The Great Debate UK
Shanghai has had its first new issues disaster. XD Electric fell 1.4 percent on its first day of trading. That might not sound so bad, until you consider that Chinese initial public offerings in the last six months rose an average 80 percent on their first day. It might be a welcome sign that China's stock market investors are become more discerning.
XD Electric, the first IPO of 2010, suffered from two headwinds. One was a general market pull-back on fears China will begin monetary tightening. The Shanghai Composite Index has fallen 5 percent since the electrical equipment maker priced its shares a week ago, with heavy equipment firms down 8 percent. XD Electric was priced at the top of its indicated range, a 26 percent price-to-earnings premium to the market. Taking that into account, XD Electric's performance is not as bad as it looks.
Chinese investors will be quick to point their fingers too at the securities regulator for rushing too many companies to the market in its effort to cool asset prices. China is unique in that regulator, not the market, plays a main role in deciding whether companies can raise money. In the second half of 2009 alone, 111 companies came to the market. Some 10,000 more are still eligible, according to the Shanghai Stock Exchange.
Hopefully, the regulator will hold its nerve despite this rare first-day flop. Tradable equities still account for only a little more than a third of China's GDP, while total loans outstanding are close to 120 percent of GDP, higher than the global average. Increased supply of new stocks should help bring down the market's volatility, and reduce companies' reliance on banks. Better to have more IPOs than pricier IPOs.
China needs fertilizer more than steel. If the Middle Kingdom's industrialization follows the course of other nations, per capita demand for infrastructure like concrete and steel will peak long before meat consumption.
This may explain why mergers and acquisitions activity in the agriculture sector has become so hot. For example, miner Vale just agreed to buy Bunge's Brazilian fertilizer assets for $3.8 billion.
Hedge funds watching China's markets are licking their lips at what they see as the best shorting opportunity since Enron. But while plans to allow short-selling are imminent, this won't be a bear's picnic. Beijing's plans to allow two-way equity bets will give foreigners little chance. Borrowing individual stocks will be tricky, even for locals.
After many countries such as the United States and UK put more severe restrictions on short-selling, China is taking the contrarian view. The short-selling regime has been three years in the making. The goal is to allow investors to express a different view on the market, and prevent market valuations getting overly stretched.
Cash, not China, is Google's biggest conundrum. More precisely, where should the search giant point its gusher of greenbacks?
The online advertising market recovery and increasing efficiency pushed free cash flow up 44 percent to $2.5 billion in the fourth quarter. Adding that to the company's $24 billion cash hoard doesn't make sense -- but giving it to shareholders does.
Google’s cyber-complaint is the tip of an iceberg. Coordinated attacks on IT systems are common, yet companies and governments have kept largely silent. The growth of computer services that rely heavily on the Internet means the stakes are growing higher. That may explain why Google spoke up about recent attempts to steal its intellectual property -- and why the U.S. State Department has also taken China to task.
The scope of the recent attacks points to a complex operation. More than 30 companies were attacked simultaneously through an undiscovered software security hole. The incursions appear to have had the blessing of the Chinese government, if not its direct involvement. It is hard to imagine who else would be interested in the email accounts of political dissidents, which Google claims were targeted.
A month before China ushers in the year of the Tiger, its central bank has begun to address the effects of its roaring liquidity boom. It is encouraging that the authorities in Beijing are alert to the threat of an overheating financial system. But with so many countervailing forces, the liquidity tiger will not be tamed so easily.
Markets yelped Tuesday after the central bank raised the minimum ratio of capital to loans at banks by half a percentage point. But this amounts to little more than scooping water out of the sea. Some 1 trillion yuan ($146 billion) of government bills mature in the next two weeks. If they are not rolled over, three times more money would flow into the system than the reserve hike will leech out. Then there are foreign speculative flows - an estimated 378 billion yuan in the fourth quarter of 2009.
Oil price bulls and bears have both had their triumphs in recent history. The price of crude rose to $147 a barrel in July of 2008 only to plummet to $33 a barrel a few months later. It swung past $82 a barrel this week because of a cold snap, and is up 18 percent since mid-December. But barring heightened tension in the Middle East, oil looks likely to slide in the short term.
Demand remains relatively subdued, in spite of the massive stimulus applied to the global economy. This is especially true in OECD countries and the United States, the largest consumer of energy. American crude oil inventories actually rose by 1.3 million barrels last week when temperatures plummeted, according to the latest figures by the Department of Energy. Elsewhere in the OECD, oil inventories have fallen, but only slightly, according to the International Energy Agency. They are still high, at nearly 60 days of demand.
The economic worst is past. But there are many issues left to worry about.
Start with the good news. GDP is now growing almost everywhere, while the unemployment rate is hardly rising anywhere. Businesses and consumers are less fearful. As much as half of the 20 percent decline in international trade has been erased.
Perhaps the best news is what has not happened. There have been no national defaults, countries dragged into political chaos, bitter divisions among the great powers or, with a few tiny exceptions, massive declines in consumption. The global political-economic-financial system is still in business.
– Ian Wheeler is vice president of marketing and distribution at Amadeus. The opinions expressed are his own.-
In the last year, 45 million tourists (near to the population of Spain) travelled from China to the West. In fact, tourism from China grew by an average of 27 percent a year between 2002 and 2008.
The Pew Forum on Religion & Public Life has come out with a new report that tries to measure, country by country on a global level, government and social restrictions on religion. You can see our coverage of the report here and here and can download the whole report here.
The report, which Pew says is the first major quantitative study of the subject on a global level, ranks countries under two indices -- one measures government restrictions on religion, the other social hostilities or curbs on religion that stem from violence or intimidation by private individuals or groups.