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Financial Times Newsmine
June 30-July 6, 2012
Financial
On exchange traded products, July 5
"Investors are pumping record sums into exchange traded products investing in assets such as bonds, vehicles that track a basket of assets, as they try to avoid equity volatility caused by the eurozone crisis and fears over the global economy. Inflows into ETPs, which mainly offer exposure to baskets of equities, bonds or commodities, attracted new net assets of more than $100bn in the first half of the year for the first time since the industry emerged in the late 1980s, according to BlackRock’s ETP Landscape team. Fixed income ETPs were the main contributor to inflows rising to $105bn, a 16 per cent increase from the $90.6bn of flows posted during the same period in 2011. They are deemed to offer stability and consistent returns amid the uncertain outlook."Lex on Barclays, July 4
"So Bob Diamond has quit. Is it time to buy Barclays? After an initial bounce, the shares closed down on Tuesday, and have fallen 15 per cent since the bank was fined last week for its attempts to manipulate Libor. That leaves them trading on 0.4 times book value, a discount to rivals with similar combinations of retail and investment banking – BNP Paribas and Deutsche Bank trade on 0.5 times book value, while JPMorgan is on 0.8 times.""The question for investors is whether Barclays can close this and other gaps. Its 2011 return on equity was 5.8 per cent, well below the 8 per cent from BNP Paribas and Deutsche Bank and the 11 per cent from JPMorgan. If Barclays is to justify a higher valuation, it will have to improve its returns. This year started well, thanks partly to lower provisions in its well-regarded UK retail business. But the heavy lifting will have to come from the investment bank, which accounts for just over half of Barclays’ pre-tax profit."
The Short View (James Mackintosh) on reduced market volatility, July 3
"The S&P 500 has not yet had a daily move above 3 per cent, for the first time since 2006. Even the euro and eurozone equities have behaved well. Eurozone shares have moved more than 3 per cent only six times, against 40 last year. The euro is on course for its third-quietest year, with only nine daily swings of 1 per cent or more against the dollar, against 36 last year."Lex on Mexico's equities market, July 3
"The Mexican Bolsa index is at all-time highs after more than doubling since the financial crisis. And Mexico has undoubted potential. Average annual output growth of 1.9 per cent over the past five years is bottom-shelf tequila compared with sparkling Latin American peers. The question for investors now is whether this is already captured in share prices.""While headline valuations look OK, it is difficult to see where another sustained bull run is going to come from. For those who believe that market price/earnings ratios have predictive power (many studies suggest the opposite), Mexico’s forward p/e is rich, but not ridiculous, at about 15 times. But this multiple is being damped by telecommunications giant América Móvil, which accounts for about a quarter of the index. Four of the other companies in the top 10 have forward p/e ratios in the 20s or 30s. One, Cemex, is forecast to make losses this year."
On Ireland's debt market, July 3
"Investors in Irish government bonds have enjoyed total returns of more than 50 per cent since July 2011. Irish government benchmark nine-year bond yields have fallen to 6.35 per cent currently – the lowest levels since October 2010, a month before the country was bailed out – from record euro-era highs of 15.51 per cent on July 18 last year, sharply outperforming other peripheral debt markets."Asia
On market performance in China, July 4
"The Shanghai Composite is valued at 12 times last year’s earnings, within a whisker of its record low and half its long term average. Using forecast earnings for the current year, the index is also near all-time lows with a price to earnings ratio of 9.7.""So what’s going on? One problem is that Chinese corporate profits are falling. State-owned enterprises reported a 10 per cent decline in profits in the first five months, according to Andy Xie, an independent economist. But perhaps the bigger problem is that retail investors appear to have lost almost all faith in domestic Chinese stocks, known as A shares. Ever since a huge stock bubble burst in 2007, Chinese investors have shunned equities and instead flocked to the perceived safety of property, gold and fixed income products."
Miscellaneous
On the UK Army, July 6
"The British army has announced its largest overhaul in 50 years, proposing to cut its regular forces 20 per cent – to about half the size that it was at the height of the cold war era and the smallest it has been since the Napoleonic wars. Philip Hammond, defence secretary, announced on Thursday that over the next eight years, the army is to lose 17 of its 136 major units, prompting outcry at the loss of historic battalions."On the manufacturing sector, July 3
"US manufacturing activity contracted for the first time in three years, further denting confidence in a global economy that is already feeling the effects of the eurozone debt crisis and China’s economic slowdown. In a shock to economists who were expecting manufacturing growth to slow moderately, the Institute for Supply Management’s survey on the US industrial sector reported a large decline in activity from 53.5 in May to 49.7 in June – its lowest level since the recession ended in mid-2009.""The weak ISM data came after purchasing managers surveys showed China’s industrial sector expanded at its slowest pace in seven months, while eurozone manufacturing also remained stuck at its weakest level in three years. 'A significant part of the weakness looks to be trade contagion,' said Alan Ruskin of Deutsche Bank. Eurozone manufacturing activity has contracted each month since August 2011. In Germany, the eurozone’s largest economy, the index for June showed manufacturing activity shrinking at its fastest pace since June 2009."
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