Friday, October 1, 2010

Family Dollar Underscores Improving Retail Landscape

image It's been a good week of sorts for the retail industry after Wal-Mart (WMT) become the first major retail giant to jump in the African market with a $4 billion bid for South African wholesaler Massmart.

And now Family Dollar Stores (FDO) has forecast profits for the current fiscal year that are bound to beat the estimates of even the most skeptical of analysts. The forecast not only sent the shares up 1.6%, but also paved the way for the company to announce plans to open 300 new stores during fiscal 2011, up 50% from fiscal 2010. With retail giant Wall Mart looking at overseas destinations to churn out profits in a sluggish US economy, Family Dollar Stores, which prices most of its goods under $10, has attracted consumers struggling in a weak economy.

The company also posted a fourth-quarter profit that beat analysts' estimates and said it had authorized a new $750 million share repurchase plan while it's expecting to reap sales benefit of longer store hours, and an overhaul to give more room to fast-moving items like food introduced earlier in the year.

Retail analysts across the board have been impressed by the recent work-ethic of the company and are of the opinion that Family Dollar can continue to be dollar store of choice, given the significant opportunities the company has to narrow its productivity gap compared to rival Dollar General (DG).

Impressive Figures: Family Dollar forecast fiscal 2011 earnings of $2.95 to $3.15 a share on a same-store sales increase of 5% to 7%. Analysts on average forecast $2.96 a share. Net income in the June-August quarter was $74 million, or $0.56 a share, beating the analysts average level of $0.51 a share, compared with $60.1 million, or $0.43 a share, a year ago.


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Huge Indian Demand to Drive Global Coal Export Boom

image India, Asia's third largest economy is bracing itself for a huge import of coal in order to fulfill apart of its ever increasing energy requirements as the country plans to add a capacity of 100,000 MW of power during 2012-17. India faces peak hour power shortage of nearly 14 % as of today and sector firms have lined up to raise funds as they expand generation and transmission capacity to satisfy a rapidly urbanizing population and rising industrialization.

India's government has meanwhile promised to modernize its ports to accommodate larger vessels and make transporting iron ore and coal to roads and railways more efficient. Coal powers 75 percent of India's electricity, but local output lags swelling demand. Imports are expected to grow to 100 million MT in 2011/12 from 80 million MT now.

Coal is a complex natural resource that is primarily used to fuel power or cement plants, two commodities that are expected to see increases in demand as global populations increase and per-capita income in developing nations increase.

In fact last month, India's Adani Enterprises agreed to invest $1.65 billion in an Indonesian coal port and railway project, and acquired stake in Australian miner Linc Energy's Galilee project for $2.7 billion.

Increased demand for coal is already being seen in China, which accounts for nearly half of global coal demand and being used for power generation and metallurgical coal to produce steel. Now with an increase in demand in neighboring India, the two Asian neighbors can consume a lot of coal put together to fulfill their economic dreams of industrialization and growth.

Meanwhile Coal India, the world's largest coal producer, plans to launch a public offer of its shares next month, the biggest ever in the country. The company made a net profit of 98.294 billion rupees ($2.17 billion) in 2009/10 ended in March on revenues of 525.922 billion rupees.

In 2010/11, India's coal demand is seen at 656.31 million MT, while indigenous availability is estimated at 572.37 million MT.


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U.S. Yuan Bill: From Currency War To Trade War

image Just days after the reports of possible currency wars between nations have been in the limelight, after the drop in the US Dollar's value was attributed to the Federal Reserve’s willingness to continue quantitative easing, Beijing's Foreign Ministry has warned that the upcoming House of Representatives bill to penalize China for not letting the Yuan rise faster could seriously affect bilateral ties between the two giant nations.

The comments come after The U.S. House of Representatives began debate on legislation to put pressure on China to let its currency rise faster, fanning the flames of a long-running dispute over trade and jobs. The measure is most likely to be discussed in the U.S. congressional election on Nov. 2, with voters worried about their jobs and a sluggish economy. The Bill if passed would open the door to extra duties on Chinese goods entering the United States, some of which are already subject to special levies.

China's Foreign Ministry spokeswoman Jiang Yu has suggested that the US Congress should avoid steps that could harm relations between the two nations with Beijing being strongly opposed to the bill. Currency and economic experts don’t expect China to take things lying down and might be forced to retaliate if the bill is indeed signed into a law by President Obama. China Meanwhile has adopted a wait and watch approach as of now, but the if the statements coming out from Chinese sources are a barometer of the Chinese mindset, then we might be just sitting at the transition of currency wars into an ego and Trade war.

Obama and Chinese Premier Wen Jiabao had earlier discussed the issue about China's currency and huge trade surplus on the sidelines of the U.N. General Assembly last week.

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Will Change of Guard at BP Actually Change Anything?

In an apparent attempt to restore BP PLC's reputation in the wake of the Gulf of Mexico oil spill, the company’s new incoming Chief Executive Robert Dudley has announced big changes in the company's management with an eye on improving safety standards. Although the change is a positive news coming from the Oil major in a number of months after the hard times, still experts feel that announcing changes is one thing but to actually carry out and implement the safety procedures and other changes sucessfully is a difficult and lengthy process and it remains to be seen how successful the changes might be in the long run.


BP's incoming Chief Executive Bob Dudley has not only ousted the oil group's exploration and production chief following the Gulf of Mexico oil spill but has also appointed a new safety guru, Mark Bly, who would ensure safe practices across the organization. October 1 marks the start of BP's Year Zero, a fresh start following the capping of the Macondo well in the Gulf of Mexico. The revolution begins in exploration and production. The engine room of the UK oil major's profits is being broken into three and Andy Ingles, the director in charge, is leaving. His number two, Doug Suttles, seems likely to follow.

Although the management claims that Bly's role will be stronger than previous safety chiefs as he will have representatives in each business unit that will have the authority to intervene if they feel practices are not meeting BP's safety standards, skeptics feel that having a so called internal police force with its "expert staff" poking their noses into every operating might lead to ego clashes and conflicts in the future, things that are least required at this stage.

The critics have a point as well because the company had made long standing promises earlier as well to improve safety after the blast at its Texas City refinery in 2005, which killed 15 people and injured 170 but nothing had really improved at ground zero leading to the horrific oil spill in the Gulf of Mexico.
BP has already lost more than a third of its stock-market value since April 20, when one of its gulf wells blew out, destroying the Deepwater Horizon drilling rig, killing 11 men and triggering the worst offshore oil spill in U.S. history. BP finally killed the well earlier this month.


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China Investment Guide-II: The Real Face of The Chinese Realty Bubble

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As the world fights deep recession, which is getting murkier by the day, much of the world’s global capital has been flocking to China in recent years in anticipation that China's growth can act as a protective shield. Although this investment route has worked well in the past year but now it seems like a perfect case of putting the cart before the horse as China's inflated equity and real estate growth built largely on government-led economic stimulus measures and soaring asset prices, which lead to low interest rates and massive fiscal deficits, have run out of steam and its quite evident that the Chinese bubble is already on its way to bust bringing an abrupt end to the boom.

A growing number of economists and market analysis have expressed deep concern that the busting of the Chinese Realty bubble has the potential to rattle the world economy that is still struggling to recover from the global meltdown. Chinese economic crisis, which could have been shrugged off a few years ago, is now a considerably more serious event in a world in which Beijing runs the second-largest economy.

Soaring real estate prices in China's coastal cities, with prices rising as much as 50% a year, have lifted some rents to unprecedented levels. The biggest risk to China’s economy is the desire of the Chinese government to maintain past economic growth rates by maximizing investments in property.

  • According to a recent Bloomberg report China’s home prices will start declining from this month as the government maintains its lending curbs and increases the supply of public housing, forcing property developers to cut prices to boost sales.
  • Statistics from Goldman Sachs showed that over the past six years, housing price hikes have outpaced income rises by 30 percentage points in Shanghai and 80 percentage points in Beijing. In Beijing, the housing price of per square meter is as much as a resident's seven months' salary on average.
  • The average price-to-income ratio in Beijing has reached 27:1, five times the world average, according to data from the Bureau of Statistics of the Beijing Municipality.
  • Economists have expressed concern that when the China Real estate bubble pops, countries with economies heavily dependent on exporting commodities to China, like Australia and Brazil are likely to go down with the China ship.
  • Official government statistics, which are considered to be unreliable, show house prices in Shanghai are rising at 11% a year but agents and local people say the reality is more like 50%. According to the investment bank Goldman Sachs, in recent years housing prices in Beijing have risen 80 percent faster than wages.

Imminent Realty Price Correction: A recent Bloomberg report has quoted Beijing-based analysts at BNP Paribas as saying that China’s home prices will start declining from this month as the government maintains its lending curbs and increases the supply of public housing, forcing property developers to cut prices to boost sales. China’s property developers, the worst-performing group on the benchmark Shanghai Composite Index this year, will “continue to be affected” as the government maintains its curbs on the industry, the BNP analysts said. With the correction of the Chinese Real estate prices as projected by BNP Paribas, there are bound to be deep economic repercussions in China. Private housing investment accounted for around 15% of total investment volume in urban areas in 2008 and about 13% in 2009 while output in the home construction industry constitutes around 6% of China's GDP, employs around 14% of all workers in urban areas, and consumes around 40% of all steel and lumber produced in China. Hence the slowdown in China's housing production or a significant house price decline on the household sector is going to have a very direct impact on the China's economic growth.


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Research in Motion: A Case of Too Little, Too Late?

President Barak Obama's statement that he was "bored" of his blackberry handset with only a handful of people authorized to email the super-encrypted device, Research in Motion (RIMM) knew that it constantly needs to be innovative if it needs to be a top ranker in the mobile telecommunication business. With the growing competition from Google’s (GOOG) Android based phones and Apple’s (AAPL) iPhone, Research In Motion introduced its version of the Tablet PC named ‘the PlayBook’ at its annual developers’ conference yesterday.

The BlackBerry PlayBook with its 7-inch display touch screen is smaller than its rival Apple's iPad and aimed at business and corporate users, which have been RIM’s core customers for its e-mail and messaging phones.

Although the announcement of the new device was well timed which came close to the news of Apple i-4 phone's euphoric sales in China, the world's largest communication device market, the one thing that the company would have least expected is the negative stock trends after the announcement instead of any substantial buying interest.

Research In Motion shares fell 3.4 percent, as concern over the late release date of the BlackBerry PlayBook tablet computer prompted investors to claw back some of the stock's recent gains. Although the decline in the RIMM's stock was not entirely unexpected given its strong rise in the run-up to the release, the company has already given the lead to its rival Apple as its next generation iPad will be in he markets by the time Blackberry Playbook rolls out its version 1.0.

While most analysts and communication device gurus have lauded the PlayBook's sleekness and compact size, the projected release date of early 2011 makes it difficult to penetrate the consumer market that Apple dominates and looking to consolidate.

The one thing Playbook may have going for it is a focus on enterprise functionality such as the opening of BBM as a social platform and a BlackBerry Advertising service giving developers the tools to build applications that take advantage of the social aspects of the popular BBM service. However competing with an innovative company like Apple and giving them a head start in the market is not considered as the best of strategies.



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Demystifying China's Iron Ore Price Negotiations

image After being labeled as a savior and a threat to the world’s steel industry, China is slowly pulling back on its steel production after restarting a war of world's over setting up the prices for China's biggest import commodity. The China Iron and Steel Industry Association (CISA) has suggested that iron ore prices should be linked to steel prices instead of iron ore indexes while top global Iron Ore majors including Rio Tinto Group (RTP), BHP Billiton Ltd.(BHP) and Brazil's Vale SA (VALE) ended a 40-year custom of setting annual prices in favor of quarterly agreements.

Difference Over Iron Ore Pricing

The Chinese Steel Industry Association argues that the current iron ore pricing system that is based on price indexes reflects only a small portion of the iron-ore trade that passes through the spot markets, and therefore should not be the determinant of sea borne iron-ore prices while Iron Ore majors including Rio Tinto Group, BHP Billiton Ltd. and Brazil's Vale SA, which account for three-quarters of global iron ore trade, ended a 40-year custom of setting annual prices in favor of quarterly agreements as they bet on rising prices.

Even as the war of words continue to mount, Jose Carlos Martins, head of ferrous business for Vale SA, told an industry conference that iron ore pricing indexes including spot and benchmark iron ore prices were also converging acknowledging that Asian steel mills still prefer a quarterly pricing system.

Tensions peaked last year when CISA failed to clinch an annual pricing deal and a Shanghai court jailed four Rio Tinto employees, including Australian citizen Stern Hu, for stealing commercial secrets and taking bribes. Their arrest at the height of fraught term iron ore price negotiations in 2009 strained ties between Australia and China, and shocked the Chinese steel industry.

Meanwhile as the price wars begin to develop into a serious difference of opinion, China, the largest buyer of iron ore, is considering recycling the scrap metals to reduce steel makers' import dependence. Iron ore sold by BHP and Rio will post their first price decline as a result in three quarters as automakers and builders in China cut orders for steel.

China, the biggest buyer of the raw material used in making steel, expects to lift iron ore production by about a quarter to more than 1,1-billion tons this year and cut imports as it tries to rely less on the global miners. CISA however says that while domestic steel prices will remain volatile in the near term, demand should pick up in the fourth quarter because of the growing Chinese economy.


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Why M&A For Metal Majors Is A Bad Idea

Mergers and Acquisitions have been the prime driving force of the markets in the recent week across a majority of segments. Such has been the force of M&A's that world stocks hit their highest level in nearly five months on Monday while oil prices rose as growing corporate merger activity and last week's upbeat U.S. economic data encouraged investors to buy risky assets. Thomson Reuters recent data shows that global mergers and acquisition activity announced so far this year totaled $1.678 trillion, surpassing volumes in the first nine months of 2009.

While there is no doubt that Mergers and Acquisitions can work in favor in the long term if the prospect of incoming organization has some synergy with the buying organization happen when companies have surplus cash in hand but problems happen when companies start to buying things loosely associated with their business as witnessed in the early 1970’s to 80's when oil companies had so much cash they didn’t know what to do with it.

Similar story is seen to be replicating in the Metals sector with the recent takeover bids by BHP Billiton and Vedanta showing a bounty of cash from high metals prices is slowly enticing miners to chase pricey takeovers and build unwieldy conglomerates. When mining groups seek acquisitions in new sectors like fertilizer in the name of diversification they can easily destroy value by paying full prices when synergies are lacking, analysts warn.


BHP, the world's top mining group, surprised many investors last month when it unveiled a $39-billion hostile bid the largest takeover offer so far this year for the world's biggest fertilizer maker, Canada's Potash Corporation. Critics of the BHP-Potash deal say it is unlikely to add value since there are no synergies and BHP has scant experience in the sector but BHP continues to be bullish on the crossover Merger and argues it has expertise in large capital projects and the takeover will further diversify the group.


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Analyzing Walmart's Head Start In The African Race

Ending all speculations of a possible acquisition in Africa, Wal-Mart Stores Inc's has become the first major retail giant to jump in the African market with a $4 billion acquisition for South African wholesaler Massmart. The move comes just a couple of months after World Market Pulse research report highlighted in its research report the beginning of growth period for the African continent

The move by the US retail giant one the hand highlights the company’s futuristic approach by betting on growth in the African continent but also suggest emerging patterns of moving away from the sluggish US markets for better international ventures.

There is no doubt that some African nations offer a tremendous growth opportunity for the investors especially for those looking at emerging economies outside the bric nations. Of course there are people who are skeptical of the kind of growth African nations can achieve but like South Africa showed with the successful completion of the Fifa World Cup Football 2010, the continent is ready to attain its lost glory.

Massmart, South Africa's third-largest listed store group by value owns chains such as Game and Makro and has been among the most aggressive South African outlets in expanding into the rest of sub-Saharan Africa, operating in 14 countries. Walmart offered 148 rand per share for Massmart, valuing it at 28.9 billion rand ($4.1 billion) or a premium of nearly 10 percent over the share price at Thursday's close of 134.75 rand. While it might take some time for the acquisition to make statistical sense most analysts are of the opinion that the retail giant with more than $10 billion in cash on the books at the end of July is well within economic business sense to go ahead on the African safari. Moreover its not the first time that the company has focused more on the international front as Wal-Mart's international sales rose about 11 % last year as the company started focusing on expansion outside the United States with international revenues accounting for about a quarter of the company's overall sales. Highlighting the company's international plans, the company has added more than 60% of its new international retail space in the first quarter of this year alone.


South African Growth Overview:

As much as the South African Reserve Bank lowers interest rates, consumer spending remains unchanging. Rather than being a consumer-driven economy South Africa thrives on a product-based economy. Materials production is at its highest. South Africa’s ports help transport the majority of the world’s oil. Apart from currency ETFs, the South African stock exchange operator JSE Ltd hopes to list a platinum exchange traded fund (ETF) on the bourse this year as it looks to capitalize on increasing investor appetite for commodity-based products. JSE was also looking at launching an Africa ETF in South Africa, which would trade blue chip firms from other big economies on the continent, particularly Egypt, Kenya and Nigeria.


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Currency Wars And The Fall Of The US Dollar

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Gone are the days when the currency of a country was regarded as a barometer of a country's economic conditions. As the global economies, business and market trends change momentum towards the east, the relationship between a country's economy and its currency is getting much more complicated as governments across the globe are assuming a bigger role in propping up the financial system and encouraging economic growth.

Just as the US government released its employment data released last week, the U.S. durable goods orders data and poor the dollar index fell below the key support level of 80 points, fell over seven month low 79.255. The move came after the Federal Reserve said it would restart the quantitative easing monetary policy. Surprisingly just a week after the National Bureau of Economic Research’s Business Cycle Dating Committee finally announced that the recession officially began in December 2007 and the economic downturn ended and the recovery officially began in June 2009, the US Dollar has been virtually in the red zones to its lowest level since February as stronger-than-expected data in Europe and a drop in US durable goods orders hurt demand for the greenback. The dollar also fell to its lowest in more than a week against the yen.

Although most experts agree that the drop in the dollar was mainly due to the Federal Reserve’s willingness to continue quantitative easing. An excess supply of dollars obviously leads to a fall in its value. Some traders attribute the dollar’s fall to the increase in risk appetite. This analysis does not ring true as the price of gold is making new highs, which actually signals risk aversion.

US Vs China

Although its not just the yen but the Yuan as the depreciation of the Yuan compared to the Dollar has caused a growing tension between The U.S and China in recent weeks. The U.S is blaming the cheap Yuan for its economic issues and even financial sanctions against China have been on the cards. If these two giant economies are starting to threaten each other, the impact on the ever-slowing recovery could be enormous.

Meanwhile China's vice commerce minister has described the U.S. House of Representatives Ways and Means Committee approved bill that would let the United States apply duties on goods from countries with undervalued currencies as being "redundant". The Yuan rose against the dollar on Monday even though the central bank lowered its mid-point after nine days of stronger fixings in the face of growing U.S. pressure on Beijing to let the currency rise faster.

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About World Market Pulse

An unbiased review of world markets. Review of current market scene, news, events and forecasting for the days to come.
Our focus is on prominent emerging markets, major world markets and national financial centers of big industrialized nations.

There are many markets that have their own personality and they do not necessarily follow the United States Financial markets. We can post news, views and analysis and forecasts for specific market areas to enhance value for your portfolios. If you are based outside the country of interest, you could participate in the world markets by investing in Exchange traded funds about we would be discussing and providing ample information.