Tue, 01st December 2015

Anirudh Sethi Report


Archives of “stock” Tag

Japan’s pension fund loses $64billion in third quarter

The world’s biggest pension fund suffered a grim third quarter, losing $64bn — or 5.6 per cent of its value — as global stock markets fell.

Although much of the loss was likely regained as markets rallied in October, it is a reminder of the risks Japan’s Government Pension Investment Fund is taking after ramping up its equity exposure.

Results from the $1.1tn GPIF are likely to show increased volatility in the future after it changed its target portfolio to 50 per cent equity last year to boost returns and help service Japan’s rising pension bill.

“The volatility of short-term profits may have increased, but from a long-term perspective the risk of a shortfall in pension assets has decreased,” said Yoshihide Suga, the government’s chief cabinet secretary.

Most of the losses came from its holdings of domestic and international equities, which were down 12.8 and 11 per cent respectively, while domestic bonds generated a modest profit.

The losses were almost identical to the GPIF’s benchmark indices for those assets. Since the end of the third quarter, Japan’s Topix stock market index has rallied by almost 12 per cent to close at 1,580 on Monday.

China’s ‘national team’ owns 6% of stock market – $4.2 Trillion bourses into state hands.

China’s “national team” owns at least 6 per cent of the mainland stock market following the summer rescue to prop up prices, putting even more of the $4.2tn bourses into state hands.

Government rescue funds were corralled into buying shares when the equity markets went into meltdown over summer. The intervention succeeded in propping up prices: the Shanghai Composite index has since recovered by 28 per cent from its late August low point.

The two state financial institutions that led the stock market bailout in July and August increased their ownership of the Shanghai and Shenzhen exchanges from 4.6 per cent of total tradeable A-share market capitalisation at the end of June to 5.6 per cent three months later, according to Wind, a financial database.

The figures are compiled from quarterly financial statements of listed companies, which are required to disclose their 10 largest shareholders. The actual size of national team holdings is probably larger, given some likely hold stakes that are too small to rank among the top 10.

The government cash infusion came after the Shanghai Composite index fell more than 40 per cent from its seven-year high on June 12 through late August.

The estimate of the shareholdings of the national team covers positions held by China Securities Finance Corp, the state-owned margin lender and main conduit for the injection of government funds. The market value of CSF’s holdings increased from only Rmb692m ($108m) at the end of June to Rmb616bn three months later. It owned 742 different stocks, up from only two stocks three months earlier.

Also included are stakes held by Central Huijin Investment, the holding company for shares in state-owned financial institutions and subsidiary of China’s sovereign wealth fund. In spite of Huijin’s additional share purchases in the third quarter, the market value of its holdings fell by Rmb167bn in the period to Rmb2tn, mostly reflecting mark-to-market losses on shares it previously held.

Corporate India suffers from an avalanche of debt

Two months on from Amtek Auto’s $121m debt default, the head of the Association of Mutual Funds of India has said his organisation must review its risk management guidelines.

Among the casualties of the default had been JPMorgan Asset Management’s India unit, which was exposed to $30m worth of Amtek’s debt securities through two funds. Shortly afterwards, the funds had to temporarily restrict withdrawals by investors, because of the difficulty in selling those holdings.

To CVR Rajendran, AMFI chief executive, this is an Indian failing. “Defaults happen in the US markets, but liquidity isn’t a problem,” he told the local press. “Investors know about defaulting companies’ position, along with realisation possibilities. They exit bonds at prevailing market prices. In India . . . bonds become unsaleable.”

One banker who knows Amtek well says it is not an isolated case. “There is a lot of totally illiquid high-yield debt in debt funds which are supposed to be liquid,” the banker warns. Investors appear to share his concern: in the wake of the Amtek default, risk premiums rose and the debt of unrelated companies sold off.

In some ways, Amtek is a cautionary tale of an Indian company that expanded aggressively both at home and abroad — and then used financial engineering to compensate for the lack of profitability on its operations.

Its Castex Technologies unit issued convertible bonds that are now the subject of a regulatory investigation into whether the Castex share price was manipulated to force the bonds to convert into equity. Amtek also took rescue financing for its offshore operations from private equity group KKR in the form of expensive debt and equity warrants — a sign that the company could not tap more inexpensive and conventional funds.

Pfizer and Allergan to combine in $160bn deal , key points

Pfizer and Allergan have announced the biggest healthcare deal in history, in a $160bn transaction that will create the world’s top drugmaker.

The acquisition values each share of Allergan, the maker of anti-wrinkle treatment botox, at $363.63, the companies said in a statement on Monday.

Should the deal be completed, the combined company will leapfrog Johnson & Johnson as the world’s largest healthcare group.

Under the terms of the deal announced before the US stock market opened on Monday, Allergan investors will receive 11.3 shares of the combined group for each shares they already own.

Pfizer’s successful capture of Allergan, which is best known for Botox, the wrinkle smoother, comes after its failed pursuit of UK rival AstraZeneca.

The combination of Pfizer and Allergan would cap a frenzied year of mergers and acquisitions in the healthcare industry and take the number of transactions announced since the start of January to roughly $1tn, eclipsing previous records.

The combination is also the largest so-called tax inversion deal to date, as the combined company will be domiciled in Ireland, where Allergan is.

F&O volumes plunge after increase in size of minimum contract

Graphic: Ajay Negi/Mint

Volumes in the derivatives market have seen a sharp dip in November after the market regulator raised the bar for participation in the equity derivatives segment in an attempt to curb retail investor activity in this relatively high-risk segment.

The change, announced in July, came into effect in October end.

For the month of November so far, the average daily volumes on National Stock Exchange (NSE) have dropped sharply to 3.37 million contracts from 8.78 million contracts in October.

On BSE, the average daily volumes so far in November declined to 0.09 million shares from 0.41 million shares in the previous month.

The average daily volumes in derivatives trade in 2014 on BSE and NSE was 2.14 million contracts and 5.97 million contracts, respectively.

Derivatives trading in stocks and indices refer to the availability of futures and options (F&O) contracts linked to a particular stock or an index as the underlying measure.

On 13 July, the Securities and Exchange Board of India (Sebi) raised the minimum contract size in the equity derivatives segment to Rs.5 lakh from Rs.2 lakh, effective the day after the expiry of October contracts.

This was done due to fears that retail investors were becoming more active in this segment and could be put at risk.

Earlier, Sebi chief U.K. Sinha had cautioned that complex products such as derivatives should not be sold to uninformed investors who do not understand the risk in such products.

However, since charges for trading in the cash market are 8-10 times higher than charges imposed for trading in the deravative segment, the overall hit may be limited.

Overnight US Market

U.S. stocks ended mixed in a tight range Tuesday as Wall Street mostly looked beyond the deadly terror attacks in Paris and got some good news on the profit front from home improvement retailer Home Depot and retail giant Walmart Stores.

The Dow Jones industrial average and Nasdaq composite each ended fractionally higher. The S&P 500 slipped 0.1%.

Stock markets elsewhere around the globe were in rally mode, as investors continue to bet that the latest terrorist strike won’t have a major negative economic impact.

In a sign of market resilience, shares in Europe were up sharply Tuesday, with the broad Stoxx Europe 600 up 2.5%. The biggest gains were in France, where the CAC 40 jumped 2.8%. Elsewhere in Europe, Germany’s DAX index gained 2.4%. London’sFTSE 100 was up 2%.

Wall Street refocused its attention on corporate earnings and economic data. Investors got a lift from earnings beats from Dow components Home Depot (HD) and Walmart(WMT), which gave the blue-chip gauge a boost and reduced some of the fears of a retail slowdown sparked last week by a big earnings miss from department store Macy’s. Shares of Walmart jumped 3.7% and Home Depot were up 4.1%.

Overnight US Market

Selling hit Wall Street for a third straight day Friday as the stock market ended its worst week in 12 weeks.

Investors are grappling with uncertain market conditions due to coming Fed rate hikes, global economic worries, falling oil prices and fears of a weakening retail sector.

The Dow Jones industrial average, which tumbled 254 points Thursday, lost another 203 points, or 1.2%, to 17,245. The Standard & Poor’s 500 stock index, which fell back into the red for the year Thursday, lost another 1.1%. The Nasdaq composite, the lone major U.S. stock index still in the black for 2015, ended down 1.5%.

The five-day loss of 3.7% for the S&P 500 snapped a six-week winning streak for stocks and was the worst weekly performance since August..

Wall Street, which enjoyed its best October in years and a quick start to November, is back in risk-off mode.

Oil prices continued to fall as U.S. benchmark crude was on the verge of dropping below $40 a barrel. West Texas Intermediate crude dropped 2.% to $40.77 a barrel.

The weight of a coming interest rate hike from the Federal Reserve, its first in almost a decade, continues to weigh on stocks. Yesterday, Wall Street was flooded with speeches from six Fed members, and the general tone again pointed toward a rate increase at the Fed’s last meeting in December.

Shares were also lower in Europe, despite hints from European Central Bank chiefMario Draghi earlier this week that more stimulus was on the way. In Germany, the DAX index was down 0.7% and the CAC 40 in Paris was off 1%.

Why A Rate Hike Might Result In A ‘Double Whammy’ For Mainstream Investors

After publishing ‘better than expected’ job numbers, the market interpreted the results as a sign Yellen will now most definitely increase the interest rates within the next few months. These mood swings seem to be the flavor of the day and now the futures of the 30 day Federal Reserve Funds rate are also showing an increased possibility the Federal Reserve will increase the benchmark interest rate.

We already discussed whether or not a rate hike would be a good thing for the American economy, and we were unsure about this as the recovery of the domestic economy is going extremely slow. Additionally, an increased interest rate would increase the pressure on the US budget as the interest expenses would increase by almost $200B per year per one percent increase in the interest rate.

A higher interest rate generally also means the stock market will see some cash outflows as the increased yields on bonds and savings accounts will attract the investors with a relatively low risk appetite. After a prolonged period of zero interest rate policy, there will most definitely be a repercussion for the stock markets if the interest rates will indeed increase, that’s just basic economics. But there’s more.

Japan Post Holding ,Japan Post Bank :Trading Starts with Bang.Up by 15%

After the Tokyo Stock Exchange bell was rung 15 times to mark the importance of a 144-year old institution going private, investors gobbled up shares of Japan Post and its two subsidiaries.

The largest initial public offering of 2015 is now available to mom and pop investors after all three parts priced at the top end of the range in recent weeks.

Aided by a bullish backdrop pulling the Nikkei 225 average up by 1.6 per cent in early trading, all three slices of the $12bn IPO rose above their starting price, following a ceremonial ringing of the bell half an hour after general trading began.

Japan Post Holding rose to Y1,617, up 15 per cent from Y1,400.

Japan Post Bank rose 15.9 per cent to Y1,680, from Y1,450.

Still waiting on a price for Japan Post Insurance which priced at Y2,200. Grey market trading indicated a 9 per cent jump.

A broker in Tokyo said gains of more than 4 per cent would be considered a “success” for For Prime Minister Shinzo Abe, whose “Abenomics” revival plan includes creating a new generation of shareholders.