increase in uncertainty in the economy, it would be perfectly natural for people to be less eager to tighten,” William White , a former Bank for International Settlements chief economist who pointed to risks in financial markets before the 2008 credit crisis, said in an interview in Seoul. The need for central bankers to keep rates lower for longer may spark tension in Busan as monetary policy makers intensify their public demands for fiscal authorities to restrain debt in return. The pressure is an echo of the 1990s, when then-Fed Chairman Alan Greenspan and counterparts lobbied leaders to narrow deficits that threatened a bondholder revolt. Europe’s Rescue Trichet, Chinese Finance Minister Xie Xuren and their G-20 counterparts convene today for the first time since a Greek-led sell-off in the bonds of the euro-area’s most indebted nations spurred the European Union to craft a 750 billion-euro ($918 billion) rescue plan and the ECB to buy the bonds of “dysfunctional” markets. The package hasn’t been enough to pacify investors concerned sovereign debt is the biggest threat yet to the recovery from last year’s global slump. The MSCI World Index of stocks has fallen 12 percent since mid-April and the rate banks say they pay for three-month loans in dollars last week reached the highest level since July. The market for corporate bonds closed on June 1 as concern European banks will take more writedowns and losses led investors to shun all but the safest government debt. “Investors are going to stay cautious,” said Andrew Milligan , the Edinburgh-based head of global strategy at Standard Life Investments, which manages the equivalent of $214 billion. He predicts they will seek “ballast” for their portfolios amid volatility by buying investment-grade corporate debt. Bonds from governments with lower borrowing levels will also outperform, he forecast. Credit Crunch Central banks are concerned the biggest threat to the recovery is banks ceasing to lend and financial markets freezing as happened in 2008, rather than weaker European demand, said Julian Callow , chief European economist at Barclays Capital in London. He estimates Greece, Ireland, Portugal and Spain accounted for just 4 percent of world gross domestic product last year. “They are traumatized by what happened in 2008,” said Callow, who previously worked at the Bank of England. “Investors are nervous again so central banks are picking up on that.” Trichet’s ECB is leading the pullback, announcing May 10 it would intervene in markets to buy government bonds, renew its auctions of unlimited cash to banks for up to six months and revive a currency swap line with the Fed. Shifting Forecast Goldman Sachs Group Inc. Chief European Economist Erik Nielsen now expects the ECB to wait until the second quarter of next year to raise its benchmark rate rather than during the first three months of the year as he previously anticipated. Other G-20 central banks are also taking note of Europe’s woes. Australia kept its key rate at 4.5 percent on June 1 and signaled it may leave it there for the “near term,” noting in a statement that “investors have generally displayed a good deal more caution.” Turkey’s central bank said on May 18 that indebtedness elsewhere in Europe means “uncertainty over external demand is likely to remain important for a long time.” Russia’s Bank Rossii cut its main interest rate for the 14th time in as many months on May 31 to support its recovery, while Indonesia yesterday kept its benchmark unchanged at a record low. ‘Extended’ Period Fed Bank of Chicago President Evans said May 31 he “wouldn’t be surprised” if the Fed’s policy of keeping rates near zero “gets extended just a little bit.” Bank of England policy maker Adam Posen said in a May 20 interview Europe’s crisis is going to inflict “some negative drag on the U.K.” “If you have volatility in markets and implications for the financial system then central bankers are going to be concerned about the risks to growth so may be relatively more conservative in scaling back support,” said Paul Donovan , a UBS AG economist in London. Even central banks that have raised rates may now be slower to do so. In India, where the Reserve Bank increased borrowing costs in March and April, Deputy Governor Subir Gokarn last month said officials will be more cautious with future moves. Bank of Canada Governor Mark Carney mentioned Europe and its crisis four times in a one-page statement on June 1, a signal his bank may not soon repeat its quarter-point rate rise. The market jitters may also have given China reason to refrain so far from letting its currency rise against the dollar. G-20 members have repeatedly called for an end to the peg China adopted in July 2008 to aid its exporters. The euro’s 15 percent slide against the yuan this year already threatens to undermine Chinese shipments. Yuan Unmoved Twelve-month non-deliverable yuan forwards reflect bets the yuan will strengthen 0.7 percent from the spot rate of 6.83 per dollar compared with projections of a 3.2 percent appreciation at the start of May. “China’s economic strength certainly justifies a stronger yuan and higher interest rates, but policy makers don’t want to give an impression that they are tightening at a time when exporters are suffering,” said Tomo Kinoshita , an economist at Nomura Holdings Inc. in Hong Kong. In return for doing more to aid expansion, central banks may demand governments work harder to outline and enact plans to narrow budget gaps, with southern Europe an example of what may happen if they fail. Citigroup Inc. economists estimate G-20 governments must tighten fiscal policy an average of 8 percent of GDP over the next decade to reduce debt burdens to 60 percent of GDP. Trichet’s Warning Trichet said May 31 that he will no longer tolerate a lack of budget discipline in the euro area after all but Luxembourg and Finland last year violated a rule to hold budget deficits to less than 3 percent of GDP. Fed Chairman Ben S. Bernanke said April 27 that a failure to reduce the U.S. deficit may imperil the recovery by pushing up borrowing costs. Finance ministers headed to Busan seeking to juggle the goals of protecting growth and consolidating budgets. U.S. Treasury Secretary Timothy F. Geithner said he wanted fiscal reform that was “growth-friendly,” while France’s Christine Lagarde said the G-20 was aiming to restore confidence in public borrowing, yet not “suffocate growth.” To contact the reporters on this story: Simon Kennedy in London at skennedy4@bloomberg.net ; Shamim Adam in Busan, South Korea, at sadam2@bloomberg.net

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Video: Schwartz Says Asia Can Weather `Shock’ of Europe Crisis: Video

June 3, 2010

June 4 (Bloomberg) — Stephen Schwartz, chief economist for Asia at BBVA, talks in Hong Kong with Bloomberg’s Rishaad Salamat about the impact of the European debt crisis on Asia’s economies. Schwartz also discusses Indonesia and China’s economies and monetary policy. Bank Indonesia left its policy rate unchanged yesterday at 6.5 percent, the lowest level since its introduction in July 2005. (Source: Bloomberg)

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Prudential Says Collapse of AIA Bid to Cost 450 Million Pounds

June 2, 2010

By Kevin Crowley and Jon Menon June 2 (Bloomberg) — Prudential Plc said the collapse of its $35.5 billion takeover of American International Group Inc.’s main Asian unit will cost it about 450 million pounds ($660 million). The failure may also cost Chief Executive Officer Tidjane Thiam his job. The costs, about a third of 2009 operating profit, include 153 million pounds in break fees and 81 million pounds in underwriting charges and currency hedges, Prudential said in a statement today. The insurer also said it’s in talks to end the deal after failing to win a $5.1 billion cut in the price. Thiam sought to lower the purchase price after shareholders including BlackRock Inc. said the transaction was too costly. The takeover is the biggest to collapse since miner BHP Billiton Ltd. abandoned its $66 billion acquisition of Rio Tinto Group in November 2008, according to data compiled by Bloomberg. “What a mess,” said Ben Collett , head of equities at broker Louis Capital Markets in Hong Kong. “This will make it very hard for Thiam to continue. Even if they claw back some costs for the deal, it’s still a massive waste, and is anyone in the mood for that in Europe?” Prudential, which was due to pay AIG in dollars after raising the cash in pounds, may have made a “significant gain” on a 500 million-pound currency hedge, according to Barrie Cornes , a London-based analyst at Panmure Gordon & Co. with a “buy” rating on the stock. The insurer fell 2.7 percent to 560 pence as of 9:15 a.m. in London today. The stock rose 2.2 percent to HK$64.90 at the 4 p.m. close of trading in Hong Kong. Offer Cancelled Prudential will also cancel a $21 billion rights offer it had planned to fund the offer. The share sale would have been the biggest by a British company. At least 20 companies worldwide postponed or withdrew initial offerings in May as the European debt crisis sent the MSCI World Index of developed- nation stocks down 9.9 percent. “We agreed with shareholders that a renegotiation of the terms was necessary given market movements, but it has not proved possible to reach agreement,” Thiam said in the statement today. AIG Chief Executive Officer Robert Benmosche , 66, may return to an earlier plan of a public offering in Asia to divest AIA, which operates in markets spanning China to Australia and has more than $60 billion in assets. “Without a doubt, the size of AIA magnifies the execution risk of closing a deal,” said Angelo Graci , managing director at Chapdelaine Credit Partners, a New York-based bond broker. “At this point it’s difficult to see another single buyer come in with a competitive price.” AIA IPO AIG announced it would divest AIA in October 2008 and last year said it would seek a public listing on an Asian stock exchange. AIG, which was rescued by the U.S. in 2008, could return to its earlier plan of holding a stock offering, the Treasury Department said May 26. “It’s not surprising given that Prudential’s shareholders initially thought AIA had more high-growth China exposure than it did,” said Winston Barnes , head of sales and trading for Asian markets at WJB Capital Group Inc. in San Francisco. “I would expect if Pru doesn’t come back again, AIA would IPO in Hong Kong.” Thiam, who took over as CEO in October, “will probably have to review his position,” said Paul Mumford , who helps manage 417 million pounds including Prudential shares at Cavendish Asset Management Ltd. in London. Mumford opposed the deal when it was announced in March. The original takeover offer included about $25 billion in cash and the rest in securities linked to Prudential shares. Prudential’s planned revision to $30.4 billion included $23 billion in cash, the insurer said yesterday. Break Up? The combined company would have created the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Prudential’s shareholders may now favor breaking up the business, according to Rupert Armitage , head of U.K. equities at Shore Capital Group Ltd. “It leaves them very vulnerable to a break up,” he said in a Bloomberg Television interview. “The chairman and the CEO, having staked their reputations on it, it puts them in an almost untenable position.” Prudential’s bid was hurt by a series of mistakes in dealing with regulators and shareholders. Ivory Coast-born Thiam, 47, was criticized by shareholders in March for agreeing to join the board of Paris-based bank Societe Generale SA , a decision he reversed a day later. Prudential was also forced to delay the start of the planned rights offer in May after the U.K. regulator asked the firm to hold more capital in reserve. Opposition to Deal Neptune Investment Management Ltd., a London-based investor, said on May 26 it had 20 percent of shareholders to back its opposition to the transaction. Thiam, who needed 75 percent of shareholders to back the offer, made a failed attempt to resurrect the deal by asking AIG to reduce the price two days later. The takeover was to be the world’s biggest this year, according to data compiled by Bloomberg. The collapse of the deal deprives Prudential’s advisers of as much as 850 million pounds in fees. Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc. AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley. To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net ; Kevin Crowley in London at kcrowley1@bloomberg.net

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Las Vegas Sands Says Singapore Site to Top Estimates

June 2, 2010

By Beth Jinks June 2 (Bloomberg) — Las Vegas Sands Corp. , the casino company controlled by billionaire Sheldon Adelson , says its Singapore resort is set to exceed analysts’ cash-flow projections this year as gamblers flock to the new complex. About 550,000 people visited the Marina Bay Sands casino in the first 25 days of May, Chief Operating Officer Michael Leven said in an interview in Las Vegas last week, describing the overall resort as “about 25 percent open.” The casino is winning “slightly more” on mass-market gambling than on VIP play since opening April 27, he said. “If we continue at this rate, with no improvement for the rest of the year in the casino win, and just add the improvement in the hotel, we’ll exceed the analysts’ expectations” for cash flow, Leven said. He didn’t give a figure. The Singapore site will probably generate $329 million in 2010 earnings before interest, tax, depreciation and amortization, based on the average of 13 analyst estimates compiled by Bloomberg. Ebitda is a measure of cash flow. About one-third of Marina Bay’s casino visitors have been Singaporeans, who pay S$100 ($70.90) to enter, and the rest are either foreigners living in the city-state or visitors from countries including neighboring Malaysia and Indonesia, Leven said. The $5.5 billion casino resort is beside Singapore’s financial district and includes meeting and convention facilities, a shopping mall and restaurants. ‘Positive Effect’ “It started quite well,” said Philip Tulk , an analyst at Royal Bank of Scotland Group Plc. “The hundred-dollar entry fee for Singaporeans is having a positive effect because people are staying longer.” In February, Genting Singapore Plc opened the country’s only other casino, Resorts World, on Sentosa Island, which includes a Universal Studios theme park. Parent Genting Bhd. owns and runs Malaysia’s only casino, and buses in thousands of gamblers from the neighboring nation. Genting Singapore rose 4 percent to close at S$1.03. Sands China Ltd., the unit which in 2007 opened the 3,000-room Venetian Macao, rose 0.9 percent to HK$11.14 in Hong Kong. “Genting has proven to be a very formidable casino competitor,” Leven said in the May 26 interview. “They know the market better than we knew the market on the mass-play side, because they operate in Malaysia and our operations in Macau are very different.” Rapid Roulette Las Vegas Sands is “somewhat disappointed” with the win rate for its Singapore slot machines, even though the daily average is higher than at its Las Vegas and Macau, China, sites, Leven said. The company has ordered popular electronic rapid roulette and mini-baccarat games to compete with Genting, he said. The win rate is how much the casino wins as a percentage of total money gambled. Leven acknowledged “glitches” in the staggered opening as construction work continues, including lawsuits related to a power failure during the first conference that Marina Bay Sands hosted. “It’s really a work in progress,” Leven said. “The amount of complaints we’re getting are pretty typical of any opening.” Since opening, Marina Bay has adjusted some incentives and lowered some food and parking prices to “be more appealing to the mass market,” he said. Singapore aims to lure 17 million visitors and reach annual tourism revenue of S$30 billion by 2015, helped by the two casino resorts. Marina Bay Sands is “going to be everything Singapore wants it to be,” Leven said. “I can’t wait for New Year’s because at that point almost everything will be done.” Las Vegas Sands fell 46 cents, or 2 percent, to $23.02 in New York Stock Exchange composite trading on June 1. The shares have gained 54 percent this year, compared with a 4 percent drop on the S&P 500 Index. To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net

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Prudential to Scrap AIA Purchase From AIG, Drop $21 Billion Rights Offer

June 1, 2010

By Kevin Crowley and Jon Menon June 2 (Bloomberg) — Prudential Plc said it’s in talks to pull out of its $35.5 billion takeover of American International Group Inc.’s main Asian unit after failing in its attempt to cut the price. London-based Prudential said if the deal with AIG to buy AIA Group Ltd. is terminated, as it expects, the board will scrap plans for a rights offer that would have helped fund the purchase. Ending the deal will cost Prudential about 450 million pounds ($660 million), including a break fee of 153 million pounds, it said. Prudential Chief Executive Officer Tidjane Thiam sought to cut the price by $5.1 billion after shareholders including BlackRock Inc. said the transaction was too costly, a person familiar with the deal said last week. The failure of the acquisition may place pressure on the management of Britain’s biggest insurer and delay AIG’s plans to repay part of its $182.3 billion U.S. government rescue package. “We agreed with shareholders that a renegotiation of the terms was necessary given market movements but it has not proved possible to reach agreement,” Thiam said in the statement today. AIG will push on with an initial public offering, probably in October, CNBC reported yesterday, citing an unidentified person familiar with the situation. Review Position Thiam, who took over as CEO in October, “will probably have to review his position,” said Paul Mumford , who helps manage 417 million pounds including Prudential shares at Cavendish Asset Management Ltd. in London. Mumford opposed the deal when it was announced in March. The original takeover offer included about $25 billion in cash and the rest in securities linked to Prudential shares. Prudential’s planned revision to $30.4 billion included $23 billion in cash, the insurer said yesterday. The combined company would have created the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Prudential’s shareholders may now favor breaking up the business, according to Rupert Armitage , head of U.K. equities at Shore Capital Group Ltd. “It leaves them very vulnerable to a break up,” he said in a Bloomberg Television interview. “The chairman and the CEO, having staked their reputations on it, it puts them in an almost untenable position.” Prudential’s bid was hurt by a series of mistakes in dealing with regulators and shareholders. The 162-year-old British insurer also was trying to pull off a $21 billion rights offer, the biggest for an acquisition in history, at a time when Europe’s sovereign debt crisis was hurting corporate fundraisings worldwide. Delayed Offer Ivory Coast-born Thiam, 47, was criticized by shareholders in March for agreeing to join the board of Paris-based bank Societe Generale SA , a decision he reversed a day later. Prudential was also forced to delay the start of its rights offer in May after the U.K. regulator asked the firm to hold more capital in reserve. Neptune Investment Management Ltd., a London-based investor, said on May 26 it had 20 percent of shareholders to back its opposition to the transaction. Thiam, who needed 75 percent of shareholders to back the offer, made a failed attempt to resurrect the deal by asking AIG to reduce the price two days later. The takeover was to be the world’s biggest this year, according to data compiled by Bloomberg. The collapse of the deal deprives Prudential’s advisers of as much as 850 million pounds in fees. Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc. AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley. To contact the reporter on this story: To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net ; Kevin Crowley in London at kcrowley1@bloomberg.net

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Prudential Fails in Bid to Reduce Price of AIA Takeover, Jeopardizing Deal

June 1, 2010

By Kevin Crowley June 1 (Bloomberg) — Prudential Plc ’s attempt to cut the price of its $35.5 billion takeover of American International Group Inc. ’s main Asian unit failed, leaving the biggest acquisition in the British insurer’s history in jeopardy. Prudential was seeking to lower the price to $30.4 billion, the London-based insurer said in a statement today. New York- based AIG “will adhere to the original terms of its previously announced agreement with Prudential,” it said in a separate statement. Prudential climbed as much as 4.8 percent in London. “It’s all over,” said Barrie Cornes , a London-based analyst at Panmure Gordon & Co. with a “buy” rating on the stock. AIG “has effectively killed the deal.” Prudential Chief Executive Officer Tidjane Thiam was trying to renegotiate the terms of the purchase after investors including BlackRock Inc. and Fidelity Investments said the takeover was too expensive, a person familiar with the deal said last week. Failing to complete the acquisition may stymie Thiam’s Asian expansion strategy and delay AIG’s plans to repay part of its $182.3 billion U.S. government rescue package. “It’s a dead deal,” said Paul Mumford , who helps manage 417 million pounds ($603 million) including Prudential shares at Cavendish Asset Management Ltd. in London. “The Pru will have to pull back gracefully now. It was a very costly mistake.” Prudential climbed 20 pence, or 3.7 percent, to 561.5 pence as of 8:30 a.m. in London, valuing the insurer at 14.3 billion pounds. The share price was 602.5 pence on Feb. 26, the last trading day before the deal was announced. Outlook for Thiam Thiam, who took over the CEO role in October, “will probably have to review his position,” said Cavendish’s Mumford, who has opposed the deal since it was announced in March. The original takeover offer included about $25 billion in cash and the rest in securities linked to Prudential shares. Prudential’s planned revision to $30.4 billion included $23 billion in cash, the insurer said today. Following AIG’s rejection, Prudential’s board is considering its position and a further announcement will be made “when appropriate,” it said. “We see it as a vote of confidence in the deal, not in the management,” Chairman Harvey McGrath said on May 17. Asked if he would look to replace Thiam if the deal failed, he said, “we will take a view of the unfolding situation as and when it occurs.” Shareholder Criticism Prudential’s bid was hurt by a series of mistakes in dealing with regulators and shareholders. The 162-year-old British insurer also was trying to pull off a $21 billion rights offer, the biggest for an acquisition in history, at a time when Europe’s sovereign debt crisis was hurting corporate fundraisings worldwide. The Ivory Coast-born executive, 47, was criticized by shareholders in March for agreeing to join the board of Paris- based bank Societe Generale SA , a decision he reversed a day later. Prudential was also forced to delay the start of its rights offer in May after the U.K. regulator asked the firm to hold more capital in reserve. Neptune Investment Management Ltd. , a London-based investor, said on May 26 it had garnered 20 percent of shareholders to back its opposition to the AIA purchase. Thiam, who needed 75 percent of shareholders to back the deal, made a failed attempt to resurrect the deal by asking AIG to reduce the price two days later. ‘Bad Deal’ “You sell billions of cheap stuff to buy billions of expensive stuff,” James Clunie , manager of the 1.5 billion- pound Scottish Widows fund, said in an interview in Edinburgh on May 7. “It’s a bad deal. It doesn’t look sensible.” The combined company would have been the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Paying $35.5 billion for AIA would have created an entity worth $60 billion by 2013, Thiam had said. The takeover is the biggest announced in the world this year, according to data compiled by Bloomberg. The collapse of the deal would deprive Prudential’s advisers of as much as 850 million pounds in fees for advising on the purchase and the rights offering. Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc. AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley. AIG may return to its earlier plan for a public offering if Prudential shareholders reject the deal, Jim Millstein, the Treasury’s chief restructuring officer, said May 26 in Washington. AIG will be entitled to a breakup fee of 153 million pounds if Prudential is unable to complete the purchase. AIG will push on with the IPO, CNBC reported today, citing an unidentified person familiar with the situation. The deal is expected in October, the TV channel said. Patricia Chua , a Hong Kong-based spokeswoman for AIA, declined to make any further comment. To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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Subbarao Risks `Falling Behind’ on Rates After India’s Growth Accelerates

May 31, 2010

By Unni Krishnan and Kartik Goyal June 1 (Bloomberg) — India’s central bank needs to be less wary of the fallout of Europe’s debt crisis and raise interest rates to curb inflation stoked by growth, economists said. Asia’s biggest economy after Japan and China expanded 8.6 percent last quarter from 6.5 percent in the previous three months, India’s statistics office said in New Delhi yesterday. The acceleration in growth came even as consumer spending slowed, a drag that may lift in coming months, according to HSBC Group Plc economist Frederic Neumann. The Reserve Bank of India said last month it will be “cautious” in tightening the monetary policy even as the country’s consumer-price inflation rate is the highest among Group of 20 nations. India’s stance, in the face of risks to growth posed by Europe’s sovereign-debt crisis, may be echoed across the Asia Pacific this week as central banks from Australia to the Philippines set interest rates. “If India’s central bank pays too much attention to Europe and waits for clarity, then it risks falling behind the curve,” said Ramya Suryanarayanan, an economist at DBS Bank Ltd. in Singapore. “It is important that interest rates are normalized.” She expects a quarter-percentage point increase in rates by the end of June. The Mumbai-based Reserve Bank has raised interest rates twice since mid-March by a quarter-percentage point each time. Consumer Prices The bank’s benchmark reverse-repurchase rate is 3.75 percent while the consumer-price inflation rate for industrial workers touched about 13 percent in April. Prices paid by farm workers are close to 15 percent, hurting the purchasing power of the 650 million people who live in India’s countryside. In contrast, consumer prices are running at 2.9 percent in Australia, 3.9 percent in Indonesia and 4.4 percent in the Philippines. The Reserve Bank of Australia may leave the overnight cash rate target at 4.5 percent today, according to a Bloomberg News survey. Bank Indonesia will probably maintain its benchmark rate on June 4 and borrowing costs in Philippines may be kept unchanged on June 3, separate surveys showed. “The euro jitters may have left policy makers across the world in a more accommodative mood, but in India tightening is now needed to avoid a hard landing later on,” HSBC’s Neumann said. “They should add some urgency to the tightening cycle.” Benchmark 10-year Indian government bond yields rose 17 basis points last week, the biggest increase in more than a month, as traders increased bets Governor Duvvuri Subbarao will boost rates. The yield closed at 7.56 percent yesterday. The rupee lost 4.3 percent against the U.S. dollar last month and the Sensitive Index declined 3.5 percent in the period. Consumption As growth accelerated last quarter, consumption by individuals and companies increased 2.6 percent, the weakest pace in eight years, data from the statistics office showed. “This, presumably, reflects in part soaring food prices, which eroded real disposable incomes and made shoppers generally more cautious,” the Hong Kong-based Neumann said. “With agriculture prices now easing, we expect consumption to get a real kick over the coming quarter, helped, too, by rising incomes as a tightening labor market spurs wage growth.” Rains in this year’s June-September monsoon season will be “normal,” the weather office forecast in April, boosting prospects for agriculture and rural incomes. Salaries are increasing in urban areas as well with companies including Tata Consultancy Services Ltd., India’s biggest exporter of software services, boosting employees’ pay. Tata Consultancy said in April it plans to spend about $200 million on wage increases this year. The central bank acknowledges that consumer demand is strengthening, making inflation a “visible” concern, Subir Gokarn , who is in charge of monetary policy at the Reserve Bank, said in an interview in Warsaw on May 26. Still, he said the “pace and magnitude” of monetary policy actions will be conditioned by global developments. To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net .

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Thai Central Bank May Delay Rate Increase as Political Chaos Hurts Economy

May 31, 2010

By Suttinee Yuvejwattana and Michael Munoz     June 1 (Bloomberg) — Thailand’s central bank may keep its benchmark interest rate at the lowest level since July 2004 after the nation’s deadliest political violence in almost two decades undermined economic growth. Bank of Thailand Governor Tarisa Watanagase will leave the one-day bond repurchase rate unchanged at 1.25 percent for a ninth meeting, according to all 11 economists surveyed by Bloomberg News. The decision is due at 2:30 p.m. in Bangkok tomorrow. Thailand has refrained from joining Malaysia, India and Australia in raising borrowing costs this year even as a rebound in exports helped the economy expand the most in 15 years last quarter. Growth will be “strongly affected” in the three months through June after weeks of anti-government protests led to riots and left more than 80 people dead, Tarisa said May 26. “While we believe the central bank is still keen to raise interest rates to a more neutral level, this will require a more stable political backdrop,” said Usara Wilaipich , an economist at Standard Chartered Plc in Bangkok. “The situation now remains fluid. The first-quarter recovery momentum is also expected to fade rapidly in the second quarter as the impact from political chaos kicked in.” Standard Chartered pushed back its forecast for a rate increase tomorrow to the fourth quarter after rioting erupted across Bangkok on May 19 as Thai security forces cleared an anti-government protest camp and forced the group’s leaders to surrender. Riots, Arson About 16 people died that day and more than 30 buildings were set alight, including the Stock Exchange of Thailand, a shopping complex owned by Central Pattana Pcl and at least eight branches of Bangkok Bank Pcl . About one third of the Southeast Asian nation was under a curfew last week even as the demonstrations ended. Southeast Asia’s largest economy after Indonesia grew 12 percent in the first three months of 2010 as exports, investment and consumption recovered after a recession last year. Still, the National Economic & Social Development Board refrained from raising its forecast for an increase of as much as 4.5 percent in gross domestic product this year after the first-quarter report, saying GDP may shrink in the second half if the political unrest can’t be resolved. Finance Minister Korn Chatikavanij said last month the economy will be “less rosy” from the second quarter onwards, and the government estimates the unrest may cost Thailand as much as 145 billion baht ($4.46 billion) and reduce growth by 1.1 percentage points. Inflation Benign Inflation has stayed below 4 percent in Thailand, where Toyota Motor Corp. and General Motors Co. have factories, giving the central bank room to keep borrowing costs low. Consumer prices rose 3 percent from a year earlier in April after climbing 3.4 percent in March, while core inflation , which excludes fresh food and fuel prices, rose 0.5 percent. The central bank forecasts inflation will accelerate to as much as 4.8 percent this year on rising oil prices and a recovering economy. Core inflation, which it uses to guide policy, may average as much as 2 percent this year, the Bank of Thailand said in April. Prime Minister Abhisit Vejjajiva vowed on May 21 to “rebuild the house” through a reconciliation plan that includes addressing economic disparities and rewriting political rules. The government plans to spend about a third of its 2.07 trillion baht budget next year on measures to narrow a divide between rich and poor that fueled the protests, Abhisit said May 26. “Protests have ended for now, but political conflicts remain,” Standard Chartered’s Usara said. “This political backdrop clouds Thailand’s economic outlook for the months ahead.” To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net Michael J. Munoz in Hong Kong at mjmunoz@bloomberg.net

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European Stocks, Oil Climb Spanish Bonds Drop After Downgrade

May 31, 2010

By Andrew Rummer May 31 (Bloomberg) — European stocks and oil advanced as investors speculated the economy is strong enough to withstand the region’s debt crisis. Spanish government bonds fell after Fitch Ratings stripped the nation of its AAA rating. The Stoxx Europe 600 Index gained 0.3 percent at 10:29 a.m. in London, trimming this month’s slide to 5.8 percent. Futures on the Standard & Poor’s 500 Index rose 0.4 percent. Oil climbed above $74 a barrel in New York. The yield premium investors demand to hold Spain’s 10-year bonds rather than German bunds widened to the most in more than three weeks. The MSCI World Index of stocks in 24 developed markets has rallied 57 percent from its low in March 2009 as the economy recovers from the worst recession since World War II and central banks have committed to keeping interest rates low. Federal Reserve Bank of Chicago President Charles Evans told reporters in Seoul today that he “wouldn’t be surprised” if the Fed’s policy of low rates “gets extended just a little bit.” “Over the next one-two months a relatively resilient economic and profit outlook should push riskier assets up on average, and government bonds down,” Jan Loeys , JPMorgan Chase & Co.’s London-based strategist, wrote in a report e-mailed today. “Confidence surveys remain strong and lower interest rates, oil prices and a cheaper euro are providing positive feedback from the market correction.” Europe’s Stoxx 600 climbed 0.3 percent to 244.74 as the benchmark gauge for European equities pared its biggest monthly decline since February 2009. Sanoma Oyj jumped 4 percent in Helsinki trading after the biggest Nordic media company agreed to sell its Welho unit. U.S. and U.K. markets are closed today for holidays. $4 Trillion Concern the European debt crisis may worsen has wiped more than $4 trillion from the value of global equities this month. The selloff has left the Stoxx 600 trading at less than 15 times the reported earnings of its companies, the cheapest valuation since 2008, according to data compiled by Bloomberg. The MSCI Asia Pacific Index slipped 0.1 percent even as two stocks advanced for every one that declined. Asian stocks pared earlier losses as Japanese factory output rose 1.3 percent in April from March and India’s economy grew 8.6 percent in the three months ended March 31. The MSCI Emerging Markets Index gained for a fourth day, rising 0.4 percent. The advance trimmed its slump in May to 9.8 percent, its worst month since October 2008. Benchmark indexes in South Korea, Thailand and Indonesia rose more than 1 percent today. Gaza Flotilla Raid Turkey’s ISE National 100 Index retreated 2 percent, snapping a three-day rally, after Israel raided an international flotilla carrying aid to Gaza that included at least one Turkish-flagged vessel. The lira dropped 0.4 percent. Israel’s benchmark equity gauge lost 1.7 percent, the most in a week, and the shekel depreciated as much as 1.3 percent. The Czech koruna strengthened 1.6 percent against the euro, heading for the biggest advance in almost 14 months, after parties that pledged to rein in spending won the most votes in parliamentary elections. The yield on Spanish 10-year bonds rose four basis points to 4.28 percent after Fitch downgraded country’s the credit rating one step to AA+ from AAA, following the close of European markets on May 28. Spanish two-year yields climbed six basis points to 2.49 percent. German government bonds were little changed, with the yield on the 10-year bund one basis point lower at 2.67 percent. The difference in yield between Spanish and German 10-year securities widened five basis points to 158 basis points, according to generic data compiled by Bloomberg. Southern Europe “Spanish bonds are already trading as if they were BB- so a downgrade to AA+ won’t shake markets but it still reminds us of the problems in southern Europe,” said Arne Lohmann Rasmussen , chief currency analyst with Danske Bank A/S in Copenhagen. The yen weakened against 14 of 16 major counterparts as Japan’s Social Democratic Party left the government, weakening the coalition less than two months before parliamentary elections. The Japanese currency declined to 91.43 per dollar from 91.06 in New York on May 28. The yen has jumped 9.9 percent in May, according to Bloomberg Correlation-Weighted Currency Indexes. Oil rose 0.7 percent to $74.45 a barrel in electronic trading in New York on speculation that economic growth in the U.S., the world’s biggest energy consumer, will sustain a global recovery in fuel demand. Crude was still poised for its biggest monthly fall since December 2008, having declined 14 percent in May. Copper for July delivery gained 0.8 percent in New York to $3.1295 a pound. The most active contract tumbled 7 percent in May, the most since January. Gold for immediate delivery declined 0.1 percent to $1,212.65 an ounce. To contact the reporter on this story: Andrew Rummer at arummer@bloomberg.net

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European Stocks, U.S. Futures, Oil Gain on Growth Confidence Yen Declines

May 31, 2010

By Andrew Rummer May 31 (Bloomberg) — European stocks and oil advanced as investors speculated the economy is strong enough to withstand the region’s debt crisis. Spanish government bonds fell after Fitch Ratings stripped the nation of its AAA rating. The Stoxx Europe 600 Index gained 0.3 percent at 10:29 a.m. in London, trimming this month’s slide to 5.8 percent. Futures on the Standard & Poor’s 500 Index rose 0.4 percent. Oil climbed above $74 a barrel in New York. The yield premium investors demand to hold Spain’s 10-year bonds rather than German bunds widened to the most in more than three weeks. The MSCI World Index of stocks in 24 developed markets has rallied 57 percent from its low in March 2009 as the economy recovers from the worst recession since World War II and central banks have committed to keeping interest rates low. Federal Reserve Bank of Chicago President Charles Evans told reporters in Seoul today that he “wouldn’t be surprised” if the Fed’s policy of low rates “gets extended just a little bit.” “Over the next one-two months a relatively resilient economic and profit outlook should push riskier assets up on average, and government bonds down,” Jan Loeys , JPMorgan Chase & Co.’s London-based strategist, wrote in a report e-mailed today. “Confidence surveys remain strong and lower interest rates, oil prices and a cheaper euro are providing positive feedback from the market correction.” Europe’s Stoxx 600 climbed 0.3 percent to 244.74 as the benchmark gauge for European equities pared its biggest monthly decline since February 2009. Sanoma Oyj jumped 4 percent in Helsinki trading after the biggest Nordic media company agreed to sell its Welho unit. U.S. and U.K. markets are closed today for holidays. $4 Trillion Concern the European debt crisis may worsen has wiped more than $4 trillion from the value of global equities this month. The selloff has left the Stoxx 600 trading at less than 15 times the reported earnings of its companies, the cheapest valuation since 2008, according to data compiled by Bloomberg. The MSCI Asia Pacific Index slipped 0.1 percent even as two stocks advanced for every one that declined. Asian stocks pared earlier losses as Japanese factory output rose 1.3 percent in April from March and India’s economy grew 8.6 percent in the three months ended March 31. The MSCI Emerging Markets Index gained for a fourth day, rising 0.4 percent. The advance trimmed its slump in May to 9.8 percent, its worst month since October 2008. Benchmark indexes in South Korea, Thailand and Indonesia rose more than 1 percent today. Gaza Flotilla Raid Turkey’s ISE National 100 Index retreated 2 percent, snapping a three-day rally, after Israel raided an international flotilla carrying aid to Gaza that included at least one Turkish-flagged vessel. The lira dropped 0.4 percent. Israel’s benchmark equity gauge lost 1.7 percent, the most in a week, and the shekel depreciated as much as 1.3 percent. The Czech koruna strengthened 1.6 percent against the euro, heading for the biggest advance in almost 14 months, after parties that pledged to rein in spending won the most votes in parliamentary elections. The yield on Spanish 10-year bonds rose four basis points to 4.28 percent after Fitch downgraded country’s the credit rating one step to AA+ from AAA, following the close of European markets on May 28. Spanish two-year yields climbed six basis points to 2.49 percent. German government bonds were little changed, with the yield on the 10-year bund one basis point lower at 2.67 percent. The difference in yield between Spanish and German 10-year securities widened five basis points to 158 basis points, according to generic data compiled by Bloomberg. Southern Europe “Spanish bonds are already trading as if they were BB- so a downgrade to AA+ won’t shake markets but it still reminds us of the problems in southern Europe,” said Arne Lohmann Rasmussen , chief currency analyst with Danske Bank A/S in Copenhagen. The yen weakened against 14 of 16 major counterparts as Japan’s Social Democratic Party left the government, weakening the coalition less than two months before parliamentary elections. The Japanese currency declined to 91.43 per dollar from 91.06 in New York on May 28. The yen has jumped 9.9 percent in May, according to Bloomberg Correlation-Weighted Currency Indexes. Oil rose 0.7 percent to $74.45 a barrel in electronic trading in New York on speculation that economic growth in the U.S., the world’s biggest energy consumer, will sustain a global recovery in fuel demand. Crude was still poised for its biggest monthly fall since December 2008, having declined 14 percent in May. Copper for July delivery gained 0.8 percent in New York to $3.1295 a pound. The most active contract tumbled 7 percent in May, the most since January. Gold for immediate delivery declined 0.1 percent to $1,212.65 an ounce. To contact the reporter on this story: Andrew Rummer at arummer@bloomberg.net

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Evans Signals Europe’s Crisis Will Delay Fed Rate Increase `A Little Bit’

May 30, 2010

By Aki Ito May 31 (Bloomberg) — Federal Reserve Bank of Chicago President Charles Evans indicated that the European sovereign debt crisis will prompt the U.S. central bank to delay raising interest rates. Evans told reporters in Seoul today that he “wouldn’t be surprised” if the Fed’s policy of keeping rates low “gets extended just a little bit.” Philadelphia Fed President Charles Plosser , who is attending the same event, said separately that “how the crisis in Europe ends up affecting the economy will dictate how we will respond.” Today’s comments underscore the attention global policy makers are paying to the potential consequences of the European crisis sparked by ballooning fiscal deficits from Greece to Spain and Portugal. In Asia, central banks from Australia to Indonesia and South Korea are projected to keep rates unchanged this week as they gauge the effect on the global recovery. “The European situation adds uncertainty to the economic outlook,” Evans said at a press briefing while attending a conference hosted by the Bank of Korea. He said lower-than- expected demand for U.S. exports because of slower growth in Europe will “dampen the recovery a little bit.” U.S. central bankers on April 28 kept the benchmark federal funds rate in a range of zero to 0.25 percent, where it has been since December 2008, and said “subdued” inflation and high unemployment are likely to keep rates “exceptionally low.” Low Inflation It’s appropriate to keep an accommodative monetary policy for now because inflation is “seriously under-running” price stability and unemployment is “very high,” said Evans, who along with Plosser isn’t a voting member of the Federal Open Market Committee this year. “But, if the situation turns rapidly, if inflation expectations were to bounce back in a way that we weren’t expecting,” the Fed “will respond more quickly,” he added. Plosser said he will “wait and see” how events in Europe might affect Fed policy. “It’s certainly true that there are things that could change the pace of our exit strategy, but I don’t see those happening as of yet,” he said. Fed officials to date have indicated the damage to the U.S. economy’s expansion from Europe will be limited. Richmond Fed President Jeffrey Lacker said in a Bloomberg Television interview last week that the “most likely outcome” is shaving “a tenth or two off my growth forecast for this year.” St. Louis Fed President James Bullard said in a May 26 speech in London that the European crisis “will probably fall short of becoming a worldwide recessionary shock.” At the same time, evidence of rising stress in bank funding markets spurred the Fed to reopen currency-swap lines with central banks from the euro region, U.K., Canada, Switzerland and Japan this month. Stall Recovery “A deeper contraction in Europe associated with sharp financial dislocations would have the potential to stall the recovery of the entire global economy, and this scenario would have far more serious consequences for U.S. trade and economic growth,” Fed Governor Daniel Tarullo said May 20 in testimony to House Financial Services subcommittees, making the case for the restarting of the swaps. Bank of Korea Governor Kim Choong Soo yesterday proposed an “institutionalization” of swaps to help establish a global safety net. To contact the reporter on this story: Aki Ito in Seoul at aito16@bloomberg.net

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Prudential Discussing Price Cut for AIG Asia Unit After Slump Soured Deal

May 28, 2010

By Kevin Crowley May 28 (Bloomberg) — Prudential Plc , the U.K. insurer seeking to buy American International Group Inc. ’s Asian unit in a $35.5 billion acquisition, said it’s talking with AIG about changing the terms of the deal. Discussions between the companies “may or may not lead to a change in the terms of the combination,” Prudential said today in a statement. Chief Executive Officer Tidjane Thiam, 47, was in New York yesterday to make his case to executives that the price for AIA should be cut, a person with knowledge of the situation said. Thiam is facing criticism from major investors as he asks for $21 billion, the biggest rights offer for an acquisition on record. Prudential’s market value is 13.8 billion pounds ($20 billion). The deal has already been delayed by the U.K. regulator over concerns about the insurer’s capital reserves and the biggest decline in equity markets since the financial crisis has dampened investors’ enthusiasm for the takeover. “It’s probably the least ideal market to raise capital,” said James Buckley , a London-based fund manager at Baring Asset Management Ltd. who helps oversee $44 billion, including Prudential stock. “The market is not completely closed for small rights offers, but for major deals like Prudential, it’s inevitably tough.” Investors owning as much as 20 percent of Prudential stock plan to vote against the takeover at the annual general meeting on June 7, Neptune Investment Management Ltd. , a London-based shareholder, said this week. Thiam needs 75 percent of investors to support the rights offer for the deal to succeed. BlackRock, Fidelity BlackRock Inc. and Fidelity Investments are among major Prudential shareholders that have voiced concern the deal is too expensive, said the person, who declined to be identified because the discussions are private. Some shareholders are demanding a reduction to as low as $30 billion, a price AIG’s board is unlikely to approve, the person said. “We have a signed agreement with Prudential, and we expect them to use their best efforts to live up to it,” Mark Herr , a spokesman for New York-based AIG, said late yesterday. Speculation the deal would collapse was “unfounded,” Prudential spokesman Ed Brewster said earlier this week. “The acquisition of AIA by Prudential represents a compelling combination that can deliver very attractive long-term returns to our shareholders,” he said. Public Offering Option The U.S. Treasury Department, which helped fund the $182.3 billion bailout of AIG, hasn’t asked the company to find a compromise on the AIA deal, spokesman Andrew Williams said in an e-mail. He commented after the Daily Telegraph reported that the Treasury encouraged the insurer to negotiate to preserve the takeover of AIA. AIG, which is selling assets to repay the U.S. bailout, had been planning a public offering of AIA until announcing the Prudential deal in March. AIG could return to the public- offering option if Prudential shareholders reject the deal, Jim Millstein , the Treasury’s chief restructuring officer, said this week in Washington. “It would certainly be a mistake to not be willing to renegotiate,” said Angelo Graci , managing director at Chapdelaine Credit Partners in New York. “There are meaningful risks to going back and pursuing an IPO; it would take longer, and the valuation would have a significant amount of uncertainty.” AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley, according to data compiled by Bloomberg. Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc., the data show. Funding Plans Prudential plans to fund the AIA purchase through the $21 billion rights offer, including fees to banks, $10.5 billion of new shares and other securities and by selling debt. The offer is the biggest in U.K. corporate history. Capital Research & Management Co., Prudential’s biggest shareholder, would have to pay about 1.89 billion pounds to take up its rights in full, data compiled by Bloomberg show. The next three biggest holders, Blackrock, Legal & General Group Plc and Norges Bank, would pay a total of about 1.96 billion pounds for their full allocation of shares. Not all Prudential’s directors plan to take up their rights in full, Chairman Harvey McGrath said this week. Michael McLintock , CEO of Prudential’s fund-management unit, would have to pay about 3.4 million pounds to fully back the transaction. “In uncertain times investors aren’t as willing to take as much risk, and it makes it harder to raise funds for expansion,” said Peter Braendle , who helps oversee about $51 billion at Swisscanto Asset Management AG in Zurich and hasn’t decided whether he’ll back the rights offer. “Investors prefer to have a bit more cash.” Market Concern Prudential, which yesterday posted its steepest increase since August, was down 0.8 percent at 543 pence as of 9:43 a.m. in London trading. The insurer’s share price was 602.5 pence on Feb. 26, the last trading day before the deal was announced. Prudential shares were suspended in Hong Kong earlier today before the company’s statement. The combined Prudential-AIA would be the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Paying $35.5 billion for AIA will create an entity worth $60 billion by 2013, Thiam said this month. “The deal raises the question why the company is trying to pursue it if a substantial number of shareholders are opposing it,” said Tom Kirchmaier , a fellow at the London School of Economics. “For me the concerns in the debt market just mirror those in the equity market, and the market might just kill a deal which it considers a bad deal.” To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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Prudential Discussing Price Cut for AIG Asia Unit After Slump Soured Deal

May 28, 2010

By Kevin Crowley May 28 (Bloomberg) — Prudential Plc , the U.K. insurer seeking to buy American International Group Inc. ’s Asian unit in a $35.5 billion acquisition, said it’s talking with AIG about changing the terms of the deal. Discussions between the companies “may or may not lead to a change in the terms of the combination,” Prudential said today in a statement. Chief Executive Officer Tidjane Thiam, 47, was in New York yesterday to make his case to executives that the price for AIA should be cut, a person with knowledge of the situation said. Thiam is facing criticism from major investors as he asks for $21 billion, the biggest rights offer for an acquisition on record. Prudential’s market value is 13.8 billion pounds ($20 billion). The deal has already been delayed by the U.K. regulator over concerns about the insurer’s capital reserves and the biggest decline in equity markets since the financial crisis has dampened investors’ enthusiasm for the takeover. “It’s probably the least ideal market to raise capital,” said James Buckley , a London-based fund manager at Baring Asset Management Ltd. who helps oversee $44 billion, including Prudential stock. “The market is not completely closed for small rights offers, but for major deals like Prudential, it’s inevitably tough.” Investors owning as much as 20 percent of Prudential stock plan to vote against the takeover at the annual general meeting on June 7, Neptune Investment Management Ltd. , a London-based shareholder, said this week. Thiam needs 75 percent of investors to support the rights offer for the deal to succeed. BlackRock, Fidelity BlackRock Inc. and Fidelity Investments are among major Prudential shareholders that have voiced concern the deal is too expensive, said the person, who declined to be identified because the discussions are private. Some shareholders are demanding a reduction to as low as $30 billion, a price AIG’s board is unlikely to approve, the person said. “We have a signed agreement with Prudential, and we expect them to use their best efforts to live up to it,” Mark Herr , a spokesman for New York-based AIG, said late yesterday. Speculation the deal would collapse was “unfounded,” Prudential spokesman Ed Brewster said earlier this week. “The acquisition of AIA by Prudential represents a compelling combination that can deliver very attractive long-term returns to our shareholders,” he said. Public Offering Option The U.S. Treasury Department, which helped fund the $182.3 billion bailout of AIG, hasn’t asked the company to find a compromise on the AIA deal, spokesman Andrew Williams said in an e-mail. He commented after the Daily Telegraph reported that the Treasury encouraged the insurer to negotiate to preserve the takeover of AIA. AIG, which is selling assets to repay the U.S. bailout, had been planning a public offering of AIA until announcing the Prudential deal in March. AIG could return to the public- offering option if Prudential shareholders reject the deal, Jim Millstein , the Treasury’s chief restructuring officer, said this week in Washington. “It would certainly be a mistake to not be willing to renegotiate,” said Angelo Graci , managing director at Chapdelaine Credit Partners in New York. “There are meaningful risks to going back and pursuing an IPO; it would take longer, and the valuation would have a significant amount of uncertainty.” AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley, according to data compiled by Bloomberg. Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc., the data show. Funding Plans Prudential plans to fund the AIA purchase through the $21 billion rights offer, including fees to banks, $10.5 billion of new shares and other securities and by selling debt. The offer is the biggest in U.K. corporate history. Capital Research & Management Co., Prudential’s biggest shareholder, would have to pay about 1.89 billion pounds to take up its rights in full, data compiled by Bloomberg show. The next three biggest holders, Blackrock, Legal & General Group Plc and Norges Bank, would pay a total of about 1.96 billion pounds for their full allocation of shares. Not all Prudential’s directors plan to take up their rights in full, Chairman Harvey McGrath said this week. Michael McLintock , CEO of Prudential’s fund-management unit, would have to pay about 3.4 million pounds to fully back the transaction. “In uncertain times investors aren’t as willing to take as much risk, and it makes it harder to raise funds for expansion,” said Peter Braendle , who helps oversee about $51 billion at Swisscanto Asset Management AG in Zurich and hasn’t decided whether he’ll back the rights offer. “Investors prefer to have a bit more cash.” Market Concern Prudential, which yesterday posted its steepest increase since August, was down 0.8 percent at 543 pence as of 9:43 a.m. in London trading. The insurer’s share price was 602.5 pence on Feb. 26, the last trading day before the deal was announced. Prudential shares were suspended in Hong Kong earlier today before the company’s statement. The combined Prudential-AIA would be the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Paying $35.5 billion for AIA will create an entity worth $60 billion by 2013, Thiam said this month. “The deal raises the question why the company is trying to pursue it if a substantial number of shareholders are opposing it,” said Tom Kirchmaier , a fellow at the London School of Economics. “For me the concerns in the debt market just mirror those in the equity market, and the market might just kill a deal which it considers a bad deal.” To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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Prudential Discussing Price Cut for AIG Asia Unit After Slump Soured Deal

May 28, 2010

By Kevin Crowley May 28 (Bloomberg) — Prudential Plc , the U.K. insurer seeking to buy American International Group Inc. ’s Asian unit in a $35.5 billion acquisition, said it’s talking with AIG about changing the terms of the deal. Discussions between the companies “may or may not lead to a change in the terms of the combination,” Prudential said today in a statement. Chief Executive Officer Tidjane Thiam, 47, was in New York yesterday to make his case to executives that the price for AIA should be cut, a person with knowledge of the situation said. Thiam is facing criticism from major investors as he asks for $21 billion, the biggest rights offer for an acquisition on record. Prudential’s market value is 13.8 billion pounds ($20 billion). The deal has already been delayed by the U.K. regulator over concerns about the insurer’s capital reserves and the biggest decline in equity markets since the financial crisis has dampened investors’ enthusiasm for the takeover. “It’s probably the least ideal market to raise capital,” said James Buckley , a London-based fund manager at Baring Asset Management Ltd. who helps oversee $44 billion, including Prudential stock. “The market is not completely closed for small rights offers, but for major deals like Prudential, it’s inevitably tough.” Investors owning as much as 20 percent of Prudential stock plan to vote against the takeover at the annual general meeting on June 7, Neptune Investment Management Ltd. , a London-based shareholder, said this week. Thiam needs 75 percent of investors to support the rights offer for the deal to succeed. BlackRock, Fidelity BlackRock Inc. and Fidelity Investments are among major Prudential shareholders that have voiced concern the deal is too expensive, said the person, who declined to be identified because the discussions are private. Some shareholders are demanding a reduction to as low as $30 billion, a price AIG’s board is unlikely to approve, the person said. “We have a signed agreement with Prudential, and we expect them to use their best efforts to live up to it,” Mark Herr , a spokesman for New York-based AIG, said late yesterday. Speculation the deal would collapse was “unfounded,” Prudential spokesman Ed Brewster said earlier this week. “The acquisition of AIA by Prudential represents a compelling combination that can deliver very attractive long-term returns to our shareholders,” he said. Public Offering Option The U.S. Treasury Department, which helped fund the $182.3 billion bailout of AIG, hasn’t asked the company to find a compromise on the AIA deal, spokesman Andrew Williams said in an e-mail. He commented after the Daily Telegraph reported that the Treasury encouraged the insurer to negotiate to preserve the takeover of AIA. AIG, which is selling assets to repay the U.S. bailout, had been planning a public offering of AIA until announcing the Prudential deal in March. AIG could return to the public- offering option if Prudential shareholders reject the deal, Jim Millstein , the Treasury’s chief restructuring officer, said this week in Washington. “It would certainly be a mistake to not be willing to renegotiate,” said Angelo Graci , managing director at Chapdelaine Credit Partners in New York. “There are meaningful risks to going back and pursuing an IPO; it would take longer, and the valuation would have a significant amount of uncertainty.” AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley, according to data compiled by Bloomberg. Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc., the data show. Funding Plans Prudential plans to fund the AIA purchase through the $21 billion rights offer, including fees to banks, $10.5 billion of new shares and other securities and by selling debt. The offer is the biggest in U.K. corporate history. Capital Research & Management Co., Prudential’s biggest shareholder, would have to pay about 1.89 billion pounds to take up its rights in full, data compiled by Bloomberg show. The next three biggest holders, Blackrock, Legal & General Group Plc and Norges Bank, would pay a total of about 1.96 billion pounds for their full allocation of shares. Not all Prudential’s directors plan to take up their rights in full, Chairman Harvey McGrath said this week. Michael McLintock , CEO of Prudential’s fund-management unit, would have to pay about 3.4 million pounds to fully back the transaction. “In uncertain times investors aren’t as willing to take as much risk, and it makes it harder to raise funds for expansion,” said Peter Braendle , who helps oversee about $51 billion at Swisscanto Asset Management AG in Zurich and hasn’t decided whether he’ll back the rights offer. “Investors prefer to have a bit more cash.” Market Concern Prudential, which yesterday posted its steepest increase since August, was down 0.8 percent at 543 pence as of 9:43 a.m. in London trading. The insurer’s share price was 602.5 pence on Feb. 26, the last trading day before the deal was announced. Prudential shares were suspended in Hong Kong earlier today before the company’s statement. The combined Prudential-AIA would be the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Paying $35.5 billion for AIA will create an entity worth $60 billion by 2013, Thiam said this month. “The deal raises the question why the company is trying to pursue it if a substantial number of shareholders are opposing it,” said Tom Kirchmaier , a fellow at the London School of Economics. “For me the concerns in the debt market just mirror those in the equity market, and the market might just kill a deal which it considers a bad deal.” To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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Asian Stocks Rise for a Third Day After U.S. Shares Rally; Euro Declines

May 28, 2010

By Nicolas Johnson and Masaki Kondo May 28 (Bloomberg) — Asian stocks rose for a third day, extending a rally that drove the U.S. benchmark equity index to its biggest gain in almost three weeks. The euro weakened on concern Europe’s fiscal crisis will lead to stricter regulations. The MSCI Asia Pacific Index climbed 1.4 percent as of 4:13 p.m. in Tokyo, heading for its longest streak of gains since April 7. Futures on the U.S. Standard & Poor’s 500 Index fell 0.2 percent after the gauge’s 3.3 percent surge yesterday. The Stoxx Europe 600 Index increased 0.4 percent. The euro weakened against 13 of its 16 most-traded counterparts. This week’s advances in stocks and crude oil pared a rout in May that’s the deepest since October 2008, the month after the collapse of Lehman Brothers Holdings Inc. Equities, the euro and commodities climbed yesterday after China affirmed its commitment to investing in Europe, easing concern that the region’s fiscal crisis will stall a global economic recovery. “The market has priced in all the bad news for now,” said Tokyo-based strategist Ayako Sera at Sumitomo Trust & Banking Co., which manages $307 billion. “Stocks are undervalued, assuming Europe’s problems won’t spill over and cripple the global economy. More than 80 of the 93 benchmark equity indexes worldwide tracked by Bloomberg have fallen in May on concern European countries in addition to Greece will struggle to repay debt. The MSCI World Index had its biggest one-day plunge this month on May 20 after Germany banned some bearish investments. Treasury Secretary Timothy F. Geithner said yesterday the U.S. and Europe are in “broad agreement” on the need for tighter market regulation. Stocks, Currencies, CDS Japan’s Nikkei 225 Stock Average gained 1.3 percent today. Hong Kong’s Hang Seng Index soared 2.4 percent, the most among major equity benchmarks in the Asia-Pacific region. Markets in Indonesia, Malaysia, Singapore and Thailand are closed today for a holiday. U.S. markets will be shut on May 31. The euro dropped against the dollar, curbing yesterday’s 1.5 percent rally, and retreated against its major counterparts after Japanese Finance Minister Naoto Kan said a Group of 20 summit next week may address the effect of the European crisis on currencies and financial regulations. “As the crisis spreads from public sectors to private ones, markets want policy makers to solve the problem rather than adding some relief,” said Kuniyuki Hirai , manager of foreign- exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd. “The euro will continue to be under selling pressure.” Won, Oil Advance South Korea’s won recorded its biggest two-day gain in more than a year, rising 2.4 percent to 1,194.60 against the dollar as of the 3 p.m. close in Seoul. The cost of insuring Asia- Pacific bonds from non-payment dropped, according to traders of credit-default swaps. Canon Inc., a camera maker that counts Europe as its biggest market, climbed 1.6 percent in Tokyo. In Hong Kong, PetroChina Co., the country’s biggest oil producer, jumped 4.5 percent. Energy companies led gains among the MSCI Asia Pacific Index’s 10 industry groups. Oil rose for a third day, poised for its first weekly advance in four weeks, after the U.S., the world’s largest energy user, reported yesterday that its economy grew for a third consecutive quarter and jobless claims fell. Crude oil for July delivery gained 8 cents, or 0.2 percent, to $74.66 a barrel in electronic trading on the New York Mercantile Exchange. The dollar rose to a one-week high against the yen before a report forecast to show U.S. consumer spending and incomes rose, adding to signs the nation’s economic recovery remains on track. Europe’s currency dropped to $1.2349 in Tokyo from $1.2362 in New York yesterday. The euro was at 112.79 yen from 112.55, having declined 0.3 percent this week. “Markets are thinking they may have overpriced risks related to Europe,” said Sebastien Barbe , head of emerging- market research for Credit Agricole CIB in Hong Kong. If concern eases that Europe will derail the recovery, “then there’s no reason to sell stocks and currencies in Asia. There is scope now to come back to more supportive levels,” he said. To contact the reporters on this story: Nicolas Johnson in Tokyo at nicojohnson@bloomberg.net .

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Asia Stocks Rise for a Third Day After U.S. Shares Rally; Euro Declines

May 27, 2010

By Nicolas Johnson and Masaki Kondo May 28 (Bloomberg) — Asian stocks rose for a third day, extending a rally that drove the U.S. benchmark equity index to its biggest gain in almost three weeks. The euro weakened on concern Europe’s fiscal crisis will lead to stricter regulations. The MSCI Asia Pacific Index climbed 1.8 percent as of 11:13 a.m. in Tokyo, heading for its longest streak of gains since April 7. Futures on the U.S. Standard & Poor’s 500 Index were little changed after the gauge’s 3.3 percent surge yesterday. The euro weakened against all 16 of its most-traded counterparts. This week’s advances in stocks and crude oil pared a rout in May that’s the deepest since October 2008, the month after Lehman Brothers Holdings Inc. collapsed. Equities, oil and metals climbed yesterday after China affirmed its commitment to investing in Europe, easing concern that the region’s fiscal crisis will stall a global economic recovery. “The market has priced in all the bad news for now,” said Tokyo-based strategist Ayako Sera at Sumitomo Trust & Banking Co., which manages $307 billion. “Stocks are undervalued, assuming Europe’s problems won’t spill over and cripple the global economy. Japan’s Nikkei 225 Stock Average gained 1.7 percent today, the steepest increase among equity benchmarks in the Asia- Pacific region. Canon Inc., a camera maker that counts Europe as its biggest market, climbed 2.7 percent. Mitsubishi Corp., Japan’s biggest commodities trader, rose 1.4 percent after yesterday’s gains in oil and metals. BHP Billiton Ltd. and Rio Tinto Group, the world’s No. 1 and No. 3 companies, climbed more than 0.9 percent in Sydney. Markets in Indonesia, Malaysia, Singapore and Thailand are closed today for a holiday. U.S. markets will be shut on May 31. To contact the reporters on this story: Nicolas Johnson in Tokyo at nicojohnson@bloomberg.net .

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Prudential Investor Neptune Says 20% May Vote Against Takeover of AIG Unit

May 27, 2010

By Kevin Crowley May 27 (Bloomberg) — Prudential Plc shares jumped as investors owning as much as 20 percent of the U.K. insurer plan to vote against the $35.5 billion takeover of American International Group Inc.’s main Asian unit, according to Neptune Investment Management Ltd. Institutional investors with more than 15 percent of Prudential’s stock and private shareholders owning 4.87 percent plan to oppose the purchase of AIA Group Ltd. at Prudential’s annual general meeting on June 7, Robin Geffen , Neptune’s chief investment officer, said yesterday, declining to identify the shareholders. Prudential rose as much as 7.9 percent in London trading. “We very clearly believe this could be a potentially disastrous acquisition and that the existing business is undervalued,” London-based Geffen said in a telephone interview. Prudential spokesman Ed Brewster said Geffen’s remarks were “speculative.” Prudential Chief Executive Officer Tidjane Thiam needs 75 percent of shareholders to back a $21 billion rights offer to fund the purchase. Geffen earlier this month set up a website to encourage fellow shareholders to vote down the acquisition. Neptune , which manages 5 billion pounds ($7.2 billion) in assets, owns 0.2 percent of Prudential. Shares Rise Prudential climbed 36.5 pence, or 7.1 percent, to 549 pence at 10:06 a.m. in London trading, the most since August, as investors bet the deal will fail. The stock closed at 602.5 pence on Feb. 26, the last day’s trading before the deal was announced. Investors with nearly 5 percent of Prudential’s stock, mainly private individuals, have joined Geffen’s group against the takeover, he said. AIG is shedding assets including AIA to repay the government’s $182.3 billion bailout. Geffen expects institutional shareholders owning at least 15 percent of Prudential to vote against the purchase because of conversations he’s had “directly or indirectly,” he said. “We are having active conversations, grounded in hard numbers and data, with our investors internationally,” Brewster said. “It is for our shareholders to make up their minds, and we welcome the opportunity to engage with our shareholders at any time. We believe the acquisition of AIA by Prudential represents a compelling combination that can deliver very attractive long-term returns to our shareholders.” ‘Great Deal’ The Treasury Department’s chief restructuring officer, Jim Millstein , said AIA was already preparing an initial public offering before the Prudential deal and can go that route if shareholders reject the deal. In an interview yesterday in Washington, he called the purchase a “great deal,” and said in most cases transactions supported by boards and management are approved by shareholders. Thiam, Chairman Harvey McGrath and Finance Director Nic Nicandrou have been meeting investors over the past week in London, Edinburgh and Hong Kong as they seek to build support for the biggest rights offer in U.K. corporate history. They say the $35.5 billion paid for AIA will be worth $60 billion by 2013. “They’re paying a very full price,” Geffen said. “The bulk of the market positions are in mature markets that are not growing very fast. The deal is dilutive in terms of a large number of shares being given to AIG.” No Vote Recommended Neptune was founded by Geffen in 2002 as an asset manager focusing on selling growth funds to private investors. Geffen was cited in newspapers including the Financial Times and the Guardian opposing the 2006 sale of retailer House of Fraser Plc to Baugur Group Hf, the failed Icelandic investor. RiskMetrics Group Inc. in New York, which advises 70 of the world’s 100 biggest investment managers, is recommending clients vote against the acquisition, which is scheduled to be completed in the third quarter of this year. “A full price, integration risk and ambitious targets to barely meet what we believe is a reasonable cost of capital do not make a compelling combination,” RiskMetrics said in a May 25 report. The combined Prudential-AIA would be the largest life insurer in Hong Kong, Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. The insurer will likely have to sell stakes in India and China, the world’s two most populous countries, because of regulatory requirements, Thiam, 47, said this month. Capital Group Cos., BlackRock Inc., Legal & General Group Plc and Norges Bank, four of Prudential’s biggest investors, declined to comment. To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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Securitas to Expand Into 10 Countries to Serve Clients Operating Globally

May 27, 2010

By Ola Kinnander May 27 (Bloomberg) — Securitas AB , the world’s second largest security services company, plans to expand into 10 additional countries with the help of acquisitions to serve customers with global operations. The Swedish supplier of guards and alarms, which operates in 40 nations, wants to be present in 50 “as quickly as possible,” Chief Executive Officer Alf Goeransson said at the company’s Stockholm headquarters today. Singapore, Malaysia, South Korea, Indonesia and Italy are among the markets that it wants to enter, he said. Expansion is key to serve those customers that have global operations and prefer to deal with one security provider, Goeransson said. Securitas, which counts Toyota Motor Corp. and Belgium’s new Musee Magritte Museum as clients, competes with market leader G4S Plc , which is also targeting emerging markets to drive growth. “We’re trying to establish ourselves in all the markets where our customers have told us our presence is important,” Goeransson said. “We’re in most of these countries already but some are missing.” Takeovers are the “easier and faster” option to entering a new market than building an operation from scratch, the CEO said. Securitas has about 1 billion kronor ($127 million) available for acquisitions this year, he said. Last year, it bought 15 companies with a total of 14,000 employees and sales of 1.3 billion kronor. China Potential China started allowing private security companies to operate there at the beginning of this year, and as a result Securitas now employs about 200 guards in the country, out of a total global workforce of about 260,000 employees. The Chinese market likely has room for some 4 million security guards, many of whom would work for international companies operating there, he said. Securitas will come up against G4S in the pursuit of security contracts there. The British company is seeking expansion and may make purchases in China as the $9 billion market opens up, CEO Nick Buckles said in a Nov. 9 interview. China could initially add about 2 percentage points to revenue a year, he said then. “The possibilities are fantastic” in China, Goeransson said. “There’s plenty of market opportunities, plenty of customers. The problem for us right now is getting personnel, getting the guards licensed. They must be licensed and that’s not so easy with the Chinese bureaucracy.” To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net

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Greece Is Facing Either Debt Restructuring or Default, Mundell, Hanke Say

May 26, 2010

By Piotr Skolimowski and Ott Ummelas May 26 (Bloomberg) — Nobel Prize winning economist Robert Mundell said debt restructuring may be “inevitable” in parts of the euro area and Steve Hanke, the architect of currency regimes from Argentina to Estonia, warned a Greek default may become unavoidable. Mundell, who won the economics prize in 1999, predicted debt restructuring for “one or two” euro nations within five years. Hanke of Johns Hopkins University said Greece’s “death spiral” will end in default if debt obligations can’t be renegotiated. Euro-area ministers agreed on May 2 to provide 110 billion euros ($135 billion) of aid to Greece as the country struggled to control a deficit that reached 13.6 percent of gross domestic product last year, more than four times the European Union limit. When that failed to stop the euro’s slide, the EU and International Monetary Fund offered a financial lifeline of almost $1 trillion to member states. “Greece’s death spiral will end with debt restructuring or the outright default of its sovereign debt,” Hanke wrote in an article on the website of the Cato Institute in Washington D.C. dated yesterday. “While politicians and bureaucrats from the EU, IMF and Greece tell us that the bailout package will defuse Greece’s time bomb, don’t believe their ‘cheerful Charlie’ chant.” Not ‘Deconstruction’ Mundell, whose Nobel Prize was for work on exchange rates and capital mobility, said at a conference in Warsaw today that “debt restructuring may be needed for one or two fiscally weak euro members. In five years it may be inevitable, but it doesn’t mean euro deconstruction, it just means debt restructuring.” Europe needs greater fiscal centralization, including the creation of euro-area Treasury notes and bonds, Mundell said. “The euro has done marvelously well in its 10 years of existence, but it is operating with one of its two hands tied behind its back,” Mundell said. “There is no area bill like a U.S. Treasury bill. A euro-area bill will greatly improve the ascent of the euro as the reserve currency along the dollar.” Europe’s currency has dropped 14.2 percent against the dollar this year, the biggest loss among its 16 most-active counterparts, according to data compiled by Bloomberg. It traded at $1.2283 as of 6:20 a.m. in London, after dropping to a four- year low of $1.2144 on May 19. Exit Possible Nouriel Roubini , the New York University professor who predicted the global financial crisis, also warned today that financial markets aren’t “credibly” convinced Greece will control its budget deficit. The euro will weaken further, and some countries may be forced to abandon the common currency, Roubini said at a conference in Bucharest, Romania today. “I’m not predicting the breakup of euro zone, but the probability is not zero that some of weakest members of euro zone might decide to exit it,” he said. There are also concerns Spain and Portugal as well as Greece lack the political will to cut spending, Roubini said. Greece pledged to implement austerity measures equal to almost 14 percent of GDP in exchange for the EU rescue funds. “The markets are not credibly convinced Greece can do the fiscal adjustment it engaged to do,” Roubini said. There are “also questions whether, from a political point of view, there’s going to be support for budget consolidation in these countries — Greece, Portugal and Spain.” Double-Dip Risk Without the option of currency devaluation, Greece needs to push through tax reform to improve its competitiveness, Hanke said. The country ranks 109th in an “ease of doing business” survey of 183 countries, according to the World Bank. “Without growth, Greece is doomed,” said Hanke, who was an architect of currency policy in Indonesia, Venezuela, Estonia and Kazakhstan among other nations. There are “serious economic difficulties in the euro zone,” Roubini said today. “There’s even a risk of a double- dip recession.” The 16-member euro area emerged from its five-quarter recession in the three months through September. A double-dip recession would mean the region’s economy contracting again for at least two consecutive quarters. The euro region economy will grow 0.9 percent this year after contracting 4.1 percent in 2009, the European Commission estimated May 5. Germany, the bloc’s biggest economy, will expand 1.2 percent in 2010 and 1.6 percent next year. Greece’s economy will contract 3 percent this year and a further 0.5 percent in 2011, the commission estimates. Greece would benefit from scrapping employer contributions to payroll taxes and imposing a uniform value-added tax rate, Hanke said. Such measures would boost competitiveness “roughly” equivalent to a 40 percent to 45 percent currency devaluation, he said, citing research by Domingo Cavallo , Argentina’s former Economy Minister, and Joaquin Cottani , former Undersecretary of Economic Policy in Argentina. To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

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Stocks Rebound From Slump, Commodities Rally; Euro Weakens

May 26, 2010

By Rita Nazareth and David Merritt May 26 (Bloomberg) — Stocks rebounded after the MSCI World Index closed at a nine-month low yesterday and commodities rallied as gains in U.S. durable-goods orders and home sales added to evidence economic growth is improving. Government bonds fell and the euro weakened for a third day. The MSCI World , a gauge of equities in 24 developed nations, climbed 1.4 percent at 11:04 a.m. in New York. The Standard & Poor’s 500 Index gained 0.9 percent. Oil advanced above $70 a barrel, while lead and zinc led gains in industrial metals. The euro weakened against 15 of its 16 major currencies. The benchmark 10-year Treasury note’s yield rose 5 basis points to 3.23 percent. The rally in stocks and drop in government bonds came as a jump in new U.S. home sales to a two-year high and a bigger- than-estimated gain in durable-goods orders showed the world’s largest economy has so far weathered the European debt crisis. The Organization for Economic Cooperation and Development raised its growth forecasts for this year and next. “Investors realized that maybe they have oversold stocks and we need to begin to rally again to reflect an improved backdrop,” said Philip Orlando , the New York-based chief equity market strategist at Federated Investors, which manages about $400 billion. “From a global perspective, we’d obviously like to see more good news out of Europe. However, we have a very optimistic view on the U.S. economic recovery.” ‘Important Victory’ The S&P 500 climbed today after erasing losses in the final minutes of trading yesterday, wiping out a 3.1 percent drop. The index briefly sank below 1,050 and its 2010 low in February of 1,044 before recovering. The levels are watched by traders and analysts who make investment decisions based on charts. “Yesterday’s reversal, which occurred as equities tested critical support, was an important victory,” Craig Peskin  and John Kolovos , co-heads of technical analysis research at Concept Capital in New York, said in a note to clients. “Such key reversals often signal a shift in control from the bears to the bulls.” General Electric Co. and Boeing Co. climbed more than 3 percent to lead industrial companies to the top gain among 10 groups in the S&P 500. The 2.9 percent increase in bookings for goods meant to last at least three years was the biggest in three months, figures from the U.S. Commerce Department showed. Orders excluding transportation unexpectedly fell after revisions showed even bigger increases in prior months. Economy Watch New-home sales climbed 15 percent in April to an annual pace of 504,000, the most since May 2008, after surging a revised 30 percent the prior month, figures from the Commerce Department showed. The number of mortgage applications in the U.S. rose last week by the most in a month as homeowners took advantage of borrowing costs close to a record low to refinance, the Mortgage Bankers Association said. The economy of the OECD’s 30 members will grow 2.7 percent this year, more than the 1.9 percent predicted in November, the Paris-based group said today in a report. Including non-members such as China, the global economy will expand 4.6 percent this year and 4.5 percent in 2011, compared with an average of 3.7 percent during the decade through 2006. The Stoxx Europe 600 Index rallied 3.3 percent, erasing yesterday’s 2.5 percent slump, as all 19 industry groups advanced. BHP Billiton Ltd. , the world’s biggest mining company, surged 7.1 percent in London and Rio Tinto jumped 8.3 percent. Banks Rally Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc helped lead financial shares higher after Credit Suisse Group AG recommended the shares and U.S. Representative Barney Frank said yesterday a proposal to restrict banks’ use of derivatives “goes too far.” This month’s selloff left the Stoxx Europe 600 Index trading at 14 times the reported earnings of its companies, the cheapest valuation since 2008, according to data compiled by Bloomberg. The S&P 500 tumbled 12 percent from its 19-month high on April 23 through yesterday, leaving it trading at about 15.4 times its companies reported operating earnings, the lowest since July. The retreat came as credit-rating downgrades of Greece, Portugal and Spain added to concern that some European governments will struggle to fund deficits. “Now is probably an opportune time to pick up some of the bargains that have been created over the past two or three weeks,” Donald Gimbel , senior managing director at Carret Asset Management LLC, told Bloomberg Television. “We’ve got bad news just about every place you can look but on the other hand, we’ve got rising earnings and better economic conditions in most of the world.” Emerging Markets The MSCI Emerging Markets Index climbed 3.3 percent. The MSCI China Index of Hong Kong-traded shares advanced 2.5 percent, while Indonesia’s Jakarta Composite Index surged 7.3 percent as PT Astra International jumped 10 percent on its prediction for record motorcycle sales this year. The Micex Index in Russia, the world’s largest energy exporter, climbed 5.6 percent and the ruble strengthened 1 percent against the dollar. Crude oil for July delivery rose $2.62, or 3.8 percent, to $71.37 a barrel in New York. Prices are up 14 percent from a year ago. Zinc for delivery in three months jumped 2.7 percent to $1,904.75 a metric ton on the London Metal Exchange, while lead added 3.2 percent to $1,800 a ton. Copper, aluminum and nickel also gained. The euro declined 0.9 percent to $1.2233, and weakened 0.7 percent against the yen, to 110.58. The 16-nation currency depreciated to 108.84 yen yesterday, the lowest level since November 2001. Korean Tensions South Korea’s Kospi Index rallied 1.4 percent, rebounding from yesterday’s 2.8 percent plunge, as the government pledged to intervene to stabilize the currency amid escalating tensions with the North. “Authorities will supply sufficient foreign currency liquidity if needed,” South Korean Vice Finance Minister Yim Jong Yong said at an emergency meeting of officials from the Finance Ministry, central bank, Economy Ministry and financial watchdog in Gwacheon today. “We will be closely watching for herd behavior in the currency market and take necessary actions in a prompt and active manner.” The drop in U.S. Treasuries sent the 30-year yield up 6 basis points to 4.14 percent according to BGCantor Market Data. The U.S. sells $40 billion of five-year securities today, the second of three auctions this week totaling $113 billion. The yield on the German 10-year bund increased seven basis points to 2.65 percent. Germany issues five-year notes today, with Portugal and Italy also selling debt. Libor Rises The rate banks say they pay for three-month loans in dollars climbed for a 12th straight day. The London interbank offered rate, or Libor , for such loans advanced to 0.538 percent today, according to the British Bankers’ Association. The rate was 0.536 percent yesterday, the highest level since July 7, data from the British Bankers’ Association show. The cost of protecting against a default on European corporate bonds fell from a 10-month high, with credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk- rated companies declining 29 basis points to 595.5, according to Markit Group Ltd. To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; David Merritt in London on dmerritt1@bloomberg.net .

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Stocks Climb, Commodities Rally on Economic Growth Prospects; Euro Weakens

May 26, 2010

By David Merritt May 26 (Bloomberg) — Stocks rebounded, after yesterday’s slide drove the MSCI World Index to a nine-month low, while commodities rallied on renewed speculation economic growth is improving. The euro weakened for a third day. The MSCI World , a gauge of equities in 24 developed nations, climbed 0.9 percent at 10:20 a.m. in London. Futures on the Standard & Poor’s 500 Index gained 0.7 percent. Oil advanced above $70 a barrel, zinc rose 3.6 percent and lead 3.1 percent. The euro weakened against all but two of its 16 most actively traded counterparts. South Korea’s won rebounded as the government pledged to intervene to stabilize the currency amid escalating tensions with the North. Concern the European debt crisis may worsen wiped about $6 trillion from the value of equities so far this month. The selloff left the Stoxx Europe 600 Index trading at 14 times the reported earnings of its companies, the cheapest valuation since 2008, according to data compiled by Bloomberg. The Organization for Economic Cooperation and Development raised its growth forecasts for this year and next, while reports due today may show a broadening of the U.S. recovery. “Now is probably an opportune time to pick up some of the bargains that have been created over the past two or three weeks,” Donald Gimbel , senior managing director at Carret Asset Management LLC, told Bloomberg Television. “We’ve got bad news just about every place you can look but on the other hand, we’ve got rising earnings and better economic conditions in most of the world.” Stocks Gain The Stoxx 600 rallied 2.1 percent, clawing back some of yesterday’s 2.5 percent slump, as all 19 industry groups advanced, while the MSCI Asia Pacific Index rose 1 percent, rebounding from a 10-month low. BHP Billiton Ltd. , the world’s biggest mining company, surged 4.2 percent in London and Rio Tinto jumped 5.8 percent. Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc led financial shares higher after Credit Suisse Group AG recommended the shares and U.S. Representative Barney Frank said a proposal to restrict banks’ use of derivatives “goes too far.” The gain in U.S. futures indicated the S&P 500 may extend its rally late yesterday. The benchmark gauge erased losses in the final minutes of trading, wiping out a 3.1 percent drop. Orders for factory goods and sales of new homes probably increased in April, pointing to a wider recovery, economists said before two reports today. Durable Goods Bookings for durable goods rose 1.3 percent, according to the median of 77 projections in a Bloomberg News survey before the report from the Commerce Department at 8:30 a.m. in Washington. New home sales may have climbed to an annual rate of 425,000 last month, the most since September 2008, economists said before the report, also from the Commerce Department, set for 10 a.m. The economy of the OECD’s 30 members will grow 2.7 percent this year, more than the 1.9 percent predicted in November, the Paris-based group said today in a report. Including non-members such as China, the global economy will expand 4.6 percent this year and 4.5 percent in 2011, compared with an average of 3.7 percent during the decade through 2006. The MSCI Emerging Markets Index climbed 2.3 percent. The MSCI China Index of Hong Kong-traded shares advanced 2.5 percent, while Indonesia’s Jakarta Composite Index surged 5.8 percent as PT Astra International jumped the most in 10 months on its prediction for record motorcycle sales this year. The Micex Index in Russia, the world’s largest energy exporter, climbed 2.4 percent and the ruble strengthened 1.4 percent against the dollar. Oil Gains Oil in London rose 2.1 percent to $71 a barrel after its longest losing streak since September 2008. Zinc for delivery in three months jumped $65 to $1,920 a metric ton on the London Metal Exchange, while lead added $50.50 to $1,795.50 a ton. Copper, aluminum and nickel also gained. Palladium rose 1.3 percent to $448.72 an ounce and silver 1.4 percent to $18.20 an ounce. The euro declined 0.2 percent to $1.2322, and also weakened 0.2 percent against the yen, to 111.17. The 16-nation currency depreciated to 108.84 yen yesterday, the lowest level since November 2001. The won was at 1,252.28 against the dollar, from 1,251.10 yesterday, when it touched 1,277.85, the weakest since July 16. “Authorities will supply sufficient foreign currency liquidity if needed,” South Korean Vice Finance Minister Yim Jong Yong said at an emergency meeting of officials from the Finance Ministry, central bank, Economy Ministry and financial watchdog in Gwacheon today. “We will be closely watching for herd behavior in the currency market and take necessary actions in a prompt and active manner.” Treasuries Decline Treasuries declined, sending the yield on the 10-year note up four basis points to 3.22 percent, according to BGCantor Market Data. The U.S. sells $40 billion of five-year securities today, the second of three auctions this week totaling $113 billion. The yield on the German 10-year bund increased four basis points to 2.62 percent. Germany issues five-year notes today, with Portugal and Italy also selling debt. The rate banks say they pay for three-month loans in dollars may climb for the 12th straight day, according to Monument Securities Ltd. The London interbank offered rate, or Libor , for such loans may advance to 0.545 percent today, said Marc Ostwald , a fixed-income strategist in London. The rate was 0.536 percent yesterday, the highest level since July 7, data from the British Bankers’ Association show. The cost of protecting against a default on European corporate bonds fell from a 10-month high, with credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk- rated companies declining 15.1 basis points to 609.2, according to Markit Group Ltd. To contact the reporter on this story: David Merritt in London on dmerritt1@bloomberg.net

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China Software Piracy Makes India a Better Bet, Microsoft’s Ballmer Says

May 24, 2010

By Mark Lee and Bruce Einhorn May 25 (Bloomberg) — Microsoft Corp. is less optimistic about China than India or Indonesia because of the country’s lack of progress in stamping out software piracy, Chief Executive Officer Steve Ballmer said. “India is not perfect but the intellectual property protection in India is far, far better than it would be in China,” the head of the world’s largest software maker said in an interview in Hanoi, Vietnam, yesterday. “China is a less interesting market to us than India, than Indonesia.” Ballmer’s concerns underscore growing dismay among U.S. companies toward operating in the world’s third-largest economy. Google Inc. in March moved its Chinese service out of the mainland to avoid censorship rules, and the American Chamber of Commerce in Beijing said last month its members face an increasingly difficult regulatory environment. China has implemented more than 1,000 measures related to the protection of intellectual property and the government will continue such efforts, said Chen Rongkai , a media officer at the nation’s Ministry of Commerce in Beijing. “China’s effort at strengthening protection of intellectual property is universally recognized,” Chen said. Lack of progress in protecting intellectual property has led China, which may overtake the U.S. as the world’s biggest personal-computer market in a year, to generate less revenue for Microsoft than India and South Korea, Ballmer said. China’s gross domestic product is twice the two economies combined. Software Piracy The value of pirated software in China almost doubled to $7.58 billion from 2005 to 2009, the highest increase in the world, Washington-based Business Software Alliance and market researcher IDC said in a report in May. While the piracy rate in the country fell to 79 percent last year, it’s higher than in India, the Philippines and Thailand, according to the report. “Ballmer is right,” said Sandeep Aggarwal , an analyst at Caris & Co. in San Francisco. “It is not easy to control piracy in China.” He estimates that as much as 95 percent of the copies of Microsoft’s Office software and 80 percent of its Windows operating systems are pirated in China. For Microsoft, based in Redmond, Washington, the billions of dollars in lost revenue from piracy in China outweigh the possible benefits of expanding in the country through acquisitions, Ballmer said. For example, owning Baidu Inc. , China’s biggest Internet search-engine operator, would only boost Microsoft’s revenue by about 1 percent, he said. Microsoft gets about 3 percent of its sales from Asia, excluding Japan and Australia, Ballmer said. U.S. Corporate Concerns “There are two things that make a country interesting. One is it buys a lot of PCs, the other is they pay for the software that gets used on those PCs,” Ballmer said. In China, “there is no software market to speak of.” The American Chamber of Commerce in Beijing said in an annual report last month that it expects an increase in trade tension between the U.S. and China. While China should move toward a more flexible currency, the U.S. should focus more on pressing the Chinese government to better enforce laws safeguarding intellectual property, change rules that limit foreign ownership and reduce tariffs. Ballmer’s comments coincide with trade talks between U.S. officials, including Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton and their counterparts in Beijing. China should strengthen efforts to improve intellectual property protection, Geithner said last week. China should let its currency reflect market forces, Geithner said yesterday in Beijing as he and Clinton led a U.S. delegation for the two-day Strategic and Economic Dialogue with Chinese officials. China’s trade surplus with the U.S. widened in March, fuelling concern the yuan has been kept undervalued to support Chinese exports. Better Enforcement Better enforcement of intellectual property rules could save U.S. firms tens of thousands of jobs, Ballmer said. “If the U.S. is going to export to Asia, it’s going to export IP, whether it’s in pharmaceuticals, technology,” Ballmer said. “Otherwise the U.S. will have nothing to export.” Ballmer said he sees signs of improvement. Microsoft last month won a decision from a Shanghai court against a Chinese insurance company. The victory followed a court ruling in the eastern city of Suzhou last year sentencing four people to prison for distributing pirated Microsoft software. “It’s a good start,” Ballmer said. “I am not trying to be pessimistic, I want to be optimistic about China.” To contact the reporter on this story: Mark Lee in Hanoi at wlee37@bloomberg.net .

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Microsoft’s Ballmer Says Software Piracy in China Makes India a Better Bet

May 24, 2010

By Mark Lee and Bruce Einhorn May 24 (Bloomberg) — Microsoft Corp. is less optimistic about China than India or Indonesia because of the country’s lack of progress in stamping out software piracy, Chief Executive Officer Steve Ballmer said. “India is not perfect but the intellectual property protection in India is far, far better than it would be in China,” the head of the world’s largest software maker said in an interview in Hanoi, Vietnam today. “China is a less interesting market to us than India, than Indonesia.” Ballmer’s concerns underscore the growing dissatisfaction being voiced by U.S. companies about operating in the world’s third-largest economy. Google Inc. in March moved its Chinese service out of the mainland to avoid censorship rules and the American Chamber of Commerce in Beijing said last month its members face an increasingly difficult regulatory environment. China has implemented more than 1,000 measures related to the protection of intellectual property and the government will continue such efforts, said Chen Rongkai , a media officer at the nation’s Ministry of Commerce in Beijing. “China’s effort at strengthening protection of intellectual property is universally recognized,” Chen said. Lack of progress in protecting intellectual property has led China, which may overtake the U.S. as the world’s biggest personal-computer market in a year, to generate less revenue for Microsoft than India and South Korea, Ballmer said. China’s gross domestic product is twice the two economies combined. Software Piracy The value of pirated software in China almost doubled to $7.58 billion from 2005 to 2009, the highest increase in the world, Washington-based Business Software Alliance and market researcher IDC said in a report in May. While the piracy rate in the country fell to 79 percent last year, it’s higher than in India, the Philippines and Thailand, according to the report. For Microsoft, based in Redmond, Washington, the billions of dollars in lost revenue from piracy in China outweigh the possible benefits of expanding in the country through acquisitions, Ballmer said. For example, owning Baidu Inc. , China’s biggest Internet search-engine operator, would only boost Microsoft’s revenue by about 1 percent, he said. Microsoft gets about 3 percent of its sales from Asia, excluding Japan and Australia, Ballmer said. “There are two things that make a country interesting. One is it buys a lot of PCs, the other is they pay for the software that gets used on those PCs,” Ballmer said. In China, “there is no software market to speak of.” U.S. Corporate Concerns The American Chamber of Commerce in Beijing said in an annual report last month that it expects an increase in trade tension between the U.S. and China. While China should move toward a more flexible currency, the U.S. should focus more on pressing the Chinese government to better enforce laws safeguarding intellectual property, change rules that limit foreign ownership, and reduce tariffs. Ballmer’s comments come as U.S. officials including Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton hold trade talks with counterparts in Beijing. China should strengthen efforts to improve intellectual property protection, Geithner said last week. China should allow its currency to reflect market forces, Geithner said today in Beijing as he and Clinton led a U.S. delegation for the two-day Strategic and Economic Dialogue with Chinese officials. China’s trade surplus with the U.S. widened in March, fuelling concern the yuan has been kept undervalued to support Chinese exports. Better Enforcement Better enforcement of intellectual property rules could save U.S. firms tens of thousands of jobs, Ballmer said. “If the U.S. is going to export to Asia, it’s going to export IP, whether it’s in pharmaceuticals, technology,” Ballmer said. “Otherwise the U.S. will have nothing to export.” Ballmer said he sees signs of improvement. Microsoft last month won a decision from a Shanghai court against a Chinese insurance company. The victory followed a court ruling in the eastern city of Suzhou last year sentencing four people to prison for distributing pirated Microsoft software. “It’s a good start,” Ballmer said. “I am not trying to be pessimistic, I want to be optimistic about China.” To contact the reporter on this story: Mark Lee in Hanoi at wlee37@bloomberg.net .

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Thai Economy Grew Most Since 1995 in First Quarter Before Unrest Erupted

May 23, 2010

By Suttinee Yuvejwattana May 24 (Bloomberg) — Thailand’s economy expanded the most since 1995 last quarter, before the nation’s worst political violence in 18 years undermined the country’s recovery. Gross domestic product rose 12 percent in the three months ended March 31 from a year earlier, beating the 9 percent median estimate in a Bloomberg News survey of nine economists. The economy grew a revised 5.9 percent in the fourth quarter of last year, the government said in Bangkok today. Asian economies have benefited from an export rebound that’s helped lift growth from Singapore to Taiwan, an acceleration that may be slowed should Europe’s debt crisis hamper the global recovery. Thailand may be among the most vulnerable because its domestic demand is endangered by the protests and rioting that killed more than 80 people. “It’s very unfortunate for Thailand,” Lim Su Sian , an economist at Royal Bank of Scotland Plc in Singapore, said before today’s report. “The second quarter will be a write-off. Exports will likely continue to hum along, remaining largely unscathed by domestic developments, but investment would have contracted, putting a quick end to the surge in the first quarter.” The economy will be “less rosy” from the second quarter onwards, Finance Minister Korn Chatikavanij said last week. Bangkok Riots Rioting erupted across Bangkok on May 19 after Thai security forces backed by armored vehicles cleared an anti- government protest camp and forced its leaders to surrender. More than 30 buildings were set alight, including the Stock Exchange of Thailand’s building, the nation’s biggest shopping complex, owned by Central Pattana Pcl , and at least eight branches of Bangkok Bank Pcl , the country’s biggest lender. The impact of the political unrest on the Thai economy has been “critical, especially on confidence,” Ampon Kittiampon , secretary-general at the National Economic and Social Development Board, the government’s economic advisory body, said at a briefing in Bangkok today. GDP may have expanded by between 6 percent and 7 percent this year had it not been for the violence, Ampon said. “But from the protests and unrest that have happened, we have to maintain the 2010 GDP forecast at 3.5 percent to 4.5 percent,” he said. “We still have a chance to grow more than this if we stay focused on fixing the problems.” ‘Negative Growth’ The economy grew 3.8 percent in the first quarter from the previous three months, the government said today. That compared with the 1.7 percent median forecast of six economists surveyed by Bloomberg News. “If the unrest can’t be settled, we may see negative growth in the third quarter” from the previous three months, Ampon said. “And we will be in very deep negative growth in the fourth quarter.” The baht has dropped 0.6 percent in the past month and overseas investors dumped Thai shares on May 19 for an 11th day, the longest stretch of net sales since November 2008. The stock market was closed on May 20 and May 21. Prime Minister Abhisit Vejjajiva ’s government has already seen consumer confidence drop to a nine-month low, leaving economic growth reliant on exports. The central bank forecasts that Southeast Asia’s largest economy after Indonesia may grow as much as 5.8 percent this year on overseas demand. Thailand’s economic fundamentals remain “promising” if the government can quickly deal with the political unrest, bourse president Patareeya Benjapolchai said in an interview with Bloomberg Television on May 21. “Investors will come back.” ‘Strong Fundamentals’ The first-quarter GDP figures show the economy’s “strong fundamentals,” Abhisit told reporters in Bangkok today. “The government will have to assess the impact from protests in May or June to see which sector has been affected, especially the tourism sector,” he said. “The government needs to restore confidence quickly.” Japan, Singapore and Taiwan last week reported growth in their economies accelerated last quarter as companies from Nissan Motor Co. to Taiwan Semiconductor Manufacturing Co . increase exports and domestic spending strengthens. Still, Asian stocks fell May 21 as European leaders struggled to contain the region’s debt crisis, raising the risk of a slowdown in exports. Fiscal woes may push Europe into a “double-dip” recession while growth in advanced nations will be “anemic,” New York University professor Nouriel Roubini said this month. The European Union and the International Monetary Fund have offered as much as 750 billion euros ($940 billion) to countries in danger of financial instability. Interest Rates The Bank of Thailand last month kept the benchmark one-day bond repurchase rate unchanged at 1.25 percent, the lowest level since July 2004, saying it “views the heightened political risk as a key factor affecting confidence, tourism, private consumption and investment.” Thailand’s central bank will next meet to decide on the key rate on June 2. “The central bank is unlikely to raise the rate at its meeting next week,” said Somprawin Manprasert , an economist at Tisco Securities Ltd. in Bangkok. “The risk for political uncertainties remains high. They may want to wait to see the consequence of the political chaos to the economy first before making a decision. Once they decide to raise the rate, they can’t take it back.” Manufacturing jumped 22.8 percent in the first quarter from a year earlier, compared with a 9.9 percent gain in the previous three months, according to today’s report. To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net ; Michael J. Munoz in Hong Kong at mjmunoz@bloomberg.net

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Stocks Drop, Euro Pares Gain, Treasuries Rise on Global Economic Concern

May 21, 2010

By Michael Patterson May 21 (Bloomberg) — Stocks fell for a seventh day, with Standard & Poor’s 500 Index futures falling beneath their low during the May 6 rout, and 30-year Treasury yields dropped to their lowest of the year on concern that Europe’s debt crisis will slow global economic expansion. The euro pared gains. The MSCI World Index of developed-nation shares retreated 0.4 percent at 7:59 a.m. in New York, heading for an almost eight-month low. Futures on the S&P 500 expiring in June slid as much as 1.2 percent to 1,057.6, following a 3.9 percent plunge in the U.S. benchmark index yesterday, and Dow Jones Industrial Average futures retreated below 10,000. The euro rose 0.4 percent to $1.2540, after climbing to $1.2672. The 30-year Treasury yield dropped to as low as 4.05 percent. The plunge in global equities this month wiped out $5.3 trillion of market value as Germany’s crackdown on speculation, plans for spending cuts by Europe’s most indebted nations and proposals to tighten U.S. finance industry regulation shook investor confidence. The German lower house of parliament approved the country’s share of a $1 trillion lending package to ease Europe’s debt woes, which Federal Reserve Governor Daniel Tarullo said yesterday may pose a threat to the global economy. “It’s a material risk that the problem is continuing to get bigger and to get worse,” Arnab Das , the head of global market research and strategy at Roubini Global Economics in London, said in an interview with Bloomberg Television. “As these budget cuts come through, the economies are potentially going to go sharply downward. The general tendency is going to be downward” for the euro, he said. Casualty Insurer The Stoxx 600 extended its slide this week to 6.2 percent. TrygVesta A/S, the Nordic region’s second-largest property and casualty insurer, tumbled 8.4 percent today in Copenhagen after reporting an unexpected first-quarter loss. Lanxess AG slipped 3 percent in Frankfurt after BofA Merrill Lynch Global Research downgraded the shares. The MSCI Asia Pacific Index slumped 1.2 percent. Honda Motor Co., which gets about 81 percent of its sales from overseas, declined 2.5 percent in Tokyo. Sonic Healthcare Ltd. , which provides medical tests, tumbled 20 percent in Sydney after saying earnings will be less than forecast. The retreat in U.S. futures indicated the S&P 500 may extend yesterday’s plunge, the worst since April 2009. The gauge fell to within 6 points of its low on May, when panic selling prompted calls for reform. The S&P 500 is now trading at about 15.5 times the reported earnings of its companies, the lowest level since July, according to Bloomberg data. Investors withdrew some $12 billion from U.S. and European equity funds in the week to May 19, according to research firm EPFR Global. Emerging Markets Fall The euro gained as much as 1.5 percent earlier today amid speculation investors betting on a decline were forced to buy the currency to cover their short positions. European Union President Herman Van Rompuy hosts a meeting of finance ministers in Brussels today to discuss reforms to economic governance. The yen declined 0.4 percent against the dollar after Japanese Finance Minister Naoto Kan said it’s undesirable for currencies to stray from “stable” levels. South Korea’s won forwards weakened for a third day, with three-month contracts falling 0.9 percent. President Lee Myung Bak convened a National Security Council meeting as North Korea threatened to sever all ties and reiterated its war threat after being accused of sinking one of the South’s warships. South Korea’s financial markets were closed today for a holiday. The MSCI Emerging Markets declined 0.5 percent. Benchmark indexes in Taiwan, Indonesia and Vietnam extended declines to more than 10 percent below recent highs after U.S. reports yesterday showed jobless claims unexpectedly rose and a gauge of leading economic indicators posted a surprise drop. Corporate Bonds The German 10-year bund yield slipped three basis points to 2.65 percent after business confidence in the nation unexpectedly fell this month. The extra yield investors demand to hold global corporate bonds rather than benchmark government debt widened 7 basis points to 184, the biggest difference since Dec. 14, according to Bank of America Merrill Lynch index data. Yields on 30-year Treasury bonds decline to the lowest level this year, dropped to 4.05 percent in New York. Crude oil for July delivery fell to $69.49 a barrel on the New York Mercantile Exchange. Nickel dropped 0.8 percent to $21,039 a metric ton on the London Metal Exchange. To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net .

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Stocks Drop, Euro Pares Gain, Treasuries Rise on Global Economic Concern

May 21, 2010

By Michael Patterson May 21 (Bloomberg) — Stocks fell for a seventh day, with Standard & Poor’s 500 Index futures falling beneath their low during the May 6 rout, and 30-year Treasury yields dropped to their lowest of the year on concern that Europe’s debt crisis will slow global economic expansion. The euro pared gains. The MSCI World Index of developed-nation shares retreated 0.4 percent at 7:59 a.m. in New York, heading for an almost eight-month low. Futures on the S&P 500 expiring in June slid as much as 1.2 percent to 1,057.6, following a 3.9 percent plunge in the U.S. benchmark index yesterday, and Dow Jones Industrial Average futures retreated below 10,000. The euro rose 0.4 percent to $1.2540, after climbing to $1.2672. The 30-year Treasury yield dropped to as low as 4.05 percent. The plunge in global equities this month wiped out $5.3 trillion of market value as Germany’s crackdown on speculation, plans for spending cuts by Europe’s most indebted nations and proposals to tighten U.S. finance industry regulation shook investor confidence. The German lower house of parliament approved the country’s share of a $1 trillion lending package to ease Europe’s debt woes, which Federal Reserve Governor Daniel Tarullo said yesterday may pose a threat to the global economy. “It’s a material risk that the problem is continuing to get bigger and to get worse,” Arnab Das , the head of global market research and strategy at Roubini Global Economics in London, said in an interview with Bloomberg Television. “As these budget cuts come through, the economies are potentially going to go sharply downward. The general tendency is going to be downward” for the euro, he said. Casualty Insurer The Stoxx 600 extended its slide this week to 6.2 percent. TrygVesta A/S, the Nordic region’s second-largest property and casualty insurer, tumbled 8.4 percent today in Copenhagen after reporting an unexpected first-quarter loss. Lanxess AG slipped 3 percent in Frankfurt after BofA Merrill Lynch Global Research downgraded the shares. The MSCI Asia Pacific Index slumped 1.2 percent. Honda Motor Co., which gets about 81 percent of its sales from overseas, declined 2.5 percent in Tokyo. Sonic Healthcare Ltd. , which provides medical tests, tumbled 20 percent in Sydney after saying earnings will be less than forecast. The retreat in U.S. futures indicated the S&P 500 may extend yesterday’s plunge, the worst since April 2009. The gauge fell to within 6 points of its low on May, when panic selling prompted calls for reform. The S&P 500 is now trading at about 15.5 times the reported earnings of its companies, the lowest level since July, according to Bloomberg data. Investors withdrew some $12 billion from U.S. and European equity funds in the week to May 19, according to research firm EPFR Global. Emerging Markets Fall The euro gained as much as 1.5 percent earlier today amid speculation investors betting on a decline were forced to buy the currency to cover their short positions. European Union President Herman Van Rompuy hosts a meeting of finance ministers in Brussels today to discuss reforms to economic governance. The yen declined 0.4 percent against the dollar after Japanese Finance Minister Naoto Kan said it’s undesirable for currencies to stray from “stable” levels. South Korea’s won forwards weakened for a third day, with three-month contracts falling 0.9 percent. President Lee Myung Bak convened a National Security Council meeting as North Korea threatened to sever all ties and reiterated its war threat after being accused of sinking one of the South’s warships. South Korea’s financial markets were closed today for a holiday. The MSCI Emerging Markets declined 0.5 percent. Benchmark indexes in Taiwan, Indonesia and Vietnam extended declines to more than 10 percent below recent highs after U.S. reports yesterday showed jobless claims unexpectedly rose and a gauge of leading economic indicators posted a surprise drop. Corporate Bonds The German 10-year bund yield slipped three basis points to 2.65 percent after business confidence in the nation unexpectedly fell this month. The extra yield investors demand to hold global corporate bonds rather than benchmark government debt widened 7 basis points to 184, the biggest difference since Dec. 14, according to Bank of America Merrill Lynch index data. Yields on 30-year Treasury bonds decline to the lowest level this year, dropped to 4.05 percent in New York. Crude oil for July delivery fell to $69.49 a barrel on the New York Mercantile Exchange. Nickel dropped 0.8 percent to $21,039 a metric ton on the London Metal Exchange. To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net .

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Islamic Bond Sales Rising at Fastest Pace in Three Years on State Support

May 19, 2010

By Soraya Permatasari May 19 (Bloomberg) — Islamic bond sales are growing at the fastest pace since 2007 as yields on securities complying with the religion’s ban on interest fall more than those on emerging- market debt even as Europe’s debt crisis worsens. Offerings of sukuk climbed 24 percent to $4.6 billion so far in 2010, the most since a 50 percent increase in the same period three years ago, according to data compiled by Bloomberg. The spread between the average yield for the debt and the three- month London interbank offered rate narrowed 301 basis points, or 3.01 percentage points, to 437 basis points in the past year, according to HSBC/NASDAQ Dubai US Dollar Sukuk Index . A similar measure for emerging-market debt shrank 133 basis points. Malaysia and Qatar Islamic Bank SAQ announced plans today to sell sukuk, while Indonesia’s finance ministry said last week it was pushing ahead with a scaled-down offering. Sales are growing after Nakheel PJSC, the Dubai World property unit seeking to restructure $10.5 billion of debt, repaid a $980 million Islamic bond this month and received money from the Dubai Financial Support Fund. Government support and debt restructuring “help build confidence in the market,” Badlisyah Abdul Ghani , head of Islamic banking at Kuala Lumpur-based CIMB Group Holdings Bhd, the top sukuk underwriter in 2009, said in an interview yesterday. “Sovereigns are coming out with issues, knowing for a fact that there are investors out there hungry for quality assets. This is the time to come in.” Focus on Ethics Policy makers meeting at the World Islamic Economic Forum in Kuala Lumpur this week plan to spur growth in an Islamic financial-service industry, whose assets totaled $1 trillion last year, WIEF Chairman Musa Hitam said in a May 14 interview. About 2,000 delegates, from Malaysian Prime Minister Najib Razak to Senegal President Abdoulaye Wade, are attending the two-day meeting that ends tomorrow. Islamic finance centers around the world must boost linkages and establish forms of standardization for the industry, Najib said at the forum today. The global debt crisis has increased international demand for standardized alternative investments that “practice ethics,” Musa said in a statement on May 16. Sukuk are asset- based securities that pay a profit rate linked to the issuers’ income, a measure intended to ensure borrowers can pay their debts. The spread between the average developing-nation yield and Libor narrowed to 597 basis points from 730 basis points a year ago, based on the EMBI+ index from JPMorgan Chase & Co. That is 160 basis points more than the average spread for sukuk debt. Malaysia, Qatar Sukuk Islamic bond sales may increase 24 percent to $25 billion this year, CIMB Group’s Badlisyah said in February. They rose 43 percent last year to $20.2 billion from $14.1 billion in 2008, according to data compiled by Bloomberg. Malaysia may sell more than $600 million of five-year dollar sukuk, Barclays Capital, one of the three arrangers, said today as the prime minister launched the marketing. Qatar Islamic Bank SAQ , the Gulf state’s biggest Shariah-compliant lender, plans to sell as much as $750 million of bonds in its first Islamic debt offering, the company’s chief executive also said today. Indonesia’s finance ministry said last week it plans a benchmark-sized issue, typically $500 million. Greece will tap emergency loans from the euro region today to repay 8.5 billion euros ($10.5 billion) of 10-year bonds, debt that threatened the euro-region’s first default. Greece’s benchmark two-year notes yield 8.48 percent, more than 15 times the comparable German security. ‘Emotional Hangover’ Investors are differentiating more carefully and favoring “financially strong” issuers because of the global debt crisis, said Rafael Martinez Dalmau , director of emerging markets and Islamic investments in Singapore at BNP Paribas Investment Partners, a unit of France’s largest bank. “We’re going to feel the emotional hangover on the markets for some time,” he said. Malaysia’s Senai-Desaru Expressway Bhd., a toll-road operator, said in April it plans to restructure 1.46 billion ringgit ($457 million) of Shariah-compliant bonds to avoid triggering the country’s biggest Islamic-debt default in more than two years. Islamic bond defaults in Malaysia totaled 176 million ringgit in the first four months of this year, 65 percent of the total in 2009. “Even sovereign debt right now will have to pay more in the debt market because of the prevailing scenes surrounding sovereign debt in Europe and the United Arab Emirates,” Ali Khan , head of cash-equity trading at Dubai-based Arqaam Capital Ltd., said in a telephone interview yesterday. ‘Safe Side’ Saudi Electricity Co., the country’s state-controlled power producer, raised 7 billion riyals ($1.9 billion) from sukuk sales last week. Cagamas Bhd., the Malaysian buyer of home loans, and Abu Dhabi’s Tourism Development & Investment Co., said this month they will sell sukuk this year. “Investors want to be on the safe side because of the uncertainty in Europe,” said Yazit Yusuff, head of the Islamic banking division at OSK Investment, a unit of Malaysia’s biggest stockbroker by trading value in Kuala Lumpur. “Investors are looking at high-profile names. Planned sales by Malaysia and Indonesia this year will be good for the market.” To contact the reporter on this story: Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.net

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Thai Growth May Falter as Violence Saps Confidence, Drives Away Tourists

May 16, 2010

By Wendy Pugh and Daniel Ten Kate May 17 (Bloomberg) — The escalation in violence stemming from a political stand-off in Thailand threatens to undermine investor confidence and see the nation’s economy slip behind neighbors that are helping Asia lead the global recovery. “This latest round of violence is unprecedented in recent memory and it takes the current confrontation into an unpredictable and a potentially quite harrowing phase,” said Nicholas Farrelly , researcher at the Canberra-based Australian National University’s College of Asia & the Pacific. At least 30 people have been killed since the Thai military moved to seal off a business district as large as New York’s Central Park four days ago as they seek to end an occupation of the city center by political demonstrators. Deteriorating consumer demand may impair spending and has prompted the central bank to keep interest rates at a five-year low. “What matters is the man in Toledo or Paris or Sydney or Tokyo watching his TV and seeing piles of tires burning in the middle of Rama IV road,” said Alastair Henderson , a partner in Bangkok at the London-based law firm Herbert Smith LLP. “Is that going to affect investor confidence? Of course it is.” Thai stocks and its currency have so far indicated little sign of an investor exodus, with the benchmark SET share index closing little changed last week at 768.79 and remaining 15 percent higher than the low reached in November. The baht has advanced 2.9 percent against the dollar this year. Singapore Concern The limited impact so far is due to the conflict being contained in the nation’s capital, Bangkok. At the same time, the situation threatens to slip out of control unless all parties exercise restraint and resume dialogue, Singapore’s Ministry of Foreign Affairs said in a statement on its website May 15. “If this happens the consequences for Thailand and for Asean will be extremely grave,” the Singapore ministry said. Thailand is the second-biggest economy in the 10-member Association of Southeast Asian Nations. Thai Finance Minister Korn Chatikavanij said on May 14 growth has already been shaved by as much as 0.5 percentage points, and warned in an interview with Bloomberg Television three days ago that the disturbances will “significantly” reduce tourism in the coming months. TUI AG, the German owner of Europe’s largest travel company, said May 14 that it stopped travel and accommodation for guests going to the city of Bangkok until the end of the month after Germany’s Federal Foreign Office advised against traveling there. Passengers can still fly to Bangkok airport, Anja Braun, a spokeswoman for TUI, said by phone yesterday. European Beachgoers “We don’t expect clients being put off from going to the south of Thailand,” where more than 90 percent of TUI’s Thailand travelers go, Braun said. “Most of our clients are regular visitors to the region — they know it well. Bangkok is usually just a stop-off for travelers where they can spend a few days before going to the bathing regions.” Richard Han , chief executive officer of Hana Microelectronics Pcl, Thailand’s biggest semiconductor packager, said that he’s seen little evidence so far of damage to his business, while expressing concern at the longer-term dangers. “As long as the airports are not shut down, our power is not cut off, we’ll be able to continue,” Han said, noting the company’s operations are “far away in business zones” outside the area of conflict. “In the longer term, who knows what customers will think about the situation and their dependence on companies such as ourselves,” said Han, whose firm makes parts for computers and phones including Apple Inc.’s iPhone. Confidence Falls Prime Minister Abhisit Vejjajiva ’s government has already seen consumer confidence drop to a nine-month low, leaving economic growth reliant on exports. The central bank forecasts that Southeast Asia’s largest economy after Indonesia may grow as much as 5.8 percent this year on overseas demand. The Bank of Thailand last month kept the benchmark one-day bond repurchase rate unchanged at 1.25 percent, the lowest level since July 2004, and warned about the potential impact on tourism. Neighboring Malaysia has by contrast raised borrowing costs twice this year as its economy’s expansion accelerated. Fitch Ratings cut its outlook on Thailand’s local-currency credit rating to negative from stable last month, citing “an escalation in political uncertainty.” Australia ‘Worried’ Australia warned its nationals to reconsider the need to travel to Thailand because of the deterioration in security. The government was “very worried” by the violence in Bangkok and the high risk of further unrest, according to a Department of Foreign Affairs and Trade statement e-mailed to Bloomberg. The Japanese Embassy in Bangkok was relocated on a temporary basis because of the clashes, according to the Kyodo News website. Qantas Airways Ltd. hasn’t experienced any effect on passenger travel plans or bookings, said Olivia Wirth , a spokeswoman at the Sydney-based carrier. Tiger Airways Holdings Ltd., the budget airline backed by Singapore Airlines Ltd., may adjust capacity to Bangkok as political unrest in the city damps travel demand, Chief Executive Officer Tony Davis said May 14. “We’re looking very carefully at capacity and if we have to, we will adjust capacity accordingly,” Davis said in a Bloomberg Television interview in Singapore. “We have seen some softening on Bangkok but the rest of Thailand hasn’t been affected and is still strong and we are monitoring the situation very carefully.” “As Thailand’s friendly neighbors, we are deeply concerned about the present situation, and we hope the relevant parties show restraint and work towards restoring social stability,” Ma Chaoxu, a spokesman at China’s Ministry of Foreign Affairs, said in a May 15 statement on the ministry’s website. To contact the reporters on this story: Wendy Pugh in Melbourne at wpugh@bloomberg.net ; Daniel Ten Kate at dtenkate@bloomberg.net

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Raymond J. Learsy: "If You See Something Say Something"-The Failed Times Square Bombing and the Price of Oil

May 13, 2010

“If you see something say something”, an expression that has now gone global. Yet the very root cause of what nearly became mass murder in Times Square and that has already taken the lives of thousands on 9/11, has been left to fester, studiously unnoticed, by acquiescent American administrations often bordering on the complicit. The failed Times Square bomb attempt provided prima facie evidence of Pakistani involvement in plots to attack on American soil. Pakistan’s former ambassador to the United States was moved to comment, “The element of threat is definitely different from the last few months”. An American official as quoted in the New York Times (“U.S. Urges Swift Action In Pakistan…” 05.09.2010) observed, “Last week’s incident makes it more urgent ” to bring stability to the tribal areas where militancy thrives and into Karachi, the biggest city where radical religious schools known as madrasas are popular. It is these very madrasas that have become the source of the lethal proselytizing that has destabilized much of the world. Faisal Shahzad, the failed Time Square bomber may not have personally attended a madrasas but it is the madrasas in Pakistan and elsewhere, their glorification of jihad, their vilification of the West who along with their moneyed sponsors have laid the groundwork for much of the world’s current destabilization and temporal tension between civilizations. And who are the sponsors? One could readily look to the Saudi Royal Family through their ardent sponsorship, through their oil wealth, nurturing radical Saudi clerics who adhere to the vision and tenets of the Saudi Imam Juhayman ak Uteybi whose followers seized the Grand Mosque of Mecca in 1979. Since that time billions upon billions have flowed to madrasas and community centers around the world teaching a virulent hatred of Western civilization, radicalizing Afghanistan, swaths of Pakistan, ranging from Europe to the Philippines and Indonesia and near every corner of the world. And while entire nations were being radicalized our government has been somnolent if not conspirationally silent. Certainly virtually nothing of consequence was attempted during the two Bush administrations to contain the spew of hatred. Holding the Saudis to account would have been unthinkable during those years with Saudi money sloshing around Washington, into the think tanks and its moneyed corners (think of the likes of the Carlyle Group with its deep links to Saudi finance, of which Pres. George H.W. Bush was to serve as a director, while others climbed on board the gravy train becoming affiliated with Carlyle including James Baker III former Secretary of State, ex Budget Chief Richard Darman, former S.E.C. Chair Arthur Levitt, as well as Frank Carlucci former Secretary of Defense under President Reagan not to speak of President George W. Bush who was a director of one of Carlyle’s subsidiaries, Caterair ). During the Clinton years Saudi munificence extended to millions dollar donations to the Clinton Presidential Library. Given the Saudi largesse little or nothing was done by our government to contain the propagation of teachings among thousands upon thousands of young minds being formed to hate and destroy. The issue continued to be exacerbated by senior administration officials from the State Department on up, as well as senior military personnel who were bedazzled when received by Saudi royalty who in dulcet tones assured that all is being done to diminish support of Saudi radical institutions and to liberalize the day to day lives of the Saudi population. To that end 50% of Saudi Arabia’s population, its women, have yet to be permitted to drive. This being but one example. While this has been going on for decades, Saudi Arabia, through OPEC is extorting billions from the world’s consumers through the manipulation of the price oil, the very source of the monies being funneled to madrasas around the world. Concurrently American taxpayers are paying over $80 million a day keeping a flotilla of naval vessels in the Arabian Gulf protecting the Saudi coastline and standing by to dissuade any Iranian ambitions against Saudi Arabia. (please see “Al Qaeda in the Service of the Organization of Petroleum Exporting Counties” 10.30.06). Has it stopped and has Saudi Arabia pulled back its poison? Are the occasional protestations and proclamations of willingness to cease and desist for real. Well consider the following. Just a few week ago the Times of London reported that “Saudis fund Balkan Muslims Spreading Hate of the West” http://www.timesonline.co.uk/tol/news/world/middle_east/article7078771.ece “That Saudi Arabia is pouring hundreds of millions of pounds into Islamist groups in the Balkans, some of which spread hatred of the West and recruit fighters for Jihad in Afghanistan…Islamic fundamentalism threatens to destabilize the Balkans… Fundamentalist Saudi organizations are clashing with traditionally moderate local Muslim communities.” Given Saudi realtime funding and intentions in the Balkans the question becomes clear. Can one assume that given Saudi policies in the Balkans, is Pakistan or Afghanistan not far behind, or perhaps even leading the pack ? Talk about a smoking car bomb in Times Square? This is the real thing. Do we have a problem in Pakistan. Yes. But it seems the core lies in Riyadh. And there they know how to play us like a violin. We see it, but instead of saying something we sing their tune.

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Telkomsel plans $400m expansion in Indonesia

May 11, 2010

Telkomsel plans $400m expansion in Indonesia

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Asia-Pacific Bond Risk Drops Most in a Year on EU Package to Stop Crisis

May 9, 2010

By Sarah McDonald May 10 (Bloomberg) — The cost of protecting Asia-Pacific bonds from default fell the most in a year after the European Union unveiled a plan worth almost $1 trillion aimed at halting a sovereign-debt crisis. The Markit iTraxx Asia index of credit-default swaps on 50 regional borrowers fell 22 basis points to 115 basis points as of 8:33 a.m. in Singapore, its biggest drop since May 7, 2009, according to Deutsche Bank AG and CMA DataVision in New York. The iTraxx bond risk benchmark for Australia also plunged the most in 12 months, while Japan’s dropped the most in five months. European policy makers announced an unprecedented loan package for debt-swamped governments and a program of securities purchases today after the euro slid to a 14-month low last week amid a global market rout. The Federal Reserve said it authorized temporary currency swaps with other central banks “in response to the re-emergence of strains” in Europe. “The strong package plus coordinated efforts with the Fed are providing major support to the market,” said Jason Watts , head of credit trading at National Australia Bank Ltd. in Sydney. “Credit-default swap indexes are snapping right back in as investors unwind the short positions they put on last week when markets blew out.” The Markit iTraxx Australia index plummeted 30 basis points to 101.5 as of 10:28 a.m. in Sydney, the most since May 7 last year, prices from Nomura Holdings Inc. and CMA show. It climbed 44 basis points in the week beginning May 3 as investor concerns about Greece’s fiscal woes mounted, according to CMA. The Markit iTraxx Japan index fell 16 basis points to 114 as of 9:39 a.m. in Tokyo, the most since Dec. 1, according to Morgan Stanley and CMA. Sovereign Risk The Markit iTraxx SOVX Asia-Pacific index dropped 31 basis points to 120.5 as of 9:55 a.m. in Hong Kong, according to Deutsche Bank. The index tracks swaps on the debt of China, Malaysia, Thailand, South Korea, Vietnam, the Philippines, Indonesia, Japan, Australia and New Zealand. The 16 euro governments pledged to make 440 billion euros ($569 billion) available, with 60 billion euros more from the EU’s budget, Spanish Economy Minister Elena Salgado said at a news conference in Brussels today. The International Monetary Fund may provide a further 250 billion euros, she said. The European Central Bank will also embark on “very significant operations,” according to EU Economic and Monetary Commissioner Olli Rehn . “The ECB has taken a decision to intervene in the secondary markets of government securities,” he said. Credit-default swap indexes are benchmarks for protecting debt against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement. The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point. To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net .

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Hunger Feeds Philippine Rebellions as Candidates Play Food Card for Votes

May 7, 2010

By Luzi Ann Javier May 7 (Bloomberg) — Ricardo Istacion said he had the best meal of his life on April 19, feasting on fish, chicken and pork at a party thrown by Philippine presidential candidate Joseph Estrada to celebrate his 73rd birthday. “Most days, we just have rice porridge,” said Istacion, a 54-year-old widower and father of two who collects recyclable waste at the garbage mountain in the Payatas district of Manila. Estrada “really loves Payatas, and for that I will vote for him.” While filling empty bellies helps win votes, politicians have failed to keep them full once in power. Whoever wins in the May 10 election will inherit hunger and unemployment that is fueling communist and Muslim insurgencies, perpetuating the Philippines’ status as a perennial economic underachiever. “If things are really deteriorating then it’s a risk that investors will move on to more attractive destinations,” said Tim Condon , Singapore-based chief Asia economist at ING Groep NV. “Patience isn’t unlimited.” The Jakarta Composite Index has risen more than 160 percent in the past five years, while the Philippine benchmark gained less than 70 percent. Moody’s Investors Service rates Indonesia, which was bailed out by the International Monetary Fund in 1998, one level higher at Ba2 than the Philippines. Corruption, mismanagement and a threefold jump in the population have eaten away at an economy that was Southeast Asia’s biggest in the 1960s. It has now been outstripped by Indonesia, Malaysia, Thailand and Singapore. Corruption Index Corruption means money for roads and other infrastructure goes missing. An average of 20 percent to 30 percent of every contract is lost to graft or inefficiency, the World Bank said in a 2008 study . The Philippines slipped in last year’s Transparency International Corruption Perceptions Index to 139th place from 131st in 2007. Indonesia rose to 111th from 143rd, according to the Berlin-based watchdog’s website. Estrada, who was convicted of corruption in 2007 and later freed by a presidential pardon, was vying for second place with Senator Manuel Villar , 60, in a poll published today by BusinessWorld newspaper. Estrada had 20 percent and Villar 19 percent, while Benigno Aquino , son of a former president, led with 42 percent, according to the survey of 2,400 adults. It was conducted May 2 to May 3 and had a margin of error of 2 percentage points. Feeding Itself One of the biggest challenges facing the winner is the nation’s inability to feed itself. The Philippines has gone from being an occasional net exporter of rice before 1988 to become the world’s biggest importer as yields stagnated, according to U.S. Department of Agriculture data. Indonesia is now self- sufficient in rice, after importing 5.77 million tons in 1998. Philippine farmers are forecast to produce on average 3.6 tons of rice a hectare, compared with 5 tons per hectare in Indonesia, the USDA website shows. The government of outgoing President Gloria Arroyo , 63, says it spent almost all of the 12 billion pesos ($268 million) it budgeted to fix irrigation systems and boost harvests. Jimmy Tadeo, Manila-based head of a 20,000-strong farmers’ group, said he had seen no evidence of this work on recent tours of rice- growing regions. ‘Romancing the Data’ “The government is romancing the data,” Tadeo said. “If they had actually spent all that 12 billion pesos in irrigation, we would be self-sufficient in rice.” The country’s lowest rice yields are in the southern island of Mindanao, where U.S. Special Forces are helping fight Muslim and communist insurgencies. Mindanao is home to the al-Qaeda- linked Abu Sayyaf and the communist New People’s Army, both branded terror organizations by the U.S. The 2.9 tons a hectare eked out by the island’s farmers helps explain per capita income of less than $1 a day. The Philippine regions most vulnerable to armed conflict were those with the lowest incomes and poorest education, the United Nations said in a 2005 report . Failure to deliver more rapid economic growth means the country’s new president will face a growing wave of unemployment. The working-age population is forecast to jump 52 percent between 2005 and 2030, according to Jesus Felipe , principal economist at the Asian Development Bank in Manila. Jobless Rate While the official jobless rate rose to 7.3 percent in January from 7.1 percent in October, the National Statistics Office estimated that only 64.5 percent of the people of working age are actually employed. That puts even the government’s subsidized rice beyond the means of many, increasing the value of a free meal from a politician. The number of Filipino households who had nothing to eat at least one day in a quarter rose to a record 24 percent, according to a survey released Jan. 12 by Social Weather Stations , a Manila-based researcher. Demand for rice from government stockpiles jumps in the run-up to elections, data from the National Food Authority show. In the five months to May 1998, when Estrada won the presidency, rice releases from state supplies jumped almost five-fold. The 207,125 tons of rice released in March this year were the highest for that month since at least 1991. “When you have a situation where people really have nothing, they become easy prey to these kinds of tactics,” said Rey Trillana , a fellow at the Center for Civic Education and Democracy in Manila. To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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Brazil Debt Spreads Narrower Than Russia for First Time in 2010 on Greece

May 6, 2010

By Veronica Navarro Espinosa May 6 (Bloomberg) — Brazil’s benchmark borrowing costs slid below Russia’s for the first time this year as investors bet the South American country is less at risk of contagion from the Greek debt crisis than Eastern European nations. Brazilian dollar bonds yielded 2.18 percentage points more than U.S. Treasuries yesterday, compared with 2.19 percentage points for Russia, according to JPMorgan Chase & Co.’s EMBI+ index. Brazilian yields last were below those on Russian debt, which is rated one level higher by Standard & Poor’s and two by Moody’s Investors Service, on Dec. 21. “Brazil offers a safe haven for investors that are concerned about market volatility and contagion related to Greece,” said David Bessey , who helps manage more than $10 billion of emerging-market debt at Prudential Financial in Newark, New Jersey. “It’s not obvious to me that the distortion couldn’t last for a long time given what’s going on in Eastern Europe.” Investors view Brazilian debt as safer than Russian bonds after S&P’s rating cuts of Greece, Portugal and Spain last week threatened to crimp growth in Europe. Russia’s gross domestic product will expand 4 percent this year, the Economy Ministry forecasts. Growth in Latin America’s biggest economy, by contrast, will surge to 6.1 percent this year, according to a central bank survey of analysts published this week. Default Risk     It costs 0.43 percentage point more to protect Russian bonds against default for five years than Brazilian debt, the biggest gap since Feb. 26, according to data compiled by CMA DataVision. Russia is ranked BBB by S&P, the second-lowest investment grade level. Brazil is rated BBB-. The South American country’s swaps are also less expensive than Bahrain, which is rated A, or four levels higher, as well as South Africa, two steps higher. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. Russia’s bond yield spread over U.S. Treasuries widened 18 basis points, or 0.18 percentage point, yesterday while Brazil’s spread climbed 12 basis points. The yield premium on developing- nation debt overall swelled 15 basis points to 2.95 percentage points, the widest in two months. Brazilian bonds yielded 41 basis points more than Russian debt on April 20. Buying Opportunity? The increase in yields to levels higher than both Brazil and Indonesia, rated three notches lower than Russia by Standard & Poor’s, will create a buying opportunity for Russian debt, said Cornel Bruhin , who manages a $280 million emerging-market fund at Clariden Leu AG in Zurich. “The Greece story was just the initiator for a correction in risk markets and Russia bonds will eventually recover very strongly once the correction is over,” he said. Bruhin said he may be ready to buy Russia’s 2020 bonds once the yield has risen another 15 basis points. Russia’s economy is recovering from its worst recession since the Soviet Union collapsed in 1991 as oil rallies. The government’s 2010 budget is based on crude oil averaging $58 a barrel, compared with $80 a barrel so far this year. Russia is more dependent on exports to European countries, while Brazil’s economic growth is driven by domestic demand, said Paul Biszko , an emerging-market analyst at RBC Capital Markets in Toronto. ‘Under Siege’ “The perception of risk has changed,” Biszko said. “These problems in Europe are sustainability problems, longer- term problems. Russia in terms of trade, financial linkages, is much closer to the euro zone than Brazil is.” Investors should buy Latin American currencies if concern about contagion from the Greek financial crisis continues to put Eastern Europe and its currencies “under siege,” Guillaume Tresca , an emerging-market strategist at Credit Agricole CIB in Paris, wrote in a note to clients yesterday. “Since the current issue is seen as a pure European debt problem, it should mean that Latin American countries are less affected,” Tresca wrote. The real dropped 1.7 percent to 1.7951 per dollar yesterday. The decline pared its rally over the past three months to 4.7 percent, the second-best performance among emerging-market currencies after the Malaysian ringgit. The Hungarian forint, Polish zloty and Czech koruna plunged more than 2 percent against the dollar yesterday, leaving each of them down at least 6 percent in the past three months. Brazil Elections The yield on Brazil’s overnight interest-rate futures contract due in January fell six basis points yesterday to 11.13 percent. Shareholders of Rossi Residencial SA , Brazil’s third- biggest homebuilder, approved the sale of as much as 500 million reais of bonds due May 2015, according to a regulatory filing. Brazil’s bonds may slump as the October vote to replace President Luiz Inacio Lula da Silva nears, RBC’s Biszko said. Former Cabinet Chief Dilma Rousseff and former Sao Paulo Governor Jose Serra are the main contenders in the race to succeed Lula, whose second term concludes at year-end. “The market is priced for no noise and a very stable process,” Biszko said. “There could be some not necessarily market friendly comments coming from them as we get closer to the elections.” Brazil’s dollar debt returned 2.4 percent this year, beating the 2.2 percent gain in Russian bonds, according to JPMorgan. Emerging-market bonds overall are up 3.1 percent. Concern about the spreading of Greek debt crisis pushed the average yield on emerging-market bonds to 6.51 percent from a record low of 6.18 percent on April 15, persuading Czech Republic, Albania and Indonesia to delay planned debt sales. Russia sold $5.5 billion of bonds on April 22, its first international issue since defaulting in 1998. Swelling supply has caused the country’s debt to underperform, Prudential’s Bessey said. The yield on the 5 percent bonds due in 2020 has jumped 47 basis points since the offering to 5.55 percent. “The heightened amount of supply has made a difference,” Bessey said. “Russia priced the deal without a lot of concession to investors.” To contact the reporters on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net

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Wen Conflicted as Yuan Advance Moving Chinese Teddy-Bear Jobs to Vietnam

May 5, 2010

By Bloomberg News May 6 (Bloomberg) — Lovely Creations Corp., the supplier of talking teddy bears to Wal-Mart Stores Inc. , may move some of its 800 Chinese assembly jobs to Vietnam because the currency is eroding profits. “The yuan’s appreciation would mean we lose our profit margin,” said Poh-Heng Toh, general manager at Lovely Creations, a Taipei-based manufacturer with factories in the coastal provinces of Guangdong and Zhejiang. “We also have higher labor costs in China because, as the economy develops, workers demand better lives while our end customers like Wal-Mart won’t raise what they pay us.” As the U.S., India and Brazil raise pressure on Premier Wen Jiabao to end the yuan’s almost two-year peg to the dollar, business leaders say they’re ready to relocate where costs are lower. Haier Group, the biggest Chinese appliance maker, built plants in India and Thailand. U.S. shoemaker New Balance shifted orders to Indonesia. Li & Fung Ltd. , a leading supplier to Bentonville, Arkansas-based Wal-Mart, bought 5 percent fewer consumer-goods in China in 2009 and 20 percent more in Bangladesh. The yuan’s relative weakness and minimum wages still at least 86 percent lower than in the U.S. underpinned exports that powered 10 percent annual growth in the past two decades and made China the world’s third-largest economy. Currency gains may hurt light-manufacturing, textile, electronics and machinery industries that account for 70 million jobs and 70 percent of industrial exports, Zhu Hongren , chief engineer of the Ministry of Industry and Information Technology, said April 22. ‘Lobbying Extensively’ Allowing the currency to appreciate would help reduce costs of the nation’s $1 trillion in imports and boost spending power for its 1.3 billion people. It also would add another challenge for Wen, who is attempting to quash property speculation at a time when investors are already skittish about prices of financial assets. The benchmark Shanghai Composite Index has fallen 14 percent this year, more than any market in Asia. Hedge fund manager Jim Chanos said in April China’s real-estate market is a bubble that may burst as early as this year Wen, 67, probably will avoid a “mega-revaluation” and cap yuan gains at between 3 percent and 5 percent in the coming year to balance these goals, said Edwin Gutierrez , who oversees $5 billion of emerging-market debt for Aberdeen Asset Management Plc. “Chinese policy-makers always move in gradual steps,” Gutierrez said in an April 29 interview from London. “Margins for many coastal manufacturers, especially in rust-belt industries like textiles, toys and shoes, are pretty thin already and they’ve been lobbying extensively not to revalue.” Yuan Forwards China halted the currency’s 21 percent, three-year advance against the dollar in July 2008 to help exporters weather recessions in the U.S., Europe and Japan. Twelve-month non- deliverable yuan forwards traded at 6.6649 per dollar as of 10:11 a.m. in Hong Kong, reflecting bets the currency will gain 2.4 percent from the spot rate of 6.8266 in the coming year. While Wen froze the exchange rate against the dollar, the yuan has continued to appreciate, rising 16 percent against the euro in six months as Greece’s debt crisis threatened to slow an economic recovery in the region that has become the biggest buyer of Chinese goods. The currency also strengthened 45 percent against the Vietnamese dong in the past five years. Gross domestic product per capita in China has risen to $6,600, compared with $4,000 in Indonesia and $2,900 in Vietnam, according to Central Intelligence Agency estimates. Guangzhou , the capital of China’s richest province Guangdong, raised its minimum wage 28 percent on May 1 to the equivalent of about $1 per hour, compared with $7.25 in the U.S. Seeking a Delay Sales at Lovely Creations, which has surveyed sites in Vietnam and Indonesia in case it is forced to move, dropped 16 percent in 2009, Toh said at last month’s Hong Kong Electronics Fair. Li & Fung, Hong Kong billionaire William Fung ’s trading company, said sales fell 6 percent last year, the first decline since the company went public in 1992. Runliu Willow Arts & Crafts Co., a fence maker in the eastern province of Shandong, said its revenue fell about 50 percent between 2007 and 2009. “We have to raise prices by 20 percent after raw-material costs quintupled and labor costs gained 5 percent this year,” Zhang Ranzhong, a manager at Runliu Willow, said last week at the Canton Fair in Guangzhou. “We hope yuan appreciation can be delayed until the autumn.” Global Expansion Runliu may join a tour for executives to seek investment opportunities in Southeast Asian nations organized by the government, which is encouraging global expansion, said Zhang. Haier’s decision to open factories around the world made it “less exposed to the negative impact of the yuan’s appreciation,” said Zhang Tieyan , director of global branding at the Shandong-based company. New Balance, the closely held Boston-based maker of athletic shoes, plans to find sub-contractors in Indonesia to augment four plants in China and one in Vietnam, Judith Mackay , Asia apparel and license compliance manager, said in a March interview. It’s among four global shoemakers close to reaching similar sourcing agreements, Eddy Widjanarko, head of the Indonesian Footwear Association, said in an April 30 interview. Treasury Secretary Timothy Geithner said April 23 in Washington that it is in China’s own interest to shift to a more flexible currency to help bolster domestic demand. Central bank governors in India and Brazil said on April 20 a stronger yuan is needed to rebalance the global economy. Benefits to China A stronger yuan benefits companies selling into China with costs in foreign currencies, Terry Ho , chief financial officer at Xtep International Holdings Ltd., a Hong Kong-listed sportswear maker part-owned by Washington-based Carlyle Group, said in an April 28 interview. Xtep sales may grow about 20 percent this year as it opens as many as 1,000 stores in China, he said. Manufacturers prefer to move factories inland because they can tap growing affluence in China, said Mark McCombe , chief executive officer for Hong Kong at HSBC Holdings Plc, Europe’s largest bank. Domestic consumption added 6.2 percentage points to China’s 11.9 percent growth in the first quarter from a year earlier, while net exports cut 1.2 points, according to the state statistics bureau. “Traditionally factory owners producing goods in China would look for the shortest, most-efficient supply route out of the country,” McCombe said in an April 27 interview. “Now they’re investing much more time and energy in researching internal supply chains.” Supply Chains The pace of the migration depends on the yuan’s appreciation, Danny Lau, chairman of the Hong Kong Small and Medium Enterprises Association, said in an April 30 interview. Hong Kong manufacturers in Guangdong’s Pearl River Delta fell to 50,000 from 70,000 in two years. About 20 percent of his group’s 800 members may move inland or abroad, he said. Lufeng Fu He Industrial Co., which makes wooden chairs and tables, will open a wood processing factory in Jiangxi province, west of its base in Guangdong, reducing costs by 10 percent, according to General Manager Xue Shuoxun. “I would jump off a building to kill myself if the yuan has a one-time revaluation,” he said at the Canton Fair. “It should be, as everyone has said, a 3 to 5 percent gradual appreciation by the end of this year.” — Bob Chen , Judy Chen , Lilian Karunungan , Patricia Lui , Frederik Balfour, Achmad Sukarsono . Editors: Sandy Hendry , James Regan To contact the Bloomberg news staff on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net ; Judy Chen in Shanghai at Xchen45@bloomberg.net .

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Brazil Bonds Offer `Safe Haven’ as Spread Drops Below Russia on EU Crisis

May 5, 2010

By Veronica Navarro Espinosa May 6 (Bloomberg) — Brazil’s benchmark borrowing costs slid below Russia’s for the first time this year as investors bet the South American country is less at risk of contagion from the Greek debt crisis than Eastern European nations. Brazilian dollar bonds yielded 2.18 percentage points more than U.S. Treasuries yesterday, compared with 2.19 percentage points for Russia, according to JPMorgan Chase & Co.’s EMBI+ index. Brazilian yields last were below those on Russian debt, which is rated one level higher by Standard & Poor’s and two by Moody’s Investors Service, on Dec. 21. “Brazil offers a safe haven for investors that are concerned about market volatility and contagion related to Greece,” David Bessey , who helps manage more than $10 billion of emerging-market debt at Prudential Financial in Newark, New Jersey. “It’s not obvious to me that the distortion couldn’t last for a long time given what’s going on in Eastern Europe.” Investors view Brazilian debt as safer than Russian bonds after S&P’s rating cuts of Greece, Portugal and Spain last week threatened to crimp growth in Europe. Russia’s gross domestic product will expand 4 percent this year, the Economy Ministry forecasts. Growth in Latin America’s biggest economy, by contrast, will surge to 6.1 percent this year, according to a central bank survey of analysts published this week.     It costs 0.43 percentage point more to protect Russian bonds against default for five years than Brazilian debt, the biggest gap since Feb. 26, according to data compiled by CMA DataVision. Russia is ranked BBB by S&P, the second-lowest investment grade level. Brazil is rated BBB-. The South American country’s swaps are also less expensive than Bahrain, which is rated A, or four levels higher, as well as South Africa, two steps higher. Brazil’s Domestic Demand Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. Russia’s bond yield spread over U.S. Treasuries widened 18 basis points, or 0.18 percentage point, yesterday while Brazil’s spread climbed 12 basis points. The yield premium on developing- nation debt overall swelled 15 basis points to 2.95 percentage points, the widest in two months. Brazilian bonds yielded 41 basis points more than Russian debt on April 20. While Brazil’s economic growth is driven by domestic demand, Russia is more dependent on exports to European countries, said Paul Biszko , an emerging-market analyst at RBC Capital Markets in Toronto. ‘Under Siege’ “The perception of risk has changed,” Biszko said. “These problems in Europe are sustainability problems, longer- term problems. Russia in terms of trade, financial linkages, is much closer to the euro zone than Brazil is.” Investors should buy Latin American currencies if concern about contagion from the Greek financial crisis continues to put Eastern Europe and its currencies “under siege,” Guillaume Tresca , an emerging-market strategist at Credit Agricole CIB in Paris, wrote in a note to clients yesterday. “Since the current issue is seen as a pure European debt problem, it should mean that Latin American countries are less affected,” Tresca wrote. The real dropped 1.7 percent to 1.7951 per dollar yesterday. The decline pared its rally over the past three months to 4.7 percent, the second-best performance among emerging-market currencies after the Malaysian ringgit. The Hungarian forint, Polish zloty and Czech koruna plunged more than 2 percent against the dollar yesterday, leaving each of them down at least 6 percent in the past three months. Brazil Elections The yield on Brazil’s overnight interest-rate futures contract due in January fell six basis points yesterday to 11.13 percent. Shareholders of Rossi Residencial SA , Brazil’s third- biggest homebuilder, approved the sale of as much as 500 million reais of bonds due May 2015, according to a regulatory filing. Brazil’s bonds may slump as the October vote to replace President Luiz Inacio Lula da Silva nears, RBC’s Biszko said. Former Cabinet Chief Dilma Rousseff and former Sao Paulo Governor Jose Serra are the main contenders in the race to succeed Lula, whose second term concludes at year-end. “What complicates Brazil is that you have elections coming,” Biszko said. “The market is priced for no noise and a very stable process. There could be some not necessarily market friendly comments coming from them as we get closer to the elections.” Bond Sales Delayed Brazil’s dollar debt returned 2.4 percent this year, beating the 2.2 percent gain in Russian bonds, according to JPMorgan. Emerging-market bonds overall are up 3.1 percent. Concern about the spreading of Greek debt crisis pushed the average yield on emerging-market bonds to 6.51 percent from a record low of 6.18 percent on April 15, persuading Czech Republic, Albania and Indonesia to delay planned debt sales. Russia sold $5.5 billion of bonds on April 22, its first international issue since defaulting in 1998. That sale has also caused the country’s debt to underperform by swelling the supply, Prudential’s Bessey said. The yield on the 5 percent bonds due in 2020 has jumped 47 basis points since the offering to 5.55 percent, according to Bloomberg data. “The heightened amount of supply has made a difference,” Bessey said. “Russia priced the deal without a lot of concession to investors.” To contact the reporters on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net

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Newcrest Agrees to Buy Lihir Gold After Increasing Offer to $8.8 Billion

May 4, 2010

By Rebecca Keenan and Elisabeth Berhmann May 4 (Bloomberg) — Newcrest Mining Ltd. agreed to buy Lihir Gold Ltd. after sweetening its cash and stock bid to A$9.2 billion ($8.5 billion) to create the world’s fifth-biggest producer of the metal. The bid values Port Moresby, Papua New Guinea-based Lihir’s shares at A$3.86 each, based on today’s closing price. Newcrest, based in Melbourne, raised the proportion of shares its paying for Lihir to 8.43 from 9 last month, the companies said today in a joint statement. Buying Lihir will give Newcrest Chief Executive Officer Ian Smith mines in Papua New Guinea, Australia and Africa and boost sales by more than half. Gold has risen for six quarters, marking its longest rally since 1979 as investors purchased the metal as an alternative to holding currency. “The merged entity will be a very large company by Australian standards and a very large gold company globally,” said Prasad Patkar , who helps manage A$1.9 billion and holds Lihir shares at Platypus Asset Management Ltd. in Sydney. “Unequivocally it’s a good deal.” Newcrest , Australia’s biggest gold company, closed down 4.3 percent on the Australian stock exchange at A$30.69, amid concern a new tax will cut earnings. Lihir rose 3.3 percent to A$3.79. Lihir has gained 25 percent since the day before Newcrest’s takeover offer was announced. Lihir rejected the April 1 offer, saying it was inadequate. The deal has helped the combined value of takeovers announced this year in Australia in the energy and mining industries reach about $27 billion, according to Bloomberg data. That’s the busiest start since the same period in 2008. Hold Talks Lihir, the second-largest gold mining company on the exchange, can continue to hold talks with other potential suitors until June 8, the companies said. Lihir appointed Macquarie Capital Advisers and Greenhill Caliburn to help study alternatives to the Newcrest offer, the company said April 23. Talks with other groups are “at various stages” and the company is providing information on its finances to “all of them,” Lihir Chairman Ross Garnaut said during a conference call with reporters. He declined to name the groups. Newcrest is advised by Lazard Ltd. and Merrill Lynch, a Bank of America Corp. unit. “The increase in the offer as well as the ability to continue to see if another interested party arises certainly addresses the issue the board was concerned about when Newcrest proposed an inferior offer before Easter,” Lihir CEO Graeme Hunt said in an interview with Bloomberg TV. Other Bidders? Newmont Mining Corp. may have held talks with Lihir, the Australian Financial Review reported April 19, without saying where it got the information. Newmont and Barrick Gold Corp. might be potential bidders, the report said. “The combined entity would be on the radar for other major gold miners ,” Platypus’s Patkar said today. “It’s only a matter of time.” Newmont, the largest U.S. gold producer, and BHP Billiton Ltd. are among mining companies that may make takeovers this year as higher metal prices buoy finances, Citigroup Inc. said last month. Global mining companies may have $91.3 billion of surplus cash, after paying dividends and capital expenditure, by 2012, according to the broker. Barrick, the world’s largest gold producer, is targeting output of between 7.6 million ounces and 8 million ounces this year, it said Feb. 19. ‘Super Tax’ Lihir has hired an independent expert to report on the bid and consider the possible effect of the proposed “super tax” on mining companies in Australia. Treasurer Wayne Swan said May 2 that the government plans to impose a 40 percent tax on resource profits starting in 2012. The proposal may cut Citigroup Inc.’s valuation of Newcrest by 20 percent, the broker said after the tax was announced. The effect on Newcrest will be limited, CEO Smith said. “The worst case scenario, it has an overall net present value effect on us of about 5 percent,” he said, adding that the tax will likely be watered down before being passed into law. Newcrest will cut its reliance on earnings from Australia to 52 percent from 75 percent under the proposed deal. Lihir, which has more than 97 percent of its production outside Australia, will be unaffected by the new tax, Goldman Sachs JBWere Pty said yesterday in a report. Newcrest’s Smith last year outlined a five-year plan to boost output 40 percent from its mines in Indonesia and Australia. It approved last month the A$1.91 billion expansion of its Cadia Valley operation in New South Wales and said the company’s full-year production may be at the lower end of its 1.81 million to 1.91 million ounce forecast. Cost Savings The combined group would have sales of A$3.9 billion and production of 2.8 million ounces a year, it said, based on 2009 figures. It also would have the world’s fourth-biggest gold equivalent reserves. Output will rise to 3.75 million ounces by 2014, it said. The takeover aims to deliver pretax cost savings of A$85 million a year, Newcrest said. Newcrest is offering to pay 19 times earnings before interest, tax, depreciation and amortization, compared with the median multiple of 24 times for 10 gold mining industry deals complied by Bloomberg data. Lihir is trading at 25 times future earnings, compared with 24 times for Newcrest. New CEO Lihir last month named Hunt, a former senior executive at BHP as CEO, replacing Arthur Hood who resigned in January after his contract wasn’t renewed. Hood led the acquisition of Ballarat Goldfields NL in 2006, which resulted in the company booking $413 million of one-time charges. The Ballarat mine was sold in March for A$4.5 million. Gold for immediate delivery traded at $1,178.63 an ounce at 5:50 p.m. Sydney time, near a five-month high, as sovereign debt risks in Europe and volatile currencies led investors to the safety of bullion. Newcrest is offering one of its shares for every 8.43 Lihir shares plus 22.5 cents, less any first-half dividend, the companies said in the statement. That compares with the earlier offer of one Newcrest share for every 9 Lihir shares held plus 22.5 cents. It had made an initial proposal of one of its shares for every 9.5 Lihir shares on Feb. 15, Lihir said April 1. Lihir is targeting a 40 percent gain in average output to 1.45 million ounces from 2012 to 2016. Last year it produced 1.124 million ounces from its mines in Australia, Papua New Guinea and the Ivory Coast in West Africa. Its biggest asset is the Lihir mine in Papua New Guinea, the world’s fourth-biggest by reserves, according to Southern Cross Equities Ltd. To contact the reporters on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net ; Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

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Newcrest Agrees to Buy Lihir Gold for About $8.8 Billion in Cash, Stock

May 3, 2010

By Rebecca Keenan and Elisabeth Berhmann May 4 (Bloomberg) — Newcrest Mining Ltd. agreed to buy Lihir Gold Ltd. after raising its bid to A$9.5 billion ($8.8 billion) to create the world’s fifth-biggest producer of the metal with 10 mines in five nations. The bid values Port Moresby, Papua New Guinea-based Lihir’s shares at A$4.03 each, 6.4 percent more than Newcrest’s offer last month, the companies said today in a joint statement. Buying Lihir will give Newcrest Chief Executive Officer Ian Smith mines in Papua New Guinea, Australia and Africa and boost sales by more than half. Gold has risen for six quarters, marking its longest rally since 1979 as investors purchased the metal as an alternative to holding currency. “The merged entity will be a very large company by Australian standards and a very large gold company globally,” said Prasad Patkar , who helps manage A$1.9 billion at Platypus Asset Management Ltd. in Sydney. “Unequivocally it’s a good deal.” Shares in Newcrest, Australia’s biggest gold company, fell 3.1 percent to A$32.06 yesterday on the Australian stock exchange. Lihir shares declined 3.7 percent to close yesterday at A$3.67. Lihir rejected the April 1 offer, saying it was inadequate. The shares resume trading at 11 a.m. Sydney time. The deal has helped the combined value of takeovers announced this year in Australia in the energy and mining industries reach $27.3 billion, according to Bloomberg data. That’s the busiest start since the same period in 2008. Hold Talks Lihir, the second-largest gold mining company on the exchange, can continue to hold talks with other potential suitors until June 8, the companies said. Lihir appointed Macquarie Capital Advisers and Greenhill Caliburn to help study alternatives to the Newcrest offer, the company said April 23. Newmont Mining Corp. may have held talks with Lihir, the Australian Financial Review reported April 19, without saying where it got the information. Newmont and Barrick Gold Corp. might be potential bidders, the report said. “The combined entity would be on the radar for other major gold miners. It’s only a matter of time,” Platypus’s Patkar said today. “There’s not a lot of success drilling at the moment for large mining companies generally, but mainly gold companies, so the only way to grow their business is through the mergers and acquisitions route.” Newmont, the largest U.S. gold producer, and BHP Billiton Ltd. are among mining companies that may make acquisitions this year as higher metal prices buoy finances, Citigroup Inc. said last month. Mining companies may have $91.3 billion of surplus cash, after paying dividends and capital expenditure, by 2012, according to the broker. 5-Year Plan Newcrest’s Smith last year outlined a five-year plan to boost output 40 percent from its mines in Indonesia and Australia. It approved last month the A$1.91 billion expansion of its Cadia Valley operation in New South Wales and said the company’s full-year production may be at the lower end of its 1.81 million to 1.91 million ounce forecast. The combined group would have sales of A$3.9 billion and production of 2.8 million ounces a year, it said, based on 2009 figures. It also would have the world’s fourth-biggest gold equivalent reserves. Production will rise to 3.75 million ounces by 2014, it said. “The portfolio of high quality operating mines and exciting growth opportunities will deliver long term, sustainable production growth,” Smith said in the statement. The takeover aims to deliver pretax cost savings of A$85 million a year, Newcrest said. Savings could be greater than that once its examined Lihir’s operations more closely, Smith said last month on a conference call. New CEO Lihir last month named Graeme Hunt , a former senior executive at BHP as chief executive officer, replacing Arthur Hood who resigned in January after his contract was not renewed. Hood led the acquisition of Ballarat Goldfields NL in 2006, which resulted in the company booking $413 million of one-time charges. The Ballarat mine was sold in March for A$4.5 million. Gold traded near a five-month high in Asia today as sovereign debt risks in Europe and volatile currencies led investors to the safety of bullion. Gold for immediate delivery rose $1.13 to $1,183.30 an ounce at 8:18 a.m. in Sydney Earlier Offer Newcrest is offering one of its shares for every 8.43 Lihir shares held, plus 22.5 cents, less any first-half dividend, the companies said in the statement. That compares with the earlier offer of one Newcrest share for every 9 Lihir shares held plus 22.5 cents. It had made an initial proposal of one of its shares for every 9.5 Lihir shares on Feb. 15, Lihir said April 1. Lihir shareholders can choose to either increase the number of shares or the amount of cash they receive. Newcrest has capped the cash offer at A$1 billion and the share offer at about 281 million shares. Lihir is targeting a 40 percent gain in average output to 1.45 million ounces from 2012 to 2016. Last year it produced 1.124 million ounces from its mines in Australia, Papua New Guinea and the Ivory Coast in West Africa. Its biggest asset is the Lihir mine in Papua New Guinea, the world’s fourth-biggest by reserves, according to Southern Cross Equities Ltd. Newcrest is advised by Lazard Ltd. and Merrill Lynch, a Bank of America Corp. unit. To contact the reporters on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

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Stocks, Copper Drop on China Loan Curbs, Mining Tax; Euro Falls

May 3, 2010

By James Regan and Shani Raja May 3 (Bloomberg) — Stocks fell, led by mining companies, and copper declined after China ordered banks to set aside more funds as reserves and Australia boosted taxes on commodities producers. The euro weakened as the $146 billion rescue plan for Greece failed to calm concerns about sovereign debt in Europe. The MSCI Asia Pacific excluding Japan Index slid 1.1 percent, with raw-materials and financials accounting for about half of the loss. BHP Billiton Ltd. dropped the most in three months and copper touched a seven-week low. The euro fell 0.5 percent to $1.3226 and Greek bonds advanced. The Dow Jones Euro Stoxx 600 was 0.2 percent lower as of 8:04 a.m. in London, while futures on the Standard & Poor’s 500 Index gained 0.4 percent. “The Greek rescue package hasn’t curbed speculation that more countries will require similar bailouts,” said Tim Schroeders , who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “The new Australian resources tax is an unwelcome burden and Chinese demand may cool.” While the bailout by the European Union and International Monetary Fund reduces the risk Greece will default, investors remain skittish after Standard & Poor’s downgraded the credit ratings of Portugal and Spain last week. China raised bank reserve ratios for the third time this year to cool speculative real estate purchases, while the Australian government imposed a 40 percent tax on resource companies’ profits. The MSCI Asia Pacific excluding Japan Index declined to 422.94, set for its lowest close since March, and a measure of raw-materials shares dropped 2.4 percent. With the exception of Indonesia, benchmark stock gauges fell across regional markets that were open for trading, led by a 1.2 percent slide in Hong Kong’s Hang Seng Index . Markets are closed today in Japan, China, Thailand and the Philippines. Higher Taxes BHP , the world’s biggest mining company, slumped 3 percent to A$39.53 and Rio Tinto Ltd. , the third-largest, tumbled 4.3 percent to A$69. Australia’s new tax will start from 2012 and raise A$12 billion ($11.1 billion) in its first two years. BHP estimates the tax rate on its Australian earnings will increase to 57 percent in 2013 from 43 percent now. “The mining tax is disappointing because the goal posts are being moved out by a greedy government, which is never good for future investment,” said Prasad Patkar , who helps oversee about $1.9 billion at Platypus Asset Management in Sydney. Lending Restrictions Industrial & Commercial Bank of China Ltd. , the world’s largest lender by market value, sank 1.6 percent to HK$5.68 and China Construction Bank Corp. fell 1.3 percent to HK$6.34. The reserve requirement for the nation’s biggest banks will increase by 50 basis points to 17 percent effective May 10, the People’s Bank of China said yesterday. Most of Asia’s emerging-market currencies weakened and copper declined on concern monetary tightening will damp expansion in the world’s third-largest economy. China, including Hong Kong, is the No. 1 export destination for Korea, Taiwan and Malaysia and the world’s biggest copper user. The won slid 0.9 percent to 1,118.40 per dollar and copper for July delivery dropped as much as 1.5 percent to $3.3050 per pound. The euro fell versus 12 of its 16 major counterparts before European leaders meet on May 7 to discuss the timeline of parliamentary approval for loans to Greece and as Germany plans to debate the plan on the same day. The yield on Greece’s benchmark two-year bonds dropped 169 basis points, or. 1.69 percentage points, to a one-week low of 11.88 percent. “It is still too early to conclude that the worst is over for the single currency,” said Philip Wee , senior currency economist at DBS Group Holdings Ltd. in Singapore. “The EU nations now need their parliaments to approve the aid, and markets remain skeptical over Greece’s resolve to implement tough reforms.” Rating Cuts Greece’s three-year financial lifeline requires the nation to cut its budget deficit below the European Union’s limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. The shortfall was 13.6 percent last year, the region’s second-biggest, after Ireland. Standard & Poor’s last week cut Greece’s credit rating to junk, lowered Spain by one level to AA and cut Portugal by two steps to A-. The downgrades helped drive the yield premium on Portugal’s 10-year bonds over similar-maturity German notes to the highest level since at least 1997 and that for Spain’s debt to the most since March 2009. “The euro will remain weak, and there’ll be more bailouts,” Marc Faber , publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong. “They’ll all default or they’ll all print money but the outcome won’t be pretty, that I assure you.” To contact the reporter for this story: James Regan in Hong Kong Jregan19@bloomberg.net ; Shani Raja in Sydney at sraja4@bloomberg.net .

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Greek Citizens `Should Not Fear’ Advice-Bearing IMF, Strauss-Kahn Says

April 24, 2010

By Flavia Krause-Jackson and Sandrine Rastello April 24 (Bloomberg) — International Monetary Fund Managing Director Dominique Strauss-Kahn said Greek citizens shouldn’t be afraid of a bailout. Unions and opposition political parties slammed Prime Minister George Papandreou ’s April 23 request for a European Union and IMF-led rescue plan. ADEDY, an Athens-based federation of the more than 500,000 Greek civil servants who have had wages cut this year, called it a “barbaric attack” and planned a rally for April 27. “The Greek citizens should not fear the IMF,” Strauss- Kahn said at a press conference in Washington, seeking to dispel concerns that a loan package with austerity measures will damage the country’s economy. “We are there to try and help them.” The IMF will provide details about the package at the end of talks, Strauss-Kahn said. Greeks aren’t the only people who have “demonized” the fund, he said. Strauss-Kahn’s efforts to paint the IMF as a benign savior come as Greek unions and voters are incensed at the prospect that the IMF and the EU will demand deeper cuts as a condition for aid. Papandreou said his country needs a financial lifeline of as much as 45 billion euros ($60 billion) this year. The IMF arranged more than $100 billion of loans to Thailand, Indonesia and South Korea after their currencies collapsed during the 1997-98 Asian financial crisis. In return, governments were forced to cut spending, raise interest rates and sell state-owned companies. Asia Crisis Critics said the policies deepened the Asian region’s recession, as higher borrowing costs hurt businesses and crimped domestic consumption. After Argentina defaulted on $95 billion in debt in 2001, former President Nestor Kirchner often blamed the IMF for demanding austerity measures that exacerbated the South American country’s crisis. Kirchner in 2005 mocked former IMF Managing Director Rodrigo de Rato for saying that Argentina should be “respectful” of its creditors. “It’s pathetic to listen to them sometimes,” Kirchner said at the time. The Greek government is negotiating loan terms likely to require it to do more to slash a budget gap that totaled 13.6 percent of gross domestic product in 2009, more than four times the European Union limit. Papandreou, elected six months ago, may have a tough time raising taxes again and cutting spending. He’s already faced street protests and strikes against measures that have failed to convince investors Greece can shore up its debt. Greeks fear the EU and IMF package, crafted to stem the country’s soaring borrowing costs, will mean lower pensions and benefits, more wage cuts and produce a deeper recession. Changed Lender Greece’s finance minister, George Papaconstantinou , arrived in Washington at 2 a.m. today and had meetings with Strauss- Kahn, European Central Bank President Jean-Claude Trichet and EU Economic and Monetary Affairs Commissioner Olli Rehn . He also met with U.S. Treasury Secretary Timothy F. Geithner , who urged European governments and the IMF to “move quickly” to support the cash-strapped nation. The fund has learned from previous aid packages and has changed, Strauss-Kahn said. “We learn from all our programs,” he said. “The IMF is a kind of a cooperative organization, where all the countries of the world work together to try to help those being in trouble,” Strauss-Kahn said. Youssef Boutros-Ghali , the Egyptian finance minister who chair’s the IMF’s steering committee, added: “If you can pass this message to the Greek people, it is a different institution” and should be given “the benefit of the doubt.” To contact the reporter on this story: Flavia Krause-Jackson in Washington at fjackson@bloomberg.net ; Sandrine Rastello in Washington at srastello@bloomberg.net

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Geithner Harnesses G-20 Behind Yuan Push as India, Brazil Raise Pressure

April 22, 2010

By Simon Kennedy April 23 (Bloomberg) — Group of 20 finance chiefs may intensify pressure on one of their own today as the U.S.-led campaign for China to revalue the yuan broadens from Washington to Mumbai and Brussels. Three weeks since U.S. Treasury Secretary Timothy F. Geithner called today’s G-20 talks in the U.S. capital an “avenue for advancing U.S. interests” on the Chinese currency, counterparts are rallying to his side. Central bankers in India and Brazil this week backed a stronger yuan as did the International Monetary Fund and European Union governments. Speculation the G-20 will press China for a revaluation, after the body ducked the topic of exchange rates in recent years, lifted yuan forwards to a three-month high yesterday. Whether the lobbying proves successful provides another test of the G-20’s ability to achieve results as splits over hedge fund rules and bank taxes fracture the united front its members formed in battling the global recession. “Given that Secretary Geithner has forestalled pressure for unilateral U.S. action by framing the China currency issue as a G-20 multilateral concern, it would be surprising if exchange rates were not discussed at some length,” said Daniel Price, former President George W. Bush ’s G-20 negotiator, who is now a partner at law firm Sidley Austin LLP in Washington. Daylong Talks G-20 finance chiefs including Geithner and European Central Bank President Jean-Claude Trichet begin a day of talks at 9:30 a.m. in Washington, with a statement and press conferences scheduled for about 5 p.m. It’s their first meeting since September’s decision by leaders to make the G-20 the premier forum for setting international economic policy. G-7 officials dined together last night without releasing a communiqué. After scrapping a peg to the dollar in July 2005, the Chinese government allowed the yuan to gain 21 percent before holding it at about 6.83 to the dollar since July 2008. While that aids its exporters, it has incurred criticism abroad for hurting foreign companies and fanning Chinese inflation. In delaying a twice-yearly report on whether China is manipulating its exchange rate, Geithner said April 3 that he aimed to use the G-20 meeting “to make material progress” at a time when U.S. lawmakers are threatening tariffs on the nation. Brazil’s Take Geithner is already finding supporters abroad. Brazil’s central bank President Henrique Meirelles said April 20 it’s “absolutely critical” that China let its currency appreciate. European officials will today seek an “effective real appreciation of the renminbi,” according to an EU draft document prepared for the G-20 talks. Finding backers “should be quite easy” for Geithner because less developed economies are suffering the most from China’s currency regime, said Harvard University professor Niall Ferguson . Reserve Bank of India Governor Duvvuri Subbarao said April 20 exports to India from China have grown faster than shipments in the other direction “and that obviously is a reflection of differences in the exchange-rate management.” “The principal losers from the weak renminbi are other emerging markets, not the U.S.,” said Ferguson, author of “The Ascent of Money: A Financial History of the World.” China may not hold out much longer, said Kevin Lai , an economist at Daiwa Capital Markets Hong Kong Ltd. The IMF said in an April 21 report that allowing the yuan to gain would help cool the country’s expansion, which the Washington-based lender expects to accelerate to 10 percent this year from 8.7 percent in 2009. Industry Support Chinese executives including Yang Yuanqing of Beijing-based computer maker Lenovo Group Ltd. and Qin Xiao of China Merchants Bank Co. said last month they favored a stronger yuan. “There is a consensus that an appreciation now works to China’s advantage,” Lai said. Bank of Israel Governor Stanley Fischer said in an interview in Washington yesterday that tempering “the threat of domestic overheating” was a reason to let the yuan rise. The G-20 avoided the topic of exchange rates after its leaders began regular meetings in November 2008 because of the need to first integrate China into the international policy- making fabric. That may now be changing as the recovery strengthens and authorities pledge policies that make the world less reliant on U.S. demand and Chinese savings. “One problem which had been extensively discussed before the crisis about the global imbalances has been a little forgotten during the crisis” and “are clearly coming back today with the recovery,” IMF Managing Director Dominique Strauss-Kahn said in a press conference yesterday. Slow Progress International lobbying may still take time to pay off. It took almost two years of G-7 pressure for China to loosen the yuan’s peg to the dollar in July 2005. In a sign some in China are still against allowing the yuan to gain, an industry ministry official, Zhu Hongren , yesterday said another global recession remains a risk and criticism of the yuan hurts the country’s trade outlook. “We expect China to wait a bit longer,” said Marc Chandler , global head of currency strategy at Brown Brothers Harriman & Co. in New York. Any currency dispute may not be the only schism at the Washington talks, which occur a year after G-20 leaders agreed to craft a $1.1 trillion plan to aid the world economy. While policy makers favor having banks cover more of the cost of future bailouts, an IMF recommendation that taxes be applied to non-deposit liabilities and the sum of profit and compensation has received a mixed reception. Divisions Although the U.K. and U.S. have welcomed the IMF’s ideas, Canadian Finance Minister Jim Flaherty said a levy may hurt banks and backfire by fueling risky behavior. Japanese Finance Minister Naoto Kan has noted “situations differ for each nation” and his country already has its Deposit Insurance Corp. Geithner has also been urging European leaders to reconsider their approach to tightening regulation over hedge funds. Europe’s proposed Alternative Investment Fund Management directive includes provisions to limit non-European funds’ access to the EU market. Differences also extend to how to raise the quantity and quality of capital at banks. “The risk, which is not only a risk but already materialized somewhat, is that different parts of the world will have their proposals, which all make sense when you’re looking at the interests and problems of the countries preparing these reforms, but which may be somewhat inconsistent,” Strauss-Kahn said yesterday. The G-20 accounts for about 85 percent of global gross domestic product. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., U.K. and EU. To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net

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Airspace Closure Was Exacerbated by Too Much Modeling, Too Little Research

April 22, 2010

By Steve Rothwell and Alex Morales April 22 (Bloomberg) — A shutdown of European airspace that cost carriers $1.7 billion following a volcanic eruption in Iceland was exacerbated by a lack of research into the effects of ash on jet engines and over-reliance on computer modeling. While the blast was unusually disruptive because of a rare mix of ice and molten rock, together with a wind direction that blew dust to Europe, flight bans would have been shorter with a better understanding of engine tolerances and cloud density. “This has highlighted a black hole in our understanding,” said David Macdonald , who manages the private-jet unit of London-charter company Air Partner Plc. “There needs to be some urgent research into what concentration of ash is permissible.” More than 100,000 flights were canceled following the April 14 eruption amid concern that glass-like particles formed when lava was cooled by ice might melt in aircraft engines and clog turbines. European transport ministers took five days to agree that airports could open with the dust still in the air. Carriers including London-based British Airways Plc said soon after the eruption of Iceland’s Eyjafjallajökull volcano that test flights had shown no damage to aircraft or engines. Governments initially resisted the calls for services to resume, citing advice from the International Civil Aviation Organization to bar planes from flying through any level of volcanic debris. They later ruled that operations were safe except where dust levels were at least 10 times the norm, as assessed by the U.K. Met Office’s Volcanic Ash Advisory Centre. Even then, the final decision was left to national air- traffic-control bodies, keeping airports including London Heathrow, Europe’s busiest, closed for an extra day. ‘Never an Issue’ “The rule saying you do not fly jets through volcanic ash was put in place years ago and had never really been an issue,” Jonathan Nicholson , a spokesman for Britain’s Civil Aviation Authority, said in a telephone interview. “ICAO had been looking at trying to implement a more realistic level for some years but there was no pressure to do so as they never had a volcanic ash incident over such a densely populated area.” Compounding the problem was a lack of data on the effects of the type of glassy dust produced by the Icelandic eruption, in which a vent opened under a glacier, causing explosions that blew ash 7 kilometers (4.3 miles) high as fire met ice. Lufthansa Probe Test flights performed by British Airways, Air France-KLM Group and others focused on detecting any impact from the ash, rather than analyzing air content, and only after the reopening of airspace was a probe deployed to measure the concentration and distribution of the plume. Results from the 1.6-ton research container — built by the Max Planck Institute and flown around Europe on a Deutsche Lufthansa AG Airbus SAS A340 jetliner — may be revealed today, spokesman Peter Schneckenleitner said. Neither were guidelines from engine manufacturers of immediate use, with analysis of the effects of ash not part of the process for winning safety approval for new powerplants. “With no engine-certification testing required for volcanic ash, no limits currently exist,” said Deborah Case , a spokeswoman for the aviation unit of Fairfield, Connecticut- based General Electric Co., the biggest maker of jet engines. While United Technologies Corp. ’s Pratt & Whitney unit reissued guidelines to airlines following the eruption, the advice concerned steps to be taken on encountering ash rather than on the levels in which an aircraft might safely operate. “With the amount of research into jet engines, you’d think somebody would have written a doctorate on the impact of ash,” Air Charter’s Macdonald said. “We need more research because at the moment it seems open to interpretation.” Projected Airflows Decisions on airspace closures were based largely on projected airflows from Met Office maps as interpreted by Brussels-based Eurocontrol, the body that coordinates flight paths across the region, rather than on actual readings. “Regulators need to better understand and measure the particle densities at different altitudes,” Paul Hayes , director of safety at aviation consultant Ascend, said in an interview. “Just how dense is the ash and does it pose any real threat to the safety of aircraft?” New rules for operations were eventually decided by national regulators in consultation with manufacturers. GE and other engine makers worked with the CAA to reach agreement on ash-tolerance levels after reviewing data from previous incidents and drawing on experience from areas prone to volcanic activity, such as Alaska, GE’s Case said in an interview. Right Response Governments acted “extremely correctly” given existing regulations, Helen Kearns , a spokeswoman for the European Commission, said today at a press briefing in Brussels. “There was a model that was internationally recognized, with international guidelines for the European area,” Kearns said. “It was applied absolutely as it should have been by member states, who quite rightly put safety first.” At the time of the eruption, winds over Iceland that normally blow toward northern Scandinavia were directed at Europe’s busiest airports in Britain, France, Germany and the Netherlands. “It’s the biggest concentration of the world’s busiest airports, and you had a pall of ash right across the region,” said Bill McGuire, professor of geophysical hazards at the Aon Benfield UCL Hazard Research Centre in London . “It’s far more disruptive than a single volcano erupting in Java, say, even if that might be a much bigger eruption.” New Direction Winds are still blowing from Iceland today, according to the U.K. Met Office. A southerly airstream will start to move in tomorrow and by the weekend the prevailing wind should direct any ash coming from the volcano away from Britain. “Nature produced a unique set of circumstances, where a volcano erupting on Iceland combined with a weather pattern that has changed very little for several days,” Met Office forecaster Sarah Holland said by telephone. In the last major Icelandic eruption in 2004 ash was blown over Svalbard, in the Arctic Ocean. That caused disruption to flights in northern Norway, “but they didn’t make headline news,” Halldor Bjoernsson, a meteorologist at the Icelandic Met Office, said in a phone interview from near Eyjafjallajökull. About 50 to 70 volcanoes erupt each year, according to the Global Volcanism Program at the Smithsonian Institution in Washington, though most don’t disrupt flights because they’re in parts of the world where services can be diverted around an ash cloud, according to McGuire at the Hazard Research Centre. No Fatalities Between 1953 and 2008 there have 89 incidents involving volcanic ash and some kind of damage to aircraft, ICAO spokesman Denis Chagnon said, with no recorded accidents or fatalities. The best-known incident was in 1982, when all four engines on a British Airways Boeing Co. 747 stalled when the plane encountered ash spewed from Mount Galunggung in Indonesia. The plane fell for almost four miles before the pilot was able to restart three engines and make an emergency landing in Jakarta. “Events in the Philippines and Indonesia are big ash- producing eruptions and are tens and hundreds of times bigger than the Iceland episode,” McGuire said. “So it’s not really the ash that’s the issue. It’s the fact that it’s right in the middle of the busiest air space in the world.” Almost all flights will operate today, minus a small number of cancellations because planes are out of position, according to Eurocontrol . About 5,500 services were canceled yesterday, 20 percent of the total. Plume Extent As of 6 a.m., one ash plume stretched from northern Canada across Greenland, Ireland and the U.K. to Norway and a portion of northwestern France, according to the Met Office. Another band was above parts of Sweden, Finland, Russia and Estonia. Two small patches of sky, off southern Iceland and west of Norway, contain ash concentrations that “exceed acceptable engine-manufacturer tolerance levels,” the forecaster said. Encounters with volcanic debris are ultimately too few and far between to justify the expense of ash-proofing planes, according to UTC’s Pratt & Whitney. “It would be cost prohibitive to develop an engine that would be completely immune to the effects of volcanic ash, and even if you could the entire aircraft would need to be equally immune,” Pratt said in a statement. “The best approach to maintain safety through a combination of avoidance and modified operating procedures designed to minimize the impact.” To contact the reporters on this story: Steve Rothwell in London at srothwell@bloomberg.net ; Alex Morales in London at amorales2@bloomberg.net

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AMP in `Box Seat’ for Axa Asia as Regulators Block NAB’s $12 Billion Offer

April 19, 2010

By Angus Whitley April 20 (Bloomberg) — AMP Ltd. , Australia’s second- largest asset manager, may bid again for Axa Asia Pacific Holdings Ltd. after regulators blocked a competing A$13.3 billion ($12.2 billion) offer from National Australia Bank Ltd. In a statement late yesterday, AMP said it “continues to believe it can put forward a proposal that is financially disciplined” after the Australian Competition & Consumer Commission opposed National Australia’s bid. AMP’s comment came more than five months after its first unsolicited offer was rejected by Axa Asia Pacific’s independent directors. The verdict vindicates AMP Chief Executive Officer Craig Dunn ’s decision to wait for the ruling before deciding whether to submit a fresh bid. With his rival stymied, Dunn may be able to win over Axa Asia Pacific’s board without raising the A$6.22 per share offer he made in December, according to Credit Suisse Group AG. “AMP is in the box seat now,” said Arjan van Veen , an analyst at Credit Suisse in Sydney with an “outperform” rating on AMP. “My gut feeling is AMP will keep the terms the same.” Axa Asia Pacific slipped 0.5 percent to A$6.34 in Sydney trading yesterday. National Australia Bank lost 1 percent and AMP fell 0.9 percent. The regulator’s statement came after the market closed. While the decision scuttled National Australia Bank CEO Cameron Clyne ’s plan to create the country’s biggest pension fund manager, shareholders may benefit: The stock has trailed those of rivals since the deal was announced in December. Investor Relief “It didn’t look particularly accretive and NAB has underperformed on the back of it,” said Brian Johnson , an analyst at CLSA Asia Pacific Markets in Sydney with an “underperform” rating on the stock. “The equity market will treat it with some relief.” National Australia Bank shares have added 0.5 percent since the offer was announced, compared with double-digit gains for the other five members of the S&P/ASX 200 Banks Index . The cost to buy protection against an AMP default climbed 3 basis points to 74 basis points after the ACCC’s decision was released, according to credit-default swap prices from Nomura Holdings Inc. That’s the biggest jump in almost a month, closing prices from CMA DataVision in New York show. Credit-default swaps on National Australia were little changed, according to Nomura. Credit-default swap prices rise when perceptions of credit quality deteriorate, and vice versa. Reviewing Plans National Australia Bank said it will review the ACCC decision in detail before making any further comment. Axa Asia Pacific said it is evaluating the decision, and noted that National Australia Bank can enter into further discussions with the ACCC about the proposal. “Under the terms of the executed transaction agreements, if NAB is not able to reach a satisfactory conclusion with the ACCC within six weeks, each of AXA APH, AXA SA or NAB can terminate the agreements between them in relation to the proposal,” Axa Asia Pacific said in a statement. For French insurer Axa SA , which owns 54 percent of Axa Asia Pacific, the regulator’s decision may delay its plans to take full control of its units in a region where wealth is growing at the world’s quickest rate. Both National Australia Bank and AMP planned to keep the Australian and New Zealand units of Axa Asia Pacific and sell the eight remaining Asian businesses to Axa SA. Emmanuel Touzeau , a Paris-based spokesman at Axa, didn’t immediately return calls and an e-mail seeking comment. Less Competition The regulator said it “found that a merger between NAB and Axa would result in a substantial lessening of competition in the market for retail investment platforms for investors with complex investment needs,” the regulator said in its statement. A merger with AMP wouldn’t have the same effect, it said. “We have always believed that a combined AMP-AXA AP group would provide an even stronger, non-bank competitor in financial services that Australian consumers deserve,” AMP’s Dunn said in the statement. AMP’s revised Dec. 14 offer, which was trumped by National Australia Bank three days later, involved paying 18.6 times estimated earnings for the Australian and New Zealand business of Axa Asia Pacific. AMP and France’s biggest insurer sweetened the cash portion in that offer, raising the bid to A$6.22 a share, 53 percent higher than the closing price before the original proposal a month earlier. Axa Asia Pacific handles Axa’s life-insurance and wealth- management businesses in the region. It has units in Hong Kong, China, Singapore, Indonesia, the Philippines, Thailand, India, Malaysia, Australia and New Zealand. The company employs more than 2,300 people in Australia and New Zealand, and about 1,900 in Asia. To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

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Prudential Has `Overwhelming’ Support for AIA Deal, Asia CEO Stowe Says

April 18, 2010

By Bei Hu and Kevin Crowley April 19 (Bloomberg) — Prudential Plc has “overwhelming” investor support for a $20 billion rights offering to finance the acquisition of American International Group Inc. ’s Asian life unit, the largest purchase in its 162-year history. “The investor feedback has been extremely positive,” said Barry Stowe , Hong Kong-based chief executive of Prudential Corporation Asia in an interview. “There’s a prospectus to be issued and a lot of conversations to be had. But I can tell you the support from shareholders has been overwhelming.” Prudential Chief Executive Officer Tidjane Thiam needs 75 percent of investors to support the rights offer to fund the $35.5 billion purchase of AIA Group Ltd. and will this month publish a prospectus which will include AIA’s accounts for the last three years. The insurer, currently traded in London, is planning a dual primary listing in Hong Kong giving Asian investors greater access to Prudential’s stock. Capital Research & Management Co., Prudential’s biggest investor, increased its holding in the insurer to 12.4 percent from 11.8 percent earlier this month, according to a regulatory filing. Legal & General Group Plc, the firm’s third-largest shareholder, last month reduced its stake to almost 4 percent from 4.5 percent. “We’re backing the rights issue as we want to stay in Prudential,” said Colin Mclean , who manages 650 million pounds ($1.01 billion) at SVM Asset Management in Edinburgh including Prudential shares. “A lot of investors think this deal is going to happen anyway, especially if Pru can get sovereign wealth funds in Asia to support it.” Mclean said he “remains skeptical” of the deal. “It’s an inexperience management team. They’re all new to their roles and paying a very high price.” 1+1=3 Among those showing support for the plan are Prudential’s largest shareholders as well as existing and potential investors in Asia, Stowe, 52, said an interview in Hong Kong on April 16. A wide variety of Asian investors, including sovereign wealth funds, have shown interest in buying into the company, whose Hong Kong stock exchange listing is expected before the rights issue, he added, declining to give more details. Spokesmen for Capital Research, BlackRock Inc., Legal & General and Norges Bank, Prudential’s biggest four investors, declined to comment. Investors have accepted the strategic rationale of the acquisition that would combine Prudential’s faster growing Asia business with AIA’s longer history and larger size, Stowe said. “Very rarely has been an opportunity in the marketplace to create a transaction where one plus one equals three.” Forty percent of global life-insurance premium growth will be in Asia in the next five years, consulting firm McKinsey & Co. estimated in a study. AIA Network AIA has 320,000 agents and about 23,500 employees in 15 Asian markets with 23 million customers, according to a March 1 statement. Prudential has life insurance and asset management operations in 13 Asian markets, where 410,000 agents and distribution partners serve more than 15 million customers, said a corporate brochure. The acquisition would raise Asia’s contribution to Prudential’s new business profit to 60 percent from 47 percent, Thiam told reporters on March 1. It would make Prudential a leader in Asian markets including Hong Kong, Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. The combined business would continue to seek Asia growth faster than the market average, Stowe said, without giving a number. Prudential’s profit from new business in Asia expanded 12 percent last year to 713 million pounds. AIA’s profit from new business slumped 41 percent to $570 million in 2009. Regulators “People that look at AIA in the context of their 2009 results probably get a misleading view of the organization,” Stowe said. “While all of us had to deal with the impact of the financial crisis, you have to remember AIG, and therefore AIA, was at the center of the financial crisis. They were uniquely impacted by it.” AIG agreed to sell the Asian life insurance unit with 20 million customers as part of asset sales to help it repay a $182.3 billion U.S. government bailout. The sale of AIA is the biggest AIG divestiture since the bailout in 2008. The U.K. insurer won’t make a decision on whether to sell part of its China operations until discussions with the China Insurance Regulatory Commission and Prudential’s Chinese partner Citic Group have ended, said Stowe. “There’s no market that’s more strategically important for the future than China,” Stowe said. “We’ve discussed with the regulator a number of different mechanisms that you could use in order to combine the operating businesses.” Foreign Insurers China’s regulator doesn’t allow foreign insurers to hold two life licenses in the country at the same time. AIG, founded in Shanghai in 1919, is the only foreign insurer allowed to run 100 percent owned life insurance operations in China. Other foreign players, including Prudential, are restricted to owning no more than half of their local life ventures with Chinese partners. Foreign-invested insurers accounted for a combined 5 percent of China’s total life insurance premiums last year, according to CIRC data . AIA’s local business, the largest foreign player, had a less than 1 percent market share, twice that of Citic Prudential Life Insurance Co . Regulators in Hong Kong, Taiwan, China and Singapore may also restrict AIG’s subsidiaries from paying dividends, the New York-based insurer said in its annual report in February. Thiam and Stowe went on a three-day whirlwind tour of Asia immediately following the deal’s announcement on March 1 to persuade regulators to back the acquisition before meeting investors, Stowe said. “The reaction from all the regulators has been extremely positive, extremely supportive,” Stowe said, adding the discussions were making progress with regulators taking pragmatic views. Prudential appointed Rob Devey to manage the integration of AIA on April 14. To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net ; Kevin Crowley in London at kcrowley1@bloomberg.net

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Steven Hill: Happy Tax Day: Are Americans getting our money’s worth?

April 15, 2010

Most Americans seem to regard April 15 — the day income tax returns are due to the Internal Revenue Service — as a recurring tragedy on the order of a Biblical plague. Particularly this year, with US government deficits soaring, everyone from the Teabaggers to Glenn Beck and Senate Republicans are reviving a scary Friday the 13th scenario from the 1990s about a return to Big Government. Recently Rudy Giuliani even stated that President Obama was moving us towards — gasp — European socialism. Europe frequently plays the punching bag role during these moments because there is a perception that the poor Europeans are overtaxed serfs. But a closer look reveals that this is a myth that prevents Americans from understanding the vast shortcomings of our own system. A few years ago, an American acquaintance of mine who lives in Sweden told me that, quite by chance, he and his Swedish wife were in New York City and ended up sharing a limousine to the theater district with a southern U.S. Senator and his wife. This senator, a conservative, anti-tax Democrat, asked my acquaintance about Sweden and swaggeringly commented about “all those taxes the Swedes pay.” To which this American replied, “The problem with Americans and their taxes is that we get nothing for them.” He then went on to tell the senator about the comprehensive level of services and benefits that Swedes receive. “If Americans knew what Swedes receive for their taxes, we would probably riot,” he told the senator. The rest of the ride to the theater district was unsurprisingly quiet. The fact is, in return for their taxes, Europeans are receiving a generous support system for families and individuals for which Americans must pay exorbitantly, out-of-pocket, if we are to receive it at all. That includes quality health care for every single person, the average cost of which is about half of what Americans pay, even as various studies show that Europeans achieve better health results. But that’s not all. In return for their taxes, Europeans also are receiving affordable child care, a decent retirement pension, free or inexpensive university education, job retraining, paid sick leave, paid parental leave, ample vacations, affordable housing, senior care, efficient mass transportation and more. In order to receive the same level of benefits as Europeans, most Americans fork out a ton of money in out-of-pocket payments, in addition to our taxes. For example, while 47 million Americans don’t have any health insurance at all, many who do are paying escalating premiums and deductibles. Indeed, Anthem Blue Cross announced that its premiums will increase by up to 40%. But Europeans receive health care in return for a modest amount deducted from their paychecks. Friends have told me they are saving nearly a hundred thousand dollars for their children’s college education, and most young Americans graduate with tens of thousands of dollars of debt. But European children attend for free or nearly so (depending on the country). Child care in the U.S. costs over $12,000 annually for a family with two children, but in Europe it cost about one-sixth that amount, and the quality is far superior. Millions of Americans are stuffing as much as possible into their IRAs and 401(k)s because Social Security provides only about half the retirement income needed. But the more generous European retirement system provides about 75-85 percent (depending on the country) of retirement income. Either way, you pay. Americans’ private spending on old-age care is nearly three times higher per capita than in Europe because Americans must self-finance a significant share of their own senior care. Sixty million American workers have no paid sick leave, millions more have no paid parental leave following a birth, and so must self-finance their own time off. But Europeans receive all this in exchange for their taxes. Income taxes in Europe are certainly high for some people, but the highest rates are paid only by those in the highest income brackets. Many middle class and low income Europeans don’t necessarily pay an income tax rate any higher than what many Americans pay. And Americans also tend to pay more in local and state taxes, as well as in property taxes. Americans also pay hidden taxes, such as $300 billion annually in federal tax breaks to businesses that provide health benefits to their employees. When you sum up the total balance sheet, it turns out that Americans pay out just as much as Europeans — but we receive a lot less for our money. Unfortunately these sorts of complexities are not calculated into simplistic analyses like Forbes’ annual Tax Misery Index, a “study” which shows European nations as the most tax miserable and the low-tax United States as happy as a clam — right down there on the list next to Indonesia, Malaysia and the Philippines. But Forbes only adds up income tax, social security, sales tax or VAT and a few other minor fees. A thorough analysis would need to create a ledger in which all the supports and services Europeans receive are listed on one side and the amount of taxes and any out-of-pocket expenses they pay are listed on the other; and then do a similar analysis for Americans, listing what Americans pay in taxes as well as out-of-pocket expenses for those same services. That kind of analysis is much more illuminating. In this economically competitive age, increasingly these kinds of supports and services are necessary to ensure healthy, happy and productive families and workers. Europeans have them but most Americans do not, unless you pay a ton out of pocket. Or unless you are a member of Congress, who of course provide European-level support for themselves and their families. That’s something to keep in mind on April 15. Happy Tax Day. Steven Hill is the author of the recently published Europe’s Promise: Why the European Way is the Best Hope in an Insecure Age and director of the Political Reform Program for the New America Foundation.

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Singapore Unexpectedly Revalues Currency on Growth

April 14, 2010

By Patricia Lui April 14 (Bloomberg) — Singapore unexpectedly revalued its currency, triggering the biggest gain in a year, after the government raised forecasts for economic growth and inflation. The Monetary Authority of Singapore said it will seek a “modest and gradual appreciation” in the local dollar and shift to a stronger range for currency fluctuations, the first such combined move in its 39-year history. The trade ministry said the $182 billion economy will expand as much as 9 percent in 2010, compared with a previous outlook of 6.5 percent, after the fastest growth since at least 1975 in the first quarter. Currencies across Asia rallied as investors bet governments will switch to fighting inflation from stimulating growth, after oil, copper and aluminum prices jumped more than 60 percent in the past year. The decision adds to signs that China, which will probably report its quickest expansion in three years tomorrow, is preparing to end the yuan’s 21-month-old peg to the dollar. “Singapore’s move might reflect policy makers’ belief that China is possibly close to moving on the yuan,” said Brian Jackson , an emerging-markets strategist at Royal Bank of Canada in Hong Kong. “It’s part of the broader trend across Asia that policy makers are moving toward a tighter stance as inflation is driven by stronger commodities prices.” Withdraw Stimulus Singapore’s dollar rose as much as 1.2 percent to S$1.3754 against the greenback, the strongest level since August 2008, according to data compiled by Bloomberg. It last traded at S$1.3763 as of 2:20 p.m. local time from S$1.3923 late in New York yesterday. The central bank for the nation of 4.8 million people guides the local dollar within an undisclosed band against a basket of currencies. It has climbed 2 percent this year, compared with a gain of 7 percent in the ringgit, 4.6 percent in India’s rupee and 4.2 percent for Indonesia’s rupiah. MAS, which uses the exchange rate rather than interest rates to conduct monetary policy, joins regional central banks in withdrawing monetary stimulus this year. China has twice ordered banks to raise the share of their assets held in reserve. India increased interest rates last month for the first time in almost two years. Australia’s central bank has boosted borrowing costs in five out of the past six meetings. “This opens up the rest of Asia to allow further appreciation of their currencies, with the Korean won, Malaysian ringgit, Indian rupee and Taiwan dollar to lead the charge,” said Bernard Yeung , Hong Kong-based head of currency trading for Asia at National Australia Bank Ltd. MAS Statement The MAS will “re-center the exchange-rate policy band at the prevailing level of the Singapore nominal effective exchange rate” and “shift the policy band from that of zero appreciation to one of modest and gradual appreciation,” according to a statement issued today following a semi-annual currency review. There will be no change to the width of the band. “Some of the double-barrel tightening may have been to pre-empt a renminbi appreciation,” Tim Condon , chief Asia economist in Singapore at ING Groep NV, the biggest Dutch financial-services company, wrote in a research report, referring to a denomination of the yuan. ING recently revised its target for the Singapore dollar to appreciate to S$1.35 in three months on the basis a yuan revaluation would trigger a one-off appreciation of near 3 percent in the Southeast Asian nation’s dollar. Royal Bank of Canada stuck with a prediction for the currency to advance to S$1.36 by year-end. ‘Hawkish Stance’ Penn Nee Chow , an economist at United Overseas Bank Ltd., Singapore’s second-largest lender by market value, was the only one of 13 economists who predicted today’s central bank move in a Bloomberg News survey. Five forecast the MAS would tighten by seeking a gradual appreciation in the currency over six months, while the rest expected no change. “It was a quite hawkish stance from the MAS,” said Chow. “According to our model, it looks to be a 0.6 percent appreciation of the Singapore dollar’s trade-weighted index.” Singapore’s economy expanded an annualized 32.1 percent in the first quarter from the previous three months, after shrinking 2.8 percent in the October-to-December period, the trade ministry said today in its preliminary estimate. That was faster than the 18.4 percent median estimate of economists in a separate Bloomberg survey. “We’ve just seen the realization that Singapore is a great place to do business,” said Donald Gimbel , senior managing director at New York-based Carret Asset Management LLC, in an interview with Bloomberg Television. “We will gradually be adding to our position” in Singapore stocks, favoring companies that are doing a lot of business in China, he said. ‘Behind the Curve’ Economists surveyed by Bloomberg estimated gross domestic product in China, the world’s fastest-growing major economy, increased 11.7 percent in the first quarter from a year earlier, compared with growth of 10.7 percent in the prior three months. That would be the fastest pace since the period ended June 2007. The benchmark Straits Times Index advanced to a 22-month high, up as much as 1.1 percent to 3,004.45. DBS Group Holdings Ltd ., Southeast Asia’s biggest lender, climbed as much as 4.2 percent. Neptune Orient Lines Ltd ., owner of Southeast Asia’s largest container line, surged as much as 7.7 percent. The government revised its inflation target for this year to between 2.5 percent and 3.5 percent, compared with an earlier projection of 2 percent to 3 percent. Consumer prices rose 1 percent in February from a year earlier, the fastest pace since March 2009, official data show. “Singapore’s GDP release represents the start of a series of strong Asian first-quarter numbers which will emphasize that central banks across the region have fallen significantly behind the curve,” said Robert Prior-Wandesforde , an economist at HSBC Holdings Plc in Singapore. With assistance by Lilian Karunungan , Haslinda Amin and Anna Kitanaka in Singapore, and Frances Yoon in Hong Kong. Editor: Simon Harvey , Sandy Hendry To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net

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Philippine Peso Leads Asian Currencies Higher as Greece Aid Boosts Demand

April 11, 2010

By Yumi Teso and Bob Chen April 12 (Bloomberg) — The Philippine peso and South Korea’s won led Asian currencies higher and reached levels last posted in mid-2008 on speculation aid to ease Greece’s debt burden will increase demand for emerging-market assets. The peso climbed to the highest level in 20 months against the dollar and the Indonesian rupiah advanced past 9,000 for the first time since July 2007 as a gauge of regional shares extended the month’s gain. The won climbed to its strongest in more than 18 months after the Bank of Korea raised this year’s gross domestic product forecast for the nation. The Thai baht was little changed after a weekend of political violence in the capital Bangkok. “Details of a large support package for Greece would reduce the likelihood of a Greek default, boosting values of equities and currencies for the region,” said Dariusz Kowalczyk , chief investment strategist for SJS Markets Ltd. in Hong Kong. The peso climbed 0.5 percent to 44.722 per dollar as of 11:35 a.m. in Manila and touched 44.685, the highest level since August 2008, according to Tullett Prebon Plc. The won appreciated 0.4 percent to 1,113.95 in Seoul and reached 1,111.38, the strongest since September the same year, according to data compiled by Bloomberg. European governments offered Greece aid worth as much as 45 billion euros ($61.3 billion) at below-market interest rates to try and end its fiscal crisis, sending the MSCI Asia-Pacific Index of shares to levels last reached in September 2008. Indonesia’s Jakarta Composite Index traded near a record high. Korea’s economy will expand 5.2 percent in 2010 compared with a December forecast for growth of 4.6 percent, the Bank of Korea said in Seoul today. GDP increased 1.6 percent in the first three months of the year from the previous quarter and 7.5 percent from a year earlier, according to the central bank’s preliminary estimate. Thailand Clashes “If South Korea’s GDP is strong in the first quarter that may convince the government a loose monetary policy is no longer needed,” said Kowalczyk. The baht rose to its strongest level since May 2008 on speculation a rescue package for Greece will offset concern investors will pull funds from the country amid the escalating violence. The currency retreated as the benchmark share index plunged and was little changed from the end of last week. Clashes between Thai protesters and troops left as many as 21 people dead over the weekend. About 858 people were injured in the deadliest political clash in the country in 18 years, according to the government. “The baht is under pressure to fall in the short term because of the political unrest,” said Daisuke Uno , chief strategist in Tokyo at Sumitomo Mitsui Banking Corp. “However, the selling pressure is not strong enough to offset upward momentum for Asian currencies on the Greece story. Thailand has a history of social unrest, but the baht has been resilient.” Stocks Investment The baht was at 32.26 per dollar from 32.25 on April 9 and touched 32.14, the highest level since May 29, 2008, according to data compiled by Bloomberg. The currency may trade between 32.20 and 32.50 this week, Uno said. Nine of Asia’s 10 most-active currencies excluding the yen gained this year as a regional economic recovery encouraged overseas investors to buy local assets. South Korea has received fund inflows of $8.1 billion this year, compared with $2.6 billion for Taiwan’s equities and $1.4 billion for Thailand. Global funds bought $209 million more Philippine stocks than they sold and $455 million more in Indonesia, according to exchange data. Taiwan’s dollar advanced to the strongest level in 19 months on speculation the central bank will allow faster gains to help temper inflation. Taiwan Inflation Consumer prices climbed for a third month in March, after increasing at the quickest pace in 16 months in February, a statistics bureau report showed last week. Central bank Governor Perng Fai-nan denied on March 25 that he “manipulated” foreign-exchange rates and said excessive fluctuations in the currency were unfavorable for economic and financial stability. “Taiwan dollar’s appreciation can help lower inflation pressure from imported commodities,” said Eric Hsing , a fixed- income trader at First Securities Inc. in Taipei. “The central bank isn’t going to change the trend for the Taiwan dollar to rise, only make its moves smaller.” The local currency rose 0.4 percent to NT$31.502 against the greenback and reached NT$31.485, the highest level since Sept. 1, 2008, according to Taipei Forex Inc. Elsewhere in the region, the Indonesian rupiah gained 0.3 percent to 8,998 and the Malaysian ringgit advanced 0.1 percent to 3.1885, according to data compiled by Bloomberg. The Vietnamese dong climbed 0.1 percent to 19,030 while the Chinese yuan was little changed at 6.8248. To contact the reporter on this story: Yumi Teso in Bangkok at at yteso1@bloomberg.net ; Bob Chen in Hong Kong at bchen45@bloomberg.net

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Thai `Perfect Storm’ May Drive Investors to Bonds From Stocks

April 9, 2010

By Katrina Nicholas April 9 (Bloomberg) — A “perfect storm” is gathering in Thailand, as once surging stocks threaten to drop, boosting record corporate bond sales that are withstanding the political turmoil, according to Standard Chartered Plc. There have been 48 company debt sales in Thailand this year, more than double the same period last year and the most since Bloomberg began compiling data in 1999. Borrowers including Thai developer Sansiri Pcl and restaurant chain owner Central Plaza Hotel Pcl are tapping the market for the first time in almost 12 months as real estate tax breaks spur new developments and consumer spending increases. “There’s a perfect storm brewing right now with a stock market that’s been rising and people just waiting for a correction,” said Ratch Sodsatit, head of Standard Chartered’s Thai capital markets unit in Bangkok. Investors seeking to avoid volatility will “shift their focus” to bonds, which offer higher returns than cash, he said. Thailand’s stock market fell the most in almost six months yesterday after the government declared a state of emergency in Bangkok on April 7 because of political protests by the United Front for Democracy Against Dictatorship. The SET Index slid 3.5 percent to close at 783.93, erasing gains that have made it Asia’s best-performing benchmark since round-the-clock political rallies began on March 12. Sodsatit said he expects the index to fall back to 650 from 800 levels. Economic Growth Thai property and consumer companies have more than doubled bond sales to $796 million this year, according to Bloomberg data, capitalizing on an economy that is growing faster than expected, even with the protests. The Finance Ministry raised its economic growth forecast for 2010 to as much as 5 percent on March 29 after the $261 billion economy contracted 2.3 percent in 2009. The government agreed to extend tax incentives on home purchases for two months on March 23, boosting the business plans of companies such as luxury condominium specialist Sansiri, which said it will start 26 residential projects this year, up from an initial 20. Bangkok-based Sansiri , the country’s second-biggest housing developer by revenue, doubled its bonds outstanding when it sold 1 billion baht ($30.9 million) of 3.5-year notes in February. Domestic investors, jaded by bank deposit rates as low as 0.5 percent, are the most active buyers of corporate debt in Thailand and aren’t fazed by the political situation, Australia & New Zealand Banking Group Ltd. debt syndicate director Winston Herrera said. Numb to Turmoil “This political turmoil has been ongoing for a while and people are numb to it,” Herrera said in a phone interview from Hong Kong. “Compared to some of the political situations which have occurred in Indonesia and the Philippines, this looks pretty tame.” Central Plaza Hotel Pcl, whose portfolio includes Bangkok’s Central Grand Plaza Hotel and local rights to restaurant chains Baskin-Robbins and Kentucky Fried Chicken, expects revenue to grow 15 percent this year as the economy recovers, Senior Vice President Ronnachit Mahattanapreut said last month. It tapped the debt capital markets for the first time since July in February, selling 1 billion baht of 3.5-year bonds whose yield over similar-maturity Thai government debt has narrowed 3 basis points from a high of 64 basis points. Best Performers Thai dollar bonds are Southeast Asia’s best performers this year, returning 8.35 percent compared with nearest rival Vietnam at 4.98 percent, according to HSBC Holdings Plc indexes. The extra spread over Treasuries investors demand to own Thai bonds has fallen to the lowest since November 2007, JPMorgan Chase & Co. data show. “The spread rally has been significant and today we’re seeing spreads the lowest they’ve been in some time,” Sodsatit said. “We’ll see a period of consolidation at these levels.” PTT Pcl , Thailand’s biggest energy company and one of the country’s most prolific bond issuers, sold 6.6 billion baht of bonds this year in two tranches of 2.6 billion baht and 4 billion baht, Bloomberg data show. The yield on both fell to their lowest ever yesterday as the notes’ price rose to 100.494 cents on the dollar and 100.337 cents on the dollar respectively. To contact the reporter on this story: Katrina Nicholas in Singapore on knicholas2@bloomberg.net

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Indonesia Stock `Bubble’ Spurs Central Bank to Consider Capital Controls

April 7, 2010

By Aloysius Unditu April 8 (Bloomberg) — Indonesia’s stocks are in a bubble and officials are prepared to put controls on capital inflows if needed to maintain financial stability, the head of the central bank’s economic research and monetary policy division said. “The actual stock price now is actually exceeding the fundamental value,” Perry Warjiyo , who was a member of the International Monetary Fund’s executive board before taking his current post in July 2009, said in an interview in Jakarta. “Whatever methodology we use” shows an excess valuation, he said, citing Bank Indonesia studies over recent months. Indonesia’s experience is echoed across emerging markets that are benefiting from international capital flows shunning slow-growing advanced economies. Brazil imposed limits on foreign funds last year, while central banks from China to India have ordered their banks to hold more of their assets in reserve, and India and Malaysia have raised interest rates. The Jakarta Composite index climbed to a record yesterday, closing at 2,898.58, and is the best performer among 20 Asia- Pacific benchmarks monitored by Bloomberg over the past 12 months, with a 143 percent return in U.S. dollar terms. The JCI has climbed about 14 percent this year on anticipation of accelerating economic growth and after Standard & Poor’s upgraded the nation’s sovereign debt ratings. Equities Study “There is a bubble going on,” Warjiyo said in the interview in his office yesterday. Bank Indonesia’s analysis shows the peak of the overvaluation was in July, with part of the deceleration owing to improved economic fundamentals, he said. The market has a “tendency of self-correction but we are” continuing to monitor it, he said. Policy makers are also sensitive to risks of any reversal of capital flows, which could be triggered by a burst bubble, the central bank official said. Bank Indonesia board members last year discussed the risks posed by an influx of foreign funds, and the bank studied the feasibility of imposing capital controls, Warjiyo said. For now, the bank is “confident” Indonesia can cope. Should they be applied, any capital controls would be “temporary,” he said. Brazil’s government imposed a 2 percent tax on foreigners’ stock and bond purchases in October to stem the capital flows that helped send the real to a 34 percent gain against the dollar until that date last year. Since then the real has weakened 2.7 percent. China’s Strategy In China, policy makers are aiming to restrain speculation in the property market, and the central bank has twice ordered banks to raise the ratio of assets held in reserve. Foreign investors are snapping up Indonesia’s stocks and bonds. They bought a net 4.9 trillion rupiah ($541 million) of shares in March after selling 1.6 trillion rupiah in the first two months of this year, according to data from the Jakarta stock exchange. Foreign holdings of Indonesian bonds rose to 133.7 trillion rupiah as of April 6, up from 108 trillion rupiah at the end 2009, according to Finance Ministry data. The central bank’s assessment is in conflict with some fund managers. “Valuations are probably fairly priced,” Raymond Gin , chief investment officer at PT Manulife Asset Management in Jakarta, said in a Bloomberg Television interview March 25. Shares aren’t “expensive” after recent gains, he said. Companies may beat profit estimates, prompting Manulife to stay “overweight” on banks and carmakers, Gin said. The fund manager oversees about $2.3 billion in Indonesia. PT Bank Mandiri , Indonesia’s biggest lender by assets, and auto seller PT Astra International , the largest firm by market value on the Indonesian Stock Exchange, are among stocks Gin said he likes. Economy’s Lure Investors are lured by signs of accelerating growth in Southeast Asia’s largest economy. Gross domestic product rose 5.4 percent in the final quarter of 2009, and the central bank anticipates the expansion will pick up to as fast as 6 percent this year and between 6 percent and 6.5 percent in 2011. “Our macroeconomic conditions are still solid and that’s been driving foreign buying,” Soni Wibowo , vice president of PT Bahana TCW Investment Management, which manages about $1.7 billion in assets, said last month. The rupiah has risen 3.7 percent this year, making it one of the top three gainers among the 10 most actively traded currencies in Asia. It’s been No. 1 for the past 12 months, surging about 26 percent against the dollar. The central bank considers the exchange rate in its monetary policy deliberations, Warjiyo said, including how it’s affecting the financial industry, liquidity and the risk of nonperforming loans. “We are not targeting the exchange rate but we are managing the volatility to smooth out any, you know, irrational volatility,” Warjiyo said. Bank Indonesia is also reviewing the application of reserve requirements for the nation’s lenders, he said. Currently, banks are required to place 5 percent of their deposits at the central bank and set aside 2.5 percent in the form of expanded cash or bonds. Warjiyo said officials are considering linking the reserve amounts to firms’ loan-to-deposit ratios. To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@blomberg.net

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U.S., European Stocks, Commodities Drop; Greek Bonds Slump on Default Risk

April 7, 2010

By Michael P. Regan and Whitney Kisling April 7 (Bloomberg) — U.S. and European stocks fell, led by energy producers as oil dropped, while the premium investors demand to hold Greek bonds widened to the most since 1998 on speculation the nation may default. Equities pared losses and Treasuries rallied as an auction of 10-year notes drew a yield of 3.9 percent. The Standard & Poor’s 500 Index fell 0.1 percent at 1:09 p.m. in New York, retreating from the highest level since September 2008. The MSCI World Index of 23 developed nations’ stocks slipped less than 0.1 percent. Oil dropped from an 18- month high on a bigger-than-forecast increase in inventories. Greece’s 10-year bond yields rose 0.19 percentage point to 7.18 percent and the yield premium to German debt widened to 4.06 percentage points, the most since before the euro was introduced in 1999. Greece is more likely to default than all the European Union’s members in eastern Europe, including three that needed International Monetary Fund-led bailouts, credit default swaps show. Investors may demand a yield of as much as 7.25 percent to buy Greek 10-year dollar-denominated bonds, according to Paris- based Axa Investment Managers, which oversees about $669 billion. “This issue with Greece is still hanging out there,” said Michael Mullaney , who helps manage $9 billion at Fiduciary Trust Co. in Boston. “The debt crisis that’s happening right now in Euroland is causing some consternation with investors.” S&P 500 energy companies snapped a seven-day stretch of gains, falling 0.6 percent as a group. Occidental Petroleum Corp. lost 1.7 percent and Exxon Mobil Corp. slipped 0.7 percent. The S&P 500 retreated from its highest level in 18 months as a 76 percent rally since March 2009 spurred concern equities have risen too far, too fast. ‘Short-Term Losses’ More than three-quarters of stocks in the S&P 500 were “overbought” as of the April 5 close, according to Bespoke Investment Group LLC, which identified shares that are at least one standard deviation above their 50-day moving average. That reading is the highest since the bull market began in March 2009 and indicates equities may see “short-term losses,” Harrison, New York-based Bespoke said in a note to clients. Crude oil slid 0.6 percent to $86.28 a barrel in New York trading. U.S. supplies rose 1.98 million barrels to 356.2 million in the week ended April 2, the Energy Department said today in a weekly report. Inventories were forecast to climb by 1.35 million barrels, according to the median of 14 analyst estimates in a Bloomberg News survey. The euro weakened 0.3 percent against the dollar, trading near its lowest level in almost two weeks, after a report showed the economy of the 16 nations sharing the currency failed to grow in the fourth quarter. The euro fell against 12 of 16 major counterparts. Dollar Greek Bonds Greece’s government plans to start marketing dollar- denominated bonds to U.S. investors this month. Credit-default swaps on five-year debt from Latvia, whose BB foreign-currency rating at S&P is four levels below investment-grade Greek debt, dropped below Greek default swaps yesterday. Greece is now more likely to default than all the EU’s eastern members, two of which are junk rated, CDS markets indicate. Latvia, Hungary and Romania needed IMF-led bailouts at the height of the global crisis to avert defaults. A technical team from the IMF is in Athens today, though the Greek government maintains there is no need for an international loan. Greek bonds declined yesterday on concern an EU-led rescue package may falter. “A default may be ultimately unavoidable,” said Stephen Jen , managing director at BlueGold Capital Management LLP. “It’s an increasingly difficult proposition for the creditors to expect full repayment.” The Stoxx Europe 600 Index slipped 0.3 percent as basic resources companies dropped. Declines were limited as Allied Irish Banks Plc surged 14 percent in Dublin after Royal Bank of Scotland Group Plc recommended buying the shares. Emerging Markets Emerging-market stocks bucked the trend, rising for a ninth day for their longest rally since October. The MSCI Emerging Markets Index increased 0.4 percent and has rallied 5.4 percent since March 25. The Taiwan dollar led gains in higher-yielding currencies, rising 0.3 percent against the U.S. currency, after the Federal Reserve indicated yesterday that U.S. interest rates will stay near record lows. Yuan forwards advanced on speculation China will let its currency appreciate. Fed minutes showed the U.S. is likely to keep rates on hold, nurturing the recovery in the world’s biggest economy, at the same time as Treasury Secretary Timothy F. Geithner prods China to revalue the yuan. Policy makers are considering allowing the yuan to trade against the ruble, the South Korean won and the Malaysian ringgit, according to an official at the China Foreign Exchange Trade System, as the nation diversifies its foreign reserves from the dollar. Among emerging markets, Pakistan’s Karachi 100 Index climbed 1 percent while Indonesia’s Jakarta Composite Index and the Stock Exchange of Thailand Index added 0.6 percent. The MSCI Asia Pacific Index rose 0.8 percent for a fifth day of gains, its longest winning streak since July, as the Bank of Japan said the recovery in the world’s second-largest economy is intact and Malaysia’s Prime Minister Najib Razak said growth may exceed forecasts this year. Mitsubishi UFJ Financial Group Inc. gained 2.7 percent in Tokyo. To contact the reporters for this story: Michael P. Regan in New York at mregan12@bloomberg.net ; Whitney Kisling in New York at wkisling@bloomberg.net .

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Vietnam Lures Intel, Samsung as Asean Group Woos Companies Away From China

April 7, 2010

By Daniel Ten Kate April 7 (Bloomberg) — Vietnam hosts Southeast Asian leaders this week as chair of their 10-nation bloc, shining a spotlight on the political and economic stability that prompted Intel Corp. and Toyota Motor Corp. to increase investments. The communist nation drew 13.5 percent of the Association of Southeast Asian Nations’ foreign direct investment pool in 2008, up from 4.4 percent two years earlier, according to the 10-member group. And its allure may be rising, judging from a December survey by the American Chamber of Commerce in Shanghai. Vietnam is a preferred destination for businesses looking to relocate from China, Asia’s biggest investment recipient, the report said. “A lot of companies from a strategic standpoint are looking at how to set up a production facility within Asean,” said James Lockett, a Hanoi-based lawyer with Baker & McKenzie LLP and a board member of the American Chamber of Commerce in Vietnam. “In a lot of product areas, Vietnam looks very, very attractive for people who are doing that.” Vietnam’s economy expanded 5.2 percent last year, the most in Asean, which has signed free-trade accords with China, Japan, South Korea, Australia and New Zealand. The deals give companies access to those countries and the Asean member states of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Asean is home to about 600 million people and its populations are among Asia’s youngest. Asean leaders meeting April 8-9 in Hanoi will issue a statement on climate change and define a “road map” to form an economic community modeled on the European Union by 2015. In March, Asean trade ministers said they would travel to the U.S. to promote the group as an economic hub. Obama Visit The region’s growing economic importance was underscored when President Barack Obama became the first U.S. leader to meet formally with the bloc in November. Santa Clara, California-based Intel, the world’s biggest chipmaker, is scheduled to open a $1 billion testing facility in Ho Chi Minh City this year that will employ about 4,000 people. Intel chose Vietnam because of its proximity to customers, reliable power and water supply and skilled workers, said Nick Jacobs , Intel’s regional spokesman. “Vietnam is a country which is very committed to education, and that gives us confidence we will continue to attract the talent we need for long-term success,” he said. Toyota produced 28,000 vehicles in Vietnam last year, up from 18,000 in 2007, spokesman Paul Nolasco said. The Toyota City, Japan-based company had 1,300 employees in Vietnam, more than double the number in 2005, he said. ‘Potential Growth’ “Toyota recognizes not only the potential growth of that market but the potential role the Vietnamese economy can make in broader Southeast Asia,” Nolasco said. Toyota produced more than 6 million vehicles globally in 2009. Suwon, South Korea-based Samsung Electronics Co., the world’s second-biggest maker of mobile phones, opened a $1 billion factory in Vietnam six months ago. Redmond, Washington- based Microsoft Corp. outsources digital animation and modeling for its computer games to Vietnam. While Vietnam’s one-party state and its jailing of more than a dozen democracy activists since October have drawn criticism from groups like Human Rights Watch, some regard it as a model of stability. They contrast it with Thailand, where demonstrators have shut airports and blocked streets in sometimes violent political protests. ‘Political Stability’ “There is a measure of political stability” in Vietnam, Rodolfo Severino , Asean’s former secretary-general, said by phone from Singapore. “If I were an investor I would bet my money on it.” The number of foreign companies in China with plans to relocate plants inland or outside the country because of rising costs doubled last year, according to a survey of 202 foreign manufacturers by the American chamber. The poll found 8 percent of respondents reported plans to relocate or expand outside of China compared with 28 percent considering moves to lower-cost areas in southwest or central China. In the short term, Vietnam’s inflation rate, among the world’s highest, caused the country to fall last year in the World Economic Forum’s Global Competitiveness Report . Consumer prices rose 9.46 percent in March, the biggest gain in a year. Fitch Ratings placed Vietnam’s debt rating on a negative watch last month. Vietnam “has been making positive structural changes to increase its investment attractiveness,” Prakriti Sofat, a Singapore-based economist for Barclays Capital, wrote in a report last month. Rising Yuan Banks such as Goldman Sachs Group Inc. predict China will allow its currency to appreciate amid pressure from U.S. lawmakers, reducing its attractiveness to exporters. The yuan will rise to 6.66 per dollar by the end of September, New York- based Goldman said in an April 1 research note. While some CEOs in China have called for a stronger yuan, its rise would trim profit margins of exporters and push textile and furniture makers into bankruptcy, Zhang Wei , vice chairman of the China Council for the Promotion of International Trade based in Beijing, said March 18. Vietnam’s dong has fallen 7 percent against the dollar in the past year. To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

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