Foreign Exchange Trading - Education, Investment Company, Market news

Citi Reclaims Top Ranking in Benchmark Euromoney Foreign Exchange Survey

ridodirected@gmail.com (RIDO) — Sat, 10 May 2014 00:21:00 +0000

Posted on May 9, 2014, 12:02 a.m. EDT
Article from http://www.marketwatch.com/

Citi has beaten Deutsche Bank, winner for the previous nine years, by a narrow margin to top the overall market-share rankings in Euromoney's 2014 FX survey. The victory heralds a remarkable turnaround in Citi's global foreign exchange business over the past five years.

Citi had dominated the Euromoney survey since its inception in 1976, winning the overall ranking for the first 23 years.

From the turn of the millennium, the US bank started to slip behind the likes of Deutsche, UBS and Barclays, reaching a low point in 2009 of a fifth-place ranking and a market share of just 7.32%. Over the past five years, that volume has more than doubled to 16.04% - enough to reclaim the top spot from Deutsche, whose market share this year was 15.67%.

Barclays narrowly edged out UBS to hold on to third place in the overall rankings, with respective market shares of 10.91% and 10.88%. HSBC remained in fifth place overall with a market share of 7.12%.

The market share of each of the top five banks rose this year, with Citi recording a rise in market share of 1.14 percentage points. In total, the market share of the top five banks was 60.62%, compared to 57.36% last year. It is the first time the combined market share of the top five banks has exceeded 60% since 2009.

Under former head of foreign exchange and local markets Anil Prasad, Citi took businesses with a regional focus and turned them into a global franchise. The bank also invested heavily in technology through its Velocity platform, which helped narrow the gap in e-trading to Deutsche Bank, and built an institutional platform that mirrors Citi's traditional strengths in corporate and retail FX.

Nadir Mahmud, who succeeded Prasad as global head of FXLM when he left Citi earlier this year, said: "Our return to the top of the Euromoney FX Poll is a validation of our continuing effort to better serve our clients by providing them the best pricing, trade execution and advisory services in the industry."

Despite slipping one place in the rankings, Deutsche Bank increased its market share by 0.49 percentage points. The German bank maintained leadership in electronic trading, with a market share of 17.84% to second-placed Citi's 16.94%. Deutsche remains the clear leader in the options market, with a share of more than 18% - more than 7% higher than nearest rivals Citi, Barclays and Bank of America Merrill Lynch.

BofA Merrill was the most improved among the top 10 global FX houses, rising from 10th to seventh place this year. Its market share was 4.38%, up 1.30 percentage points on its 2013 ranking. The US bank is also the biggest gainer in market share from corporate clients over the past five years: its volumes from corporates have risen 151% since 2010, compared with second-ranked Citi's rise by 137%. The bank has combined the previous strengths of Bank of America and Merrill Lynch in corporate and institutional business and is now clearly the biggest challenger to the incumbent top six FX houses.

The leading three Australian banks continue to build market share and rise up the rankings this year. ANZ broke into the top 20 overall and doubled its market share to 0.61%. NAB grew its volumes by 81%, and Westpac by 72%. The next biggest riser by market share, Standard Chartered, grew volumes by 50% and rose from 17th to 14th place in the overall rankings.

In the past three years, the Australian banks have been by far the biggest improvers in the overall rankings, helped by their banks' strong ratings and the growth of business in Asia. NAB has risen 25 places since 2011 to its current ranking of 23rd; ANZ has risen 22 places over the same time to 20th place; and Westpac now ranks 17th, compared with 27th three years ago.

RBS suffered by far the biggest fall in market share, from 5.62% in 2013 to 3.25% this year, falling from seventh to eighth place overall. As recently as 2009, RBS ranked fourth in the survey, with a market share of 8.19%.

The biggest rankings faller in the top 20 was Credit Suisse, which falls four places to 12th, its volumes down 1.63%. Morgan Stanley is the other bank to drop out of the top 10, from ninth to 11th place.

Their places in the top 10 are taken by BNP Paribas, which rises from 12th to ninth place, increasing its market share by 0.58 percentage points; and Goldman Sachs, up one place to 10th overall, despite a decline in volumes of 0.22%.

Thomson Reuters FXall maintains its leadership of the multi-bank and independent platform market share, with 26.04%. The rest of the top three remained unchanged, with FXConnect in second place and 360 Treasury Systems third.

ABOUT THE EUROMONEY FX SURVEY

The Euromoney foreign exchange survey, first launched in 1976, remains the key benchmark for the global FX industry.

At a time when the FX markets are under intense scrutiny, the Euromoney FX survey continues to provide unrivalled transparency and insight into the industry's leading players, with all data based on the votes and volumes recorded by banks' clients.

This year, Euromoney registered 14,050 verified votes, accounting for a total volume of $225 trillion.

The results of the survey are published today online at euromoney.com, along with analysis of the results and a detailed report on how the current investigations into alleged malpractice in the FX markets are affecting the industry. In the report, entitled 'Foreign exchange's reign of terror', Euromoney says: "Investigations into allegations of market fixing in foreign exchange are spreading into the very heart of the business. Those running the world's biggest FX houses live in fear of what analysis of hundreds of millions of calls and emails will unearth. Do investigators and regulators risk bringing down the axe on a market that has always provided unrivaled liquidity and ultra-tight pricing for clients?"

FOR MORE INFORMATION:

Access to the full results online at euromoney.com is available only to subscribers. To get access, please call our subscriptions hotline on +44 207 779 8999 or contact Patrick McCullough pmccullough@euromoneyplc.com.

If you have questions about the process of the Euromoney FX survey, please contact our head of research Tim Moxon at tmoxon@euromoney.com.

If you are interested in learning more about Euromoney's FXMarketData product, please contact Andrew Mortimer at amortimer@euromoney.com.

SOURCE: Euromoney
Posted on May 9, 2014, 12:02 a.m. EDT
Article from http://www.marketwatch.com/

High-Frequency Fight Starts in Foreign Exchange

ridodirected@gmail.com (RIDO) — Sat, 03 May 2014 05:42:00 +0000

By Lucy Meakin Apr 18, 2014 12:33 AM GMT+0800
Article from http://www.bloomberg.com/news/

Foreign-exchange dealers say they have the solution to the high-frequency trades eroding banks’ profits across financial markets.

A currency-dealing platform known as ParFX, established in 2011 by firms from Deutsche Bank AG to Citigroup Inc., was approached last month by banks asking if its technology could be applied to other asset classes, Chief Executive Officer Dan Marcus said. The system works by pausing trades at random to prevent dealers with high-powered computers from jumping in front of investors and gaining an advantage.

“These banks do need to trade foreign exchange because it’s their business and they’re hedging their currency exposure across the world,” London-based Marcus said in an April 15 interview. “They would rather trade in an environment that they can trust.”

High-frequency trading is coming under unprecedented scrutiny with the publication last month of Michael Lewis’s book “Flash Boys,” investigations by U.S. regulators and tough new rules approved this week by the European Union. Dealers use technology to execute orders in thousandths or even millionths of a second, profiting from tiny discrepancies in security prices across different trading venues.

Prime Target

Relatively light regulation and high volumes make the $5.3 trillion-a-day foreign-exchange market a prime target for high-frequency traders. More than 35 percent of spot currency volume in October was by speed traders, up from 9 percent five years earlier, according to Boston-based consultancy Aite Group LLC.

About 30 percent to 35 percent of currency transactions on ICAP Plc’s EBS system are high-frequency trades, the Bank for International Settlements said in a December report. Bloomberg LP, the parent company of Bloomberg News, competes with EBS in providing news, information and trading systems.

“Foreign exchange has definitely been the area that people have moved toward in the last 12 to 18 months,” Hugh Cumberland, a manager at Colt Technology Services Group Ltd. in London, said in an April 3 phone interview. The company provides high-speed networks to financial-services companies. Tougher rules in other markets are “an encouragement for HFT traders to look to other areas like foreign exchange,” he said.

Dealers Frustrated

ParFX was set up after a group of the largest currency dealers approached a unit of Swiss broker Cie Financiere Tradition SA, frustrated by the arrival of high-frequency traders on many of their existing platforms.

The system started trading in July, and now executes deals for 15 firms including Deutsche Bank, Citigroup, Barclays Plc and UBS AG, the four biggest currency dealers. It expects to have 25 percent more clients by the end of April.

ParFX offers a transparent marketplace and subjects orders to random pauses of about 20 to 80 milliseconds, and “is the industry’s effort to heal itself,” according to Marcus.

“The idea of randomizing is, I guess, a potential solution,” John Adam, global head of product management at New-York based Portware LLC, which offers systems for high-frequency trading, said in an April 15 phone interview. “It’s placing a lot of faith in the randomizing, really. If somebody can figure out a pattern in that randomizer algorithm, that would be immensely problematic.”

Profits Slump

Currency dealers are fighting back against high-speed trading as profits from foreign exchange tumble.

The trillions of dollars that central banks pumped into markets in the wake of the global financial crisis have damped the trends that currency dealers rely on to make money. Foreign-exchange trading revenue at U.S. commercial banks totaled $1.53 billion in the fourth quarter of 2013, compared with an average $1.7 billion over the past two years, the Comptroller of the Currency said on March 31.

The foreign-exchange market has been hit by investigations of its own. At least a dozen authorities on three continents are examining allegations, first reported in June by Bloomberg News, that traders colluded to manipulate benchmark rates. The probes have seen dealers suspended from the U.S. to Singapore and Switzerland. No firms or traders have been accused of wrongdoing by government authorities.

High-frequency trading has its share of supporters, who say its ability to reduce spreads, or differences between the prices to buy and sell an asset, cuts costs for investors.

‘Benefited Investors’

Speed trading has “contributed to substantial improvements in market quality that have benefited all investors,” the Futures Industry Association Principal Traders Group, which counts some of the biggest high-frequency traders among its members, said in a March 30 statement.

Individual investors using these traders to execute orders benefit from low commissions and the best prices, PennTrade Financial Chief Executive Officer Steve Ehrlich said in a Bloomberg Television interview on March 31.

The new EU restrictions on the trading strategy, which still need to be signed off by national governments, include standards to keep the price increment for securities from being too small and requirements that market makers provide liquidity for a set number of hours each day.

New York state Attorney General Eric T. Schneiderman said March 18 he opened an investigation into whether U.S. stock exchanges and alternative venues provide high-speed traders with improper advantages. The Federal Bureau of Investigation is looking into whether they’re breaking U.S. laws by acting on non-public information.

HFT ‘Parasites’

Schneiderman sent subpoenas to six high-frequency trading firms seeking information about special arrangements they have with exchanges and dark pools as well as their trading strategies, according to a person familiar with the matter.

Chopper Trading LLC, Jump Trading LLC and Tower Research Capital LLC are among the firms, according to the person, who asked to not be named because the details of the investigation haven’t been made public.

Matt Schrecengost, the chief operating officer of Chicago-based Jump Trading, and Mark Gorton, managing director of New York-based Tower Research, didn’t immediately return voicemail messages seeking comment. No official at Chicago-based Chopper Trading was immediately available.

The renewed focus on high-frequency trading is encouraging participants in other markets to consider their own responses. Boston-based Fidelity Investments, the second-largest mutual-fund company, said April 10 it’s looking into setting up a stocks platform to beat the speed traders.

“There’s been a lot of dissatisfaction, particularly on the buy-side and asset-management community, about high-frequency trading,” said Richard Bentley, the vice president for financial services at Software AG, which aggregates trading platforms including ParFX. “There’s the perception that they’re parasites. What ParFX have done is essentially play to that and said, come and trade in our pool, because we’re not going to allow the HFT people to come and spoil the fun.”

CFT SW

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Paul Armstrong, Greg Storey

Lucy Meakin Apr 18, 2014 12:33 AM GMT+0800
Article from http://www.bloomberg.com/news/

Sony battles back (Fortune, 1985)

ridodirected@gmail.com (RIDO) — Mon, 20 May 2013 04:12:00 +0000

May 19, 2013: 9:00 AM ET

Lee Smith with Research Associate Darienne L. Dennis

Article from http://features.blogs.fortune.cnn.com/

Editor's note: Every Sunday we publish a favorite story from our magazine archives. This week, with news that hedge fund Third Point has suggested breaking up electronics giant Sony, we turn to a 1985 feature about the company's struggles with VCR technology in the wake of its Betamax machine losing out in the market to VHS.

Buoyed by record profits, the company that invented the VCR -- then lost out to rivals -- shows it can still crank out high-tech magic. But Sony has yet to solve basic problems that hammered earnings before and could again.

By Lee Smith with Research Associate Darienne L. Dennis

FORTUNE -- Sony chairman Akio Morita bounded from his Mercedes, tilted his head back, and looked up at the huge Sony television screen overhead, about half the size of an American football field and bubbling with color. ''My people are crazy,'' he screamed with delight. The piece of electronic showmanship Sony built for Expo '85, Japan's new technology show in Tsukuba, is a good match for Morita's ebullient mood these days. A year and a half ago Morita grumpily avoided the press whenever he could, once sending word through an aide that he was tired of reading about Sony's problems and wouldn't talk until there was something good to say.

Morita is voluble again. Many of Sony's deep-seated problems remain, but a lusty recovery in its consumer markets has bought the company time to grapple with them. Sony had a record profit of $291.6 million in 1984, on revenues of $5.2 billion, bouncing back from a 52% drop in earnings the year before. Net income for the quarter that ended January 31 was up 15% over the same period a year ago. Sony's stock, which trades on the Tokyo Stock Exchange and as American Depositary Receipts on the New York Stock Exchange, is up almost 40% since January 1. Sony seems to be hitting its stride technically too. ''The magic is still there,'' says Michael F.J. Connors, Tokyo research director of the securities firm of Jardine Fleming. Sony's new supersmall compact audio disk player ought to keep a technical and price edge for at least a little while. And its 8-mm video camera, though aimed at an uncertain market, employs some nifty technology, such as an extremely sensitive microchip that can take pictures in very low light or with the sun shining directly into the lens.

Yet the basic problems that hammered earnings haven't gone away; they've just been glossed over by the industry's soaring sales. Demand for videocassette recorders (VCRs) was so strong last year that Sony went along for the ride even though its pioneering Betamax has long been odd machine out in a market dominated by the rival VHS system. Losing market share for a product it invented was bad enough, but Sony's problems go deeper. The company remains stuck in the consumer electronics business--where growth for products other than VCRs has been modest in recent years--while rivals like Matsushita Electric Industrial Co. (Panasonic, Technics, Quasar, and National brands) have rapidly expanded nonconsumer businesses. In consumer electronics Sony's innovative prowess hasn't been paying off as it once did. Within months after Sony puts a new product on the market, rivals match it-- often at lower prices.

Sony's answer to its continued dependence on consumers is its so-called 50-50 strategy--its aim to be a half-consumer, half-nonconsumer company by 1990. The current balance is 80-20 in favor of consumer products. But even with heavy capital investment--about 40% of Sony's $400-million 1985 capital budget is being spent to expand semiconductor facilities--it's hard to see how the company can reach that goal in five years. When pressed, Sony explains that at this point 50-50 is more a rallying cry than a precise goal.

Even if the proportions turn out to be other than 50-50, the transition is likely to take more than five years, and Sony will have to keep squeezing profits out of consumer sales. The new compact disk player will help. Although sales of radios, stereos, tape recorders, and the like brought Sony about $1 billion in revenues last year, the business has been sleepy since the Walkman craze slowed from a sprint to a stroll in 1983. One hope for reviving it has been the audio disk, a piece of aluminum and plastic about the diameter of a coffee saucer, impregnated with millions of tiny pits. A laser beam reads the sequence of matter and pits as digital signals, which become sounds much purer than conventional records or tape can render. Because no stylus rubs it, the disk doesn't wear out.

Though sales of disk players were sluggish at first because of heady price tags--initially around $1,000 without amplifier or speakers--they began to take off in the last three months or so as list prices dropped to less than half that. Late last year Sony started selling a player not much bigger than the disk itself for $200 in Japan and about $300 in the U.S. It plans to make 700,000 of them this year. At that price Sonywill make little, if any, profit on the players until its volume picks up considerably. But the market is about to crowd up. Matsushita says it will introduce its own small player later this year.

Somebody has to make the disks, and Sony's in that game too. CBS-Sony Group, a 50-50 joint venture with CBS, is the largest manufacturer of disks in Japan and the U.S. It's pressing 1.2 million a month at plants in Japan and Terre Haute, Indiana, and expects to step up monthly production to 2.2 million before the end of the year. The 2,500 titles, from Springsteen to Vivaldi, retail from $11 to $15.

The 8-mm video camera is part of a complicated strategy designed not only to exploit a possible new market, but also to help Sony get a second shot at the profitable VCR business. Sony blew it the first time around, a failure Morita blames on shortsightedness. Critics say it was arrogance. In 1974, seven months before Sony was to introduce to the world the first VCR using half-inch tape, Morita showed the machine to executives from Matsushita and JVC, as well as to Anthony L. Conrad, then president of RCA, which was developing a video disk player. Many who took a look came away with the message that the world would be a better place to view in if everyone made his machines compatible with Sony's. Says a spokesman for one of the early lookers, ''Morita's attitude was, 'We completed this one, so why don't you follow.' There was no scope for advice or joint development.''

Two years later, after Sony had sold 100,000 Betamaxes, JVC appeared with an alternative, the Video Home System, or VHS. The machines were incompatible and Morita was stunned; he felt betrayed. Morita, 54 at the time, went so far as to ask Konosuke Matsushita, then 81 and revered as one of Japan's great industrialists, to have JVC recall the VHS and make it conform to the Sony standard. Matsushita owns 50.2% of JVC, but the grand old man declined. Morita has generally been more admired by Americans and Europeans than by his countrymen, many of whom consider his flashy style decidedly un-Japanese. But his competitors had more in mind than that. The VHS was clearly a better mousetrap in an important respect. It could record for two hours, twice as long as the Betamax.

Other manufacturers, such as Hitachi, adopted VHS. ''We didn't put enough effort into making a family,'' reflects Morita, his usually spirited voice becoming slow and pained. ''The other side, coming later, made a family.'' Sony did persuade a few others, such as Zenith Electronics Corp. and NEC, to build on the Betamax model, but in the past few years all but Sony have either abandoned the Betamax or hedged by adding a VHS model.

Betamax keeps falling further behind. Though sales rose last year, Sony's world VCR market share shrank from 13% in 1982 to less than 7% in 1984, and seems to be shrinking still, according to Television Digest, an industry newsletter. No. 1 Matsushita's share is 19%. The Betamax is at least as good as VHS in quality, but VHS still leads in playing time--a stupefying eight hours on one machine, compared with a top of five hours for Betamax. And as consumers perceive Betamax faltering, they flock in even greater numbers to VHS, worried that those who produce movie cassettes for VCRs might desert Betamax.

Despite the roaring success of the half-inch format, the major manufacturers and a lot of minor ones have been trying to develop a format using tape eight millimeters (about a third of an inch) wide. It can be packaged in a cassette not much bigger than an audio cassette; by comparison, the half-inch tape cassette is about the size of a woman's evening purse. The player can be made smaller as well. Sony believes that in a few years the 8-mm videocassette player can be made small enough to be incorporated routinely in TV sets.

For Sony, 8-mm has one other advantage. Last year 128 manufacturers, including Sony, signed a pact agreeing to conform to a single standard so that all 8-mm tapes can be played on any machine. Even triumphant Matsushita doesn't want a rerun of the Betamax/VHS war. In the furious battle to establish their standard as preeminent, both Sony and Matsushita cut prices more than they would have liked.

The 8-mm format also may be able to exploit the VCR's largely ignored ability to play tapes the consumer makes with his own video camera. Only about one out of 15 VCR buyers gets a camera too. Even though the manufacturers have squeezed down the size over the years so that a camera now weighs only five pounds or so, it is still heavy for carrying around outdoors. And the price is an even weightier burden, $1,000 or more. The half-inch video camera seems to have been shrunk in size and price about as small as it will go. The 8-mm format gives manufacturers a fresh start.

Last fall Eastman Kodak began marketing an 8-mm video camera made by Matsushita. Although Kodak is a leading maker of home movie film, the company believes that electronic cameras will be increasingly important. Canon soon followed with an 8-mm of its own, which it is selling in the U.S. and Canada. In January, Sony introduced Video 8 in Japan, and it plans to start shipping the product to the U.S. shortly. Sony is not only turning out 20,000 cameras a month under its own name, but is also producing 10,000 a month for other Japanese manufacturers, including Fuji Film Co. and Kyocera.

The camera contains its own small VCR. To play back the tape, the camera is plugged into a TV set like any other VCR. Still, the first generation of 8-mm cameras is not likely to sell much better than did the half-inch models. They're only a little lighter and no cheaper. The trick for Sony will be to do one more time what it has done so well in the past: wring the big components and cost out of the gadget. Ichizo Miyauchi of Nomura Research Institute, the research arm of Nomura Securities, guesses that at below $750 the cameras will start to roll off the shelves. Low prices don't guarantee success, of course. The U.S. home movie market peaked in 1972, when about a million cameras were sold, and dwindled to about 40,000 units last year, according to Peter J. Enderlin, a photography industry analyst at Smith Barney Harris Upham. The video camera will have to carve out a new market and nobody knows if that's possible.

The next leap for Sony probably will be marketing an 8-mm tape deck--that is, a recorder and player without camera. It takes courage to be first, since there are few prerecorded tapes in the 8-mm format. In the half-inch, some 7,000 movies are available, from Casablanca to Porky's. Sanyo, Japan's fourth- largest manufacturer of half-inch VCRs, shipped 5,000 8-mm tape decks to the U.S. in February. ''The software will become available when the 8-mm is there,'' a spokesman for Sanyo says bravely. Sony won't say when it will follow. The biggest boost for the 8-mm would come if Matsushita and Hitachi got into the game.

At the moment Matsushita is comfortable on the sidelines, but it could be lured in if the 8-mm camera were a big hit. Or it could be pushed in. Last year's phenomenal growth in the VCR business is slowing down a bit. Korean manufacturers, moreover, are getting ready to market inexpensive VCRs in the U.S., so price cutting could chew into profits. Even if Matsushita ultimately takes the bigger 8-mm market share, Sony can still prosper. With a single standard in 8-mm, at least Sony will not be outside the family.

In Sony's best of all worlds, the 8-mm will quickly replace the half-inch format in low- and medium-priced equipment, but the half-inch will remain the standard for a time at the top of the line, where the Betamax does well. The world probably will not be so tidy. Even if the 8-mm does eventually succeed the half-inch, the question is whether it will happen before the Betamax market collapses.

There's no consensus. One Japanese think tank sees a reasonable chance that as early as 1990 the smaller VCRs will be selling at the rate of 20 million a year and will have supplanted the half-inch machines. But that assumes that manufacturers and consumers will readily junk the investment they have in the half-inch format. For videotape makers, it's a chicken and egg situation. Says Eugene G. Glazer, a security analyst with Dean Witter Reynolds, ''How many 8- mm tape decks have to be out there before we see a lot of 8-mm tapes? I don't think anyone knows.''

If 8-mm doesn't become the dominant VCR, it's hard to see what other consumer product Sony could come up with to compensate for the loss. The market for TV sets, which accounted for $1.2 billion of Sony's sales last year, is mature, even though it picked up a bit recently. The next boom in color TV isn't due until well into the Nineties, when the customers are expected to line up for high-definition TV--a screen flashing with over 1,000 scanning lines instead of the 525 lines on U.S. sets.

So the long-term answer for Sony is to follow the lead of Matsushita and other competitors in strengthening its nonconsumer business. Though Matsushita was never as consumer-oriented as Sony, the company began to sense in the mid- Seventies that it was too dependent on consumer electronics; the enormous growth brought about by television and new audio equipment was going to start petering out. Now nearly a third of Matsushita's business is industrial, compared with 17% in 1970. Matsushita is one of Japan's largest manufacturers of robots, for example, and sells perhaps the broadest array of office equipment.

At Sony's low point in 1983 some critics said it was time for Morita to quit. He had run the company with single-minded passion and often vision--he persuaded the doubters that the Walkman would sell--but he missed important opportunities. Sony was the first Japanese company to make semiconductors, but for years it never made them for anyone but itself. At 64, Morita remains in command as chief executive officer. He and his family own 10% of the stock. His brother Masaaki, 57, is one of two deputy presidents. But he has turned day-to-day operations over to President Norio Ohga, 55.

Ohga caught the boss's attention nearly three decades ago. To promote his tape recorders, Morita sent samples to Tokyo University of Arts, where budding opera singers tried them out. Alone among the students, Ohga insisted the recorders could be better. Morita saw to it that Sony helped pay for the nervy baritone's training. ''Ohga was our spy,'' Morita says with a laugh. While studying in Berlin in the 1950s, Ohga would drop in on European electronics firms, and his hosts never caught on that he was warbling to Morita about what they were up to. Ohga joined Sony as head of the tape recorder division in 1959, and later ran CBS-Sony. When President Kazuo Iwama, Morita's brother-in- law, died in 1982, Ohga succeeded him.

Morita keeps in close touch. ''I have a telephone in my car,'' he says. ''I use it so much I may become the first Japanese executive to have two phones in his car.'' Still, he often defers to Ohga. ''A new leader should have different ideas of how we get into a real technological age,'' says Morita. ''The world is turning digital, and maybe I'm still living analog.'' Among other things, Ohga pushed Sony into selling semiconductors to outsiders. Competitors got the benefits of Sony's technology, and Sony got $50 million in revenues last year. It will probably get twice that much from semiconductors this year. Jumping into such a competitive market also forced Sony to bring down its manufacturing costs, which will help increase profit margins. ''We had the problem of living in a sheltered market,'' says Ohga.

Unfortunately for Sony, the static RAM chips that will start coming off a $70-million addition to its plant at Kokubu this summer will reach the market at a time of glut and price cutting. It's likely to be a long time before Sony's sales approach those of Japan's biggest chipmaker, NEC, which sold $2 billion last year.

Breaking into the office equipment business is one way companies like Matsushita and Canon have expanded out of consumer products. Sony would like to do the same. It has designed the 3.5-inch micro floppy disk drive that is used in personal computers made by Apple Computer, Hewlett-Packard, and Data General. KDD, Japan's international phone company, is using an erasable optical memory disk system fashioned by itself and Sony to store such data as the duration of phone calls for billing. That makes Sony the first Japanese company to devise a working erasable disk system and puts it in the running to be an international leader, along with companies like 3M. Otherwise, Sony's plans for outfitting offices are vague. ''It's a new field for us, and we . can't yet talk about the kinds of product we have in mind,'' says Masaaki Morita. Sony makes no copiers or facsimile machines, and its personal computer is designed for home rather than office use. It seems late for a newcomer to try to squeeze into lines that world-class companies already dominate.

The next few years are going to be perilous for Sony. It still has a long way to go before it can establish itself in its new businesses. Until then it will continue to be perhaps the world's most exciting consumer electronics company, but living dangerously from magic show to magic show.

May 19, 2013: 9:00 AM ET

Lee Smith with Research Associate Darienne L. Dennis

Article from http://features.blogs.fortune.cnn.com/

Wall Street traders are freaked by Bloomberg message leak

ridodirected@gmail.com (RIDO) — Fri, 17 May 2013 07:42:00 +0000

Traders mostly shrugged off the Bloomberg snooping story. Then many users were alarmed when they found out messages had been posted online -- it's where many of them conduct most of their business.

By Cyrus Sanati

May 15, 2013: 12:32 PM ET

Article from http://finance.fortune.cnn.com/

FORTUNE -- Bloomberg LP must go further to ensure their customers' sensitive data is truly secure. The company dodged a bullet last week as traders on Wall Street and in the City of London shrugged off reports that Bloomberg News journalists had access to a number of seemingly benign customer data points. But reports that confidential client messages exchanged over Bloomberg terminals had been accidentally posted online by the company have raised a fair share of eyebrows across the financial community and could ultimately threaten Bloomberg's main business, its terminal sales.

The Bloomberg terminal is an indispensable data and research tool used by the financial community to monitor the markets. One can do everything from see the pricing curve of some esoteric security, to checking airline flight prices, to reading and watching financial news. With subscription fees at around $20,000 a year per user, the terminal is also the firm's main revenue generator.

The terminal is used differently by each silo of the Street. Bloomberg sales teams have a function to monitor what their users are looking at to determine best how to structure and sell their product to each of these disparate silos. It had been around since the company's founding 30 years ago.

But news last week that journalists at Bloomberg's massive news division were using the function to snoop on financial professionals -- from investment bankers to the Chairmen of the Federal Reserve -- alarmed the media and the government. The information available to journalists, though, turned out to be relatively benign. Apparently UUID can show information on which of the 15,000 functions their clients were using along with statistics on when they last logged in.

"Nobody really cared that much that the Bloomberg reporters could see that stuff," a trader who works at a large asset management firm in London told Fortune. "It was always assumed that they could see it as some guys on the desk would start to receive calls from the Bloomberg reporters the second they logged in."

The company said on Friday that its reporters never had access to sensitive information like "securities-level data, position data [or] trading data." Bloomberg said it had cut its employees off from accessing the UUID function last month after Goldman Sachs (GS) complained that a reporter had been using the data to check on the whereabouts of a Goldman employee who hadn't logged into his terminal in some time. The company also said it was appointing a senior executive who would be "responsible for reviewing and, if necessary, enhancing protocols which among other things will continue to ensure that our news operations never have access to confidential customer data."

The Bloomberg drama would have probably ended there. The bulk of the traders and bankers Fortune spoke to over the weekend concerning this story said that the snooping scandal had become more important to journalists than the greater financial community.

But then came word Monday that a trove of Bloomberg messaging data had been found online. The data was old but contained user info, trading data, and sensitive communications between bankers, traders, and their clients. Bloomberg messenger is an email and instant messaging program. A great deal of trading and price discovery goes on in these chats -- especially in the opaque over-the-counter market. It is where essentially large parts of the financial industry conduct the bulk of their business. Bids and offers are sent between brokers and buy-side professionals, and deals are sealed all on Bloomberg chat. Bloomberg actively scans messages to help its customers seemingly keep records of their bids and offers.

"They have a system to capture your broker runs in Bloomberg and feed through into Excel," one fixed income trader told Fortune. "These runs come in every two seconds so it's a priceless tool for us."

Bloomberg employs an army of "message mining analysts" who, according to a recent job placement advertisement picked up by the Financial Times, "are responsible for ensuring that price information across Bonds, CDS, Loans and Mortgage products are properly picked up from individual messages and returned back to the client."

The key here is "returned back to the client." But with the cache of messages that were recently found online, some traders are concerned that their data isn't being handled properly and could fall into the wrong hands. There is also concern that the company may be using that information to help Bloomberg Tradebook or Bloomberg Pool, the company's growing broker-dealer and dark pool trading outfits, to gain an informational advantage over their clients.

"We give Bloomberg authorization to scan the runs but not to scan our deals," one American trader told Fortune. "If they were using that data to help their broker-dealer front-run us then I'd never use the messenger service and go back to doing all my deals on the phone."

Bloomberg's chat and messaging function is one of the stickiest parts of its terminal business as it is seen as a necessary component for various silos of the street to conduct business, especially in the fixed-income market, where the vast majority of trades are done over the counter as opposed to on an exchange. If traders go back to using the phone or start using another platform they deem to be more secure than Bloomberg messenger, then the company could see a huge drop in subscriptions. Traders in the oil and gas space, for example, never took to using Bloomberg messenger to conduct OTC trades; rather, they have always used Yahoo's free messaging system. So while Bloomberg messenger may be sticky, it isn't super glue.

Bloomberg said its clients voluntarily handed over the information, which was summarily posted online by accident several years ago. The company said it gathered the data for internal testing to improve its technology. Nevertheless the posting of the data combined with the snooping scandal has made a number of financial professionals uneasy.

"That's terrible," one hedge fund professional said upon learning that that trading data had been posted online. "If someone could see my IM [instant messages] and front-run my trades it would be a disaster."

There is also concern that Bloomberg could lose control of private text messages sent over Bloomberg chat. Financial professionals use the chat not just for trading and business but also to talk smack about everything from their bosses to their clients.

"Legal liability is a concern," a Wall Street trader told Fortune. "Nobody wants to be quoted talking about 'muppets.'" By "muppets" the trader was referring to an insult that Goldman Sachs employees in London supposedly use to describe gullible clients.

"Bloomberg itself has no right or place to use and misuse that information," a buy-side trader told Fortune. "I am vehemently opposed to this, and I think there can be very little dispute on this matter."

It could take just one broker-dealer to make the move from Bloomberg to one of its data rivals, like Thomson Reuters, to start a huge earthquake in the industry. Reuters's new Eikon terminal -- dubbed the "Bloomberg Killer" -- is arguably more user-friendly than the Bloomberg terminal and its 15,000 esoteric function codes.

So what should Bloomberg do? Apologies can get the company so far. As such, it should take bigger steps to ensure that Bloomberg's various businesses aren't sharing information both with the public and with each other. Bloomberg says it has beefed up its security measures since the trading data was posted online several years ago. But more can be done. Some traders have suggested that so-called Chinese Walls be erected around Bloomberg's various business units to prevent cross-contamination of information. Large banks have such walls erected between their investment banking and research departments. Allowing regulators or some sort of independent auditor to review, approve, and report on their security measures would also go a long way in the eyes of some traders.

"Bloomberg offers a fantastic service. and I feel if they come out strongly to assure their users this won't happen again and steps are being taken, I expect it to die down," one trader in London told Fortune. "But most commentary suggests this could plague them for some time to come -- which camp turns out to be right will largely depend on the strength of the Bloomberg response."

Cyrus Sanati

May 15, 2013: 12:32 PM ET

Article from http://finance.fortune.cnn.com/

Seoul shares rise on revived foreign buying, autos

ridodirected@gmail.com (RIDO) — Wed, 15 May 2013 06:59:00 +0000

Mon May 13, 2013 10:17pm EDT
Article from http://www.reuters.com/article/

*Foreign buying renewed after two selling sessions

* Exporters win favour, defensives lag

May 14 (Reuters) - Seoul shares rose on Tuesday helped by a return in foreign investors and a solid rebound in auto and technology stocks, including Hyundai Motor and LG Electronics.

"Renewed foreign investor buying, encouraged by U.S. retail sales data, is boosting the market today," said Cho Seong-joon, a market analyst at NH Investment & Securities.

Cho added, however, that foreign money flows may change direction at any time, as the Vanguard Group related share sale is yet to be concluded in late June.

The Korea Composite Stock Price Index was up 1.16 percent at 1,971.27 points as of 0130 GMT.

Foreign investors were buyers of a net 95.7 billion won worth of stocks after two sessions of selling.

Data showed that U.S. retail sales unexpectedly rose in April, pointing to underlying strength in the economy.

Exporters rallied, with Kia Motors, which was the second most-heavily traded share on the main KOSPI, rising 4 percent.

Morgan Stanley was a top buyer of the shares.

Hyundai Motor shares rose 2.9 percent, poised to snap two sessions of falls, and LG Electronics advanced 2.4 percent.

Shares in Woongjin Group-related companies jumped after the Korea Exchange asked LG Chem late on Monday to clarify rumors of its interest in Woongjin Chemical.

Shares in Woongjin Holdings Co Ltd spiked 11 percent, while those in Woongjin Energy gained 3.2 percent.

Woongjin Chem shares are currently suspended from trading due to ongoing share consolidation.

LG Chem said it has mulled taking over Woongjin Chem but has not made any decision yet.

Defensive issues underperformed as demand for safer bets waned.

Shares in Lotte Chilsung, a beverage maker, fell 1.4 percent and KT&G, a tobacco-to-ginseng company, declined 0.4 percent. (Reporting by Jungyoun Park; Editing by Jacqueline Wong)

Mon May 13, 2013 10:17pm EDT
Article from http://www.reuters.com/article/

Analysis: Bullish yuan herd leaves China fundamentals in the dust

ridodirected@gmail.com (RIDO) — Mon, 13 May 2013 07:30:00 +0000

By Gabriel Wildau
SHANGHAI | Sun May 12, 2013 5:08pm EDT
Article from http://www.reuters.com/article/2013/05/12/us-china-yuan-speculation-idUSBRE94B0DL20130512

(Reuters) - Investors convinced China's currency is once again a one-way bet upward should think again: signs of slowing economic growth could cut short the yuan's rally.

Investors and companies have been pouring funds into China in recent months, helping send the yuan to a series of record highs.

But with evidence of a slowdown mounting, investors thinking of joining the rush into yuan would do well to remember 2011 and 2012, when fears of a Chinese hard landing sent the yuan, or renminbi, tumbling.

"Does this herald a return to the old status quo of one-way FX appreciation? Our medium-term answer is 'no,'" Paul Mackel, head of Asian FX research for HSBC in Hong Kong, wrote in an April 14 note to clients. The latest inflows, he wrote, were driven by financial inflows, including speculators betting the yuan will rise. "These expectations could reverse in the future should the domestic and external environments change."

A Reuters analysis of official data indicates that $181 billion in so-called "hot money" portfolio investment flows entered China in the first three months of 2013.

And that estimate may understate the true figure, since it doesn't include those inflows that many economists suspect have been disguised as trade payments.

The inflows have helped push the yuan up 1.1 percent since April. Though hardly dramatic by the standards of freely floating currencies, most analysts began the year forecasting gains of only 1 to 2 percent in 2013.

China's foreign exchange regulator responded earlier this week with new rules aimed at plugging holes in China's capital controls that punters have exploited to bet on appreciation.

The new rules spooked China's currency market: yuan traded outside China, or offshore yuan, suffered their worst one-day drop in 15 months on May 6, while yuan traded in China's more regulated currency market, or onshore yuan, fell by the most since December. But the currency quickly recovered to scale new highs on May 8 and May 9.

China's problems with hot money put it among the many emerging economies coping with the frustrations of rapid capital inflows from the United States and Europe, where central banks have pushed interest rates to record lows in an effort to revive growth, sending domestic investors in search of higher returns abroad. That has sparked concerns of a global "currency war," with central banks cutting interest rates to help keep their own currencies from rising.

In the past week, central banks in Australia and South Korea surprised markets with rate cuts, and New Zealand's central bank said it had been selling its own currency to stem its rise.

While the yuan's own exchange rate was once fixed, in 2005 China began letting its value fluctuate around a set rate. With its trade surplus ballooning and its foreign exchange earnings soaring, the question was not whether the yuan would rise or fall, but how quickly authorities would let the currency rise.

In late 2011, as fears that China's credit-boom would burst and send the economy into a sharp "hard landing," the market got its first taste of downside risk.

Even the most pessimistic forecast would have left China growing at a rate most countries would envy, but the fear of a sharp Chinese slowdown was enough to spook investors and cause a sharp drop in a seemingly unshakeable market.

Chinese companies that had sold dollars short during years when the yuan was a one-way bet rushed to buy them back, helping to speed the yuan's decline. Onshore yuan fell 1.3 percent through the first seven months of 2012, the currency's first bout of sustained declines since China's modern foreign-exchange trading system was launched in 1994.

The yuan's tumble appeared for a time to have cured the market of its faith in the yuan's perpetual ascent. But in August 2012, the market shifted again. As fears of a euro zone break-up eased and China launched a mini-stimulus program to revive growth, investors' taste for yuan returned.

When the yuan began rising anew in the fourth quarter of 2012, companies that had accumulated large dollar holdings earlier in the year scrambled to sell them, accelerating the yuan's climb. By late November, when confidence in the recovery peaked, China's onshore foreign exchange market ground to a virtual halt, as dollar bids disappeared from the market, forcing the central bank to step in to buy dollars itself.

The central bank was still buying dollars in the early months of 2013. Balance of payments data shows that it bought $157 billion in the first quarter, the most since the fourth quarter of 2010.

"Non-FDI capital flows have returned to China on improved global risk sentiment and signs of stabilization on the Chinese economy," Wang Tao, head of China economic research at UBS in Beijing, wrote in late April, using an abbreviation for foreign direct investment.

Currency traders say China-based companies have also been "over-hedging" their dollar holdings by buying forward contracts for yuan, fuelling the yuan's rise. A Reuters analysis of yuan purchases by companies shows that China-based importers and exporters are now buying yuan at the fastest pace since 2010.

But even as Chinese companies and global investors lay ever-bigger bets on the yuan's rise, worries about China's economy are stirring, threatening a 2011-style correction. GDP grew at 7.7 percent in the first quarter, down from 7.9 percent in the last three months of 2012 and well below analysts' expectations of 8.0 percent. Industrial output and fixed-asset investment also disappointed.

Purchasing managers' indexes, which gauge economic activity, also suggest China's manufacturing and service sectors were still weak in April.

If such indicators continue to disappoint, a 2011-style correction may not be far behind. The latest regulations, which target fake trade invoicing used to convert excess dollars to yuan, are also likely to bring reported export growth down to levels economists view as more realistic, given weak external demand.

That could sap confidence in China's economy and its yuan.

"It's going to be quite difficult for the renminbi spot exchange rate to appreciate much in the short-term. We think the recent moves have slightly overshot,' said Robert Minnikin, senior foreign exchange strategist at Standard Chartered in Hong Kong. "The data is not super strong," he said. "If anything, there's a risk that we could see a bounce in dollar-CNY."

(Editing by Wayne Arnold)

Gabriel Wildau
SHANGHAI | Sun May 12, 2013 5:08pm EDT
Article from http://www.reuters.com/article/2013/05/12/us-china-yuan-speculation-idUSBRE94B0DL20130512

China to simplify foreign exchange rules on foreign direct investment

ridodirected@gmail.com (RIDO) — Sat, 11 May 2013 06:12:00 +0000

A bank clerk counts U.S. dollar banknotes on bundles of 100 Chinese yuan banknotes at a branch of a bank in Huaibei (Stringer China Reuters, REUTERS / April 26, 2012)

Reuters, 9:35 p.m. CDT, May 10, 2013
Article from http://www.chicagotribune.com/business/sns-rt-us-china-fx-investmentbre94a01p-20130510,0,1882063.story

SHANGHAI (Reuters) - China's foreign exchange regulator will this month simplify the rules governing foreign direct investment (FDI), the latest step towards deregulation and market reform under China's new leadership.

The State Administration of Foreign Exchange (SAFE) will abolish 24 regulations regarding foreign exchange registration, account openings, remittance, and conversions, the agency said in an announcement posted to its website on Saturday.

The move inches China closer to making its currency, the yuan, convertible under the capital account, and follows a previous round of FDI-related deregulation by SAFE in November last year.

The new rules take effect on May 13.

Premier Li Keqiang told a meeting of the State Council, China's cabinet, that the government would produce a detailed "operational plan" to achieve capital account convertibility this year, though he did not offer a timeline for convertibility.

Li also called on agencies across the government to cut red tape and cancel unnecessary administrative approvals. SAFE referred to the State Council's call for deregulation in its announcement on Sunday.

China drew $29.9 billion in foreign direct investment in the first three months of 2013, up 1.4 percent from a year earlier.

That rise put an end to persistently negative year-to-date growth since early 2012 and was mainly driven by investment from U.S. and European companies, according to Ministry of Commerce data.

(Reporting by Gabriel Wildau; Editing by Daniel Magnowski)

Reuters, 9:35 p.m. CDT, May 10, 2013
Article from http://www.chicagotribune.com/business/sns-rt-us-china-fx-investmentbre94a01p-20130510,0,1882063.story

Exchange Fund takes 43pc hit on investment income

ridodirected@gmail.com (RIDO) — Thu, 09 May 2013 06:06:00 +0000

Falling stock markets on both sides of the border splash red ink on the HKMA-managed fund's accounts in the first three months

Saturday, 04 May, 2013, 4:51am
Kanis Li
kanis.li@scmp.com
from http://www.scmp.com/business/money/market-snapshot/article/

The Exchange Fund's investment income slumped 43.5 per cent in the first quarter to HK$17.1 billion amid a slide in stock markets.

Norman Chan Tak-lam, the chief executive of the Hong Kong Monetary Authority, which manages the fund, said the drop was due to the poor performance of the mainland stock market and the fact Hong Kong's equity and foreign exchange investments had gone into the red in the period.

"The unwinding of the yen carry trade may bring a new wave of capital flow to Asia and Hong Kong, but we have not seen this trend at the moment," Chan said, declining to forecast the performance outlook for the Exchange Fund this year. "The investment environment for 2013 is very uncertain."

Chan said it was hard to predict the effect of fund flows to Hong Kong and the stock market. The authority aims to maintain a good position to cope with the uncertain investment outlook through a balanced and prudential approach, he said.

The HKMA is responsible to the financial secretary for the use and investment management of the Exchange Fund. The fund paid HK$9.3 billion to the government's fiscal reserve in the period.

Thanks to a stronger performance of stock markets in the US and Japan, Chan said the fund had a return of HK$24.9 billion in assets classified as "other stocks" in the period, offsetting the loss on Hong Kong stocks and foreign exchange of HK$1.4 billion and HK$9.8 billion, respectively, in the first quarter. Bonds provided a return of HK$2.8 billion and alternative investments gained HK$600 million.

The Hang Seng Index fell 1.5 per cent and the Shanghai Composite Index dropped 1.4 per cent in the first quarter.

"The markets were [affected] because the central government printed more money," said Raymond Yeung Yue-ting, a senior economist at ANZ Banking in Hong Kong. He questions whether the good performance of the US and Japanese stock markets is sustainable.

Yeung expects the Exchange Fund to be challenged in the second half of this year as central governments might start to tighten up quantitative easing measures.

The fund has to hold assets of high liquidity and good quality and most asset allocations are denominated in US dollars, Chan said.

The fund's primary objective, as laid down in its ordinance, is to affect the exchange value of the currency of Hong Kong either directly or indirectly. The fund may also be used to maintain the stability and integrity of Hong Kong's monetary and financial systems to help preserve the city as an international financial centre.

This article first appeared in the South China Morning Post print edition on May 03, 2013 as Exchange Fund takes 43pc hit on income

Saturday, 04 May, 2013, 4:51am
Kanis Li
kanis.li@scmp.com
from http://www.scmp.com/business/money/market-snapshot/article/

Forex Record 683 Bln Yuan Converted in January

ridodirected@gmail.com (RIDO) — Tue, 07 May 2013 06:10:00 +0000

Money supply surges as banks change more in first month of year than in all of 2012

By staff reporter Li Yuqian

From http://english.caixin.com/

(Beijing) – Money supply to the market resulting from foreign exchange being converted to yuan at banks surged in January, data from the central bank shows.

The bank uses funds outstanding for foreign exchange to estimate the amount of yuan put into the domestic market equivalent to foreign exchange taken in by all banks during the same time. Traditionally, the funds have been a major component in the country's total money supply.

In January, the figure grew by a record 683.7 billion yuan, exceeding the combined amount of the previous 12 months, which totaled 500 billion yuan.

That increased capital available in the market and helped reduce the yield of seven-day repurchase agreements by 112.4 basis points to 3.189 percent.

The second largest single-month change in the funds was 525.1 billion yuan in April 2008. The third largest was 519 billion yuan in October 2010.

Li Huiyong, chief analyst at Shenyin & Wanguo Securities, said the January surge was mainly because foreign investors channeled their investment to China in search of better returns. Looking forward, he said, there might be fluctuations in the value of the U.S. dollar, which would cause frequent cross-border capital flows. That would lead to wide fluctuations in the amount of funds outstanding for foreign exchange.

The funds would grow by 2 trillion yuan this year, Li predicted.

Expectations for continued yuan appreciation also contributed to the fund's growth in January, said E Yongjian, an analyst at Bank of Communications. The fund is unlikely to keep growing so rapidly for the rest of 2013, he said.

Everbright Bank analyst Sheng Hongqing predicted the fund to grow by around 400 billion yuan in February.

Research from China International Capital Corp., an investment bank, said the growth in funds outstanding for foreign exchange has largely reduced the likelihood for the central bank to lower banks' reserve-requirement ratio.

By staff reporter Li Yuqian

From http://english.caixin.com/

FX INDUSTRY ROUNDUP: HSBC, Nomura, Offshore Yuan And More

ridodirected@gmail.com (RIDO) — Thu, 12 Apr 2012 17:28:00 +0000

April 12, 2012, 10:21 a.m. ET

Article from The Wall Street Journal

By Alexandra Fletcher

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Here's our weekly rundown of the buzz inside the foreign-exchange industry:

PEOPLE:

- Lisa Danino-Lewis, HSBC's (HBC) head of e-commerce sales for foreign exchange, left the bank last week, said people familiar with the situation. She joined HSBC in 2005.

- Paul Houston, head of foreign-exchange prime services based in London, has left Credit Suisse AG (CS), a spokesman for the bank confirmed.

- Tim Owens has joined Nomura Holdings Inc. (NMR) as global head of foreign-exchange structuring, the bank said. Owens joins after 18 years at JP Morgan Chase & Co. (JPM). Based in London, he will report to Giancarlo Saronne, global head of structuring.

- Societe Generale SA (SCGLY) has merged its fixed-income, currencies, treasury, interest rates and foreign-exchange derivatives into one business called fixed-income and currencies. The bank says it is to "strengthen the synergies" in its fixed-income businesses. Danielle Sindzingre, who was formerly global head of treasury and repo at the bank, is now global head of the newly created business line.

- Investment manager Man Group PLC (EMG.LN) has appointed Ravi Chari as co-head of foreign exchange for its futures business AHL. Chari joins from asset manager IKOS Management where he headed the group's futures and foreign-exchange funds, Man said in a statement.

INDUSTRY:

- London is poised to take its bid to become an offshore yuan center one step further next week with the launch of a report into the city's capabilities as a hub for this business, confirmed the City of London Corporation, which commissioned the report. Some of the biggest banks in foreign exchange have been building up their renminbi business in London in anticipation of future growth. HSBC and Royal Bank of Scotland PLC (RBS) both beefed up their London-based yuan teams in February.

- And it seems the Spanish are trying to get in on the yuan action too. The Shanghai branch of Banco Santander SA (STD) has been granted a license to deal in the renminbi by the Chinese Banking Regulatory Commission.

NEW PRODUCTS/SERVICES:

- Electronic trading platform MarketAxess Holdings Inc. (MKTX) is extending its reach into emerging markets by opening a up an office in Sao Paulo. Investors will be able to electronically trade local-currency debt with the new office.

-By Alexandra Fletcher, Dow Jones Newswires; 44-20-7842-9462; alexandra.fletcher@dowjones.com; @djfxtrader

(Jessica Mead contributed to this article.)

Article from The Wall Street Journal

The pros and cons of Exchange-Traded Funds

ridodirected@gmail.com (RIDO) — Tue, 10 Apr 2012 21:10:00 +0000

DAVE MEYER and GREG HEBERLEIN

Article from npr.org

April 10, 2012

Exchange-Traded Funds (ETFs) are a popular alternative to mutual funds.

Are they right for you?

On this week's Money Matters, financial commentator Greg Heberlein tells KPLU's Dave Meyer that a well diversified ETF can be a great investment.

Exchanged-traded funds, known as ETFs, were launched in 1992 to track the Standard & Poor’s 500 stock-index. They were nicknamed Spiders. The investor advantage was that although they mimicked mutual funds, they could be traded during market hours, not after the markets closed.

In 2008, ETFs were approved for wider uses than a broad index. So today, although mutual funds still have 10 times more assets than ETFs, the ETF market has grown to more than a thousand choices and more than $1 trillion in assets.

What does Greg think?

Broadly diversified ETFs, ones investing in hundreds or thousands of stocks, look safe. Bill Schultheis, author of The Coffehouse Investor and a huge fan of buying stock index funds, says broadly diversified ETFs are sound instruments for the individual.

But Schultheis and the legendary John Bogle, who invented the index fund decades ago, agree that buying specialty ETFs can be a dangerous proposition. Investing in a narrow purpose mutual fund (for example, a fund that only invests in coal companies) is the reverse of diversification. The same is true for ETFs.

ETFs have a tax advantage.

Since gains are reinvested, the account can grow while taxes are deferred. Most ETFs charge individuals less to get in than mutual funds.

But investors need to pay attention here. Besides a low-entrance fee, ETFs can pass along costs for purchasing the stocks or commodities within the ETF. Paying outside managers, an ever more popular technique for ETFs, also can build up the costs. And sometimes, ETFs have a spread between what the holdings cost and what the ETFs charge investors.

One special area of concern is ETFs investing in foreign stock indexes. Studies have shown the largest ETF variance in true price occurs when trying to match foreign indexes.

Greg gets nervous over any investment strategy that hasn’t been tested over a long period of time.

So with ETFs, one at least has to consider the downside. Most ETF owners are short-termers. If they start selling, it can catch the individual investor off guard and accentuate a downturn before they can react.

The safety of ETFs has been questioned on another front.

Some EFTs targeting overseas stocks and indexes use speculative derivative contracts. The derivative market has exploded to more than $700 trillion. Some believe that if the market moves suddenly, certain derivatives could unravel, accentuating the loss.

John Bogle says ETFs often encourage the bulk of the investment community to chase fads, last week’s or last year’s best gainers. That’s true across the investment industry. But he fears that as publicity of ETFs gets even hotter, less sophisticated participants will abandon the long-term index approach.

So here’s the bottom line:

If you are tantalized by this increasingly popular strategy, go with the ETFs reflecting hundreds or thousands of stocks or bonds.

Diversification is the key to success.

As John Bogle likes to say, a stock or an investment manager can outperform the general market for a relatively short period of time, but almost never over long periods.

Aricle from npr.org

U.S. to Ease Myanmar Restrictions, Ending Isolation

ridodirected@gmail.com (RIDO) — Sat, 07 Apr 2012 07:47:00 +0000

By Flavia Krause-Jackson and Shamim Adam - Apr 5, 2012 1:41 PM GMT+0800

Article from Bloomberg

Myanmar, once the world’s largest rice exporter, is set to re-engage with the global economy in a boost to Southeast Asian growth as the U.S. prepares to ease some sanctions.

Secretary of State Hillary Clinton said yesterday the U.S. will selectively lift restrictions on investment in Myanmar, after this month’s elections allowed democracy advocate Aung San Suu Kyi to win a seat in parliament. This week, leaders from the Association of Southeast Asian Nations, or Asean, called for the U.S. and Europe to end sanctions.

The opening of Myanmar’s economy, one of Asia’s last untapped frontier markets, may give investors and neighboring countries access to its mineral wealth and a market of 64 million people after decades of military rule. The nation bordering China and India has won support for its efforts to attract investment by holding elections and overhauling its financial system, including a managed float of its currency.

“Myanmar’s opening is the creation of a whole new consumer market and that cannot be but good for the rest of the region,” Rodolfo Severino, former secretary general of Asean, said in Singapore today. “There are opportunities for investment, but we have to see if the measures are sustained. The U.S.’s lifting of sanctions may be followed by other countries and that is important.”

American sanctions banned investment in Myanmar and imports from the country, restrict money transfers, freeze assets and target jewelry with gemstones originating in the nation. The European Union bans weapons sales and mineral imports.

Further Reform

By easing some sanctions, lifting some travel bans and naming an ambassador to the Southeast Asian nation for the first time since 1988, the U.S. seeks to encourage further reform in the country, Clinton said yesterday.

Myanmar’s total land area, second only to Indonesia in Southeast Asia, contains deposits of gold, copper and gemstones. The nation is positioned between India and China, astride maritime trade routes between Europe and East Asia and was in British colonial times the world’s largest rice exporter -- a title now held by neighbor and one-time enemy Thailand.

France’s Total SA, Chevron Corp. of the U.S. and Malaysia’s Petroliam Nasional Bhd (PET). entered the nation years ago to tap offshore energy reserves. Even so, large swathes of its waters sit unexplored, indicating the potential is greater than the proven gas reserves that the BP Statistical Review estimates to amount to one-eighth the size of Malaysia’s.

Waiting on Sanctions

Investor Jim Rogers, the chairman of Rogers Holdings who predicted a global commodities rally in 1999, said Feb. 22 he’d put all his money in Myanmar if he could. Standard Chartered Plc, the U.K. bank that earns more than two-thirds of its profit in Asia, has said lenders are waiting for sanctions to be lifted before considering a return.

The Central Bank of Myanmar set a reference foreign exchange rate of 821 kyat per dollar today, according to its website. It adopted a managed float for its currency on April 1, scrapping a 35-year fixed exchange rate.

Myanmar’s emergence comes as its neighbors grapple with slowing growth in China and the European debt crisis.

A Chinese services industry index showed a slower expansion in March, with the purchasing managers’ index for the sector easing to 53.3 last month from 53.9 in February, according to a statement issued by HSBC Holdings Plc and Markit Economics today. A reading above 50 indicates an expansion.

Elsewhere in the region, Taiwan’s consumer prices rose 1.32 percent last month from a year earlier, according to the median forecast in a Bloomberg News survey. The Central Bank of Sri Lanka may keep its reverse repurchase rate at 9 percent and the repurchase rate at 7.5 percent today, according to three of five economists surveyed by Bloomberg.

U.S. Jobs

Initial jobless claims in the U.S. probably fell 4,000 in the week to March 31 to 355,000, according to the median forecast of economists in a Bloomberg News survey ahead of a report today.

The Bank of England is expected to hold its policy interest rate at a record-low 0.5 percent, according to economists surveyed by Bloomberg News. The Monetary Policy Committee will back finishing their 325 billion-pound ($516 billion) stimulus, economists predict.

U.K. manufacturing output probably rose 0.1 percent in February from the previous month, while overall industrial production climbed 0.4 percent, according to Bloomberg surveys. Germany’s industrial production probably decreased 0.5 percent from January, when it gained 1.6 percent, according to the median estimate of economists in a Bloomberg News survey.

Political Dissidents

The reconsideration of U.S. sanctions against Myanmar comes as the country’s lawmakers reach out to political dissidents and lift repressive measures imposed by the former military junta, creating an opening for Western companies in an economically underdeveloped country.

Bans on investing in Burmese timber and gems probably will continue, according to two senior administration officials who briefed reporters on condition of anonymity because they weren’t authorized to be named.

There will be a “targeted easing” of a U.S. ban on the export of U.S. financial services “as part of a broader effort to accelerate economic modernization and political reform,” Clinton said.

Due to European Union and U.S. sanctions, credit cards are rarely accepted in Myanmar, an impediment to commerce.

‘New Era’

The officials declined to put a timeline on the speed with which the changes would be implemented, saying it will be a matter of days in some cases and weeks in others. Invitations to visit the U.S. have been extended to selected Burmese officials, including Foreign Minister Wunna Maung Lwin, they said.

Suu Kyi, who met with Clinton in December, this week called for a “new era” after her National League for Democracy rejoined the political system and claimed victory for 43 of 44 seats it contested in April 1 by-elections. It boycotted a 2010 election won by President Thein Sein’s army-backed party, which along with the military still controls more than 80 percent of parliamentary seats.

Still, restrictions on capital flows, lack of a developed stock exchange, an untested legal environment and rudimentary infrastructure may give investors reasons for holding off putting money in the former dictatorship.

Myanmar is “a difficult market” where people don’t have much disposable income, Luc de Waegh, founder of business- advisory company West Indochina Ltd. who helped set up British American Tobacco Plc’s Myanmar operations in 1993, said before this month’s election. “The future looks very bright, but in the meantime there isn’t much money there.”

To contact the reporters on this story: Flavia Krause-Jackson in United Nations at fjackson@bloomberg.net; Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net; Stephanie Phang at sphang@bloomberg.net

Article from Bloomberg

The Basics Of Investing In Foreign Government Bonds

ridodirected@gmail.com (RIDO) — Wed, 04 Apr 2012 21:04:00 +0000

Marc L. Ross, provided by

Wednesday, April 4, 2012

Article from San Francisco Chronicle

The United States' government paper currently throws off little, if any, yield. Accommodative monetary policies in the wake of the financial crisis that befell the U.S. and the world in the later part of the 2000s, were to put the economy back on its feet. Progress is palpable, but slow. Savers who have purchased treasury bills (T-bill), notes and bonds have no credit risk - and little else for that matter (results from the latest T-bill auction put yields of a six-month paper at around 0.10%).

Foreign Government Securities

Some investors have sought to purchase individual foreign government bonds (or sovereign debt) in an effort to obtain greater yield. When a government issues bonds, it borrows money and becomes a debtor. The investors who buy these bonds are the government's lenders or creditors. Individuals contemplating the purchase of government bonds need to understand the risks of bond investing in general, and of foreign government bond investing in particular.

Risk

Bonds are subject to interest rate risk. Interest rates and bond prices are inversely correlated. When one goes up, the other goes down. This may not matter if an investor buys and holds a bond to maturity. In this case, it would collect the scheduled coupon payments and receive the face value when the bond is repaid.

Foreign government bonds may also be subject to credit risk. Does the government have the resources to meet its obligations? Are finances (mis)managed? The example of Greece is as telling as anywhere - the foregoing considerations point to the ongoing possibility of default. In this case, greater yield reflects the bonds' "junk" status, is punitive in consequence, painful for the debtor and of questionable benefit for the bondholders.

Moreover, government bonds are vulnerable to political risk. While governments don't necessarily go out of business, instability may result in a regime change which could affect how well an interim or new government may pay its bills.

Government bonds bear economic risk. A government's fiscal policy, (im)proper use of its natural resources, if any, and current account earnings, all weigh on how it meets its responsibilities. These factors, in turn, affect the bonds' yield.

In addition, currency risk can affect the value of government bonds. If the investor is keeping score in dollars, their strength or weakness relative to the currency in which the bonds are denominated can affect the total return (income and price appreciation). Mitigating the currency risk through hedging may negatively impact return.

Considerations

These few considerations alone make the analysis and purchase of individual foreign bonds beyond the ken or ability of most individual investors. Additionally, one may have to go to the trouble of setting up an offshore account, and typically be required to invest at least the equivalent of $100,000 in the foreign currency. As foreign paper trades less frequently, the bid/ask spread is high (the difference between what the middleman pays to buy the bonds and the price for which they sell them to the investor). Such activity entails fees and tax implications as well. Unlike purchasing U.S. treasury securities directly, it's complicated; the individual investor needs to do their homework, seeking out a professional money manager with experience in analyzing and trading bonds.

For an individual retirement account or non-qualified account (e.g., standard brokerage account), a foreign government bond, mutual fund or exchange-traded fund are possible options. ERISA-qualified defined contribution plans generally offer foreign government securities in the form of a mutual fund. For non-qualified accounts, a check or wire to the brokerage firm in accordance with the purchase and settlement terms would be required. For the qualified plans, purchase would be through a salary deferral arrangement or through an employer contribution, the latter for matching, profit sharing or money purchase pension plan contributions.

Active Vs. Passive Management

When making this choice, the investor should understand the difference between active and passive management. Active management entails the purchase, holding and selling of investments to meet a fund's objective. Passive management, by contrast, involves tracking an index of stocks or bonds meant to represent a particular segment of the market with the idea that it may be difficult, if not impossible, to outperform the market, given the costs associated with active management. While index bond funds are generally at a lower cost, the investor would do well to understand what index or indexes are being replicated. Certain government bond markets lack depth, which makes replicating them more difficult. In the world of index funds, the difference between a fund's performance and that of an index is known as a tracking error. In thinner, less liquid markets, this risk is more common and a concern.

The Bottom Line

The choice to invest in foreign government securities should be consistent with the investor's objectives and constraints. These may be governed by the type of account where the investment takes place. Foreign government bond funds holding credits of, say, emerging market governments, may warrant inclusion in retirement accounts with a longer time horizon. Additionally, the allocation to them should be modest, given the risks that they entail. For investors approaching retirement, foreign government bond funds may be appropriate, so long as consideration is given to more stable governments.

The approach to investing in foreign government bonds is no different from that of any other type of investment. The investor should understand why they want to purchase them, how much it costs to do so and if it is even feasible. Finally, the investment should fit with the investor's objectives and constraints.

Original story - The Basics Of Investing In Foreign Government Bonds

Article from San Francisco Chronicle

Banker takes reins at Foreign Investment Review Board

ridodirected@gmail.com (RIDO) — Mon, 02 Apr 2012 20:28:00 +0000

BY: DAVID CROWE From: The Australian April 03, 2012 12:00AM

Article from The Australian

AN experienced investment banker has been appointed to oversee Australia's most sensitive foreign investment deals amid political tensions over big purchases in farming and resources.

Wayne Swan last night named former Lazard and Citigroup executive Brian Wilson as the chairman of the Foreign Investment Review Board, the low-profile expert group that advises the Treasurer on transactions worth billions.

Mr Wilson replaces John Phillips, a former Reserve Bank deputy governor who has led FIRB for 15 years during a time of contentious decisions, including last year's rejection of Singapore Exchange's bid for ASX and former treasurer Peter Costello's rejection of Shell's bid for Woodside Petroleum.

Because Mr Wilson has been a FIRB member since 2009, the appointment leaves a spare seat on the board to be filled at Mr Swan's discretion.

Mr Swan said he intended to name an additional member in the near future.

While FIRB members rarely comment on transactions and operate within the federal Treasury, the board plays a key role scrutinising purchases by foreign investors over a threshold set at $244 million.

The Coalition is reviewing whether to change the regime as the Nationals and some Liberals voice concerns over foreign purchases of cropping land, with NSW Liberal senator Bill Heffernan calling for a lower threshold to require approval and stronger powers for FIRB to police the market.

Mr Swan noted Mr Wilson's 33 years as an investment banker and his experience advising big companies. Mr Wilson was joint managing director at Lazard in Sydney when it acquired investment firm Carnegie Wylie. He retired from the group in 2009.

Article from The Australian

France is Still Number One for UK Overseas Investment Buyers

ridodirected@gmail.com (RIDO) — Sun, 01 Apr 2012 09:11:00 +0000

Friday, March 30, 2012

Article from San Francisco Chronicle

According to foreign exchange expert Caxton FX in a report commissioned by the Independent on Sunday newspaper, France is still first in the top ten buying destinations for UK overseas property investors followed by Spain and United States.

(PRWEB) March 30, 2012

France, a long established destination for UK buyers, has the advantage of close proximity to the UK and the appeal for UK buyers of being able to 'pop' across the Channel while still being close to home. In addition, France has enjoyed a relatively stable property market when compared to the sharp falls in property prices seen in other European countries.

In an interview with MyIntroducer.com, Clare Nessling, Director at overseas mortgage specialist Conti, comments:

"Despite the global economic crisis, the French mortgage market has emained very calm, primarily due to its financial system having been more cautious in the past. It offers the most finance options and best available rates in Europe for UK buyers at the moment. Its loan to value ratios are still high and it's quite normal to be able to borrow between 70-90 per cent of the value of a property."

It would seem that France looks set to remain at the top of the list as Trevor Leggett, Chief Executive of France based property specialists Leggett Immobilier, adds:

"We have seen a steady rise in enquiries and sales. France offers some of the best property around, not only in terms of present day price, but also market security and long term value and I don't think this is going to change any day soon"

About Leggett Immobilier.

Leggett is an independent, family run business based in France with a network of over 120 fully trained commercial agents covering most of the country. Leggett offers an unrivalled mixture of local knowledge and national expertise, professional service and full after sales support. The Leggett website www.frenchestateagents.com lists over 7000 French properties.

For the original version on PRWeb visit: www.prweb.com/releases/prweb2012/3/prweb9351922.htm

Article from San Francisco Chronicle

Foreign Investors Dump Japanese Debt

ridodirected@gmail.com (RIDO) — Fri, 30 Mar 2012 04:18:00 +0000

Updated March 29, 2012, 12:34 p.m. ET

Net Selling Is Some of Heaviest Since Lehman Brothers Collapse

Article from The Wall Street Journal

By TAKASHI MOCHIZUKI And MEGUMI FUJIKAWA

TOKYO—Foreign investors have been big sellers of Japanese bonds lately, unloading more than ¥2 trillion, or more than $24 billion, over the past two weeks in one of the biggest outflows seen since the Lehman Brothers shock of 2008.

The large-scale selling comes amid increasing concern among economists and others over the long-term health of the Japanese government bond market as annual bond issuance continues to rise in order to cover a budget gap.

But the sales appear to have had little impact on bond yields or the yen's exchange rate. Foreigners are a small part of the Japanese bond market, and the bonds may have been absorbed by domestic buyers, who appear less sensitive to government-borrowing worries.

Analysts said there was no clear reason for the heavy selling, although greater interest in global equities and higher-yielding U.S. Treasurys appeared to play a part. They also said it was too early to say that the selling was part of a crisis of confidence in the market, which has remained buoyant despite Japan's worsening fiscal picture.

The figures from Japan's Ministry of Finance show net sales of ¥1.14 trillion for the week ended March 24, following an outflow of ¥1.04 trillion the week before. While weekly data is often volatile, selling over four weeks totaled ¥1.57 trillion, the largest monthlong outflow since September 2009 and one of the biggest amounts since the heavy selling that came in the wake of the bankruptcy filing by Lehman Brothers Holding in September2008

"Some foreign investors might have unwound their JGB positions, partly due to the weak yen as well as other technical factors," said Tadashi Matsukawa, fixed-income investment manager at PineBridge Investment, previously named AIG Investments.

While the ¥660 trillion Japanese government bond market has long defied the skeptics, both private-sector economists and government officials say the government's overall debt level, at more than 200% of gross domestic product, isn't sustainable. The figure is well above the level for Greece when it was forced to accept an international bailout, and is expected to rise further, given that the government intends to use debt to fund half of the budget for the fiscal year that begins Sunday.

"I think we are in an extremely precarious situation," Hirohisa Fujii, tax chief of the ruling Democratic Party, said of Japan's finances in a recent interview.

But analysts say the selling doesn't appear to represent any immediate concerns about the health of the JGB market. Indeed, the yield on the benchmark 10-year bond fell back below 1.0% on Thursday, from 1.02% on March 23. It stood at 0.99% on March 9, before the large selling over two weeks, and at 0.97% on Feb. 24. The 10-year U.S. Treasury note yielded 2.196% late Wednesday, down from 2.237% on March 23 but still up sharply from 2.037% two weeks earlier and 1.91% on Feb. 24.

An improving U.S. economic outlook also appears to be a key factor in the flow of funds, analysts say. "JGBs were sold in the past weeks amid increasing expectations for yield rises in global bond markets," said Akito Fukunaga, chiefrates strategist at RBS Securities in Tokyo.

Analysts said it was uncertain where the money may have shifted, although some pointed to the fact that foreign investment in short-term money-market investments rose during the period, largely offsetting the decline in longer-term notes and bonds. The Ministry of Finance figures on bond sales include government bonds as well as other types of domestically issued debt of one year or more, and exclude short-term money-market funds.

The outflow also appears to have had little impact on the foreign-exchange market where the dollar was at ¥82.35 at the end of last week, virtually unchanged from two weeks earlier.

More broadly, there has been growing investment in the Japanese stock market, where foreigners account for approximately one-quarter of all share ownership. The Nikkei Stock Average is up 19% so far this year, making it the best performer among all major equity markets globally. There was small net buying by foreigners over the past two weeks.

Foreign investors, meanwhile, remain a small part of the JGB market, although their share rose to around 6.7% as of the end of 2011, from 4.9% at the end of 2010.

Teruyoshi Sotome, bond strategist at Mizuho Securities, said the JGB market appears to have been more popular with investors than other bond markets. He noted that the yield on the 10-year U.S. Treasury spiked about 0.40 percentage point in a recent two-week period, when the Federal Reserve's policy statement sounded a more optimistic tone about the U.S. economy, while the 10-year JGB yield only rose 0.05 percentage point.

"From this context, we need to see more data to judge whether foreigners will keep selling JGBs," he said.

—Fiona Law in Hong Kong contributed to this article.

Write to Takashi Mochizuki at takashi.mochizuki@dowjones.com and Megumi Fujikawa at megumi.fujikawa@dowjones.com

A version of this article appeared Mar. 30, 2012, on page C4 in some U.S. editions of The Wall Street Journal, with the headline: Foreign Investors Unload Japan.

Article from The Wall Street Journal

China Lets Foreign Banks Bring in More Borrowings, WSJ Says

ridodirected@gmail.com (RIDO) — Tue, 27 Mar 2012 21:13:00 +0000

By Bloomberg News - Mar 27, 2012 5:54 PM GMT+0800
Article from Bloomberg

China is letting foreign banks bring more funds borrowed overseas into the country after investment fell for a fourth month, the Wall Street Journal reported, citing unidentified people familiar with the situation.

The National Development and Reform Commission, the country’s top economic planning agency, recently informed the banks about the increases in foreign debt quotas, which range from “high double-digit rises” to a more-than-doubling of 2011 levels, the newspaper said on its website. The report didn’t specify the size of the quotas or give more precise values for the increases.

Foreign direct investment fell 0.9 percent in February from a year earlier. Overseas banks in China had about 1 trillion yuan ($158 billion) of loans outstanding at the end of September, accounting for 2.3 percent of the nation’s total, according to the China Banking Regulatory Commission.

The government is boosting the quotas after cutting “drastically in 2008 to stem hot-money inflows led by expectations on the yuan’s appreciation,” said Lu Ting, a Hong Kong-based economist at Bank of America Corp. “This is more of a normalization move.”

The NDRC didn’t immediately respond to a faxed request today for comment. The agency said in February that banks including Citigroup Inc. and JPMorgan Chase & Co. attended a meeting Feb. 8 to discuss a trial program designed to “support expansion of foreign debts for qualified parties.”

Expand Businesses

Relaxing the debt quota now when borrowing costs are relatively lower will help foreign banks expand their businesses and boost earnings, Lu said. The government is more willing to loosen controls on overseas borrowing after expectations for yuan appreciation eased and concerns about hot money inflows were reduced, he said.

China saw bets on yuan appreciation reverse last quarter with some central bank indicators pointing to capital outflows as the nation’s economy cooled and the European debt crisis worsened. Twelve-month non-deliverable forwards traded at 6.3342 at 4:55 p.m. today in Hong Kong, a 0.4 percent discount to the onshore spot rate.

The move may be aimed at reforming China’s foreign debt management by boosting the proportion of medium-to-long-term debt and to limit short-term borrowing that is “more exposed to hot money inflows or outflows,” said Ding Shuang, a Hong Kong- based economist at Citigroup.

Outstanding foreign debt of foreign financial institutions was $54 billion by the end of 2011, about 12 percent of the nation’s total registered overseas borrowings, according to data from the foreign exchange regulator.

China’s short-term borrowings account for about 72 percent of its total debt and would be equal to 16 percent of the nation’s foreign exchange reserves, official data show.

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

Article from Bloomberg

UPDATE: UNCTAD Chief Calls For "Drastic" Reform Of FX System

ridodirected@gmail.com (RIDO) — Sun, 25 Mar 2012 20:17:00 +0000

March 25, 2012, 11:15 a.m. ET

Article from The Wall Street Journal

-- Uncontrolled capital flows, speculation are distorting FX, prices, UNCTAD chief says

-- Real exchange rates must be aligned with competitiveness

-- Euro-Zone members should be allowed to exit and rejoin

(Updates to combine comments on allowing euro-zone members to exit)

By Paul Hannon

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--The international financial system requires "drastic" reform if future crises are to be avoided, including more regional initiatives to tackle misaligned exchange rates and the wider use of capital controls, the head of a United Nations agency said.

The United Nations Conference on Trade and Development has long been critical of what it calls "financially driven globalization" and warned of its consequences ahead of the 2008 crisis.

But as the agency prepares for the quadrennial gathering of its 194 government members in Qatar next month, its secretary general believes many of the flaws in the functioning of the global economy that led to the crisis remain.

"If we do not do something more drastic with the international financial regime, then this will come back," said Supachai Panitchpakdi in an interview with Dow Jones Newswires Friday.

UNCTAD's argument is that uncontrolled capital flows and associated financial speculation have led to the distortion of exchange rates and other key prices--including those for many commodities--which means that many countries aren't able to pursue the economic policies that are right for sustainable growth.

Supachai's comments come as a number of countries, including Brazil, are struggling to counter foreign exchange moves they believe are damaging their economies. Brazil has recently introduced measures to slow the inflow of short-term portfolio investment, while the central bank has bought dollars in the local market to hold the currency above a level of BRL1.80 to the dollar.

"Exchange rate movements are still very much not really reflecting the flows of trade that we're seeing," Supachai said. "These distortions are no less damaging than tariff increases."

Supachai also said that foreign exchange trade of over $4 trillion daily didn't appear to be related to any real investment.

"We see a huge amount of capital flows, but we do not see real capital formation," he said, referring to the creation of capital or goods intended for investment or economic expansion. "Capital formation is not moving up in line with financial flows. There is no correlation."

Supachai was deputy prime minister and commerce minister of Thailand from 1997 until 1999, and has first-hand experience of sharp movements in foreign exchange rates. The rapid depreciation of the Thai baht was one of the events that triggered a series of exchange rate and debt crises in Asia during 1997 and 1998.

"We saw in Asia during the 1990s that the misalignment of foreign exchange rates can have devastating consequences, even more devastating than trade barriers," Supachai said.

He believes that global policy makers should focus on maintaining real effective exchange rates at levels that reflect the relative competitiveness of economies. Under this scheme, a country that saw a sharp rise in unit labor costs would be allowed to depreciate its exchange rate to maintain its competitiveness, while one that saw a fall in unit labor costs would have to allow its exchange rate to strengthen.

Supachai said that this sort of flexibility should also be allowed within a currency union, such as the euro zone. He believes that it is essential for the health of the global economy that the euro zone survives but this can only happen if members are allowed to exit and re-join, and Greece should be the first to take that option.

Now on its second bailout, and in its fifth year of economic contraction, Greece may need to leave the euro zone, Supachai said.

"There may be a need for a temporary solution, to allow Greece the option of going out," he said. "Greece must have the option of coming back in. That doesn't mean the end of the euro zone, it would mean the opposite."

Euro-zone members insist that once a country has made the decision to join the currency area, it's irrevocable, since any doubts about that country's commitment would affect financial stability.

But many economists believe that one of the underlying problems faced by countries like Greece is a loss of competitiveness since they joined the currency area, particularly relative to Germany.

Since consumer prices and wages rose more rapidly in Greece, Ireland, Portugal and others than they did in Germany, they experienced a de facto appreciation in their real exchange rates, leading to widening current account gaps and an increasing reliance on foreign funding.

Eventually, investors became unwilling to provide that funding, and those countries were forced to address their debt problems. As long as they remain inside the euro zone, they can only do that through austerity programs and what are known as "internal devaluations," essentially cutting wages.

Supachai said countries will always make big mistakes in their economic policy, and a grouping such as the euro zone needs to be realistic about that fact, allowing countries to exit the block so that they can benefit from currency devaluation and growing exports.

Ever since exchange rates began to fluctuate after the dollar-anchored Bretton Woods system ended in 1971, it has proven difficult to get agreement among nations on whether their own or other currencies are fairly valued.

Some economists have suggested that the World Trade Organization, or a new and equivalent body, should perform that role, identifying exchange rate misalignments just as the WTO highlights unfair tariff or other trade distorting measures.

A director general of the WTO from 2002 to 2005, Supachai doesn't believe that is politically possible. Instead, he believes that a start should be made through regional initiatives, which could then be linked together.

"When countries get into difficulties, it's usually related to competitors in the same region," he said, adding that the currency misalignment is often relative to a currency from outside the region, and usually the US dollar.

The model for this kind of regional arrangement is the Chiang Mai initiative, which was launched in 2000 but subsequently expanded to include the 10 members of the Association of Southeast Asian Nations, China, Japan and South Korea. It was intended to give individual members access to a large pool of foreign exchange reserves with which to intervene in the foreign exchange markets, and prevent a repeat of the currency crises of 1997 and 1998.

Supachai believes more of these regional mutual-assistance agreements--and especially one for Latin America--could help manage exchange rates globally, and lead to fewer misalignments.

"It would help to better manage the distortions," he said.

The other tool that Supachai believes should be used more widely is controls on short-term capital flows. He argues that short-term capital flows can place an impossible burden on monetary policy in many developing economies, since any increase in interest rates to tackle high inflation immediately attracts capital flows that lead to an overly rapid appreciation in the exchange rate.

"Capital flows are hurting countries so much," he said. "Withholding taxes on short-term capital flows have proven quite useful."

Supachai believes that for so long as the global economy is struggling to overcome the effects of the last financial crisis, it is unlikely to slip into another. But without radical reform of the international financial system, he believes that another crisis is inevitable soon after things return to "normal."

"The crisis will come when it seems like business as usual," he said. "When we are all patting each other on the back, that will be the beginning."

-Paul Hannon; Dow Jones Newswires; +44 20 7842 9491; paul.hannon@dowjones.com

Article from The Wall Street Journal

China Quietly Relaxes Controls on Foreign Capital

ridodirected@gmail.com (RIDO) — Fri, 23 Mar 2012 21:12:00 +0000

Published: Tuesday, 20 Mar 2012 | 10:23 PM ET Text Size
By: Keith Bradsher
Article from CNBC

The Chinese government has begun making it much easier for foreign investors to put money into China’s stock market and other financial investments, in a slight relaxing of more than a decade of tight capital controls.

The move, not publicly announced but disclosed by some private money managers, indicates that Chinese officials are eager to counter a rising flight of capital from the country, a worsening slump in real estate prices, a weak stock market and at least a temporary trade deficit caused by a steep bill for oil imports.

Those concerns have evidently started to offset fears of the potentially inflationary effects of big inflows of foreign cash.

Chinese securities officials made a series of phone calls to top fund managers outside China late last week telling them of the relaxation of the capital restrictions, according to several money managers.

But if the fund managers wanted to increase their requested allotments for investing in China, they were told they would have to answer almost immediately — a sign of the government’s haste to come up with a plan to reassure financial markets.

“It literally was phone calls coming in at 4 and you had to give an answer by 5:30,” said the chairman of a financial company heavily invested in China. He insisted on anonymity to avoid offending regulators. Easing the path of foreign money into China could help offset a nascent exodus of investment money there and stem the recent weakness of China’s currency, the renminbi [.AXJO 4270.40 -3.30 (-0.08%) ]. The renminbi’s weakness is making Chinese manufacturers even more competitive in foreign markets.

Investment executives say officials at the China Securities Regulatory Commission, in coordination with foreign-exchange officials, informed them in the phone calls last week that the government would approve all of their past requests to increase certain types of foreign investments and would even let them double their total invested.

The range of financial institutions with so-called Qualified Foreign Institutional Investor rights in China include big banks like Goldman Sachs and endowment funds like Yale University’s.

Regulators indicated that they would roughly double the overall cap on all foreign investments to about $60 billion, one money manager said; the cap has been $30 billion for several years. Until now, Chinese regulators have dribbled out each increase in authorized foreign investment, a few hundred million dollars at a time.

While still a tiny amount, compared with the combined value of the Shanghai and Shenzhen stock markets or relative to the volume of China’s international trade, raising the foreign investment cap is the latest signal that Beijing is worried about a potentially prolonged weakness in the renminbi.

The issue is politically volatile in Washington, where Democrats and Republicans alike have been calling for a stronger Chinese currency as a way to limit China’s large bilateral trade surplus with the United States.

The American Treasury secretary, Timothy F. Geithner, complained at a Congressional hearing on Tuesday that China still had “some ways to go” in allowing its currency to appreciate against the currencies of China’s main trading partners.

Allowing more foreign money into China could help stabilize its stock market and real estate markets when the country’s political environment is unsettled over the dismissal last week of Bo Xilai as the Communist Party secretary of Chongqing and over the approach next autumn of a once-in-a-decade change in the country’s top leadership.

The Shanghai stock market [.SSEC 2349.54 -26.23 (-1.1%) ] dropped 1.4 percent on Tuesday and is down 22.2 percent from its high in mid-April last year, although up slightly from its lows in early January.

The government has deliberately engineered a fall in real estate prices to address widespread concerns about housing affordability, and has used mostly administrative tools to do so, like banning most purchases of second or third homes. But real estate developers and investors say the plunge in prices has taken on its own momentum.

China’s securities regulators and a separate government agency, the State Administration of Foreign Exchange, had long been leery of the inflationary effects of being swamped with foreign cash. But that view has reversed in the last several weeks, as the renminbi’s value has slipped in currency markets on very heavy selling in Asian financial centers like Hong Kong.

The renminbi was down 0.5 percent against the dollar from the start of January through the middle of last week. The weakness was initially attributed to weakening performance of the Chinese economy, but investors increasingly see it as a sign of capital flight as well.

The renminbi has recovered in the last few days of trading and is now virtually unchanged against the dollar this year — evidently as word has circulated among top fund managers that more foreign money could soon begin washing ashore in China.

The China Securities Regulatory Commission and State Administration of Foreign Exchange were closed on Tuesday evening and its officials could not be reached for comment.

A raising of the foreign investment cap may not necessarily produce an immediate flow of cash into the Chinese market, bankers cautioned; each fund’s increase in investment rights will require separate paperwork from the foreign exchange agency.

But until now, investment opportunities for foreign capital in China have been so scarce that some investment companies have paid to rent other companies’ rights to invest in China.

The going rate on these investment rents until recently was about 0.6 percent of the value of the Qualified Foreign Institutional Investor rights. So an international company or mutual fund that wanted to hold $100 million worth of stocks on the Shanghai stock exchange would have to pay about $600,000 a year to rent the necessary investor rights.

But the value of those rents has begun to decline as international worries about the Chinese economy have increased in recent weeks. The new doubling of financial investment rights is likely to depress the rents further.

The doubling of rights could help offset a slowdown in foreign investment into factories and other fixed assets in China, as well as a deterioration in China’s trade balance. Slowing foreign direct investment and weaker exports, together with some capital flight from China, has upset the balance of foreign exchange inflows and outflows in China, weakening the Chinese currency.

With more than $3 trillion in foreign exchange reserves, China has more than enough financial firepower to defend its currency against serious attacks on its value by speculators in financial markets. China also controls the spot market for renminbi within China through heavy regulations.

But so many renminbi are now circulating offshore that spot and forward trading have expanded rapidly in Hong Kong and Singapore, posing a challenge for Chinese regulators.

The financial company chairman said that as recently as early last year, it could take him a couple of days to move $500 million into forward renminbi contracts without causing the price to change.

Now this can be done in just 15 minutes, he said, indicating it was a sign of how liquid the market has become and hard it now is for the Chinese government to control it.

This story originally appeared in The New York Times

Article from CNBC

Analysis: Turning point in the currency war

ridodirected@gmail.com (RIDO) — Wed, 21 Mar 2012 20:17:00 +0000

Article from Reuters

By Mike Dolan

LONDON | Wed Mar 21, 2012 3:01am EDT

(Reuters) - A counteroffensive of sorts may be underway this year in what has seemed like a one-sided "global currency war" as developing economies slow, western money-printing pauses and the heat comes out of pumped-up emerging market currencies.

The three-year-old "war", as Brazil dubs the devaluationist policies of developed nations seeking relief from home-grown credit crunches, may well just come full circle and burn itself out as a result.

But the reverse course of emerging currency depreciation carries its own significant risks, from skewing investment decisions to aggravating trade diplomacy.

What's more, it's Japan's success this year in finally weakening its supercharged yen, by fresh rounds of money-printing from its central bank, which may prove pivotal by disturbing the delicate balance in Asia.

Some economists warn the yen's more than 10 percent retreat since January is already forcing China's hand on its own controversial policy of yuan capping in a way that could cause consternation in Washington in an election year.

Far from seeing a sharply rising yuan emerge from China's policy of greater exchange rate flexibility - core U.S. and multilateral demands - the yuan has actually weakened this year as China's economy and inflation rates slow, its trade account worsens and fears of a "hard landing" there persist.

Even though the tightly-controlled yuan has gained more than 10 percent against world currencies over the past five years, it's one of the few major emerging market currencies to remain lower against the U.S. dollar so far in 2012. Bouncing back smartly from a dire 2011, Russia's rouble, India's rupee, Mexico's peso and South Africa's rand are all up 5-10 percent.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

BRIC currencies since 2007: link.reuters.com/guv27s

Currency performance in 2012: link.reuters.com/tak27s

Chinese yuan vs Japan yen: link.reuters.com/raj46s

China trade in deficit: link.reuters.com/gar96s

Japan exports to China vs US: link.reuters.com/daj46s

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

China recorded its biggest trade deficit in more than a decade in February and signs of slowing economic activity are mounting in everything from real estate prices to ore demand to foreign direct investment. But if it allowed or engineered a lower yuan, then it's unlikely the other emerging giants - never mind the west - could ignore that.

Long-term global markets bear and Societe Generale strategist Albert Edwards says it's vitally important global investors put the possibility of a weaker Chinese yuan on their radars because consensus thinking is disregarding the risk.

"The renminbi devaluation option is widely ignored by the markets in the same way they ignore the likelihood that the Chinese economy is hard landing," said Edwards. "The devaluation option should be seen as 'in play' however unthinkable it is believed to be at present."

SUCKING CHINA INTO FIGHT

Edwards said the tight interdependency of regional economies in Asia means it's impossible to ignore the interplay of currency rates there. And he added that the yen's steep weakening from then historic peaks in 1995 through 1997 was a major trigger for the devastating Asian currency crises and financial collapse that followed in 1997 and 1998.

Neil MacKinnon, economist at Russian bank VTB Capital, reckons that if you view the "currency wars" as an attempted devaluation of G7 currencies en bloc against the emerging markets, then it now may be time to be wary of the latter.

"The Chinese certainly have less of a stomach for yuan strength at this stage and the relative growth story has shifted now overall for emerging currencies," he said.

What's more, Stephen Jen of hedge fund SLJ Macro Partners said if you look at the 15 percent wage inflation in China of recent years rather than more modest goods price inflation, then the yuan may already be at "equilibrium" and more two-way risk is in store. "It's no longer clear the yuan is undervalued."

The question then is whether it's possible for investors to stay bullish on emerging markets while skeptical on China.

A monthly survey of fund managers by Bank of America Merrill Lynch released on Tuesday showed funds still heavily overweight emerging equities. However, while expectations for global growth improved this month, the outlook for China fell.

But the currency equation should be critical. UBS estimates that over the past decade currency moves contributed an average 46 percent of total return during seven of the years where total returns and currency return were positive.

And moves had as much to do with trends in the dollar as any view on local currencies. Of 22 main emerging units, 11 recorded gains of more than 10 percent against the greenback in that time, but only three currencies - from Brazil, China and Peru - recorded gains of 10 percent on a nominal trade-weighted basis.

So, if the dollar is poised to recover on a stabilizing U.S. economy and rising U.S. Treasury yields, the betting on emerging currencies is complicated even further. UBS reckon emerging currencies still look good on a 1-3 year horizon but there may be lots of bumps in the meantime.

"In the coming weeks and months, we believe we are more likely to hear rhetoric about currency wars rather than inflation wars - which is why today we have a tactical short term call to be long U.S. dollars," UBS economists told clients last week.

(Graphic by Scott Barber; Editing by Ruth Pitchford)

Article from Reuters

US debt holdings advance slightly

ridodirected@gmail.com (RIDO) — Sat, 17 Mar 2012 19:44:00 +0000

Updated: 2012-03-17 07:59

Article from China Daily

By Wei Tian in Beijing and Zhang Yuwei in New York (China Daily)

China increased its holdings of US Treasury securities by a slight $8 billion to a total of $1.16 trillion in January after cutting the purchase for five consecutive months, according to data released by the US Treasury Department on Friday.

But analysts suggested the move doesn't signal a reversal of China's efforts to diversify its foreign exchange holdings and reduce its exposure to dollar assets.

China remained the largest foreign creditor of the United States among the overall foreign net buyers of US financial assets in January. But Japan, as the second-largest holder of US Treasuries, is closing in on China after boosting its holdings by $21 billion to $1.08 trillion in January.

China had been moving away from US Treasury bonds since July, continuously cutting its holdings by a total of $163 billion by December.

By the end of last year, China had reduced its holdings of US debt by $8.2 billion compared with the previous year, the first time it had reduced the amount year-on-year since 2001.

Some analysts say the January purchase was made because the US, even with a weak economy, is still a safe haven for foreign investors, especially given the lower expectation of the third round of quantitative easing by the US Federal Reserve and the ongoing eurozone crisis.

But Mei Xinyu, a senior researcher with the Ministry of Commerce, said that the small amount of increase doesn't necessarily indicate new investments in US debt, as it might be retained income on investments from last year.

US Treasury bonds currently account for one-third of China's $3.18 trillion foreign exchange portfolio.

According to the People's Bank of China, the central bank, the foreign reserve dropped $92.6 billion in the last quarter of 2011 as the country improved its international payment balance sheet, easing pressure on the value maintenance for the world's largest foreign creditor.

The Ministry of Commerce reported a trade deficit of $31.5 billion in February, the largest deficit in a decade, which may lead to further decreases in the foreign exchange reserve in the first quarter of this year.

"Nevertheless, the foreign reserve may still see overall growth this year, but less in the forms of trade surplus and capital inflow, and more from investment income, as China's outbound investment continues to grow," Mei was quoted by China Business News as saying.

Despite the changes in the structure of foreign reserves, China's pace in diversifying it has not slowed. "China will continue to diversify its investments in foreign bonds ... and we will continue to be a 'long-term and responsible' investor in Europe," Yi Gang, head of the State Administration of Foreign Exchange, said during a news conference recently, adding that China's eurozone bonds did not register a loss.

Data from the Bank of Japan, that nation's central bank, also showed in late 2011 that China bought 541.4 billion yen ($6.5 billion) in Japanese bonds over the last year.

Meanwhile, analysts speculate that because China is the largest creditor of the US, it would have the upper hand in the event of a trade war between the two. "We got to know who holds all the cards in this relationship, and it is not the US," said Peter Schiff, CEO and chief global strategist of Euro Pacific Capital Inc, after a televised debate on China and the US economy hosted by Intelligence Squared in New York.

"People still think everything is fine in America because they don't know just how terrible it's going to be when the rug is pulled out from under us. China has got its hands on that rug and eventually they are going to pull it because it's in their interest to do so," Schiff said.

Contact the writers at weitian@chinadaily.com.cn, yuweizhang@chinadailyusa.com

Article from China Daily

Sterling touches 1-mth high on euro, slips vs dollar

ridodirected@gmail.com (RIDO) — Wed, 14 Mar 2012 21:07:00 +0000

Article from Reuters

Wed Mar 14, 2012 3:39pm GMT

(Adds quote, updates prices)

* Sterling hits 1-month high vs euro of 82.85 pence

* But off highs after data showing rise in UK unemployment

* Sterling slips vs dollar, hits 9-month high vs yen

By Jessica Mortimer

LONDON, March 14 (Reuters) - Sterling rose to a one-month high against the euro on Wednesday, lifted by a better relative outlook for the UK economy, though it edged lower after data showing a rise in UK unemployment.

The pound has been buoyed by a recent improvement in UK economic data, including on retail sales and house prices, which have lessened the risk of the country slipping into recession and of further monetary easing by the Bank of England.

By contrast, a weak euro zone economy and concerns about the risks of the debt crisis spreading beyond Greece continued to weigh on the single currency.

"Some of the data out of the UK and the U.S. recently indicates that credit channels may be starting to open up, at least relative to the euro zone," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.

This should boost the dollar and sterling, to the detriment of the single currency, he said.

The euro fell to 82.85 pence, breaking below the early March low of 83.13 pence, where there was also support from a trendline drawn on the charts from the January low.

But the euro trimmed losses and last traded down 0.2 percent on the day at 83.12 pence as data showed the UK unemployment rate held at a 13-year high in the three months to January while the number claiming jobless benefit last month rose more than forecast.

"The figures paint a generally weak picture, with unemployment rising further and pay growth weakening sharply," said Samuel Tombs, UK economist at Capital Economics.

However, the common currency was well below a peak of 84.24 pence hit on Tuesday, a level which analysts said could now act as stiff resistance. A break below the Feb. 16 low of 82.77 pence could pave the way for a drop towards the 2012 trough of 82.22.

RELATIVE RATES

Analysts said since the European Central Bank's second injection of cheap 3-year funds last month the euro has become an increasingly favoured currency to sell and fund riskier trades, which has contributed to its weakness versus sterling.

The pound has been helped by a recent widening in the difference between short-term UK and German bond yields , enhancing the appeal of sterling to investors.

"There's been a huge correction (in euro/sterling) from yesterday to take it more in line with where relative rates are," said John Hydeskov, chief analyst at Danske Bank, describing Tuesday's move higher as an "overreaction".

Traders said reported demand from a U.S. investment bank and longer-term investors lifted the pound, as well as buying of sterling versus the Japanese yen which helped the UK currency to hit a 9-month high around 131.46 yen.

Sterling was down 0.2 percent on the day against a firmer dollar, trading at $1.5670, after the Federal Reserve sounded a less downbeat note on the U.S. economic outlook.

The pound held above Monday's seven-week low of $1.5603, with traders again reporting firm demand around $1.5600/1.5595 and stop-loss sell orders below. (Additional reporting by Neal Armstrong; Editing by Stephen Nisbet)

Article from Reuters

ETFs For China’s Investment Sweethearts

ridodirected@gmail.com (RIDO) — Mon, 12 Mar 2012 20:38:00 +0000

ETF Database | Mar. 12, 2012, 9:00 AM
Article from Business Insider

China has confirmed its status as an integral part of the growth engine driving the global economy, which is why its recent investing activity may be leading some U.S. investors to worry. Most people know that China is sitting on a hefty pile of foreign exchange reserves, approximately $3.2 trillion, however, fewer investors are aware that the Asian behemoth has been increasingly diversifying away from the United States [see also Asia-Centric ETFdb Portfolio].

Treasury data shows a drop-off in China’s purchases of U.S. securities in the final stretch of 2011, leading many to believe that China has been gradually reducing its appetite for the dollar. Author Karen Maley, from BusinessSpectator.com, takes a closer look at where China has been reallocating assets to, highlight several noteworthy observations that could have an impact on a number of ETFs. So where is the money going? [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].

According to investment research expert Andrew Batson, China has beefed up its exposure to European and Australian assets. Europe is an increasingly important market for China which gives weight to the above hypothesis; China has interest in buying euro-denominated assets because this can help protect exporters in case of a euro devaluation, while also protecting China’s hefty stake in the region’s debt market. Demand for the Australian dollar has also climbed as a result of China diversifying its foreign exchange reserves to neighboring trading partners [see also Bond ETFs For Every Objective].

This trend has sparked fears that China’s reallocation of assets may eventually push U.S. bond prices lower and as a result drive interest rates higher. Regardless of what may happen to Treasuries, it’s quite certain that China’s efforts will have an impact on European and Australian financial markets.

Below we highlight three bond funds that could benefit as China continues to diversify its foreign exchange reserves:

WisdomTree Euro Debt Fund (EU): This is currently the only ETF available on the market which provides broad-based exposure to the region’s debt market. EU holds a portfolio of nearly 40 euro-denominated debt notes, including: government securities, supranational organizations’ debt, as well as other derivatives designed to provide similar exposure. Top holdings by country include Germany, France, and Luxembourg [see also 3 ETF Trades For The Next Euro Zone Debt Crisis]. EU charges 0.35% in expenses and had a recent 30-day SEC yield of 1.72%.

PIMCO Australia Bond Index Fund (AUD): This ETF holds approximately 40 Australian dollar-denominated debt securities; the underlying holdings are investment grade debt instruments issued in the Australian domestic market, including sovereign, quasi-government, corporate, securitized and collateralized securities. AUD charges 0.45% in expenses and had a recent 30-day SEC yield of 3.98% [see also Easy-As-ABC ETFdb Portfolio].

WisdomTree Australia & New Zealand Debt Fund (AUNZ): This ETF provides exposure to the Aussie debt market with a twist; AUNZ features allocations to debt securities denominated in Australian as well as New Zealand dollars. AUNZ consists of approximately 45 debt securities, ranging from government bonds to local debt from both Australia and New Zealand. Similar to AUD, this ETF also charges 0.45% in expenses and offers a comparable 30-day SEC yield of 3.88%.

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.

Article from Business Insider

Tracking FII flows

ridodirected@gmail.com (RIDO) — Sat, 10 Mar 2012 21:18:00 +0000

LOKESHWARRI S. K.
Article from The Business Line

Lack of alternative investment avenues, given the slowdown in emerging economies, could have made FIIs retain cash in India.

FII inflows of $7.5 billion this year have surprised investors and sent stock prices soaring. Does the reversal in flows mean that global investors are once more moving funds into India?

The sudden reversal in stock prices in January would not have given foreign investors sufficient time to react and bring in fresh funds.

Inflows in India focused exchange traded funds listed on global stock exchanges also shows that foreign investors have not reversed their cautious stance towards India. It is more probable that funds already brought into India by FIIs in earlier years are now ploughed into Indian stocks.

IIP REPORT

A look at RBI's International Investment Position report gives a better perspective on the foreign portfolio flows. This report captures inflows and outflows unlike exchange data that account for FII purchases and sales only when these investors buy or sell stocks.

It may be recalled that there was a flood of foreign portfolio flows in the second half of 2010 as foreign investors scrambled for Coal India shares.

FII oversubscription in Coal India offer that opened in October 2010 was $26 billion.

This accounted for a chunk of the total inflow of $54 billion that year. Since stocks began correcting in November 2010, foreign investors were unable to invest the oversubscribed portion into other stocks. SEBI data also reveal that secondary market purchases by FIIs began tapering off in the last quarter of 2010.

What was more surprising was the fact that FIIs did not take this money out of the country in 2011. They brought in $5.3 billion in the first three quarters of 2011.

What this data implies is that the large un-invested FII funds towards the end of 2010, continued within the country.

Lack of alternative investment avenues, given the turbulence in Europe and deceleration in economic activity in emerging markets could have made FIIs retain cash in India. Sharp depreciation in rupee in the second half of last year is the other factor that could have deterred foreign investors from taking funds out.

POLICY IMPLICATION

There is no denying that foreign portfolio flows are needed by our economy.

That these investors preferred to retain funds in India through a difficult year (2011) instead of moving it into short-term trading opportunities elsewhere says a lot about the relative safety and attractiveness of Indian economy and equity.

The government could try not to upset this sentiment by maintaining a conducive trading environment within the country.

Reduction in securities transaction tax, especially in equity derivatives, can give a fillip to these flows. Avoiding policy flip-flops on FIIs is another imperative.

Article from The Business Line

Q&A With CIC's Wang Jianxi

ridodirected@gmail.com (RIDO) — Tue, 06 Mar 2012 20:47:00 +0000

March 6, 2012, 11:14 a.m. ET

Article from The Wall Street Journal

By LINGLING WEI

Wang Jianxi, an executive vice president and chief risk officer at China Investment Corp., is also a member of the National Committee of the Chinese People's Political Consultative Conference, an advisory body to the country's legislature. He sat down with a reporter for The Wall Street Journal on the sidelines of the committee's annual meeting in Beijing and talked about the sovereign-wealth fund's recapitalization, investment strategy, China's foreign-exchange reserves, and the banking sector.

Here is an edited transcript.

The Wall Street Journal: CIC just got $30 billion of new capital. Any more details on the recapitalization?

Mr. Wang: CIC received the $30 billion at the end of last year from the State Administration of Foreign Exchange. We very much hope for a clear funding mechanism just like what other, more mature, sovereign-wealth funds have, such as the funds in Norway and Singapore. We're working with certain government entities on setting up the mechanism.

WSJ: What is CIC's overall investment strategy?

Mr. Wang: CIC's investments are broadly diversified by sector, geography and asset class. At the core of the investment strategy is an asset-allocation framework that currently consists of seven asset classes including stocks, bonds and private equity. Long-term investments including direct investments, private equity, infrastructure and real estate now account for more than half of the fund's global portfolio.

Based on that framework, we periodically review our portfolio and make adjustments to our tactical asset allocation level. In the short term, there will be a positive deviation to that framework.

For instance, CIC increased its investments in emerging markets for a period of time last year. It was active deviation for obtaining alpha return. However, it might turn out to hurt the fund's return due to underperformance of emerging markets in 2011.

WSJ: Investors are very keen to know whether CIC will invest in Europe. Is CIC interested in buying European debt?

Mr. Wang: CIC is a long-term, financial investor that pays close attention to risks. CIC won't be part of any decision by the Chinese government to help Europe or not. The decision lies with China's central bank [and] the Ministry of Finance via multinational and international mechanisms such as the European Financial Stability Facility and the International Monetary Fund.

But if there are good investment opportunities in Europe, we will consider. We base our investment decisions on risks and returns. We are not speculative investors.

WSJ: Premier Wen Jiabao has said one of the priorities this year for the financial sector is to improve management of China's foreign-exchange reserves. What kind of a role do you see CIC playing going forward?

Mr. Wang: CIC is a meaningful experiment for China and can help preserve wealth for China's future generations.

I support the idea of "cang hui yu min," [the government allocating more forex reserves to households for investment purposes]. In a normal economic system, the private sector should be allowed to hold a big portion of the reserves, while the central bank should only hold what is needed to meet the balance of payments obligations.

WSJ: In addition to the global portfolio, CIC also has a unit that holds stakes in big Chinese banks. What's your outlook on the banking sector?

Mr. Wang: Chinese banks in general are healthy. Their asset quality, capital-adequacy ratios and profits are all stronger than ever. A slowing property market and a potential increase in bad loans to local-government financial vehicles would cause a deterioration in Chinese banks' asset quality, but that risk is manageable unless the overall economy tanks, which is unlikely.

I advocate the renewed move in China to develop a securitization market so that banks could increase their ability to lend while spreading the lending risks. However, we need to carefully monitor any risks associated with securitization.

WSJ: Questions have been raised in China about whether the domestically focused unit, Central Huijin, should be separated out of CIC so the fund can focus on overseas investments only. What do you think of that?

Mr. Wang: CIC restructured its corporate operations late last year. It created a unit, called CIC International, to solely focus on overseas investments. That unit is separate from Central Huijin. Both units operate as direct subsidiaries under the control of CIC.

Central Huijin's large stakes in state-owned Chinese banks had presented some regulatory obstacles for the fund when investing abroad. The reshuffle can help remove those hurdles.

Write to Lingling Wei at lingling.wei@wsj.com

Article from The Wall Street Journal