By Shamim Adam
Sept. 15 (Bloomberg) -- The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.
Global growth will probably be weak in the next few years, and protectionist and populist policies are likely to emerge, said Tony Tan, deputy chairman of GIC, in a speech in Geneva yesterday. The sovereign fund, which oversees more than $100 billion, has pumped billions into UBS AG and Citigroup Inc. after they posted writedowns linked to U.S. subprime mortgages.
``Policy responses so far have tried to minimize the likelihood of a Japan-like deflationary spiral but the adjustment could take a couple of years and be very painful,'' Tan said. ``Over the near term, debt deflation and deleveraging in the U.S. and other major developed economies will exert downward pressure on growth in many economies.''
An asset-price bubble in Japan burst in the early 1990s, triggering a property and stock market collapse that heralded a decade of stagnation in the world's second-largest economy. Financial institutions worldwide have reported more than $500 billion in losses and writedowns since the beginning of 2007 and the credit-market collapse erased $11 trillion from global stocks in the past year.
The worst U.S. housing slump since the 1930s is showing little sign of abating and more than 10 lenders in the world's largest economy have collapsed this year. The U.S. Treasury Department and the Federal Housing Finance Agency this month seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies.
`More Severe'
``If house-price declines are significantly greater than expected, larger financial institutions could become insolvent, the credit crunch would be more severe and economic growth could weaken considerably,'' Tan said. ``A vicious deflationary cycle with falling house prices, failing financial institutions and weaker growth could then ensue.''
Lehman Brothers Holdings Inc. is preparing to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm, according to a person with direct knowledge of the firm's plans.
Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.
Emerging Markets
Japan's economy shrank 3 percent last quarter, the steepest decline since 2001, while the euro-area economy contracted 0.2 percent in the same period. The U.S. economy, which expanded at a 3.3 percent annual pace in the second quarter, has lost 605,000 jobs in the first eight months of the year.
Emerging markets will account for more than half of the world's growth in the next decade, from about a fifth in 2000, Tan predicts.
``Growth in emerging markets can be expected to remain relatively robust,'' he said. ``Emerging economies will displace the G-7 as the world's largest economies over the next two to three decades.''
A rising ``middle-class'' in emerging markets will also increase demand for commodities and increase supply constraints that may spur competition for resources, he said.
Natural Resources
``International tensions could rise as countries compete for natural resources, especially food, energy and water,'' Tan said. ``Commodity-producing countries are likely to exert stronger control over their natural resources, potentially exacerbating supply concerns. Countries that are reliant on imports of commodities could be more aggressive in their pursuit of supplies.''
Weaker employment and income growth could lead to a rise in protectionist policies, especially in the U.S. and Europe, Tan said. Governments need to increase conflict-resolution mechanisms and boost cooperation to solve issues amid the emergence of new major economies, he said, citing the World Trade Organization Doha Round of talks as an example.
Trade ministers have tried and failed to reach a breakthrough in the so-called Doha Round talks in each of the past three years. A nine-day summit at the WTO in Geneva collapsed on July 29 after India and the U.S. disagreed over how poor nations could increase duties to protect their economies from surging farm imports.
``Significant stagnation as well as inflation risks suggest that challenges and potential conflicts arising from both protectionism as well as resource nationalism could seriously jeopardize globalization of production and markets,'' Tan said.
Showing posts with label Smart Money. Show all posts
Showing posts with label Smart Money. Show all posts
Monday, September 15, 2008
Tuesday, July 15, 2008
Fannie, Freddie crisis not the last: Soros
NEW YORK - Billionaire investor George Soros said that the crisis over Fannie Mae and Freddie Mac will not be the last, and noted that the broader credit meltdown will impact an already slowing United States economy.
The Treasury Department agreed to raise Fannie and Freddie's credit lines above the existing US$2.25 billion apiece and buy shares to strengthen their finances, if needed. The Federal Reserve offered to let the mortgage finance companies borrow at the rate it charges banks for direct loans.
The government's aggressive move on Sunday underscored problems plaguing the markets and the potential for them to send the US economy into a severe recession.
'This incident (with Fannie and Freddie) is not the last one,' Mr Soros said in a phone interview on Monday, adding the year-long global financial market turmoil represented 'the most serious financial crisis of our lifetime'.
'Freddie Mac and Fannie Mae have a solvency crisis not a liquidity crisis,' said Mr Soros. 'There's no problem in their borrowing. And in fact, insofar there is a problem, the Fed is there to provide the liquidity.'
That said, both Fannie and Freddie are 'extremely leveraged', he said. 'The deterioration in the housing market, the foreclosures are going to cause losses which exceed their equity,' said Mr Soros, whose famous bet against the British pound earned his Quantum Fund US$1 billion in 1992.
The government's drastic measures could keep the US dollar under pressure, Mr Soros added.
'I think the dollar is vulnerable because the economy is going into a recession and the actions of the authorities do involve the accumulation of debt,' he said. 'There is various ratios by which the creditworthiness of a country's assurances are deteriorating.'
Growing effect on economy
Mr Soros said the credit crisis is having a growing effect on the US economy, not just financial markets. 'It is an idle dream to think that you could have this kind of crisis without the real economy being affected,' he added.
All told, Mr Soros said Mr Ben Bernanke, chairman of the Federal Reserve, is in a bind.
'When he recognised the seriousness of the credit crisis, he acted very radically lowering interest rates and he used the tools that are at his disposal,' Mr Soros said.
However, now the 'armory' is depleted, he said adding that Mr Bernanke can't lower interest rates because of the effect it would have on the dollar and he can't raise interest rates because of the looming recession.
'Therefore, his options are limited - he is boxed in,' Mr Soros said.
-- REUTERS
The Treasury Department agreed to raise Fannie and Freddie's credit lines above the existing US$2.25 billion apiece and buy shares to strengthen their finances, if needed. The Federal Reserve offered to let the mortgage finance companies borrow at the rate it charges banks for direct loans.
The government's aggressive move on Sunday underscored problems plaguing the markets and the potential for them to send the US economy into a severe recession.
'This incident (with Fannie and Freddie) is not the last one,' Mr Soros said in a phone interview on Monday, adding the year-long global financial market turmoil represented 'the most serious financial crisis of our lifetime'.
'Freddie Mac and Fannie Mae have a solvency crisis not a liquidity crisis,' said Mr Soros. 'There's no problem in their borrowing. And in fact, insofar there is a problem, the Fed is there to provide the liquidity.'
That said, both Fannie and Freddie are 'extremely leveraged', he said. 'The deterioration in the housing market, the foreclosures are going to cause losses which exceed their equity,' said Mr Soros, whose famous bet against the British pound earned his Quantum Fund US$1 billion in 1992.
The government's drastic measures could keep the US dollar under pressure, Mr Soros added.
'I think the dollar is vulnerable because the economy is going into a recession and the actions of the authorities do involve the accumulation of debt,' he said. 'There is various ratios by which the creditworthiness of a country's assurances are deteriorating.'
Growing effect on economy
Mr Soros said the credit crisis is having a growing effect on the US economy, not just financial markets. 'It is an idle dream to think that you could have this kind of crisis without the real economy being affected,' he added.
All told, Mr Soros said Mr Ben Bernanke, chairman of the Federal Reserve, is in a bind.
'When he recognised the seriousness of the credit crisis, he acted very radically lowering interest rates and he used the tools that are at his disposal,' Mr Soros said.
However, now the 'armory' is depleted, he said adding that Mr Bernanke can't lower interest rates because of the effect it would have on the dollar and he can't raise interest rates because of the looming recession.
'Therefore, his options are limited - he is boxed in,' Mr Soros said.
-- REUTERS
Tuesday, July 8, 2008
Those betting on rebound in China stocks are wrong
His forecast contrasts with local stock analysts who remain bullish
(SHANGHAI) Investors betting on a rebound in China's tumbling stocks are setting themselves up for more losses, according to Marc Faber, who told investors to bail out of US stocks before 1987's so-called Black Monday crash and correctly predicted last August that the US would enter a bear market.
The CSI 300 Index has plunged 52 per cent from its October record as the government raised interest rates six times last year to cool the economy and commodities prices surged, fanning inflation. Mr Faber's forecast contrasts with local stock analysts, who remain as bullish as ever. 'Buy' calls still make up two-thirds of all recommendations for Chinese stocks, virtually unchanged from the market's peak, according to Bloomberg data.
'I just wouldn't buy,' Mr Faber said in an interview in Bangkok on July 4. 'When a bubble bursts, you only hit bottom when people totally give up and vow they'll never buy stocks again. People are still more worried they'll miss the next rally.'
China's rout has wiped out more than US$2 trillion in market value after the CSI 300 more than doubled in 2006 and 2007, making its shares the world's priciest and prompting the government, Alan Greenspan, Warren Buffett and Mr Faber, to warn of a bubble.
The last time that Chinese stocks fell by half - from a June 2001 high - the Shanghai Composite Index took four years to reach its low. More than 60 per cent of China's retail investors are 'confident' about the performance of the nation's stock market in the next two years, the Shanghai Securities News reported on July 4, citing a survey that it conducted with StockStar.com, a provider of financial data via the Web.
The declines sent valuations for stocks on the CSI 300 Index to their lowest in more than two years last week, with the benchmark trading at 19.9 times reported earnings, a level last seen in April 2006. Liu Yang, managing director at Atlantis Investment Management Ltd, which oversees about US$4 billion in assets, expected a rebound.
'Fundamentals are very strong in China compared to any other Asian nation,' said Hong Kong-based Mr Liu. 'Chinese stocks are trading at crisis valuations. Do they deserve to trade at crisis valuations? The answer is no. The market deserves a very good rebound from here.'
China, the world's fastest growing major economy, grew 10.6 per cent in the first quarter. That's the ninth straight quarter that growth has exceeded 10 per cent.
Mr Faber, publisher of the Gloom, Boom & Doom Report, also said that Chinese shares could bounce off lows, though only temporarily. 'We could have rebounds of 20 to 30 per cent, but I wouldn't bet on it,' he said. 'I would rather use rebounds as a selling opportunity.'
The CSI 300 Index gained as much as 3.6 per cent yesterday, after China Merchants Bank Co and China Citic Bank Corp said that first-half earnings probably more than doubled. -- Bloomberg
(SHANGHAI) Investors betting on a rebound in China's tumbling stocks are setting themselves up for more losses, according to Marc Faber, who told investors to bail out of US stocks before 1987's so-called Black Monday crash and correctly predicted last August that the US would enter a bear market.
The CSI 300 Index has plunged 52 per cent from its October record as the government raised interest rates six times last year to cool the economy and commodities prices surged, fanning inflation. Mr Faber's forecast contrasts with local stock analysts, who remain as bullish as ever. 'Buy' calls still make up two-thirds of all recommendations for Chinese stocks, virtually unchanged from the market's peak, according to Bloomberg data.
'I just wouldn't buy,' Mr Faber said in an interview in Bangkok on July 4. 'When a bubble bursts, you only hit bottom when people totally give up and vow they'll never buy stocks again. People are still more worried they'll miss the next rally.'
China's rout has wiped out more than US$2 trillion in market value after the CSI 300 more than doubled in 2006 and 2007, making its shares the world's priciest and prompting the government, Alan Greenspan, Warren Buffett and Mr Faber, to warn of a bubble.
The last time that Chinese stocks fell by half - from a June 2001 high - the Shanghai Composite Index took four years to reach its low. More than 60 per cent of China's retail investors are 'confident' about the performance of the nation's stock market in the next two years, the Shanghai Securities News reported on July 4, citing a survey that it conducted with StockStar.com, a provider of financial data via the Web.
The declines sent valuations for stocks on the CSI 300 Index to their lowest in more than two years last week, with the benchmark trading at 19.9 times reported earnings, a level last seen in April 2006. Liu Yang, managing director at Atlantis Investment Management Ltd, which oversees about US$4 billion in assets, expected a rebound.
'Fundamentals are very strong in China compared to any other Asian nation,' said Hong Kong-based Mr Liu. 'Chinese stocks are trading at crisis valuations. Do they deserve to trade at crisis valuations? The answer is no. The market deserves a very good rebound from here.'
China, the world's fastest growing major economy, grew 10.6 per cent in the first quarter. That's the ninth straight quarter that growth has exceeded 10 per cent.
Mr Faber, publisher of the Gloom, Boom & Doom Report, also said that Chinese shares could bounce off lows, though only temporarily. 'We could have rebounds of 20 to 30 per cent, but I wouldn't bet on it,' he said. 'I would rather use rebounds as a selling opportunity.'
The CSI 300 Index gained as much as 3.6 per cent yesterday, after China Merchants Bank Co and China Citic Bank Corp said that first-half earnings probably more than doubled. -- Bloomberg
Oei offloads NATSTEEL stake, happy with deal
Investment nets him $310m in all; Ong Beng Seng's outfit now has 81% stake
By CONRAD TAN
(SINGAPORE) Oei Hong Leong, the tycoon who lost a fierce battle to take over NATSTEEL Ltd more than two years ago, has sold his entire stake in the former steelmaker for $162.6 million to its majority shareholder 98 Holdings, which is controlled by hotel magnate Ong Beng Seng.
The off-exchange transaction, completed yesterday, was at a 9.8 per cent premium to NATSTEEL's closing share price of $1.32 last Friday. At 112.124 million shares, the stake was worth $162.6 million - still less than the over $200 million that he spent building it up, by BT's own estimates.
But Mr Oei was satisfied with the sale, saying that it was a 'commercial decision' and that his decision to buy into NATSTEEL had been a 'good investment'. He estimated that he had received some $374 million in dividends from NATSTEEL since it sold its steel business to India's Tata Iron and Steel Company in August 2004, and that he no longer saw a need to hold on to the stake. The total return on his investment was some $310 million, including the dividends, he said.
Mr Oei accumulated the bulk of his NATSTEEL shares in late 2002 through his investment vehicle, Sanion Enterprises, after buying an initial 11.1 per cent stake in October that year, a week after 98 Holdings made a cash offer for the firm. 98 Holdings had emerged as one of many suitors for NATSTEEL, after an attempted management buyout led by the firm's then-president Ang Kong Hua in June 2002 prompted the firm to hire a financial adviser to seek other potential buyers.
Between early October and end-December that year, Mr Oei spent some $203 million building up a 29.79 per cent stake in NATSTEEL, according to BT estimates from public records. His share purchases forced 98 Holdings to raise its offer price four times, from the initial $1.93 a share to $2.06. 98 Holding's offer was finally accepted by other NATSTEEL shareholders in January 2003, although Mr Oei held on to his stake in the firm, remaining its second-largest shareholder after Mr Ong's 98 Holdings.
In August 2004, the firm sold its steel business to India's Tata Steel. Since then, it has focused on chemicals, engineering and construction - and more recently, waste handling and water recycling.
Then in May 2006, Mr Oei launched a takeover offer for the firm after raising his stake in it to just above the 30 per cent threshold. That bid failed, as 98 Holdings refused to sell its majority stake.
But last night, the Indonesian-born tycoon said that he and Mr Ong, a Malaysian-born hotelier, have been 'good friends' since 1972.
By CONRAD TAN
(SINGAPORE) Oei Hong Leong, the tycoon who lost a fierce battle to take over NATSTEEL Ltd more than two years ago, has sold his entire stake in the former steelmaker for $162.6 million to its majority shareholder 98 Holdings, which is controlled by hotel magnate Ong Beng Seng.
The off-exchange transaction, completed yesterday, was at a 9.8 per cent premium to NATSTEEL's closing share price of $1.32 last Friday. At 112.124 million shares, the stake was worth $162.6 million - still less than the over $200 million that he spent building it up, by BT's own estimates.
But Mr Oei was satisfied with the sale, saying that it was a 'commercial decision' and that his decision to buy into NATSTEEL had been a 'good investment'. He estimated that he had received some $374 million in dividends from NATSTEEL since it sold its steel business to India's Tata Iron and Steel Company in August 2004, and that he no longer saw a need to hold on to the stake. The total return on his investment was some $310 million, including the dividends, he said.
Mr Oei accumulated the bulk of his NATSTEEL shares in late 2002 through his investment vehicle, Sanion Enterprises, after buying an initial 11.1 per cent stake in October that year, a week after 98 Holdings made a cash offer for the firm. 98 Holdings had emerged as one of many suitors for NATSTEEL, after an attempted management buyout led by the firm's then-president Ang Kong Hua in June 2002 prompted the firm to hire a financial adviser to seek other potential buyers.
Between early October and end-December that year, Mr Oei spent some $203 million building up a 29.79 per cent stake in NATSTEEL, according to BT estimates from public records. His share purchases forced 98 Holdings to raise its offer price four times, from the initial $1.93 a share to $2.06. 98 Holding's offer was finally accepted by other NATSTEEL shareholders in January 2003, although Mr Oei held on to his stake in the firm, remaining its second-largest shareholder after Mr Ong's 98 Holdings.
In August 2004, the firm sold its steel business to India's Tata Steel. Since then, it has focused on chemicals, engineering and construction - and more recently, waste handling and water recycling.
Then in May 2006, Mr Oei launched a takeover offer for the firm after raising his stake in it to just above the 30 per cent threshold. That bid failed, as 98 Holdings refused to sell its majority stake.
But last night, the Indonesian-born tycoon said that he and Mr Ong, a Malaysian-born hotelier, have been 'good friends' since 1972.
Wednesday, May 28, 2008
Oei Hong Leong taking stake in United Envirotech
UNITED Envirotech, a water and wastewater treatment and reclamation solution provider in China, is raising $13.9 million through the issue of 66.27 million new shares at 21 cents each. And the proposed subscribers are Oei Hong Leong Foundation and Novena Holdings. OHLF, a private investment firm controlled by tycoon Oei Hong Leong, has a 30.25 per cent stake in Novena Holdings as at April 23.
Monday, April 21, 2008
Black Clouds on the Economic Horizon
SPEECH BY DR TONY TAN KENG YAM DEPUTY CHAIRMAN AND EXECUTIVE DIRECTOR AT GIC STAFF CONFERENCE, 21 APRIL 2008, 1100 HRS, SWISSOTEL THE STAMFORD
21 April 2008, Monday
The Economic Environment
3 In July last year, I warned that there were black clouds on the economic horizon, which could derail the “Goldilocks economy” which had lifted capital markets since 2002. The black clouds include credit tightening arising from the United States sub-prime mortgage crisis, rising inflation as a result of high oil prices and possibility of exogenous shocks like a terrorist attack. We were concerned that financial risks were growing dangerously in the capital markets. Excessive leverage in both the financial and household sectors had led to asset over-valuation. Risk premiums had been driven to extremely low levels in many credit and housing markets.
4 The ensuing unravelling in various asset markets was rapid and steep. The US sub-prime mortgage crisis triggered a major de-leveraging of the US financial and banking system leading to sharp sell-offs in equity and credit markets. The credit crunch, house price deflation and rising oil price worsened sharply in the first quarter of 2008 causing business and consumer confidence in the United States to deteriorate to recessionary levels. The financial contagion has now spread beyond US shores, increasing the likelihood of a global financial crisis and recession.
5 This led the US Administration and Congress to undertake a strong fiscal stimulus to bolster the economy. The US Federal Reserve has also taken radical measures to alleviate the contraction of liquidity in the financial markets. Just last month, the US Fed took the unprecedented step of taking over US$30 billion worth of credit risk onto its own balance sheet to facilitate the take over of Bear Stearns by J P Morgan Chase. This was to prevent a seizing up of the interbank and credit markets which could result from a massive avalanche of counterparty defaults.
6 Fortunately, GIC was well prepared as we had moved to a more conservative posture in our portfolio by liquidating a portion of our equity holdings in the third quarter of 2007 and moving into cash, a measure which we had not taken for quite some time. This provided us the liquidity to make substantial investments in UBS and Citicorp when these opportunities arose in December 2007 and January 2008. We regard our investments in UBS and Citicorp as long-term investments which will give us good returns when markets stabilise and economic conditions return to more normal levels.
7 Colleagues, we are now entering a period of extreme uncertainty in the world economy and the global financial markets. As banks continue to de-leverage, cutting down on their lending activities and causing contraction in credit supply, the prospects for the US economy and possibly even the world economy are fraught with considerable downside risks. We could be facing a recession which is longer, deeper and wider than any recession that we have encountered in the last thirty years. The economic downturn can be mitigated if decisive and timely actions are taken by policy makers in the United States and elsewhere. If policy makers respond strongly and appropriately, investment markets and sentiments can turn around sharply.
8 However, if such actions by the authorities are not taken within the next three to four months, it will be left to the market forces of supply and demand to stabilise the US housing market before we can see the light at the end of the tunnel. This will be a considerably more painful and long drawn process.
9 What is clear is that the financial and investment markets will be extremely nervous and volatile over the next one to two years. Instead of the rising tide which had broadly benefited financial and investment markets for the last ten to twenty years, we are now facing choppy seas which could engulf the broader economy globally. Policy makers, business managers and investors will require fortitude and nimbleness to navigate safely through the turbulence.
Source:
http://www.gic.com.sg/newsroom_newsreleases.htm
21 April 2008, Monday
The Economic Environment
3 In July last year, I warned that there were black clouds on the economic horizon, which could derail the “Goldilocks economy” which had lifted capital markets since 2002. The black clouds include credit tightening arising from the United States sub-prime mortgage crisis, rising inflation as a result of high oil prices and possibility of exogenous shocks like a terrorist attack. We were concerned that financial risks were growing dangerously in the capital markets. Excessive leverage in both the financial and household sectors had led to asset over-valuation. Risk premiums had been driven to extremely low levels in many credit and housing markets.
4 The ensuing unravelling in various asset markets was rapid and steep. The US sub-prime mortgage crisis triggered a major de-leveraging of the US financial and banking system leading to sharp sell-offs in equity and credit markets. The credit crunch, house price deflation and rising oil price worsened sharply in the first quarter of 2008 causing business and consumer confidence in the United States to deteriorate to recessionary levels. The financial contagion has now spread beyond US shores, increasing the likelihood of a global financial crisis and recession.
5 This led the US Administration and Congress to undertake a strong fiscal stimulus to bolster the economy. The US Federal Reserve has also taken radical measures to alleviate the contraction of liquidity in the financial markets. Just last month, the US Fed took the unprecedented step of taking over US$30 billion worth of credit risk onto its own balance sheet to facilitate the take over of Bear Stearns by J P Morgan Chase. This was to prevent a seizing up of the interbank and credit markets which could result from a massive avalanche of counterparty defaults.
6 Fortunately, GIC was well prepared as we had moved to a more conservative posture in our portfolio by liquidating a portion of our equity holdings in the third quarter of 2007 and moving into cash, a measure which we had not taken for quite some time. This provided us the liquidity to make substantial investments in UBS and Citicorp when these opportunities arose in December 2007 and January 2008. We regard our investments in UBS and Citicorp as long-term investments which will give us good returns when markets stabilise and economic conditions return to more normal levels.
7 Colleagues, we are now entering a period of extreme uncertainty in the world economy and the global financial markets. As banks continue to de-leverage, cutting down on their lending activities and causing contraction in credit supply, the prospects for the US economy and possibly even the world economy are fraught with considerable downside risks. We could be facing a recession which is longer, deeper and wider than any recession that we have encountered in the last thirty years. The economic downturn can be mitigated if decisive and timely actions are taken by policy makers in the United States and elsewhere. If policy makers respond strongly and appropriately, investment markets and sentiments can turn around sharply.
8 However, if such actions by the authorities are not taken within the next three to four months, it will be left to the market forces of supply and demand to stabilise the US housing market before we can see the light at the end of the tunnel. This will be a considerably more painful and long drawn process.
9 What is clear is that the financial and investment markets will be extremely nervous and volatile over the next one to two years. Instead of the rising tide which had broadly benefited financial and investment markets for the last ten to twenty years, we are now facing choppy seas which could engulf the broader economy globally. Policy makers, business managers and investors will require fortitude and nimbleness to navigate safely through the turbulence.
Source:
http://www.gic.com.sg/newsroom_newsreleases.htm
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