Global Investing

Japan… tide finally turning?

Until recently, when you mentioned  ”Japan” in the investment context, you could almost hear a collective sigh of disappointment — it was all about recession, deflation and poor investment returns.

However, sentiment does seem to be finally changing, not least because Tokyo stocks have rallied almost 20 percent since the start of the year, outperforming benchmark world and emerging indexes.

The yen has also been on a (rare) declining trend since the start of February, with the selling momentum accelerating since the Bank of Japan set an inflation goal of 1 percent in a surprise move and boosted its asset buying programme by $130 billion on Feb 14.

A closely-watched survey by Bank of America Merrill Lynch showed record optimism on Japan’s growth among fund managers, with a net 91 percent of Japanese fund managers saying they expected the domestic economy to strengthen. That’s up from a net 47 percent two months ago.

Overall, survey partipants worldwide slashed their underweight positions on Japanese equities to a net 4 percent in March from 23 percent last month. This is the smallest underweight position on Japan since August. According to Gary Baker, head of European equity strategy at BofA Merrill:

from DealZone:

Sovereign Funds sextuple down

They may be placing smaller bets, but sovereign wealth funds were back with a vengeance in the third quarter.

Global corporate mergers and acquisitions activity involving sovereign wealth funds jumped sixfold to nearly $22 billion in the quarter, with 37 deals completed. Global announced M&A volumes involving state investment vehicles stood at $21.8 billion, up from $3.6 billion in the second quarter, according to our data.

The number of deals more than doubled from 17 in the April-June period. Only two weeks into the fourth quarter, there were five pending or completed deals with a combined value of $164.7 million. At the height of the boom in the first quarter of 2006, sovereign wealth funds sealed 35 deals worth $45.7 billion.

from David Gaffen:

Ken Lewis: When Buying the Dips Fails

In a bull market, buying on the dips works like a charm. Pullbacks in the market are quickly cannibalized by hungry investors looking for anything that smells like a bargain.

 

In a bear market, dip-buying does not work so well, as supposed bargains turn out to be value traps. This brings us to Ken Lewis, retiring as CEO of Bank of America. If dip-buying is a disaster in bear markets, Lewis engineered the M&A version of "dip buying" at the worst time not once, but twice.

He struck first with a $2 billion investment in Countrywide Financial in August of 2007, just before stock markets peaked - and after real estate was already teetering. In a good environment, it's a potentially solid investment. Not so much this one, when Countrywide was at $18 a share, and Lewis doubled down with a $4 billion buy (well, rescue) of Countrywide in January of 2008. That's hit the bank hard due to rising defaults in the housing market, which some analysts believe have not peaked.

from DealZone:

The Office: More tragedy than comedy for UK banks

Pedestrians walk in the financial district of Canary Wharf in London March 24 2009. With property markets stabilising and hopes that the worst of the financial crisis is behind us, Europe's banks are now looking to resolve their next biggest problem: 225 billion pounds of loans backed by UK commercial property.

As Sinead Cruise and I wrote earlier today, banks are now organising to sort through this massive debt pile, picking the good from the bad, foreclosing on properties and selling off what they can.

"Lenders have long turned a blind eye to breaches of covenants as long as they met interest demands by collecting rents. But they are now abandoning this softly-softly approach as the British economy worsens, planning foreclosures on a scale not yet seen in this cycle."

from DealZone:

“Tourists” arrive in private equity

Opportunistic buyers, lovingly dubbed "tourists" by those in the industry, have moved into the secondary private equity market. They're looThe cruise ship from Mediterranean Shipping Company Musica dwarfs Via Garibald as it arrives in Veniceking for positions in brand-name private equity funds at knock-down prices. As I wrote in a DealTalk today:"Pension funds and wealthy middle-east sovereign wealth funds are buying up investments in private equity funds, pushing up prices and sidelining secondary firms that specialise in acquiring the assets."The market for second-hand private equity assets -- where private equity investors offload assets to specialist buyers -- has mushroomed as the credit crisis has intensified. And increasing numbers of cash-strapped investors are concerned about meeting their future commitments to buyout funds."New investors have been attracted to deals by steep discounts to net asset value, forcing up prices for specialist buyers, such as Goldman Sachs (GS.N) and HarbourVest Partners (HVPE.AS) that last month closed secondary funds after reaching their $5.5 billion and $2.9 billion targets respectively."Read the full piece here.

Merrill Lynch is seventh largest bank acquisition ever

Bank of America’s planned $44.3 billion acquisition of Merrill Lynch is the seventh largest bank acquisition ever announced, according to Thomson Reuters Deals Intelligence.  Bank of America is the fourth largest bank globally and the top US bank with a market value of US$153.9 billion.

In the big picture: M&A targeting of the banking sector has reached $187.2 billion so far in 2008. Activity in the third quarter stands at a 5 quarter high of $87.3 billion.

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–Research from Matthew Toole, Daily Deals Insight

Adecco’s dilemma: To bid or not to bid

adecco.jpgAdecco, the world’s largest staffing firm, now has six weeks to either make a formal offer for British rival Michael Page or walk away and leave the company in peace for at least six months.

White-collar staffing firm Michael Page has so far rejected  informal offers from Adecco, which would value the group at 1.3 billion pounds, and management has stressed its desire to remain independent.

But now may be the optimal time for Adecco to snap up Michael Page as shares have lost 26 percent of their value over the past 12 months on concerns about companies cutting back on hiring as a result of slowing economic growth.   

What next for OMV, and for MOL?

omv-ceo.jpgFollowing an acrimonious and drawn-out takeover battle for Hungary’s MOL, Austrian oil and gas group OMV finally did as expected: it threw in the towel.

Yet according to OMV Chief Executive Wolfgang Ruttenstorfer, the consolidation pressures in central Europe — the strategic rationale which prompted him to launch the unsolicited offer in the first place — remain in place.

Analysts and investors have often pointed out that OMV could do better with the cash then parking it in a MOL stake. And while OMV sat tight and awaited the outcome of its unwanted approach, MOL busied itself stringing together a network of strategic allies, entering into ventures with Cez from the Czech Republic and Oman’s OOC.

Mick Davis takes late-cycle punt with Lonmin bid

xstrata.jpgMining stocks have lost a third of their value over the past three months on fears the commodity super-cycle is coming to end — but Xstrata’s Mick Davis reckons it’s still a good time to buy.

The acquisitive miner’s $10 billion cash bid for Lonmin, the world’s third-biggest platinum producer, is opportunistic and far from friendly.

But it has injected a badly needed buzz back into the sickly sector, lifting stocks across the board. And Lonmin investors are already betting on a sweetened offer.

Did banks get wires crossed on EDF deal?

pylon.jpgThe last-minute collapse of the 12 billion pound sale of British Energy to EDF raises the question of how well banks behind the deal were plugged in with major shareholders, who ended up vetoing the acquisition.

Having worked on a sale for months, banks were told by private shareholders EDF’s bid of around 775 pence per share was too low. The news clearly left all the parties in disarray.

Such deals are always risky, but the withdrawal of major British Energy shareholders after months of haggling over the price suggests a full-blown row. After all, an indication of where the price was heading had been floating around for at least a week.