U.S. investors’ love of tech defeats fear of China 6 Nov 2013 Shareholders are snapping up Chinese technology stocks listing in the United States. It’s a contrast with recent years, when accounting and governance scandals led many to shun mainland shares. Though red flags remain, the lure of rapid revenue growth is trumping caution.
Surging India stocks a poor guide to the economy 6 Nov 2013 Foreign investors have pushed the benchmark index to a record high. But reading the exuberance as a signal of economic revival may be a folly. Although the currency is now stable, the risks of inflationary fiscal slippage and growth-crunching monetary tightening are still alive.
Infosys visa woes stress need for Outsourcing 2.0 5 Nov 2013 A $34 mln fine for “paperwork errors” in the Indian company’s U.S. visa applications will sting. But given the woeful state of America’s job market, the outsourcing industry needs to brace itself for tougher immigration rules. Reprogramming the business would be a good start.
Bright financing flies SolarCity too close to sun 5 Nov 2013 The solar panel installer backed by Elon Musk is securitizing income in a bid to slash its cost of capital. The clever idea gave another lift to shares already soaring on the back of fast sales growth. But it cannot justify SolarCity’s stratospheric valuation.
Steve Cohen gives efficient market theory a boost 5 Nov 2013 For years, the tremendous performance of the hedge fund mogul appeared to discredit the hypothesis that stock markets digest all public information instantaneously. SAC has now admitted that its recipe included illegal insider knowledge. Legit investors find markets hard to fool.
France won’t meet its deficit target. No problem 5 Nov 2013 The European Commission’s latest forecasts show that France will not be able to shrink its budget deficit to the mandated 3 percent of GDP by 2015. But that isn’t bad news. Like the rest of the euro zone, the country will gain by breaking free from the austerity straitjacket.
UK’s new investor safeguards strike right balance 5 Nov 2013 Independent investors in London-listed stocks are getting new rights. These will mean the relationships between companies and controlling shareholders are policed more carefully. This should prevent governance debacles, without giving minority investors too much power.
Canadian driller bares false economy of cheap gas 5 Nov 2013 Struggling Encana is slashing its workforce, capital spending and dividend. Such cutbacks, welcomed by investors, probably will make gas prices more volatile. The situation should pique the interest of policymakers who have been slow to embrace North American exports.
M&A gets greedy in cross-border pharma deal 5 Nov 2013 Endo Health is the latest buyer to receive a warm welcome for a sensible acquisition with notable synergies. Its market value jumped almost as much as the purchase price for Paladin Labs. But the deal also involves a huge tax dodge and investors aren’t factoring in enough risk.
M&S boss needs better-looking results soon 5 Nov 2013 Clothing sales at Marks & Spencer fell for a ninth straight quarter. There are some encouraging signs for the UK retailer: the decline in non-food sales is slowing, and a hyped new range has only just launched. Now CEO Marc Bolland has to show the improvement is sustainable.
BMW profit miss just a bump on safe road 5 Nov 2013 Shares of the German carmaker dropped 4 percent after its quarterly earnings disappointed. Investors should be more relaxed. BMW’s profit is dented by heavy investments in new cars and technologies. And the company’s future prospects still look better than its competitors’.
China enters era of enlightened numerology 5 Nov 2013 Premier Li says GDP must grow at least 7.2 percent to create enough urban jobs. In reality, the quality of employment now matters more than quantity. The new minimum looks less of a fetish, and more a useful indicator of how China’s leaders will balance reform with stability.
China web giants take on backers at their own game 5 Nov 2013 Tencent’s potential funding for U.S. app Snapchat shows China making strides into Silicon Valley. Chinese tech firms’ cash and contacts make them an attractive alternative to regular venture capital. And unlike a VC, Tencent faces little pressure to show investors its returns.
SAC netted but white whale remains elusive 4 Nov 2013 U.S. prosecutors secured from Steve Cohen’s hedge fund a guilty plea, a $1.8 bln penalty and a ban on investing outside money. It’s an impressive insider trading haul. Unresolved is what Cohen knew. Absent answers at trial, an empty feeling will linger from the seven-year case.
A long M&A pruning effort sees forest for trees 4 Nov 2013 Weyerhaeuser is offloading its homebuilding arm for $2.7 bln in the latest piece of a seven-year divestiture campaign. The carve-up has refocused the $18 bln U.S. timber company and left it valued at about 20 times earnings. To buy in now would be going out on a limb.
Mexico won’t grow or get healthier on taxes alone 4 Nov 2013 New tariffs - including on high-calorie foods - are a mixed bag, and likely to cause economic drag. Mexico’s tax yield is low globally but that looks like poor enforcement not low rates. Diverting more resources into inefficient government is a poor recipe for faster growth.
Twitter’s new $1.75 bln IPO value: Hype or spot on? 4 Nov 2013 The newswire of humankind boosted the price range of its debut by a third. That sets Twitter’s worth, at up to $14 bln, above its most recent internal value. Breakingviews’ latest calculator offers a way for prospective investors to decide whether that’s too much, or just right.
Co-op’s weird bail-in means grannies beat hedgies 4 Nov 2013 The UK bank’s restructuring leaves retail holders of lower-ranking hybrid bonds potentially better off than higher-ranking hedge funds. It cushions pensioners from the worst of their mutually held bank’s woes. But it makes Co-op Bank a poor template for future bank bail-ins.
BlackBerry’s liquid infusion won’t douse cash burn 4 Nov 2013 The troubled company is selling $1 bln of convertible debt after attempts to find a buyer flopped. Even big supporter Fairfax Financial has backed away from taking full control. The extra money and a new boss buy BlackBerry more time. But the company’s prospects are bleak.
Basel nears overdue sea change in bank regulation 4 Nov 2013 Banks have long been allowed to rely on their own models to calculate capital strength. The Basel Committee’s latest proposals would force lenders to disclose positions using a more standardised template. If passed, that would mark a historic, and welcome, return of common sense.
HSBC stuck on a treadmill but getting fitter 4 Nov 2013 Despite flat income, underlying pretax profit rose 10 pct in the third quarter. Lower costs, fewer bad debts and a lack of big fines helped. HSBC’s long-term fortunes depend on GDP growth and interest rates. In the meantime, shareholders can at least expect steady dividends.
Alcatel-Lucent picks a good time to raise equity 4 Nov 2013 The telecoms-equipment maker plans a 955 mln euro capital increase. CEO Michel Combes has timed this well: his turnaround is beginning to bear fruit; the sector is strengthening; investor sentiment has improved. A stronger balance sheet should help avoid cut-price asset sales.
Ryanair shares still expensive despite rapid descent 4 Nov 2013 Europe’s largest low-cost airline has spooked investors with a second profit warning in two months. Ryanair has strengths, but confidence is leeching fast. Stability may return most quickly if the company prunes its growth ambitions and focuses more on sustaining profit.
Hugo Dixon: ECB really must act on deflation 4 Nov 2013 With the euro near a two-year high, the unemployment rate at 12.2 pct and inflation at 0.7 pct, the case for looser monetary policy should be clear. The question is what tools to use: lower interest rates, another LTRO or the ECB’s first dose of QE. A mixture is the answer.
Hong Kong’s new marketing ruse: business trusts 4 Nov 2013 Injecting whole companies into special-purpose vehicles sounds innovative: even tycoon Li Ka-shing has embraced the idea for his Hong Kong utility. But for all the hype, business trusts offer no benefits over a regular IPO. They’re mostly a tool for luring yield-hungry investors.
Austerity hasn’t held back UK growth 4 Nov 2013 British GDP has almost returned to its level of six years ago. Post-crash austerity isn’t really to blame for the slow catchup: largesse and boom created an unnatural peak. Recovery now is much better than expected. But monetary stimulus excesses are the new worry.
Twitter may grow fat and happy on low-patent diet 1 Nov 2013 The soon-to-IPO social network has an incredibly slim IP portfolio. Its nine patents may leave Twitter vulnerable to lawsuits and light on proven assets. But a policy of allowing engineers control over their inventions speeds innovation, lures top talent and cuts legal costs.
Chevron deserves a bit of investor patience 1 Nov 2013 The oil giant’s Q3 earnings missed estimates due to lagging output and a 27 pct jump in capital spending. Yet these huge outlays are designed to boost output over the next four years and grow at twice Exxon’s pace. What’s more, Chevron’s stock trades at a discount to its rival’s.
Blackstone builds tricky fix for landlord funding 1 Nov 2013 The private equity firm is selling bonds backed by rent on foreclosed homes. Not much data exists for this market, which may make investors nervous. But with home ownership dropping and renting on the rise, this rare example of post-crisis financial innovation may have a future.
Review: Dissecting America’s manufacturing retreat 1 Nov 2013 “Made in the USA” challenges the idea that U.S. industrial decline was inevitable or desirable. Canadian academic Vaclav Smil blames bad choices, not just changing economic tides. But his argument for better industrial policy veers dangerously towards protectionism.