By Anchor Capital *
South Africa Market Review
South African markets closed in the red yesterday. Brait SE tumbled 18.8%, after it decided to divest its stake in Pepkor Holdings. Hospitality Property Fund fell 16.7%, after it hinted that business performance remained weak during the current financial year. Omnia Holdings dropped 11.2%, after the company reported a fall in its diluted headline EPS in 1H15. Bidvest Group lost 2.4%, after it indicated that quarterly performance ending in June 2014 was weak. Naspers declined 1.6%, despite the company reporting an increase in its 1H15 diluted headline EPS. On the upside, Steinhoff International Holdings gained 4.5%, as the company indicated that it has agreed to acquire a majority stake in Pepkor Holdings. The JSE All Share Index dropped 0.4% to close at 50,507.59.
UK Market Review
UK markets finished marginally higher yesterday. Media sector stocks, Sky and ITV climbed 2.6% and 2.1%, respectively. Royal Bank of Scotland Group and Schroders gained 2.2% and 1.8%, respectively. Airline sector stocks, IAG and easyJet added 1.2% and 0.9%, respectively, on the back of a decline in oil prices. BT Group rose 0.4%, after the company revealed that it was in discussion with two mobile carriers, which at present was at a very initial level. On the contrary, retail sector stocks, J Sainsbury, Wm Morrison Supermarkets and Tesco declined 4.3%, 3.2% and 2.7%, respectively. Miners, Anglo American and BHP Billiton lost 1.8% and 1.7%, respectively. The FTSE 100 Index advanced marginally to close at 6,731.14.
US Market Review
US markets ended mostly lower yesterday. Nabors Industries, Schlumberger and Halliburton declined 4.9%, 3.3% and 3.3%, respectively, tracking a drop in crude oil prices. Hormel Foods plummeted 5.2%, as the companyâs 4Q14 earnings missed market estimates and after it issued a tepid FY14 earnings guidance. Home Depot fell 1.4%, after the company announced that it is facing at least 44 civil lawsuits in the US and Canada stemming from a widespread customer data breach. On the upside, Tiffany & Company advanced 2.5%, after reporting a better-than-expected rise in its 3Q14 sales. The S&P 500 Index fell 0.1% to settle at 2,067.03, while the DJIA Index dropped marginally to close at 17,814.94. The NASDAQ Index rose 0.1% to finish at 4,758.25.
Asia Market Review
Asian markets are trading higher this morning. In Japan, Daiki Aluminium Industry and UACJ Corporation surged 11.2% and 9%, respectively, amid reports that Toyota Motor will use aluminum instead of steel in its luxury cars. However, Honda Motor dropped 2.6%, after confessing that it under-reported serious accidents in the US during the past decade. In Hong Kong, Chow Tai Fook Jewellery Group advanced 2.7%, despite reporting a significant decline in its 1H15 revenue and profit. In South Korea, Samsung Techwin tanked 14.9%, amid reports of acquisition by Hanwha Chemical. The Nikkei 225 Index is trading 0.1% higher at 17,426.93, while the Kospi Index is trading 0.2% firmer at 1,983.26. The Hang Seng Index is trading 0.1% in positive territory at 23,869.23.
Commodities
At 06:00 SAST today, Brent crude oil rose 0.3% to trade at $77.18/bl. A report released by the American Petroleum Institute showed that crude inventories in the US fell 2.80mn bls last week. Additionally, media reports indicated that the OPEC members have failed to pledge output cuts before the crucial OPEC meeting tomorrow. Yesterday, Brent crude oil fell 1.4% to settle at $76.96/bl.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 2.1% to $3.47/bushel.
At 06:00 SAST today, gold prices declined 0.1% to trade at $1,199.54/oz. Yesterday, gold gained 0.3% to close at $1,200.98/oz., after the US dollar weakened following the release of the soft consumer confidence report in the US for November.
Yesterday, copper declined 1.1% to close at $6,653.00/mt. Aluminium closed 0.5% higher at $2,077.50/mt.
Currencies
Yesterday, the South African rand strengthened against the US dollar, after the annualised GDP data released in South Africa showed that economic growth remained mostly in line with market estimates for 3Q14. Additionally, the BER survey showed that confidence among firms in South Africa improved more-than-expected for 4Q14. Furthermore, mixed data released in the US showed that consumer confidence in the nation deteriorated unexpectedly in November while the GDP reading was upwardly revised for 3Q14.
The yield on benchmark government bonds rose yesterday. The yield on 2015 bond rose to 6.17% while that for the longer-dated 2026 issue advanced to 7.76%.
At 06:00 SAST, the US dollar is trading flat against the South African rand at R10.9689, while the euro is trading unchanged at R13.6795. At 06:00 SAST, the British pound has remained flat against the South African rand to trade at R17.2212.
Yesterday, the euro advanced against most of the major currencies, after the revised German GDP numbers were in line with market expectations for 3Q14. Market participants will keep a tab on todayâs revised GDP numbers in the UK for further direction to risk appetite.
At 06:00 SAST, the euro remained unchanged against the US dollar to trade at $1.2471, while it has remained flat against the British pound to trade at GBP0.7942.
Economic Updates
South Africaâs Gross Domestic Product (GDP) climbed 1.4%, on an annual basis, in 3Q14, compared with a revised advance of 1.3% registered in 2Q14.
The BER business confidence index in South Africa climbed to 51.00 in 4Q14 from a reading of 46.00 recorded in 3Q14.
The leading indicator in South Africa fell to a reading of 99.80 in September from a reading of 100.50 reported in August.
Mortgage approvals in the UK dropped to 37.08 K in October, compared with a revised reading of 39.13 K recorded in September.
The Bank of England (BoE) Governor, Mark Carney, in his testimony before the Treasury Select Committee, stated that interest rate hike in the UK economy would be more gradual than previously thought, as according to him, the economy still ârequires monetary stimulusâ. Furthermore, he cautioned that weakness in the eurozoneâs economy poses a biggest threat to the recovery of the British economy.
On an annual basis, in October, the producer price index in Spain slid 0.2%, compared with a drop of 0.3% posted in September.
On a seasonally adjusted monthly basis, retail sales in Italy fell 0.1% in September, compared with a revised 0.25 increase reported in August.
The industrial business climate index in France climbed to 94.00 in November from a reading of 91.00 recorded in October.
The seasonally adjusted final GDP in Germany climbed 0.1%, on a quarterly basis, in 3Q14, compared with a revised 0.1% drop registered in 2Q14.
The Organization for Economic Cooperation and Development (OECD) in its latest economic outlook report, indicated that the global economic growth and worldwide trade will remain modest over the next two years. The report expressed concerns about the lingering inflation problems in the eurozoneâs economy. The organization forecasted a global economic growth of 3.25% in FY14, 3.75% in FY15 and just below 4.00% in FY16.
On a quarterly basis, the second estimate of annualised GDP in the US advanced 3.9% in 3Q14, compared with market expectations for a rise of 3.3% and following an increase of 4.6% posted in 2Q14.
Corporate Updates
South Africa
Naspers Limited: The ecommerce company, in its 1H15 results, indicated that its revenue climbed to R34.36bn from R28.76bn posted in the corresponding period a year ago. Its fully diluted headline EPS rose to R10.96 from R8.99 reported in the same period prior year. Additionally, the company stated that it would further expand its e-commerce platforms in Latin America and Southeast Asia after reaching an agreement with Oslo-based Schibsted.
Omnia Holdings: The company, in its 1H15 results, stated that its revenue increased to R7.59bn from R7.50bn recorded in the same period prior year. However, its diluted headline EPS fell to R5.46 from R5.93 registered in the same period prior year.
Transaction Capital: The company, in its FY14 results, stated that its risk adjusted net interest income advanced to R492.00mn from R403.00mn posted in the preceding year. However, its headline EPS dropped to R0.61 from R0.93 reported in the preceding year.
Hospitality Property Fund Limited: The company, in its trading update, stated that growth in the hospitality trading environment has remained weak during the current financial year, with occupancy in particular under pressure. The company indicated that its trading performance has been in line with the overall hotel and leisure market, with occupancy growing by 0.4% to 61.7%, average daily rate (ADR) increasing 7.2% to R1,109.00 resulting in revenue per available room (RevPar) growth of 7.6% to R685.00 for the four months to 31 October 2014. Due to the current trading conditions, the combined distribution for the interim period is expected to be at least 8.0% lower than the forecast, or a revised maximum forecast of 82.33c, with the A-linked unit in line with the distribution policy at 73.33c and the B-linked unit is expected to be at least 45.0% lower than forecast, or a revised maximum forecast of 9.00c per linked unit.
Steinhoff International Holdings: The furniture retailer indicated that it has agreed to acquire a 92.34% stake in the clothing retailer, Pepkor Holdings Proprietary Limited, for a total consideration of R62.80bn. The deal is expected to expand Steinhoffâs footprint, particularly in discount retail. In terms of the Acquisition, Steinhoff intends acquiring Titanâs effective equity interest in Pepkor of 52.47% from Titan, 37.06% from Brait SE and 2.81% from Pepkor management.
Bidvest Group: The company, in its management update on general trading conditions, indicated that its quarterly performance (including April, May and June 2014) were weak, amid labour market disruptions and subdued consumer demand. Additionally, the company hinted that these trading conditions are likely to remain in the 1Q15 and the level of confidence in the South African market remains low.
Fortress Income Fund: The company indicated that it has proposed an equity raise of up to a maximum of R485.00mn through the issue of new Fortress A and B linked units in terms of a vendor consideration placing, to fund the acquisition of Weskus Mall. The equity raise would be implemented through an accelerated book build process.
Woolworths Holdings: The High Court in Johannesburg banned the members of the pro-Palestine activists from organising, co-ordinating or encouraging any form of protest action in the companyâs stores.
Ageing infrastructure, emergency measures hit Eskomâs profit, says CEO: Ageing infrastructure and disproportionately expensive emergency electricity generation methods have taken a toll on power utility Eskom, which has seen its net profit drop 24.0% to R9.30bn in 1H15.
Understanding Eskom’s load shedding decisions: Eskom has recently changed its thinking about load shedding and, with the blessing of the National Energy Regulator of South Africa (NERSA), households rather than industry will bear the brunt going forward.
Rhodes Food Group âproves resilient in constrained environmentâ: Recently listed Rhodes Food Group has benefited from strong trading for FY14 in its regional and international businesses, with offshore sales helping to stem the effects of a weak South African rand.
Mercantile Bank aims to lure entrepreneurs: Mercantile Bank is launching a private clients offering on Tuesday aimed solely at entrepreneurs.
Kumba sets bar high in building of ânew Dingletonâ as mine expands: Kumba Iron Ore has spent twice as much money on relocating one community as the amount the government has ring-fenced for the improvement of distressed mining towns around the country.
Billionaire Rupert lashes out at SA’s government: Johann Rupert (pictured), the billionaire Chairman of Cie. Financiere Richemont SA and Remgro, berated South Africaâs government for failing to address corruption and power shortages.
SAA CEO’s plan requires dropping weak routes, inefficient jets: South African Airways should curb losses by securing R1.30bn ($118.00mn) in annual savings from dropping weaker routes and accelerating plans to retire inefficient jets, according to its interim Chief.
Intellidex rates Raubex as a buy: Through strategic acquisitions Raubex, which has positioned itself as a niche leader in roads-related works, has established a vertically integrated supply chain giving it access and control of bitumen, aggregates and asphalts used in road construction. This gives it more control over costs, something that canât be said for its competitors.
Acsion Limited plans a JSE listing: The JSE, before the year ends, will see another property counter making its debut on the local bourse, with Acsion Limited (Acsion) planning to list on the main board on 9 December.
MTN plays down naira devaluation: Africa’s largest telecoms operator, MTN, put a positive gloss on Tuesday’s devaluation of the naira, saying the weaker Nigerian currency would also reduce costs in its biggest African market.
Property companies plan Johannesburg listings as index climbs: The Johannesburg Stock Exchange will get listings from three property companies as shares in the industry outperform the main equities index this year.
UK and US
Hewlett-Packard: The technology company, in its FY14 results, indicated that its net revenue dropped to $111.45bn from $112.30bn posted in the prior year. However, its net diluted EPS remained unchanged at $2.62, compared with the previous year. The company expects 1Q15 EPS to be in the range of $0.89 to $0.93, versus market consensus of $0.93/share and FY15 EPS to be between $3.83 and $4.03, compared with market estimates of $3.95/share.
Analog Devices: In its FY14 results, the semiconductor company stated that its revenue rose to $2.86bn from $2.63bn reported in the previous year. However, its diluted EPS dropped to $1.98 from $2.14 reported in the earlier year. The company anticipates 1Q15 EPS to be between $0.58 and $0.64, versus market consensus of $0.62/share and 1Q15 revenue to be in the range of $745.00mn to 775.00mn, versus market estimates of $766.40mn.
Hormel Foods: The company, in its FY14 results, revealed that its net sales advanced to $9.32bn from $8.75bn registered in the prior year. Its net diluted EPS increased to $2.23 from $1.95 stated in the previous year. The company further indicated that it expects FY15 EPS to be in the range of $2.45 of $2.55, versus market consensus of $2.59/share.
Campbell Soup: In its 1Q15 results, the canned soup producer indicated that its net sales climbed to $2.26bn from $2.17bn recorded in the same period preceding year. Its adjusted diluted EPS was reported at $0.74, better than market estimates of $0.72/share. The company expects FY15 EPS to be between $2.42 and $2.50, versus prior guidance range of $2.45 to $2.50 and market consensus of $2.46/share.
Tiffany & Company: The jewelry retailer, in its 3Q15 results, stated that its net sales increased to $959.59mn from $911.48mn posted in the corresponding period a year ago. Its net adjusted diluted EPS stood at $0.76, worse than market anticipations of $0.77/share.
Pall Corporation: In its 1Q15 results, the supplier of filtration products revealed that its net sales advanced to $696.49mn from $629.78mn registered in the similar period previous year. Its diluted EPS was reported at $0.81, in line with market estimates.
Ctrip.Com International: The China-focused travel agency, in its 3Q14 results, indicated that its total revenue jumped to RMB2.26bn from RMB1.64bn recorded in the same period earlier year. However, its diluted earnings per ADS fell to RMB1.38 from RMB2.44 stated in the same period preceding year.
TiVo Inc.: In its 3Q15 results, the company stated that its net revenue climbed to $118.43mn from $117.27mn posted in the corresponding period a year ago. Its diluted EPS was registered at $0.06, worse than market anticipations of $0.07/share. The company expects its 4Q15 revenue in the range of $87.00mn to $90.00mn.
Amgen: The company and AstraZeneca announced that AMAGINE-2, a multi-arm phase 3 trial evaluating the usage of brodalumab, for the treatment of moderate to severe plaque psoriasis had delivered positive results.
Hain Celestial Group: The company announced that its stockholders had approved a 2 for 1 stock split which would enable the company to increase the number of authorised shares from 100.00mn to 150.00mn.
Kingfisher Plc: The home improvement retailer, in its 3Q15 results, indicated that its retail profit declined 11.8% to GBP225.00mn. Its group sales stood at GBP2.82bn, down 3.6% on a reported basis, but improved 1.0% at constant currency. The company also stated that overall, it remains cautious on the outlook, especially in France, and continue to focus on margin and cost initiatives to support its performance.
Severn Trent Plc: The company, in its 1H15 results, stated that its turnover stood at GBP947.60mn, compared with GBP922.40mn recorded in the corresponding period preceding year. Its adjusted diluted EPS rose to 52.40p from 46.50p posted in the same period previous year. The company indicated that it is on track to deliver its expectations for FY15.
IG Group Holdings: The online trading company, in its 2Q15 trading update, stated that it performed very well with its client activity levels increased significantly, particularly in October, as the financial markets presented considerably more trading opportunities. This was in contrast to the subdued 1Q15.
Mitchells & Butlers: The pubs and restaurants operator, in its FY14 results, stated that its revenue rose 4.0% to GBP1.97bn, compared with the preceding year. However, its diluted EPS dropped to 22.50p from 31.00p posted in the previous year. The company also indicated that the business is gathering momentum and it has made an encouraging start to the year. The company expects to benefit further from these investments during this financial year.
Paragon Group of Companies: The company, in its FY14 results, announced that its total operating income increased to GBP197.90mn from GBP177.60mn recorded in previous year. Its diluted EPS rose to 31.10p from 27.30p posted in last year. The company also indicated that it sees significant opportunities for growth from its existing businesses and the potential to develop additional products, leaning on the group’s skills and expertise.
Greencore Group: The company, in its FY14 results, indicated that its revenue increased to GBP1.27bn from GBP1.20bn posted in the preceding year. Its adjusted EPS rose 13.6% to 15.90p from 14.00p recorded in the previous year. Looking ahead, the company expects significant improvement in capital expenditure on capacity, productivity and capability initiatives and execution of these projects in FY15.
AO World Plc: The company, in its 1H15 results, indicated that its revenue stood at GBP217.06mn, compared with GBP173.54mn posted in the same period last year. Its basic and diluted EPS stood at 0.12p, compared with 0.40p recorded in the corresponding period previous year, while adjusted EPS rose to 0.95p from 0.40p posted in the same period a year ago.
JD Sports Fashion: The sports-fashion retailer announced the disposal of Bank Fashion Limited to a subsidiary of Hilco Capital Limited which should result in a substantial recovery of its intercompany loan.
Financial Times
Gambler aiming to take BT back to the future: The BT Chief Executive with an easy grin and mane of swept-back hair has consistently charmed investors as he has made a GBP2.00bn bet on sports to bolster the telecoms groupâs struggling television service.
Paragon buoyed by buy-to-let market: Paragon Group, the specialist lender, said profits had reached a record level this year as the growth of the buy-to-let market in the UK gathered pace.
Eurosceptic parties harm recovery, Chief Executives warn: Chief Executives at Europeâs largest companies have warned that rising support for eurosceptic political parties is deterring investment â and is one of the factors holding back recovery in the eurozone.
Vista Equity Partners snaps up Advanced Computer Software: Advanced Computer Software is being bought by US private equity firm Vista Equity Partners in a deal that values the UK healthcare specialist at GBP725.00mn, as Europeâs software companies continue to fall into private hands.
AstraZeneca comes into focus as Pfizerâs cooling-off period ends: It has been a popular pastime among healthcare investors and pharma Executives for weeks: guessing the likelihood of Pfizer renewing its pursuit of AstraZeneca after the six-month cooling-off period ends on Wednesday.
M&B profits down on refurbishment costs: Mitchells & Butlers, the pub company behind the All Bar One and Harvester chains, reported a fall in profits as pub refurbishments, acquisitions and food costs offset rising revenues.
Pinewood Shepperton stars with 10.0% rise in profits: High demand from filmmakers led by the new Star Wars and Avengers productions helped UK studio Pinewood Shepperton to a 10.0% boost in profits.
BHS losses cast shadow over Arcadia: Sir Philip Greenâs BHS department store chain made a loss of GBP21.00mn in the year to 30 August, up from a GBP19.30mn deficit in the year earlier.
Mortgage lending falls at Nationwide: Nationwide has reported a GBP1.00bn fall in gross new mortgage lending as large high street banks return to the market and stringent affordability regulations take root.
De La Rue profits hobbled by stiff competition: De La Rue, the worldâs largest printer of banknotes, has blamed a 1H15 plunge in profits on stiff competition and the slow uptake of microchip passports.
Zoopla revenues rise ahead of rivalâs launch: Online property portal Zooplaâs audience has increased by a third in the past year, helping to boost its revenues by 24.0% â but its share price has suffered as a new rival prepares to launch.
Slowing eurozone hits Kingfisher sales: Kingfisher, the worldâs third largest DIY retailer which owns the UKâs B&Q chain, has seen weakening economic sentiment in the eurozone hit profits as poor trading in France and Poland was compounded by weakening global housing markets and a GBP13.00mn hit from negative currency movements.
Oil nations fail to halt fall in crude: The price of oil fell by more than $1.00 a barrel after a meeting between some of the worldâs largest oil-producing nations failed to reach agreement on how to address a growing supply glut.
Clarkson to acquire Platou amid shipbroking consolidation wave: Clarkson, the worldâs largest shipbroker, announced the sectorâs biggest takeover deal, a GBP281.20mn acquisition of Norwegian rival RS Platou that will give the UK group a foothold in lucrative shipping investment banking.
Honda fails to report 1,700.00 accidents to US safety regulators: Honda said that it failed to report more than 1,700.00 incidents of death or injury involving its vehicles to US car safety regulators over an 11-year period, highlighting a major lapse in its reporting system for potential safety defects.
Spotify pays more than 80.0% of its turnover to rights holders: Spotifyâs revenues surged in FY13, but the music streaming service failed to turn a profit as it paid out more than 80.0% of its turnover to record labels and other rights holders.
Cheil Worldwide buys stake in Olympic mascot creator Iris: South Korean advertising group, Cheil Worldwide, has acquired a stake in Iris, the UK agency that created London FY12 Olympic mascots Wenlock and Mandeville. The deal is the latest in a flurry of investments by Asian marketing groups into the west, as groups including Blue Focus of China and Dentsu of Japan look to expand internationally.
News Corp snaps up $30.00mn stake in Indian property website: Rupert Murdochâs News Corp has acquired a minority stake in Indian property start-up PropTiger.com for $30.00mn, marking the media groupâs largest investment in the country and the latest in a series of deals in Indiaâs fast-growing ecommerce sector.
Greencore increases US investment: Greencore, the sandwich maker at the centre of a UK controversy over immigrant workers, says it expects the US to contribute a quarter of its sales within the next few years, from 10.0% a year ago.
Apple joins the one-company $700.00bn club: Appleâs market capitalisation touched a record-breaking $700.00bn on Tuesday, as strong iPhone sales and anticipation of new products pushed its shares to more than double the point at which Tim Cook took over as Chief Executive.
Cadillacâs new Chief keeps luxury brandâs prices high: General Motorsâ Cadillac luxury brand will have to stick to selling vehicles at high prices at the cost of some market share as it rebuilds after decades of declining quality, the brandâs new Chief Executive has said.
Ana BotĂn appoints Santander CFO as new Chief Executive: Ana BotĂn has made her first big move since taking over as Chairman of Banco Santander, appointing a new Chief Executive and shaking up its corporate governance by naming three new independent directors.
Kingfisher: Fell 4.1% to GBP2.91, after warning of a deteriorating outlook in France, its biggest market.
Paragon: Rose 7.7% to GBP4.07, after announcing a surprise GBP50.00mn share buyback with in-line annual results.
Santander: inside job: Thin pickings for the headhunters here. Santander has replaced Chief Executive, Javier MarĂn, (after less than two years in the job and with little explanation) with Chief Financial Officer, JosĂ© Antonio Ălvarez. This is how things are done at Santander. When Chairman, Emilio BotĂn, passed away in September the bank did not hesitate to name his daughter Ana (who ran the UK business) as his replacement. There was no need to scour the globe for candidates for the top two jobs at Santander. Other elements of Santanderâs strategy also have to be refined. Under Mr BotĂn, Santander happily traded in and out of shares in subsidiaries. But that has left the bank with an uncertain acquisition strategy. Most recently it has been linked with Italyâs Monte dei Paschi di Siena â an awful idea (Santander has denied entertaining it). But after so long in the CFOâs chair, will Mr Ălvarez be willing to change old habits? There are signs of progress, particularly when it comes to corporate governance. The board has previously been criticised for being too homogeneous, but big changes are under way. The appointment of independent directors from the UK and Mexico, also announced on Tuesday, gives the board some diversity. Even the appointment of Mr Ălvarez as CEO suggests a more even spread of experience (and perhaps power) between Chairman and Chief Executive than existed between Emilio BotĂn and the relatively youthful Mr MarĂn.
China Guangdong: the nuclear option: China is caught between a lump of coal and a nuclear reactor. Over the past decade, it has favoured the coal. More recently, nuclear power has been shunned in the aftermath of Japanâs FY11 Fukushima earthquake. But the reactorâs pull is increasing. To help it reach these goals, Chinaâs nuclear capacity is expected to hit 58.00GW in 6 years, more than trebling from this year. At that level, FY20 nuclear generation will still equate only to a mere 5.0% of Chinaâs total FY13 capacity â and only just over half of the USâs current nuclear capacity. With so much room for growth, it is good timing for Chinaâs largest nuclear power company, China Guangdong Nuclear, to come to market. CGN (which will be the worldâs first listed pure-play nuclear generation company) manages almost two-thirds of Chinaâs current 18.00GW. It has asset purchases lined up, more than doubling capacity by FY19. Parent company, China General Nuclear Power Corp, a state owned enterprise, will sell about one-fifth of the enlarged company on the Hong Kong stock exchange, raising up to $3.60bn to fund asset purchases and repay debt. With net debt of more than $12.00bn before the listing, any repayment will barely dent the near-200.0% net debt to equity ratio. Still, this is comparable with China-listed peers, if not US ones.
ECB bond-buying: Last action hero: The famous three words made not owning peripheral sovereign bonds a pricey mistake in FY12. The latest phase is backed by the possibility that the ECB could buy so many euro assets that investors will be obliged to head into riskier ones, raising prices. This is the âportfolio balance effectâ. But which assets to buy? Not those the ECB is already buying. On Friday, it bought its first asset-backed securities from banks. The objective is to take risk off banks, freeing up capital for loans. This cannot be done in size unless the ECB buys mezzanine tranches, where the capital relief will be greatest. There are too few mezz buyers otherwise. Bank of America estimates there is about EUR15.00bn of mezz demand in Europe, the risk equivalent of EUR90.00bn in lower-risk assets. That is not much compared with the âŹ1.00trn the ECB wants to add to its own balance sheet. Investors, pushed to risk, have to buy something. Just over half of high-yield bonds in the eurozone pay more than 4.0%, says BNP Paribas. Yields have risen as growth has fallen. They are cheap if QE works. But the trading volume in these bonds is half what it was in FY13. Investors have bought and held. If the ECB pushes still more money that way, that will make getting out again one day all the trickier.
*Published with special permission by Anchor Capital (ACG)
