on stocks:
Asian Stocks Fall for Sixth Day on Bank Capital Raising, Profit Concerns
Asian stocks fell for a sixth day, the longest streak since
July, on concern Chinese banks need more capital and that
profit growth won't be enough to justify equity valuations.
Bank of China Ltd. lost 2.3 percent in Hong Kong on plans to
raise $5.86 billion from selling convertible bonds. Honda Motor
Co., which receives 42 percent of its sales from North America,
declined 1.7 percent on speculation U.S. measures to restrict
risk-taking at banks will derail the global recovery. BHP
Billiton Ltd., the world's largest mining company, sank 1.1
percent in Sydney as copper futures declined in London today.
The MSCI Asia Pacific Index lost 0.8 percent to 121.40 as of
4:45 p.m. in Tokyo. The index sank 4.2 percent in the past six
days on U.S. President Barack Obama's bank proposal and growing
concern China will take steps to rein in growth. Companies on
the gauge are priced at 1.6 times book value, near the highest
level since September 2008. ``Asian markets are correcting over
concerns the trajectory of growth is insufficient to justify
some valuations,'' said Tim Schroeders, who helps manage $1.1
billion at Pengana Capital Ltd. in Melbourne.
India Hit by Record Low `Buys' as Subbarao Poised to Raise Interest
Rates
Investment strategists are cutting recommendations on India
at a record pace after the country's stocks surpassed China as
the most expensive major emerging market for the first time
since 2006. The Bombay Stock Exchange Sensitive Index is valued
at 20 times estimated profits, higher than China for the first
time since November 2006 and the second-most expensive among
the 25 biggest markets after Japan, according to monthly data
compiled by Bloomberg. Even after the Sensex sank 4 percent
last week, the most in almost three months, its stocks trade
within 6.1 percent of analysts' average 12-month price
estimates. Rising valuations prompted analysts to cut ``buy''
ratings on Indian equities to a record low. Goldman Sachs Group
Inc. said the Reserve Bank of India plans its first interest
rate increase since 2006 this week to curb inflation. The last
eight times wholesale price increases climbed above their
long-term average, the Sensex posted average losses of 5.6
percent, Bloomberg data show. ``There are better opportunities
in other emerging markets,'' said Roger Groebli, the
Singapore-based head of financial market analysis at LGT
Capital Management, part of a group that oversees about $84
billion. India ``will be an underperformer for the first
quarter,'' he said.
VIX Options Show Bets on U.S. Stock Market Retreat Rising to 19-Month
High
Traders are piling into bets that the biggest sell-off in
U.S. shares since March will increase stock market volatility,
pushing call options on the VIX Index to the highest level in
19 months. Outstanding contracts speculating on an advance in
the Chicago Board Options Exchange Volatility Index climbed to
three times the number of wagers for a drop, the highest ratio
since June 2008, data compiled by Bloomberg show. The VIX,
which measures the cost of using options as insurance against
declines in the Standard & Poor's 500 Index, moves opposite to
equities more than 80 percent of the time. Investors are
doubling down after some of last week's most- traded options
rose 75 percent on Jan. 22. They're speculating President
Barack Obama's proposals to limit risk-taking by banks and
signs China will rein in growth will extend the S&P 500's drop
after it fell 5.1 percent in the last three days. ``There is
higher probability that we will see moves to the downside,''
said Tim Freeman, head of U.S. equity derivatives sales at
Capstone Global Markets LLC in New York. ``The changes that are
being proposed to the banking industry, the political
motivations and the policies that are being considered are game
changers and they will move this market in a big way.''
U.S. Stocks Fall Most Since October Amid Curbs on Bank Speculation,
China
U.S. stocks declined for a second week, sending the
Standard & Poor's 500 Index to the biggest drop since October,
as banks plunged on a White House proposal to limit financial
risk and China moved to cool economic growth. JPMorgan Chase &
Co. and Morgan Stanley slumped more than 8 percent as President
Barack Obama called for limiting speculation to prevent another
financial crisis. Exxon Mobil Corp. lost 4.4 percent and Alcoa
Inc. tumbled 14 percent on concern Chinese demand for
commodities will slow. The S&P 500 erased its 2010 gain,
retreating 3.9 percent to 1,091.76 for the week after closing
at a 15-month high on Jan. 19. The Dow Jones Industrial Average
fell 436.67 points, or 4.1 percent, to 10,172.98. The Nasdaq
Composite Index decreased 3.6 percent to 2,205.29. ``It's a
one-two punch,'' Ralph Fogel, head of investment strategy at
Fogel Neale Partners in New York, said of the curbs on Chinese
growth and Wall Street firms. ``In the end it's going to have
the same impact -- less flow of money into the marketplace.''
Decline in U.S. Stocks Pays Options Traders 75% Profit on Volatility
Bets
The biggest sell-off in the Standard & Poor's 500 Index
since March is rewarding options traders who bet on a surge in
volatility with gains of 75 percent. ``It's been a nice shift
for some people,'' said Justin Golden, a strategist at New
York-based Macro Risk Advisors LLC, which advises institutions
on equity derivatives. ``Before this week, the long options
community had been very frustrated. Volatility has been on a
downward path.'' Traders who buy options that gain in value
when the VIX rises are usually betting equities will retreat
because the volatility gauge moves in the opposite direction of
the S&P 500 more than 80 percent of the time. Financial and
technology stocks led the market lower yesterday as some
Democrats said they will oppose Ben S. Bernanke for another
term as head of the Federal Reserve and results at Google Inc.,
the Mountain View, California, owner of the world's most
popular search engine, disappointed investors. Wagers that the
Chicago Board Options Exchange Volatility Index would jump 46
percent to 32.5 were the most-active contract on Jan. 20 and
21, according to data compiled by Bloomberg. An increase to
that level corresponded with a decline of about 3 percent in
the Standard & Poor's 500 Index, said Randy Frederick, the
Austin, Texas-based director of trading and derivatives at
Charles Schwab & Co.
Canada Stocks Fall as Banks Slip on Concern Over Obama Plan; Barrick
Rises
Canadian stocks fell for a third day, completing their
biggest weekly drop since October, on concern that proposed
U.S. bank regulations will affect Canada's financial
institutions and that higher interest rates in China will slow
growth. Royal Bank of Canada, the country's largest bank,
dropped 2.4 percent a day after U.S. President Barack Obama
proposed limits on risk-taking. Nexen Inc., the energy company
that operates in Canada, Europe and Africa, decreased 4 percent
as crude oil futures sank to a one-month low. Teck Resources
Ltd., which sells coal to steel mills in China, declined 2.4
percent. ``Canada has been hit by a couple things: The
uncertainty caused by the Obama administration on its financial
plan and also, of course, we're relying so heavily on China,
there is a consideration there when rumors start heading around
they're going to stop aggressive lending practices,'' said Greg
Eckel, a money manager at Morgan Meighen & Associates Ltd. in
Toronto, which manages about C$900 million ($853.1 million).
The Standard & Poor's/TSX Composite Index tumbled 125.67
points, or 1.1 percent, to 11,343.67, its lowest close since
Nov. 6. For the week, the index lost 2.9 percent.
Global Stocks `Vulnerable to Correction' After Rally, Investor Rogers
Says
Global equities are ``vulnerable to correction'' after
rallying from their March lows and as governments around the
world withdraw stimulus measures, said investor Jim Rogers,
author of ``A Bull in China.'' The MSCI World Index climbed 67
percent from a more than 13-year low on March 9 as governments
boosted spending and central banks cut borrowing costs to pull
the global economy out of its worst recession since World War
II. The gauge has fallen 4.9 percent from a 16-month high on
Jan. 14. ``We're overdue for a correction'' said Rogers,
chairman of Rogers Holdings, said in an interview in Hong Kong.
``Stock markets around the world have been going up for the
past 10 months.'' The steepest stock market rally since the
1930s pushed worldwide valuations to six-year highs, helped by
more than $8 trillion in global spending to end the recession.
The MSCI World Index of 23 developed countries trades at more
than 28 times annual profit of its companies, near the highest
level since 2002.
European Stocks Retreat for Fourth Straight Day; U.S. Index Futures
Climb
European stocks fell for a fourth day, the longest losing
streak in two months, after U.S. shares plunged the most since
October and Ericsson AB reporting disappointing earnings. Asian
equities declined and U.S. index futures rose. Ericsson, the
world's biggest maker of wireless networks, sank the most since
November after fourth-quarter profit missed analysts'
estimates. Royal Philips Electronics NV, Europe's biggest
consumer-electronics maker, climbed 4.6 percent after posting a
third straight quarterly profit. The Dow Jones Stoxx 600 Index
lost 0.3 percent to 249.21 at 8:41 a.m. in London for the
longest stretch of declines since Nov. 20. The benchmark index
for European equities erased all of its gains for the year last
week after U.S. President Barack Obama called for a limit on
risk-taking by banks and concern mounted that China will take
measures to stem economic growth. ``The optimistic consensus at
the start of the year has been called into question,'' said
Matthieu Giuliani, a fund manager at Palatine Asset Management
in Paris, which oversees $5.7 billion. ``Growth has been weak.
We don't see a jumpstart in companies' sales figures. We need
to see a stronger rebound in economic data.''
Dubai Index Drops Most in Month on Obama Bank Plan, Oil; Leads Gulf
Lower
Dubai's index lost the most in a month, leading Gulf
markets lower, after U.S. stocks fell on a White House proposal
to limit financial risk and as China moved to cool economic
growth. Oil closed at a one-month low. Shuaa Capital PSC, the
United Arab Emirates' biggest investment bank, slumped to the
lowest level since May. United Development Co., the Qatari
developer building man-made islands off the Qatari coast,
retreated to the lowest in almost two months. The DFM General
Index fell 5 percent, the most since Dec. 9, to 1,570.09.
Qatar's gauge lost 1.6 percent. Crude closed down 2 percent at
$74.54 a barrel on Jan. 22. ``Friday's declining oil prices and
U.S. equities have had an impact, the Gulf always overreacts to
U.S. equities downside,'' said Mohamed Abu Ghoush, head of
equity brokerage at Al-Ahli Bank in Doha, Qatar. ``Markets are
still waiting for the 2009 results.'' Dubai's index has dropped
or gained more than 5 percent 16 times in the past 12 months,
that compares with twice for Abu Dhabi's measure, according to
data compiled by Bloomberg.
U.K. Stocks Cheapest on Record Versus European Peers: Chart of the Day
U.K. stocks are trading at the cheapest level on record
relative to their European peers, a sign to investors they are
worth buying even after the biggest rally in more than two
decades, according to top-ranked strategist James Montier. A
measure of valuing stocks, as used by Yale Professor of
Economics Robert Shiller, shows U.K. stocks are trading at 12.4
times earnings, compared with 17.9 for the rest of Europe.
That's the widest gap since at least 1973, according to data
from Morgan Stanley and Datastream. The CHART OF THE DAY
compares Shiller's price-to-earnings ratios for Datastream's
baskets of U.K. and other European stocks. The benchmark FTSE
100 Index has surged 51 percent from its low in March last
year, the biggest 10-month gain since 1987, raising concern
that prices have exceeded forecasts for earnings growth.
``Investors should react by remembering that valuation
matters,'' said Montier, a strategist at Grantham Mayo Van
Otterloo & Co. in London. ``The U.K. does look a little bit
cheaper.''
Japanese Stocks Decline for Second Day on Obama Proposal, Earnings
Concern
Japanese stocks fell for a second day on concern a plan by
U.S. President Barack Obama to limit risk-taking at banks will
crimp profits and as earnings reports further eroded confidence
in a global economic recovery. Kyowa Hakko Kirin Co. declined
4.3 percent, the steepest drop in the Nikkei 225 Stock Average,
after the drugmaker said profit missed its forecast. Mitsui
Chemicals Inc. sank 4.2 percent after the Nikkei newspaper said
its sales dropped. Toyota Motor Corp., the world's largest
carmaker, lost 2.1 percent after saying it's checking whether
to expand a recall. ``The fact that people are selling so much
shows the insecurity they have about the likelihood of Obama's
plan proceeding,'' said Masaru Hamasaki, chief strategist at
Tokyo- based Toyota Asset Management Co., which oversees the
equivalent of $14 billion. The Nikkei 225 fell 0.7 percent to
10,512.69 at 3 p.m. in Tokyo, its lowest close since Dec. 25.
The broader Topix index dropped 0.7 percent to 934.59, with
more than twice as many stocks declining as advancing.
Japan Price-to-Assets Makes Companies Cheapest Among International
Stocks
Not even the slowest economic growth in the industrialized
world or deflation can keep Byron Wien, David Herro and John
Alkire away from Japanese equities. Wien, the Blackstone Group
LP adviser who predicted last year's rallies in stocks and oil,
says Japan shares are his favorites. Harris Associates LP's
Herro, Morningstar Inc.'s international manager of the decade,
says stocks at the cheapest ever relative to assets will gain
even if the economy stagnates. Alkire of Morgan Stanley Asset &
Investment Management is betting low debt levels will spur an
advance that beats the U.S. Japan, the world's second-biggest
equity market, added 3.7 percent this year as measured by the
Topix index through last week, the most among the world's 10
largest economies. Overseas investors pumped almost $13 billion
into Japan during the two weeks ended Jan. 15, the most since
2004. Companies trade for an average 1.2 times book value,
almost half the valuation for the Standard & Poor's 500 Index,
according to data compiled by Bloomberg. ``My best investment
idea is Japan,'' said Wien, 76, a former market strategist at
Morgan Stanley and at hedge fund Pequot Capital Management Inc.
who predicted the end of the technology bubble in 2000. ``The
Japanese market looks relatively attractive assuming the
earnings come through, which I think they will.''
Hong Kong's Hang Seng Index Drops for Fourth Day; Completes 10%
Correction
Hong Kong stocks fell for a fourth day, dragging the
benchmark Hang Seng Index down more than 10 percent from its
high in November and giving the developed world its first
so-called correction of the year. Bank of China, the nation's
third-biggest lender, slipped 3.1 percent, extending its
decline since reaching a two-year high on Nov. 17 to 23
percent. Bank of Communications Co., China's fourth-largest
lender, dropped 2.6 percent. Angang Steel Co. and Maanshan Iron
& Steel Co. both fell on concern costs for Chinese steelmakers
will escalate due to rising iron ore prices. Petroleum stocks
declined as oil retreated today. Energy stocks have been among
the worst performers since November. The Hang Seng Index slid
0.6 percent to 20,598.55 at the close of trading in Hong Kong,
its lowest closing level since Oct. 5. The measure has tumbled
10.2 percent since closing at a high of 22,943.98 on Nov. 16.
Shares in Hong Kong have retreated more than three times as
fast as the MSCI World Index of 23 developed markets this year
as investors sold the city's banks and energy producers on
speculation China will rein in economic growth. Today's decline
marked the first 10 percent retreat in the developed world
since Greece's Athens Stock Exchange General Index lost 30
percent starting in October.
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