Marketplace Analysis with Mike Itegboje

Posted by admin on 9 September, 2010
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Mr. Mike Itegboje, the President of Nigeria’s Chartered Institute of Stockbrokers, today, in Lagos, Nigeria said that the Securities & Exchange Commission (SEC) has no right to determine the class of investors as well as the percentage of allotment of shares of the demutualised Nigerian Stock Exchange.
 
Answering questions on the high-profile daily financial news programming on Channels Television, Business Morning anchored by Boason Omofaye, the CIS chief said the estimated licensed stockbrokerage firms of 250 should have the ‘lion’ share of the privatized Stock Exchange.
 
Below are excerpts of Mike Itegboje’s interview:
 
Q:        NSE Council decision to sanction companies on post-listing reporting requirements
 
A:        A lot of time has been given the companies to meet the listing requirements but there was laxity in the enforcement of those requirements by the NSE. Investors have been taken for granted by the companies on the grounds on the premise of meltdown or losses arising from their operations. Many of those sanctioned on Tuesday were listed during the market recent boom years with a lot of promises but so far nothing has been heard from them, so the NSE has to do something about it. Making losses should not stop these companies from giving out information. They took investors for granted.
 
Q:        Why no banks on the list of the sanctioned quoted companies?
A:        The reason is because the banks report directly first to the Central Bank and the CBN has been hard on them in recent times. CBN and SEC are apart in terms of regulations: the CBN has just banks to deal with while SEC has a lot of companies to deal with. The Stock Exchange needs to complement the regulatory and supervisory roles of the SEC to ensure that there is sanity in the capital market.
 
Q:        So what should change in the reporting requirements for companies?
A:        The current practice is that companies report 60 to 90 days after its year-end. But that should change with companies providing the exact date of the release of their quarterly, half-year and annual statements. They should be promptly released for investors to digest because it is fresher than a one year result that is released into another financial year. Company results need to be released currently and any company that does not report will be warned to take it more seriously, otherwise they should be sanctioned because the market thrives on information. The problem is that we do not have earnings calendar in Nigeria.
 
Q:        The NSE sanction on Dangote Flour
A:        No company should be spared as in the case of Dangote Flour owned by Aliko Dangote, a former President of the NSE. The Council sanctioned his flour company to show that no one is above the law and on the same day approved the listing of new company, Dangote Cement. Dangote does not unduly influence his companies and that is a good thing. We (stockbrokers) have visited one of his companies and we saw how he allows the people (management) to run the company. It was when Dangote Sugar and Flour was listed that he became popular that he became internationally recognized based on the capitalization of his capitalization and was ranked among the Forbes 500.
 

OMG! This might be the greatest trade.

Posted by admin on 9 September, 2010
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This item was filled under [ September 2010 ]

 

by Julian McCree  on Wed 08 Sep 2010
 
This time I would like to consider the Oh My God trade. This is the event risk trade, the unforeseen occurrence trade, the “Grab you helmet and run to the shelter” trade.
 
We need to know the thing to do in the face of a world economic downturn.
 
This time of year there is a chance of a financial accident and we have to consider what to do in case it might happen.
 
What should we look for and where?
Well, how about a demographic time bomb of too many old people and a falling population?

How about a debt to GDP ratio that makes the UK look positively frugal.

What about an economy with a falling savings rate?

What about an economy with no inflation and a Central Bank that seems to be out of options?

Sounds familiar?

THIS IS PRESENT DAY JAPAN. In serious trouble for all of the above and add a real estate market that has fallen to 1980 valuations.

AND YET ITS CURRENCY STILL RISES.
 
 
Now here is the interesting thing about the Yen. It is approaching a pretty important price level especially against the Dollar and Sterling. Back in 1995 the Dollar Yen fx rate made a bottom at 79.70 yen to the dollar. After a few years we are now approaching that level once again. We have to wait and see whether the Dollar Yen rate will retest this level and reject it by trading higher or carry on through in which case this will be an important level on the rally back up. Make no mistake this is a level for the currency that is undesirable for both the Japanese and the rest of the G7. Watch this space as we shall be following the action closely.
 
The Big Kahuna of a trade will be the value of the Yen falling a lot. Japan is a trading nation and cannot have all of the above problems and a rising currency as well. Just NOT POSSIBLE.
 
The solution to their huge debt is either Default or Devalue through hyperinflation. EITHER WAY THE YEN GETS SOLD.
 
So on your way to the bunker don’t forget think about what might happen to Dollar Yen and Sterling Yen fx. At least that way your last trade might be your greatest.
 

The global market outlook and the week ahead!

Posted by admin on 3 September, 2010
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By Jeff Emalaba, September 03, 2010
Like a hurricane spinning off shore, many analysts and investors expect headwinds from economic data to rock the stock market in September.
 
Stocks were in doldrums finishing the month of August with a more than 4 percent decline, making it the worst August since 2001. The Dow ended the month with a loss of 4.3 percent. The S&P was down 4.7 percent for the month, and the Nasdaq also followed its cousins falling 6.2 percent to close at 2114.
 
Extreme volatility characterized trading in the month of August as investors appetite for safety continues to soar. For the month just ended, the Yen ended the month with an appreciation of 4.54%, USD was up 4.5% and the Swiss Franc advanced 1.36%. In times of crisis you would continue to expect these currencies to appreciate for the following reasons:
 
·         They are funding currencies due to their interest rate differentials.
·         And they are safe haven currencies
 
The laggards for the month of August were the EUR down 2.04%, the Canadian dollar down 2.53% and the New Zealand dollar down 3.25%.
 
Despite the weakness seen in the market in August, the month of September began on a bright note with key data showing signs of promise. China's manufacturing economy staged a moderate rebound in August following three months of declines, thanks to surging domestic demand. The China Federation of Purchasing & Logistics reported the country’s official Purchasing Managers Index increased to 51.7 last month from 51.2 in July.
The implication on the commodities markets was that investors U.S. gold futures fell from a 2-month high as investors piled into stocks after strong U.S. manufacturing data overshadowed the disappointing jobs numbers. Crude oil surged the most in a month on the encouraging economic data and weaker dollar despite the rising U.S. commercial crude inventories.
Risk sentiment was further strengthened with a better than expected retail sales numbers from Australia, China biggest trade partner. The report came out at 0.7% as against a previous reading of 0.2%. This boosted the share price of Rio Tinto and BHP Billiton two of the top miners.
The elephant in the house was the US Non Farm payrolls a key bellwether report which gives a near term economy direction for the market.
Companies in the U.S. added more jobs than forecast in August, easing concern the world’s largest economy is sliding back into a recession. Private payrolls climbed 67,000 after a revised 107,000 increase in July that was more than initially estimated.
 
Stocks climbed around the world and U.S. Treasuries slumped as the employment report bolstered Federal Reserve Chairman Ben S. Bernanke’s view that the conditions are in place for a pickup in growth in 2011. While companies such as Caterpillar Inc. are boosting staff as the global economy recovers, payrolls are expanding too slowly to bring down an unemployment rate hovering near a 26-year high.
 
Following the ‘mighty’ NFP (Non Farm payroll) release, the Standard & Poor’s 500 Stock Index rose 0.6 percent to 1,097.1 at 11:14 a.m. in New York. The MSCI World Index of stocks in 24 developed markets added 0.8 percent. Ten-year Treasury yields climbed to 2.71 percent from 2.63 percent late yesterday.
The implication for the market is that today’s data reduces the odds that the Federal Open Market Committee will ease policy at its next meeting on Sept. 21. Risk sentiment therefore will be enhanced as indexes across the world from Asia to Europe will follow their big brother from the US.
 
Our Forcast
 
At BigDogsForex, we expect the currency market to continue to attract over $4tillion a day with the UK accounting for over $1.9trillion daily trade turnover. This was the recent report from the Bank of International Settlements a body seating over 53 central banks and financial institutions. Most of these funds will seek out commodity driven currencies and high yielding currencies such as the EUR, GBP, NZD, AUD and the CAD. In simple words, the market will embrace risk for the week. For the Canadian dollar will advise caution as US refineries perform seasonal maintenance which will reduce demand for oil.
 
Profit taking will be seen too on Gold which has hit a 16year high. Expect some mild retracement for the bullion.
 
The Week Ahead
 
The coming will be interesting to watch as central bankers across the world digest the implication of the NFP report and tinker with monetary policy. The reserve bank of Australia will meet on Tuesday September 07, 2010 at about 5:30AM Nigerian Time. They are expected to leave rates unchanged at 4.5%. However, all eyes will be on press conference following the decision as Glene Stevens is expected to remain dovish.
 
UK will test the waters with its manufacturing production expected to remain flat at 0.3%. Focus will be on the US Beige Book expected to come out on Wednesday September 08, 2010. This book looks at the health of the 12 jurisdictional districts in the US and helps the FOMC (Federal Open Market Committee) in deciding on its rate policy. The book is seen as the ‘bible.’
 
Jeff Emalaba, Chief Trader/CEO
BoasonJeff Global LTD
www.bigdogsforex.com
Tel: 0703-137-6273; 0704-316-4838
Office address: 16, Fadeyi Aladura Street, Ikeja Lagos.

The Rise and Rise of Foreign Exchange

Posted by admin on 1 September, 2010
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A market fueled by leveraged investors, high-frequency trading strategies, and "carry" trades hardly sounds the most promising place for investment banks to focus their post-crisis energies. Yet foreign-exchange trading has continued to boom despite-and even thanks to-the turmoil in the financial system. Daily transaction volumes hit $4 trillion in April, up 18% from the last Bank for International Settlements survey three years ago. The pace of growth may fade as the crisis does, but high volumes are here to stay.

 

Foreign-exchange trading has kept growing partly because it meets many of the needs of investors with frayed nerves. It is an ideal tool for hedging macroeconomic risk at a time when trading in other markets like credit and even government bonds has seized up. And liquidity is hardly a problem in a market that trades the equivalent of 27% of U.S. gross domestic product each day. Electronic trading and narrower bid-offer spreads have made transactions quick and easy. As a result, trading by financial investors such as hedge, pension and mutual funds has risen 42% since April 2007, to average $1.9 trillion daily.


True, some of the activity in foreign-exchange could fade if the markets cease to behave in such a binary risk-on and risk-off fashion and macroeconomic hedging declines. But that could drive greater use by companies for cross-border investment, mergers and acquisitions, and longer-term hedging. And emerging-market currency trading is growing, boosted by structural shifts in investor demand and low rates in the U.S., Europe and Japan. Added together, that should help keep foreign-exchange markets busy.


That is good news for those banks that have invested heavily in technology and trading platforms, which, coupled with higher volumes, also allow them to offset more client trades internally rather than via the market. Even so, margins remain very thin in what is effectively a largely commoditized, utility market in which banks require huge client flows to generate returns above their cost of capital. And, despite many banks' efforts, competition is tough: Top-three players Deutsche Bank, UBS and Barclays have held on to their rankings and account for 40% of the market, according to finance publication Euromoney. But that won't deter others from trying to break in-if only to establish a foothold to win other, more-profitable business from clients.

 

Write to Richard Barley at richard.barley@dowjones.com

The Global Market Takes a Pounding!!!

Posted by admin on 27 August, 2010
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This item was filled under [ August 2010 ]

 

  
By Jeff Enelaba, August 27, 2010
 
September 11, 2001 is still fresh in the minds of all. The day the world witnessed the collapse of the twin towers. The global financial market also witness a figurative “twin collapse” – the downgrade of Ireland Sovereign rating by Standard and Poor’s and the shocking weak US Existing home sales data.
 
The market had hoped for a ‘silver lining’ from Existing Home Sales following events from the preceding week but were shocked when the data came out at 3.83 million compared to a previous reading of 5.26 million a decline of 27% the lowest in over a decade. Its younger brother New Home Sales also fared badly as a day later; New Home Sales fell to 276000 compared to the previous reading of 333000 weakest reading since 1963.
 
The implication of this was that more bloodletting was seen as the Nikkei 225 entered a bear market falling below its psychological 9000 mark. All hell was let loose as the Yen surged to a 15year high; a gain of over 16% with is cousin the greenback up also 4.2%.

It has been two step forward three steps backwards as the all talk-no-action by the bank of Japan failed to stem the Yen appreciation. Exporters had been the hardest hit by the Yen rise by making their goods more expensive to foreign buyers and this therefore reduces the value of profits earned from oversea. One of those hard hit was Sony Corporation. The firm said that it is losing over $23.6million of annual operating profit for each one yen gain versus the US dollar. The Bank of Japan will therefore have little words left on August 31, 2010 when Industrial Production is due for release. A weaker than expected actual reading will leave the bank with no choice than to intervene in their currency. The last time BoJ intervene was in March 2004.

 
With so much economic uncertainty, this will continue to provide support for gold. As you we are extremely bullish on gold for the following reasons:
•        It’s a store of value in times of uncertainties
•        A hedge against inflation
•        It’s the ultimate diversifier
 
According to the World Gold Council, gold demand reached 1,050.3 metric tons in second quarter 2010 a 36% gain compared to the previous year. Retail investment demand rose to 29%.
 
The metal hit a record on June 18, 2010 at $1258.30 an ounce. Profit taking has seen the metal retraced 2% to finish at $1233.40 but it has since rose to $1241.0
We maintain our bullish stance for gold for the following reasons:
1. India the biggest consumer of the metal saw its demand almost double to 365000 metric tons in 2010. This demand is set to increase as the festive and marriage seasons approaches
2. China, the second largest consumer of the metal has seen its government setting up a proposal to develop the domestic gold market.
 
Indeed gold the ultimate diversifier is seen to hit the $1300 mark by year end.
 
The market however took a respite following the revised GDP numbers that showed that the economy at a annual 1.6% in the second quarter better than the 1.5% analyst expectation but falling short of the previous reading of 2.4%.
 
The implication of this is that the US economy is skating on ice and does not have a lot of margin for errors. With decline in housing data, consumer spending at a low, unemployment at record levels and widening deficit this shows that the US $14.58trillion led economy is still struggling to recover.
 
However, mighty Ben as the US Fed Reserve Chairman is fondly called speaking to central bankers across the world at Kansa City at Jackson Hole, Wyoming said the Fed is prepared to do whatever it takes to ensure a continuation of the economic recovery. Here him: “The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.”
In simple English Language what the Fed chairman is saying is that the US Fed will pint more dollars or provide more artificial support if the economy still continues to deteriorate.
 
Our Bias: At BigDogsForex, we know that the mention of Quantitative Easing Program is dollar negative and that reinforces the uncertainty in the market.
 
The Week Ahead
Our outlook for next week is one of uncertainty. Gold will continue to appreciate in the midst of all this crisis.

On the Currency market, we expect to see some weakness for the Yen as the prospects of an intervention by the BoJ heightens. The dollar however will continue to maintain its safe haven status and at such negative correlation between the US dollar and the US economy will mean that dollar will still appreciate by next week.

 
Monday is seen as a risk on day but we advise caution for new trades to the market. Have a terrific trading week!!
 
Jeff Emalaba, Chief Trader/CEO
BoasonJeff Global LTD
www.bigdogsforex.com
Tel: 0703-137-6273; 0805-536-4941
Office address: 16, Fadeyi Aladura Street, Ikeja Lagos.

Must Sanusi Sell Troubled Banks?

Posted by admin on 19 August, 2010
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By Tonbofa Ashimi Thursday 17 August 2010
 
It is the first anniversary of both Mallam Sanusi Lamido Sanusi's appointment as Governor of the Central Bank of Nigeria (CBN) and the Nigerian banking tsunami. In its wake, the tsunami left: sacked bank MDs, forced resignations of MDs, about N1 trillion government rescue money paid to some banks, a toxic waste body establishment law, bank shareholders' antagonism, potpourri of public condemnation and support….and the list continues.
 
The tsunami is still moving, we hear, and we are still awaiting settlement in some places the tsunami visited. The CBN's exit with its money from the rescued banks is one of these areas. We hear of underground due diligence by private investors that will purchase shares in these troubled banks to enable the CBN exit and still keep the banks afloat.
 
I find people's concerns regarding the sale to private investors interesting: "Will there be purchasers?"; "Who will these purchasers be?"; "Does the CBN have a hidden agenda to sell our banks to foreign banks?"; "Should the CBN sell these banks at all?" I believe the "sale" of the shares of the troubled banks is the best option open to the CBN to deal with these banks' financial issues and I hope to shed some light on the basis of my belief.
 
Can CBN Sell Bank Shares?
Section 34 (b) of the CBN Act 2007 prohibits CBN from purchasing the shares of any company including banking institutions. This explains why CBN lent the money from government to the rescued banks and did not nationalise the banks by taking over their shareholding. It is thus incorrect to say that CBN is "selling the shares of the bank". CBN cannot sell what it does not own. CBN has simply made directives to the troubled banks as relates to their need to raise capital and is facilitating the shares or business selling process based on its powers under the relevant laws.
 
CBN's Alternative Options
CBN could have handed the troubled banks to the NDIC based on their perceived insolvent state. The option of rescuing the banks by loan was to avoid depositors from being victimised as was the case when banks failed in the past. Where the troubled banks are not sold, CBN as a creditor, can apply to liquidate the banks to recover its money.
 
Further, where there is no sale of these troubled banks, CBN may sponsor an emergency bill enabling it nationalise banks by taking up the shares of troubled banks. This was done in the United Kingdom by The Banking (Special Provisions) Act 2008 to enable the UK government nationalise banks under emergency circumstances by secondary legislation. The Act was introduced in order to nationalise the failing bank, Northern Rock, after the offers from private bidders was deemed insufficient to cover money given the bank by the UK government.
 
Another option may lie with the Asset Management Corporation of Nigeria (AMCON). Where AMCON buys the toxic assets off the troubled banks, the banks' liquidity should rise but will the banks be sufficiently liquid to pay off debts, including CBN's and still operate? This may be unlikely.
 
International Precedence
During the financial crises, some governments directly facilitated the sale of the shares of the troubled banks. For example, the United States government, through its Federal Deposit Insurance Corporation, sold the banking subsidiary of Washington Mutual to JP Morgan Chase. In the United Kingdom, the Financial Services Authority facilitated the sale of the shares of Bradford & Bingley to Grupo Santander.
 
It is thus not strange for governments to facilitate the sale of troubled banks, especially where government has lent some money to the banks and the law permits it. CBN has the power under the Banks and Other Financial Institutions Act (BOFIA) to direct the troubled banks to take any steps regarding the banks or their business. Directing the banks to sell shares is one of such steps.
 
Shareholders' Options
In the cases of the US and UK banks I mentioned above, the Bank shareholders generally did not have very much say as relates to the sale of the bank's shares and the value for which they are sold. This was because the governments had either acquired the banks' shares or put the banks to receivership prior to the sales. Since in the instance of the 8 troubled banks, CBN has neither acquired the shares nor handed the banks to receivership, the banks' shareholders will probably have a say in the sale of their shares. This is because the banks will have to issue more shares and offer them for sale to the proposed purchaser or get the shareholders to transfer shares to the proposed buyers. In this instance, the shareholders will be needed to pass resolutions or agree to transfer their shares. At this point, the shareholders may try to control the value for which the shares are to be sold and vet the potential purchaser; but the shareholders' have little or no bargaining power as they must bear in mind that they may lose the purchaser and qualified purchasers are not exactly kicking at the door. Where there are no more qualified bidders, CBN may be forced to explore the receivership option to recover the loan given.
 
It is however possible that the purchaser might buy enough shares from the secondary market (floor of the stock exchange) to be majority shareholders. In this instance, the shareholders cannot influence the transfer of ownership.
 
It is usual for aggrieved shareholders to institute actions complaining about the value for which the bank's shares were sold and sale process. The shareholders of the troubled banks may seek compensation in the law courts, for themselves and their banks, where aggrieved by the sale.
 
Another Year Begins
Sanusi's 2nd Anniversary is commencing with CBN shepherding the sale of the troubled banks. The CBN should concentrate on ensuring the sale process is transparent and that the banks' shareholders are carried along. The shareholders and depositors should rest assured that the sale is in their best interest and that the courts will intervene where due process is ignored.
 
Sanusi, joyeaux anniverssaire!

Vetiva Research – As AMCON Commences

Posted by admin on 17 August, 2010
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This item was filled under [ August 2010 ]

August 17, 2010

 
 
In an interview of the CBN Governor yesterday by CNBC Africa, he provided some much needed clarity on how AMCON would work, milestones achieved, potential timelines, as well as key next steps. Amongst the variety of things he spoke about, we highlight the following:
 
Bids for the Rescued Banks (R8): Work has been on-going behind the scenes in respect of the banks. Bids have been made and advisers have concluded their analysis of the bids for at least four of the banks and have categorized them appropriately. The analysis of bids for the rest of the rescued banks will be completed by the end of August.
 
Break down of banks’ suitors are shown below:
 
 
·         In summary, we have 2 foreign banks, several local banks and P/E firms partnering with foreign banks, interested in the potential acquisition of these banks.
 
One Steady Step forward – As relates to the management of AMCON, recommendations for the Board of AMCON have already been discussed and agreed with the Ministry of Finance, and these recommendations have been sent to the President. Once these nominated names are approved by the Senate, a board would be in place and this board can commence the task of NPL assessments and purchase within the next few weeks.
 
·         The Governor expressed his beliefs that following the approval of the Board, there would be a sufficient structure to drive the execution of any deals/transactions by AMCON and for NPL transfer process to begin in earnest within the next few weeks. His clarification as regards this timeline is an important data point for the market, as prior to now, indicative timelines for an actual kick-off have been unclear, with many analysts estimating a Q4 2010 or Q1 2011 start date at the earliest.
 
·         We believe the commencement of actual negotiations and agreements as relates to a concrete determination of the amount of funds the R8 will receive for their NPLs and then, exactly what additional capital they will require, can then be established. This we believe will aid a quick conclusion on potential M&As or acquisition discussions which we know are on-going. Following approvals by the CBN, SEC and Ministry of Finance, a new lease of life can finally be provided for the Rescued Banks who have been on government lifeline for the last one year.
 
Funding Gap/No–Funding Gap – The popular opinion as regards the ability of AMCON to fund the purchase of all existing NPLs in the banking sector has been that the AMCON’s funding would be insufficient to meet the sector’s NPLs. However, the CBN Governor in his interview provided an analysis that indicates otherwise. His analysis is provided below:
 
·         We note that the troubled Banks’ NPLs is estimated at  N1.5trillion, while Sector NPLs has previously been reported at N2.2 trillion. The Governor estimated that under a worst case scenario, if the AMCON is only able to recover 50% of secured loans, 25% of unsecured loans and 25% of equity investments, then it would be looking at a funding gap of about N800 billion. The AMCON plans to support this funding gap by:
 
1.    A Sinking Fund of N1.5 trillion:
2.    To be funded by N500 billion from the CBN and N1 trillion from bank contributions (via deductions of 0.3% of their Total Assets yearly).
 
·         From the above breakdown, it does appear that AMCON will be more than sufficiently funded to carry out its activities and will likely be in a position, according to the CBN Governor, to return monies to the banks at the end of its 10-year life span.
 
We highlight that AMCON will be set up with a capital base of N250 billion and will issue bonds (which can be discounted for cash on ‘limited’ terms) to the banks in exchange for the NPLs; for which AMCON will restructure terms with borrowers, dispose of collaterals at time periods that will ensure maximum disposal values, as well as engage agents to work on loan recoveries as each instance may require.
 
The Governor however, also highlighted once again that AMCON would only be accepting or negotiating the collection of loans that are backed by collateral. We note that this would likely be the reason why even after giving banks (especially the R8) funding through the AMCON arrangement, they may still be under-capitalised/underfunded.
 
This is because we recall that the CBN has noted severally the significant portion of insider loans not backed by the requisite collateral, found in the R8 banks. We also believe that the CBN and AMCON’s planned response to this, as the CBN Governor has noted previously, would be to provide some additional capital injections in exchange for ordinary shares.
 
Other key highlights by the Governor in the interview include management of the performance and recovery of NPLs by AMCON. He noted that the challenge of realising collateral values would be that of liquidity, because the current economic cycle is not the best of times to dispose some of the assets/collaterals (equities/real estate e.t.c) underlying the loans. However, he highlighted that this is one of the main objectives of AMCs, noting that AMCON has a life span of 10 years and could afford to wait for asset prices in the relevant markets to recover before disposing of the collaterals.
 
Source: Research Division, Vetiva Capital Management Limited

The Global Market Outlook & The Week Ahead

Posted by admin on 16 August, 2010
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This item was filled under [ August 2010 ]

By Jeff Enelaba, August 16, 2010
 
The global financial market continues to witness a sea of red as concerns continue to mount as to the sustainability of the recovery from the world’s largest economies. The macroeconomic outlook for the global economy continues to weaken as data’s from China, Australia, New Zealand, UK and US all fell below forecast. In the month of July, report showed that China Industrial output, retail sales, new lending, Producer prices and money supply all grew at a slower pace than in the month of June.
 
In the US high unemployment, a slowdown in consumer spending as demonstrated by weakness from the latest retail sales numbers continues to show weakness. To confirm the slowdown, the Fed on August 6, 2010 said that it is resolved to leave rates unchanged for an “extended period of time” a phrase it has held unto for over 8months. In its last FOMC (Federal Open Market Committee) in the month of July the Fed described the global economic outlook as “unusually uncertain.”
 
The US and China are not alone in this slowdown. New Zealand performance services index came out on August 15, 2010 by about 7:36PM NGN at 50.5% as against a previous reading of 55.1%. More bloodletting was seen as Japan came out with its GDP yesterday at 0.4% defiling analyst expectation of 2.3%. The implication of this is that China has officially overtaken Japan as the world’s number 2 largest economy.
 
CHINA’s DOMINANT ROLE
 
China role in ensuring a global sustainable recovery cannot be taken lightly. The countries nominal GDP stood at $1.337trillion compares with Japan $1.28trillion. China overtook the US last year as the world’s biggest automotive market and overtook Germany as the largest exporter. It is the world’s number 1 buyer of iron ore and copper and the second biggest importer of crude oil.
 
With a population of over 1.3billion people, China is set to topple the US in 2027 as the world’s largest economy. Sitting on the world’s largest foreign exchange reserves of $2.45trillion it has set the tone for other Central Bankers to consider diversifying their assets from dollar held into EUR and Japanese yen. It has recently cut its US debt holdings by $72.7billion or 7.7%.
 
With four of the world’s top 10 companies by market capitalization from China (Industrial and Commercial bank of China, China Mobile Ltd, China Construction Bank and Petrochina); with growth surging at 10.3% Q2 compare with Japan 2%; recording the world’s biggest IPO in history from Agricultural Bank of China at $22.1Billion closely followed by Industrial and Commercial Bank of China at $21.9Billion, China indeed has a relevant role to play on the global landscape.
 
TRADING BIAS
 
At BigdogsForex, we are currently overweight on Gold, Platinum, Copper, Crude Oil and Yen. The Bullion is up 11% YTD and its set for the 10th straight annual advance, the longest winning streak since 1920. The weakness in the Greenback means that commodities priced in dollar will appreciate especially as demand continues to surge from China.
 
On the Currencies market, the Yen which is up over 11.8% against the dollar will continue to strengthen amid intervention talks from the BoJ as they don’t seem to back their words with action. The Yen could likely drag is safe-haven cousin, the US dollar in its direction and that will pose concern on risk takers as investors run to safety.
 
China investment of over 5trillion Yuan on alternative energy is seen supporting companies that are known for solar panel production. This might provide some near term support for equities as can be seen on the Shanghai Composite Index with the index defiling others finishing northwards at 2.1%
 
THE WEEK AHEAD
 
All eyes will be on key economic data coming in during the week. Tuesday sees the German ZEW Economic sentiment forecast to come out at 20.9% as against previous readings of 21.2%. The report will provide some near term direction for the EUR and by implication high yielding currencies.
 
Nothing new will be expected from Stevens the Reserve Bank of Australia governor as he is set to leave rates flat at 4.5%, where it has been for the past 3months. Inflationary data such as Producer price Index is on tap as well as UK retail sale which should see some soft landing as an aftermath of the world cup.
 
Jeff Emalaba, Chief Trader/CEO, BIGDOGSFOREX

The world’s best stock market

Posted by admin on 14 August, 2010
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This item was filled under [ August 2010 ]

Thursday, August 12, 2010

Commentary: Australia has outperformed the world for more than a century
By Howard Gold

 NEW YORK (Menafn – MarketWatch): Which country's stock market has been the best performer in the world — not just over the past year or decade, but over the last 110 years?
 
It's Australia, which stands above all others in its combination of higher returns and lower volatility.
 
While they speak our language, and we have some common origins, they have hitched their wagon to the dynamic growth of Asia. And it's paid off, as Australia has had the best performing stock market in the world from 1900 to 2009.
 
Australia posted 7.5% after-inflation returns per year during that time, with a standard deviation of 18.2%, according to a study from Credit Suisse. Those returns are the highest and the volatility the second lowest of the 19 major markets the researchers studied.
 
During that time, U.S. stocks made a 6.2% return, with a standard deviation of 20.4%. That means investors would have made more money in Australian stocks with less volatility than in the U.S. or any other major market over that long stretch.
 
Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School, three of the world's leading authorities on long-term performance of various asset classes, conducted the study for Credit Suisse. It included 19 mostly developed-world markets but not the BRIC countries — Brazil, Russia, India, and China — or other emerging markets.
 
"A common factor among the best-performing equity markets over the last 110 years is that they tended to be resource-rich and/or new world countries," the researchers write.
 
Australia has tons of coal, iron ore, uranium, zinc, nickel, and gold. It produces oil and natural gas, but oil imports are growing. It also grows wheat and other grains. In recent decades, the country has moved away from its Anglo-Saxon roots and embraced Asia, its rapidly growing next-door neighbor.
 
That has paid off big time. Half of the country's exports now go to Asia, and China is its biggest trading partner. So, Australia's economy and markets have ridden China's coattails to prosperity. Read more.
 
During the so-called "lost decade" of the 2000s, when U.S. stocks lost ground, Australian equities earned real returns of 5.5% a year, third behind South Africa and Norway among the 19 major markets tracked.
 
Mining, of course, was a big factor during the 10-year commodities supercycle, as investor Jim Rogers calls it. Indeed, two of the biggest stocks in the Standard & Poor's ASX 200 index are miners BHP Billiton and Rio Tinto.
 
But a sound banking system was at least as important. Like Canada, Australia has only a handful of big banks that kept their noses clean before the crisis, largely eschewing toxic securities.
 
"Our banks are very straightforward," says Philip Baker, an editor at the Australian Financial Review. And they have a zero-tolerance policy towards deadbeats.
 
"We can't just give the keys back to the banks," he says. "The banks come after us and take the shirts off our backs [if we don't pay]."
 
No wonder Australia's Big Four banks are among the world's best performers, with elite AA credit ratings.
 
So, it's no surprise Australia sailed through the crisis virtually unscathed. The economy showed only one quarter of negative gross domestic product growth — short of a commonly used definition of a recession. Unemployment peaked at 5.7% and now sits at 5.3%. President Obama would kill for those numbers.
 
And so would Federal Reserve chairman Ben Bernanke. Zero interest rates? Quantitative easing? Australia's central bank has already raised rates six times since late last year. Although the hikes have paused, they may resume, as a recovery appears to be well underway.
 
Meanwhile, Australia's budget deficit should peak at just over 4.2% of gross domestic product and may hit surpluses again soon. Australia has one of the world's lowest ratios of public debt to GDP — less than 18%, according to the Central Intelligence Agency. Ours is headed for 100%.
 
Of course, that makes the Aussie dollar more appealing, although it has tumbled from the highs set in 2008. Recently nervous traders have sold the currency amid fears about the global economy. Yet it remains among the world's stalwarts.
 
Can Australia's stellar performance continue? Probably, but there are some clouds.
 
First, housing prices remain in nosebleed territory. Reports say housing prices in Australia are 82% above those in the U.S. The median home price is 6.8 times that of yearly income, versus 2.9 times that in the States.
 
That's why noted value investor Jeremy Grantham of GMO has said Australian U.K. real estate is in a bubble.
 
"Things go back to normal, even Australian housing prices," Grantham warns.
 
If that happens, even the soundest banks won't be immune.
 
Also, beyond banking and mining, the Aussie consumer economy is struggling, says Baker. And Australia doesn't have world technology leaders like Finland's Nokia or Canada's Research in Motion , let alone the giants of Silicon Valley.
 
So, Australia is joined at the hip with China. It will prosper as long as China does. Growth prospects for China look good for the next decade, even as it tries to move its economy in a new direction. But China is "the big question mark over our market and our economy," says Baker. If China's growth slows, "there doesn't seem to be a backup plan."
 
So, all hail Australia, the best stock market of the last century. Whether it can stay on top for the next 100 years is another story.
 
Howard Gold is executive editor of MoneyShow.com. He owns shares of an exchange-traded fund that tracks the Australian dollar. Source: MENAFN – MarketWatch.com
 

NSE – End of ‘self-regulatory’ status?

Posted by admin on 6 August, 2010
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This item was filled under [ August 2010 ]

 

A Guardian Editorial
Friday, August 06, 2010
 
On Wednesday, August 4, 2010, the Securities and Exchange Commission (SEC) announced the removal of the Director-General of the Nigerian Stock Exchange (NSE), Prof. Ndi Okereke-Onyiuke, and directed Alhaji Aliko Dangote to cease acting as president of the council, in line with a subsisting court order, pending the final outcome of the litigation. The commission will conduct an independent investigation into the allegations levelled against the management of the exchange. An interim administrator, to be appointed immediately by the SEC, is to manage the affairs of the Exchange and oversee the election of a new council through a transparent and legal process.
 
According to SEC’s spokesman, Mr. Lanre Oloyi, these decisions were taken in the public interest to protect investors in the market in line with the Investment and Securities Act (ISA) 2007.
 
The SEC had become concerned about recent developments in the NSE, particularly inadequate oversight of the Exchange, debilitating litigations resulting from boardroom succession squabbles, allegations of financial mismanagement, governance challenges, and delay in implementing the succession plan of the Exchange, carefully weighing the implications of direct intervention in the affairs of the Exchange on the market against the more compelling goals of safeguarding the public interest and investors. The SEC hopes that its actions will reinforce the integrity of the markets, demonstrate its commitment to accountability, and boost the confidence of the general public in its ability to step in decisively when necessary.
 
Founded in 1960 as the Lagos Stock Exchange, the NSE took on its present name in 1977 as it already had branches in most business centres of the nation. It currently has branches in the following cities: Kaduna, Port Harcourt, Kano, Onitsha, Ibadan, Abuja, and Yola; Lagos however remains the headquarters. With as many as 264 securities currently listed on the Nigerian Stock Exchange (including: 11 Government Stocks; 49 Industrial Loan Stocks; which may either be Debentures or Preference Stocks; and 194 Equity or Ordinary Shares of Companies, many of which are multinationals cutting across the economy).
 
Alhaji Aliko Dangote had in a recent petition to SEC alleged that the NSE is insolvent and could not meet its financial obligations. The NSE spokesman, Mr. Sola Oni, denied the allegations, but Dangote insisted that the NSE is broke and is currently dipping its hands into the Central Securities Clearing System (CSCS) accounts to borrow N900 million to support its cash deficit position. Until the SEC intervention, it was not clear who was in charge as some Senators and stockbrokers were attempting to mediate between the president and the DG of the NSE; some shareholders were reportedly appealing to the DG of NSE to voluntarily proceed on disengagement leave; and the general public were hoping that Accenture’s involvement in the selection process will confer some credibility, although Accenture has now been reported to have denied any involvement.
 
We are of the view that it was very appropriate for the SEC to intervene and initiate an independent inquiry into allegations against the NSE. But the SEC should have merely suspended the Director General and other members of the management team, pending the outcome of its inquiry. It is improper to remove any of them from office before commencing the inquiry. The SEC, just like the Central Bank of Nigeria (CBN) and other Nigerian regulators, must respect the need to give individuals a fair chance of defending themselves against allegations before exercising the full weight of regulatory powers against them. Pending the outcome of the inquiry, the SEC should commute the announced removal from office to suspension.
 
Though the Federal Government, through SEC, has just taken immediate steps to preserve market stability and public confidence, there is still the need to explicitly ‘subject’ the reformed NSE to SEC’s oversight going forward on the one hand, and also work towards empowering the SEC to act decisively in regulating the NSE and other capital market participants by upgrading it to the judicial stature of its peers in the United States (U.S.) and United Kingdom (UK), on the other hand. In the UK, the Financial Services and Markets Tribunal, an independent judicial body, equivalent to a High Court, established under the Financial Services and Markets Act 2000; hears cases arising from directives issued by the Financial Services Authority (FSA) created by that act.
In the U.S. and the UK, all issues relating to any of the stock exchanges are decided at the level of the FSA or SEC respectively, and their decisions and pronouncements are equivalent to High Court judgments that can only be challenged in the Courts of Appeal. The SEC in Nigeria clearly lacks biting power and routinely has to appear and defend itself before regular Nigerian courts, even in cases instituted against it by regulated entities, or, as in the present case of the suspended council of the NSE, the SEC has to wait on the regular courts for outcomes of cases it should have independent judicial powers to dispense with.
 
A disturbing fact that has been highlighted by the mess that the NSE evolved into after 50 years of its existence is that had survival instincts not prompted the embattled president of the suspended council of the NSE to publicly volunteer information to which only a top level insider would have been privy, the SEC lacks both the legal powers and administrative machinery to obtain information from NSE, much less act on it. The NSE claims on its website to be a ‘self-regulatory organization’ but that ‘the transactions’ on the NSE ‘is also’ regulated by the SEC.
 
The NSE has thus been a private company, that was either allowed to regulate itself or the Nigerian government had omitted to put the necessary machinery to regulate it effectively in place. The council and management of the NSE were aware of the anomaly, and conveniently exploited the loophole for decades until the present crisis boiled over. 
 
A lingering concern is whether the reformed NSE will be allowed the aberration of retaining the status of a ‘self-regulating’ private entity, after the SEC might have eventually cleaned up the board and management succession crises that occasioned the present intervention.
 
The SEC intervention therefore certainly temporarily signals a new sense of regulatory responsibility, but there remains the pressing need to permanently make the NSE fully subordinate to the SEC for all its activities, like the other private capital market operators while judicially elevating the SEC to be at par with High Courts.
 
Editors Note:
Proshare aligns itself with the opinion expressed here.