EU, IMF split over Greek deadline | Japan weighs actions over deepening economic woes | Recession fears grip German analysts, investors as sentiment falls
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November 14, 2012
CFA Institute: Financial NewsBrief - Aisa Pacific Edition
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Encourage growth to ease world tension, Rice says
Geopolitical decisions worldwide are being driven largely by three major factors: improving economies in countries such as China and India, the effects of the global economic downturn and aftershocks from the terrorist attacks of Sept. 11, 2001, former U.S. Secretary of State Condoleezza Rice said. The best way to ease global tensions is to facilitate economic growth, she said. "If you could put on the agenda of the president of the United States a plan for global growth, so that this shrinking pie doesn't exacerbate all of the political tensions out there, Europe would be helped, Japan would be helped, the United States would be helped," she said. OpenMarkets.com (11/12), Naples Daily News (Fla.) (11/12)
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EU, IMF split over Greek deadline
The International Monetary Fund and eurozone finance ministers clashed publicly over the Greek debt situation, with the ministers advocating a two-year extension for Greece to meet a goal for its debt-to-GDP ratio and IMF chief Christine Lagarde insisting on sticking to the original 2020 deadline. Meanwhile, Athens' ability to raise ?5 billion and make a debt payment encouraged lenders to give themselves more time to resolve their differences. Reuters (11/13), Financial Times (tiered subscription model) (11/13)
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Japan weighs actions over deepening economic woes
Japan's prime minister pledged a quick and aggressive response to the surprise 3.5% third-quarter contraction in the nation's economy while the central bank chief pledged to keep a close eye on an economic situation that could be worsened by the strength of the yen. Meanwhile, opposing lawmakers resolved differences over a bond bill to allow the government to raise about 40% of its $1.2 trillion budget for the current fiscal year. The Business Times (Singapore) (11/13), The Yomiuri Shimbun (Japan)/Jiji Press (Japan) (11/13), Financial Times (tiered subscription model) (11/13)
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Recession fears grip German analysts, investors as sentiment falls
Reuters
Adding to low-growth projections pointing to a growing likelihood of German recession, the monthly ZEW poll of analysts and investors has fallen to a reading of -15.7 this month from -11.5 in October. "For now, the ZEW looks broadly consistent with economic stagnation in Germany. But we think that the economy will slide back into recession next year as the peripheral debt crisis intensifies and business and consumer confidence weaken further," said Jennifer McKeown, senior European economist at Capital Economics. Reuters (11/13)
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U.K. inflation rate surprises on upside, reducing chance of stimulus
U.K. consumer inflation surged more than expected to an annualized 2.7% last month from 2.2% in September, further lowering prospects that the Bank of England will consider more stimulus in the near term. Looking ahead, "utility bill increases are on their way. We've also got the effect of the U.S. drought and increased food prices to factor in. I don't think we're going to get anything like the 2% inflation target," commented Scotiabank economist Alan Clarke. Reuters (11/13)
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As U.S. lawmakers gather, BofA chief says fiscal crisis scaring clients
Bank of America chief Brian Moynihan says the U.S. fiscal crisis is already being felt in clients' reluctance to invest while the situation remains unresolved. Even so, Moynihan said he remains hopeful that a solution can be found to avert recession. Meanwhile, lawmakers returned to Washington after an election break, and President Barack Obama met with labor and liberal groups opposing cuts to social programs and earned benefits. Reuters (11/13), The Wall Street Journal (tiered subscription model) (11/13)
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China crisis around the corner, economist predicts
Reuters
China's failure to make significant progress in building up its domestic consumer economy means the country might soon descend into economic crisis, says Bangkok-based economist Richard Duncan. The trigger will be a failure of the export market to pick up as "global trade is beginning to fizzle out to the point now where we are hitting the zero line on growth in terms of trade, if not negative. ... My view has been that China's miracle is driven by one thing and one thing only: its trade surplus with the U.S., which went from zero in 1990 up to now more than $300 billion a year," Duncan said. MarketWatch (11/13)
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As emerging economies slow, downturn is seen in global growth
A slowdown in emerging-market growth will lead to a slower pace of global growth of 3.0% next year, down from 3.2% this year, the Conference Board predicts. The U.S., meanwhile, will be the main factor restraining the world economy from a sharper downturn. The Wall Street Journal (tiered subscription model) (11/13)
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Advance your understanding of equity portfolio construction
Don?t miss the Advances in Equity Portfolio Construction Program on 20?21 November in Singapore, hosted with EDHEC-Risk Institute. This two-day seminar offers the technical and conceptual tools to better understand the limits and benefits of different portfolio construction approaches. CFA Institute members receive a 25% discount on registration.
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Market Activities
INTERNATIONAL MARKETS OVERVIEW
With the Greek situation momentarily set aside, European investors Tuesday cued off stronger housing figures in the U.S., with shares gaining a bit. But U.S. investors focused on rising doubts that lawmakers will manage to find a way around the "fiscal cliff." The Stoxx Europe 600 rose 0.40% to 270.60, and the S&P 500 eased by an equal percentage to 1,374.53. Here is a continuously updated list of global stock indexes. The Wall Street Journal (tiered subscription model) (11/14), MarketWatch (11/13), CNNMoney (11/13)
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Taiwan shares taking biggest hit as Asian markets fall again
Down 7.5% since September, Taiwan shares are plunging faster than shares in any other major market in Asia, hammered by slumping exports and record high valuations. On Tuesday, the Taiwan Stock Exchange Weighted Index fell 1.81% to 7,136.05. Elsewhere in Asia, shares also were generally lower on a variety of factors, with the Nikkei down 0.18% to 8,661.05, the Hang Seng dropping 1.13% to 21,188.65, the Kospi losing 0.59% to 1,889.70 and the S&P/ASX sliding 1.53% to 4,379.80. Bloomberg (11/13), Bloomberg Businessweek (11/13)
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Economic Trends & Outlook
India's exports drop again as trade gap grows
Reuters
India's exports fell 1.63% in October from a year earlier, marking the sixth consecutive month of decline. Imports, meanwhile, were up 7.37%, and the country's trade deficit widened to $20.96 billion. Adding to signs of stress, Deutsche Bank predicted the Indian government might not be able to meet its 5.3% fiscal deficit target. The Economic Times (India) (11/13), The Economic Times (India) (11/14)
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Bright long term is seen for S. Korea, but banks are stressed for now
South Korea is better positioned than other countries to benefit over the next few decades if the world ever emerges from its economic crisis, the Organization for Economic Co-operation and Development predicts. In the near term, however, Moody's predicts South Korean banks will be under strain from high levels of household debt and lagging corporate performance. MK.co.kr (South Korea) (11/13), Yonhap News Agency (South Korea) (subscription required) (11/13)
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Philippine exports rebound
Reversing an August slump, Philippine exports surged 22.8% higher in September than a year earlier, with a boost from electronics. "If electronics improves further, a 9-to-10% [full-year] exports growth is still attainable," said Sergio R. Ortiz-Luis, president of the Philippine Exporters Confederation. Separately, the Bureau of the Treasury reported government debt rose to US$126.89 billion in September. Business World (Philippines) (11/13), Xinhuanet.com (China) (11/13)
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Capital Markets & Financial Products
Full opening unnecessary for yuan globalization, banker says
China needn't fully open its capital account for the yuan to achieve the status of global currency, said Li Ruogu, chairman and president of Export-Import Bank of China. "Renminbi internationalization can be realized based on a partial opening of the capital account and partial convertibility of the currency. ... In about 10 years, renminbi's influence on Asia, and even the entire world, will be significantly increased," Li said. The Wall Street Journal (tiered subscription model) (11/13)
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Market experts talk HFT and swaps "futurization"
Source: OpenMarkets
High-frequency trading and the "futurization" of swaps were discussed by a panel during CME Group's Global Financial Leadership Conference. Market experts, including representatives from GETCO, Credit Suisse and BlackRock, discussed what is and isn't high-frequency trading, how the strategy can be improved and whether it threatens market stability. They also discussed futures' role as the market evolves and proposals for a financial-transaction tax. OpenMarkets.com (11/12), SmartBrief/SmartBlog on Finance (11/13)
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United Bank of India teams with Calcutta exchange for online trading
An online platform for share trading is in store from United Bank of India and the Calcutta Stock Exchange. U-CONNECT, which will integrate online mutual funds, insurance and tax-savings plans, will be aimed at Tier II and Tier III cities. The Hindu (India) (11/13)
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Asian bond markets moving up in the world
Asian corporate-bond markets are growing out of the emerging-market stage and achieving higher status, benefiting in part, however, from fiscal struggles in Europe. Financial Times (tiered subscription model) (11/13)
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Regulatory Update
Goldman's asset management in South Korea closing
After five years in South Korea, Goldman Sachs Group is closing its 40-employee asset-management unit there. Some jobs will be shifted to Singapore, while other employees will be offered positions elsewhere in the bank's Korean business. The Wall Street Journal (tiered subscription model) (11/13)
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South Korea might act in event of sudden capital outflow
Facing the possibility of a repeat of the excessive capital outflows that accompanied previous crises, Bank of Korea Governor Kim Choong-soo said the bank might take steps to smooth any such flow short of capital control if needed. "We may strengthen the macro-prudential policies if needed, but there would be no intervention policies or capital-control policies," Kim said. The Korea Herald (Seoul)/Yonhap News Agency (11/13)
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