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China’s Premier Wen Jiabao

Nelson Ching/Bloomberg

Wen Jiabao, China’s premier, is trying to prevent a deceleration in economic growth from worsening.

Wen Jiabao, China’s premier, is trying to prevent a deceleration in economic growth from worsening. Photographer: Nelson Ching/Bloomberg

May 15 (Bloomberg) — Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, talks about China’s economic growth outlook and its central bank monetary policy.
Foreign direct investment in China fell for sixth month in April, dropping 0.7 percent from a year earlier to $8.4 billion, the Ministry of Commerce said today in Beijing. Zhang speaks with John Dawson on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

May 14 (Bloomberg) — Dariusz Kowalczyk, a strategist at Credit Agricole CIB, talks about the outlook for China’s economy and central bank monetary policy.
Kowalczyk also discusses the debt crisis in Europe with Susan Li, John Dawson, Mia Saini and David Ingles on Bloomberg Television’s “Asia Edge.” (Source: Bloomberg)

Foreign direct investment in China
fell for a sixth month in April, the longest stretch of declines
since the global financial crisis, amid renewed turmoil in
financial markets.

Inbound investment dropped 0.7 percent from a year earlier
to $8.4 billion, the Ministry of Commerce said today in Beijing.
That compares with a 6.1 percent drop in March.

Today’s data underscore the risk of a deeper slowdown in
China after April export and import gains missed estimates and
industrial output growth was the slowest since 2009. China cut
banks’ reserve requirements on May 12 to spur lending and arrest
the deterioration, with UBS AG and Bank of America Corp.
lowering their second-quarter and full-year growth estimates.

“Trade data was bad, production data last week was bad,
and this time FDI is also pointing to the same direction,”
Zhang Zhiwei, chief China economist with Nomura Holdings Inc. in
Hong Kong, said in a Bloomberg Television interview today. The
reports show a “very weak economy at this moment,” with
chances of an interest-rate cut rising though “still below 50
percent,” Zhang said.

The yuan fell against the dollar for the seventh time in
eight days, slipping 0.02 percent to 6.3225 as of 12:46 p.m. in
Shanghai. The MSCI Asia Pacific Index of stocks dropped 0.9
percent at 1:31 p.m. in Tokyo.

The estimates of five analysts in a Bloomberg News survey
on foreign investment ranged from a gain of 8.2 percent to a
drop of 3 percent.

Cumulative Decline

Foreign direct investment in the first four months fell 2.4
percent from a year earlier to $37.9 billion after a previously
reported 2.8 percent decline in the first quarter and a 26
percent jump a year ago. FDI rose 9.7 percent in 2011 to $116
billion, according to Commerce Ministry data.

Commerce Ministry spokesman Shen Danyang said today that
authorities are “prudently optimistic” about the outlook for
foreign investment, which has dropped partly because of the
lackluster global economy. He said he’s “neither optimistic nor
pessimistic” on trade.

A post-election impasse in Greece added to signs of stress
in European markets yesterday as the euro fell for the 10th time
in 11 days and stocks surrendered a two-day gain.

FDI from the European Union in the first four months of
2012 slumped 27.9 percent to $1.9 billion from a year earlier,
the ministry said today, while investment from the U.S. rose 1.9
percent to $1.05 billion.

“The negative trend reflects concerns over China’s lower
growth potential” as well as the global economic outlook and
weaker access to funding, said Dariusz Kowalczyk, senior
economist and strategist with Credit Agricole CIB in Hong Kong.
The risk is increasing of China failing to meet its 2012 growth
target, while odds of further monetary and fiscal easing are
also rising, Kowalczyk said in a note today.

Pimco Forecast

Pacific Investment Management Co., which oversees the
world’s largest bond fund, sees Chinese growth this year in the
“mid-7 percent range,” according to Ramin Toloui, global co-
head of emerging markets portfolio management in Singapore.
“The economy is unlikely to bottom until the third quarter,”
Toloui said in e-mailed comments on May 13.

Caterpillar Inc., the world’s largest construction- and
mining-equipment maker, said last month its first-quarter sales
in China fell by a range of $250 million to $300 million. It had
17 facilities in the nation with nine more under construction,
according to a March statement.

The economy is “in a bit of a cyclical low right now,”
Michael DeWalt, head of investor relations for the Peoria,
Illinois-based company, said at a Wells Fargo Co. conference
on May 10, according to a transcript of his comments.

Fifth Straight Slowdown

China’s economy expanded 8.1 percent in the first quarter
from a year earlier, the fifth straight slowdown and the least
in almost three years.

UBS, Bank of America, Citigroup Inc. and JPMorgan Chase
Co. are among banks that cut expansion estimates after data last
week showed industrial output rose the least since May 2009, new
loans missed estimates and import growth stalled.

Wang Tao at UBS reduced her second-quarter forecast to 8
percent from 8.4 percent and her full-year estimate to 8.2
percent from 8.5 percent. Citigroup economists led by Ding
Shuang and Shen Minggao lowered their projection for the three
months ending June to 7.5 percent from 7.9 percent and their
2012 estimate to 8.1 percent from 8.4 percent.

The cut in banks’ reserve-requirement ratio by the People’s
Bank of China was the third in six months.

Australia Interest Rate

Elsewhere in the Asia-Pacific region, minutes of the
Reserve Bank of Australia’s May 1 meeting showed the central
bank made its deepest interest-rate cut in three years to help
revive below-average growth, counter rising mortgage costs and
shore up
consumer confidence.

Singapore’s March retail sales grew 9.1 percent from a year
earlier, more than economists estimated, compared with a revised
20.1 percent in February.

First-quarter gross domestic product in the euro area
probably contracted 0.2 percent from a year earlier, according
to a Bloomberg News survey ahead of a preliminary estimate today.
Germany’s economy may have expanded 0.1 percent in the first
quarter from the prior period, while Italy’s shrank 0.7 percent,
separate surveys showed.

Sales at U.S. retailers probably slowed in April, an
economist survey indicated, as weather turned unseasonably mild
and consumers took a breather following pre-Easter holiday
shopping.

The U.S. consumer-price index was little changed in April
compared with March after climbing 0.3 percent the prior month,
according to the survey median before a Labor Department report.

Companies still plan to expand in China, the world’s most
populous nation, as more people move to cities and higher wages
give consumers more spending power.

GM Expansion

General Motors Co. has said it will open 600 dealerships in
China this year and its local car-making venture last month
signed an agreement to build a fourth plant, part of a push to
meet demand in inland regions in the world’s largest auto market.

China is the company’s “biggest growth opportunity,” and
sales are accelerating in second-, third- and fourth-tier cities,
Fabrizio Freda, chief executive officer of Estee Lauder Cos.,
the maker of Clinique skin-care products, said in an earnings
call on May 4.

–Victoria Ruan. With assistance from Ailing Tan in Singapore,
Zheng Lifei in Beijing, Rina Chandran in Singapore and John Dawson in Hong Kong. Editors: Nerys Avery, Scott Lanman

To contact Bloomberg News staff on this story:
Victoria Ruan in Beijing at
vruan1@bloomberg.net

To contact the editor responsible for this story:
Paul Panckhurst in Hong Kong at
ppanckhurst@bloomberg.net

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If you’re a small investor seeking a piece of the Facebook initial public offering, here’s the bad news: You’re too late and you’re too poor.

That’s the good news too, by the way. Investment frenzies — and stock market veterans have been filling the news media lately with the claim that they’ve never seen anything like this one — almost never end prettily for the participants.

What may have stoked the flames this time were hints that Facebook or its Wall Street underwriters might crack open a window for small investors, who almost never have a shot at high-profile IPOs. The rationale was that some of the 900 million users who have made Facebook’s insiders rich should get a chance to profit from a hot IPO just like the investment bankers, their cronies and their wholly owned mouthpieces on Capitol Hill who usually do.

• Michael Hiltzik

• 

• E-mail |

  Recent columns

• Also

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  Facebook faces mobile revenue challenge as IPO looms

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The excitement grew after E-Trade, a low-commission online brokerage serving retail investors, was added to the roster of Facebook IPO underwriters early this month. (That roster included such usual suspects as Goldman Sachs and Morgan Stanley.) A few days later, it was announced that TDAmeritrade and Charles Schwab, which serve the same segment, would receive allocations of IPO shares for their clients. IPO experts started talking about whether there would be an “altruistic tone” to the structure of the Facebook IPO, as though it were turning into a flower-power $10-billion Wall Street transaction.

Leaving aside for the moment that the truly altruistic step might be to wave the small investor away, it was never in the cards that the average punter would get a smell of the Facebook IPO. Even those online brokerages reserved shares for their very best clients.

TDAmeritrade, for example, says that to bid for a piece of any IPO your account must be worth at least $250,000, or you must have made at least 30 trades in the previous three months. The average TDAmeritrade client holds assets of only $67,400 in his or her account and makes fewer than two trades a month, according to figures in the company’s 2011 annual report.

Schwab also imposes asset and activity standards. E-Trade doesn’t set an explicit minimum threshold for customers seeking IPO shares, but it does make clear that not everyone is welcome. Interested customers will face a “subjective review” of their account balances, trading history, flipping record and the length of time they’ve been a customer. The minimum order for the Facebook IPO is 50 shares ($1,700 at the low end of the pricing scale, which was set earlier this week at $34 to $38 per share).

The message at E-Trade, as at TDAmeritrade and Schwab, is that IPOs are reserved for their biggest and most loyal customers — if you opened an account just the other day hoping to snatch up a few shares on the fly, you played it wrong.

Yet how would one play it right? Facebook may be a company with nearly unprecedented potential for growth; the problem with its IPO is that the company will have to experience nearly unprecedented growth to justify its opening price. That’s true even at the low end of the scale, which values the entire company at a shade under $100 billion.

Facebook is likely to be the third-largest IPO in history, behind Visa and General Motors. But it’s most often compared to the last monster tech IPO, which wasGoogle’s2004 offering. That company went public at a price-earnings multiple of just over 40; Facebook is on the path to an opening multiple in the high 60s — that is, its price will be more than 60 times its earnings per share.

The best way to gauge the degree of froth on this latte is to compare it to the current PE multiples of Google and Apple, another company that has earned its stock price the hard way. Google currently trades at a multiple of about 18.5 and Apple at 13.5.

For many would-be investors there’s no more point in mentioning the potential pitfalls facing Facebook than there would be warning a teenage boy that the newspaper reviews of “The Avengers” were lukewarm. The pitfalls exist, among them slowing sales growth and obstacles to implementing Facebook’s advertising strategy on mobile devices. At least at first, these may not matter to Facebook’s stock price because that’s not how the stock market operates. To quote Warren Buffett, who was himself misquoting the stock market sage Benjamin Graham: “In the short-run, the market is a voting machine … but in the long-run, the market is a weighing machine.” What Graham actually wrote was that the stock market is always a voting machine rather than a weighing machine, but Buffett’s version may apply more closely to the Facebook IPO today.

As Buffett explained, voting via the stock market requires only money, “not intelligence or emotional stability.” Over time the market filters out emotional frenzy, at least until the next frenzy comes along. When it pauses to catch its breath and take a good hard look at Facebook, where will it peg the firm’s value? A few years from now, it may either make hundreds of millions of users still resentful at having been shut out of a sure thing, or breathing the sigh of relief that comes from surviving a close call.

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at mhiltzik@latimes.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.

Cautious Asia-Pacific investors prefer home investments amid eurozone crisis
By Thomas Cho |
Posted: 15 May 2012 2014 hrs

SINGAPORE: Against the backdrop of Greece’s possible exit from the eurozone and the current ongoing eurozone crisis, investors in the Asia-Pacific region prefer to invest in either their home country or within Asia, according to a survey.

In the survey by Fund manager Franklin Templetion Investments, six out of 10 Asia-Pacific investors said they prefer to invest in their home countries, with most Indian and Australian investors stating investing at home is their preferred choice.

In Singapore, 45 percent of the respondents prefer to invest in Asia apart from Singapore, while 41 percent of Singapore investors prefer to invest in Singapore.

Mr William Tan, Director of Retail Fund Distribution at SE Asia Templeton Asset Management, said: “Singapore investors, particularly for Singapore investments itself, find it a little troublesome or difficult to invest outside Singapore.

“Essentially, this could be the major contributor behind why people prefer to be in Singapore. If they do ever get out of Singapore, they like Asia because Asia is closer to home, they know what is happening and they see the whole market performing very well in this region.”

However, as Europe’s problems develop further, 44 per cent of respondents in the Asia Pacific region have become more risk averse, with investors from China (70 percent) and Hong Kong (49 percent) being most concerned.

Mr Kelvin Tay, Regional CIO of Southern APAC at UBS Wealth Management, said: “Greece is a very small part of EU. It is the contagion effect that is very worrying. If the Greeks leave the euro on its own without the Spanish and the Italian bonds being affected, then it is fine. That is the scenario I don’t think is likely to happen.

“If the Greeks leave the euro, the Italian and Spanish bond yields are likely to spike up because of concerns that the Italian and Spanish are continuing that path as well. That will throw the whole eurozone into disarray.”

Still, Asian investors are optimistic that their investment returns will be positive in the long term, as 54 percent of APAC respondents expect positive returns to their investments.

The Securities Investors Association of Singapore says 70,000 of its members are looking to invest despite the turbulent market conditions.

Mr David Gerald, President of Securities Investors Association of Singapore, said: “They are not sure how the market will play out and quite a number of them are on the sideline, taking cash as king at the moment. They are waiting for good bargains, when the stocks fall, good stocks fall because of sentiments, they will pick it up.”

Seventy percent of the Asia Pacific investors surveyed believe guaranteed and total returns will be the most important factors when deciding where and how to invest.

- CNA/de

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Imagine this scenario: the top tax rate on ordinary income, including interest income, rises 25%. The highest marginal rate on long-term capital gains spikes by 60%. The top dividend tax rate nearly triples.

Sound far-fetched? Unfortunately, it is not. Between the expiration of the Bush tax cuts and the arrival of ObamaCare’s 3.8% surtax, these rates* will become reality in 2013 if Congress does nothing. While we can’t know for certain how this will all play out, I think investors would be wise to proactively review their portfolios to examine whether they are built for higher tax rates—and if they are not, to consider taking some actions now before rates rise.

Tax Bite

I have written before about the vital importance of combining thoughtful tax management with any investment strategy (for example, see my prior post, Learning to Love the 1040). Here is one yardstick. I calculated a popular US stock index fund’s pre- tax and after-tax returns from September 1, 1976 to December 31, 2012 using a 40% tax assumption for income and 20% for capital gains. Keep in mind, investing in index funds is one of the most tax-efficient strategies available for stock investors.

On a pre-tax basis, a buy-and-hold $100,000 investment in the index fund compounded at 10.36% a year, growing to a terminal value of $3.26 million over a period of nearly 36 years. On an after-tax basis, the investment returned 8.88% annualized, resulting in a $2 million value. In other words, income taxes claimed nearly 1.5 percentage points of investment gains per year (not including capital gain taxes, if the investment is sold at the end of the period) and reduced profits by 39%. But with adroit tax management at the portfolio level, an investor can position him or herself to surrender less to the tax man.

Sizing up a Portfolio

Particularly in light of looming tax increases, it makes sense to see how strategies such as tax-loss harvesting, efficient asset location and tax-rate arbitrage may be applied to portfolios. Tax- loss harvesting is the practice of selling securities at a loss and applying those losses to offset realized taxable capital gains (for more on this strategy, see Tax Tips for the Investor). But if, for instance, you hold a concentrated stock position with an outsized weighting in your portfolio, perhaps it makes sense to harvest some of the gains, pay taxes now at a lower rate, and diversify your equity holdings. Or maybe you can offset some of the tax you pay today by recognizing losses in the portfolio.