27 October 2011 By Standard & Poor's
The market for offshore Chinese renminbi-denominated bonds is relatively small, but its growth has been spectacular.
The so-called “dim sum” market has raised Rmb150 billion (or close to $25 billion) since its inception in mid-2007. The market has even bucked the global trend by continuing to function in the past few months despite struggling at times. During the past 10 years, roughly Rmb40 billion worth of dim sum bonds were issued, a period during which G3 cross-border markets had essentially shut down.
What’s fuelling the development of the dim sum market?
The rapid accumulation of offshore renminbi deposits is likely to continue to propel the development of the dim sum market for the foreseeable future. The increasing amount of trade that is settled in renminbi is feeding the growth of these deposits. The usage of the Chinese currency will keep on rising as long as Chinese authorities support its internationalisation. In the second quarter of this year, for example, China settled about 10% of its trade in renminbi compared with only about 1% a year earlier. Offshore renminbi deposits in Hong Kong now amount to over Rmb600 billion from roughly Rmb100 billion a year earlier.
What other factors support the market?
The monetary and credit tightening that has prevailed over the past year in China has certainly led a good number of borrowers to the dim sum market. In that sense, the dim sum market has operated as a substitute for the domestic Chinese loan market. This is most likely a temporary phenomenon, and not necessarily a positive one, as it brought with it some of the opaqueness that is characteristic of the mainland bank loan market. More important are the series of measures that China’s vice-premier Li Keqiang announced last August to boost the role of Hong Kong in developing an offshore renminbi market. In effect, Chinese companies will now be allowed to directly issue bonds in the dim sum market, rather than through offshore subsidiaries. Mr. Li also indicated that China, through the Ministry of Finance, would be a regular issuer, which should prove critical in helping establish a reference curve in the dim sum market.
Are there any impediments to future growth?
The thorny issue of repatriating proceeds to the mainland remains a significant impediment to the offshore renminbi market developing into a truly major global offshore market — one that would be commensurate with the relative size of China in the global economy. While procedures can be put in place to facilitate that process, such as — those to be introduced for the repatriation of proceeds for foreign direct investment purposes — the challenges won’t be completely resolved until China fully liberalises its capital account and makes the renminbi freely convertible. Some mainland policymakers have recently hinted that this could occur within five years.
What is the typical credit risk profile of dim sum issuers?
Issuers in the dim sum market have covered the whole gamut from sovereign (AA-/Stable/A-1+, cnAAA) to some property developers that we rate in the ‘cnBB’ category of the Greater China credit scale. An early characteristic of the market was that it was largely unrated and credit risk appeared to be a secondary consideration to currency appreciation. Global events, however, have very much promoted the importance of credit risk, and there is now clear evidence of pricing differentiation based on creditworthiness. Notwithstanding the market’s still relatively limited liquidity and lop-sided demand imbalance, spreads have significantly widened for speculative-grade-rated and non-rated issuers in the past few months. The prevalence of rated issuers is also likely to increase as the focus on currency appreciation diminishes and a stronger credit culture takes root.
How diversified is the market?
The dim sum market is increasingly attracting state-owned enterprises of various industries and international issuers, and both of these groups tend to be rated. The market is also well represented in terms of industry players, including property developers, high-tech companies, policy banks, commercial banks, and state-owned corporations that cover the natural resources, energy, telecom, transportation, public utilities and capital goods industries.
Mainland China issuers represent the bulk of issuance to date, but an increasingly broad range of global issuers have tapped the dim sum market with sometimes significantly more sizable issues. (A/Stable/A-1, cnAA+) became the first non-Chinese issuer to enter the market last August with a Rmb200 million issue. Others that followed include (A/Stable/A-1, cnAA+), (A-/Stable/--, cnA+), (not rated), (A+/Stable/A-1), and (BBB/Watch Neg/A-3, cnA). Notably, (A/Stable/A-1, cnAA+) became the first French issuer in the offshore renminbi market last month, with two issues aggregating Rmb2.6 billion.
Standard & Poor’s recently launched a Greater China credit rating scale. What is it for?
The rapid development of the offshore renminbi market was, of course, the impetus behind the development of the scale. The underlying rating criteria, methodology and processes that we use to assign Greater China credit ratings are identical to those associated with Standard & Poor’s global scale ratings. The mapping between Standard & Poor’s Greater China and global scales is publicly available.
In essence, the Greater China rating scale responds to the needs of investors and other credit risk management professionals who focus on Greater China as an asset class in and of itself. The scale provides a credible benchmark against which users can form their own independent opinion of relative credit strength within their investable universe of Greater China. For these users, the Greater China scale can provide more granularity of credit risks than is possible with Standard & Poor’s global scale. The rating distribution is also better aligned to their expectations of relative creditworthiness within a Greater China context, with China itself anchoring the scale at ‘cnAAA’.
We are assigning Greater China credit scale “issuer” ratings to all Greater China-domiciled obligors and “issue” credit ratings to their debt instruments. We are also assigning Greater China “issue” ratings to all Hong Kong dollar-denominated and offshore renminbi-denominated debt instruments regardless of the domicile of the obligor. Click here for more information.
What is the profile of investors in the offshore renminbi market?
That’s also very much a developing story. In terms of geography, investors are overwhelmingly Hong Kong-based, with most of the remainder based in Singapore. When UK-based retailer (A-/Stable/A-2, cnAA) launched a Rmb725 million issue earlier this month, Hong Kong-based investors accounted for less than 50% of the total allocation, Singapore about 30%, and European investors close to 20%. It was very much a global story.
Among investors, Chinese banks are particularly well represented. This partly explains the presence of a relatively large number of unrated issues (as the dim sum market essentially functions for them as an alternative to China’s bank loan market). An important development in the past year has been the emergence of an ever-increasing number of specialised funds investing in offshore renminbi paper. These funds have brought considerable professionalism to the market and acted as a vehicle for greater retail investor participation.
So is the dim sum market impervious to difficulties in other cross-border markets?
No, far from it. It’s certainly quite remarkable that the dim sum market remained open during the dry spell that prevailed since early August in the G3 markets. But it should be noted that investors in the offshore renminbi market have also been very selective during that period: While China’s ‘cnAAA’-rated bonds were oversubscribed, a number of speculative-grade-rated issuers, non-rated issuers, and at least one highly rated issuer had to delay their planned issues. These issuers operated in industries ranging from airlines and property development to aluminium extrusion and pharmaceuticals.
It is also important to realise that supply-demand conditions could shift — conceivably rapidly and dramatically so. Fast-growing offshore renminbi deposits and the ever-increasing number of specialised offshore renminbi funds (more than 17 to date) make the dim sum market very much a seller’s market for now, but this could change. For instance, mainland banks and insurance companies are reportedly planning to issue subordinated debt instruments in the dim sum market. Given these institutions’ immense capital needs, and depending upon whether these institutions seek to come to market at the same time or not, this could easily bring supply-demand conditions into balance or trigger overwhelming demand.
Another fundamental change is now taking place. The widely held assumption that the renminbi will always appreciate is being challenged. While this might be a hiccup in the development of the dim sum market by forcing a painful repricing of risk, it should prove healthy over time. It should eventually help the market shed its strong remaining speculative element around currency play to that of a more mature market where decisions are taken based on careful risk-reward considerations.
2011年10月30日 星期日
2011年10月10日 星期一
IBM: Intriguingly Boring Mergers
OCTOBER 7, 2011 THE WALL STREET JOURNAL
![[ibmherd1006]](http://si.wsj.net/public/resources/images/OB-PZ669_ibmher_D_20111006134737.jpg)
Agence France-Presse/Getty Images
By ROLFE WINKLER
Boring deals tend to be better deals. That's the tip Hewlett-Packard should take fromInternational Business Machines' latest acquisition.
On Tuesday, IBM bought little-known Q1 Labs, a small, privately-held security software specialist, for an undisclosed price.
Agence France-Presse/Getty ImagesNot surprisingly, the deal failed to excite. Acquisitions like H-P's $10 billion blowout buy of Autonomy get far more attention. They also tend to be worse for shareholders.
Contrast that with IBM's stated strategy to spend $20 billion total on acquisitions from this year thru 2015. What sets IBM's dealmakers apart is their discipline. They target small companies that will benefit from being plugged into IBM's massive, worldwide distribution network. They also look for compelling technology that fits with their existing products.
The strategy seems to have worked well. IBM's return on capital, which measures total operating profit after taxes relative to total debt and equity invested in its business, has averaged a healthy 16% since 2000, according to CapitalIQ data. Over the same period, H-P's return on capital has averaged 9%. It makes sense that IBM would have higher returns given its greater emphasis on high-margin software. Yet the fact that its returns continue to grow suggests the company's acquisition strategy is creating value for shareholders.
H-P has at times followed the acquisition script successfully. At 3Par, which H-P acquired in 2010, revenue grew in the triple digits in the second quarter compared with the prior year, according to an H-P spokesman. But the Autonomy deal doesn't offer the same potential benefits. Autonomy is already sizable, with revenues estimated at $1.1 billion in 2011. And while its technology is interesting, H-P doesn't have a strong distribution platform for software like it has for hardware. That could limit H-P's returns from the deal.
H-P has destroyed value in the past. It acquired Compaq for $17.3 billion, net of debt and cash. Yet today analyst Toni Sacconaghi of Sanford C. Bernstein estimates its whole PC business is worth less than $12 billion.
When it comes to Q1 Labs, it may be hard for IBM shareholders to get excited. And that's why they should be.
Write to Rolfe Winkler at rolfe.winkler@wsj.com
2011年10月7日 星期五
Investors Spooked by China
OCTOBER 1, 2011 THE WALL STREET JOURNAL
Read more: http://online.wsj.com/article/SB10001424052970204138204576602330944302732.html#ixzz1a9RgtZFL
By OWEN FLETCHER And DINNY MCMAHON
BEIJING—Investors dumped the stocks of some of China's biggest Internet companies, as scandals with some smaller Chinese firms has shaken Wall Street's confidence in the country's businesses.
U.S.-listed shares of China's leading search engine, Baidu.com Inc., and Sina Corp., the operator of the country's Twitter-like messaging service, plunged 16% and 18%, respectively, in the last two days of trading on the Nasdaq Stock Market even though these companies haven't been accused of wrongdoing.
A series of alleged accounting frauds this year at little-known Chinese companies listed in the U.S. has triggered a sharp shift in sentiment among investors, who are now worried about hidden business risks or financial problems.
"If the whole sector's sentiment is negative, then investors tend to be panicking, and then they sell the most liquid names, regardless of whether there are really any problems," said Jeffries analyst Cynthia Meng. "We don't think that the flagship [Chinese] Internet names have accounting issues."
For years investors, swept up in the broader China growth story, gave Chinese companies that listed their stocks on U.S. exchanges the benefit of the doubt on governance and regulatory issues.
A series of frauds at little-known Chinese companies listed in the U.S. has triggered a shift in sentiment among investors. John Bussey joins digits to discuss. Photo: AP.
That was particularly true of the Internet sector. Investors were prepared to overlook unreliable Internet traffic data, pervasive censorship, and a reliance on an inherently risky corporate structure in their enthusiasm to profit from the explosive spread of social media, online shopping and search.
China Real Time
The latest news to send investors running was a Thursday Reuters report quoting Robert Khuzami, the director of enforcement at the U.S. Securities and Exchange Commission, saying the Department of Justice is investigating accounting irregularities at Chinese firms.
A person close to the matter confirmed the Justice Department is investigating Chinese firms, but declined to identify the companies.
Along with Baidu and Sina, other major Chinese Internet companies plunged this week. Social-networking website Renren Inc. Friday fell 13% to $5.10 on the Nasdaq. Online video company Youku.com Inc., after losing 18% Thursday, gained 12 cents to $16.36 Friday. None of those companies have been accused of wrongdoing.
A Youku spokesman said the company hasn't received any inquiries from U.S. regulators. A spokeswoman for Renren said the company hasn't been contacted by the SEC.
Baidu, Sina and online-video company Tudou Holdings Ltd., whose U.S.-listed shares fell about 24% on Thursday and Friday, each declined to comment.
"The market seems to be factoring in the worst-case scenario" J.P. Morgan analyst Dick Wei told clients in a research note.
He noted concerns about accounting issues at some Chinese companies, and risks attached to a corporate structure used by many Chinese Internet companies to get around restrictions on foreign investment in the sector.
Chinese Internet stocks were buffeted last week following reports that Beijing was looking into ways to overhaul how it regulates the "variable interest entities" structure.
The structure uses a series of contractual agreements to allow an offshore holding company owned by foreign investors to effectively run a business inside China. It is used by most U.S.-listed Chinese companies.
Reuters
The Chinese national flag is seen in the financial district of Pudong in Shanghai, Sept. 22.
Dozens of small Chinese companies listed in the U.S. have been accused by their auditors and short sellers of having lied to investors and misrepresented the true extent of their businesses over the last 12 months.
The SEC weighed in toward the end of last year and started investigating both the financial-services firms that helped bring the companies to market and the Chinese companies themselves.
Chinese tech companies aren't without their challenges. Data describing China's Internet sector can often be murky, whether it be from third-party researchers or Internet companies themselves.
That was highlighted earlier this year when Renren revised a key user number in its prospectus ahead of a U.S. initial public offering. Renren later said the change was due to typographical errors in the original data.
Market volatility and general investor concern in recent months have slowed to a trickle the flow of U.S. IPOs by Chinese Internet companies.
Xunlei Ltd., a Chinese online video-and-game service in which Google Inc. holds a small stake, in June filed for a U.S. IPO but the next month postponed it "due to stock market conditions."
Write to Owen Fletcher at owen.fletcher@dowjones.com and Dinny McMahon at dinny.mcmahon@wsj.com
Read more: http://online.wsj.com/article/SB10001424052970204138204576602330944302732.html#ixzz1a9RgtZFL
2011年10月3日 星期一
Morgan Stanley IM completes Asia revamp
4 October 2011 FinanceAsia
By Joe Marsh
Following a review of its Asian business, Morgan Stanley Investment Management has reorganised its regional team and is expanding its product range with a view to trebling its regional assets under management.
With AUM standing at $34 billion as of late 2010, MSIM hopes to be managing at least $100 billion of Asia-Pacific investors’ money in the next three to five years. That compares to the firm’s plans – announced in early 2010 – to double its global AUM, which was $296 billion as of June 30.
One major area of focus for the firm is private equity. MSIM has invested around two-thirds of its $1.5 billion Morgan Stanley Private Equity Asia III fund and aims to have it all invested next year, says Navtej Nandra, London-based chief executive of MSIM’s international business. The firm’s Asia PE performance ranks among the top handful of funds in Asia, he tellsAsianInvestor.
MSIM will be in a position to raise money for its fourth Asia PE fund in the first half of 2012, which is likely to be a similar size to the current product, he adds.
“The opportunity to raise private equity money exceeds what we will target,” says Nandra, “but we are disciplined in our investment approach and will continue to invest at a steady pace. In the current climate, we see attractive opportunities in a number of key countries such as China, India, Taiwan and Korea.”
Meanwhile, in May MSIM launched a renminbi-denominated PE joint-venture fund with Hangzhou Industrial and Commercial Trust, aiming to raise Rmb1.5 billion ($235 million). “Initial demand from Chinese investors has been encouraging, and we expect the initial close to be in the fourth quarter of 2011,” Nandra adds.
“The investor base for alternative assets is developing rapidly in China,” he says, “and we expect both institutional and high-net-worth individuals to show interest in this product.”
Within MSIM’s traditional asset management business, one of the fastest growing areas in the region is its onshore local-currency funds business in China and India, says Nandra.
Morgan Stanley Huaxin Fund Management in China has a headcount of close to 100, and Morgan Stanley Mutual Fund in India has 50 to 75. Those staff are spread across the main hubs and sales offices in each country.
“In the domestic long-only markets in India and China, you will definitely see growth in our local footprint and in product manufacturing,” says Nandra. “We expect to launch two to four products in China and India each year, and to support that we will continue to build out our investment teams steadily.”
In addition to its infrastructure, long-only, PE and property investment businesses, MSIM also offers money-market and fund-of-fund products in Asia. “We are one of the few firms to have a footprint in all those asset classes across multiple countries,” notes Nandra.
MSIM has had stable regional investment teams in place for some time, but it needed to bolster its sales and marketing headcount, says Lisa Jones (pictured), who joined as global head of sales in New York in July 2010.
Hence the headcount has grown in that area in the past year. The most recent Asia-Pacific hire is Kikuo Kuroiwa, who joined in July as Japan head of institutional sales to replace Chiharu Furukawa. He was previously president at Bank of Ireland Asset Management in Tokyo.
Beyond Japan, MSIM split the region’s sales coverage into two following the departure of Asia CEOBlair Pickerell and Asia head of sales and marketing Sandra Leelast year.
Gokhan Unal, who joined MSIM as head of Middle East sales at the end of 2010, has taken on a wider role as Singapore-based head of South Asia. Inma Diaz runs North Asia out of Hong Kong, a role she took up late last year, still maintaining her focus on China business development.
In addition, three sales professionals joined MSIM in September. Stanley Chan is now head of Hong Kong business development, and was previously a sales professional at Wellington. Sheila Tan becomes head of Taiwan business development, having previously held a similar role at Threadneedle. And Shu Mei has assumed a senior business development role focusing on China, having moved from Natixis Asia.
The regional sales team is now complete, says Jones. “We are in all the anchor markets where we need to be, as well as in some developing markets,” she adds.
There may be some additions in markets where the company already has a presence in the next two to three years, particularly for the local China and India teams, but there is unlikely to be hires into any new markets in that time.
Meanwhile, MSIM has been boosting its investment headcount in Asia this year, including adding a fixed-income portfolio manager in India and an equity PM in China, but it declined to name them or confirm whether they replace anyone. The firm has also added two equity PMs in Singapore –Ashutosh Sinha rejoined in February for the Emerging Leaders strategy and Hisayoshi Takahashi for Japan equities.
Moreover, in August the firm relocated Olivier de Poulpiquet, global co-CEO and co-chief investment officer of Morgan Stanley Real Estate Investing, to Singapore from London. Alongside his global duties, he will help Hoke Slaughter, Asia-Pacific head of that business, cover the region.
This move reflects the importance of Asia to MSIM, as does the fact that the Asia head of Morgan Stanley Global Infrastructure, Gautam Bhandari, is based in New Delhi.
By Joe Marsh
Following a review of its Asian business, Morgan Stanley Investment Management has reorganised its regional team and is expanding its product range with a view to trebling its regional assets under management.
With AUM standing at $34 billion as of late 2010, MSIM hopes to be managing at least $100 billion of Asia-Pacific investors’ money in the next three to five years. That compares to the firm’s plans – announced in early 2010 – to double its global AUM, which was $296 billion as of June 30.
One major area of focus for the firm is private equity. MSIM has invested around two-thirds of its $1.5 billion Morgan Stanley Private Equity Asia III fund and aims to have it all invested next year, says Navtej Nandra, London-based chief executive of MSIM’s international business. The firm’s Asia PE performance ranks among the top handful of funds in Asia, he tellsAsianInvestor.
MSIM will be in a position to raise money for its fourth Asia PE fund in the first half of 2012, which is likely to be a similar size to the current product, he adds.
“The opportunity to raise private equity money exceeds what we will target,” says Nandra, “but we are disciplined in our investment approach and will continue to invest at a steady pace. In the current climate, we see attractive opportunities in a number of key countries such as China, India, Taiwan and Korea.”
Meanwhile, in May MSIM launched a renminbi-denominated PE joint-venture fund with Hangzhou Industrial and Commercial Trust, aiming to raise Rmb1.5 billion ($235 million). “Initial demand from Chinese investors has been encouraging, and we expect the initial close to be in the fourth quarter of 2011,” Nandra adds.
“The investor base for alternative assets is developing rapidly in China,” he says, “and we expect both institutional and high-net-worth individuals to show interest in this product.”
Within MSIM’s traditional asset management business, one of the fastest growing areas in the region is its onshore local-currency funds business in China and India, says Nandra.
Morgan Stanley Huaxin Fund Management in China has a headcount of close to 100, and Morgan Stanley Mutual Fund in India has 50 to 75. Those staff are spread across the main hubs and sales offices in each country.
“In the domestic long-only markets in India and China, you will definitely see growth in our local footprint and in product manufacturing,” says Nandra. “We expect to launch two to four products in China and India each year, and to support that we will continue to build out our investment teams steadily.”
In addition to its infrastructure, long-only, PE and property investment businesses, MSIM also offers money-market and fund-of-fund products in Asia. “We are one of the few firms to have a footprint in all those asset classes across multiple countries,” notes Nandra.
MSIM has had stable regional investment teams in place for some time, but it needed to bolster its sales and marketing headcount, says Lisa Jones (pictured), who joined as global head of sales in New York in July 2010.
Hence the headcount has grown in that area in the past year. The most recent Asia-Pacific hire is Kikuo Kuroiwa, who joined in July as Japan head of institutional sales to replace Chiharu Furukawa. He was previously president at Bank of Ireland Asset Management in Tokyo.
Gokhan Unal, who joined MSIM as head of Middle East sales at the end of 2010, has taken on a wider role as Singapore-based head of South Asia. Inma Diaz runs North Asia out of Hong Kong, a role she took up late last year, still maintaining her focus on China business development.
In addition, three sales professionals joined MSIM in September. Stanley Chan is now head of Hong Kong business development, and was previously a sales professional at Wellington. Sheila Tan becomes head of Taiwan business development, having previously held a similar role at Threadneedle. And Shu Mei has assumed a senior business development role focusing on China, having moved from Natixis Asia.
The regional sales team is now complete, says Jones. “We are in all the anchor markets where we need to be, as well as in some developing markets,” she adds.
There may be some additions in markets where the company already has a presence in the next two to three years, particularly for the local China and India teams, but there is unlikely to be hires into any new markets in that time.
Meanwhile, MSIM has been boosting its investment headcount in Asia this year, including adding a fixed-income portfolio manager in India and an equity PM in China, but it declined to name them or confirm whether they replace anyone. The firm has also added two equity PMs in Singapore –Ashutosh Sinha rejoined in February for the Emerging Leaders strategy and Hisayoshi Takahashi for Japan equities.
Moreover, in August the firm relocated Olivier de Poulpiquet, global co-CEO and co-chief investment officer of Morgan Stanley Real Estate Investing, to Singapore from London. Alongside his global duties, he will help Hoke Slaughter, Asia-Pacific head of that business, cover the region.
This move reflects the importance of Asia to MSIM, as does the fact that the Asia head of Morgan Stanley Global Infrastructure, Gautam Bhandari, is based in New Delhi.
2011年10月2日 星期日
Emerging Bonds Swim Against the Currency
SEPTEMBER 29, 2011 the wall street journal
By ALEX FRANGOS
As western governments mire themselves in debt, emerging-market sovereign bonds are coming of age. Asia's fast-growing economies and relatively strong fiscal positions have lured in ever more foreign investors. But, at least when it comes to local currency bonds, investors should remember that they have two legs supporting their value.
One buckled in recent weeks. Many currencies fell sharply as investors fled to the dollar for safety, leaving J.P. Morgan's Government Index Emerging Markets down 10% from its peak at one stage this week. But so far the other leg—bonds' local currency yields—have not changed dramatically. Hedge away currency moves and the index fell just 1.5%, reflecting only a modest uptick in interest rates.
That bodes well for the future. Emerging nations such as Indonesia have relatively low debt, healthy banks and faster economic growth rates than the sickly developed world. And emerging nations have accumulated larger foreign currency reserves in the past three years to help fight speculative outflows, as happened in the 2008 crisis.
Then, after the dust settled, their economies were the first to rebound. More cross investment by sovereign wealth funds and Asian central bank reserve managers since then could help stability as these are not the types of investors who sell in a panic.
But, while the long-term prospects look good, there may be cheaper prices on these bonds ahead. The risk of another drop in currencies and, in some countries, a spike in yields is very real should market turmoil continue because of the euro-zone crisis. In particular, an outflow of capital could be at hand after a period in which foreign flows into these still small and illiquid markets have been massive.
Money has come into local currency emerging-market bond funds and ETFs in 25 out of the past 26 months through August, a total of $54 billion, according to EPFR Global. Since early 2009, foreign ownership of government bonds has gone from 2.6% in Thailand to near 10% recently. In Malaysia it went from 10% to 25%.
The outflows have already started in some markets. Since the start of the month, foreigners sold $2.5 billion of Indonesian government debt. The finance ministry and the central bank masked the pain by very publicly announcing they would snap up government debt. As a result, yields on 10-year government bonds actually fell to 7.3% from 7.4% on Monday, even as the rupiah lost 3% against the dollar. It's not clear such interventions could stem a more prolonged backwash of capital into dollars.
And with yields near historic lows, there's not much cushion to be had when currencies fall. It used to be that if the currency fell sharply, investors could stand pat knowing high yields would preserve their investment. But a 3.8% yield in Thailand or even 7% yield in Indonesia, because of its history of higher inflation, doesn't provide that much comfort.
An option that avoids the immediate currency risk is dollar-denominated bonds issued by these countries. The yields have risen a bit along with the market turmoil, yet the chances of default haven't changed much. Indonesia's 10-year dollar bond traded Thursday with a yield of 4.6% compared with 4% in August. It's low in the history of emerging markets, but a nice return compared with 2% for Treasuries.
Panasonic Scraps Battery Plant Expansion
SEPTEMBER 29, 2011 THE WALL STREET JOURNAL
Read more: http://online.wsj.com/article/SB10001424052970204138204576599801032591130.html#ixzz1Zc5aK7ML
By JURO OSAWA
TOKYO—Panasonic Corp. will cancel the planned expansion of a domestic factory that makes lithium-ion batteries, as the strong yen and price competition from South Korean rivals make it difficult to keep producing the batteries in Japan, a person familiar with the matter said Thursday.
Bloomberg News
Panasonic employees showed lithium-ion batteries on the production line in a plant in Suminoe, Osaka City, Japan, on March 25, 2010.
The Japanese electronics giant originally planned to invest a total of ¥100 billion ($1.31 billion) in two stages in the Suminoe plant in Osaka, western Japan, which makes lithium-ion batteries for use in consumer electronics.
The plant began operating last year after the first stage was completed, but the company has now decided to cancel the second stage and won't make any additional investments, the person said.
Panasonic hasn't disclosed how much of the ¥100 billion it has already invested in the factory.
Although Panasonic is scaling back domestic production of lithium-ion batteries, the company is boosting its output in China. In a few years, production in the country will take up a much larger share of Panasonic's overall lithium-ion battery output, the person added.
The shift highlights the impact of the strong yen on Japan's industrial base, as companies in key export sectors such as autos and electronics look to move production overseas to mitigate the effects of the currency, which is near record highs against the dollar.
Nissan Motor Co. Corporate Vice President John Martin this week urged the Japanese government to take "decisive" action to prevent the strong yen from hollowing out the country's industrial base.
Seiji Maehara, the ruling Democratic Party of Japan's policy chief, said in an interview this week that Tokyo should consider setting up a sovereign-wealth fund, which would buy foreign assets by selling the yen, to combat the Japanese currency's strength.
In July, Panasonic Chief Financial Officer Makoto Uenoyama said that it was becoming "extremely difficult" to keep manufacturing operations in Japan, citing the yen's strength, high corporate taxes and concerns over higher electricity costs since the Fukushima Daiichi nuclear crisis.
The market for rechargeable lithium-ion batteries—key components in many consumer products and electric cars—is expanding.
But price competition is intense, particularly in the market for batteries used in consumer electronics, where Samsung Electronics Co. and Panasonic are competing for the largest share.
Panasonic is building a new lithium-ion battery plant in the eastern Chinese city of Suzhou, and is also planning to boost capacity at its subsidiary Sanyo Electronic Co.'s existing Chinese plant.
In April, Panasonic turned majority-owned Sanyo into a wholly owned unit and is realigning production to benefit from the integration. When Panasonic acquired a majority stake in Sanyo in 2009, the latter's strength in lithium-ion batteries was cited as one of the reasons for the deal.
Write to Juro Osawa at juro.osawa@dowjones.com
Read more: http://online.wsj.com/article/SB10001424052970204138204576599801032591130.html#ixzz1Zc5aK7ML
Chinese Property Mogul Sings Blues
SEPTEMBER 28, 2011 THE WALL STREET JOURNAL
James T. Areddy
James T. Areddy
Over the past few weeks, observers of China’s real estate industry have been treated to songs of woe from analysts, regulators, andStandard & Poor’s rating agency.
But the tune carries further when a Chinese real-estate rock star is singing the blues.
Zhang Xin, the chief executive officer of Soho China Ltd., said Wednesday that in her 17 years in the residential property business she hasn’t faced such a tough market. “This by far the most challenging year in terms of what you can sell,” Ms. Zhang told the Foreign Correspondents Club Shanghai.
Referring to the higher ends of the market, where Soho focuses, she said, “you’re seeing no transactions on the residential side.”
The 46-year-old Ms. Zhang is half of the glamour couple that leads Soho, a Beijing-based developer known for apartments and office buildings that look equal parts IKEA and Star Trek. The former investment banker’s partnership in Soho with husband Pan Shiyi has made them among the country’s wealthiest people.
Echoing complaints she and her husband have made on their Weibo accounts, Ms. Zhang pinned blame for the current slump on government policy, saying developers and buyers alike have no access to credit as Beijing takes aim at inflation and affordability. The industry is “so policy dictated,” Ms. Zhang said, “you spend more time guessing about policy than actually doing your own business.”
She expressed discomfort at Beijing’s efforts to build vast quantities of social housing – “contrary to what they’ve been doing for 15 years” – scoffing that some apartments will rent as low as 70 yuan per month, or about $11. From Ms. Zhang’s PowerPoint slides, she made clear a preference for prices like the 50,000 yuan per square meter that Soho fetched for apartments sold in August, attracting a mob of buyers.
Tight monetary and investment conditions won’t last in the Chinese property market, Ms. Zhang forecast. Pressed to predict when Chinese leaders will loosen their grip, she suggested a window of six months. “Very soon,” she said.
Ms. Zhang kept her commentary spicy Wednesday–there is a reason 2.4 million users track the messages she blasts to Weibo from her white Blackberry. She spoke of a fast-consolidating property market that is stoking “social unrest,” governed by usurious 50% interest rates from underground banks–and, in some cases, she said, inciting suicide.
Things aren’t all glum. Continued jack-hammering from the street outside the boutique hotel where Ms. Zhang spoke Wednesday attested to the fact that development hasn’t stopped in China.
And Soho keeps buying and building, especially in Shanghai these days.
Ms. Zhang showed a video of designs from architect Zaha Hadid with futuristic office buildings that roughly resemble the bullet trains that exit the railway station near where the development is just getting going, Shanghai’s Hongqiao Transportation Hub.
Soho, Ms. Zhang said, has spent 11.4 billion yuan in 2011 making property acquisitions in Shanghai, all of it commercial. She said the government restrictions on residential development make office buildings a safer bet.
The company branched into Shanghai from Beijing when, she said, Morgan Stanley unloaded some property in the east coast city in 2009. Soho is now looking at Guangzhou and Shenzhen, according to Ms. Zhang.
– James T. Areddy. Follow him on Twitter @jamestareddy
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