Category Archives: Asia

Tax Prospect Spooks Taiwan Investors

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By Aries Poon

The Taiwan government’s likely reimposition of a capital gains tax spooked local investors, who sent the benchmark Taiwan Capitalization Weighted Stock Index as much as 3% lower Thursday. The Taiex recovered some ground and ended 1.6% lower at 7639.82 points, as government-backed funds and bargain hunters bought heavyweight stocks, analysts said. The intraday low of 7528.03 was the lowest since Feb. 1.

Pichi Chuang/Reuters
Taiwan investors aren’t sure the god of fortune is on their side.

Having run a budget deficit since 2009, the government said that it is considering reintroducing the capital-gains tax on stocks to broaden its revenue base. Strong investor resistance led to the tax’s suspension in 1990, just one year after its introduction.

The prospect of the new tax weighed on the market since Finance Minister Christina Liu said Friday she will make a decision in a month on whether to present the tax to the legislature, though analysts said the lengthy legislature process means it won’t take effect this year even if approved. Ms. Liu didn’t provide a rate or other details.

The Taiex has lost nearly 4% since Monday, and analysts warned further declines may lie ahead, with investors—particularly local retail investors and corporate shareholders who hold millions of shares—likely to continue to shed their holdings until more clarity emerges.

Capital Securities analyst Diana Wu said investors’ current strategy is to take as much profit as possible ahead of the capital gains tax.

“This will minimize their tax payments,” she said, “and they can always rebuy stocks on dips in the future if they want to.”

Despite Fiscal Year-End Repatriation, Yen May Fall More

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TOKYO–With spring, comes talk of a strengthening yen.

As Japan’s fiscal year draws to a close at the end of March, focus has again returned to the issue of “repatriation demand” by Japan’s exporters as they bring back money from overseas before their book closings.

But analysts say the impact of the repatriation is typically overstated and that any inflows will not be enough to reverse this year’s sharp 6.5% fall in the yen since the beginning of the year when the dollar was at Y76.30. Instead, many predict continued falls for the Japanese currency, with the possibility that the dollar will rise to Y83 in the coming weeks. As of 0505 GMT, it was at Y80.38.

They believe the repatriation flows will likely be smaller than normal since exporters’ overseas profits took a hard hit from the March 11 earthquake and tsunami, last summer’s flooding in Thailand and slower global growth stemming from the European debt crisis.

Japan posted a trade deficit in 2011 for the first time in 31 years, with a large deficit following in January. Increased imports of costly energy for thermal power plants were another reason behind the deficits.

The analysts also expect that flows will be reduced by a desire to keep larger holdings of dollars after the European debt crisis made it more expensive to obtain dollar funding. ”Repatriation flows won’t have enough power to even push the dollar down by Y1,” said Koji Fukaya, chief currency analyst at Credit Suisse.

With Japanese companies increasing the purchase of overseas firms and resources, the yen has been weakening against the dollar at a fast pace. The government said Monday that 455 foreign companies were bought by Japanese firms in 2011, the largest number on record.

And the yen-selling flows were buoyed by non-Japanese investors who were surprised by the Bank of Japan’s easing measures two weeks ago. According to data by the U.S. Commodity Futures Trading Commission, the amount of speculators’ bets on a higher yen has reached its lowest level since July last year in the week to Feb. 21.

“The current yen-selling momentum will be enough to swallow all the yen-buying orders,” said Noriaki Murao, managing director of the global markets division at the Bank of Tokyo-Mitsubishi UFJ in New York.

Historical data also suggests that even large flows have had a small impact on the market. For example, the Japanese government’s current-account data show that in March 2010, domestic companies received Y758.7 billion from their overseas offshoots, much higher than the second-largest monthly figure of Y372.7 billion in June of that year. At the same time, foreign-exchange data from the Bank of Japan show that the dollar rose to an average rate of Y90.56 in March from Y90.28 in February.

“Even when repatriation was large, the yen hasn’t appreciated in March since 2007. I think we should stop talking about this myth,” said Daisuke Karakama, a market economist at Mizuho Corporate Bank.

–Takashi Mochizuki

Elpida Shares at Ask-Only in Tokyo

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By Kosaku Narioka

Shares in chipmaker Elpida Memory Inc. were ask-only and limit-down on the Tokyo Stock Exchange on Tuesday morning after the company filed for bankruptcy protection in the largest corporate failure among the nation’s manufacturers since the end of World War II.

The filing came after the close of trading Monday as Elpida said that last-ditch attempts to refinance its debts had failed to materialize.

The market was flooded by a surge of sell orders, outpacing offered purchases by more than 1,000 to one. Elpida closed Monday at ¥334. The shares were indicated at ¥254, representing the allowed daily decline under the TSE’s trading rules and 24% lower than Monday’s close.

“I think this clear-cut bankruptcy protection filing came earlier than expected,” said an operating officer at a Japanese brokerage.

“Financing has been the key for the firm,” said Yoshihiro Okumura, general manager at Chibagin Asset Management. “I doubt institutional investors hold the shares, but there may be some retail investors who did.”

He said the effects on the broader market are likely limited as there are some firms that benefit if the company is gone, while shares of some affiliated firms may suffer somewhat.

Other chip-related firms were lower on the news with Advantest down 4.7% at ¥1,084, Renesas Electronics off 3% at ¥587 and Tokyo Electron down 2.2% at ¥4,365.

The Tokyo bourse said Monday it would delist Elpida’s shares on March 28.

Elpida, which put its liabilities at ¥448.03 billion, or $5.5 billion, at the end of March 2011, said that it will aim to re-emerge under the supervision of the Tokyo District Court, with President Yukio Sakamoto staying in his position to work on the rehabilitation process.

At a press conference, the president blamed the yen’s rise to unprecedented levels as a major factor behind his company’s failure.

“We never imagined the yen would become this strong,” he said.

The demise of Japan’s last maker of dynamic random access memory, or DRAM, chips is a sign of the difficulties facing the country’s beleaguered technology industry, already facing increasing competition from South Korean rivals.

Taiwan Shares Fall Despite Ma Win

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By Lorraine Luk

Taiwan shares are down 0.4% at 7154.87, off the 7258.84 intraday high, due to profit-taking on political relief after Beijing-friendly President Ma Ying-jeou won another term in Saturday’s election, says Capital Securities assistant Vice President Diana Wu.

“Investors tend to trim positions ahead of the market close from Jan. 19-29 for the Lunar New Year,” she said. “Uncertainties over the euro-zone crisis will continue to weigh on financial stocks.”

Many had expected Mr. Ma’s win to push up the Taiex.

Grand Cathay Securities analyst Mars Hsu had said the Taiex could hit 7600 during trading Monday but would likely finish the day up only 1% to 2% for the day.

The Taiex has fallen 4% since mid-October, underperforming the regional MSCI Asia ex-Japan Index, which fell 2.9%, as challenger Tsai Ing-wen closed the gap with Mr. Ma in the polls. Credit Suisse attributed some of the underperformance to investor fear that a victory for the challenger could slow efforts to deepen Taiwan’s economic ties with China, which still considers the island a province.

Ms. Wu tipped the index in a 7100-7200 range for the session. Heavyweight Hon Hai is down 0.1% at NT$85.10, TSMC is down 2.2% at NT$75.80, Mega Financial is down 0.5% at NT$20.35 and First Financial is down 0.3% at NT$17.60.

Kospi Drops 4.2% on Kim Jong Il’s Death

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By Kanga Kong

South Korea’s Kospi has fallen sharply and is down 4.2% at 1763.49, the lowest level since mid-October, on renewed concerns about Korea’s longstanding geopolitical risk after news that North Korean leader Kim Jong Il has died.

Analysts say the impact of the unexpected news is hard to imagine and it remains unclear how long the stock market will be weighed by the news.

“What I can say now is that the shock on the market will be inevitable in the short term,” says Hyundai Securities analyst Bae Sung-young, who tips 1750 as initial support. “Risks to South Korea are back in focus. Judging from the past cases, I forecast the impact to last for two to three days only, but at the same time, this time it could be different (from the past) since the leader’s death came when the succession process still looks incomplete.”

HTC Shares Fall Ahead of Ruling in Apple Case

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Smartphone maker HTC shares are off 2.7% at 476.50 New Taiwan dollars amid broader gains by Taiwan’s Taiex, as the market continues to price-in a downward revision in its fourth-quarter 2011 revenue guidance, says Capital Securities analyst Diana Wu.

She adds that market concerns are also growing about a final verdict expected on Dec. 6 for an Apple suit that alleges that HTC violated two of its patents. “If Apple does win that suit then HTC may not be able to sell cell phones in the U.S., and that’s the main reason people still have concerns about HTC,” she says.

Wu tips support for HTC at NT$460.00. The Taiex is up 1.5% at 6884.59. HTC is a key Google partner, and like Motorola it has developed a number of mobile devices that run on Android.

–Paul Mozur

Easier FDI Rules Boost Indian Retail Stocks

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By Rumman Ahmed

Despite continuing concerns over domestic inflation and economic growth, the rupee’s recent record lows against the dollar, and the ever-present euro-zone debt worries, Indian retail stocks and the commercial real-estate sector are having a Black Friday of their own, surging after the country’s federal cabinet late Thursday approved easing rules on foreign direct investment in the industry.

The cabinet ruled to allow 51% FDI in the multi-brand retail segment, versus zero previously, and 100% FDI in single-brand retail compared with the previous limit of 51%.

“I expect a significant amount of FDI to come into the sector now,” said Ramesh Srinivas, partner at management consulting at KPMG. Mr. Srinivas said that foreign retailers, which have been testing the waters for some time now, are “in a state of readiness” to pump investment into India and he expects most of the foreign capital to come in the multi-brand retail segment, which will be of the most benefit to larger local retail-store chain operators.

Kim Eng Research said Indian retailers that could source capital from foreigners would be most likely to immediately benefit from the ruling, naming companies like Pantaloon Retail, Trent, Shoppers Stop, Spencer’s Retail and Reliance Industries as potential benefactors.   Pantaloon Retail was up 16%, Shoppers Stop rose 11%, Trent advanced 10%, and CESC, which operates Spencer’s Retail, jumped 10%.

Kim Eng added that property developers building retail space would also benefit as the size of investment in the sector increases.  A local dealer also said that while the fine print for the retail FDI rules is still not available, it’s widely believed that foreign retailers will be allowed to set up shops in cities with population of at least 1 million. This, he says, could mean higher demand for shopping centers in smaller cities where such infrastructure hasn’t yet developed as much.

He named real-estate developers like Unitech, DLF and Oberoi Realty as those that could be among the major beneficiaries of potential demand for retail infrastructure.

Toyota, Honda Hit New 2011 Lows

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By Bradford Frischkorn

Shares of Japanese auto makers are sharply lower, well underperforming the broader indexes, with Toyota, Honda and Nissan down 2.5% at ¥2,388, down 2.8% at ¥2,140, and down 1.9% at ¥660, respectively. Toyota and Honda hit new intraday lows.

The sector is seen suffering a fresh bout of selling due to worries over European debt problems and the yen’s strength.

“Foreign investors’ assets are under pressure, and selling in representative Japanese equity names is continuing,” said an analyst at Meiwa Securities.

Separately, Credit Suisse cuts Mazda Motor’s price target to ¥160 from ¥170, citing uncertainty in financial markets, a lack of investment appeal due to the strong yen, and a high level of exposure to the European market.

The brokerage modestly upped its targets for other auto makers such as Daihatsu Motor and Suzuki Motor, as well as Nissan, but yen concerns remain deep, affecting nearly all sector names to some degree.

Meanwhile, key Japanese tech names were also underperforming the broader market, with Sony off 1.8% at ¥1,279 after hitting a fresh 2011 low (¥1,270), and Elpida Memory down 6.1% at ¥323, just off a new year-to-date low.

Overarching concerns regarding exporters in general are hitting techs, says Tatsunori Kawai, chief strategist at kabu.com Securities, noting the dollar/yen fall to the ¥76 level (now ¥76.84).

“Sony’s earnings were simply not encouraging. Also the firm derives half of its annual sales during the holiday shopping period which officially starts on (Friday) — and the outlook there is not looking so strong either.”

Down on Olympus? You’re Not Alone

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Olympus shares are down 18% in Tokyo at Y1,670 each, extending Friday’s 18% fall on heavy volume. A string of brokerages downgraded the company after it said Friday that its first non-Japanese CEO, Michael Woodford, was fired and the executive spoke out about the company’s management.

An equity strategist at a Japanese brokerage says foreign investors are likely driving the selling, with uncertainty rising after Mr. Woodford said in an interview with The Wall Street Journal that his ouster was prompted by letters he wrote to the company chairman raising questions about the prices and advisory fees paid in a series of acquisitions between 2006 and 2008.

Nomura Securities cut its rating to Neutral from Buy and slashes its target price to Y2,000 from Y3,300. “With the firing of Mr. Woodford, who had been a strong proponent of cost-cutting, we no longer have any expectations of earnings improvement resulting from bold cost reductions in FY 2012 onward,” Nomura analyst Motoya Kohtani writes in a client note.

–Kana Inagaki

Singapore Dollar Rises; Biotech Fuels Growth

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The Singapore dollar rose sharply to a three-week low of 1.2686 vs. the U.S. dollar after the better-than-expected third-quarter GDP numbers from Singapore, while the central bank’s policy easing was broadly as the market expected.

Bloomberg
The MAS said it reduced the slope of the Singapore dollar trading band with no change to the width of the band or its level.

“The market certainly liked the upside GDP surprise,” DBS currency economist Philip Wee says, but he notes the pair may trade at the upper end of his expected trading band given the negative outlook for next year. He tips a 1.2600-1.2975 band in the near term. The USD/SGD is last at 1.2723 versus 1.2744 late Thursday.

According to Standard Chartered economist Edward Lee, the Monetary Authority of Singapore is estimated to have reduced the slope of what’s termed the SGD NEER appreciation path to 2% from 3.25% after the island nation’s economy barely escaped a technical recession. The MAS said it reduced the slope of the Singapore dollar trading band with no change to the width of the band or its level. The central bank doesn’t disclose the band in which it allows the Singapore dollar to trade. The move effectively slows the pace at which the local currency can appreciate.

“The MAS is clearly dovish on growth and it is also slightly dovish on inflation. We barely escaped recession in the third quarter as most of the growth came from the highly volatile biotech sector. The underlying trend is still for softer growth,” Mr. Lee said. The government reported GDP grew at 1.3% from the previous quarter on a seasonally adjusted and annualized basis vs the 0.7% expected rise.

Further, the data doesn’t dispel concerns over the impact from slowing global demand, as the key electronics sector has yet to show signs of recovery. Singapore’s trade ministry says the economy could grow about 5% this year, and growth could be weighed down for the rest of 2011 “by the softening global economic conditions. In particular, the electronics cluster is expected to remain weak due to the easing of global electronics demand.” This warning also dovetails with earlier signs of weakness seen in PMI data that were below 50 for three consecutive months up to September.

–Chun Han Wong, Gaurav Raghuvanshi and Sam Holmes

U.S.-Korea Trade Pact Could Lift Exporters

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Analysts expect the just-passed U.S.-South Korea free-trade deal by will help boost Korean exporters of products such as autos, technology products and textiles.

“The biggest beneficiaries will be the auto makers and auto parts vendors. Imposed tariffs on auto parts will be immediately removed,” says W.S. Lee, an analyst at Taurus Investment & Securities.

Despite their heavy dependence on exports, steel makers and shipbuilders aren’t likely to reap a huge benefit from the trade deal as tariffs aren’t currently imposed on most of their products, analysts say. South Korean parliament is expected to pass the deal later this month to let the pact go into effect as early as in January next year.

Hyundai Motor is up 2.2% at 212,000 won and auto parts maker Hyundai Mobis is up 2.8% at 346,500 won, both outperforming the Kospi’s 1.2% rise so far.

–Jung-ah Lee

Stake Purchase Boosts China Bank Shares

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Bloomberg

If Chinese officials intended to goose the share prices of the nation’s biggest banks with Monday’s investment, it looks like it worked.

Shares of China’s Big Four banks rose sharply Tuesday after a unit of the country’s sovereign wealth fund increased its stake in the lenders.

In Hong Kong Tuesday morning, Industrial & Commercial Bank of China Ltd. was 5.7% higher at 4.27 Hong Kong dollars (about US$0.55), Bank of China Ltd. gained 6.9% to HK$2.63, China Construction Corp. was up 5.2% at HK$5.08, and Agricultural Bank of China Ltd. soared nearly 11% to HK$2.93.

The benchmark Hang Seng Index was up 3.6% at 18,347.

In mainland China, ICBC was up 2.8% at 4.10 yuan (about US$0.65), Bank of China rose 3.1% to 2.96 yuan, China Construction Bank increased 3.6% to 4.57 yuan and AgBank gained 2.8% to 2.54 yuan. The Shanghai Composite Index was up 2.1% at 2394.50.

Central Huijin Investment Ltd., the domestic investment arm of China’s $400 billion sovereign-wealth fund, said Monday it had started buying shares of China’s four biggest banks. It didn’t give a specific reason for the purchases, but analysts said it was likely done to reassure investors and stabilize the stock market. The fund also said it would continue to buy the shares in the open market in the following year.

–Rose Yu