Tuesday, August 4, 2015

China car market sputters raising concerns from Toyota to BMW

AUG 5, 20159:11 AM

[MUNICH] China has gone from growth engine to source of concern for carmakers including BMW and Toyota Motor, with both warning on Tuesday that the sales slowdown in the world's biggest market will probably last through year-end.

BMW said decelerating delivery growth in China may force it to lower this year's profitability goals, as consumers spooked by a stock-market rout and flagging economy stop spending on cars. Toyota likewise warned that higher costs and lower prices are making competition tougher.

"Things may well get worse from here," Max Warburton, an analyst at Sanford C Bernstein, wrote in a note on Tuesday. "The market continues to deteriorate." Carmakers are struggling to adjust to what BMW has called a "normalisation" of a market that has grown eightfold since 2000, pushing it past the US as the world's biggest car market in 2009.

Automakers including Ford Motor and Volkswagenbuilt factories in response. Ford now sees a potential annual decline in industrywide sales in China for the first time in 17 years. Volkswagen's deliveries in the country dropped for the first time in a decade in the first half.

For BMW, the lucrative new market drove profit from automaking, as a percent of sales, into "solid double-digit territory," Mr Warburton said. The Chinese contraction probably contributed to BMW's 8.4 per cent profit margin lagging behind those of competitors Audi and Mercedes-Benz and falling short of investor expectations, Mr Warburton said.

BMW's sales in China slipped 0.1 per cent in June, as the new-car market dropped for the first time in more than two years. The automaker said on Tuesday it's cut production in China so far this year by 16,000 cars. Still, the Munich-based company emphasized the market's long-term potential.

"We experience that volatility in all emerging markets," BMW chief executive officer Harald Krueger said on a conference call with reporters. The country is still a growth market, especially for luxury-car makers, Mr Krueger said.

Toyota warned of a "deteriorating price environment" in China, despite posting a 12 per cent percent gain in deliveries in the first seven months of this year. The stock fell as much as 2.8 per cent in Tokyo trading.

"The sales expenses have gone up and also the sales prices have come down slightly," Tetsuya Otake, a Toyota managing officer, told reporters in Tokyo on Tuesday, after the company posted quarterly profit that beat analyst estimates. "This is making our business in China quite difficult. The business environment is getting tougher."

Toyota said it will begin production of another new assembly line in Tianjin, China, by mid-2018. While that expansion will allow the company to make another 100,000 vehicles per year, this will be mostly offset by ending output on an existing assembly line in China.

Japanese carmakers have outpaced the industry this year, though that lead is under threat of what the Japan Automobile Manufacturers Association sees as a "downward spiral" in demand.

What seems certain is that the double-digit increases that have underpinned automaker expansion won't return.

"We're unlikely to get double-digit growth again but something that's more realistic for a market of China's size and potential," said Peter Fuss, a partner at consulting company EY's German unit. That would mean growth rates of more than 5 per cent to as much as 8 per cent, Mr Fuss said.

BLOOMBERG

China's July services activity quickens to 11-month high: survey

AUG 5, 201510:08 AM

[BEIJING] Activity in China's services sector expanded to its fastest pace in 11 months in July, a private survey showed on Wednesday, offseting some downward pressure on the world's second largest economy as the manufacturing sector falters.

The Caixin/Markit Purchasing Managers' Index (PMI) rose to 53.8 from June's reading of 51.8, hitting the highest level since August 2014 and marking the 12th straight month of expansion.

A reading above 50 points indicates growth on a monthly basis, while one below that points to a contraction.

A sub-index measuring new business jumped to 54.0 from June's 52.2 while the employment sub-index also edged up, indicating increased hiring on stronger new businesses China's official services PMI released on Saturday showed that activity quickened slightly in July from the previous month.

The relatively resilient services sector could help offset some downward pressure on the economy as the manufacturing sector struggles to cope with weaker demand at home and abroad.

The final Caixin/Markit factory survey showed activity contracted the most in two years in July while the official PMI showed manufacturing growth unexpectedly stalled.

REUTERS

IMF staff urges no rush to add China yuan to currency basket

AUG 5, 20159:42 AM

[WASHINGTON] The International Monetary Fund should put off any move to add the yuan to its benchmark currency basket until after September 2016, IMF staff said in a report which showed a mixed performance of the renminbi on meeting key financial norms.

The report, published on Tuesday, comes after Beijing launched a major diplomatic push for the yuan to be added to the IMF's Special Drawing Rights basket as part of its long-term strategic goal of reducing dependence on the dollar.

The IMF board is scheduled to make a decision in November on whether to include the yuan in a basket of currencies comprising dollars, euros, pounds and yen, although the decision could be pushed back if policymakers decide they need more information.

Delaying any change in the basket for nine months through September 2016 would avoid disrupting financial market trading on the first day of the new year, the staff report said. A senior IMF official said reserve asset managers would need about six months notice to adjust to a change.

The yuan, also known as the renminbi, meets the requirements as a significant currency in terms of international trade, but also has to be judged to be "freely usable," or widely used to make international payments and readily traded on foreign exchange markets.

The report shows a mixed performance on financial criteria. Although the currency is increasingly used in cross-border transactions and heavily traded in Asia, it is only thinly traded in North America and is not commonly used in international debt securities. Data was missing for some variables, the report said.

The senior IMF official said there was no set checklist of indicators to guide the decision and no "off-on" switch on whether the yuan would make the grade at the planned review.

But he said politics would play no role in the decision, which will govern the mix of currencies that countries like Greece receive as part of disbursements from the IMF. "They should be able to use it directly or they should be able to sell it immediately," the official said.

IMF Managing Director Christine Lagarde has said adding the yuan to the basket is a "question of when." European members of the Group of Seven major industrialized economies - Germany, Britain, France and Italy - favor adding the yuan to the basket quickly. Japan, like the United States, is more cautious, officials have said.

The yuan has made huge strides since Beijing's last push for more formal international recognition of the currency, as global financial leaders were struggling to deal with the fallout of the sub-prime and banking crisis.

Chinese Premier Li Keqiang in March asked Ms Lagarde to push for inclusion, saying Beijing would speed up the convertibility of the yuan on the capital account and open domestic individual cross-border investment and foreign institutional investment in China's capital market.

Earlier this year, frustrated by the refusal of the US Congress to pass reforms to increase the voting rights of emerging markets in the IMF, Beijing announced it would set up its own investment bank, the Asian Infrastructure Investment Bank.

Despite pressure from Washington, which along with Tokyo, has declined to join AIIB, most US allies in Europe have signed up for the Chinese-led initiative, seen as a rival to the World Bank and Japan-based Asian Development Bank.

Siddharth Tiwari, director of the IMF's strategy, policy and review department, said in a document released with the report on Tuesday that the IMF executive board would decide on the extension proposal later this month.

REUTERS

Investment banks rewarded by volume surge in European stocks

AUG 5, 20157:50 AM

[PARIS] European stocks have swung this year from a central-bank-fueled rally to a Greece-induced slump and back up. The upshot for investors? A resurgence in volume.

After years of shrinking trades and commissions, stock desks in Europe are finally seeing a pickup. Investment banks including UBS Group AG and Deutsche Bank AG have reported a surge in equity trading revenue in the second quarter. The value of stocks traded jumped 25 per cent to 1.4 trillion euros (S$2.1 trillion) in the first half of 2015, the highest since at least 2009, data from research firm Markit showed.

Volatility and investor interest have led to a recovery in trading, according to Manish Singh of Crossbridge Capital.

"You're seeing much better earnings in Europe, driven by a weak euro and improvements in the economy, so that's brought people to the market," said Mr Singh, who oversees about US$2 billion as Crossbridge's head of investments in London. "In the second quarter, Greece created volatility and that in turn brought in more trades. That you're seeing better volume is the basis for being long European financials."

Unprecedented monetary easing by the European Central Bank first sent the Stoxx Europe 600 Index to its best start of the year since 1998, before concern over Greece leaving the currency union dragged the gauge to its worst quarter in three years. Shares then rebounded when the Mediterranean nation reached a deal with creditors, before giving up half those gains amid fears China's slowdown is deepening.

The swings spell a boon for brokers and investment banks, according to Satnam Sohal, a London-based consultant at Greenwich Associates. In the current earnings season, UBS and Deutsche Bank said quarterly equity trading revenue rose 30 per cent or more, while BNP Paribas SA and Credit Suisse Group AG also reported gains.

"After years of falling commissions, the momentum is turning quite positive for the industry," Mr Sohal said by phone. Trading commissions have climbed 23 per cent in the last year, he said, citing a survey by his firm, which provides market research to financial services. Volume almost doubled to 314 billion euros in exchange-traded funds, Markit data showed.

The surge in ETF trading masks a lack of liquidity in individual European shares, with investors mainly using trading indexes via ETFs or the biggest stocks, according to Michael Woischneck of Lampe Asset Management GmbH.

"While trading has had a good run this year, liquidity has dwindled," said Woischneck, a Dusseldorf-based equity manager, who helps oversee 6.2 billion euros. "Our main concern is market depth. There are certain stocks where liquidity has been concentrated, while broader market liquidity hasn't improved." Volume may also struggle to return to levels seen in 2007, according to Crossbridge's Singh.

New York-based Morgan Stanley was the top equity broker in Europe by turnover, followed by Bank of America, Instinet LLC, UBS and Credit Suisse, according to Markit data.

Flows from investor money also support the boost in volume. The region's equity funds have reeled in about US$80 billion so far this year, while investors in US stocks withdrew US$109 billion, according to a July 30 Bank of America note.

Exchange operators in Europe paint a similar picture. Euronext NV had the best volume since 2010 in the second quarter, while trading on Deutsche Boerse AG's Xetra jumped 45 per cent in the period.

"We've seen healthy sentiment for equities in 2015, underpinned by QE, a weaker euro, cheap energy and strong dividend yields in blue chips," said Euronext London chief executive officer Lee Hodgkinson.

BLOOMBERG

Foxconn says looking at long-term investments in India

AUG 5, 20157:09 AM

[NEW DELHI] Foxconn, the trade name for Hon Hai Precision Industry, will invest in India as it builds a supply chain in the country, in a move that may help the country's efforts to build a technology manufacturing base.

Taiwan-based Foxconn is the world's largest contract maker of electronic products and counts Apple, Blackberry , Xiaomi and Amazon among clients.

Founder and chairman said Terry Gou said on Tuesday he was looking at India with a more than ten years timeframe in mind, but had not firmed up investment figures yet.

Mr Gou told Reuters in May he aims to develop 10-12 facilities in India, including factories and data centres, by 2020.

REUTERS

World Bank unveils new conditions for loans

AUG 5, 20156:39 AM

[WASHINGTON] The World Bank unveiled Tuesday a set of new social and environmental rules for its 188 member nations to receive financial assistance.

According to the World Bank, the draft framework, under discussion for several years, represents "a major step forward" for the development lender that strengthens its protection of the environment and the world's poor and vulnerable in its investment projects.

In early March, the World Bank acknowledged that internal reviews had found significant flaws in the way it handles the resettlement of people to make way for development projects.

Under the proposed framework, the World Bank will demand that borrowing countries extend labor rights, including for the first time the rights to collective bargaining and freedom of association.

The institution also amended a previous proposal on environmental standards that had raised ire among nongovernmental organisations and other groups in July 2014.

Now, the Bank will deem that "offsets" - actions to compensate for "unavoidable biodiversity impacts" linked to economic development - should be considered "a last resort" and prohibited in certain instances.

Indigenous peoples affected by projects would need to give "free prior and informed consent" before the projects can proceed, and proposes that in some instances offsets would be prohibited altogether.

If prior consent "can't be shown, the World Bank will not proceed with the aspects of the project relevant to indigenous peoples, it said.

In a joint statement, 19 civil society organisations, including Oxfam and Human Rights Watch, denounced the new World Bank framework, calling it a "dangerous rollback in environmental and social protections."

The proposed rules "will vastly weaken protections for affected communities and the environment at the same time as the bank intends to finance more high-risk projects," they said.

AFP

Tuesday, August 4, 2015