China's economic outlook bright, but sustainability a challenge | "Fiscal cliff" confronts divided U.S. government | Germany might soon feel chill of global downturn
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November 12, 2012
CFA Institute: Financial NewsBrief - Aisa Pacific Edition
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China's exports surge in October
Zhou/Reuters
In a new sign of vigor for China's economy, exports jumped 11.6% in October, and the country's $32 billion trade surplus for the month was the highest in nearly four years. Greeting the new data, central bank Governor Zhou Xiaochuan added a note of caution: "Overall, our macroeconomic controls have been successful, but of course the financial crisis didn't finish and became a European debt crisis, and therefore we are still continuing to deal with it." Caijing Magazine online (11/10), Bloomberg Businessweek (11/11)
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China's economic outlook bright, but sustainability a challenge
China must face the challenge of sustaining its economic growth in a changing world economy. However, Angel Gurria, secretary-general of the Organization for Economic Co-operation and Development, sees a bright future, with China probably able to raise its growth rate soon to 8% and sustain that pace for decades to come. Xinhuanet.com (China) (11/10)
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"Fiscal cliff" confronts divided U.S. government
Reuters
Last week's U.S. elections yielded divided government and little indication of how Washington might deal with the impending "fiscal cliff," disappointing Wall Street. Essentially, there is little faith that the newly re-elected Democratic president and a Republican-dominated House of Representatives can be relied on to arrive at compromises in a short time frame. "The clock is ticking," noted Quincy Krosby, market strategist with Prudential Financial. The Wall Street Journal (tiered subscription model) (11/11)
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Germany might soon feel chill of global downturn
The big Asian industrial powers aren't alone in their dependence on a healthy export trade, with German companies, which until now have defied the downturn in Europe, now preparing for a drop in business. "The decline in output and revenues is going to be substantial in the fourth quarter, and German companies know this," said Heino Ruland, market strategist at Ruland Research. Even now, cost cuts are under way, with implications for the entire German economy. The Economic Times (India)/Agence France-Presse (11/11)
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New U.K. inflation figures likely to point to faster pace
Upcoming figures for U.K. inflation and growth are expected to present a mixed bag, with inflation accelerating to 2.5% from the recent 2.2% rate but no further reduction in the 2012 growth forecast. The pace of inflation, however, is particularly worrisome as it will further squeeze hard-pressed consumers. The Telegraph (London) (tiered subscription model) (11/10)
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Market Activities
Long downhill is seen for Wall Street ahead of "fiscal cliff"
With the S&P 500 now below its 200-day moving average, the U.S. stock market might be in for more downward movement as investors contemplate the recession implications of automatic federal tax increases and spending cuts scheduled for the end of December. "You would have thought the 'fiscal cliff' scenarios would have been already mulled over and priced in, but they weren't. It's almost like the market has [attention deficit disorder] and can only focus on one thing at a time," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Md. Reuters (11/9)
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INTERNATIONAL MARKETS OVERVIEW
The usual crop of eurozone and U.S. debt worries hung over European and U.S. shares last week, with markets on both sides of the Atlantic ending the week lower. On Friday, the Stoxx Europe 600 edged down 0.11% to 270.27, and the S&P 500 managed a 0.17% gain to 1,379.85. Here is a continuously updated list of global stock indexes. The Wall Street Journal (tiered subscription model) (11/12), The Wall Street Journal (tiered subscription model) (11/9), CNNMoney (11/9)
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Election over, U.S. fiscal crisis casts cloud over Asia
Asian investors shifted their focus from the U.S. elections to the divided result, including uncertain prospects for a government resolution that addresses the country's fiscal crisis. Asian shares declined over the week as a result. Losses extended into Friday, with the Nikkei down 0.90% to 8,757.60, the Hang Seng off 0.85% at 21,384.38, the Kospi losing 0.52% to 1,904.41, and the S&P/ASX down 0.05% at 4,459.60. Bloomberg (11/9)
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Economic Trends & Outlook
Indian growth is seen easing despite reform drive
Reuters
Despite well-received reform efforts, India's economic growth is expected to ease to a 6% annual pace, the slowest in nearly a decade. Additionally, proposed reforms themselves face an uncertain future due to stiff political opposition, particularly for the opening to foreign direct investment in the retail sector. The Wall Street Journal (tiered subscription model) (11/11)
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Indian government looking to put country back on high-growth path
Hopes for 8% or better growth with which India began the year have been shaved to 6% or less, and that's largely due to developments in the world at large, said Industry Minister Anand Sharma. "Year 2012 is not a year which Prime Minister Manmohan Singh, my colleague at the Finance Ministry P. Chidambaram or I would like to remember," Sharma said. "We would like to leave it in as good a state as we can and take off in January 2013 to a high growth trajectory again." The Economic Times (India)/Press Trust of India (11/11)
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Barclays sees turnaround for Taiwan exports
The introduction of new tech products and a rush of orders for the holiday season are likely to provide a lift for Taiwan's exports this month, Barclays predicts. Any increase would be an improvement on the surprising 1.9% drop in exports for October. The Taipei Times (Taiwan) (11/12)
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S. Korean experts to examine consequences of low-growth economy
Reuters
Experts from South Korean banks, financial and investment firms and insurers are assembling under the aegis of the Financial Supervisory Service to assess the implications for the domestic economy of prolonged slow growth. "Chances are high that low growth rates and low interest rates are here to stay for a long time, which could hurt small and mid-sized financial investment firms and savings banks. They could also worsen the reverse margin situations for some insurance companies," an FSS official said. Yonhap News Agency (South Korea) (subscription required) (11/11)
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Indonesia expects higher growth in 4th quarter
The Indonesian economy should register 6.4% annual growth for the final period of the year, an improvement over the 6.17% pace of the third quarter, the government predicts. A regular annual boost in government spending in the waning months is expected to help. Xinhuanet.com (China) (11/10)
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Tighter Philippine foreign ownership rules are lamented
New Philippine rules on foreign ownership flowing from a court decision drew fire from foreign chambers of commerce, which said the rules will inhibit the nation's growth. "Every step to curtail foreign investments at a time when we clearly are bypassed by FDI compared to our neighbors, and at a time where we are recognized as a potential investment haven, must be seen as a step in the wrong direction," said Henry J. Schumacher, vice president of the European Chamber of Commerce of the Philippines. Business World (Philippines) (11/11)
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Capital Markets & Financial Products
China's RQFII quota a step closer to increase
As expected, the China Securities Regulatory Commission, the People's Bank of China and the State Administration of Foreign Exchange have reached preliminary agreement to raise the quota for the Renminbi Qualified Foreign Institutional Investor program by US$32 billion, according to Guo Shuqing, chairman of the securities regulator. The program allows investors to raise renminbi overseas that can be used to buy stocks and bonds in Chinese markets. Bloomberg (11/11), Reuters (11/11)
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Dispute diverts Japanese investors from China
The ongoing territorial dispute between China and Japan that has cut into Japan's product sales in China is also curbing Japanese investment in China. Financial Times (tiered subscription model) (11/11)
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Regulatory Update
Pandit to receive US$15.5 million from Citigroup
Pandit/Reuters
Former Citigroup chief Vikram Pandit will receive US$15.5 million in compensation related to the bank's 2012 progress and work from previous years. Pandit resigned his post last month. The Business Times (Singapore) (11/10)
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Alleged criminal client data from HSBC is leaked
Information on thousands of HSBC bank accounts in Jersey allegedly connected to drug dealers, gunrunners and other criminals has reportedly been provided to U.K. authorities by a whistleblower. The bank said it would cooperate with any inquiry, noting that "we are investigating the reports of an alleged loss of certain client data in Jersey as a matter of urgency. We have not been notified of any investigation in relation to this matter by Her Majesty's Revenue & Customs or any other authority." The Business Times (Singapore) (11/10)
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National Australia Bank settles over 2008 CDO losses
After a shareholder loss of AU$450 million related to National Australia Bank's exposure to collateralized debt obligations in 2008, the bank has now agreed to a AU$115 million class action settlement. NAB continues to deny any liability over the losses, when it was forced to write down AU$1 billion due to its CDO investments. The Sydney Morning Herald (Australia) (11/11)
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