FedEx Expects Upswing In Cargo

JUNE 23, 2011   THE WALL STREET JOURNAL

By VALERIE BAUERLEIN And BOB SECHLER

FedEx Corp. said Wednesday that it is increasingly bullish about the global economy and shipping growth, driven by the continued emergence of a vast middle class in India and China and by rebounding U.S. industrial production.

The big shipping and logistics company posted a 33% jump in profit for the fiscal fourth quarter ended May 31, boosted by exports from Asia and a surge in business use of its U.S. ground shipping services. It said it expects the strong results to continue.

The company said it expects a 3% uptick in U.S. gross domestic product in 2012, up from its estimate of 2.5% growth this year. FedEx also expects U.S. industrial production to climb 4.3% next year and 4.2% this year.

FedEx attributed recent global economic weakness to factors such as rising oil prices, bad weather and the Japan earthquake and nuclear disaster—constraints that the company said appear to be subsiding.

"The near-term [economic] softness will be temporary," Chief Executive Fred Smith told analysts on a conference call, citing a retreat in oil prices since April and a recovering Japanese economy. "Going forward, we see stronger economic growth. We believe the industrial sector will lead growth in the United States and overseas in the next two years, supporting shipping demand."

"International economic conditions continue to improve at a faster rate than in the U.S.," Chief Financial Officer Alan B. Graf Jr. told analysts on the call.

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FedEx and rival United Parcel Service Inc. are widely viewed as bellwethers of the global and U.S. economies because of the breadth of goods they deliver. Together the two companies carry roughly 3.5% of global gross domestic product at any given time, based on their own estimates, making them among the first to spot a downturn or turnaround.

"FedEx is a company that, if things were really that tough out there, they wouldn't be able to put up such good numbers," said Jerome Heppelmann, portfolio manager at OMCAP Investors.

Some cautioned that while the company's outlook for industrial growth bodes well for transportation and other companies, the implications of its forecast are less clear for the domestic economy overall, which is made up of many other sectors. "It's mixed signals, definitely, to see such strong optimism when other news is not so positive," said analyst Keith Schoonmaker of Morningstar Inc., who rates FedEx a "buy."

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FedEx showed growth across its business units, with its FedEx Express unit posting a 13% jump in revenue to $6.63 billion from the year earlier period, and a 4% increase in operating income to $429 million. The unit provides one-day to three-day delivery to 220 countries and territories, and is on pace to become more international than domestic.

FedEx Ground, which provides home and business delivery of small packages in the U.S. and Canada, posted a 15% increase in revenue to $2.26 billion and a 31% increase in operating income to $417 million.

For the fiscal year, FedEx Ground posted $1.3 billion in operating income in fiscal 2011, nearly doubling since 2008. FedEx said many businesses moved to slower ground shipping by truck during the economic downturn, because it is cheaper than overnight shipping by air. Many of those businesses are sticking with ground shipping, saying it suits their needs well enough.

In 4 p.m. trading on the New York Stock Exchange, FedEx shares were up 2.6% at $91.44. The stock has risen 19.6% over the past year.

FedEx benefits from a particular slice of market growth, including emerging markets and domestic freight transit. It is less clear what shipping trends mean for consumers, especially since unemployment was 9.1% in May and fuel is a question mark.

Mr. Smith told analysts on the conference call that his economic outlook was "infantry-based," formed by "actually talking to hundreds of thousands of customers."

The cautionary note is fuel, Mr. Graf said in an interview. The company's outlook is underpinned by an assumption that oil prices will average around $95 a barrel in its current fiscal year. "All bets are off" if oil retraces its 2008 highs above $130 a barrel, he said.

The results bode well for railroads and other transportation businesses posting results in the coming weeks, as well as companies with exposure in emerging markets. UPS is expected to release results July 26 and said in its March proxy that it expected record results in 2011.

FedEx said it continues to buy planes make other capital investments in technology, in part to take advantage of the Tax Relief Act passed in December, but also to prepare for continued growth.

Overall, FedEx reported fiscal fourth-quarter profit of $558 million, or $1.75 a share, up from $419 million, or $1.33 a share, a year earlier. Revenue jumped 12% to $10.55 billion.

—Jonathan Cheng contributed to this article.

Write to Valerie Bauerlein at valerie.bauerlein@wsj.com and Bob Sechler atbob.sechler@dowjones.com

Investors Hazard Bold Bet on Yuan

JUNE 22, 2011   THE WALL STREET JOURNAL

The U.S and the International Monetary Fund are pressuring China to let its currency, the yuan, climb in value. Big banks, including Goldman Sachs Group Inc. and Citigroup Inc., have told investors to bet on a rising yuan.

But a number of investors with unconventional views are placing gutsy wagers against the yuan.

The moves have caused some rivals and observers to scratch their heads or even scoff. China has kept its currency within a tight band, one that is expected to rise about 5% annually. With inflation high, authorities have an incentive to keep the currency strong, keeping a lid on import prices. And China has about $3 trillion of foreign-currency reserves that could be sold if the yuan came under pressure as a way to prop up the currency.

Yet contrarian investors, some with strong track records, are attracting attention with bearish trades that could pay off in a huge way if the yuan falls.

Their rationale: China's economy is a bubble waiting to burst. Some said China is sitting on huge debts that will haunt it as real-estate prices slip further, and that authorities won't be able to forestall inflation without severely slowing the economy. If the economy does sputter, officials may devalue the currency to boost revenue from exports, yuan skeptics said.

WSJ's Greg Zuckerman explains why a contrarian group of investors believe that the outlook on China's economy is too optimistic, and hope to make millions by betting that the yuan will soon fall. (Photo: Reuters.)

The Bear Bet

How a trade to short the yuan works

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Even if the chance of a yuan collapse is low, the possible payoff is too huge to ignore, some said.

"Given the magnitude of China's credit problems, it's at least a possibility that the yuan drops sharply," said Cullen Thompson, managing partner of Bienville Capital Management LLC, a New York investment firm placing bets against the yuan. "The potential of the trade is so great, and when there's cheap insurance in today's environment it's silly not to buy it."

While China controls the amount of yuan going in and out of the country, the bears argue those restrictions are being loosened and aren't as ironclad as some may think. And in a crisis, they said, foreign companies and investors will find a way to pull money out of the country.

Just as those who wagered against the U.S. housing market before the bubble burst generally weren't well-known firms or industry specialists, those placing bearish yuan trades often are smaller firms. As upstarts, they can be more willing to buck the conventional view. Their clients are often able to withstand small losses in return for hopes of big profits down the road.

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Reuters

A 100 yuan banknote illustration taken in Beijing in this March 22, 2011 file photo.

Bienville manages about $300 million and searches for asymmetric trades: those that are cheap enough to offer big upside and limited downside. The Broyhill Family Office in Lenoir, N.C., which manages about $300 million for the family that founded Broyhill Furniture and other wealthy families, also recently placed bearish yuan trades.

Mark Hart, who runs Corriente Advisors LLC, a Fort Worth, Texas, hedge fund, anticipated problems in subprime mortgages and debts of European nations. Mr. Hart said last month that he has made bearish yuan trades because China's economy is a "credit-fueled bubble."

Here is how the trade usually works: An investor purchases a put contract from a bank, or a contract giving them the right, but not the obligation, to sell yuan and buy an equal amount of U.S. dollars at a set price. The cost of a one-year contract allowing the investor to sell $10 million of yuan at 20% below current levels over one year costs just about 0.15 percentage point, or $15,000.

If the yuan tumbles below that strike price, say to 8.5 for each dollar, or about 30% below the current level, the put contract would soar in value, leading to a profit of about $850,000 from the $15,000 investment, or a return of about 5,500%.

Even if the value of the yuan becomes more volatile, but doesn't fall, the value of the contracts would rise.

Despite the huge upside to these yuan trades, some China skeptics, such as hedge-fund manager Jim Chanos, prefer to target other Asian investments that could be affected by a Chinese downturn.Some investors don't have a mandate from clients to wager on currencies; others think China will slow but the currency will hold up.

It can be harder for bigger firms to place bets against the yuan in a large enough size to make it worthwhile. And some investors have been wary of bearish trades because the currency has been robust for so long. On Tuesday, the yuan's value was moved slightly higher to 6.4690 per dollar from 6.4696 on Monday.

"Good luck betting against a $3 trillion reserve currency," said George Papamarkakis, co-founder of North Asset Management LLC, a London hedge fund. "It's a way-too-premature trade."

The currency's level still is largely controlled by the government, and even though China has taken steps to foster offshore trade, the amounts are limited. Most of the trading is in the market for nondeliverable forwards in yuan, essentially a derivative that doesn't give the owner possession of the currency.

Still, Goldman Sachs last week told hedge funds to exit a bullish bet on the yuan, according to an email to clients.

The recommendation from the firm came amid concern that consumer prices, which rose 5.5% in May from a year earlier, could climb higher unless officials take more forceful steps to cool the economy. Goldman continues to predict the yuan will rise further, just not as quickly as it once expected, underscoring how unorthodox bets against the yuan remain.

That is exactly what attracts some bears.

"With the entire world and their grandmothers looking for a yuan revaluation and continued inflation, I'm willing to a put a few chips on the table to wager that something in China may break along the way," hurting the yuan, said Christopher Pavese, Broyhill's chief investment officer.

In other currency news, the euro advanced as Greece moves to make economic overhauls to cut its sovereign debt.

Late afternoon in New York, the euro was at $1.4411, up from $1.4303 late Monday. The dollar was at ¥80.20, down from ¥80.26. The U.K. pound was at $1.6245, up from $1.6202. The euro bought ¥115.58 from ¥114.79. The dollar was at 0.8421 Swiss franc from 0.8405 franc.

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com and Neil Shah atneil.shah@dowjones.com

Oil benchmarks: Wide-spread confusion

Jun 16th 2011   THE ECONOMIST

FINDING out the price of oil used to be simple. A quick check of either of the two main gauges of international markets—West Texas Intermediate (WTI) or Brent Blend—would suffice. But this year, as oil prices have soared, a gap has opened up between the two benchmark crudes. On June 15th the spread hit a record: close to $23 dollars a barrel.

For years prices of WTI and Brent were locked together, though the higher-quality American WTI oil generally traded at a premium of a dollar or two to reflect its slightly lower viscosity and sulphur content, which ease refining into petrol, heating oil and other products. Patterns of supply and demand in America, the world’s biggest consumer and importer of oil, rarely diverged much from the rest of the world, where Brent is the main indicator.

That has changed. The contracts for WTI stipulate “for delivery” to windswept Cushing, Oklahoma (population 8,371), which is strategically situated to serve the refineries of the Gulf of Mexico, and thence the petrol-thirsty northern seaboard. This gave oil firms lots of incentive to build pipelines to Cushing: in recent months oil has poured into Cushing’s growing and labyrinthine storage facilities.

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There it has stayed. A new pipeline from Canada’s oil sands, which opened in February, and unexpectedly large flows of shale oil from North Dakota’s Bakken field have coincided with lacklustre oil demand in America. Planning difficulties mean that a proposed new pipeline from Cushing to the gulf refineries (from where the oil can be shipped abroad) will not open until 2013 at the earliest. Attempts to shift the oil by road and rail have made only a small dent in rising inventories.

Meanwhile recent maintenance shutdowns in the North Sea have worsened already declining supplies from ageing fields of Brent crude. Brent’s ready access to seaborne markets means that its price is far more sensitive to booming demand in China and elsewhere. Hence the spread with WTI in recent months (see chart).

Over the past few days another, more mysterious spread has opened up. The price of Louisiana light and sweet (LLS), an oil grade that feeds America’s gulf refineries, has detached from Brent too, selling at around $4 a barrel less rather than its usual premium of a dollar or so.

Even as WTI and Brent took different tacks, LLS and Brent had remained in lockstep. The reasons for the new divergence are hotly debated. Analysts at Goldman Sachs offer several theories, including a shortage of this grade of oil in Europe (it is of similar quality to absent Libyan supplies) and a general redirection of crude to booming Asia, without any corresponding rise in demand for LLS.

These price differences matter to businesses such as airlines, which hedge exposure to shifting oil prices. Long-dated futures markets for jet fuel are highly illiquid. Much of the hedging is carried out with WTI contracts but the actual fuel is mainly refined from pricier oils. Commodities funds that hold WTI are also scratching their heads over what to do about buying and selling an oil that no longer reflects the wider global market.

Hong Kong Subsidized Housing Could Resume

JUNE 19, 2011   THE WALL STREET JOURNAL

By Kate O’Keeffe and Chester Yung

Hong Kong Chief Executive Donald Tsang is considering resuming a controversial subsidized housing program, people familiar with the matter said Saturday, as pressure from local and Beijing officials to tame soaring property prices in the city mounts.

Home prices in the Chinese territory have surpassed the peak hit in the last asset bubble in 1997 as abundant liquidity, record-low interest rates and a flood of investors from the mainland have buoyed the market–and created a conundrum for policy makers who have been struggling to implement measures to temper prices.

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A resumption of the Home Ownership Scheme, a program abandoned in 2003 after developers complained about government interference in the property market amid a sharp correction in private residential prices, would represent the government’s boldest attempt yet to quell sizzling prices. Home prices in Hong Kong have risen around 14% so far this year on top of a 24% jump in 2010.

Mr. Tsang, who had earlier resisted calls to resume the program that had allowed eligible residents to buy homes at a discount of as much as 40% to market levels, appears to be warming to the idea.

“The chief executive may address the issue of subsidized home ownership in the upcoming policy address but the issue has to be considered together with ways to increase land supply in Hong Kong,” a representative from Mr. Tsang’s office said Saturday.

The comments follow a recent visit to the territory from the top Chinese government official in charge of Hong Kong affairs Wang Guangya, during which he said the local government needs to pay particular attention to addressing the housing problems of low-income people.

“As a government, more efforts should be spent on housing issues of the general public, particularly the underprivileged. Housing is both a social and economic issue, and if it’s not handled well, it becomes a political issue,” Mr. Wang said.

They also follow a decision last week by Hong Kong’s de-facto central bank to tighten mortgage lending again and for the first time toughen lending standards for nonlocals–just one day after the government sold a luxury residential site for 11.65 billion Hong Kong dollars (US$1.49 billion), the city’s second-highest price for land sold at an auction.

鴻海挺進IC基板 傳胡竹青掌舵

2011.06.24   【經濟日報╱記者龍益雲、曾仁凱／桃園、台北報導】

市場傳出，鴻海集團將進軍IC基板事業，打破原本國內IC基板業由聯電、華碩、台塑、日月光等四大集團主導的局面，並開出「年薪兩倍」挖角，成功延攬前欣興IC基板事業部總經理胡竹青掌舵。

鴻海發言系統昨（23）日不願對此置評。業界認為，台灣IC基板業長久以來，由聯電集團旗下欣興旭德、台塑集團的南電、華碩集團旗下景碩，以及日月光等四大集團掌握，各擁利基，也掌握穩定客源，鴻海此時加入，時間點稍嫌晚。

但鴻海高薪挖角策略，恐讓近年相對平靜、穩健成長的產業氣氛，掀起一陣跳槽風，搶人才大戰一觸即發。

面對鴻海大軍來襲，台塑集團旗下南電總經理張家鈁認為，這代表IC基板後市強勁，也象徵這個產業值得南電繼續發展。他強調，鴻海也要考量員工、客戶、股東的利益，如果現有的業者把鴻海加入這個產業視為競爭，是「多慮了」。欣興董事長曾子章則認為，IC基板有其獨到技術，鴻海等新進者加入，未必討得到便宜，甚至「可能要虧個三、五年」。

市場盛傳，鴻海集團在布局印刷電路板多年後，將進軍IC基板事業，成功延攬前欣興IC基板事業部總經理胡竹青出面掌舵，帶領多位大將赴鴻海旗下印刷電路板廠鴻勝在大陸河北省秦皇島生產基地了解運作。據了解，鴻勝秦皇島廠去年開始著手跨入IC基板，由韓籍主管督軍，未來將交由胡竹青擘劃整個IC基板事業，近期更開始重金在業界挖角。一家IC基板廠主管透露：「有些中級主管被挖，開價是年所得的兩倍。」

市場人士透露，鴻勝秦皇島廠去年開始打樣，並獲部分客戶認證，但尚未量產，延攬胡竹青擔綱後，應該就會大舉擴增規模，不僅在市場「獵人頭」，也積極覓地擴建新廠，未來可能從IC設計打開市場。

圖／經濟日報提供

業績看俏，順達科創近3年新高價

2011/06/23 11:52 時報資訊

【時報記者張漢綺台北報導】NB電池組廠－順達科 (3211) 為反映電池芯漲價，順達科於第2季底、第3季初調漲報價，加上iPad 2等平板電腦熱賣，順達科今年業績可望穩定成長，預估今年獲利將超越去年，在業績看好下，近期股價強勢大漲，今天盤中再度逆勢大漲，創下2008年7月21日以來新高價，若還原權值，今天股價更創下歷史新高價。

iPad帶動平板電腦熱，且日本大地震後，訂單轉向大廠，新普科 (6121) 及順達科成為最大受惠者，順達科第1季合併營收為45.51億元，較去年同期成長22.86%，營業毛利為5.06億元，單季毛利率為11.14%，稅前盈餘為3.9億元，較去年同期成長17.82%，稅後盈餘為2.86億元，較去年同期成長21.18%，每股盈餘為2.21元，業績表現出色。

儘管第2季為傳統淡季，但順達科第2季營收不差，5月合併營收為18.72億元，較去年同月成長16.37%，累計1到5月合併營收為80.59億元，較去年同期成長20.77%；從第2季營收來看，法人預估，順達科第2季獲利可望維持第1季水準。

順達科去年NB電池組全球市佔率約10%，根據市調機構預估，今年NB全球銷售量上看2.2億台，平板電腦銷售量約5000萬台，其中蘋果iPad可望佔平板電腦的67%到70%，順達科因躋身為iPad供應商，預估今年全球市佔率將持續提升，也讓順達科今年業績看好，加上為反應零組件與電池芯價格上揚，順達科於第2季底、第3季初調漲電池模組報價，預計將可帶動毛利率回升；下半年業績可望優於上半年，今年業績可望優於去年的8.94元，只要出貨順利，法人預估，順達科今年每股稅前盈餘可望上看12元。

Seize Indonesia's Amazonian Opportunity

JUNE 20, 2011   THE WALL STREET JOURNAL

By LIAM DENNING

If you cut Brazil into 17,000-odd pieces, would it look something like Indonesia?

Brazil has the best-performing stock market of any of the BRIC countries over the past five years, beating China's, Russia's, just, India's. Investors looking for the next Brazil should consider Indonesia. Besides extensive rain-forest, the Asian archipelago bears other striking similarities to the Amazonian giant.

Both economies are commodities powerhouses. Brazil is the world's second-largest exporter of iron ore. Indonesia is the world's No. 1 exporter of thermal coal and palm oil.

Indonesia also sits on the doorstep of raw-materials glutton China. As with Brazil, China is now Indonesia's biggest export market, having almost doubled its share in the past decade to about 12.5%.

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A Chinese slow-down is a risk. Against this, exports as a percentage of gross domestic product for Indonesia are among the lowest for any Asian country. Moreover, the Jakarta Composite index is weighted only 20% to natural resources, compared with more than 40% for Brazil.

Thankfully, both Brazil and Indonesia also have vibrant domestic sectors. Household consumption equated to 65% of Indonesia's gross domestic product last year, similar to Brazil and well above China's level of about 40%. Indonesia's GDP per capita, about $4,400 in purchasing-power parity terms, is only 39% of Brazil's level. But it is 32% higher than India's and projected by the International Monetary Fund to increase by 6.9% a year to 2016. Moreover, Indonesians' appetite for more than just the basics is increasing: From 1999 to 2009, nonfood items' share of spending expanded from 37% to 49%, according to UBS.

Like Brazilians, Indonesian consumers have a lot of catching up to do. In Brazil, for example, mortgages outstanding equate to a mere 3% of GDP, compared with 72% in the U.S. and 18% in China, according to BofA Merrill Lynch Global Research. In Indonesia, the figure is 2%, according to CLSA.

Indonesia also is set to reap a demographic dividend as its working-age population grows 21 million people by 2020, the World Bank estimates. Remarkably, that almost is the same as for China, whose population is more than five times bigger. China's working population peaks this decade, creating a head wind thereafter. Brazil's will peak in 2030; Indonesia's, 10 years after that.

As in Brazil, inflation is a major threat, made worse by poor infrastructure. But that also presents huge potential for development. In Brazil, the primary hurdle to this is high real interest rates.

In Indonesia, it is corruption, with a Transparency International score of just 2.8 out of 10, lower than Brazil's still-woeful 3.7. Indonesia has made great strides since 2003, when its score, at 1.9, was lower than Iraq's. And like Brazil, Indonesia's memories of financial chaos have forced it to get its fiscal house in order. Total public and private debt equates to only 53% of GDP, compared with 153% for Asia as a whole, according to CLSA.

That provides scope for public investment. It should also strengthen the rupiah, boosting Indonesians' spending power, as well as returns for foreign investors.

Despite such potential, Indonesian stocks trade at just 12.5 times 2012 earnings. It might sound like a retro Apple device, but every investor should get themselves an "iBRIC" portfolio.

—Liam Denning

Write to Liam Denning at liam.denning@wsj.com