malaysia

Healthscope Receives Buyout Proposal Valuing Company at About $1.6 Billion

May 13, 2010

By Sarah McDonald May 14 (Bloomberg) — Healthscope Ltd. , Australia’s second- largest hospital owner, received a buyout proposal from a private equity group valuing the company at about A$1.74 billion ($1.56 billion). The group offered A$5.50 a share for all of Healthscope’s stock, the Melbourne-based company said in a regulatory filing, without naming the bidder. The offer is 22 percent higher than yesterday’s closing share price. The proposal is “indicative and non-binding”, and Healthscope’s board recommends shareholders take no action at this stage, according to the statement. Healthscope, which operates 43 private hospitals and a pathology business with facilities in Australia, New Zealand, Singapore and Malaysia, missed analyst estimates when it posted net income of A$45 million in the six months ended Dec. 31. Its shares have risen 13 percent in the past 12 months, compared with a 25 percent gain for the benchmark S&P/ASX 200 Index . To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net .

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Shell, BG, ConocoPhillips May Favor Merging Australian Gas Projects on Tax

May 12, 2010

By James Paton May 13 (Bloomberg) — Australia’s proposed resource tax may prompt Royal Dutch Shell Plc , ConocoPhillips, BG Group Plc and Santos Ltd. to merge as much as $70 billion of gas projects targeting fuel shipments to China, Japan and South Korea. The government’s 40 percent tax on profits, starting in 2012, may reduce returns from the ventures that will tap coal- seam gas in Queensland for export as liquefied natural gas. That will make them less viable on their own, said Nik Burns , an analyst at RBS Morgans in Melbourne. “It certainly increases the likelihood of consolidation, given that it reduces the rate of return for all of these projects,” he said in a phone interview. “You have to extract as much cost savings as possible.” BHP Billiton Ltd., the world’s largest mining company, Rio Tinto Group and Xstrata Plc are reviewing Australian projects after the government announced the tax plan on May 2. Santos and Origin Energy Ltd., ConocoPhillips ’ partner in one of four proposed Queensland LNG ventures, have said they may delay investment decisions. The most likely scenario is Santos combining its LNG project with the venture proposed by Shell and PetroChina Co., Burns said. Origin and ConocoPhillips may also merge their development with BG’s venture, he said. “Ideally, all of these projects now would come together in a single mega-project,” said Burns, who correctly forecast in February that Shell may bid for Arrow Energy Ltd. “That would lead to the most cost savings and from a workforce perspective in particular would make most economic sense.” Link to Bonds Returns from the ventures exceeding the rate on long-term Australian government bonds, currently less than 6 percent, would be taxed as “super profits” under the proposal, analysts said. LNG projects based on gas from offshore fields are already covered by Australia’s 23-year-old petroleum resource rent tax . Gas producers in Queensland had based their projects on the assumption that they would pay 10 percent royalties levied on production, Gordon Ramsay , an analyst at UBS AG in Melbourne, said in a May 7 report. Under the government proposal announced May 2, they would be subject to the 40 percent tax on super profits, while the government would refund the royalties. The corporate tax rate would fall to 28 percent from 30 percent. The tax is an “unnecessary and risky” step at a time when the Queensland LNG projects are advancing toward the approval stage, Santos said May 6. Santos still expects to make a decision this year to go ahead with the project. Malaysian Partner Australia’s third-largest oil and gas producer owns 60 percent of the Gladstone LNG venture, while Malaysia’s Petroliam Nasional Bhd., or Petronas, owns the remaining 40 percent. Origin said last week the tax may delay the development of its Australia Pacific LNG timeline and boost costs. The coal-seam gas ventures have signaled they are willing to work together. Origin and ConocoPhillips agreed this year to sell gas to BG’s project. ConocoPhillips is open to collaboration, James Mulva , chief executive officer of the third-largest U.S. oil company, said April 29. Once the developers have a better grasp of the tax, they may discuss consolidation to reduce risks, including sharing gas pipelines, said Di Brookman , an analyst at CLSA Asia-Pacific Markets in Sydney. “If it takes a significant amount of value off the table I think you’ll see increased probability that outcome could occur,” Brookman said by phone. “We all know when things get harder people are more likely to sit down and talk.” ‘Add Value’ If all four projects were to proceed, they may cost A$80 billion, according to an estimate from Burns of RBS Morgans. BG will “pursue opportunities to add value provided they do not compromise our ability to deliver” a project with two LNG processing units, said Mark Todd, a spokesman for the company’s Australian subsidiary based in Brisbane. Jeremy Milne, a spokesman for Santos, said the Adelaide- based company remains focused on progressing its own project with two production units. Phil Connole , a spokesman for Shell in Melbourne, declined to comment. Paul Turner, a spokesman for the Origin project in Brisbane, didn’t immediately return a call. Sales to Asia will underpin Queensland’s LNG industry, even if the tax eats into profits, said John Young, an oil and gas analyst at Wilson HTM Investment Group in Melbourne. “The tax doesn’t change Asian demand — that will continue.” PetroChina and Shell agreed in March to acquire Australian coal-seam gas producer Arrow for A$3.5 billion. China National Offshore Oil Corp. signed Australia’s biggest LNG deal the same month, agreeing to buy 20 years of fuel supplies from BG’s venture. Shell may not be done making deals in Australia because the quality of Arrow’s gas holdings may fall short of underpinning a large LNG venture, Aiden Bradley , an analyst for Goldman Sachs JBWere in Sydney, said in a May 10 report. “We view the Arrow acquisition as only the first step for Shell/PetroChina,” he wrote. To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net .

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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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Inflation Fears May Slow Malaysia Government Subsidy Cuts, Economists Say

May 9, 2010

By Barry Porter May 10 (Bloomberg) — Malaysia may cut subsidies slowly to prevent triggering record inflation as it prepares to revamp a system that’s hampered efforts to reduce the budget deficit, Standard Chartered Plc and Citigroup Inc. said. A taskforce is exploring ways to revamp the government’s entire portfolio of subsidies that keep the cost of essential items from flour to highway tolls low for consumers. An attempt to reduce the amount the state pays to cap fuel prices caused inflation to surge to a 26-year high in 2008 as gasoline became more expensive. The government will learn from past experience and ensure its subsidy cuts will be a “very tempered, gradual process,” Alvin Liew , an economist at Standard Chartered in Singapore, said May 7. “They still have time on their hands. It’s not a Greek situation where they need a bailout, not yet anyway.” Malaysia spends about 73 billion ringgit ($22 billion) a year on subsidies, Prime Minister Najib Razak said on April 6, calling the amount “not sustainable.” The government, which has said it is considering a global bond sale, aims to narrow its budget deficit to 5.6 percent of gross domestic product this year from a 22-year high of 7 percent in 2009. Concerns the European debt crisis will spread sparked a global stock rout last week even as Greece’s parliament approved austerity measures demanded by the European Union and International Monetary Fund as a condition of its 110 billion euro ($139 billion) bailout. Bond Sales In Asia, nations from Vietnam to the Philippines sold sovereign debt earlier this year as the region leads a global economic recovery. Malaysia may sell 10-year dollar denominated bonds in June, according to a finance ministry official with knowledge of the plan. Faster growth will help the government cut its budget shortfall as revenue rises, state news agency Bernama cited Deputy Finance Minister Awang Adek Hussin as saying last week. Malaysia pays suppliers to keep many consumer goods below their true market values. The decades-old system, aimed at helping the poor, has also benefited the rich and encouraged smuggling to neighboring countries where prices are higher. Sugar supplies ran short last year as profiteers took the sweetener across the border into Thailand, where it fetched double the price. The government taskforce led by Idris Jala , a former Malaysian Airline System Bhd. managing director, is seeking feedback on how to revamp subsidies so that only the poor get help. Jala is now a minister in Najib’s office. Greater Impact Malaysia’s consumer price index, which has averaged 2.8 percent over the past four years, jumped to 8.5 percent in July and August of 2008 after the government raised retail fuel prices by as much as 63 percent in a bid to trim its subsidy bill as global crude oil prices soared. “If just raising fuel prices affected inflation so much, can you imagine the impact this time?” Suhaimi Ilias , an economist at Maybank Investment Bank Bhd., said in a telephone interview. “I think the impact would be even greater. There must be an increase in income so people can cope.” The government will tread cautiously and stagger its subsidy reforms, said Kit Wei Zheng , an economist at Citigroup in Singapore. Bank Negara Malaysia, which was among the first central banks in Asia to raise interest rates this year, may not need to respond aggressively to any inflationary pressure as a result of the revamp, he said. “Their policy reaction is front-loaded, so they may not need to react so much” to inflation, Kit said in a telephone interview. Rate Decision The central bank next meets to discuss monetary policy this week, and will announce its decision on May 13. It increased its overnight policy rate to 2.25 percent from a record-low 2 percent in March after Southeast Asia’s third-largest economy emerged from a recession in the last quarter of 2009. The inflation rate rose to 1.3 percent in March. Food prices climbed 1.7 percent after the government scrapped its subsidy on white bread and raised its cap on sugar prices in January. The central bank raised the country’s 2010 growth forecast on March 24, predicting GDP will expand 4.5 percent to 5.5 percent. While faster growth should boost tax collection as company profits climb, the government has postponed a plan to introduce a goods and services levy. It also delayed a revamp of the fuel subsidy system from May to later this year. “I’m worried for the government,” said Standard Chartered’s Liew. “Having such a huge amount of subsidies takes such a toll on its fiscal position and will not be sustainable in the long run.” To contact the reporter on this story: Barry Porter in Kuala Lumpur at bporter10@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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Deutsche Bank steps up activities in Malaysia

May 3, 2010

Deutsche Bank steps up activities in Malaysia

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Stocks, Copper Drop on China Loan Curbs, Australia 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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China’s investment in Malaysia’s Terengganu province

April 25, 2010

China’s investment in Malaysia’s Terengganu province

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Asia Stocks Decline, Yen Gains on Concern Over Obama Financial Reform Plan

April 21, 2010

By Will McSheehy and Yoshiaki Nohara April 22 (Bloomberg) — Asian stocks dived and the yen rose on concern U.S. plans to increase oversight of financial companies and force separation of derivatives trading from other businesses may crimp earnings. The MSCI Asia Pacific Index declined 1.1 percent to 125.71 as of 12:10 p.m. in Tokyo. The yen advanced against all 16 major counterparts, gaining to 124.13 per euro in the Japanese capital from 124.77 in New York yesterday. President Barack Obama will say today that new financial- industry regulations are needed to protect the U.S. economy from “risky decisions” on Wall Street, according to spokesman Robert Gibbs . The speech comes after a Senate panel approved draft legislation yesterday that would force lenders to separate swaps trading from commercial bank operations. The Securities and Exchange Commission said last week that it’s suing Goldman Sachs Group Inc. for fraud linked to derivatives transactions. “The markets are wary over what Obama may say about new financial-industry regulations” said Yuji Saito , director of the foreign-exchange department at Credit Agricole CIB in Tokyo. “The mood is leaning toward risk aversion.” Japan’s Nikkei 225 Stock Average sank 1.9 percent, erasing yesterday’s 1.7 percent advance, and South Korea’s Kospi index 1 percent. An index of financial companies on the MSCI Asia Pacific Index sank 1.3 percent, contributing the most to the broader gauge’s decline. Mitsubishi UFJ Financial Group Inc ., Japan’s biggest bank, lost 1.6 percent to 506 yen. In Sydney, Westpac Banking Corp. dropped 1.8 percent to A$27.68. Property Loans China’s Shanghai Composite Index fell 0.9 percent, led by banks and developers, on concern government measures to curb government property loans will damp earnings growth. Developer China Vanke Co. dropped 1.1 percent. “Investors are worried about a worst-case scenario for banks and property companies on the government’s crackdown,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. Some banks in Beijing are requiring down payments equal to 60 percent of a property’s value for loans to buy third homes, the 21st Century Business Herald reported today, citing an Agricultural Bank of China official it didn’t identify. Asian currencies declined, led by South Korea’s won, as investor aversion to risk increased. The won fell 0.4 percent to 1,112.45 per dollar, while Malaysia’s ringgit weakened 0.3 percent to 3.2080. Bond Risk The cost of protecting Asia-Pacific bonds from non-payment increased, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan climbed 3 basis points to 96.5 basis points in Singapore, Barclays Plc prices show. The Markit iTraxx Japan index added 1.5 basis points to 92 in Tokyo, the highest level since April 9, according to Morgan Stanley and CMA DataVision. Crude oil fell for a second day, declining 0.4 percent to $83.36 a barrel in New York after a U.S. Energy Department report showed inventories climbed by 1.89 million barrels. Analysts polled in a Bloomberg survey had forecast a 750,000- barrel drop. “We’re yet to see a substantial recovery in the U.S. oil market fundamentals,” said Toby Hassall , a commodity analyst at CWA Global Markets Pty. in Sydney. “The market reacted to the DOE numbers, which were pretty soft across the board.” Copper for July delivery in New York dropped 0.8 percent to $3.53 per pound, while the metal for three-month delivery on the London Metal Exchange was little changed at $7,754 per metric ton. Rubber for September delivery in Tokyo tumbled 3.5 percent to 314 yen per kilogram. To contact the reporters on this story: Will McSheehy in Sydney at wmcsheehy@bloomberg.net Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net ;

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Reserve Bank Says Australian Mining Boom Prompted `Prudent’ Rate Increase

April 19, 2010

By Jacob Greber April 20 (Bloomberg) — Concern that Australia’s mining boom will stoke inflation was a key reason the central bank raised borrowing costs toward “more normal levels” two weeks ago and signaled further moves in 2010, policy makers said. “On the question of timing, the fact that the prospective rise in the terms of trade was now likely to be noticeably stronger than had been expected was a factor suggesting that it might be prudent not to delay adjustment,” central bank officials said in minutes released today in Sydney of their April 6 meeting. Governor Glenn Stevens has led the world in raising borrowing costs, after boosting the overnight cash rate target this month by a quarter percentage point to 4.25 percent, the fifth move in six meetings. The bank is signaling further increases in borrowing costs as the economy’s expansion accelerates, spurred by this year’s 50 percent jump in the spot price for iron ore from shippers including BHP Billiton Ltd. “Further tightening will be needed over the remainder of the year,” said Ben Dinte , an economist at Macquarie Group Ltd. in Sydney. “A key indicator of the need to tighten beyond this neutral setting in 2011 will be when the RBA starts talking about above-trend growth.” Given the central bank’s forecast that domestic growth will be “around trend” this year, “the level of interest rates in the economy would be expected to be close to average,” the minutes said. ‘Rise Further’ “Since lending rates were still a little below average, members expected that they would probably need to rise further in the period ahead,” they added. The Australian dollar rose to 92.66 U.S. cents at 12:23 p.m. in Sydney from 92.56 cents before the minutes were released. The two-year government bond yield rose 2 basis points to 4.95 percent. A basis point is 0.01 percentage point. Traders are betting there is a 26 percent chance of a quarter-point rate increase when the central bank next meets on May 4, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 12:20 p.m. Prior to the minutes, expectations stood at 21 percent. There is also a 92 percent chance of an increase by early July. Stevens is among officials in the Asia-Pacific region tightening monetary policy this year. Singapore’s central bank, which uses its currency as its main monetary-policy tool, said April 14 it will undertake a one-time revaluation of the local dollar, while Malaysia and India have boosted borrowing costs. Chinese Moves Australia’s policy makers also “noted the significant discussion during the month about the possibility that the Chinese authorities might soon allow some appreciation of the renminbi against the U.S. dollar,” today’s minutes said. By contrast, central banks in Europe, the U.K., and U.S. have left borrowing costs close to or at record lows. While economic recovery in the major advanced economies was “still tentative,” growth in Australia’s biggest trading partners in Asia, led by China, “was proceeding strongly,” the Reserve Bank of Australia’s minutes said. “This was feeding through into significant increases in the prices of resources commodities, including increases in contract prices for coal and iron ore, which were larger than had been expected a few months ago,” policy makers said. Fortescue Metals Group Ltd. , Australia’s third largest producer of iron ore, said today that third-quarter shipments jumped 53 percent amid increased demand from steel mills in China. Iron Ore The price of ore with an iron content of 62 percent delivered to China climbed to $179.4 a ton yesterday from $119.1 at the start of the year, according to The Steel Index . Reports published since the April 6 meeting show consumer confidence held close to its highest level in almost three years this month, and business sentiment held last month close to its highest level in almost eight years as companies reported a surge in forward orders and plans to hire extra workers. Gross domestic product grew in the fourth quarter at the fastest pace in almost two years, rising 0.9 percent from the previous three months. The economy expanded 2.7 percent from a year earlier. The central bank predicts a surge in business investment this year as resources companies expand projects, including the Chevron Corp.-led Gorgon liquefied natural gas venture in Western Australia. ‘Pose Challenges’ “Members noted that, while the Australian economy was benefiting significantly from developments in the resources sector, these would also pose challenges,” the minutes said, without being more specific. Employment has climbed around 200,000 since August, led by hiring in mining and financial services, potentially worsening a skills shortage that may fuel wage gains. Australia’s unemployment rate is 5.3 percent, almost half the level of the U.S. and Europe, where the jobless rates are 9.7 percent and 10 percent respectively. A gauge published last week of Australian consumers’ expectations about future inflation rose to its highest level in 18 months. Households surveyed this month expect consumer prices to climb 4.1 percent over the next 12 months, compared with 3.2 percent predicted the previous month, the Melbourne Institute said. The central bank, which said today it expects inflation to be around 2.5 percent this year, aims to keep annual consumer- price gains between 2 percent and 3 percent on average. Today’s minutes also said the nation’s housing market appeared to remain “buoyant.” “Population growth was strong, households had confidence about future income growth and mortgage rates were at below- average levels,” officials said. “At the same time, the supply of new housing was not expanding sufficiently.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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India May Increase Rates for Second Time in Month to Bring Down Inflation

April 18, 2010

By Cherian Thomas April 19 (Bloomberg) — India’s central bank may raise interest rates for the second time in a month to tame the fastest inflation among Group of 20 nations. The Reserve Bank of India will probably increase the reverse repurchase rate to 3.75 percent from 3.5 percent and the repurchase rate to 5.25 percent from 5 percent, according to the median forecast of 25 economists in a Bloomberg News Survey. The announcement is due at 11:15 a.m. in Mumbai tomorrow. Governor Duvvuri Subbarao ’s struggle against inflation exposes the roadblocks in the Indian economy — inadequate capacity in power, roads and ports that drive up prices. In China, where infrastructure spending is double that of India, the fastest growth in almost three years in the first quarter came with a slowdown in inflation, complicating the decision in the country on when to raise interest rates. “Domestic demand pressures are building in the Indian economy without a commensurate increase in capacity creation,” said Chetan Ahya , a regional economist at Morgan Stanley in Singapore. “That coupled with a rise in global commodity prices is resulting in a spike in non-food inflation.” Consumer prices paid by industrial workers in India rose 14.9 percent in February from a year earlier. The nation’s wholesale-price inflation rate held at a 17-month high of 9.9 percent in March. India’s $1.2 trillion economy may grow 7.5 percent in 2010, the fastest pace after China among the major economies, according to the World Bank. Subbarao on March 19 raised interest rates by a quarter-point for the first time in almost two years. Poor Roads The Reserve Bank may also increase the cash reserve ratio , or the proportion of deposits that lenders need to set aside as reserves, to 6 percent from 5.75 percent, according to the Bloomberg survey. Nine of 25 economists surveyed forecast a half-point increase in the reverse repurchase rate. India produces about 10 percent less electricity than it needs, while roads, which account for 65 percent of the nation’s cargo, are plagued by single lanes and irregular surfaces, boosting companies’ costs, according to government estimates. Infrastructure spending accounts for just 4 percent of India’s gross domestic product compared with 9 percent of GDP in China, according to CLSA Asia-Pacific Markets. The Planning Commission of India estimated last month the country needs to more than double spending on infrastructure to $1 trillion in the five years to March 2017. Oil Prices Increasing costs for commodities such as oil, which India imports to meet three-quarters of its needs, are also spurring price pressures. Crude oil prices have surged 70 percent in the past year. Wal-Mart Stores Inc. , the world’s largest retailer, said last week India’s inflation would slow by at least two percentage points if the government agreed to allow foreign investment in retail. Wal-Mart, Carrefour SA and Tesco Plc are betting that their supply chain network and sourcing ability will allow them to remove middle men and sell products directly to consumers in India at lower prices. Local laws, aimed at protecting small shop owners, let global companies operate only wholesale stores that sell groceries and goods to retailers and businesses.     An increase in the cost of Indian interest-rate swaps signaled investors are using the derivatives to guard against an increase in borrowing costs. One-year swap rates have added 12 basis points in the past two weeks, the most in such a period since December. The rate, a fixed payment made to receive floating rates, touched a two-month high of 5.13 percent on April 15. Stronger Currency The yield for benchmark 10-year Indian government bonds has added 47 basis points this year to 8.06 percent on the inflation outlook. The central bank has allowed the rupee to appreciate to make imports cheaper and fight inflation. The currency has gained 4.4 percent since Jan. 1 against the U.S. dollar. “India has the highest inflation of any of the economies currently around Asia,” said Timothy Moe , Goldman Sachs Group Inc. chief Asian strategist. “The economy we felt was most in need of raising rates.” Consumer prices in China rose 2.4 percent in March, less than economists expected. India, Australia and Malaysia have already raised borrowing costs, while Singapore last week announced it will allow its currency — the city-state’s principal monetary tool — to strengthen, as Asia Pacific economies recovered from the worst recession since World War II. ‘Cost Pressures’ Prices may rise further in India as the Purchasing Managers’ Index, released by HSBC Group Plc and Markit Economics, was 57.8 in March, indicating growing consumer demand. A reading above 50 indicates a gain in factory production. HSBC economist Robert Prior-Wandesforde said the most “attention-grabbing” aspect of the March factory index data was the surge in input prices, which suggests that companies are facing “sizeable and mounting cost pressures.” Toyota Motor Corp. ’s Indian unit on April 1 raised prices of its Corolla, Innova and Fortuner vehicles to offset rising input costs, while Indian Oil Corp. , the nation’s second-largest refiner, increased jet fuel prices. To contact the reporter on this story: Cherian Thomas in Bangalore at Cthomas1@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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Islamic Debt Default Warning Prompts Restructuring by Malaysian Expressway

April 15, 2010

By Soraya Permatasari April 16 (Bloomberg) — Malaysia’s Senai-Desaru Expressway Bhd. plans to restructure 1.46 billion ringgit ($456 million) of Shariah-compliant bonds to avoid becoming the country’s biggest Islamic-debt defaulter in more than two years. The toll-road operator may seek to reschedule repayments or refinance, Chief Executive Officer Mustaza Salim said in an interview yesterday in Kuala Lumpur. RAM Holdings Bhd., one of two credit-rating agencies in Malaysia, last week cut the company’s long-term rating to C1 from AA3, citing a “high likelihood of default” when its first principal payment falls due in December 2011. The reorganization seeks to avoid the country’s biggest sukuk failure since a 2 billion-ringgit default by Sistem- Lingkaran Lebuhraya Kajang Sdn. in August 2007, the rating company’s data shows. RAM’s report said traffic on the highway, which opened in Malaysia’s southern state of Johor in October 2009, is less than 10 percent of what was projected. “Their traffic volumes are low due to delays in the completion of the highway,” which undermines the company’s ability to generate cash, said Yean Ni Ven , a RAM analyst based in Kuala Lumpur. Senai-Desaru will present an initial restructuring proposal to bondholders this month with a final plan to be ready by the end of May, Mustaza said. “At the moment, it’s still too early to talk about details,” he said. Traffic volume on the expressway has “improved,” Mustaza said, without elaborating. Senai-Desaru is a privately run company 70 percent owned by Rancak Bistari Sdn., with the rest held by YPJ Holdings Bhd. Islamic Issues Shariah-compliant bonds follow Islamic principles, which forbid the payment of interest and stipulate agreements be based on the transfer of goods or services. In Senai-Desaru’s case, the contract is backed by revenue from the toll roads. Islamic bond defaults in Malaysia reached 176 million ringgit in the first four months of this year, 65 percent of the total in 2009 when the country suffered its first recession in a decade. Malaysian Merchant Marine Bhd. and Evermaster Group Bhd. were among the domestic companies that defaulted on Islamic debt this year, stock exchange filings showed. This won’t deter interest in Shariah-compliant finance, said Badlisyah Abdul Ghani , head of Islamic-banking operations at CIMB Group Holdings Bhd., last year’s top global underwriter for Islamic bonds or sukuks. Global Islamic bond sales may climb 24 percent this year from $20.2 billion in 2009 as the global economy recovers, Kuala Lumpur-based Badlisyah said. Biggest Default The world’s biggest sukuk defaulter in the past year is Saad Trading, Contracting & Financial Services Co., owned by Saudi billionaire Maan al-Sanea and his family, which failed payments on its $650 million Islamic bonds in November. “Islamic debt default is a credit issue,” said Zakariya Othman , head of Islamic finance at RAM in Kuala Lumpur. “It’s got nothing to do with the structure. You can’t say, for example, when someone defaults on his mortgage that it’s because of the structure of the loan.” The toll-road operator issued the bonds in December 2005, which have maturities ranging from six years to 18.5 years, with an annual profit-sharing rate of 3.5 percent. Kuala Lumpur-listed builder Ranhill Bhd. holds convertible bonds in the toll-road operator that could be exchanged into shares equivalent to a 50 percent stake, according to Senai- Desaru’s bond prospectus. Ranhill’s Chief Financial Officer Amran Awaluddin wasn’t immediately available to comment. Senai-Desaru holds the concession to operate the 77- kilometer highway for 33 years. It is the third-longest highway project awarded by the Malaysian government, according to the company’s Web site . To contact the reporter on this story: Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.net

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Singapore Revaluation May Put China Among Countries Withdrawing Stimulus

April 14, 2010

By Shamim Adam April 15 (Bloomberg) — Singapore’s decision to revalue its currency to prevent economic overheating may prompt policy makers in China and other Asian nations to start withdrawing monetary stimulus as growth in the region outpaces the rest of the world. Asian central banks are mostly “behind the curve” in tightening monetary policy and inflationary pressures may rise, said HSBC Holdings Plc’s Robert Prior-Wandesforde . Singapore yesterday announced it will allow its currency — the city- state’s principal monetary tool — to strengthen, even as China, South Korea and Indonesia keep interest rates unchanged. “Singapore’s move is a signal that tightening in other nations in the region may come sooner or be more aggressive than what is currently expected by the market,” said Matt Hildebrandt , an economist at JPMorgan Chase & Co. in Singapore. Most Asian currencies have risen as the region, driven by China, leads the recovery from the deepest global recession since World War II. Rising commodity costs are spurring price pressures, and economists surveyed by Bloomberg News predict China may allow the yuan to appreciate by June 30 to curb inflation while avoiding a one-time jump in value that might endanger export jobs.     “Growth in the region has picked up sharply over the last six to 12 months,” said Brian Jackson , an emerging-markets strategist at Royal Bank of Canada in Hong Kong. “It seems increasingly appropriate that policy settings should be returned to more neutral levels in the months ahead.” Fastest in Three Years Singapore’s economy expanded an annualized 32.1 percent in the first quarter from the previous three months, the trade ministry said yesterday. China may say today its economy grew 11.7 percent in the first quarter from a year earlier, the fastest pace in almost three years, making officials more likely to raise interest rates and loosen the yuan’s peg to the dollar. Singapore’s GDP figure “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 Prior-Wandesforde, who is senior Asian economist at HSBC in Singapore. The Monetary Authority of Singapore uses the currency instead of interest rates to conduct monetary policy. It said yesterday it will “re-centre the exchange rate policy band at the prevailing level” of the Singapore dollar, shifting to a stronger trading range for the currency. The Singapore dollar rose as much as 1.2 percent to S$1.3754, the most in a year. China Moves Singapore’s currency revaluation may have been prompted by expectations China was preparing yuan appreciation, said Tim Condon , chief Asia economist at ING Groep NV in Singapore. Twelve-month non-deliverable yuan forwards yesterday climbed 0.2 percent, gaining for the first time in four days, to 6.6233 per dollar, reflecting bets the currency will strengthen 3 percent from the spot rate of 6.8259, according to Bloomberg data. Asian central banks have moved in lockstep on currency policy in the past. Malaysia on July 21, 2005, removed a seven- year peg on the ringgit to the dollar less than an hour after China said it would let the yuan appreciate by 2.1 percent against the dollar and let it fluctuate versus a basket of currencies. Policy makers in Australia , Malaysia, India and Vietnam have raised interest rates in recent months. China has left its key one-year lending rate unchanged at 5.31 percent even as it increased the amount of money lenders have to set aside as reserves to drain cash from the economy. Korea, Thailand The Bank of Korea raised its 2010 GDP forecast this week to 5.2 percent even as it left the benchmark interest rate at a record-low 2 percent at its April 9 meeting. Thailand’s central bank has said it plans to “normalize” rates, a move that may be delayed after political violence killed 22 people and injured hundreds this month. Asian economies can afford to keep rates steady, said ING’s Condon, who predicted South Korea may wait until after the U.S. Federal Reserve moves to increase borrowing costs. “I don’t see why any other central bank in Asia” should also start raising rates, Singapore-based Condon said. “There are wide output gaps, no inflation problems. What exactly is the hurry?” The Philippines may need to increase interest rates from a record-low 4 percent this year as the economy improves, central bank Deputy Governor Diwa Guinigundo said April 7. Hildebrandt of JPMorgan predicts Thailand and the Philippines may raise rates in June. Indonesia’s central bank will maintain a “careful” stance on monetary policy in the second half of 2010 because of a possible increase in commodity and electricity prices, Deputy Governor Hartadi Sarwono said yesterday. Bank Indonesia has kept its policy rate at 6.5 percent since August. While other central banks in the region are either debating or taking tentative steps toward ending stimulus, Singapore “has moved beyond mere policy renormalization to a managed tightening mode,” said Deyi Tan , a Singapore-based economist at Morgan Stanley. To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

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Singapore Dollar, Asia Stocks Advance as Recovery Accelerates

April 14, 2010

By Shani Raja April 14 (Bloomberg) — The Singapore dollar strengthened after the nation’s central bank revalued its currency, leading gains in Asia as economic reports showed the region is fueling the global rebound. Technology shares led stocks higher after Intel Corp. ’s sales forecast beat analysts’ estimates. The Monetary Authority of Singapore revalued its currency, sending it 1.2 percent higher against the dollar to S$1.3763 as the government said the economy will expand as much as 9 percent this year. South Korea’s won jumped 1.1 percent versus the dollar. The MSCI Asia Pacific Index gained 0.7 percent to 128.35 at 4 p.m. in Tokyo. Standard & Poor’s 500 Index futures rose 0.3 percent and the Stoxx Euro 600 climbed 0.3 percent to 269.53. Accelerating growth in Singapore and the biggest drop in Korean unemployment in a decade underscored Asia’s leadership in the global recovery, with China’s first-quarter economic growth data due for release tomorrow. South Korea’s government bond ratings were upgraded from A2 to A1 at Moody’s. Intel’s forecast increased optimism as the U.S. earnings season starts. “Companies are demonstrating that economic conditions are improving, while the data is still pointing to an ongoing theme of recovery,” said Prasad Patkar , who helps oversee $1.9 billion at Platypus Asset Management Ltd. in Sydney. “You now need to watch the underlying performance of the global economy once all the stimulus has washed through.” DBS Advances Singapore’s Straits Times Index advanced to crack the 3,000 level for the first time since June 2008, gaining as much 1.5 percent. The city-state raised its 2010 economic forecast for the second time this year. The previous prediction was for growth of as much as 6.5 percent. DBS Group Holdings Ltd. , Southeast Asia’s biggest lender, climbed 5 percent. Economists surveyed by Bloomberg News estimated China’s economy probably grew 11.7 percent in the first quarter, the fastest pace in almost three years. Property prices in China rose at a record pace in March, the National Bureau of Statistics said today on its Web site. South Korea’s Kospi stock index rose 1.5 percent after the nation’s unemployment rate declined to 3.8 percent in March from 4.4 percent in February. The won appreciated to 1,112.15 per dollar. The rating upgrade for the nation’s debt “has been prompted by Korea’s demonstration of an exceptional level of economic resilience to the global crisis, while containing the government’s budget deficit,” Tom Byrne , a senior vice president at Moody’s, said in a statement. Samsung Gains KB Financial Group Inc. gained 4.5 percent and Shinhan Financial Group Co. added 3.1 percent. Samsung Electronics Co. , the largest computer-memory chipmaker, climbed 2.1 percent after Intel forecast second-quarter revenue at $10.2 billion, plus or minus $400 million. Analysts had estimated $9.72 billion, according to a Bloomberg survey. Intel posted its earnings and forecast after U.S. markets closed and its shares rose as much as 3.6 percent in extended trading. Tokyo Electron Ltd. , the world’s second-largest maker of semiconductor equipment and an Intel supplier, jumped 3.6 percent after the company said orders climbed. Unisem Bhd., Malaysia’s biggest semiconductor packaging and test-services company, advanced 4.7 percent. Malaysia’s ringgit followed the Singapore dollar higher, climbing 0.9 to 3.1958. The Thai baht strengthened 0.3 percent to 32.25, the strongest level since May 2008. “Finally, 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 in Singapore. Metals Climb Copper futures on the London Metal Exchange gained 0.8 percent to $7,960 a metric ton. Aluminum rose 0.7 percent to $2,453 a ton. The yen weakened for a fifth day against the euro, the longest losing streak in three months, as signs the global economy is recovering boosted demand for riskier assets. “Risk appetite is improving, buoyed by solid economic data and corporate profits,” said Norihiro Tsuruta , chief strategist in Tokyo at Shinko Research Institute Ltd. ’’This will encourage a fund allocation shift away from the yen.’’ The Japanese currency fell against 15 of its 16 most-traded counterparts, declining 0.5 percent to 127.51 per euro. Europe’s single currency strengthened to $1.3647 in Tokyo from $1.3614 in New York yesterday. Kiwi Drops New Zealand’s dollar weakened against all major peers as a government report showed retail sales unexpectedly dropped in February, adding to signs the central bank will keep interest rates at a record low. New Zealand’s dollar fell 0.3 percent to 71.165 U.S. cents and 0.2 percent to 66.49 yen. The cost of protecting Japanese corporate bonds from default was on course to fall to its lowest level since June 2008, with the Markit iTraxx Japan index dropping 2 basis points to 85 basis points, according to Deutsche Bank AG and CMA DataVision in New York. Indicators of corporate credit risk also fell in Australia and Asia. Investors use the default-swap indexes to hedge against losses on corporate debt or speculate on creditworthiness, and the swaps typically fall as investor confidence increases. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 1 basis point to 89.5 basis points, while the Markit iTraxx Australia index fell 2 basis points to 77.5 basis points, Deutsche Bank prices show. A basis point is 0.01 percentage point. Crude oil snapped five days of declines as a drop in the dollar made commodity investments more attractive. Oil rebounded from earlier lows today to trade at $84.34 a barrel in New York, up 0.4 percent. To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net

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Singapore Revalues Currency After Raising Estimates for Growth, Inflation

April 13, 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 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 fastest growth in three years tomorrow, will end the yuan’s 21-month-old peg to the dollar. “Singapore’s move might reflect policymakers’ 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 policymakers are moving toward a tighter stance as inflation is driven by stronger commodities prices.” Withdraw Stimulus Singapore’s dollar rose to the strongest level since August 2008, Malaysia’s ringgit advanced toward its highest in 23 months and the South Korean won approached an 18-month high. The Monetary Authority of Singapore, which uses the exchange rate rather than interest rates to conduct monetary policy, joins policy makers from India to China who have begun withdrawing monetary stimulus this year, seeking to check asset- price bubbles. 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. Singapore’s dollar rose as much as 1.1 percent to S$1.3777 against the greenback, according to data compiled by Bloomberg. It last traded at S$1.3785 as of 11:41 a.m. local time from S$1.3923 in New York yesterday. 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 survey “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.” Growth Accelerates Singapore’s gross domestic product rose 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. “Companies that are doing a lot of business in the People’s Republic of China, like Midas is a good example.” The benchmark Straits Times Index advanced to a 22-month high, rising as much 1 percent to 3,001.16. DBS Group Holdings Ltd., Southeast Asia’s biggest lender, climbed as much as 3.6 percent. Neptune Orient Lines Ltd., owner of Southeast Asia’s largest container line, surged as much as 7 percent. Midas Holdings Ltd., which designs and makes polyethylene pipes, was little changed, with shares up 25 percent this year. ‘Behind the Curve’ 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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Rupiah Gains 5 Times More Than Yuan on Revaluation

April 13, 2010

By Bo Nielsen and Matthew Brown April 13 (Bloomberg) — The best currency to own when China lets the yuan appreciate won’t be the yuan, if history is any guide. It’s everything from South Korea’s won to Singapore’s dollar and Indonesia’s rupiah. The won rose five times as fast as China’s currency in the 12 months after officials in Beijing last relaxed the foreign- exchange regime in July 2005, data compiled by Bloomberg show. Singapore’s dollar climbed three times as much, the rupiah five times and Malaysia’s ringgit twice as fast. As President Barack Obama pressed Chinese President Hu Jintao in Washington today to let the yuan rise at a faster pace, traders are betting on a repeat of five years ago as an appreciating currency boosts China’s power to buy Malaysian palm oil to Indonesian coal and Indian copper. Revaluation may also enable Asian nations to do the same with their own currencies without damaging exports, while fueling U.S. trade as the global economy emerges from its deepest postwar recession. “A Chinese appreciation will kick off tightening in the whole Asian complex of currencies,” said Richard Benson , who oversees $14 billion of currency funds as an executive director at Millennium Asset Management in London and is backing the won and the ringgit to lead the gains. “These currencies are fundamentally cheap.” Hu’s View Obama reaffirmed to Hu his view that it’s “important” for China to move toward a “more market-oriented exchange rate,” Jeff Bader , senior director for Asia at the National Security Council, told reporters after the meeting on the sidelines of a two-day nuclear security summit in the U.S. capital. Hu told Obama that China’s actions must be “based on its own economic and social-development needs,” the official Xinhua News Agency reported today. Singapore will let its currency advance to keep inflation from accelerating after the economy grew more than anticipated in the first quarter, according to Goldman Sachs Group Inc. The rising cost of imports will also spur Taiwan to let its dollar appreciate, it said. Bank of Tokyo-Mitsubishi UFJ Ltd. said on April 8 the won and rupiah may climb about 13 percent against the yen as central banks from Indonesia to Taiwan raise interest rates and reduce currency intervention. Biggest Candidates “The heavily managed Asian currencies are the biggest candidates for appreciation once the yuan starts gaining,” said Thomas Stolper , a foreign-exchange analyst with Goldman Sachs in London. “Many of these countries are facing fiscal pressure and would like to see their currencies appreciate. A Chinese revaluation would give them the opportunity.” Twelve-month non-deliverable yuan forwards traded at 6.6370 per dollar in Hong Kong today, reflecting bets the yuan will climb 2.9 percent from the spot rate of 6.8265 according to data compiled by Bloomberg. The contracts touched 6.6055 on April 9, the strongest since Jan. 19. The Singapore and Taiwan dollars are the most managed currencies in the region, making them more likely to rise with a yuan revaluation, Stolper said. He added a “buy” recommendation on Taiwan’s dollar versus the greenback on March 31 and on the Singapore dollar April 1. While the yuan will appreciate between 5 percent and 8 percent a year, other currencies will gain more as investors target countries with less regulation in foreign-exchange markets, according to Jens Nordvig , a managing director of foreign-exchange research at Nomura International Plc. The firm is Asia’s biggest bank by assets. “You’ll see a surge in inflows as investors anticipate an 8 percent move in the yuan,” New York-based Nordvig said. “If you’re an investor, why not make the money now instead of waiting around for a year in China? You’ll see a more immediate impact in Korea, Taiwan, Malaysia and the Philippines.” Shielding Exporters South Korea’s won will surge 9.6 percent to 1,025 per dollar, the Singapore dollar 9.1 percent to 1.28 and the Taiwan dollar 5.3 percent to 30 per dollar by the end of March 2011, while the yuan appreciates 6.8 percent to 6.36 per dollar, according to Nomura. China’s currency won’t gain more than 4.9 percent to 6.49 in the next 12 months as the won jumps 6.7 percent and Taiwan’s dollar 5.2 percent, Goldman Sachs forecast. Chinese Premier Wen Jiabao ’s government has kept the yuan at 6.83 per dollar for the past 21 months to shield exporters from the global recession and a slump in world trade. The country allowed the yuan to appreciate 21 percent in the three years before that. Revaluation Probability It gained 1.4 percent versus the dollar in the year following the July 2005 revaluation. By comparison, Singapore’s dollar surged 4.3 percent, the rupiah 7 percent, the won 7.4 percent and Malaysia’s ringgit 3.3 percent, Bloomberg data show. Implied volatility from options trading monitored by Bloomberg shows a 77 percent probability that the yuan will strengthen to 6.7 per dollar by the end of 2010. Benefiting from a rise in the yuan is complicated by the restrictions on the movement and convertibility of the currency, forcing speculators to buy the non-deliverable forwards contracts based on future rates that are settled without an actual exchange of the two currencies. The rising cost of such contracts reduces potential profit should the People’s Bank of China allow a stronger yuan. “It’s very hard to make money betting on a move in the yuan by betting on the yuan,” said Benson. “Chinese forwards are very expensive.” ‘Not Much Room’ Many Asian currencies have already advanced in anticipation of a strengthening yuan. Indonesia’s rupiah strengthened beyond 9,000 against the dollar for the first time since July 2007 yesterday. Taiwan’s dollar traded at a 19-month high and the won at an 18-month high. “I’m not looking for much room from here,” said Thomas Harr , a senior currency strategist at Standard Chartered Plc in Singapore. The British bank makes most of its profit in Asia. Asian central banks have been at the forefront of global monetary tightening this year, with India and Malaysia increasing borrowing costs last month, while the U.S. Federal Reserve has kept its target rate for overnight loans between banks between zero and 0.25 percent. Asian nations “have the internal demand, and they have had some inflation problems, which is good,” said John Taylor , who holds Thai baht and Indonesian rupiah in the $7.5 billion of assets he helps oversee as chairman of FX Concepts Inc. in New York. “It means they have to keep their interest rates up or make them go higher, which is good for currency managers.” To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net ; Matthew Brown in London at mbrown42@bloomberg.net

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Singapore Economy Probably Grew Last Quarter, Adding Pressure on Currency

April 12, 2010

By Shamim Adam and Jay Wang April 13 (Bloomberg) — Singapore’s economy probably rebounded last quarter as manufacturing improved and the opening of the country’s first casino boosted services , adding pressure on the central bank to tighten monetary policy this week. Gross domestic product rose an annualized 17.2 percent in the first quarter from the previous three months, after shrinking 2.8 percent in the October-to-December period, according to the median estimate of 11 economists surveyed by Bloomberg news. The trade ministry will release the data at 8 a.m. tomorrow. Asian nations are withdrawing stimulus measures taken to counter the global recession as their economies lead the world out of the slump. Singapore property and car prices have climbed as the recovery takes hold, and some economists say the central bank, which uses the currency to conduct monetary policy, will favor a stronger exchange rate in tomorrow’s review. “Economic data increasingly suggest the economic recovery is becoming more entrenched,” said Philip McNicholas , an economist at Macquarie Group Ltd. in Singapore. “Rising global commodity prices and a turnaround in the consumer price index hint that imported inflation pressures will become more meaningful. It may prompt a move to normalize policy at the April review.” Economists surveyed by Bloomberg News are divided on when the Monetary Authority of Singapore , or MAS, will allow the currency to strengthen. The central bank said in October it will maintain a zero appreciation stance in the Singapore dollar, refraining from further monetary easing after opting for a de- facto devaluation of the exchange rate in April. The stance is assessed twice a year. Regional Moves Since the October review, policy makers in Australia, Malaysia, India and Vietnam have raised interest rates, while China has required banks to set aside more funds as reserves to drain excess money from the economy. There is also mounting speculation that China, which has pegged the yuan’s exchange rate at about 6.83 per dollar since July 2008, will let its currency, known as the renminbi, appreciate. “The policy tightening which is now spreading across Asia should encourage the MAS to move sooner rather than later,” said Kevin Grice , an economist at Capital Economics Ltd. in London. “It is also likely that China will soon allow the renminbi to resume its appreciation trend against the U.S. dollar. A firmer renminbi will make the rest of Asia much more tolerant of further currency appreciation as well.” Exceeded Expectations Singapore’s currency has gained 0.7 percent this year, the worst performer in Asia after Hong Kong and China. The island’s dollar traded at S$1.3917 per dollar as of 7 p.m. local time yesterday, according to data compiled by Bloomberg. Singapore’s first-quarter economic growth “exceeded” the government’s expectations, China’s Xinhua News cited the Southeast Asian nation’s Senior Minister Goh Chok Tong as saying last week. The trade ministry in February raised its 2010 economic growth forecast for the island to as much as 6.5 percent, from an earlier prediction of as much as 5 percent. Genting Singapore Plc opened its casino in February, attracting thousands of visitors to the country’s first gaming resort with a Universal Studios theme park and performances by Tom Jones and American Idol finalist Adam Lambert . Visitor arrivals rose 24 percent in February from a year ago. Asset prices are also climbing as the economy strengthens. Singapore’s private home prices increased 5.1 percent in the first quarter from the previous three months, while permits to buy some types of cars surged to the highest since 2002. Inflation Forecast Inflation will probably average between 2 percent and 3 percent this year, the government predicts. Consumer prices rose 1 percent in February from a year earlier, the fastest pace in almost a year. Still, benign inflation and uncertainties in the economic outlook for the second half will probably lead the central bank to maintain its neutral currency stance, said Irvin Seah , an economist at DBS Bank Ltd. in Singapore. The central bank guides the Singapore dollar against a basket of currencies within an undisclosed band. “With the expiry of the fiscal measures introduced last year and likely monetary tightening across Asia in the coming quarters, which would have some cooling effects on exports demand, it is perhaps best for policy makers to wait for more clarity before shifting to a gradual appreciation stance in October,” he said. To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

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Emerging Markets Overtake G-7 Currencies With Lowest Volatility Since 2008

April 12, 2010

By Ye Xie April 12 (Bloomberg) — Traders in currency options are showing that emerging economies have become safer relative to developed nations than at any time in almost two years. Three-month implied volatility for the seven biggest developing country currencies fell to 10 percent in March compared with 11.4 percent for industrialized nations, according to JPMorgan Chase & Co. indexes. The gap is the widest since July 2008. So far this year, eight of the 10 best-performing currencies are from emerging markets. The record U.S. budget deficit , Europe’s bailout of Greece and the prospect of a hung parliament in the U.K. are increasing the risk of losses in dollars, euros and pounds. In developing markets, the deficit fell to one-third the level of advanced nations this year and the economies are growing twice as fast as the U.S., the International Monetary Fund says. “The global perception of risk is changing,” said Jerome Booth , who helps manage $32 billion in emerging-market assets as the head of research at Ashmore Investment Management Ltd. in London. “Where you want to be is non-leveraged places, and that means anything in emerging-markets. This is a start of a trend. The rally in emerging-markets has barely started yet.” Global Recovery That’s a switch from three years ago, when record-low volatility was fueled by investors underestimating the risks of leverage. Now, volatility is declining in developing markets as countries from China to Brazil lead the global recovery, while swelling budget deficits in the U.K. and U.S. will weaken those nations’ currencies, Booth said. China’s imports surged 66 percent in March from a year earlier, causing the country’s first trade deficit since 2004. The rise in imports helps the global economic recovery, Huang Guohua , the head of the customs bureau’s statistics department, said on April 9. In Turkey, the lira climbed 6.8 percent against the euro this year to the strongest level since December 2008. Gross domestic product increased at an annual rate of 6 percent in the fourth quarter of 2009, lagging behind only China among the Group of 20 nations. Goldman Sachs Group Inc. forecasts the expansion may help Turkey’s $620-billion economy overtake Germany to become the third-biggest in Europe by 2050. The implied volatility for the lira is below that of the pound by the most since 2000. The lira was forecast to fluctuate at an annual rate of 10.6 percent in the next three months, as of March 30, 2.7 percentage points less than the pound, data compiled by Bloomberg show. “Dropping volatility says: ‘Buy, buy, buy,” said Sebastien Galy , a currency strategist at BNP Paribas SA in New York. U.K. Budget In the U.K., the pound is down 4.6 percent versus the dollar this year and has fallen against 14 of 16 most-traded currencies, including an 11 percent drop against the Mexican peso. National elections are raising the prospect that U.K. voters may fail to elect a governing majority for the first time since 1974. A weakened government may struggle to enact budget cuts with the nation’s debt set to almost double. The euro has lost 12 percent versus the Mexican peso this year as Europe weighed options to help Greece avoid default on its debt. European governments offered Greece a rescue package worth as much as 45 billion euros ($61 billion) yesterday at below-market interest rates. “Investors had a bit of a blasé attitude prior to the Greek situation,” said Robert Stewart , who oversees $74 billion as the head of currencies at JPMorgan Asset Management in London. “Investors are slowly awakening to the reality.” Hyper-Inflation Three decades ago, emerging-market currencies fluctuated the most amid debt crises and hyper-inflation. Mexico defaulted in 1982 while the Asian financial crisis that started in 1997 wiped out one third of the region’s economy. Now it’s developed countries that are dealing with the biggest debt. The administration of President Barack Obama predicts its budget deficit will swell to a record $1.6 trillion in the fiscal year ending Sept. 30. Moody’s Investors Service forecasts that the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K. Emerging nations are moving in the opposite direction. The budget deficit for developing countries will fall to 2.8 percent of their economies this year, from 4 percent in 2009, according to an IMF report in November. Industrialized governments’ budget gap will decline to 8.1 percent from 8.9 percent, the Washington-based fund said. Developing nations reduced their foreign debt to 26 percent of GDP last year from 41 percent in 1999, while advanced nations’ debt may surge to 106.7 percent of GDP this year from 78.2 percent in 2007, according to IMF data. Credit Crisis In July 2007, the JPMorgan Emerging Market Volatility Index fell to a record low of 5.8 percent as central banks made their interest-rate and currency moves more predictable. When credit markets froze later that year, the index began rising and hit a record 35.8 percent in October 2008, one month after Lehman Brothers Holdings Inc. collapsed. The JPMorgan G-7 Volatility Index , including the euro, the pound and the yen, reached 26.6 percent. Emerging-market volatility is falling again as the Mexican peso and the Malaysian ringgit gained 7.4 percent versus the dollar this year, the best performers in the world after the Costa Rican colon. Mexico’s government forecasts it will keep the budget deficit at 2.8 percent of GDP this year after lowering spending and increasing taxes even as the economy shrank 6.5 percent in 2009 in its worst recession since 1932. Mexican Peso The implied volatility of the Mexican peso was 1.39 percentage points below that of the euro as of April 1, the most since October 2008, according to Bloomberg data. Exports from Malaysia, South Korea and Taiwan are growing to feed demand in China, which is leading the global economic recovery. Overseas shipments from Malaysia rose 18.4 percent in February from a year earlier. The central bank has raised its growth forecast for Southeast Asia’s third-largest economy, predicting an expansion of as much as 5.5 percent this year, the fastest since 2007. Korea exports climbed 35.1 percent in March from a year earlier, while Taiwan’s surged 50.1 percent. Overlooking Risks? Investors may be overlooking the risks of developing- nations, said Harald Hild , a money manager at Quaesta Capital Optivest AG in Switzerland, which oversees about $1 billion. The South African rand, Colombian peso and Brazilian real have increased more than 20 percent in the past year against the dollar, making their exports more expensive. These countries are also “highly dependent” on the U.S. and may falter should America’s economic recovery stumble, he said. “It’s really amazing how strong the risk appetite is for emerging-market currencies,” said Hild, who has traded currency options for 16 years. “I’m not sure how long this will hold.” Countries from Chile to China may lure $722 billion in overseas investment this year, 66 percent more than in 2009, the Washington-based Institute of International Finance said in January. Developing-nation bond funds attracted $7 billion this year, pushing assets under management to a record $74.7 billion, according to Cambridge, Massachusetts-based research company EPFR Global. Falling volatility is making emerging-market currencies more attractive, especially to investors in carry trades, said Thanos Papasavvas , head of currency management at Investec Asset Management in London. In such trades, investors borrow in countries with low interest rates to buy financial assets in those with higher yields. “You’ll see the appreciation of emerging-market currencies versus developed-market currencies as a long-term, strategic trend,” said JPMorgan’s Stewart. “Investors will allocate more to emerging markets.” To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

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Obama Nuclear Summit to Focus on Materials Smuggled for Weapons Production

April 9, 2010

By Roger Runningen and Viola Gienger April 9 (Bloomberg) — President Barack Obama is preparing to host a two-day summit of leaders from more than 40 nations with a goal of cracking down on the threat of nuclear material falling into the hands of terrorists. The gathering next week in Washington will focus on separated plutonium and highly enriched uranium that could be smuggled or sold on the black market to groups such as al-Qaeda, administration officials said today in a conference call with reporters. “Those are the two materials that could be used for nuclear explosives,” said Gary Samore , senior director for non- proliferation at the National Security Council . “If we’re able to lock those down and deny them to non-state actors, then we have essentially solved the risk of nuclear terrorism.” The summit follows Obama’s signing yesterday in Prague of a landmark treaty with Russia to reduce each nation’s nuclear arsenal by about one-third. The accord was signed days after the president announced a shift in U.S. policy to focus more on the threat from extremist groups and nations such as Iran and North Korea rather than confrontation with nuclear powers such as Russia. Al-Qaeda and other terrorist groups “are pursuing the material to build nuclear weapons, and we know that they have the intent to use one,” Ben Rhodes , deputy national security adviser, said on the call. He spoke from Air Force One as Obama returned from Prague. Four-Year Goal The summit will be an opportunity for nations “to commit to specific steps to pursue the goal of securing all vulnerable nuclear materials around the world within four years,” Obama said April 6. The president is highlighting an issue that few of the many heads of state he’s invited can disagree on, unlike next month’s planned United Nations conference on the 1970 Treaty on the Non- Proliferation of Nuclear Weapons. Samore and Rhodes said the summit won’t get into the nonproliferation treaty or other potentially divisive issues. It will focus strictly on securing raw materials and on the risk of nuclear terrorism, Samore said. “We believe that this in particular is an area where there is a very broad and deep international consensus,” Rhodes said. For Obama, the agenda also includes the currency dispute between the U.S. and China, with a planned bilateral meeting with Chinese President Hu Jintao on April 12. In addition, Obama is seeking China’s help in halting Iran’s nuclear weapons development. Face-to-Face Obama planned face-to-face meetings with leaders of Germany, India, Pakistan, Nigeria, Jordan, Malaysia, Armenia, South Africa and Kazakhstan. Some parts of the schedule were still being prepared, Samore said. Nuclear terrorism is the most immediate and extreme threat to global security, Obama said in Prague in April 2009. Even so, not all countries believe it, said Gregory Schulte , who was the U.S. ambassador to the UN’s International Atomic Energy Agency in Vienna from 2005 to 2009. “Many Middle Eastern countries don’t see the threat,” Schulte said April 6 in a lecture at the Washington Institute for Near East Policy, naming such countries as Egypt, Saudi Arabia, Pakistan and Yemen. They regard it as “an American obsession” and “the stuff of Hollywood movies.” The nations represented at the summit include Algeria, Argentina, Armenia, Australia, Belgium, Brazil, Canada, Chile, China, the Czech Republic, Egypt, Finland, France and Georgia. Also, Germany, India, Indonesia, Israel, Italy, Japan, Jordan, Kazakhstan, Malaysia, Mexico, Morocco, the Netherlands, New Zealand, Nigeria, Norway, Pakistan, the Philippines, Poland, the Republic of Korea, Russia and Saudi Arabia. Other countries attending are Singapore, Switzerland, South Africa, Spain, Sweden, Thailand, Turkey, the United Arab Emirates, the United Kingdom, Ukraine and Vietnam. The UN, its nuclear watchdog agency and the European Union will also be represented. To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net ; Viola Gienger in Washington at vgienger@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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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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Emerging-Market Stocks Advance for Ninth Straight Day as U.S. Shares Drop

April 7, 2010

By Gavin Serkin April 7 (Bloomberg) — Emerging-market stocks rose for a ninth day and the Taiwan dollar led gains in higher-yielding currencies after the Federal Reserve indicated U.S. interest rates will stay near record lows. Yuan forwards advanced on speculation China will let its currency appreciate. The MSCI Emerging Markets Index added 0.5 percent to reach the highest level since July 2008 at 12:24 p.m. in London. The Taiwan dollar strengthened against all 16 of its most-traded peers. Futures on the Standard & Poor’s 500 Index fell 0.3 percent. Yuan forwards appreciated for a ninth day, the longest winning streak in more than a year. Greek bonds fell, widening the premium investors demand on 10-year notes over benchmark German securities by 16 basis points to 400 basis points. 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. For the Fed, there’s “nothing on the radar screen to suggest that they want to raise rates,” Michael Dicks , head of research in London at Barclays Wealth, which oversees about $220 billion, said in an interview on Bloomberg Television. “The global economy is doing reasonably well. The corporate sector is also doing pretty well. That’s probably going to persist for some time.” Pakistan, Thailand The MSCI Emerging Markets Index extended its longest rally in almost six months, led by Asia. 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. Croatia’s Zagreb Crobex index gained 1 percent, Romania’s BET Index rose 0.9 percent and Estonia’s OMX Tallinn index advanced 0.7 percent. Emerging-market currencies strengthened, with the Taiwan dollar appreciating for a third day against the U.S. currency, advancing 0.4 percent, and 0.5 percent against the yen. The ruble and Turkey’s lira climbed 0.1 percent against the dollar. The euro weakened, trading near its lowest level against the dollar in almost two weeks, after a report showed the economy of the 16 nations sharing the currency failed to grow in the fourth quarter. Greek two-year notes fell for a sixth day after a record slide yesterday. The yield on the 2012 note rose 9 basis points, after climbing 124 basis points. The government plans to start marketing dollar-denominated bonds to U.S. investors this month. The two-year spread to bunds widened by 7 basis points to 5.39 percentage points. Bonds sold by Germany, the region’s biggest economy, are used by investors as a benchmark. European Stocks The Stoxx Europe 600 Index slipped 0.1 percent as basic resources companies dropped. BHP Billiton Ltd., the world’s biggest mining company, fell 1.8 percent in London. Declines were limited as Allied Irish Banks Plc surged 12 percent in Dublin after Royal Bank of Scotland Group Plc recommended buying the shares. The MSCI Asia Pacific Index rallied 0.7 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. U.S. Futures The decline in U.S. futures indicated the S&P 500 may fall from an 18-month high. Consumer credit may have declined by $700 million in February after unexpectedly increasing $5 billion in the previous month, according to the median estimate of 34 economists in a Bloomberg News survey. The Fed’s report on borrowing is due at 3:00 p.m. in Washington. Fed policy makers last month saw an inflation slowdown that may persist, tempering any need to reverse record-low interest rates. At the same time, the Fed said its pledge to keep the main rate low for an “extended period” wouldn’t keep it from taking action when needed to keep inflation in check, according to minutes of the March 16 Federal Open Market Committee meeting released yesterday. Fed Chairman Ben S. Bernanke speaks in Dallas today on the topic of economic challenges. Nickel for delivery in three months fell 0.8 percent to $24,650 a metric ton on the London Metal Exchange, leading a decline in industrial metals. Crude oil retreated 0.6 percent to $86.33 a barrel in New York trading. To contact the reporter for this story: Gavin Serkin at gserkin@bloomberg.net

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China Considers Trading of Yuan Against Ruble, Won, Ringgit, Official Says

April 6, 2010

By Bloomberg News April 7 (Bloomberg) — China is considering allowing the yuan to trade against the Russian ruble, South Korean won and Malaysian ringgit to promote its use in cross-border trade, an official at the China Foreign Exchange Trade System said. The People’s Bank of China is investigating the possibility of offering new foreign-exchange pairs, said an official at the Shanghai-based interbank exchange , a subsidiary of the central bank. He asked not to be identified as authorities have yet to make a final decision. Traders now can buy or sell the yuan against the dollar, the euro, the Japanese yen, the Hong Kong dollar and the British pound. “That would be a further step towards making the yuan an international currency,” said Liu Dongliang , a Shenzhen-based foreign-exchange analyst at China Merchants Bank Co., the country’s fifth-largest lender by market value. “The move would help foreign companies buy or sell the Chinese yuan at lower costs.” China is seeking greater use of the yuan to reduce reliance on the U.S. dollar after Premier Wen Jiabao said last month he is “worried” about holdings of assets denominated in the greenback. From July, the government started allowing companies in Shanghai and four cities in the southern province of Guangdong to use yuan in cross-border trade with Hong Kong, Macau and members of the Association of Southeast Asian Nations. President Barack Obama will keep pressing China to end the yuan’s 21-month-old peg to the U.S. dollar and likely will bring up the topic when he meets Chinese President Hu Jintao next week, spokesman Robert Gibbs said. Executives at Chinese banks have supported a stronger currency to allow it to play an increased role in global trade and to spur growth in financial markets. Critical Meetings China’s currency has been held at around 6.83 since July 2008, after appreciating 21 percent in the previous three years. Twelve-month non-deliverable forwards advanced 0.2 percent to 6.6346 per dollar yesterday, reflecting bets the currency will climb 2.9 percent from the spot rate in the coming year. U.S. Treasury Secretary Timothy F. Geithner four days ago announced the postponement of the April 15 deadline for an annual foreign-exchange policy review, which may have resulted in China being labeled a currency manipulator. He said meetings over the next three months will be “critical” to bringing policy changes that lead to a more balanced global economy. Expectations that China’s currency will appreciate drove yuan trade settlements to 7 billion yuan ($1 billion)in the first two months of this year, almost twice the 3.6 billion yuan in the second half of 2009, Zhang Yanling , vice chairman of Beijing-based Bank of China Ltd., the nation’s biggest foreign- currency lender, said in a March 19 interview. “If the yuan is expected to be a strong currency, neighboring countries will prefer to hold the yuan instead of the dollar,” she said. Mounting Reserves Since December 2008, China has set up 650 billion yuan worth of swap agreements with Indonesia, Malaysia, South Korea, Hong Kong, Belarus and Argentina, broadening access to the yuan. The central bank has also proposed expanding the use of International Monetary Fund depository receipts in reserves instead of dollars. China’s dollar purchases to maintain the currency link have driven currency reserves to $2.4 trillion. Chinese investors held $889 billion of Treasuries on Jan. 31, the biggest overseas holdings of such debt. It will take 15 to 20 years to make the yuan an international currency, Dai Xianglong , chairman of the National Council for Social Security Fund and a former central bank governor, said April 2. — Judy Chen . Editors: James Regan , Sandy Hendry To contact Bloomberg News staff for this story: Judy Chen in Shanghai at +86-21-6104-7047 or xchen45@bloomberg.net .

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Stocks Rise on Speculation Fed Will Keep Rates on Hold; Yuan Forwards Gain

April 6, 2010

By James Poole April 7 (Bloomberg) — Asia stocks climbed, heading for their longest winning streak since July, after U.S. Federal Reserve minutes indicated interest rates will stay near record lows . Yuan forwards posted their ninth straight daily increase on expectations China will allow its currency to appreciate. The MSCI Asia Pacific Index rose 0.7 percent to 128.17 at 12:50 p.m. in Tokyo. Twelve-month non-deliverable yuan forwards advanced 0.1 percent to 6.6285 per dollar. The euro fell 0.2 percent to $1.3388 on concern that a European recovery will be hampered by discord over the Greek aid package. U.S. Standard & Poor’s Index futures lost 0.2 percent. Fed minutes showed the U.S. is likely to keep rates on hold, allowing the world’s biggest economy to continue to recover, at the same time as Treasury Secretary Timothy F. Geithner prods China to revalue the yuan. The Bank of Japan said the recovery in the second-largest economy is intact and Malaysia’s Prime Minister Najib Razak said growth may exceed forecasts this year. “The global economy is on a recovery trend,” said Hiroichi Nishi , an equities manager at Nikko Cordial Securities Inc. “The market is moving toward summer. The winter is over.” More than two shares advanced for each that fell as the MSCI Asia Pacific Index gained for the fifth day. The Nikkei 225 Stock Average increased 0.4 percent to 11,321.29 and the Hang Seng Index rose 1.3 percent to 21,813.47. Earnings in Taiwan, South Korea and China increased, boosting the MSCI Emerging Markets Index , which rose 0.5 percent for a ninth day, the longest winning streak in almost six months. Analysts raised their earnings per share forecasts on the measure by 2.6 percent over the past four weeks. Equity Movers HTC Corp. , the maker of Google Inc.’s Nexus One Android mobile phone handset, surged 5.9 percent to its highest in more than eight months in Taipei trading after it unexpectedly posted a 3 percent gain in net income. Korea Kumho Petrochemical Co. , a South Korean rubber and resin maker, climbed 4.1 percent, the most in two weeks in Seoul trading. The euro fell for a fourth day against the dollar on concern a recovery in the 16-nation region will be hampered by discord over Greece’s rescue package. The Canadian dollar traded near parity with the greenback as oil near $87 a barrel boosted the value of the nation’s biggest export and on bets Federal Reserve Chairman Ben S. Bernanke will reiterate later today a pledge to keep interest rates near zero to sustain growth. Euro Weakens The 16-nation euro fell to $1.3381 in Tokyo from $1.3399 in New York, where it dropped to as low as $1.3355, the least since March 26. The U.S. dollar traded as low as C$0.9988 today matching a level yesterday that was the weakest since July 2008. “We certainly see some downside risks to the euro as they don’t seem to have a final credible solution to Greece’s fiscal problems,” said Joseph Capurso , a currency strategist in Sydney at Commonwealth Bank of Australia. Fed officials saw signs the recovery could be hobbled by high unemployment and tight credit, and some warned of increasing borrowing costs too soon, according to minutes of their March meeting released yesterday. Bernanke speaks in Dallas, Texas today on the topic of economic challenges. The difference between yields on two- and 10-year Japanese government bonds was near the widest since May 2006 as investors preferred shorter-maturity debt on expectations borrowing costs will remain near zero. Yuan forwards strengthened for a ninth day, the longest winning streak in more than a year, on speculation China will let the currency rise after the U.S. delayed a report on global foreign-exchange policies. U.S. Push Geithner is seeking to rally support from the Group of 20 to push China to revalue. The Chinese government has ignored threats from U.S. lawmakers for almost two years, keeping its currency at about 6.83 to the dollar to aid exporters. “There are official comments here and they are coming out to say the yuan’s appreciation is a matter of time,” said Emmanuel Ng , a currency strategist at Oversea-Chinese Banking Corp. in Singapore. “I think they’ll go ahead with the plan.” Twelve-month non-deliverable forwards climbed 0.1 percent to 6.6295 per dollar in Hong Kong, reflecting bets the currency will strengthen 3 percent from the spot rate of 6.8255, according to data compiled by Bloomberg. “This is China’s choice, it’s their judgment to make,” Geithner, who is on a two-day visit to India, said in an interview with NDTV network in New Delhi yesterday. “I am confident that China will decide it’s in their interest to resume the move to a more flexible exchange rate.” Taiwan Dollar Taiwan’s dollar appreciated 0.3 percent to NT$31.591, reaching its strongest level in 19 months, on speculation China will allow yuan appreciation that will help boost the island’s currency. Malaysia’s ringgit climbed 0.6 percent to 3.196 per dollar. Malaysia’s central bank has told the government the country’s 2010 economic growth can exceed the current forecast by as much as 2 percent through the “right policy intervention,” Prime Minister Najib Razak said. Gross domestic product can expand by 1 percent to 2 percent more than the central bank’s March forecast of 4.5 percent to 5.5 percent, Najib told the Foreign Correspondents Association in Singapore yesterday. Crude oil traded near a 18-month high in New York after rising above $87 a barrel yesterday on signs that U.S. economic growth will accelerate, bolstering fuel use in the world’s biggest energy-consuming country. Oil was at $86.77 a barrel after the U.S. government raised its 2010 oil price estimate on forecasts the global economy will rebound through the yearend. Copper for three-month delivery traded at $7,971 per ton, near a 20-month high. Bond risk as measured by credit-default swaps was near a three-week low. The Markit iTraxx Asia index of 50 investment- grade borrowers outside Japan was little changed at 92.5 basis points today. That’s close to the lowest since March 17. To contact the reporter for this story: James Poole in Singapore jpoole4@bloomberg.net ;

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Stocks, Commodities Rise, Treasuries Drop on Economic Data

April 5, 2010

By Whitney Kisling and Matthew Brown April 5 (Bloomberg) — Stocks and commodities rose, while the dollar and Treasuries fell, as growth in American jobs and service industries boosted optimism the world’s largest economy is strengthening. Treasury yields were the highest since June. The Standard & Poor’s 500 Index climbed 0.7 percent to 1,186.75 at 11:08 a.m. in New York, above its highest close since September 2008. The MSCI Asia Pacific Index rose to the highest level in more than 19 months, driven by Japan. Oil and copper rose to at least 17-month highs. The dollar fell against 11 of 16 major counterparts and the yield on the benchmark 10- year Treasury note increased 5 basis points to 3.99 percent. U.S. payrolls gained last month by the most in three years, a “solid report” indicating “the economy is now creating jobs,” Treasury Secretary Timothy F. Geithner said in a Bloomberg Television interview. Industry reports today showed that pending home sales unexpectedly increased and the Institute for Supply Management’s index of service industries topped economists’ estimates. “Overall, we are seeing positive signs about the global economy,” said Hiroaki Muto , a senior economist at Sumitomo Mitsui Asset Management Co., which manages $111 billion. “While developing nations are leading global growth, they are waiting for the U.S. to rebound. Recent reports are suggesting that the U.S. labor market and consumer spending are improving.” Markets in Europe, Australia, Hong Kong, China, Taiwan and New Zealand were shut for holidays. Apple Inc. rose 0.5 percent to $237.21 after saying it sold more than 300,000 iPads on the device’s first day of availability over the weekend. Energy Rally Exxon Mobil Corp. and Schlumberger Ltd. paced gains in 39 of 40 energy stocks in the S&P 500 as crude oil climbed as much as 2 percent to a 17-month high of $86.57 a barrel in New York. Brazil’s Bovespa index of equities increased 0.6 percent as Petroleo Brasileiro SA and OGX Petroleo & Gas Participacoes SA advanced. Canada’s S&P/TSX Composite Index rose 0.4 percent as Suncor Energy Inc. and Barrick Gold Corp. gained. Oil prices have established a floor of $75 a barrel and there is no need for OPEC to increase production, Venezuelan Oil Minister Rafael Ramirez said April 2. The Organization of Petroleum Exporting Countries pumps about 40 percent of the world’s oil and slashed output in January 2009 to prevent a glut. The group left its production targets unchanged when ministers met in Vienna on March 17. Venezuela, the group’s sixth-largest producer, is seeking a price band between $80 and $100 a barrel, Ramirez told reporters in Caracas on April 2. Copper, Hogs Copper for May delivery advanced as much as 1.2 percent to $3.6265 a pound in New York, the highest level since Aug. 1, 2008. Hog futures rose, extending a rally to the highest price since in almost 13 years. Hog futures for June settlement gained 1.6 cents, or 1.9 percent, to 84.975 cents a pound on the Chicago Mercantile Exchange, the highest for a most-active contract since May 12, 1997. A benchmark indicator of U.S. corporate credit risk fell to the lowest in more than two weeks. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 1.1 basis point to a mid-price of 84 basis points as of 7:51 a.m. in New York, according to Markit Group Ltd. The index dropped to its lowest since March 18, when it was 83.98 basis points, CMA DataVision prices show. Shares of Canon Inc. , which gets 28 percent of its revenue in the Americas, climbed 2.5 percent in Tokyo. Toyota Motor Corp. , which derives 31 percent of its revenue in North America, increased 1.1 percent. ‘Growth Optimism’ Former Federal Reserve chairman Alan Greenspan said yesterday on ABC’s “This Week” that the chances the U.S. economy will retrench after recovering from the worst recession since the 1930s “have fallen very significantly in the last two months.” “There is increasing growth optimism now given that the job situation in the U.S. is getting a little more relaxed,” said Roger Groebli , Singapore-based head of financial-market analysis at LG Capital Management, part of the group that oversees $84 billion. “Exporters will benefit from that.” Samsung, Hynix Climb Samsung Electronics Co. rose 1.5 percent after Maeil Business Newspaper said the company will add a new semiconductor chip line. Asia’s biggest chipmaker also rose after the price of the benchmark DDR2 dynamic random access memory, or DRAM, chip rose on April 2, ending a four-day decline, according to Dramexchange Technology Inc. Hynix Semiconductor Inc. , the world’s second-largest computer-memory chipmaker, advanced 3.4 percent. Malaysia’s FTSE Bursa Malaysia KLCI Index rose 0.4 percent, advancing for a 10th day, the longest winning streak in 16 years. CIMB Group Holdings Bhd. , Malaysia’s second-biggest bank, climbed 1.1 percent to a record. The company said the size of its initial share sale for its dual listing on the Thai exchange has been raised to as much as 50 million shares from 35 million. Indonesia’s benchmark stock index, Asia’s best-performing major market this year, climbed to a record on expectations the central bank will keep interest rates at a record low tomorrow, helping to boost the economy. The Jakarta Composite index jumped 2 percent to 2,887.246, above its previous record close of 2,830.26 on Jan. 9, 2008. The measure has climbed 14 percent this year as the central bank raised its economic growth forecast and Standard & Poor’s upgraded the nation’s sovereign debt ratings. Yen, Pound The dollar fell the most against the Canadian and British currencies, losing 0.8 percent and 0.6 percent respectively. The yen snapped four days of losses against the dollar, on speculation Japanese exporters bought the nation’s currency after it touched a seven-month low. The pound gained versus all major counterparts after polls eased concerns that political turmoil will derail the nation’s economic recovery. The pound rallied after a YouGov Plc poll for the Sunday Times showed that the opposition Conservative Party holds a 10 percent lead over Prime Minister Gordon Brown’s Labour party, before elections that are likely to be held next month. The Conservatives have 39 percent of the vote, while Labour had 29 percent and the Liberal Democrats 20 percent, the survey showed, reducing the likelihood that they will fail to win the parliamentary majority that some think is necessary to tackle the U.K.’s budget deficit, the largest in the Group of 20 nations. The pound strengthened 0.6 percent to $1.5293. ‘Heading Toward Stabilization’ A survey for the Sunday Express newspaper by Canadian pollsters Angus Reid put the Conservatives at 38 percent, 11 points ahead of Labour’s 27 percent, with the Liberal Democrats at 20 percent. “The polls seem to suggest that the U.K. political situation is gradually heading toward stabilization,” said Toshiya Yamauchi , senior currency analyst in Tokyo at online currency trading company Ueda Harlow Ltd. “Signs of political stabilization, combined by waning expectations for additional quantitative monetary measures amid the plethora of positive data, will support the currency.” To contact the reporters for this story: Whitney Kisling in New York at wkisling@bloomberg.net ; Matthew Brown in London at mbrown42@bloomberg.net .

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Stocks, Commodities Advance as U.S. Employment Report Boosts Recovery View

April 5, 2010

By Rocky Swift and Matthew Brown April 5 (Bloomberg) — Asian stocks, U.S. equity index futures and commodities rose as growth in American jobs boosted investor optimism that demand in the world’s largest economy is recovering. The MSCI Asia Pacific Index rose to the highest level in more than 19 months, driven by gains in Japan. Markets in Europe, Australia, Hong Kong, China, Taiwan and New Zealand were shut for holidays. Oil advanced, while copper moved to a 20- month high. Malaysia’s ringgit rose to the strongest since July 2008 against the dollar after the government said exports increased for a third-straight month. U.S. payrolls gained last month by the most in three years, a “solid report” indicating “the economy is now creating jobs,” Treasury Secretary Timothy F. Geithner said in a Bloomberg Television interview. A private report today may show U.S. service industries expanded for a third month. “Overall, we are seeing positive signs about the global economy,” said Hiroaki Muto , a senior economist at Sumitomo Mitsui Asset Management Co., which manages $111 billion. “While developing nations are leading global growth, they are waiting for the U.S. to rebound. Recent reports are suggesting that the U.S. labor market and consumer spending are improving.” Standard & Poor’s 500 futures increased 0.3 percent to 1177.3 as of 8:43 a.m. in New York. The MSCI Asia Pacific Index rose to 126.94, the highest since Aug. 12 2008. Japan’s Nikkei 225 Stock Average climbed 0.5 percent. Apple’s iPad Apple Inc. was little changed in pre-market New York trading after the company probably sold more than twice as many iPads in its debut weekend than some analysts had estimated. Initial sales may have reached 700,000 units, Piper Jaffray & Co.’s Gene Munster said in an interview yesterday. The Minneapolis-based analyst had predicted sales of 200,000 to 300,000, while Sanford C. Bernstein & Co.’s Toni Sacconaghi had projected 300,000 to 400,000. Apple said it sold more than 300,000 iPads on the device’s first day of availability over the weekend. Canon Inc. , which gets 28 percent of its revenue in the Americas, climbed 2.5 percent. Toyota Motor Corp. , which derives 31 percent of its revenue in North America, increased 1.1 percent. Former Federal Reserve chairman Alan Greenspan said yesterday on ABC’s “This Week” that the chances the U.S. economy will retrench after recovering from the worst recession since the 1930s “have fallen very significantly in the last two months.” ‘Increasing Optimism’ “There is increasing growth optimism now given that the job situation in the U.S. is getting a little more relaxed,” said Roger Groebli , Singapore-based head of financial-market analysis at LG Capital Management, part of the group that oversees $84 billion. “Exporters will benefit from that.” Samsung Electronics Co. rose 1.5 percent after Maeil Business Newspaper said the company will add a new semiconductor chip line. Asia’s biggest chipmaker also rose after the price of the benchmark DDR2 dynamic random access memory, or DRAM, chip rose on April 2, ending a four-day decline, according to Dramexchange Technology Inc. Hynix Semiconductor Inc. , the world’s second-largest computer-memory chipmaker, advanced 3.4 percent. Malaysia’s ringgit climbed to its strongest level since July 2008 after the government said exports increased 18.4 percent in February from a year earlier. “The economic recovery theme is attracting foreigners to ringgit assets,” said Tan Voon Ching , a foreign-exchange trader at OSK Investment Bank Bhd. in Kuala Lumpur. “There’s a lot of confidence in the economic outlook for this year.” Ringgit Gains The ringgit strengthened 0.6 percent to 3.2301 per dollar. The won added 0.3 percent to 1,123.05 per dollar in Seoul, according to data compiled by Bloomberg. It reached 1,122.15 on April 2, the strongest level since Jan. 19. Malaysia’s FTSE Bursa Malaysia KLCI Index rose 0.4 percent, advancing for a 10th day, the longest winning streak in 16 years. CIMB Group Holdings Bhd. , Malaysia’s second-biggest bank, climbed 1.1 percent to a record. The company said the size of its initial share sale for its dual listing on the Thai exchange has been raised to as much as 50 million shares from 35 million. Indonesia’s benchmark stock index, Asia’s best-performing major market this year, climbed to a record on expectations the central bank will keep interest rates at a record low tomorrow, helping to boost the economy. Jakarta Rally PT Astra International , the nation’s largest auto retailer, surged 4.9 percent. PT Bank Central Asia advanced 5.5 percent, the most in more than two weeks, leading gains among banks. The central bank will keep its key interest rate at 6.5 percent tomorrow after inflation slowed to 3.43 percent in March, according to 16 out of 17 economists in a Bloomberg News survey. The Jakarta Composite index jumped 2 percent to 2,887.246, above its previous record close of 2,830.26 on Jan. 9, 2008. The measure has climbed 14 percent this year as the central bank raised its economic growth forecast and Standard & Poor’s upgraded the nation’s sovereign debt ratings. The yen snapped four days of losses against the dollar, on speculation Japanese exporters bought the nation’s currency after it touched a seven-month low. The pound gained versus all major counterparts after polls eased concerns that political turmoil will derail the nation’s economic recovery. Pound Strengthens The pound rallied after a YouGov Plc poll for the Sunday Times showed that the opposition Conservative Party holds a 10 percent lead over Prime Minister Gordon Brown’s Labour party, before elections that are likely to be held next month. The Conservatives have 39 percent of the vote, while Labour had 29 percent and the Liberal Democrats 20 percent, the survey showed, reducing the likelihood that they will fail to win the parliamentary majority that some think is necessary to tackle the U.K.’s budget deficit, the largest in the Group of 20 nations. The pound strengthened 0.4 percent to $1.5264. A survey for the Sunday Express newspaper by Canadian pollsters Angus Reid put the Conservatives at 38 percent, 11 points ahead of Labour’s 27 percent, with the Liberal Democrats at 20 percent. “The polls seem to suggest that the U.K. political situation is gradually heading toward stabilization,” said Toshiya Yamauchi , senior currency analyst in Tokyo at online currency trading company Ueda Harlow Ltd. “Signs of political stabilization, combined by waning expectations for additional quantitative monetary measures amid the plethora of positive data, will support the currency.” Oil Advances Crude oil for May delivery rose as much as 1.2 percent to $85.89 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since Oct. 9, 2008. It pared gains to trade at $85.62. Oil prices have established a floor of $75 a barrel and there is no need for OPEC to increase production, Venezuelan Oil Minister Rafael Ramirez said April 2. The Organization of Petroleum Exporting Countries pumps about 40 percent of the world’s oil and slashed output in January 2009 to prevent a glut. The group left its production targets unchanged when ministers met in Vienna on March 17. Venezuela, the group’s sixth-largest producer, is seeking a price band between $80 and $100 a barrel, Ramirez told reporters in Caracas on April 2. Copper for May delivery advanced as much as 1.2 percent to $3.6265 a pound in New York, the highest level since Aug. 1, 2008. To contact the reporters for this story: Matthew Brown in London at mbrown42@bloomberg.net ; Rocky Swift in Tokyo at rswift5@bloomberg.net

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Fed Reveals Bear Stearns Assets Swallowed in Rescue

April 1, 2010

By Craig Torres, Bob Ivry and Scott Lanman April 1 (Bloomberg) — After months of litigation and political scrutiny, the Federal Reserve yesterday ended a policy of secrecy over its Bear Stearns Cos. bailout. In a 4:30 p.m. announcement in a week of congressional recess and religious holidays, the central bank released details of securities bought to aid Bear Stearns’s takeover by JPMorgan Chase & Co. Bloomberg News sued the Fed for that information. The Fed’s vehicle known as Maiden Lane LLC has securities backed by mortgages from lenders including Washington Mutual Inc. and Countrywide Financial Corp., loans that were made with limited borrower documentation. More than $1 billion of them are backed by “jumbo” mortgages written by Thornburg Mortgage Inc., which now carry the lowest investment-grade rating. Jumbo loans were larger than government-sponsored mortgage buyers such as Fannie Mae could finance — $417,000 at the time. “The Fed absorbed that risk on its balance sheet and is now seen to be holding problematic, legacy assets,” said Vincent Reinhart , a resident scholar at the American Enterprise Institute in Washington who was the central bank’s monetary- affairs director from 2001 to 2007. “There is both an impairment to its balance sheet and its reputation.” The Bear Stearns deal marked a turning point in the financial crisis for the Fed. By putting taxpayers at risk in financing the rescue, the central bank was engaging in fiscal policy, normally the domain of Congress and the U.S. Treasury, said Marvin Goodfriend , a former Richmond Fed policy adviser who is now an economist at Carnegie Mellon University in Pittsburgh. ‘Panic’ Cause “Lack of clarity on the boundary between responsibilities of the Fed and of the Congress as much as anything else created panic in the fall of 2008,” Goodfriend said. “That created a situation in which what had been a serious recession became something near a Great Depression.” Central bankers also created moral hazard, or a perception for investors that any financial firm bigger than Bear Stearns wouldn’t be allowed to fail, said David Kotok , chief investment officer at Cumberland Advisors Inc. in Vineland, New Jersey. Policy makers’ resolve was tested months later by runs against the largest financial companies. Lehman Brothers Holdings Inc. collapsed into bankruptcy in September 2008. The ensuing panic caused the Fed to take even more emergency measures to push liquidity into markets and institutions. It rescued American International Group Inc. from collapse and allowed Goldman Sachs Group Inc. and Morgan Stanley to convert into bank holding companies, putting them under greater oversight by the central bank. Early Failure “Letting somebody fail early would have been a better choice,” Kotok said. “You would have ratcheted moral hazard lower and Lehman wouldn’t have been so severe.” The Bear Stearns assets include bets against the credit of bond insurers such as MBIA Inc., Financial Security Assurance Holdings Ltd. and a unit of Ambac Financial Group, putting the Fed in the position of wagering companies will stop paying their debts. The Fed disclosed that some of Maiden Lane’s assets were portions of commercial loans for hotels, including Short Hills Hilton LLC in New Jersey, Hilton Hawaiian Village LLC in Hawaii, and Hilton of Malaysia LLC, in addition to securities backed by residential mortgages. More than a year after Washington Mutual, the largest U.S. savings and loan, was purchased by JPMorgan Chase in a distressed sale arranged by the Federal Deposit Insurance Corp., the home loans that helped bring down the Seattle-based thrift live on in the Maiden Lane portfolio. Lending Standards For example, 94 percent of the mortgages in one security, called WAMU 06-A13 2XPPP, required limited documentation from borrowers, meaning the lender often didn’t ask customers for proof of their incomes. Almost 10 percent of the borrowers whose mortgages make up the security have been foreclosed on, and almost a quarter are more than two months late with payments, according to data compiled by Bloomberg. The portfolio also includes $618.9 million of securities backed by Countrywide, mortgages now rated CCC, eight levels below investment grade. All the underlying loans are adjustable- rate mortgages, with about 88 percent requiring only limited borrower documentation, according to Bloomberg data. About 33.6 percent of the borrowers are at least 60 days late. Countrywide is now part of Charlotte, North Carolina-based Bank of America Corp. CDO Holdings Maiden Lane has $19.5 million of securities from a series of collateralized debt obligations called Tropic CDO that are backed by trust preferred securities of community banks and thrifts. CDOs are investment pools made up of a variety of assets that provide a flow of cash. Trust preferred securities, or TruPS, have characteristics of debt and equity and their interest payments are tax- deductible. The securities created by Bear Stearns are rated C, one level above default, by Moody’s Investors Service and Fitch Ratings. CDO securities have tumbled in value as banks are failing at the fastest rate in 17 years, according to data compiled by Bloomberg. The average price of TruPS CDO debt of this rating is pennies on the dollar, according to Citigroup Inc. “The trust of the taxpayer was abused,” said Janet Tavakoli , president of Chicago-based financial consulting firm Tavakoli Structured Finance Inc. CDOs rated CCC and lower “have a high likelihood of default,” she said. Bernanke Defense Chairman Ben S. Bernanke defended the Bear Stearns deal as a rescue of the financial system. He said in a speech at the Kansas City Fed’s annual Jackson Hole, Wyoming conference in August 2008 that a sudden Bear Stearns failure would have caused a “vicious circle of forced selling” and increased volatility. “The broader economy could hardly have remained immune from such severe financial disruptions,” Bernanke said in the speech. The Fed chief, who took office in 2006 and began his second term as chairman this year, also has repeatedly called for an overhaul of financial regulations that would allow authorities to take over a failing financial institution and oversee an orderly unwinding of its positions. Bernanke said last year that nothing made him “more angry” than the AIG case, blaming the insurer for making “irresponsible bets” and a lack of regulatory oversight for the debacle. Officials “had no choice but to try and stabilize the system” by aiding the firm in September 2008, he said. Yesterday’s release by the Fed, through its New York regional bank, also identified securities acquired in the bailout of AIG held in vehicles known as Maiden Lane II and III. Market Value Assets in Maiden Lane II totaled $34.8 billion, according to the Fed, which set their current market value in its weekly balance sheet at $15.3 billion. That means Maiden Lane II assets are worth 44 cents on the dollar, or 44 percent of their face value, according to the Fed. Maiden Lane III, which has $56 billion of assets at face value, is worth $22.1 billion, or 39 cents on the dollar, according to the Fed’s weekly balance sheet. A similar calculation for the Bear Stearns portfolio couldn’t be made because of outstanding derivatives trades. “The Federal Reserve recognizes the importance of transparency to its financial stability efforts and will continue to review disclosure practices with the goal of making additional information publicly available when possible,” the New York Fed said in yesterday’s statement. Deal With Chase The central bank said it reached agreement on “issues of confidentiality” for the assets with JPMorgan Chase, which bought Bear Stearns in 2008, and AIG. New York-based JPMorgan and AIG would incur the first losses on the portfolios. Joe Evangelisti , a spokesman for JPMorgan, and Mark Herr , a spokesman for AIG, declined to comment. In April 2008, Bloomberg News requested records under the federal Freedom of Information Act from the Fed’s Board of Governors related to JPMorgan’s acquisition of Bear Stearns. The central bank responded that records retained by the New York Fed “were proprietary records of the Reserve Bank, and not Board records subject” to the request, court records show. Bloomberg filed suit in November 2008 in U.S. District Court in New York, challenging the Fed’s denial, as well as the denial of a separate request made in May 2008, seeking records of four other emergency lending programs. The district court held that the Fed should release documents related to those four programs, and should search documents held by the New York regional bank to determine whether any of them should be considered records of the board of governors. The U.S. Court of Appeals on March 19 upheld the district court’s ruling on the lending programs. Representative Darrell Issa of California said in a statement that yesterday’s disclosure may “signal a new willingness to cooperate with Congress as we investigate how these bailout deals were structured and what the decision making process entailed.” To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

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Vietnam First-Quarter Growth Almost Doubles to 5.8% on Investment, Exports

March 29, 2010

By Jason Folkmanis March 30 (Bloomberg) — Vietnam’s economic growth quickened to 5.83 percent in the first quarter from the same period last year, suggesting Asia may start to lead a revival in global expansion. The figure released by the General Statistics Office in Hanoi today was almost twice as fast as Vietnam’s 3.14 percent expansion in the same period last year. Growth accelerated throughout 2009, culminating in a 6.9 percent fourth-quarter pace that resulted in a 5.3 percent full-year expansion. The government is targeting 6.5 percent growth this year. Vietnam’s economic growth has been driven by foreign investment, a disciplined and literate labor force and low-cost exports , according to research published by Daiwa Capital Markets last week. In the past week, Malaysia raised its growth forecast, Japan reported the fastest export growth in 30 years, and Taiwan said industrial production rose for a sixth month. “We’re seeing a two-track recovery with Asia forging ahead of the rest of the world, and Vietnam has consistently been one of Asia’s fastest-growing economies, so one would expect it to recover more quickly,” said Matt Robinson , a Sydney-based economist for Moody’s Analytics Inc. “Vietnam’s growth model has been focused on low costs and abundant labor, and the evidence suggests that that model has been more resilient over the past 18 months, when many people put higher-end consumer discretionary expenditure on hold,” he said. Moody’s Analytics, a unit of New York-based Moody’s Corp. , focuses on economic research and analysis. Construction Demand Industry and construction, which accounted for 43 percent of the economy during the period, expanded 5.65 percent from a year earlier, with the sub-component including construction alone growing 7.13 percent. “We’re starting to see some increased demand in the construction industry now,” said Alan Young , Haiphong-based chief operating officer of Australian-listed steelmaker Vietnam Industrial Investments Ltd. An increase in credit growth to as much as 38 percent last year has had a “lagged effect” on the Vietnamese economy, according to Australia & New Zealand Banking Group Ltd . Services, which made up 42 percent of gross domestic product, expanded 6.64 percent from a year earlier. Hotels and restaurants grew 7.82 percent, while financial services grew 7.86 percent. Fishing, forestry and agriculture, which accounted for 15 percent of GDP, grew 3.45 percent. “Much of the growth was generated domestically, since exports were still contracting in the first quarter,” wrote Tai Hui , the Singapore-based head of Southeast Asian economic research at Standard Chartered Plc , citing strong retail sales. “The government’s 6.5 percent growth target is within reach, as exports are likely to improve gradually in 2010, becoming a more potent engine,” Hui said, in a note dated yesterday. To contact the reporter on this story: Jason Folkmanis in Ho Chi Minh City at folkmanis@bloomberg.net

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Restructuring at Malaysia’s Labuan

March 29, 2010

Restructuring at Malaysia’s Labuan

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Asia Stocks, Copper Rise on Region’s Improving Economic Outlook; Yen Falls

March 22, 2010

By Linus Chua and Shani Raja March 23 (Bloomberg) — Stocks rose in Asia, led by mining and financial companies, and commodity prices advanced on signs that the region’s economic growth is accelerating. The yen weakened as investors sought higher-yielding assets. The MSCI Asia Pacific Index climbed 0.3 percent to 124.27 as of 1:09 p.m. in Tokyo. Copper prices gained for a second day while futures on the U.S. Standard & Poor’s 500 Index were little changed. The yen fell against the euro for the first time in five days as the prospect of financial aid for Greece damped demand for Japan’s currency as a refuge. Investors are growing more confident that Asia will continue to lead the global recovery after Bank of Japan board minutes showed some members see the economy improving, and economist surveys pointed to faster growth in Malaysia and New Zealand. Pacific Investment Management Co., manager of the world’s biggest bond fund, said investors should buy Asia- Pacific rather than European and U.S. debt because of the region’s stronger economic outlook. “We’re starting to see signs of normalization,” said Matt Riordan , who helps manage $5.5 billion at Paradice Investment Management in Sydney. Expansion by companies “shows some underlying level of confidence that things are getting back towards some sort of normal state.” Analysts have increased their earnings per share forecasts for companies in the MSCI Asia Pacific Index this fiscal year by 2.8 percent in the past four weeks, according to data compiled by Bloomberg. Mining Stocks Australia’s S&P/ASX 200 Index rose 1 percent, Hong Kong’s Hang Seng Index climbed 1 percent and the Philippine Stock Exchange Index increased 1.5 percent. The Nikkei 225 Stock Average lost 0.5 percent in Japan, where markets were closed yesterday for a national holiday. BHP Billiton Ltd. , the world’s largest mining company, gained 1.5 percent and Rio Tinto Group , the third-biggest miner, advanced 1.1 percent. Copper for three-month delivery rose 0.3 percent to $7,475 a metric ton. Thailand’s SET index climbed 0.5 percent, extending its lead as Asia’s best performer this month. JPMorgan Chase & Co. said the measure will outperform Southeast Asian markets as valuations and easing political concerns draw foreign investors. Greek Aid Some Bank of Japan members “were of the view that upside and downside risks were becoming balanced” even as deflation deepens, the minutes of the central bank’s Feb. 17-18 meeting show. In the Philippines, the central bank will meet with Standard & Poor’s and Fitch Ratings next month to seek a credit- rating upgrade, Governor Amando Tetangco said. U.S. futures fell less than 0.1 percent. Stocks rose yesterday, erasing an earlier drop, as drugmakers gained after the House of Representatives passed the biggest overhaul of the health-care industry in 40 years. The yen weakened after European leaders tried to allay concern that they were unprepared to aid Greece, boosting demand for higher-yielding assets. Japan’s currency slipped to 122.43 per euro in Tokyo from 122.21 yen in New York yesterday. The yen declined to 90.34 to the dollar from 90.14. Luxembourg Prime Minister Jean-Claude Juncker said yesterday “there is no urgent need to have a decision” at this week’s meeting in Brussels while assuring Greek policy makers that the EU will not “abandon” them. European Central Bank President Jean-Claude Trichet said yesterday the ECB is prepared to reassess its collateral rules if necessary, softening its stance as Greece struggles to cut the region’s largest budget shortfall. The Greek 10-year bond yield rose 10 basis points to 6.44 percent. That widened the spread over equivalent-maturity German debt to 337 basis points, the most since Feb. 25. Kiwi Advance Taiwan’s dollar advanced 0.3 percent to NT$31.808 against the U.S. currency. Global funds purchased $2.7 billion more Taiwanese equities than they sold so far this month, according to stock exchange data. A government report due later today may show industrial production increased for a sixth month in February, according to a Bloomberg News survey of economists. The New Zealand dollar gained 0.2 percent against its Australian counterpart, continuing a rebound from a 10-year low reached on March 4. The New Zealand economy will grow 3.1 percent in the year to March 31, 2011, the Wellington-based New Zealand Institute of Economic Research Inc. said today, citing the average estimate of 10 economists surveyed. Three months ago, analysts forecast a 2.8 percent expansion. Malaysia’s economy may expand 5.5 percent this year after shrinking 1.7 percent in 2009, according to the median estimate of seven economists surveyed by Bloomberg News. The country’s central bank releases its forecast tomorrow. Bond Risk The cost of protecting Asia-Pacific bonds from non-payment decreased. The Markit iTraxx Australia Series 13 index fell 3 basis points to 87.5 basis points, Citigroup Inc. prices show. The Markit iTraxx Asia Series 13 index of 50 investment-grade borrowers outside Japan fell 3 basis points to 103 basis points, according to Citigroup. Credit-default swap indexes are benchmarks for protecting bonds against default, and a decrease shows improving perceptions of credit quality. Crude oil traded near $82 a barrel in New York after rising on optimism fuel demand will increase amid improved prospects for an economic recovery in the U.S., the world’s biggest energy consumer. Crude oil for May delivery was at $81.62 a barrel, up 2 cents, in electronic trading on the New York Mercantile Exchange. To contact the reporters for this story: Linus Chua at lchua@bloomberg.net ; Shani Raja in Sydney at sraja4@bloomberg.net

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Stocks, Crude Oil Fall on India Rate Increase, Growth Concerns

March 22, 2010

By James Regan and Shani Raja March 22 (Bloomberg) — Stocks dropped and the oil price slid for a third day after a surprise interest-rate increase in India fanned concern the global recovery will stall as economic stimulus programs are wound back. The MSCI Asia Pacific ex Japan Index fell 1.2 percent to 416.34, retreating from near a two-month high, and crude oil declined 0.5 percent to $80.25 a barrel. Futures on the U.S. Standard & Poor’s 500 Index fell 0.5 percent. The Stoxx Europe 600 Index was 0.7 percent lower as of 8:25 a.m. in London. The euro slipped for a fourth day against the yen after Germany curbed speculation the European Union will agree to financial aid for Greece at a meeting this week. Advanced economies face “acute” challenges in reining in debt which, relative to their economies, is approaching levels seen after World War II, said John Lipsky , first deputy managing director of the International Monetary Fund. The Reserve Bank of India raised its benchmark rates after local financial markets closed on March 19, a month earlier than the next scheduled review, to tame the fastest inflation in more than a year. “Some investors are increasingly jittery about the inflationary outlook and high levels of sovereign debt,” said Tim Schroeders , who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “The IMF’s comments switch the spotlight to a medium-term limitation of the global economy.” The world economy will expand 3.9 percent this year and 4.3 percent in 2011, following a contraction of 0.8 percent in 2009, according to IMF estimates released in January. A report tomorrow in the U.S. will probably show existing home sales fell to an eight-month low in February, based on the median estimate of 64 economists surveyed by Bloomberg News. Inflation Risk India’s central bank raised its reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, saying containing inflation has become “imperative.” The yield on the nation’s 6.35 percent bond due January 2020 rose as much as 20 basis points to 8.03 percent, the highest level for a benchmark 10-year note since October 2008. “The surprise factor in the RBI’s action was not that they hiked rates, but that it took place ahead of the next policy meeting, a fact that reflects the urgency to tackle inflation pressures,” Mitul Kotecha , head of global currency strategy at Credit Agricole CIB in Hong Kong, wrote today in a research note. “Further rate hikes are likely over coming months as the bank moves further to contain inflation.” Policy Tightening Policy makers in Australia and Malaysia have also increased rates since the end of February, while China has ordered lenders to set aside more funds as reserves twice this year. China and India are the world’s two fastest-growing major economies and home to about 37 percent of the world’s population. Resource companies led declines among Asian stocks on concern demand for raw materials will cool. BHP Billiton Ltd. , the largest mining company, fell 1.4 percent in Sydney and Rio Tinto Group , the third-biggest, dropped 1.5 percent. Posco , Asia’s No. 1 maker of stainless steel, declined 3.3 percent in Seoul, and PetroChina Co. dropped 2.8 percent in Hong Kong, their worst performances in six weeks. PetroChina, China’s largest energy company, and Royal Dutch Shell Plc agreed to buy Brisbane-based Arrow Energy Ltd. for A$3.5 billion ($3.2 billion) in a revised takeover bid, according to company announcements published today. Arrow Energy slid 3.6 percent in Sydney. Hong Kong’s Hang Seng Index fell 2 percent, the biggest decline among Asia’s stock benchmarks. Financial markets were closed today in Japan for a holiday. Greece Jitters The euro weakened 0.1 percent to 122.42 yen, earlier touching 122.17, the lowest since March 10. Against the dollar, the 16-nation currency slid 0.1 percent to $1.3515, near to a two-week low of $1.3503 reached on March 19. EU leaders must not create “illusions” for markets by building expectations for Greek aid, German Chancellor Angela Merkel said in an interview with Deutschlandfunk that aired yesterday. Her remarks came after Greek Prime Minister George Papandreou and European Commission President Jose Barroso said the EU should spell out its rescue plan at the March 25-26 summit in Brussels. Greece is seeking help before 20 billion euros ($27 billion) of its debt matures in the next two months. “Ahead of the EU summit, concerns about Greece’s funding difficulties are expected to weigh on the euro,” said Danica Hampton , a senior markets strategist at Bank of New Zealand Ltd. in Wellington. “Meantime, the dollar will likely remain firm as investors fret about how the global economy will cope with further stimulus removal.” Cheaper Gold Australia’s dollar declined for a third day after the price of gold, the nation’s third most valuable commodity export, dropped the most in six weeks. The currency slid to 91.23 U.S. cents in Sydney, from 91.54 in New York at the end of last week. Gold futures for April delivery were little changed at $1,106.50 an ounce after sliding 1.8 percent on March 19, the biggest drop for a most-active contract since Feb. 4. The cost of protecting bonds in Australia from default rose as benchmark credit-default swaps indexes rolled into a new series. The Markit iTraxx Australia index Series 13 was quoted at 89.5 basis points in Sydney, according to Citigroup Inc. That compares with a close of 84 basis points for Series 12 on March 19, according to CMA DataVision prices in New York. Constituent companies in the two series are the same. The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails meet its debt agreements. A basis point is 0.01 percentage point. To contact the reporters for this story: James Regan in Hong Kong at jregan19@bloomberg.net ; Shani Raja in Sydney at sraja4@bloomberg.net

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Shell, PetroChina Win Arrow With $3.2 Billion Offer, Adding Coal-Seam Gas

March 21, 2010

By Ben Sharples March 22 (Bloomberg) — Royal Dutch Shell Plc and PetroChina Co. agreed to acquire Arrow Energy Ltd. after raising their offer to A$3.5 billion ($3.2 billion), gaining access to the reserves of the Australian coal-seam gas producer. Shell and PetroChina will pay A$4.70 a share for Arrow’s Australian business, the Brisbane-based company said in a statement today. The bid is 5.6 percent more than a A$4.45 offer made March 8. Arrow investors will also get stock in Dart Energy Ltd., a new company housing its international assets, which may be worth as much as A$400 million, according to analysts. Shell and PetroChina join BG Plc and Malaysia’s Petroliam Nasional Bhd. in snapping up coal-seam gas assets in Queensland to feed planned liquefied natural gas projects. The deal is the biggest since ConocoPhillips paid $5 billion for a stake in Origin Energy Ltd’s gas assets in 2008. Still, Shell and PetroChina are paying less for Arrow’s gas reserves than similar deals in the past, according to John Young , an analyst at Wilson HTM Investment Group in Melbourne. “I’m a little disappointed,” Young said today by telephone. “I thought the assets were worth more than that. If one looks at it on a comparative reserves multiple basis it’s not a particularly full price.” Arrow shares slipped as much as 21 cents, or 4 percent, to A$5.08 in Sydney and were trading at $5.11 at 11:26 a.m. local time, having climbed 52 percent to a record A$5.29 since the takeover offer as investors bet PetroChina and Shell would sweeten their initial A$3.26 billion bid. PetroChina Loan PetroChina’s parent, China National Petroleum Corp, got a discounted $30 billion loan last year to fund overseas expansion as the country steps up its hunt for resources. The Arrow deal gives Shell reserves to feed its Curtis Island liquefied natural gas project, one of more than a dozen planned LNG ventures in Australia aimed at tapping rising Asian demand. “Australia is becoming more of a regional focus” for Shell, Nik Burns , a Melbourne-based analyst for RBS Morgans, said by phone March 19. “It’s going to be one of their key growth areas, and the company as a whole is looking to move more upstream and move away from their downstream side.” Coal-seam gas is mostly methane found on the surface of coal. The gas can be extracted when pressure on the seams is reduced, usually by removing water. LNG is natural gas chilled to liquid form for transport by ship to destinations not connected by pipeline. Higher Bid? Shell and PetroChina would have had to bid A$6.10 a share for Arrow if the gas reserves were valued at the same price as BG paid for Queensland Gas Co. in 2008, Young said. “Shell and PetroChina are gaining control of the company and there is no significant premium being paid to the value for the minority interests,” he said. Buying Arrow would give Shell gas to feed multiple LNG production units. Shell plans an LNG project on Curtis Island off the central Queensland coast that is expected to produce as much as 16 million metric tons of LNG a year and have four processing units, the company said in a document lodged with the state government last year. Arrow has said that its added reserves may help feed Shell’s LNG venture. Arrow has agreed to acquire 100 percent of the A$2.2 billion Fisherman’s Landing project in Queensland, one of more than a dozen proposed LNG ventures in Australia aiming to tap rising demand for the cleaner-burning fuel. Arrow said last month it’s considering selling a stake and taking on debt or offering shares to help finance the Fisherman’s Landing project. International Business The company’s international business is worth about A$400 million, or 55 Australian cents a share, RBS Morgans’ Burns said. That means the initial A$4.45-a-share offer for Arrow, excluding its international business, valued the entire company at A$5 a share, he said. The unit is drilling in India, China, Indonesia and Vietnam, and Arrow aims to boost gas production tenfold by 2015. As much as 20 percent of that division may be offered in a share sale in the second half of 2010, Arrow said Feb. 17. Arrow said Aug. 13 that talks with companies about its coal-seam gas assets included discussions of a possible takeover, but that it hadn’t received an offer. Speculation of an offer contributed to a 55 percent rise in Arrow’s shares last year. Shell, which has a 30 percent stake in Arrow’s coal-seam gas holdings in Queensland and a 10 percent interest in its international unit, made a A$3 billion offer for Arrow last year, with talks ending in stalemate, London’s Sunday Telegraph reported in August. Queensland’s government is expecting as much as A$50 billion of investment in the state’s coal-seam gas resources as companies including U.K.-based BG Group and ConocoPhillips vie to export the fuel to Asia. To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

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India Unexpectedly Raises Interest Rates After Inflation Hit 16-Month High

March 19, 2010

By Cherian Thomas March 19 (Bloomberg) — India’s central bank unexpectedly raised interest rates for the first time since July 2008 after inflation accelerated to a 16-month high. The Reserve Bank of India increased the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, according to a statement in Mumbai. The surprise decision comes a month before the bank’s scheduled monetary policy meeting. India and China, the world’s fastest-growing major economies, are withdrawing stimulus steps as stronger consumer demand stokes inflation and asset bubbles. Governor Duvvuri Subbarao’s move came after Prime Minister Manmohan Singh ’s top economic advisers this week described the current inflation rate as “worrying” and “unacceptable.” “The growth trend has been persistently surprising on the upside,” Chetan Ahya , the Singapore-based regional economist at Morgan Stanley, said before the report. “We believe this quick pace of recovery has lifted capacity utilization rates closer to full – warranting quick action by the central bank.” Subbarao, who is scheduled to announce policy on April 20, moved today after India’s industrial production gained 6.7 percent in January following a 17.6 percent increase in December from a year earlier, the fastest pace since at least 1994, according to Bloomberg data. The benchmark wholesale-price inflation rate touched 9.89 percent in February, according to the commerce ministry. ‘Significantly Behind’ “The policy authorities have fallen significantly behind the curve and need to act much more aggressively than they have so far to clamp down on underlying inflation,” Robert Prior- Wandesforde , a Singapore-based economist at HSBC Holdings Plc. said before today’s announcement. “The Indian economy is further advanced in the economic cycle than most people believe.” India’s $1.2 trillion economy, the biggest after Japan and China, may expand 8.2 percent in the next fiscal year, compared with 7.2 percent in the year to March 31, the Finance Ministry said in February. Inflation has returned to Asia as growth accelerates amid the global economic recovery. Consumer prices in China rose to a 16-month high of 2.7 percent in February from a year earlier as industrial production grew 20.7 percent in the first two months of 2010, the most in more than five years. Factory output in Malaysia rose 12.7 percent in January. ‘Financial Imbalances’ Malaysia increased its overnight policy rate, saying it wants to avoid “financial imbalances.” China ordered banks to set aside more deposits as cash last month for a second time while India raised its cash reserve ratio to 5.75 percent from 5 percent in January. Consumer demand may strengthen further in Asia’s third- largest economy as Hewitt Associates Inc. expects salaries in India to grow at the fastest pace in Asia Pacific in 2010. Prospects of demand exceeding current capacity in India prompted Honda Motor Co., the world’s biggest motorcycle maker, to say this month that it will invest about 8.9 billion yen ($98 million) to build a second motorcycle plant in the country. To contact the reporter on this story: Cherian Thomas in Bangalore at Cthomas1@bloomberg.net

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Malaysia ‘could lose out on FDI’

March 17, 2010

17 Mar 2010 Japan’s ambassador to Malaysia has warned the country could lose out on foreign direct investment (FDI) if current economic conditions prevail. Masahiko Horie told assembled journalists…

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Coca Cola to invest $302m in Malaysia

March 16, 2010

Coca Cola to invest $302m in Malaysia

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Malaysia Central Bank May Raise Interest Rate Further if Needed, Zeti Says

March 14, 2010

By Soraya Permatasari and Haslinda Amin March 15 (Bloomberg) — Malaysia’s central bank said it may increase interest rates further to avert asset bubbles and discourage risky investments by people seeking better returns, even as inflation will likely remain “modest” this year. “We will review the conditions at our next monetary policy meeting and work towards further normalizing if necessary,” Governor Zeti Akhtar Aziz said in a March 12 Bloomberg Television interview in Kuala Lumpur. “Inflation will continue to be modest and therefore it would not prompt us towards tightening, but that does not preclude that we will continue to normalize interest rates.” Malaysia raised its benchmark interest rate to 2.25 percent this month, becoming the second Asian nation to increase borrowing costs as the region leads a recovery from the global slump. The central bank wants to prevent “financial imbalances” that could undermine the economy’s recovery from last year’s recession, Zeti said. “There is no compelling evidence of asset bubbles in Malaysia based on current indicators,” Suhaimi Ilias , chief economist at Maybank Investment Bank Bhd. in Kuala Lumpur, said before the interview. Still “the risk is there if the interest rate is kept very low for an extended period as money searches for returns to beat inflation that is creeping up.” China has started draining excess cash from the economy to prevent asset bubbles. Australia and Vietnam have raised borrowing costs as inflation accelerates, and the Philippine central bank last week pared back a lending program for banks. ‘Significant Risks’ Keeping interest rates too low for too long may lead to the “mispricing of risks” by those who anticipate borrowing costs will stay low, as well as create asset bubbles, Zeti said. While the central bank doesn’t expect to see bubbles forming “on the horizon,” there are signs that people are buying higher- yielding assets “that pose significant risks,” she said. Bank Negara Malaysia will monitor the strength of the economic recovery in deciding whether interest rates need to rise further, the governor said. Current borrowing costs are still “very supportive” of economic growth, Zeti said. The level at which rates are considered to be “normalized” would depend on the strength of the recovery, she said, adding that inflation won’t be “a factor” in 2010 even after taking into account possible increases in fuel and power prices. The central bank, whose policy team next meets in May, raised its overnight policy rate from a record-low of 2 percent on March 4, the first increase in almost four years, saying the economy’s recovery is “firmly established.” Faster Growth Malaysia’s gross domestic product expanded 4.5 percent last quarter after contracting the previous nine months. Exports surged by the most in more than 11 years in January. “We expect growth to improve from the levels we have seen in the fourth quarter,” Zeti said. “Certainly the first half of the year, all the signs are pointing to stronger growth” as domestic demand and investment recover, she said. JCY International Bhd ., a Malaysian supplier of hard-disk- drive components for Seagate Technology and Western Digital Corp., said last month it plans to spend 182 million ringgit ($55 million) in the financial year starting Oct. 1, 2010 to increase its capacity amid rising orders. Inflation of about 2 percent would be considered “modest,” Zeti said. Malaysia’s consumer prices rose for a second month in January, climbing 1.3 percent from a year earlier from an average 0.6 percent in 2009. Should price gains accelerate further to 3 percent, for example, “we would begin looking at what are the sources of inflation because if it was demand-induced then” the central bank would look at “tightening” monetary policy, Zeti said. Ringgit’s Gain Zeti refrained from raising interest rates in 2008 when consumer prices rose as much as 8.5 percent in July and August amid soaring oil and commodity prices, saying inflation wasn’t driven by higher demand and would ease as global growth slowed. Malaysia’s policy makers aren’t “inflation targeters,” she said last week. The Malaysian ringgit has climbed 2 percent since the central bank’s decision to raise rates this month, making it Asia’s best-performing currency outside Japan during the period. The currency’s appreciation has reflected Malaysia’s strengthening “fundamentals,” Zeti said. “We have seen this level before and we are not concerned,” she said. “We have allowed our exchange rate to be market determined and we are there to ensure orderly market conditions. Our export sector has never relied on the exchange rate to gain competitiveness.” Zeti, who said previously Malaysia will consider allowing the ringgit to be traded overseas once the country has a more developed foreign-exchange market, said in the interview the central bank has formed a task force involving the financial and banking industry to work toward developing the country’s foreign-exchange market “with a view to internationalizing” the ringgit. “Once that market has become more vibrant and with the products and services being offered in terms of the forward market and so on, and in terms of hedging instruments, then we’ll look at internationalizing the currency,” she said. “Right now we don’t have a time frame.” To contact the reporter on this story: Soraya Permatasari at soraya@bloomberg.net

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El Nino May Cut Thai Rice Output, Boost Palm Oil Price as Drought Spreads

March 10, 2010

By Supunnabul Suwannakij March 11 (Bloomberg) — Rice production in Thailand, the world’s largest exporter, may decline as drier-than-normal weather curbs yields, adding to signs that an El Nino may be hurting farm output across the region. “Unmilled rice output in the next crop year may fall below the average production level of 31 million tons if El Nino puts off rainfall,” Prasert Gosalvitra , head of the nation’s Rice Department , said today by phone from Bangkok. Thailand accounts for about a third of the global trade in rice. Lower production of rice from Thailand and palm oil from Malaysia caused by the dry weather may drive commodity prices higher, spurring food inflation. Asian agricultural companies including Wilmar International Ltd. may benefit from the surge, BNP Paribas SA told investors in a note today. “We’re worried that delayed rainfall will probably hurt output,” Apichart Jongskul , secretary-general of Thailand’s Office of Agricultural Economics , said today by phone. “The impact on the next crop has yet to be evaluated,” Apichart said. Thai output of unmilled rice in the year that started Oct. 1 may be between 27 million and 29 million tons, said Apichart. That’s unchanged from a forecast on Jan. 13, and 15 percent lower than the previous year’s 31.7 million tons, he said. The El Nino weather phenomenon, characterized by warmer sea-surface temperatures across the equatorial Pacific, can cut rainfall in Asia. Among the expected impacts from this month to May are drier-than-average conditions over Indonesia, according to a March 4 report from the U.S. Climate Prediction Center. ‘Driest Period’ “It’s the driest period I’ve ever seen,” Virapan Tipsuna, a 42-year-old farmer in Thailand’s northeastern province of Nongkhai, said yesterday in an interview. “It is so dry that the water supply is not enough for rice farming.” Palm oil, about 90 percent of which is produced in Indonesia and Malaysia, may surge this year as the El Nino curbs yields, analysts and traders including Prudential Bache Commodities LLC and Godrej International Ltd. warned this week. The commodity, trading today at 2,700 ringgit ($813) a ton, may jump to 3,200 ringgit, Godrej’s Dorab Mistry forecast. “Mistry’s expectations are similar to our own thesis of an extended El Nino and lower” palm oil production, BNP’s Michael Greenall wrote in today’s note, including among his top picks Indonesia’s PT Astra Agro Lestari , that country’s largest publicly traded plantations company. Astra Agro stock has almost doubled in the past year. Drought Spreads Drought is spreading in 36 of Thailand’s 76 provinces, mostly in the North and Northeast, which are major planting areas of rice and sugar, according to a statement on the government’s Web site. Water in reservoirs that can be consumed has dropped 15 percent this year, according to the Royal Irrigation Department . The Mekong River, which flows from China through five countries in Southeast Asia, is at its lowest level in 30 years near Thailand’s border with Laos, Thailand’s Department of Water Resources said yesterday. A drought in southern China, including Yunnan province, has left rivers at record lows, the Ministry of Water Resources said yesterday. Dry weather from El Nino has damaged 200,000 tons of rice in the Philippines, the world’s largest importer, Agriculture Secretary Bernie Fondevilla said on the same day. In Thailand’s Northeast, the water shortage, coupled with plant infestations, has damaged half of the rice crop, said Virapan, the farmer. “We just hope that it will rain soon and we don’t have to suffer again next year.” To contact the reporter on this story: Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net

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Global Confidence Dips as Greek Debt Woes Risk Hurting Economic Recovery

March 10, 2010

By Shamim Adam and Jacob Greber March 10 (Bloomberg) — Confidence in the world economy dropped for a second month in March amid concern the fallout from Greece’s budget crisis will undermine the global recovery, according to a Bloomberg survey of users on six continents. The Bloomberg Professional Global Confidence Index fell to 53.8 from 54.9 in February. The index exceeded 50 for an eighth month, which means there were more optimists than pessimists. Sentiment declined in Europe, where leaders have signaled the euro region is ready to rescue Greece should the government struggle to fund its budget deficit. The impact on confidence from budget shortfalls suggests policy makers may need to rein in fiscal stimulus efforts before evidence emerges of sustained recoveries in some economies. Standard & Poor’s and Moody’s Investors Service said they may cut Greece’s credit rating in coming months, while the euro has dropped against the dollar this year on speculation the budget crisis will destabilize the region. “Confidence has been a bit shaky with Greece being a timely reminder that governments need to adhere to fiscal discipline,” said Tai Hui , head of Southeast Asian economic research at Standard Chartered Plc in Singapore, and a regular survey participant. “Governments are starting to consolidate their fiscal positions and not looking to expand their spending plans anytime soon.” Central Banks The survey of 1,612 Bloomberg users was done between March 1 and March 5. Since the previous survey, the Federal Reserve raised the rate charged to banks for direct loans and China told lenders to set aside a bigger proportion of deposits as reserves for the second time this year. The European Central Bank last week said it will tighten the terms of its three-month market operations next month as it left its benchmark rate at a record low of 1 percent. The confidence gauge for Western Europe fell to 41 from 49.8 as Greek Prime Minister George Papandreou struggled to convince investors his government was serious about taming Europe’s biggest budget deficit, which has stoked financial market turmoil since January. Greece faces more than 20 billion euros ($27 billion) of debt redemptions in April and May and needs to sell 53 billion euros of debt this year. It sold 5 billion euros of 10-year securities on March 4, offering investors an interest premium of 0.32 percentage point over existing debt. “The problem about Greece’s debts is not solved, it’s only put off,” said Reto Huenerwadel , an economist at UBS AG in Zurich who participated in the survey. “I am moderately optimistic for the global economy.” ‘Circuit Breaker’ Euro-area growth almost ground to a halt in the fourth quarter, while unemployment held at the highest level in more than 11 years in January. The European Commission last month said the economy may fail to gather strength for most of 2010. A measure of U.S. participants’ confidence in the economy rose to 48.5 this month from 41.3 in February. The American unemployment rate held at 9.7 percent and payrolls fell less than forecast last month, indicating a strengthening labor market. Service industries accelerated more than anticipated in February, while manufacturing expanded for a seventh month, the Institute for Supply Management said. Asia’s index rose to 75.9 in March from 70.8, while the confidence gauge for Japan climbed to 44.8 from 40.6. Asia Pacific nations are leading the recovery from the global recession and the region’s central banks including Australia, Malaysia and Vietnam have raised interest rates to avert asset bubbles and keep inflation contained. Latin America In Latin America, the region’s index rose to 74.5 from 64.6, while the gauge of confidence in Brazil’s economy was little changed, at 86 from 85.8. Foreign investors are pumping money into Brazil’s economy as the country builds houses, roads and stadiums for the 2014 World Cup soccer tournament and the 2016 Olympic Games in Rio de Janeiro, prompting Luciano Coutinho , president of state development bank BNDES, to say on March 3 that Latin America’s largest economy may overheat as too much overseas investment flows into the country. Investors became the most bullish on the U.S. dollar since the collapse of Lehman Brothers Holdings Inc. The dollar confidence index rose to 66.4 from 55.7 in February. Survey respondents in Europe turned more pessimistic on the outlook for the euro, expecting it to weaken against its U.S. counterpart over the next six months. Most Bloomberg users were less pessimistic on the outlook for their equity markets in the next six months, with indexes rising in the U.S., Japan and Spain. Survey participants in the U.S. remained confident short-term interest rates will rise in the next six months, while most in Europe were less optimistic on the likelihood of higher borrowing costs, the survey showed. To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

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HIV Discoverer Criticizes Singapore for Lack of Free Testing, Treatment

March 4, 2010

By Simeon Bennett March 5 (Bloomberg) — The lack of free testing and treatment for HIV in Singapore is hindering progress on controlling the spread of the virus in the city-state, said Francoise Barre-Sinoussi , winner of the 2008 Nobel Prize in Medicine for her co-discovery of the virus that causes AIDS. “The stigma, the fact that they have to pay for everything, it’s the worst conditions for stimulating people to be tested and treated,” Barre-Sinoussi, 62, said in an interview at the French embassy in Singapore today. “The numbers they announce are probably much lower than the numbers they have.” New HIV infections in the nation of 4.6 million people rose to 456 in 2008 from 242 in 2003, according to the health ministry. In France, which has 64 million people, new cases fell to 6,940 from 8,930 over the same period, data presented at an AIDS conference last month show. Singapore’s government has opened more anonymous testing clinics, boosted HIV education programs and produced a soap opera to curb new infections of HIV, which have doubled in the past 10 years, even as the spread of the virus slows in neighboring Malaysia and Thailand. Treatment can cost as much as S$1,500 ($1,073) a month in Singapore, said Stuart Koe, chief executive officer of Fridae.com , Asia’s largest gay Web site. The government said in January it would subsidize HIV treatment for patients who can’t afford it. An anonymous HIV test costs S$30, according to the Web site of Action for AIDS, which runs Singapore’s biggest anonymous testing clinic. ‘Difficult to Accept’ “Coming from a country where everything is free, it’s difficult to accept,” Barre-Sinoussi said. “The situation is even worse than in developing countries not far from here. In Cambodia, everything is free.” HIV-AIDS is the world’s deadliest infectious disease . About 33 million people were living with HIV, 2.7 million were newly infected with the virus and 2 million people died with AIDS in 2008, according to the latest World Health Organization estimates. Barre-Sinoussi is director of the Regulation of Retroviral Infections Unit at the Institut Pasteur in Paris. In 1983 she co-wrote a report with Luc Montagnier in the journal Science that detailed the discovery of the pathogen that later became known as human immunodeficiency virus, or HIV. To contact the reporter on this story: Simeon Bennett in Singapore at sbennett9@bloomberg.net

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Shell Aims for New Nigeria as $19 Billion Qatar Gas-to-Liquid Plant Starts

March 4, 2010

By Stanley Reed and Robert Tuttle March 4 (Bloomberg) — Royal Dutch Shell Plc spent $19 billion to build the world’s largest gas-to-liquids project, triple the original estimate. Now, it’s pay-off time and the plant may generate $6 billion a year for the company and Qatar. Shell needs the plant, known as Pearl , to bolster output, which fell for a seventh year in 2009 in part because rebel violence hampered oil ventures in Nigeria . Qatar, the arid Gulf state that’s become the biggest exporter of gas on ships, may account for 10 percent of the company’s production after Pearl and a liquefied natural gas project start deliveries next year. Shell’s work in Qatar is “like creating a new Nigeria,” Andrew Brown, the company’s executive vice president for the country, said in an interview in the capital, Doha. Pearl will begin processing gas toward the end of this year and start delivering fuel in early 2011, he said. Gas-to-liquids technology, a relatively expensive way to make diesel and jet fuel, makes more sense given today’s disparity between natural gas and oil prices. Converted into barrels of oil, gas is less than half the price of crude, which doubled to near $80 in the last year. At full capacity, Shell said Pearl will churn out 140,000 barrels a day of liquid fuel and 120,000 barrels equivalent of ethane gas and condensate, a by-product that’s like a light crude oil. ‘Fantastic’ Result “GTL is a very expensive, energy-intensive process,” said Iain Anderson, an analyst at brokers Brewin Dolphin Holdings Plc in London. “But the result you get is fantastic.” Pearl could be paid off in five years, Anderson said. Since the fuel Pearl will produce is purer than traditional crude-based products, Shell may be able to sell its output at a premium. Pollutants such as sulfur are stripped out of the gas, making it well-suited to green-minded airlines or clean diesel for cars. Operating costs at Pearl will be about $6 a barrel, Brown said, and the company can reclaim the cost of building the plant through the production-sharing agreement it has with Qatar. With crude at $70 a barrel, Pearl would generate about $6 billion a year in profit for Shell and Qatar, he said. “GTL starts to make sense when there is a spread between oil and gas prices,” said Ross Cassidy, an analyst at Edinburgh-based Wood Mackenzie Consultants Ltd. Ras Laffan Pearl’s webs of tanks and piping sprawl over a 4-square- kilometer (1.5-square-mile) area at Qatar’s Ras Laffan site . An estimated 51,000 workers, their necks draped in cloth to ward off the blazing Gulf sun, weld joints, dig ditches and direct traffic with red and green flags. The workers, mostly men, wear color-coded helmets indicating their roles. White hats are for managers, red for scaffolders, yellow for pipefitters. Shell project engineer Wiliam Keij said the start-up will last for months as unit after unit is fired up. At the heart of Pearl will be twenty-four 1,200-metric-ton reactor vessels filled with pipes where gas will be converted into paraffin through interaction with catalysts. The paraffin then flows into refinery-like units where it will be broken down into kerosene for jet fuel, gasoil for diesel and base oils for lubricants. The technology and energy required to make gas-to-liquids work mean it has rarely been used to bring natural-gas resources to consumers. The 34,000-barrel-a-day Oryx GTL, Qatar’s only operating gas-to-liquids plant, reached full power in 2009 after hitting snags following its 2006 start. Oryx is a venture of state-controlled Qatar Petroleum and South Africa’s Sasol Ltd . Ironed Out Kinks Shell said it has ironed out a lot of the kinks of gas-to- liquids at a smaller plant it has operated in Malaysia since 1993. Bintulu, which had early glitches, has been generating about $200 million a year in earnings. At 14,700 barrels a day, Bintulu is only about a 10th of the size of Pearl. Alongside Pearl, Shell has a 30 percent stake in Qatargas 4, part of the world’s largest LNG complex, due to start exports in 2011. With oil prices at $70 a barrel, the two projects should generate more than $4 billion a year for Shell after revenue sharing with Qatar, Brown said. Shell has advanced 28 percent in the past 12 months in London trading, and held steady today at 1,867.5 pence as of 12:24 p.m. local time. The company posted net income of $12.5 billion last year as New York crude futures averaged $62.09 a barrel. Oil and gas production averaged the equivalent of 3.15 million barrels a day, according to Shell filings on Bloomberg. In Nigeria, Shell’s share of production for its onshore fields dropped to 150,000 barrels a day after an oil spill shut a pipeline, Chief Financial Officer Simon Henry said last month. At full capacity, output from the fields is more than 350,000 barrels a day. When Pearl and Qatargas 4 are both up and running they will add 350,000 barrels a day to Shell’s total production. To contact the reporters on this story: Stanley Reed in Doha, Qatar on sreed13@bloomberg.net ; Robert Tuttle in Doha, Qatar at rtuttle@bloomberg.net .

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Malaysian high-end homes ‘see steady rise’

March 3, 2010

03 Mar 2010 New research suggests Malaysia’s high-end property market performed well last year, showing strong signs of growth. Figures from Jones Lang Wootton (JLW) Malaysia show homes in the Bang…

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Malaysian property prices ‘to rise 5-10%’

March 3, 2010

03 Mar 2010 Property prices in Malaysia could be set for a rise of between five and ten per cent during 2010, according to a report. RAM Holdings chief economist, Dr Yeah Kim Leng, indicated a brig…

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Australia Raises Key Rate; Currency Pares Advance on Outlook for Inflation

March 2, 2010

By Jacob Greber March 2 (Bloomberg) — Australia’s central bank resumed raising interest rates after a one-meeting pause, judging that faster-than-anticipated economic growth will allay concerns that European deficits may roil global confidence. Reserve Bank of Australia Governor Glenn Stevens increased the benchmark overnight cash rate target to 4 percent from 3.75 percent in Sydney today, as forecast by 14 of 19 economists in a Bloomberg News survey . The rest saw no change. Stevens said rates should be closer to “average,” which he last week signaled may be 75 basis points higher than today’s new level. The biggest jobs boom in more than three years and a surge in business confidence suggest Australia’s economy is already growing at or close to trend, after escaping recession during the global crisis, Stevens said. Today’s decision indicated the economic figures outweighed concerns about global sovereign debt risks, which helped convince the RBA to stand pat last month. “It seems they are determined to deliver a rate hike every couple of months or so,” said Stephen Walters , chief economist at JPMorgan Chase & Co. in Sydney. Still, there is enough global risk “out there that they’d want to be a bit cautious about” another move in April, he added. The RBA paused last month after sovereign-debt risks sparked by Greece sent the euro and emerging stock markets tumbling. Currency Performance The Australian dollar fell to 89.82 U.S. cents at 5:31 p.m. in Sydney from 90 cents just before the decision was announced. It has soared 42 percent against its American counterpart in the past year, making it the best performer among the most-traded currencies. The two-year government bond yield rose 2 basis point to 4.59 percent from 4.57 percent before the decision. While most loan rates have climbed by close to a percentage point since the Reserve Bank began raising rates in October, “interest rates to most borrowers nonetheless remain lower than average,” Stevens said. Australia’s four biggest lenders all said borrowing costs are under review following the RBA’s decision. Today’s increase by Stevens widens the gap between Australia’s cash rate target and the U.S. benchmark to 3.75 percentage points, the most since January 2009. The difference between the Australian and U.K. benchmarks is now 350 basis points, the widest since 1990. Retail Sales The announcement came hours after the government reported retail sales climbed 1.2 percent in January from December, exceeding the forecasts of all 19 economists in a Bloomberg News survey. A separate report showed home-building approvals fell in January, affected by the Reserve Bank’s rate increases and a reduction in government grants to first-time buyers. Evidence of faster growth convinced most economists in a Bloomberg News survey on Feb. 26 to predict today’s move, after a majority in an earlier Feb. 12 survey saw no change. Sovereign debt concerns have caused the euro to tumble since the start of the year and emerging stock markets to retreat. “Credit conditions remain difficult in some major countries as banks continue to face loan losses associated with the period of economic weakness,” Stevens said. “Concerns regarding some sovereigns remain elevated.” Today’s move makes Stevens the first central banker from a Group of 20 economy to boost benchmark rates this year, after leading the way in presiding over three moves in the fourth quarter. The increases brought the rate up from a half-century low of 3 percent. Global Context Pressure is also mounting on central banks in Canada, India, Malaysia and Indonesia to lift borrowing costs soon. Malaysia’s economy grew a greater-than-forecast 4.5 percent last quarter from a year earlier, and a report yesterday showed Indonesia’s inflation was at a nine-month high. Canada’s expansion is the fastest since 2000, a report showed late yesterday. By contrast, U.S. Federal Reserve Chairman Ben S. Bernanke said last week the world’s largest economy is in a “nascent” recovery that still requires low rates. The Fed has kept its benchmark close to zero since late 2008. The European Central Bank’s rate is at a record low of 1 percent. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, boosted by A$22 billion ($20 billion) in spending by Prime Minister Kevin Rudd on roads and schools. Gross domestic product rose 0.9 percent in the fourth quarter from the previous three months, when it gained 0.2 percent, according to the median estimate of 18 economists surveyed by Bloomberg. The figures will be released at 11:30 a.m. tomorrow. Lending Rebounds “Labor-market data and a range of business surveys suggest growth in economy may have already been at or close to trend for a few months,” Stevens said today. Banks are becoming more willing to lend to businesses and “investment in the resources sector is very strong,” he said. GDP growth will quicken to an annual pace of 3.25 percent in the fourth quarter from 2 percent late last year, the Reserve Bank said in February. “The rising rates are a symptom of a growing Australian economy,” said Jason Teh , who helps manage $3.2 billion at Investors Mutual in Sydney. “The economy is growing and the RBA has to do something about it. It just came down to timing.” A month ago, Governor Stevens cited concern about sovereign debt in Europe and turmoil on global financial markets for keeping the benchmark rate unchanged, a move that confounded the forecasts of all 20 economists surveyed by Bloomberg predicting an increase. Reports published since then suggest inflation pressures may strengthen as a worsening skills shortage boosts wages. Job Market Employers added 194,600 jobs in the five months through January, the most in more than three years, cutting the unemployment rate to an 11-month low of 5.3 percent. Business investment jumped in the fourth quarter at almost three times the pace predicted by analysts as companies raised forecasts for investment plans to a five-year high, a report showed last week. BHP Billiton Ltd. , the world’s largest mining company, said last month it will increase capital spending on iron-ore mines and oil fields by 63 percent next year to $20.8 billion. Commodity exports may jump next fiscal year by 15 percent to A$187 billion, the second-highest level on record, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a report. Chevron, Exxon Mobil Corp. and Royal Dutch Shell Plc have this year begun construction on the A$43 billion Gorgon natural- gas venture, the nation’s single-biggest investment project that is forecast to generate as many as 10,000 jobs. Tightening ‘Process’ “The board judges that with growth likely to be close to trend and inflation close to the target over the coming year, it is appropriate for interest rates to be closer to average,” Stevens said. “Today’s decision is a further step in that process.” The central bank’s so-called annual weighted-median gauge of core inflation rose 3.6 percent in the three months through December. The measure has held above the top of the bank’s target range of between 2 percent and 3 percent since the third quarter of 2007. “If anyone is going to boom, surely it’s Australia,” Gerry Harvey , chairman of Australia’s largest electronics retailer Harvey Norman Holdings Ltd. , said in a Feb. 26 interview. “We never really went into a recession at all. Our unemployment rate was projected to reach 7, 8, 9, or 10 percent, but it never even got to 6 percent.” House prices jumped 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark, whose figures are used by the central bank in its quarterly monetary policy statement. Today’s rate increase means households with a A$300,000 mortgage will be charged an extra A$50 a month if commercial lenders raise borrowing costs by the same level, adding to the A$150 increase in monthly payments last quarter. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Raises Benchmark Rate to 4% as Recovery Withstands Debt Concerns

March 1, 2010

By Jacob Greber March 2 (Bloomberg) — Australia’s central bank resumed raising interest rates after a one-meeting pause, judging that the economy is strong enough to withstand any impact from global investor concerns on sovereign debt risks. Reserve Bank Governor Glenn Stevens increased the benchmark overnight cash rate target to 4 percent from 3.75 percent in Sydney today, as forecast by 14 of 19 economists surveyed by Bloomberg News. The rest predicted no change. Today’s decision may stoke the Australian dollar, the best- performing major currency in the past year, and it reflects the strength of an economy that escaped recession during the global crisis. The biggest jobs boom in more than three years, a jump in house prices and a business-confidence rebound put pressure on Stevens to return rates toward what he calls a “normal” level. “The economy is recovering with much less slack than in past upswings,” Kieran Davies , a senior economist at Royal Bank of Scotland Group Plc in Sydney, said ahead of today’s decision. “The immense mining-led strength of the outlook for business investment should also reinforce the Reserve Bank’s view that China will support growth in Australia despite ongoing troubles in Europe.” Today’s increase by the Reserve Bank widens the gap between Australia’s cash rate target and the U.S. benchmark to 3.75 percentage points, the most since January 2009. The difference between the Australian and U.K. benchmarks is now 350 basis points, the widest since 1990. The announcement came hours after the government reported retail sales climbed 1.2 percent in January from December, exceeding the forecasts of all 19 economists in a Bloomberg News survey. A separate report showed home-building approvals fell in January, affected by the Reserve Bank’s rate increases and a reduction in government grants to first-time buyers. Switch in View Evidence of an accelerating expansion convinced most economists to predict today’s move after a majority in the Bloomberg News survey on Feb. 12 saw no change. Sovereign debt concerns have caused the euro to tumble since the start of the year and emerging stock markets to retreat. Today’s move makes Stevens the first central banker from a Group of 20 economy to boost benchmark rates this year, after leading the way in presiding over three moves last quarter. The increases brought the rate up from a half-century low of 3 percent. Pressure is also mounting on central banks in Canada, India, Malaysia and Indonesia to lift borrowing costs soon. Malaysia’s economy grew a greater-than-forecast 4.5 percent last quarter from a year earlier, and a report yesterday showed Indonesia’s inflation was at a nine-month high. Canada’s expansion is the fastest since 2000, a report showed late yesterday. Fed Standing Pat By contrast, U.S. Federal Reserve Chairman Ben S. Bernanke said last week the world’s largest economy is in a “nascent” recovery that still requires low rates. The Fed has kept its benchmark close to zero since late 2008. The European Central Bank’s rate is at a record low of 1 percent. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, boosted by A$22 billion ($20 billion) in spending by Prime Minister Kevin Rudd on roads and schools. Gross domestic product rose 0.9 percent in the fourth quarter from the previous three months, when it gained 0.2 percent, according to the median estimate of 18 economists surveyed by Bloomberg. The figures will be released at 11:30 a.m. tomorrow. Australia has emerged from the global financial crisis “better than most,” helped by a “strong macroeconomic” environment, Governor Stevens said in Melbourne yesterday. GDP growth will quicken to an annual pace of 3.25 percent in the fourth quarter from 2 percent late last year, the Reserve Bank said in February. Pessimism Eased “I argued in February that the Reserve Bank would be unable to pause for any length of time in the face of strong economic data,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “Stock markets over the past week have generally been more buoyant, and the news flow less pessimistic than February.” A month ago, Governor Stevens cited concern about sovereign debt in Europe and turmoil on financial markets for keeping the benchmark rate unchanged, a move that confounded the forecasts of all 20 economists surveyed by Bloomberg predicting an increase. Reports published since then suggest inflation pressures may strengthen as a rising skills shortage boosts wages. Employers added 194,600 jobs in the five months through January, the most in more than three years, cutting the unemployment rate to an 11-month low of 5.3 percent. Business investment jumped in the fourth quarter at almost three times the pace predicted by analysts as companies raised forecasts for investment plans to a five-year high, a report showed last week. BHP Plans BHP Billiton Ltd. , the world’s largest mining company, said last month it will increase capital spending on iron-ore mines and oil fields by 63 percent next year to $20.8 billion. Commodity exports may jump next fiscal year by 15 percent to A$187 billion, the second-highest level on record, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a report. Chevron, Exxon Mobile Corp. and Royal Dutch Shell Plc have this year begun construction on the A$43 billion Gorgon natural- gas venture, the nation’s single-biggest investment project that is forecast to generate as many as 10,000 jobs. The economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, Governor Stevens told a parliamentary committee in Canberra on Feb. 19. “Monetary policy must therefore be careful not to overstay a very expansionary setting.” Inflation Measure The central bank’s so-called annual weighted-median gauge of core inflation rose 3.6 percent in the three months through December. The measure has held above the top of the bank’s target range of between 2 percent and 3 percent since the third quarter of 2007. “If anyone is going to boom, surely it’s Australia,” Gerry Harvey , chairman of Australia’s largest electronics retailer Harvey Norman Holdings Ltd. , said in a Feb. 26 interview. “We never really went into a recession at all. Our unemployment rate was projected to reach 7, 8, 9, or 10 percent, but it never even got to 6 percent.” House prices jumped 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark, whose figures are used by the central bank in its quarterly monetary policy statement. Today’s rate increase means households with a A$300,000 mortgage will be charged an extra A$50 a month, adding to the A$150 increase in monthly payments last quarter. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia May Increase Key Rate to 4% as Economy Rebounds, Economists Say

March 1, 2010

By Jacob Greber March 2 (Bloomberg) — Australia’s central bank may raise its benchmark interest rate today for the fourth time in five meetings amid signs that the strength of the nation’s economic recovery will stoke inflation. Governor Glenn Stevens will boost the overnight cash rate target to 4 percent from 3.75 percent, according to 14 of 19 economists surveyed by Bloomberg. Investors are betting there is a 62 percent chance of a quarter-point increase, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:46 a.m. The Australian dollar has soared to a 25-year high against the pound on speculation Stevens will become the first central banker from a Group of 20 economy to raise borrowing costs this year. Figures released today show retail sales increased 1.2 percent in January from the previous month, more than twice the gain expected by economists, as consumers shrug off concerns about rising borrowing costs. “The Reserve Bank will continue to tread carefully in lifting rates to more ‘normal’ levels,” said Craig James , a senior economist at Commonwealth Bank of Australia. “But it will be constantly stopping to assess the landscape.” A 25 basis point increase by the Reserve Bank today would widen the gap between Australia’s cash rate target and the U.S. benchmark to 3.75 percentage points, the most since January 2009. The difference between the Australia and U.K. benchmarks would be 350 basis points, the widest since 1990. Faster Growth The Australian dollar traded at 89.85 U.S. cents at 12:20 p.m. in Sydney from 90.09 cents late yesterday in New York. The currency bought 60.20 U.K. pence, up from 60.01 pence. Australia’s two-year government bond yield held at 4.59 percent. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, a separate analysts’ survey ahead of a report tomorrow shows, boosted by A$22 billion ($20 billion) in spending by Prime Minister Kevin Rudd on roads and schools. Concerns about sovereign debt in Europe and turmoil in financial markets may prompt Stevens to wait another month, some economists say. Today’s “cash rate decision is a close call,” said Paul Brennan , an economist at Citigroup Inc. in Sydney. “We slightly favor the bank leaving rates on hold.” Stevens was the first central banker in the world to increase interest rates three times last quarter, when he raised the Reserve Bank’s key rate to 3.75 percent from a half-century low of 3 percent. Mounting Pressure Pressure is also mounting on central banks in India, Malaysia and Indonesia to raise rates soon. Malaysia’s economy expanded a greater-than-forecast 4.5 percent in the three months ended Dec. 31 from a year earlier, and a report yesterday showed Indonesia’s inflation accelerated in February to the fastest pace in nine months. By contrast, the U.S. Federal Reserve Chairman Ben S. Bernanke said last week the world’s largest economy is in a “nascent” recovery that still requires low interest rates. The Fed has kept its benchmark rate close to zero since late 2008. The European Central Bank’s rate is at a record low of 1 percent. A rebound in consumer confidence, greater business optimism, surging house prices, a drop in unemployment, and signs of an investment boom in resources projects such as Chevron Corp. ’s Gorgon natural gas project off Western Australia are forecast by the central bank to fuel an acceleration in Australia’s economy, one of the few to skirt last year’s global recession. ‘Better Than Most’ Gross domestic product probably rose 0.9 percent in the fourth quarter from the previous three months, when it gained 0.2 percent, according to the median estimate of 18 economists surveyed by Bloomberg News. The economy may have expanded 2.4 percent from a year earlier, they said. The figures will be released at 11:30 a.m. on March 3. Australia has emerged from the global financial crisis “better than most,” helped by a “strong macroeconomic” environment, Governor Stevens said in Melbourne yesterday. Gross operating profits jumped 2.2 percent last quarter from the previous three months, the Bureau of Statistics said in Sydney yesterday. An index of manufacturing performance rose to 53.8 points in February, according to a separate report from the Australian Industry Group and PricewaterhouseCoopers. Sales of newly built dwellings surged 9.5 percent in January, the biggest increase since August, a report by the Canberra-based Housing Industry Association showed yesterday. The economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, Governor Stevens told a parliamentary committee in Canberra on Feb. 19. “Monetary policy must therefore be careful not to overstay a very expansionary setting.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Blasts at Bangkok Bank Come as Thailand Seizes $1.4 Billion From Thaksin

February 28, 2010

By Daniel Ten Kate and Suttinee Yuvejwattana March 1 (Bloomberg) — Thai security forces were on alert following bomb attacks on Bangkok Bank Pcl that came after a court seized about $1.4 billion from fugitive former Prime Minister Thaksin Shinawatra . Four branches of Thailand’s biggest bank were targeted late on Feb. 27 with grenades, two of which exploded. Nobody was hurt in the attacks, which shattered glass and damaged buildings. “There is only a small group of people who want to create unrest in the country,” Prime Minister Abhisit Vejjajiva said yesterday in his weekly television address. “We shouldn’t fall victim to them.” Competition for political power between Thaksin’s generally rural and poorer supporters and largely urban and more middle class opponents has prompted unrest in Thailand since the coup that ousted him in September 2006. Protests by the two sides have included airport blockades, rioting and bombings. “The government will do everything it can to control the situation,” Abhisit said. “We will increase checkpoints and patrols. The police may not have enough officers, so we will ask for more people from the military.” Nine Supreme Court judges decided on Feb. 26 to seize 46.4 billion baht ($1.4 billion) of the 76.6 billion baht that Thaksin’s family earned from the 2006 sale of holding company Shin Corp. to Singapore’s Temasek Holdings Pte. The court returned 30.2 billion baht to the former premier. Thaksin Supporters Thaksin’s supporters rallied in front of Bangkok Bank’s headquarters last month to protest its links with Prem Tinsulanonda , the president of King Bhumibol Adulyadej’s Privy Council, who has also served as an adviser to the bank. Thaksin has accused Prem of masterminding the coup, a charge he has denied. King Bhumibol, the world’s longest reigning monarch, has been hospitalized since Sept. 19 with symptoms of pneumonia. The 82-year-old head of state visited a Bangkok palace for about four hours on Feb. 27 before returning to the hospital, the Associated Press reported yesterday, citing an unidentified palace official. The pro-Thaksin United Front for Democracy Against Dictatorship aims to gather 1 million people in Bangkok later this month to push for a fresh election. The group urged its supporters to accept the verdict against Thaksin “with cold, angry silence.” Thaksin said the ruling was “100 percent politically motivated” and urged his supporters to continue fighting the government. The former prime minister lives overseas after fleeing a two-year prison sentence in 2008. Continue Fighting The verdict may boost Thai stocks, which trade at 10.9 times 2010 earnings, the third-cheapest in Asia. Thailand’s SET Index has lagged behind benchmarks in Indonesia, Malaysia, the Philippines and Vietnam this year. Markets are closed today in Bangkok for a holiday. “The market will rise as political tension has eased,” Prapas Tonpibulsak , chief investment officer at Ayudhya Fund Management, said immediately after the verdict. “Upside will probably be limited as conflicts remain.” Foreign investors, net sellers of $98 million of Thai stocks this year, bought a net $58 million on Feb. 25, the most since Oct. 9, according to stock exchange data. The baht on Feb. 26 gained on optimism an economic recovery is gathering pace after industrial production rose for a fifth straight month in January. After Thaksin founded Shin Corp. in 1983, its units were awarded one of two mobile-phone concessions and an exclusive satellite franchise. The company controls Advanced Info Service Pcl , Thailand’s top mobile-phone operator, and satellite services monopoly Thaicom Pcl . Court Findings The court said Thaksin benefited Shin-controlled companies by lowering Advanced Info’s royalty payments to the state-owned telecoms operator and approving a government loan to Myanmar, part of which was used to buy equipment from Thaicom. Shin shares gained 121 percent from when Thaksin took office on Feb. 9, 2001, to when his family sold the company on Jan. 23, 2006, compared with a 128 percent gain in the benchmark SET index, according to data compiled by Bloomberg. Siam Cement Pcl , Thailand’s fourth-biggest company, which is controlled by the monarchy’s investment arm, gained 717 percent in that time. Thaksin’s supporters say the constitution drafted after the coup gives too much power to appointed figures such as soldiers, judges and royal advisors at the expense of elected politicians. Thaksin and his allies have won the past four elections on heavy support from the northeast, Thailand’s poorest region and home to a third of its 66 million people. Balance of Power Since the 2006 coup, courts have disbanded parties linked to Thaksin that won the past two elections. The rulings have eroded confidence in the judicial system among Thaksin’s supporters, who say different standards are applied to their opponents, who seized the prime minister’s offices and the airports two years ago. Prosecutors have yet to bring those cases to trial. Thaksin’s supporters want the constitution changed to eliminate a half-appointed Senate and provisions that make it easy to disband political parties. Abhisit, who took power in December 2008 after a court dissolved the pro-Thaksin party that won an election the previous year, has opposed efforts to amend the constitution. He must call an election by the end of 2011. To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net ; Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net .

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Asian Currencies Advance as Reports Show Economic Recovery Is Gaining Pace

February 27, 2010

By David Yong Feb. 27 (Bloomberg) — Asian currencies strengthened this week, led by Singapore’s dollar and Malaysia’s ringgit, after government reports showed economic recoveries in the region are gathering pace. The MSCI Asia-Pacific Index of shares rallied 2.4 percent and bond yield premiums helped attract fixed-income investors as the Federal Reserve damped speculation U.S. interest rates will be raised. The Philippines predicts economic growth will exceed the government’s target this year, while Taiwan data showed export orders surged the most on record. “Recovery momentum in Asia is still intact and should continue to benefit from the uptick in the manufacturing cycle,” said Sim Moh Siong , a foreign-exchange strategist at Bank of Singapore Ltd. “The long-term picture should continue to favor Asian and emerging-market currencies.” Singapore’s dollar appreciated 0.7 percent to S$1.4058 against the U.S. currency, while the ringgit rose 0.3 percent to 3.4000, according to data compiled by Bloomberg. The peso advanced 0.3 percent to 46.135. South Korea’s won and Indonesian rupiah have led regional gains in the past 12 months, strengthening 31 percent and 28 percent, respectively. Interest rates of zero to 0.25 percent in the U.S. spurred so-called carry trades, in which investors borrow at low rates to purchase higher-yielding assets elsewhere. ‘Yield Hungry Investors’ Emerging-market bond funds received net inflows for a 16th week from “yield hungry investors,” according to a Feb. 25 statement from EPFR Global. Investors ploughed more than $3.5 billion into debt sold by developing nations this year, after investing a record $8 billion in 2009, said the Cambridge, Massachusetts-based research company that tracks $12 trillion of assets worldwide. Fed Chairman Ben S. Bernanke said this week that the U.S. economy is in a “nascent” recovery that still requires its target rate for overnight loans to be kept at near zero “for an extended period.” The Philippine peso is the best-performing currency in Asia this month on optimism money sent home by Filipinos working abroad will increase this year. Economic growth may exceed the government’s 3.6 percent target in 2010 compared with an annualized 0.9 percent expansion last year, central bank Deputy Governor Diwa Guinigundo said on Feb. 25. The 9 million Philippine nationals employed overseas repatriated a record $17.3 billion in 2009, up 5.6 percent from the previous year. Those remittances will rise 6 percent this year, according to official estimate. “Remittances are still a big story and prospects for growth are better,” said Lito Mercado , head of trading at Rizal Commercial Banking Corp. in Manila. “Growth in remittances could be closer to 10 percent this year.” Manufacturing Boost Singapore’s industrial production rose 39.4 percent in January from a year earlier, twice the pace estimated by economists in a Bloomberg survey, according to government figures published yesterday. Taiwan, Thailand and Malaysia this week released data showing their economies emerged from recessions in the final quarter of 2009, with all three reporting faster expansions than economists anticipated. “The Asia data flow remains fairly strong,” Sebastien Barbe , head of emerging-market research at Credit Agricole CIB in Hong Kong, wrote in a Feb. 26 research note. Improved Confidence South Korea’s won appreciated 0.1 percent this week to 1,159.85 per dollar in Seoul. It gained 0.3 percent yesterday, as the outlook for factory production brightened. An index measuring manufacturers’ expectations climbed to a seven-year high of 101, from 92 a month ago, the Bank of Korea said yesterday. “The manufacturing data helps the won,” said Thio Chin Loo , a senior currency strategist at BNP Paribas SA in Singapore. “There is some profit-taking in dollar positions before the weekend.” India’s rupee strengthened yesterday by the most in almost seven weeks on speculation sales of state assets will draw investment from abroad. The country plans to raise 400 billion rupees ($8.7 billion) selling stakes in state-owned companies in the year beginning April 1, versus about 250 billion rupees in the current fiscal year, Finance Minister Pranab Mukherjee said. The rupee climbed 0.6 percent to 46.126 in Mumbai yesterday, versus the greenback, giving a weekly advance of 0.4 percent, according to data compiled by Bloomberg. Gross domestic product rose 6 percent from a year earlier in the fourth quarter, after gaining 7.9 percent in the previous three months, and Mukherjee said growth may reach 8.5 percent in the coming fiscal year. Elsewhere, Taiwan’s dollar rose 0.1 percent for the week to NT$32.085 against its U.S. counterpart and the baht advanced 0.3 percent to 33.07. China’s yuan advanced 0.1 percent to 6.8260, from 6.8330 on Feb. 12, before the weeklong Lunar New Year holiday. To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net .

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Thai Police Deployed as Courts Mull Seizing $2.3 Billion Thaksin Fortune

February 25, 2010

By Daniel Ten Kate Feb. 26 (Bloomberg) — Thai police manned checkpoints near strategic locations in Bangkok as a court prepares to rule later today whether the government can seize about $2.32 billion from fugitive Prime Minister Thaksin Shinawatra ’s family. The verdict from nine Supreme Court judges will conclude a case that began after the army ousted Thaksin in 2006, sparking a power struggle that may shape how the country is governed. Rival camps disagree on how much authority appointed soldiers, judges and royal advisers should wield over elected politicians. Police added reinforcements around the court, Parliament and Prime Minister Abhisit Vejjajiva ’s offices, the site of violent street protests from both sides in the past two years. The political turmoil has weighed on Thai stocks, which trade at 10.8 times 2010 earnings, the third-cheapest in Asia. “There are so many moving parts here that you’d have to be a very brave investor” to put money in Thailand at the moment, said Sriyan Pietersz , head of research for JPMorgan Chase & Co. in Bangkok. “Foreign investors will want to scope it out and see how the politics goes over the next couple of months.” So far this year, foreigners have been net sellers of $156 million of Thai stocks, the second-most in Asia after Taiwan, according to data compiled by Bloomberg. Thailand’s SET Index has lagged benchmarks in Indonesia, Malaysia, the Philippines and Vietnam in that time. Prosecutors are seeking to confiscate the 76.6 billion baht ($2.32 billion) that Thaksin’s children and relatives earned from the 2006 sale of holding company Shin Corp. to Temasek Holdings Pte, Singapore’s state-owned investment firm. Judges will start reading the verdict at 1:30 p.m. local time. More Protests Planned Since the coup, courts have disbanded parties linked to Thaksin that won the past two elections. The rulings have eroded confidence in the judicial system among Thaksin’s supporters, who say different standards are applied to opponents who seized the prime minister’s offices and the airports two years ago. Prosecutors have yet to bring those cases to trial. Anti-government protesters, who wear red shirts and support Thaksin, plan to rally in Bangkok starting from March 12 to push for a fresh election. Abhisit took power in December 2008 after a court dissolved the pro-Thaksin party that won a 2007 election, citing a clause in the constitution drafted after the coup. An election must be called by the end of next year. “Thaksin was very successful at reaching out to the poor in his first election,” Vikas Kawatra , head of institutional broking at Kim Eng Securities (Thailand) Pcl, the biggest brokerage by trading volume, wrote in a Feb. 24 report. “So this dispute is not likely to go away even if the red-shirts lose Thaksin because of an inability to fund supporters.” Advanced Info, Thaicom After Thaksin founded Shin Corp. in 1983, its units were awarded one of two mobile-phone concessions and an exclusive satellite franchise. The company controls Advanced Info Service Pcl , Thailand’s top mobile-phone operator, and satellite services monopoly Thaicom Pcl . Thaksin transferred his Shin stake to his children and relatives before taking office in 2001. Seven years earlier he disclosed that he was worth 60 billion baht — about $2.4 billion at the time. The Attorney-General says Thaksin concealed ownership of his stake in Shin during his five years as prime minister and used his position to increase the value of its holdings. He stands accused of changing Advanced Info’s royalty payments to the state-owned telecoms operator and approving a government loan to Myanmar, part of which was used to buy equipment from Thaicom. Thaksin denies all allegations, according to Noppadon Pattama , a former foreign minister who is part of his legal team. Thaksin plans to watch the verdict from Dubai, where he has lived most of the time since fleeing Thailand in 2008 to avoid a two-year jail sentence for corruption. Shin shares gained 121 percent from when Thaksin took office on Feb. 9, 2001, to when his family sold the company on Jan. 23, 2006, compared with a 128 percent gain in the benchmark SET index, according to data compiled by Bloomberg. Siam Cement Pcl , Thailand’s fourth-biggest company, which is controlled by the monarchy’s investment arm, gained 717 percent in that time. To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net ; Shiyin Chen in Singapore at schen37@bloomberg.net

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