Asian Mining Companies Trade Higher
By Jonathan Burgos
July 10 (Bloomberg) — Asian mining and technology stocks gained after commodity prices rose and Tokyo Electron Ltd. said orders surged last quarter. Utilities declined.
BHP Billiton Ltd., the world’s biggest mining company, gained 1.3 percent as copper and oil prices climbed in New York. Tokyo Electron, the world’s No. 2 maker of semiconductor equipment, jumped 3.8 percent after saying that orders nearly doubled last quarter. Korea Electric Power Corp. lost 1.7 percent amid concern energy costs will increase.
The MSCI Asia Pacific Index was little changed at 100.57 as of 10:42 a.m. in Tokyo. About the same number of stocks advanced as declined. The gauge has slipped 2.2 percent this week as commodities prices tumbled and concerns mounted that earnings outlooks would fail to live up to expectations.
“The equity market was rising too fast, so now we are going through what looks like a healthy correction,” said Masayuki Kubota, a fund manager at Daiwa SB Investments Ltd., which oversees the equivalent of $37 billion in assets.
Japan’s Nikkei 225 Stock Average gained 0.1 percent to 9,296.01. Australia’s S&P/ASX 200 Index rose 0.3 percent. South Korea’s Kospi Index fell 0.6 percent even as the central bank raised its forecasts for gross domestic product.
Futures on the Standard & Poor’s 500 Index lost 0.1 percent. The gauge rose 0.4 percent in New York yesterday as an analyst upgrade of Goldman Sachs Group Inc. spurred a rally in financial shares and a rebound in natural-gas prices lifted energy producers.
China’s Reserve Currency Swells over $2 Trillion
By Bloomberg News
July 10 (Bloomberg) — China’s foreign-exchange reserves probably topped $2 trillion for the first time, drawing attention to the difficulty the government faces in finding places to invest the world’s largest holdings.
The reserves climbed $67.8 billion to $2.022 trillion as of June 30 from three months earlier, according to the median estimate of six economists surveyed by Bloomberg News. That would compare with a $7.7 billion gain in the previous quarter. The central bank may release the number today or next week, based on the timing of previous announcements.
Central bank Governor Zhou Xiaochuan ruled out any sudden change in the management of the reserves last month after proposing that governments investigate setting up a supranational currency. Premier Wen Jiabao is concerned that China’s $763.5 billion of Treasury holdings may fall in value as the U.S. sells record amounts of debt to fund stimulus spending.
“There’s no obvious alternative for China to U.S. Treasury bills,” said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. “The alternatives are limited for that much money.”
China’s reserves more than doubled in two and a half years as the trade surplus pumped cash into the economy, fueling claims that the nation’s currency is kept artificially low to help exporters. The International Monetary Fund may describe the yuan as “substantially undervalued” in a pending report, according to a person who has seen the draft.
Obama, Geithner
President Barack Obama is counting on China’s support as he sells debt to fund his $787 billion economic stimulus plan. Treasury Secretary Timothy Geithner said during a visit to Beijing on June 2 that Chinese officials expressed“justifiable confidence” in the strength of America’s economy.
China will continue to buy Treasuries because alternatives are too risky or won’t soak up enough money, said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong.
Kowalczyk also highlighted political opposition around the world to Chinese investment, citing miner Rio Tinto Group’s rejection of Aluminum Corp. of China’s proposed $19.5 billion investment. The scrapping of the deal was followed by Chinese allegations that Rio staff stole state secrets.
China Petrochemical Corp. is spending $7 billion to acquire Geneva-based Addax Petroleum Corp. and secure oil reserves in Iraq’s Kurdistan region and West Africa. China’s sovereign wealth fund, meanwhile, has lost money on investments in Blackstone Group LP and Morgan Stanley.
‘Hot Money’ Inflows
The latest gain in the reserves was probably driven by the trade surplus, higher valuations for non-dollar assets because of the U.S. currency’s weakness, and inflows of speculative capital, or so-called “hot money,” Kowalczyk said, adding that investors are attracted by an economy that’s growing when others are shrinking.
China’s benchmark Shanghai Composite Index has soared more than 80 percent from last year’s low on Nov. 4. The government kept the yuan stable in the past year after the currency gained 21 percent against the dollar between July 2005 and July 2008.
PIMPCO Says To Avoid Japans Bonds
By Theresa Barraclough and Nobuyuki Akama
July 10 (Bloomberg) — Pacific Investment Management Co., which runs the world’s largest bond fund, said investors who avoid Japanese government debt may miss out on a rally.
Japan’s benchmark bonds may gain this year, pushing 10-year yields to the lowest since August 2003, as the world’s second- largest economy struggles to emerge from its worst postwar recession and avoid a deflationary spiral, said Tomoya Masanao, a Pimco executive vice president in Tokyo. The Newport Beach, California-based company manages $756 billion in assets.
“There is a huge risk not holding bonds,” Masanao said in an interview with Bloomberg News on July 8. “The growth rate won’t rise much and inflation will remain low.”
Japanese government bonds are poised to outperform Treasuries this year for the first time in a decade, according to indexes compiled by Merrill Lynch & Co. International purchases of U.S. financial assets grew more slowly in April as China, Japan and Russia pared demand for Treasuries, the U.S. government said last month.
Pimco’s Foreign Bond Fund Unhedged, which includes Japanese debt, returned 7.1 percent in the past month, beating 97 percent of its competitors, data compiled by Bloomberg show. Its $157 billion Total Return Fund, which doesn’t have Japanese bonds, handed investors a 3.5 percent return during the period.
Treasuries lost 4.5 percent in the first half, the worst performance in 30 years, Merrill indexes show.
Yield Curve
Japan’s economy is likely to contract 6 percent in the fiscal year that started April 1, the International Monetary Fund said this week. Economists in a Bloomberg News survey said Japan’s quarterly growth rate will remain below 3 percent through the three months ending June 30, 2010. Consumer prices, excluding fresh food, slid a record 1.1 percent in May from a year earlier, the statistics bureau said last month….
Emerging Market Funds Post Outflows
By Shiyin Chen
July 10 (Bloomberg) — Emerging-market equity funds posted outflows for the second time in three weeks on growing doubts the global economy will recover soon, EPFR Global said.
Investors withdrew $365 million from funds investing in Asia excluding Japan in the week ended July 8, the research firm said in a statement yesterday. They pulled $307 million from Latin America stock funds, more than offsetting inflows into global emerging-market and Europe, the Middle East and African funds.
The MSCI Emerging Markets Index is down 3.2 percent this week, extending a retreat from its June 1 high to 7.3 percent, as the U.S. job market worsened and Japanese machinery orders unexpectedly dropped. Benchmark indexes in Russia and India are among those that have entered a so-called correction after slumping more than 10 percent from their highs this year.
“Fresh doubts about U.S. appetite for emerging markets exports and global demand for raw materials prompted investors to pull some money off the table in early July,” EPFR said in the statement.
Emerging-market funds attracted a record $26.5 billion last quarter as China’s “aggressive” measures spurred confidence in developing economies, EPFR said on July 2. The MSCI Emerging Markets Index soared 34 percent during the three months ended June 30, its best performance since the measure was created.
China equity funds also lost $424 million in the week ended July 8, while Brazil outflows totaled $244 million, the research company also said. Funds investing in Russian stocks attracted “modest sums,” while India stock funds lured $52 million following the release of the government’s budget, it added.
Earnings Season….
World Bank Names Indonesia As The Winner of Escasping Recession
By Achmad Sukarsono
July 10 (Bloomberg) — Indonesia’s economy is set to emerge a “winner” after avoiding the worst of the global financial crisis, the World Bank’s country director said.
Asia’s fastest-growing major economy after China and India can expand “significantly” more than 7 percent once President Susilo Bambang Yudhoyono fixes the nation’s congested roads, neglected ports and ageing power plants, according to Joachim von Amsberg, the World Bank’s representative in Jakarta.
Yudhoyono is set to win a second term, providing the 59- year-old former general with a mandate to double spending on roads and power to $140 billion by 2014 and pull 33 million people out of poverty. Southeast Asia’s largest economy may expand as much as 4 percent this year, von Amsberg said.
Faster growth and a “maturing democracy together put Indonesia in an incredibly exciting position to come out as a winner from this global turmoil,” von Amsberg said in an interview yesterday in Jakarta. “It shows that Indonesia is a positive outlier in the world right now.”
Indonesia’s move to increase deposit insurance, boost coordination with the central bank and strengthen bank supervision helped the nation largely avoid the worldwide credit crisis, von Amsberg said.
Asia’s third-most populated country has also skirted recession, unlike many of its neighbors that rely more on exports. Declining interest rates helped boost consumption, which accounts for more than 60 percent of Indonesia’s gross domestic product.
‘Time to Accelerate’….
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