Sunday, December 23, 2012

Economic Summary for the week ended 20th Dec 2012

China - The World Bank has raised its growth forecast for China, saying stimulus measures and approval of infrastructure projects will help boost growth.
It added that the pick-up in factory output and investment "suggested that China's economy was bottoming out". The bank said it now expects China's economy to grow by 8.4% in 2013, up from its earlier projection of 8.1%.
A slowdown in China's growth in recent months had prompted policymakers to announce various stimulus measures.
The bank also raised its forecast for the developing East Asia region, excluding China. The grouping, which includes Thailand, Philippines, Indonesia and Burma, is now projected to grow 5.7% in 2013, up from the previous forecast of 5.5%.
The bank said that the region was likely to benefit from Thailand's recovery from last year's floods and strong growth in the Philippines.
Outlook - With less than two weeks left in 2012 a recent survey suggests that half of people around the world think the global economy will improve in 2013 and many plan to ring in the New Year with family and friends and improve their finances and health.
The Ipsos poll released on Tuesday revealed that Indians, Brazilians and Indonesians were the most optimistic that the economy will improve next year, with more than three quarters having a positive outlook.
But less than a third of Belgians, Spaniards, French, Poles and Italians were confident the global economy will get better.
"There is a great amount of optimism for the future," said Keren Gottfried, research manager at Ipsos Public Affairs, adding that the number had jumped 8% since last year.
And while many still had doubts about the world economy, 80% of the 18,500 people questioned in 24 countries for the survey believed 2013 would be a better year for them personally.
Europe - The E.U. and Singapore have agreed a free-trade agreement (FTA), the second such deal between the 27-nation bloc and a major Asian trading partner.
Last year E.U./Singapore trade was worth approximately USD97bn.
Singapore is the second largest Asian investor in the E.U., after Japan. The E.U. Commission says the deal, not yet signed by politicians, will help E.U. exports of cars and financial services. The E.U. is Singapore's second biggest trade partner after neighbouring Malaysia. The plan is to initial the FTA in early 2013.
Europe - European stocks climbed to their highest level in 19 months on Wednesday, as German business confidence rose more than forecast and optimism mounted that U.S. policy makers will reach an agreement on next year’s budget (so-called ‘fiscal cliff’ discussions).
The EuroStoxx 600 index climbed 0.5%. The equity benchmark advanced to its highest level since May 2011 after Standard & Poor’s upgraded Greece’s debt. The gauge has rallied 15% this year as the European Central Bank (ECB) announced an unlimited bond-buying plan and the Federal Reserve began a third round of asset purchases.
“The market is still focused on the fiscal-cliff talks in the U.S., in which investors seem to expect an agreement relatively soon,” said John Plassard, vice president at Mirabaud Securities LLP in Geneva. “News such as the upgrade of Greece’s credit rating is positive, albeit not a big surprise, helping to continue a year-end rally. Sentiment at the beginning of 2013 will be cautious as we face some political risk.”
Spain - Bad loans as a proportion of total lending at Spanish banks climbed to a record 11.23% in October, as the country’s economic slump led more companies and homeowners to miss credit payments.
The proportion rose from 10.71% in September as EUR7.4bn of loans defaulted in the month, to take the total of doubtful credit in the banking system to EUR189.6bn, the Bank of Spain said.
Spain’s economic slump, now in its fifth year, continues to drive defaults to record highs as lenders report rising impairments of corporate, home and consumer loans as well as those linked to real estate. Doubts about the ability of Spain’s weaker lenders to withstand mounting impairments of loans linked to real estate helped push the country to seek a European bailout for its banking system in June.
“It’s clear that these levels of bad loans are going to keep rising,” said Juan Pablo Lopez, an analyst at Espirito Santo Investment Bank. “The flows of entries into default are still very high.”
Greece - Standard & Poor's has increased its rating of Greece's sovereign debt by six notches, following efforts by its eurozone neighbours to keep it in the currency union.
The ratings agency said there has been "strong determination" within the eurozone to help Greece remain a member state. S&P has increased Greece's rating from 'selective default' to 'B-minus'.
The agency also praised the continuing efforts by Greece's government to cut its spending. Greece is currently receiving the second of two bailouts.
Spotlight on: Current fund manager sentiment
More investors than ever say they are bullish about China’s economic outlook, and more favour European rather than U.S. stocks for the first time in two years, a Bank of America monthly survey showed.
67% of money managers, who together oversee USD503bn, predicted that China’s economy will grow at a faster rate next year, the highest reading since the survey data started in 2003. Some 7% hold more European stocks than appear in benchmarks, the poll showed.
“Investor anxiety has been successfully sedated by central-bank liquidity policies in recent months,” Michael Hartnett, chief investment strategist at Bank of America’s Merrill Lynch unit, wrote. “Risk appetites are higher and hopes for economic activity have picked up, especially for Chinese growth.”
Optimism that the world’s second-largest economy will accelerate may help to offset concern that potential budget cuts and tax increases in the U.S. will curb global growth. A survey showed China’s manufacturing industry may expand for a second month in December, underscoring optimism the economy will recover following a seven-quarter slowdown.
40% of respondents said the global economy will improve, the highest reading in 22 months, while a net 11% said profits will increase, the most bullish result in 20 months.
U.S. Budget
The poll showed 47% of money managers rated America’s budget outlook as their top concern, compared with 22% who cited the euro area’s debt crisis. U.S. President Barack Obama and House Speaker John Boehner are trying to reach an agreement to prevent more than USD600bn in tax increases and spending cuts from coming into force in January.
Even as investors became more sanguine about global growth, allocations to equities remained unchanged from November, BofA said. Hedge funds were an exception, with net investment in shares jumping to 45%, the highest since August 2006.
“While bullish rhetorically, the lack of follow through in actual positioning suggests moderate conviction at best,” BofA said in the report to investors.
Average cash levels fell to 4.1% from 4.2% in November, BofA said. A net 41% said they hold fewer bonds than benchmarked, the lowest in eight months, whilst 5% said they hold more commodities than appear in indexes.
Overweight Europe
The share of respondents who said they are overweight in European equities) meaning they hold more of the region’s shares than are represented in global benchmarks), rose from 5% last month, the survey showed. Those saying they are overweight the U.S. fell to 5% from 11%, with the country falling behind Europe in investors’ favour for the first time since November 2010.
Investors remained underweight on Japan and the U.K., the survey showed. A majority are now under-invested in energy companies, for the first time since January 2009, BofA said.
A record high net 64% of respondents said companies are not investing enough, BofA said. A net 45% of investors now prefer companies to use idle cash to increase capital spending, the highest reading in 20 months, instead of paying back debt or returning it to shareholders.

Saturday, December 15, 2012

Economic Summary for the week ended 14th Dec 2012

China - China's economic growth rate may be gathering pace again, as the government released strong industrial output and retail sales figures.
Industrial production rose by 10.1% in November, compared with a year earlier, according to the official data from the National Bureau of Statistics. This was better than expected, and the strongest performance since March.
At the same time, China's retail sales increased by 14.9%. This was also the best showing for eight months.
"The Chinese economy is in the sweet spot now with rebounding GDP growth, rebounding earning growth and low inflation," said Lu Ting, China economist at Bank of America Merrill Lynch.
U.S. - Christine Lagarde has urged U.S. leaders to reach a deal to avoid the "fiscal cliff", warning that the uncertainty is damaging the global economy.
The head of the International Monetary Fund said that the U.S. had a duty "to try to remove uncertainty and doubt as quickly as possible".
The fiscal cliff refers to U.S. tax rises and spending cuts set to automatically come into force in January.
She added: "The U.S. is about 20% of the global economy. If the U.S. suffers as a result of the fiscal cliff, a complete wiping out of its growth, it is going to have repercussions around the world. If the U.S. economy has 2% less growth there will be 1% less growth in Mexico and China… there will be ripple effects outside of the U.S."
U.S. – Meanwhile, the U.S. Federal Reserve has said it plans to keep interest rates at close to zero at least until the U.S. unemployment rate falls below 6.5%.
The Fed previously had a date-driven target, rather than a data-driven one.
The Fed also said it will continue to buy $85bn a month of government bonds and mortgage-backed securities to try to boost the economy.
But changes in the way it does this will mean more money is pumped into the economy.
"The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labour market conditions," the Fed said in a statement.
Emerging Markets - Emerging-market stocks rose for a seventh day on Thursday, led by technology companies, and currencies strengthened after the U.S. Federal Reserve expanded its bond- buying program and the outlook for display makers improved.
“There is optimism that a global economic recovery will boost consumer demand and that is driving technology stocks higher,” Gopal Agrawal, chief investment officer at Mirae Asset Global Investments (India) Pvt. in Mumbai, said. “Emerging-market equities have run up quite a bit now and investors will keenly watch the U.S. fiscal-cliff negotiations and corporate performance in the upcoming earnings season for more cues.”
The MSCI Emerging Markets Index has advanced 14% this year, compared with a 13% increase in the MSCI World Index.
Europe - The European Union reached a landmark deal on Thursday to make the European Central Bank the bloc's top banking supervisor, giving E.U. leaders greater confidence that they are gaining the upper hand over the euro zone's debt crisis.
E.U. finance ministers forged a deal on the single supervisor in the early hours of Thursday after lengthy talks. Leaders will give their stamp of approval at a summit starting later in the day, their last of 2012, and also discuss closer fiscal ties for their troubled currency area.
After a year of crisis management, during which Greece had a close brush with the euro zone exit, getting an agreement on the first stage of a banking union is a victory for the E.U. and represents a bold step towards pooling sovereignty.
Japan – Revised growth figures for Japan have suggested that the world's third-largest economy is in recession.
The economy shrank by 0.9% in the July-September quarter, while the April-June quarter was revised from 0.1% growth to show a contraction of 0.03%.
That means that Japan is technically in recession, having contracted for two quarters in a row.
Spotlight on: Equity outlook in to 2013
Dominic Rossi, chief investment officer of equities at Fidelity, presents the case for and against a strong run for the asset class next year, and highlights the sectors and regions he expects to shine.
Next year will be another challenging and event-driven one for equity investors to negotiate. Markets face a number of risks with binary outcomes, not least the imminent fiscal cliff facing the U.S. economy.
While the prospects for earnings growth in most developed equity markets are now more modest, a positive case can be made for a re-rating of equities, yet this is dependent on progress being made against some powerful headwinds.
The positive case for equities rests on three supportive factors:
  • Equity valuations are reasonable relative to history, with price/earnings (PE) ratios of around 13 to 14 times trailing 12-month earnings. While this is not extremely low, the relative attractions of equities are enhanced when valuations are compared with sovereign and investment grade bonds.
  • We have seen sustained outflows from equities in the last few years, so much so that institutional levels of equity ownership are now at 30-year lows. Equities are an unloved asset class and there is growing scope for a reversal of this trend.
  • Volatility has subsided. I have always believed a reduction in volatility is a prerequisite to any re-rating in equities. Encouragingly, the VIX (a broad index measure of market volatility) has fallen back to around 15%, having remained below 20% since July.
  • While these factors make a re-rating possible, there are some considerable hurdles to be overcome that could prevent it. In my view, there are three key risks facing equity markets in 2013:
  • Lack of a resolution to the U.S. fiscal cliff would throw the U.S. and global economies into recession. The likelihood of going over the cliff, and detracting around 4% from GDP, is being underestimated given the ideological divide in Congress.
  • The economic, sovereign and banking crisis in Europe remains unresolved despite central bank promises having had a favourable impact. With politics in peripheral countries becoming radicalised, there is the potential for more flare-ups. Unfavourable debt dynamics and poor economic fundamentals suggest further deterioration is likely.
  • Geopolitics, particularly in the Middle East, could pose a significant and unpredictable risk in 2013, this being the year that the confrontation between Israel and Iran over nuclear facilities is likely to come to a head.
  • So what can investors do? With government bonds failing to provide a store of value after inflation, investors will continue to search for yield, particularly in short-duration assets.
    In this respect, equity income remains an attractive story given the dividend yields available on equities compared with government bonds.
    In Europe, investors can expect yields of around 3% to 4%, except in financials where many dividends have been scrapped.
    Balance sheets are healthy, cash-flow is solid and payout ratios are low with scope to grow. I think we will see earnings and dividend growth of 4% to 5% in 2013, particularly at large high-quality companies.
    So, if you combine 3% to 4% dividends and estimated growth of 4% to 5%, we can generate attractive total returns of 7% to 8%, which should support further flows into equity income funds.
    In terms of sectors, I expect the leadership we have seen over the last year to continue. Quality will remain a powerful theme and stocks with high returns on invested capital will continue to attract a premium.
    I think selected healthcare, technology and consumer stocks remain attractive. There are high-quality stocks available with strong franchises benefiting from structural tailwinds; many of these are also returning cash to shareholders, such as Nestlé, Unilever, and Sanofi.
    With these strong multinational companies, investors can be fairly confident that they will get their money back and in the meantime, they receive a higher income than they would from investing in sovereign bonds. Some pharmaceutical companies are on single-digit PE ratios despite having among the highest returns on capital.
    Among technology companies too, there is good scope for dividend growth: some of the large technology stocks have matured into stable, lower-growth businesses that offer attractive total returns.
    While the estimated 3.5% yield on Microsoft may seem a little low, this is covered about four times by cash. This means that it has the potential to grow dividends in the future significantly ahead of earnings.
    The Chinese economy is well placed to have a rebound in 2013; inflation has been brought under control and the leadership transition is now out of the way, suggesting policy can be accommodative. Investors appear to have discounted economic growth rates in the 6% to 8% range and the market should perform relatively better now that these headwinds have passed.
    In developed markets, the U.S. looks attractive if the fiscal cliff can be successfully navigated. The housing market is recovering, which is a key bellwether for the broader economy, and consumer confidence is also picking up.
    In energy, the U.S. could become the largest producer of both gas and oil thanks to the exploitation of its shale reserves. But it is the broader effect of cheap energy costs on the economy that is particularly supportive; this will give the U.S. a competitive advantage among advanced economies and play a central role in the renaissance of U.S. manufacturing.

    Friday, December 7, 2012

    Economic Summary for the week ended 4th Dec 2012

    U.S. – U.S. output per worker grew by its fastest rate since 2010 in the third quarter of this year, according to official data. The Labour Department said that productivity among non-farm workers rose by an annual rate of 2.9% in the third quarter of this year.
    The rise suggests companies are finding ways of getting employees to work harder, rather than hiring extra staff.
    Consumer spending remains weak in the U.S. and the output is being driven by companies building up stocks.
    India - India's government has won a crucial vote in parliament on its controversial plans to open the retail sector to foreign competition.
    After a two-day heated debate, MPs in the lower house approved the plan to allow foreign investment of up to 51% in multi-brand retail.
    Parliament, which was deadlocked over the issue, resumed business this week after the government agreed to a vote.
    It is hoped that the agreement will help the government push ahead with further economic reforms.
    Argentina - Fitch has downgraded the credit rating of Argentina and admitted the country will probably default.
    The ratings agency has cut its long-term ratings for Argentina by five notches from B to CC and its short term rating from B to C.
    Argentina is appealing against a U.S. ruling ordering it to pay $1.2bn to foreign creditors holding bonds that it defaulted on in 2001. The government has until 15 December to reimburse the hedge funds, which declined two previous debt swaps. Argentina defaulted on $100bn of bonds in 2001, a record amount at the time.
    Companies - Apple Inc. plans to spend more than $100mn next year on building Mac computers in the U.S., shifting a small portion of manufacturing away from China, the country that has handled assembly of its products for years.
    “Next year we’re going to bring some production to the U.S.,” Chief Executive Officer Tim Cook said in an interview. “This doesn’t mean that Apple will do it ourselves, but we’ll be working with people and we’ll be investing our money.”
    Apple, which until the late 1990s made and assembled many products in the U.S., moved manufacturing to Asia to take advantage of the region’s lower labor costs. The planned investment makes up a fraction of Apple’s $121.3bn in cash, and probably won’t significantly affect profit margins. Still, it reflects pressure on companies to create even a modest number of domestic jobs as the unemployment rate hovers near 8% and the economy rebounds from the recession that ended in 2009.
    Europe - European stock markets hit fresh 2012 highs on Thursday and some traders eyed more rallies after equity indexes broke key resistance levels.
    Technical analysts said the fact that the Euro STOXX had at one stage managed to clear the 2,610 level pointed to more potential rallies, provided it could close above that level.
    "The potential for this symbolic formation which has been building for about a year now extends out to next spring, and could see the index climbing towards the 3,000 points zone, or 15% plus upside," said Societe Generale chartist Loic De Galzain.
    Greece - Greece is perceived to have the most corrupt public sector of all 27 EU countries, a new global survey reveals.
    Worldwide, Denmark, Finland and New Zealand were seen as the least corrupt nations, while Afghanistan, North Korea and Somalia were perceived to be the most corrupt.
    Transparency International's 2012 Corruption Perceptions Index gathered views on 176 countries worldwide.
    Greece's global ranking fell from 80th in 2011 to 94th in 2012, reflecting the country's continuing economic turmoil and widespread tax evasion.
    "Governments need to integrate anti-corruption actions into all public decision-making", said Huguette Labelle, chair of Transparency International (TI), a body set up in 1993 to expose and tackle countrywide corruption.
    Germany - German factory orders surged almost four times as much as economists forecast in October, driven by foreign demand.
    Orders, adjusted for seasonal swings and inflation, jumped 3.9% from September, the Economy Ministry in Berlin said. It revised September’s drop to 2.4% from 3.3%. The increase in October is the biggest since January 2011.
    “The music is playing outside the euro region, where the label ‘Made in Germany’ is enjoying everlasting popularity,” said Mario Gruppe, an economist at NordLB in Hanover. “That’s good news for the economic outlook. We’re in for a cold winter but not a recession.”
    Spotlight on: Commodity views in to 2013
    Gold, silver and corn will outperform other raw materials next year as a weaker dollar and rising investor demand bolster precious metals while supply curbs aid grains, Morgan Stanley said this week, listing top picks for 2013.
    Silver will track gold, which is poised to gain on low real interest rates, buying by central banks and geopolitical uncertainty, analysts including Peter Richardson and Hussein Allidina wrote in a report, reiterating an October call. Corn and soybeans should benefit from harvest delays in South America, they said. The bank is bearish on aluminum, sugar, nickel and uranium as supplies are set to outpace demand.
    Commodities as tracked by the Standard & Poor’s GSCI Spot Index are down 0.4% this year, led by declines in coffee, cotton and sugar. The gauge almost doubled in the three years to 2011 as central banks and governments around the world took action to boost their economies dented by the global financial crisis in 2008. Morgan Stanley joins Goldman Sachs Group in predicting the so-called super-cycle isn’t over.
    “Higher prices in recent years have brought both a supply and demand response, bringing many to call for the end” of the super-cycle, they wrote. “We view this as too simplistic. Commodities are cyclical but the elasticity of supply and demand, as well as the length of the cycle, vary significantly.” Gold may average $1,853 an ounce in 2013, while silver may be $35 an ounce, Morgan Stanley said. That compares with gold’s average of $1,668 so far this year and $31.1542 for silver.
    Overweight Call
    Goldman reiterated an overweight call on commodities, on Wednesday, forecasting prices will return 7% in 12 months, Jeffrey Currie, head of commodity research, wrote in a report.
    “With commodity-supply constraints easing, Chinese growth slowing and producer-company returns normalizing, it is tempting to say the super-cycle is over”, Currie wrote. “Current developments are simply the next phase of a commodity-investment cycle that began in the late 1990s. We therefore view the current transition as a renaissance, rather than an end.”
    Goldman, backing crude, corn and copper, expects gold to peak in 2013 on a recovery in the U.S. economy. In contrast, Morgan Stanley called for higher prices on low nominal and negative real interest rates, as well as risks in the Middle East and central-bank buying. So-called negative real interest rates describe savings rates that are lower than inflation.
    Central Banks
    Spot gold, up 8% in 2012, is rallying for a 12th year as central banks join investors buying bullion to diversify assets. South Korea, Brazil and Russia are among those adding to gold reserves this year. Holdings in exchange-traded products are at a record, data compiled by Bloomberg show.

    Thursday, November 29, 2012

    Economic Summary for the week ended 29th Nov 2012

    Trends - Equities were the highest-selling asset class for the second month in a row in October, according to U.K. Investment Management Association (IMA) figures, suggesting that risk appetite among investors is increasing on the back of the recent market upswing.
    The month saw net retail sales of £924m, compared with just £655m in October last year.
    Equities drew in the most, with £550m, the asset class's highest inflows since April. Equities have experienced average monthly outflows of £9m over the last 12 months.
    Fixed income remained the second best-selling asset class, with inflows of £336m, up from September. Global Emerging Markets helped to drive equity inflows, becoming the top-selling sector for the first time on record, followed by UK Equity Income.
    China - The U.S. has decided not to declare China as having manipulated its currency to gain an unfair trade advantage.
    But the Treasury did say that China's currency, the yuan, remains "significantly undervalued" and urged China to make further progress.
    In its semi-annual report, it said Beijing did not meet the criteria to be termed a 'currency manipulator', which could have sparked U.S. trade sanctions.
    "The Chinese authorities have substantially reduced the level of official intervention in exchange markets since the third quarter of 2011, and China has taken a series of steps to liberalise controls on capital movements, as part of a broader plan to move to a more flexible exchange rate regime," the U.S. Treasury said.
    Global - Decisive policy action is needed to ensure the world is not "plunged back into recession", according to the OECD.
    The Organisation for Economic Co-operation and Development, which represents the world's richest nations, also lowered its growth forecasts.
    The group's economies will grow by 1.4% next year, rather than the 2.2% forecast in May, it said. "The U.S. fiscal cliff, if it materialises, could tip an already weak economy into recession, while failure to solve the euro area debt crisis could lead to a major financial shock and global downturn."
    U.S. - Meanwhile, three out of four global investors expect President Barack Obama and congressional leaders to reach a short-term agreement to avert more than $600bn in spending cuts and tax increases scheduled to begin on Jan. 1.
    Only 6% of investors anticipate a political impasse that would send the U.S. economy over the so-called fiscal cliff and into a recession, according to a Bloomberg Global Poll.
    “Both sides understand the importance of striking a deal, increasing taxes and cutting entitlements,” says Richard Salerno, director of fixed income for Kovitz Management Corp. in Chicago. “The market just wants to know the rules going forward so they can move on and begin to lift us out of our fiscal mess.”
    Brazil - Brazil's economy is expected to have grown at an annualized rate of 4% or higher in the third quarter and is on track to maintain this pace though next year and into 2014, said Brazil Finance Minister Guido Mantega, on Wednesday.
    Mr. Mantega said the economy was likely to have grown between 1% and 1.3% during the third quarter from the second, and is likely to expand at a similar pace in the fourth quarter, the report said. "We will close 2012 with an economy in recovery and growth mode," Mr. Mantega was quoted as saying in the report. "We will enter 2013 with a growth rate of 4% and we will maintain this through 2013 and 2014."
    Greece - Eurozone finance ministers and the IMF reached a deal on an urgently needed bailout for debt-laden Greece on Tuesday.
    They have agreed to cut debts by €40bn and have paved the way for releasing the next tranche of bailout loans, some €44bn.
    The breakthrough came after more than 10 hours of talks in Brussels. It was the eurozone's third meeting in two weeks on Greece. The deal opens the way for support for Greece's teetering banks and will allow the government to pay wages and pensions in December.
    Greece's international lenders have agreed to take steps to reduce the country's debts, from an estimated 144%, to 124% of its gross domestic product by 2020.
    Commodities - Gold rebounded from the biggest drop in more than three weeks on Thursday, as investor holdings expanded to a record high and optimism returned that the so-called fiscal cliff in the U.S. will be avoided, hurting the dollar.
    Treasury Secretary Timothy Geithner meets with congressional leaders on Thursday to discuss how to head off the combination of tax increases and spending cuts that may be implemented in January.
    “The whole environment around the fiscal cliff is very uncertain,” said Bjarne Schieldrop, the Oslo-based head of commodity research at SEB AB. “The fiscal cliff will be on and off every other day. Most likely it won’t be resolved before the first quarter, but I think that the general direction for gold will be up. Record ETP holdings and central bank buying are giving good support to the sentiment.”
    Gold for immediate delivery rose 0.2 percent to $1,723.16 an ounce on Thursday.
    Spotlight on: Wealth managers poised to buy Japan on post-election hopes
    The election of Shinzō Abe as Japanese prime minister could be the catalyst for the region to outperform after years of flagging returns, prompting asset allocators to review their underweight exposure to the country.
    Liberal Democratic Party of Japan (LDP) leader Abe has voiced his intention to force the Bank of Japan into a more aggressive monetary policy and target an inflation rate of 3% if elected in snap elections in December.
    Markets have responded well with the Nikkei 225 up 3.95% over the past month, compared to the FTSE 100’s loss of 1.84% and the S&P 500 down 2.94%.
    The leadership contest, as well as other factors, has caused Jim O’Neill, chairman of Goldman Sachs Asset Management, to say Japan’s “moment is here”.
    “The 3% inflation target is the sort of thing many were advising Japan in the mid to late 1990s when so many people mistakenly lost a lot of money betting against the yen,” he said.
    “Go get all those guys out of retirement as the time has probably come. The outlook for the yen is highly asymmetric. It could either waffle around, or could decline sharply in coming months. It is, in my opinion, the most interesting macro thing out there.”
    Wealth managers and multi-managers have also said developments in Japan are “interesting” and have prompted them to review their positions.
    Guy Foster, senior fund analyst at Brewin Dolphin, said a 3% inflation target would be one of the highest targets in the world.
    “The yen has been selling off and Japanese equities are up month-to-date,” he said.
    “On the whole we are more positive. We have nothing in Japan at the moment but we are looking at adding to this.”
    Robert Burdett, co-multi-manager head at Thames River Capital, said he is revisiting his neutral position.
    “Our next direction is more likely to add rather than to take away from our holdings. If the LDP get back in and achieve aggressive monetary policy we would be bullish. The valuations have been compelling and on most measures the market is the cheapest it has ever been” he said.
    Aberdeen Asset Management’s Aidan Kearney said the multi-manager range he co-runs is already slightly overweight Japan, relative to the peer group.
    “We hold around 2% in our Cautious Managed fund and 6% in Equity Managed. We recognise Japanese equities are cheap and it has world market leaders in some sectors.
    “It looks like the LDP will come back into power. It gives more fuel to the fire for more policy support and the expectation of this has led to strength in the market.”
    Adding to Japanese exposure is also favoured by managers as a form of downside protection. Brewins’ Foster said Japanese equities are “becoming an uncorrelated asset in the right way” as they are moving in the opposite direction to most other markets.

    Saturday, November 17, 2012

    Economic Summary for the week ended 15th Nov 2012

    Italy - Italy sold three-year bonds at the lowest rate in more than two years on Wednesday and the Treasury took advantage of growing demand for the country’s debt to auction securities with a maturity longer than 15 years.
    The Rome-based Treasury sold €3.5bn of its benchmark three-year bond to yield 2.64%, less than the 2.86% at the last auction of the same securities on Oct. 11. The Treasury also auctioned €1.5bn of debt due in 2023 and one in 2029, the first sale of a security with a maturity of more than 15 years since May 2011.
    “The resilience of Italian debt to the recent deterioration in market sentiment is quite remarkable and stems entirely from the signaling effect of the ECB’s new bond-buying program,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “This is the longest period of relative calm in Italy’s bond market since the crisis erupted in July 2011.”
    Europe - Workers across the European Union (E.U.) are staging a series of protests and strikes against rising unemployment and austerity measures this week.
    Organisers of the strike are urging national leaders to abandon austerity measures and address growing social anxiety. Strikes are expected in Spain, Greece, Portugal and Italy, with other protests planned in Belgium, Germany, France and some eastern E.U. states.
    Airlines across Europe have been cancelling and rescheduling flights. Spain and Portugal have been particularly hit, airlines are recommending passengers to check the schedules before travelling to airports.
    China - Global fund managers’ confidence in the Chinese economy has reached a three-year high, according to the latest Bank of America Merrill Lynch fund manager survey.
    A net 51% of investors polled across Asia Pacific, global emerging markets and Japan believe that China’s economy will strengthen in the coming year, the highest reading since July 2009 and the largest single month increase since February 2009.
    European investment strategist at Bank of America Merill Lynch, John Bilton, commented: “While sentiment within Europe remains weak, rising allocations to global stocks tell us confidence in general is improving. The jump in China optimism shows how fast sentiment can turn around.”
    The survey revealed a growing appetite for equities with exposure to emerging markets, especially China.
    U.S./Commodities - The U.S. will overtake Saudi Arabia as the world's biggest oil producer "by around 2020", an International Energy Agency (IEA) report has said.
    The IEA said the reason for this was the growth and development in the U.S. of extracting oil from shale rock, this has enabled the U.S. to gain significantly more extractable oil resources.
    The IEA predicts that the U.S. will be producing 11.1 million barrels per day by 2020, compared with 10.6 million from Saudi Arabia.
    It warns that the big growth in U.S. oil and gas production could have significant geopolitical implications, as it may make the U.S. less dependent on the Middle East.
    Trends - Hong Kong ended New York’s 11-year reign as the home of the world’s most expensive district for retailers as luxury-brand companies competed for space to sell goods to mainland Chinese tourists.
    Average annual rents at Causeway Bay on Hong Kong Island rose 35% to $2,630 per square foot at the end of June from a year ago, Cushman & Wakefield Inc. estimates. Hong Kong overtook Fifth Avenue in Manhattan, while Paris’s Avenue des Champs-Elysees rose to third in a global ranking of 326 prime shopping locations published by the real estate broker on Wednesday.
    “New York and Hong Kong are slugging it out at the top,” Mark Burlton, a London-based partner at Cushman’s cross-border retail team, said in an interview. “The Chinese customer is helping float a lot of ships across the world,” prompting luxury stores in the main global shopping destinations to hire Chinese-speaking workers, he said.
    Commodities - Gold will probably rally to a record above $2,000 an ounce next year as central banks ramp up stimulus to sustain the recovery, according to Raymond Key, London-based global head of metals trading at Deutsche Bank AG.
    “We’ll take out $2,000, we’ll go higher,” Key said whilst attending the London Bullion Market Association’s annual conference. “That’s on the view that they’ll continue to print money.”
    Spotlight on: Positive signs
    The ‘great rotation’ out of bonds and into equities has started to get underway, the latest Bank of America Merrill Lynch (BofAML) Fund Manager Survey suggests.
    The survey, which was carried out in early November, found asset allocators have increased their positions in equities over the past month while lowering their exposure to bonds. This is the fifth month running that this trend has been seen.
    A net 35% of global fund managers are now overweight equities, compared with a net 25% reporting this in last month’s poll. Meanwhile, a net 35% are underweight bonds, up from 26% one month earlier.
    Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch Global Research, said: “Momentum has gathered behind the idea that we are on the cusp of a ‘great rotation’ out of bonds and into equities. The only missing ingredient is a resolution to the U.S. fiscal cliff.”
    The U.S. fiscal cliff - a $600bn series of tax rises and government spending cuts that threatens to send the world’s largest economy back into recession - remains the biggest tail risk for asset managers, cited by 54% of the survey’s panel. This is up from 42% a month ago.
    But asset allocators’ optimism over the global economy outweighed the fear created by the fiscal cliff, with a 34% of respondents expecting the world economy to strengthen in the coming 12 months. After a monthly rise of 14%, this is the highest optimism in the global economy has been since February 2009.
    However, asset classes outside of equities showed little sign of benefitting from higher levels of risk taking. Allocations to commodities fell over the month, remained flat for real estate and rose by just two percentage points for alternatives.
    The BofAML Fund Manager Survey polled 248 panelists with $695bn of assets under management. It was carried out between 2 November and 8 November.
    The findings of the survey were further supported by TheCityUK research group, reporting that the amount of money managed by the global fund management industry rose by 5% over the year so far, reaching a record high.
    According to TheCityUK’s latest Fund Management Report, conventional assets under management (AUM) across the globe increased to $84.1trn by the end of September. They are now 13% above the pre-crisis record.
    Raquel Hughes, strategy director at TheCityUK, said: “On the whole, the global fund management industry has recovered quickly from the sharp fall in assets under management that occurred at the outset of the credit crisis.”
    The report, which is sponsored by Cannon Place, also predicted total funds will reach $85.2trn by the end of 2012. But looking at the gains for the year so far, Hughes said: “Most of this recovery has come from market performance rather than new inflows.”
    The U.S. was found to be the large store of AUM, accounting for almost half of assets. The U.K. came in second place with 8% of the total, followed by Japan.
    Pension assets were shown to account for almost 40% of global funds, with the remainder divided equally between mutual and insurance funds. When alternative assets and funds of wealthy individuals are included, total assets across the globe are around $120trn.
    “We have found that the longer term effects of the economic slowdown include more cautious investment strategies and more diversification across asset classes and geographical regions,” Hughes added.

    Sunday, November 11, 2012

    Economic Summary for the week ended 9th Nov 2012

    China - China has reported encouraging economic data this week, indicating that growth in the world's second-largest economy may be rebounding. Industrial production, retail sales and fixed-asset investment all rose more than expected in October, from a year earlier.
    Meanwhile, the inflation rate fell, giving room to policymakers to employ stimulus measures to support growth. The numbers come as China's growth rate has hit a three-year low.
    Factory output rose 9.6%, while retail sales jumped 14.5%, indicating that domestic demand was holding up.
    China - China's President Hu Jintao has said the country will deepen its economic reforms and boost domestic demand to spur a new wave of growth. Opening the Communist Party congress, Mr Hu added that China needed to work towards a more "market-based" exchange rate for the yuan.
    "We should step up efforts to transform to a new growth model and work hard to improve the quality and efficiency of the economy," Mr Hu said. "We will continue to deepen our economic system reform and stick to the policy of expanding domestic demand."
    U.S. - The U.S. trade deficit has fallen to its lowest level in almost two years, as exports reached an all-time high, official figures have shown. The deficit in goods and services narrowed to $41.5bn in September, raising hopes of increased strength in the U.S. economy.
    The figure was 5.1% lower than August's $43.8bn deficit and the lowest since December 2010. Exports rose 3.1% to $187bn, driven by sales of aircraft and heavy machinery. Imports also increased in September, rising 1.5% to $228.5bn, led by consumer goods, clothing and toys.
    U.S./Greece – U.S. markets posted heavy losses for the second successive day of trading on Friday, amid fears Greece is set to default on a EUR5bn debt payment due next week. According to the Financial Times, Greece, which was granted a EUR174bn bailout by the European Central Bank, is struggling to meet the EUR5bn debt obligation.
    With Greece stalling, eurozone leaders now face a new round of negotiations on how to reduce Greece's high debt levels.
    As well as worries in Europe, U.S. lawmakers warned growth in the world's largest economy would drop by 3% next year if the Bush-era tax cuts are not maintained or extended.
    Europe - The European Commission has sharply cut its growth forecast for the eurozone, warning that the "difficult process of rebalancing will last for some time".
    It now projects the bloc will narrowly avoid recession next year, growing by 0.1%, compared with its previous estimate of 1% growth, and thinks the EU economy will shrink this year. Unemployment would also continue to rise next year, the Commission said.
    "Having been fixated on the U.S. election and the preferred market outcome of an Obama victory, the initial morning feel good bounce (has fizzled out), as markets quickly moved on to the next potential banana skin," said Michael Hewson at CMC Markets.
    Companies - Sony Corp, the Japanese electronics maker reeling from four straight annual losses, had its credit rating cut to the lowest investment grade by Moody’s Investors Serviceb this week, citing falling demand for its televisions and cameras.
    The long-term credit rating was cut one level to Baa3 from Baa2, Moody’s said in a statement on Friday, assigning a negative outlook. Sony, which unexpectedly reported a seventh straight quarterly loss earlier this month, had its short-term rating cut to Prime-3, also the lowest investment grade, from Prime-2.
    “Overall earnings will stay weak due largely to prolonged operating losses in TVs and mobile phones, as well as significant declines in earnings from digital imaging products and games,” Moody’s said in a statement. “The company is not expected to reduce debt significantly without resorting to cuts in capital expenditure or the sale of non-core assets.”
    Commodities - Gold traders are the most bullish in 11 weeks and investors accumulated record bullion holdings on speculation U.S. policy makers will add to stimulus following President Barack Obama’s re-election.
    Twenty-five of 33 analysts surveyed by Bloomberg expect prices to rise next week and three were bearish. A further five were neutral, making the proportion of bulls the highest since Aug. 24. Investors boosted assets in gold-backed exchange-traded products to an all-time high of 2,596 metric tons on Thursday, valued at $144.9bn, data compiled by Bloomberg show.
    Obama won the Nov. 6 election against Mitt Romney, who had criticized the Federal Reserve’s policies and said he’d replace Chairman Ben S. Bernanke, whose second term expires in January 2014.
    Spotlight on: What Obama’s re-election means for markets
    Barack Obama led the Democrats to victory in the U.S. elections this week, being appointed for a second four-year term as President, defeating his Republican opponent Mitt Romney.
    Despite a close contest that saw many predict Obama would lose out - thanks to the high unemployment, sluggish economy and polls suggesting a lack of confidence in his leadership - he managed to edge out the Republican nominee.
    Winning votes in Ohio and other industrial states in America were thought to have clinched the final vote for Obama, after the President announced he would bail out the Detroit car industry, to demonstrate economic fairness.
    Even though Florida's electoral vote are still undecided, Obama won by a comfortable margin with 303 votes to Romney's 206.,
    Asian markets barely responded to the news overnight as concerns over whether Obama and Republican-dominated Congress will be able to avoid a fiscal cliff, which will see nearly £375bn of tax increases and spending cuts his the U.S. economy in January.
    The Nikkei 225 index ended the day flat, down 0.03% to 8,973 points, the Shangahi index was flat and the Hang Seng made a gain of 0.28% to 22,006.
    President Obama's second successive election win is a positive for both bond and equity investors, industry commentators have said.
    Cormac Weldon, manager of the £2bn Threadneedle American fund, said: "President Obama has emerged victorious from one of the most polarised presidential campaigns of recent years.
    "But despite the electoral rhetoric, Obama knows his scope for manoeuvre in the face of the 'fiscal cliff' and the budget deficit is limited. He has little choice but to address these challenges (as would a President Romney) by raising taxes and cutting spending.
    "While markets may be volatile post-election, we believe over the longer term, U.S. equities will gain support from the fundamental strengths of the economy. America is benefiting from a revival in the housing market and an industrial renaissance based on relatively cheap energy supplies.
    "Mitt Romney had pledged to remove Ben Bernanke as chairman of the Federal Reserve and was opposed to quantitative easing, which has proven supportive of both equities and the housing market."
    Tim Drayson, an economist for Legal & General Investments, said the election result matched his expectation, even if it was a bit more conclusive than he had anticipated.
    "Attention now turns to the fiscal cliff, where a decision is really needed before Christmas. What we need is co-operation, but the political wrangling could get ugly.
    "We still expect fiscal tightening of around 2%, which will materially effect the economy," he said. Co-manager of the Henderson Horizon American Equity fund, Nick Cowley, said Americans have voted for the status quo.
    "Obama's victory does provide stability, particularly with respect to the Federal Reserve, and thus the risk of Romney meddling with Ben Bernanke's loose monetary policy can now be eliminated.
    "The recent quarterly earnings reports from U.S. companies have highlighted that the fiscal cliff is freezing the decision making process and thus holding back capital spending and new job creation. This runs the risk of derailing the positive progress that the U.S. economy is making, with notable signs of recovery in both the housing and auto sectors. Avoiding the fiscal cliff would allow this progress to continue and result in a compelling outlook for U.S. and global markets."
    Richard Lewis, head of global equities at Fidelity Worldwide Investment, said we will see some very intense negotiations pre-Christmas around the budget deficit and the negotiating stance of the two parties will start off poles apart.
    "After a lot of wailing and gnashing of teeth, we are hopeful of a budget agreement along the lines of the Bowles-Simpson proposal which is based on a ratio of 3-1 spending cuts versus tax increases. Q4 activity levels will be low as a result and this will be exacerbated by the impact of Hurricane Sandy.
    "On the basis that there will be a resolution before the first of January, we can expect a decent bounce-back in both economic activity and confidence early in the new year," he added.

    Sunday, November 4, 2012

    Economic Summary for the week ended 3rd November 2012

    U.S. - The U.S. economy grew by 2% during the third quarter, the U.S. Bureau of Economic Analysis has revealed in its first estimate.
    The growth in the economy was an improvement on the 1.3% GDP growth reported during the second quarter of the year.
    According to the Bureau of Economic Analysis, the economy benefited from positive contribution from personal consumption expenditure (PCE), federal government spending and residential fixed investment.
    Capital Economics chief U.S. economist Paul Ashworth says: "With less than two weeks to go before the election, the conspiracy theorists will be up in arms about the reported 9.6% surge in Federal spending, which contributed as much as 0.7% to overall GDP growth.
    U.S. - In addition to the unfortunate growing number of human lives claimed, the economic toll on the U.S. of Hurricane Sandy is still uncertain. Figures supplied to Citywire Global by Wells Fargo estimate that damage following the storm is likely to exceed $30bn, with only around $10-20bn of this figure likely to be insured.
    The actual economic activity through closer of businesses and Wall Street could amount to a further $50bn in loss.
    Brazil - Brazil is to grant a tax exemption to foreigners who buy mortgage-backed securities or invest in funds that purchase them, after sales of new debt supported by real estate loans fell almost 50% this year.
    The tax break only applies if proceeds of the debt are used on "investment projects" and the bonds have an average maturity of at least four years, Pablo Fonseca Pereira dos Santos, deputy secretary of economic policy at the Ministry of Finance, said in an interview from Brazil.
    The tax incentives are designed to develop local debt markets and help raise about 1tn reais ($493bn) for roads, factories and airports. Local long-term funding is provided mainly by the nation's development bank, known as BNDES. The government is seeking to develop the real estate and construction industries to boost employment as economic growth slows.
    India - India's central bank has kept interest rates unchanged, despite signs that the country's economy is being hit by a global slowdown. However, in an effort to boost lending, it cut the amount of money that banks need to keep in reserve.
    It said cutting the cash reserve ratio to 4.25% from 4.5% would inject 175bn rupees ($3.2bn) into the market.
    Critics have called for more stimulus measures, and the Indian rupee and stocks fell on the news on Tuesday.
    "There was definitely lot of expectations in the markets for a rate cut, but people will have to wait for some more time," said Srividhya Rajesh, fund manager at Sundaram Mutual Fund.
    South Korea - South Korean exports have risen for the first time in four months, raising hope that the economy could be starting to recover. Overseas shipments rose 1.2% in October from a year earlier, the Ministry of Knowledge Economy said on Thursday.
    South Korea, an export-led economy, has seen global demand for its cars, electronics and ships slump in recent months. Analysts, however, were cautious that the numbers heralded a recovery while the global economy was still struggling.
    "Until the U.S. overcomes the risk of a possible fiscal cliff [higher taxes coupled with spending cuts] and China decides to partake in more easing policy, trade will tread water," said Park Hyung-jung from Meritz Securities.
    Commentary - Bill Gross, who runs the world's largest mutual fund (a link to which is available via CO3 in both Hansard International & Hansard Europe) at Pacific Investment Management Co., said there is no evidence that investment is being spurred by the Federal Reserve's quantitative easing program.
    "All of the money being created and freed up is elevating asset prices, but those prices are not causing corporations to invest in future production," Gross wrote in a monthly investment outlook. Furthermore, lower interest rates are being used "to consume as opposed to invest," he said.
    Commodities - Slumping energy and metal prices sent commodities to their biggest monthly loss since May, lagging behind stocks, bonds and the dollar, as the global economy grew at the slowest pace since the 2009 recession.
    The Standard & Poor's GSCI Total Return Index (MXAP) of 24 raw materials fell 4.1%, erasing gains for the year. The MSCI All-Country World Index of stocks slid 0.6%, including dividends, while the U.S. Dollar Index slid 0.02%. Bonds of all types gave positive returns, according to Bank of America Merrill Lynch's Global Broad Market Index.
    Investor optimism dimmed as the International Monetary Fund cut its global growth forecast and the Federal Reserve said strains on the world economy present "significant downside risks." China reported the seventh straight quarter of slowing growth, while services and manufacturing in the 17-nation euro area last month contracted more than economists forecast.
    Spotlight on: Why investors cannot ignore political risk
    Investors who base asset choices simply on economic data could be making faulty decisions over the balance of risk and reward, according to one fund group, which views the global political outlook as increasingly unstable. Potential sources of risk include regime changes and even, some fear, a major war.
    Economic data is too shallow of an analysis of market trends and geographic risk/rewards, according to Hermes Fund Managers (a U.K. fund manager with GBP24.8bn of assets under management). Today's world is heavily influenced by the political stage - in both developed and emerging nations - and understanding the implications of political actions, is key to assessing value in asset classes and markets, the group asserts.
    In a paper published this autumn, Hermes chief executive officer and head of investment, Saker Nusseibeh, notes it has been at least two generations since investors actively looked at the problem of political risk in the context of developed markets."They need to start."
    "Today, growing unrest brought on by anger over austerity, worries about resource scarcity and threats of increased taxation has refocused attention on national problems as opposed to international concerns. In such an environment politics can have as much impact on the attractiveness of different markets as GDP figures,"he says.
    Keith Wade, chief economist at Schroders, says the long period of political stability in the West has perhaps made investors complacent as to the risks it can pose and that the situation today is merely a return to normality.
    Nusseibeh says it is, noting that in the history of developed markets political risk was once quite prevalent but faded as an investment consideration post World War II. He and Wade agree the presence of the Cold War played a part in creating such stability as it polarized developed nations and allowed them to focus their attention on common threats. Since its end and the subsequent onset of the global financial crisis, more nationalistic interests have arisen.
    Andrew Parry, Hermes Sourcecap, observes:"Economic strife can and does bring, historically, a whole legion of tensions. Recovery requires a long period and political intervention is necessary. Unfortunately, the steps needed do not necessarily sit comfortably with election cycles. Welcome to the political economy."
    The European crisis may be a prime example of a step up in national interests and tension, but it is not the only political field managers have to watch, nor is sovereign debt the only asset class that is affected. Political events in China, the US as well as those in the Africa and the Middle East are all front-page news these days, impacting a range of asset classes to varying degrees.
    Commodity prices are the obvious fall-out from Middle Eastern conflicts but there is also the rise of gold owing to the uncertain climate; downtrodden financials are being affected by stiffer regulations; real estate investments are focused on safe haven regions; and Capital expenditure spending of companies in some countries is hampered by uncertainty over the prevailing and potentially changing tax climate. Consumers, worried over the state of unemployment and disgruntled over respective home politics, remain unconvinced of market opportunities and reluctant to invest.
    James Bateman, the head of manager selection at Fidelity Investments, says investors remain inherently nervous, with the scars from the events of 2008 a long way from healing. This has led to a greater emphasis on the analysis of risks, including geopolitical ones.
    Nusseibeh adds:"Some may argue the much heralded era of globalisation minimises political influence on a stock or securities selection basis. Not necessarily. As national interests and protectionism increase, this will have significant impact on companies and corporate interests.
    "Also, consider the debt levels of many countries compared to the strength of corporate balance sheets. How long will indebted nations allow companies to reap such profits without taking more of the pie for themselves? Will they tax the companies or the shareholders? What if political change affects the way companies pay dividends?"

    Saturday, October 20, 2012

    Economic Summary for the week ended 19th Oct 2012

    China - China's economy has slowed for a seventh quarter as problems in Europe and the U.S. dented demand for its goods. The annual rate of growth was 7.4% in the third quarter, down from 7.6% in the previous three months.
    However, there are signs that the world's second-largest economy is now stabilising and rebounding.
    That would be good news for China, which is facing a leadership change, and the rest of the world, which has benefited from its recent boom.
    "Clearly, concerns over continued slowdown can now be put to rest," said Dariusz Kowalczyk, senior economist at Credit Agricole. "The last month of the quarter brought acceleration of industrial output, retail sales and fixed asset investment in year-on-year terms, highlighting the fact that improvement of momentum of the economy was particularly strong in September."
    Japan - Japan's Prime Minister, Yoshihiko Noda, has ordered his cabinet to draw up fresh stimulus measures in a bid to spur economic growth.
    Japan's growth has suffered due to falling demand for its exports amid a slowdown in key markets such as the U.S., eurozone and China. At the same time, domestic consumption in Japan continues to remains subdued.
    Mr Noda ordered the stimulus package to be compiled by next month, but did not give details on how big it would be.
    "Considering what the government and the central bank are forecasting, I doubt we can simply stand by and let the economy continue as it is," Finance Minister Koriki Jojima said.
    U.S. - New homes were constructed at the fastest pace since July 2008 in September, official figures show.
    The Commerce Department said single family homes and apartments were started at a seasonally adjusted annual rate of 872,000 in September, which was up 15% from the previous month, but it is still well below the 1.5 million seen as a healthy 'pre-recession' figure.
    The big U.S. banks reporting third-quarter results in the past week have referred to a housing market recovery. JP Morgan Chase chief executive Jamie Dimon said last week: "Importantly, we believe the housing market has turned the corner."
    Applications for building permits, which are an indicator of future building activity, jumped 12% to an annual rate of 894,000 in September.
    Germany - The German government has slashed its forecast for economic growth in 2013 from 1.6% to 1%. "We are still talking about 1% growth [for 2013], so there's no talk about a crisis for Germany," said Economy Minister Philipp Roesler.
    The economy ministry also raised its forecast for 2012 to 0.8% from the 0.7% it predicted in April. The cut brings the government in line with a group of four leading think tanks, which cut their forecasts last week.
    "Although growth of 1% is weak in absolute terms, it still leaves Germany outperforming the rest of the euro area," James Ashley, European economist at RBC Capital Markets said.
    Spain - Spain sold EUR4.6bn of bonds on Thursday, slightly higher than its maximum target and at a lower cost to the treasury, as investors positioned themselves for widely expected central bank intervention in the country's bond market.
    Spanish borrowing costs have tumbled since the European Central Bank said it would intervene in the sovereign bond market of any eurozone country that applied for aid and accepted the conditions attached.
    The rally was given further impetus by Moody's unexpected decision to affirm Spain's investment-grade rating, when a downgrade to "junk" had been widely expected.
    Commodities - Gold traded flat on Thursday, retaining gains from the previous two days, as investors looked for fresh leads from a European Union summit after shrugging off data showing China's economy slowed for a seventh quarter, as expected.
    "In the short term, the $1,730 support level will continue to feel a lot of pressure as investors focus on the euro zone summit, but beyond that, gold's outlook is still bullish thanks to support from the easing measures by central banks." said Chen Min, an analyst at Jinrui Futures in China.
    Spotlight on: Good news for India-focussed funds
    Sanjiv Duggal, senior portfolio manager, India equities, at HSBC Global Asset Management, takes a look at the recent announcement from the Indian government & its' likely impact for investors that allocate their portfolio to the emerging market.
    The Indian government surprised the markets with a series of new reforms in September 2012. It is hoped that the reforms will encourage foreign direct investment to the country, which has been accused in the past of being closed to the outside world.
    The government sharply raised prices of diesel (a heavily subsidised transport fuel), capped cooking gas subsidies, and opened up its Retail, Aviation and Power Exchange sectors to foreign direct investors. Divestment in various government-owned entities has also been announced. Most significantly for India's critical infrastructure story, a National Investment Board has been proposed, which should speed up decision-making for projects above USD200m and bring it directly under the supervision of the Prime Minister. Unlike Great Britain which punched well above its weight in the recent Olympics, India has been performing well below the levels it needs to perform at, in the crucial infrastructure sector. The Prime Minister estimates India's infrastructure needs at least USD1tn in spend over the next five years. A starting point is the USD90bn Delhi-Mumbai Industrial Corridor, India's largest ever project, which could help in transforming infrastructure in India.
    These measures were particularly significant, as they marked India emerging out of its 'INDertIA'. Since October 2010, India has faced questions involving the Commonwealth Games, telecom spectrum and coal mine allocation amongst others. A newly activist national auditor looked at pricing policies on 2G telecom spectrum and now more recently, on coal mine allocations, and alleged that these had been mispriced. While the higher level of transparency to processes and policies should be beneficial in the longer term, they were initially greeted by a paralysis in decision making.
    This inaction over an almost two-year period, persistently high inflation over the past two years, coupled with a very weak start to the monsoon season, brought the pessimism on India to a head - until now.
    These moves - a mix of structural reforms and urgent ad hoc measures - have awed the markets, and should restore investor confidence. These steps are a starting point to address the important issues of the fiscal deficit (reducing the subsidy burden), inflation (global retail giants are expected to lower cost to the consumer) and currency weakness (more foreign investor inflows should boost the strength of the Rupee). The government has already implemented some of its recent decisions, in contrast with its record over the past couple of years. We expect more measures in the next few weeks as India attempts to maintain its investment grade sovereign rating.
    Meanwhile, long-term investors continued to bring capital into India. BP, Coca-Cola, Ikea, Nippon Life, Starbucks are amongst the names which have committed investments towards India. Institutional investors too brought in funds in 2012, bringing in USD 12.4bn (to 31 August).
    In the market, we see domestic cyclicals in a sweet spot. Cyclicals are at a 12-year low compared to defensives. The government's announcements in the second week of September coincided with the heaviest rains this year, and now the 2012 monsoon season is forecast to be near-normal. The central bank has made supportive noises and we expect rate cuts in the coming months to support the re-rating of India. When it rains, it does indeed pour.