Japan's benchmark Nikkei index falls 2.5 percent on renewed concerns of the credit market turmoil.
Asian markets fell sharply Monday after Wall Street declined at the end of last week on renewed concerns about U.S. mortgage problems. European markets, however, were mixed in early morning trade.
Basically, the subprime loan issue still drags on, and there is no prospect of what can end the problem, said Shinichi Ichikawa, chief strategist at Credit Suisse of the falls in Asian markets.
Major banks warned last week of further losses in their debt portfolios, raising investor concerns that the credit market slump isn't abating.
Japan's benchmark Nikkei 225 index fell 2.5 percent, and Hong Kong's Hang Seng dropped 3.9 percent. In South Korea, the Korea Composite Stock Price Index, or Kospi, fell 3.4 percent.
Both the Hang Seng and the Kospi fell more than 4 percent during intraday trade, and the Nikkei dipped below 15,000 points for the first time since July 2006.
As for the U.S. economy, the risk of recession is increasing toward the next year amid the lingering subprime loan problems, which, combined with higher oil prices, prompted players to sell the dollar, Ichikawa said.
Japanese traders sold exporter issues on the strengthening yen, which is at its highest levels against the dollar in 18 months.
Automaker Honda Motor Co. fell 3.58 percent and rival Toyota Motor Corp. shed 2.76 percent. Sony Corp. dropped 2.61 percent.
A stronger yen makes the exporters' goods less competitive overseas and cuts into their foreign earnings.
In Hong Kong, bank HSBC shed 2.8 percent on subprime exposure woes.
Chinese financial shares were also lower after China's central bank raised the reserve requirement for banks by 50 basis points to 13.5 percent at the weekend in another of its money-tightening measures.
Bank of China fell 3.9 percent. China Construction Bank fell 4.4 percent. ICBC fell 5.0 percent.
Meanwhile, European markets opened mixed early Monday, with Germany's DAX down 0.2 percent, France's CAC 40 down 0.1 percent and Britain's FTSE 100 up 0.7 percent.
In other Asian markets, shares tumbled as well. The Shanghai composite index lost 4.7 percent amid unconfirmed rumors the China Securities Regulatory Commission recently ordered funds to hold off on aggressive buying.
The benchmark indices lost ground in Australia, the Philippines, Taiwan and Thailand.
The dollar was trading at 110.41 yen, down from 110.07 yen late Friday in New York. The euro fell to $1.4646 from $1.4673.
On Friday, the Dow Jones industrial average fell 1.7 percent to 13,042.7
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Monday, November 12, 2007
Asian markets fall sharply on subprime fears
Thursday, October 18, 2007
China's market capitalisation swells to $3.37 trillion, emerges world's fourth largest
China has emerged fourth in the world in equity market capitalisation with a volume of 25.32 trillion yuan ($3.37 trillion) as of September 30 this year, accounting for about 5.7 per cent of the world's total.
A total of 1,517 companies went public on the stock markets of the mainland by the end of September, official media said.
The overall volume at Shanghai and Shenzhen bourses was around 4 trillion yuan at the end of 2002, ranking China the fourth largest in Asia, data furnished by a delegation of the central financial authorities to the ongoing communist party congress showed.
China's equity markets raised a total of 425.04 billion yuan ($56.7 billion) through initial and secondary public offers in the first nine months of this year, surpassing the combined funds from 2002 to 2006, the China Securities Journal reported.
In September alone, money raised through 15 initial public offers (IPO) amounted to 149 billion yuan, or half of the money raised through IPOs so far this year. China Shenhua, the nation's biggest coal producer, raised 66.58 billion yuan from IPO, refreshing the 58.05 billion yuan record set by the China Construction Bank.
China securities regulatory commission chairman Shang Fulin cited shareholder reform initiated in 2005 to float non-tradeable state owned shares, tighter market supervision on insider trading and the clean-up of the securities sector as factors leading to the bull run on the stock market.
He said the stock market is playing a better part acting as a barometer of china's economy.
Institutional investors control 46 per cent of the market equity, reports quoted Shang as saying.
The market was also driven by sufficient liquidity, rapid economic growth and the return of heavyweight state-owned enterprises from overseas bourses to domestic share markets.
Tuesday, October 9, 2007
Carbon Trading - India Story
what is Carbon Trading?
Carbon Trading provides a way to reduce greenhouse gas emissions on an industrial scale by capping total annual emissions and letting the market assign a monetary value to any shortfall.
Let’s rewind to the Kyoto Protocol of 1997 by which all countries are required to reduce their greenhouse gas emissions by 5% from 1990 levels in the next ten years, ie 2008 and a subsequent 5 year review period until 2012 or pay a price to those that do. The idea was to make developed countries pay for their wild ways with emissions while at the same time monetarily rewarding countries with good behaviour in this regard. Since developing countries can start with clean technologies, they will be rewarded by those stuck with ‘dirty’ ones. Say a company in India can prove it has prevented the emission of x-tonnes of carbon, it can sell this good carbon-karma to a company in say, the US which has a bad karma. An environment-fundamentalist may say it’s all a bit like an indulgent epicure paying someone else to diet for him, but then that’s another story. Right now, there is a market opportunity for India but only till 2012. Closer to that clean-up date prices of carbon credits will rise and in the years leading up to it there will be a scramble to buy credits cheap. The World Bank has built itself a role in this market as a referee, broker and macro-manager of international fund flows. The scheme has been entitled Clean Development Mechanism [CDM] in 2000. Or more commonly, Carbon Trading.
How buying carbon credits attempts to reduce emissions?
Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. This means that carbon becomes a cost of business and is seen like other inputs such as raw materials or labor.
By way of example, assume a factory produces 100,000 tonnes of greenhouse emissions in a year. The government then enacts a law that limits the maximum emissions a business can have. So the factory is given a quota of say 80,000 tonnes. The factory either reduces its emissions to 80,000 tonnes or is required to purchase carbon credits to offset the excess.
A business would buy the carbon credits on an open market from organizations that have been approved as being able to sell legitimate carbon credits. One seller might be a company that will plant so many trees for every carbon credit you buy from them. So, for this factory it might pollute a tonne, but is essentially now paying another group to go out and plant trees which will, say, draw a tonne of carbon dioxide from the atmosphere.
As emission levels are predicted to keep rising over time, it is envisioned that the number of companies wanting/needing to buy more credits will increase, which will push the market price up and encourage more groups to undertake environmentally friendly activities that create for them carbon credits to sell. Another model is that companies that use below their quota can sell their excess as 'carbon credits.' The possibilities are endless hence making it an open market.
Carbon credits and it's benefit to India
India being a developing country, is a major beneficiary of the carbon credit market. Indian companies have a strategic advantage as the cost of emission reduction in India is very low as compared to the developed countries. The many projects initiated by Indian companies after January 1, 2000, in diverse areas such as energy efficiency, co-generation, natural gas, alternative auto fuels and hydel power, will also add to the country’s dominance as a large seller in the carbon credit market.
Indian companies have mainly concentrated on renewable energy (biomass, wind power, etc.) or waste heat recovery projects that generate much less certified emission reductions (CERs) compared with the Chinese who have several projects in high CER-yielding HFC23 projects. Companies investing in windmills, Bio-Diesel, Co-Generation, Bio-Gas are the ones that will generate Carbon Credits for selling to the developed nations.
Figure above depicts some of the top Indian carbon traders
Sunday, October 7, 2007
Can Fed support another rate cut?
Global equity markets, especially emerging markets, have surged to lifetime highs after last month's US Fed rate cut. But many of these markets are close to bubble territory while investors are ignoring the growing risks.
Ben Bernanke did what any sensible central banker would do when faced with demand slowdown in the economy. Size of a rate cut is always debatable, but it is well accepted that such measures should surprise if monetary policy is to be effective. A full-blown crisis in the financial markets and tight liquidity would have worsened the already weak outlook for the US economy.
Nobody likes a recession, not even central bankers, especially ahead of a presidential election. As a columnist said in the Financial Times yesterday, "in democracies bad stuff is outlawed" if politicians want to be re-elected.
But a large interest rate cut is like giving first aid to an accident victim, which in this case is the US economy. First aid is delivered without knowing or checking the full extent of injuries and it is often difficult to predict whether the patient's condition will improve. All that is known is that the victim is injured and will take some time to recover.
If the economy is weak, with increasing risks of it turning even weaker, and emergency support has been given in the form of an interest rate cut, why are markets so bullish? Strange as it may sound, but it is because conditions may get even worse and more rate cuts may follow!
Rate cuts bring the omnipotent force called liquidity into the markets and everyone will be happy and more prosperous. Declining corporate performance in a weak economy and soaring stock valuations be damned.
On the other hand, The Federal Reserve's decision last month to cut interest rates by a larger-than-expected half-percent point sent the already-weakening dollar to an all-time record low against a basket of six major currencies. In the third quarter, the euro appreciated more than 5% against the dollar, most of the gains coming in September alone.
Weakness in the dollar means prices of imported goods, particularly oil, will go up, raising the risk of inflation. American consumers will be paying more soon, with the looming threat of paying even more later on.
"The inflation risk from higher import prices will be the dominant initial effect," said Howard Chernick, an economics professor at Hunter College in New York. "The most immediate effect is imports denominated in dollars -- mainly oil. We already saw a spike in oil prices. So a bit down the line, that's 10 to 15 cents more per gallon of gas at the pump."
A weaker dollar can help narrow the U.S. trade deficit by making America's exports more affordable abroad.
Yet it could also make funding those imbalances more difficult. The U.S. has to attract billions of dollars a day from foreign investors, and a weakening currency makes dollar-based assets less attractive because of the consequences it can have on their long-term value.
That fear of inflation came into focus on Friday when a top Fed official suggested policy-makers have already cuts rates enough, a view reinforced by fresh data showing U.S. employment grew at a steady clip in September.
Inflation, as the late economist Milton Friedman once wrote, is taxation without legislation. Rising prices rob consumers of purchasing power, destroying the value of their savings over time.
Inflation turns savers into losers, at a time when America desperately needs more savers to fund its imbalances -- particularly if foreign investment starts to taper off. But fears of rising prices will keep consumers cashing their paychecks and heading to the mall, rather than depositing the funds in accounts whose returns might lag the inflation rate.
Having said this, What if Ben Bernanke decides that financial markets have partied enough, and decides to focus more on his pet peeve — inflation? Then he may hike interest rates or keep them steady and the markets will be in for a huge disappointment. We all know what happens when markets are disappointed, especially when the indices are at lifetime highs — investors panic.
Let us wait to see what will Fed vote for a rate cut to save recession ahead of presidential election or to save inflation in the next meeting?
