Hong Kong to Ease Property Restrictions If Prices Extend Drop, Tsang Says

By Franz Wild and Sophie Leung - Dec 8, 2011 3:34 PM GMT+0700

Hong Kong will ease some of its property-cooling measures if home prices extend their decline amid Europe’s worsening credit crisis and a global economic slowdown, the city’s financial secretary said.

Housing prices are “slowly coming down,” and that “will continue for a bit and hopefully we will be able to achieve a soft landing,” John Tsang, Hong Kong’s top financial official, said in an interview in Johannesburg Dec. 6. “When the environment trends downwards, we will surely take countercyclical measures to deal with that.”

Prices dropped to a six-month-low in November and transactions slumped as the threat of a recession dents buyer confidence. The government imposed additional taxes last year and tightened access to mortgages four times since 2009 after prices jumped 70 percent, underpinned by record-low interest rates and an influx of wealthy Chinese buyers.

“Hong Kong is almost confirmed to go into a downward price correction channel into 2012,” said Lee Wee Liat, a property analyst at Samsung Securities Ltd. in Hong Kong. “When prices start to come down, the job of the government is no longer to keep being hawkish on tightening policy, rather it should think about cushioning the decline that could hurt the real economy.”

Lee expects residential property prices will fall as much as 15 percent by the end of 2012. Barclays Capital Research forecasts the drop could be as much as 30 percent by 2013, according to Andrew Lawrence, a Hong Kong-based analyst.

Timing Policy Changes

The Hang Seng Property Index (HSP), which tracks the city’s seven-largest builders, fell 0.2 percent at the close in Hong Kong. Sun Hung Kai Properties Ltd., the biggest developer, rose 0.7 percent to HK$99.70, while Cheung Kong Holdings Ltd., the second largest, declined 1.1 percent to HK$90.60.

Tsang said the timing of any loosening of the property measures was uncertain. “Timing is a judgment call that I will have to make nearer the time,” he said.

Hong Kong may review special stamp duties imposed on some home sales in November last year earlier than the scheduled 24 months if needed, Eva Cheng, secretary for transport and housing, told reporters in Hong Kong today in comments broadcast by Cable Television.

Asia may continue to see capital outflows if the European crisis deepens as banks will repatriate funds from the Asian region, the Manila-based Asian Development Bank’s Iwan Azis said Dec. 6. Hong Kong’s benchmark Hang Seng Index has declined 17 percent this year, while the Hang Seng Property Index, which tracks the city’s seven-biggest developers, is down 23 percent.

Market Disruption

“The problems are rising in Europe and America, and many of those companies need some of the liquidity to assist them to get over the bump,” Tsang said. “We are mindful if the money were to leave in a disorderly way, this could disrupt the market.”

Hong Kong narrowly skirted a recession in the third quarter with 0.1 percent growth from the previous three months, as low unemployment and tourists from China boosted consumption while Europe’s crisis dragged on exports.

Recession is “possible” for Hong Kong on a “worsening of exports,” Tsang said. Still, “exports is the only sector which is hurting, but everything else is really strong,” he added. Overseas shipments from the city fell 1 percent, seasonally adjusted, in the three months ending October from the previous period, according to the government’s data.

Tsang’s signal the government is prepared to loosen property curbs contrasts with new measures announced by the Singapore government, which said yesterday it is imposing additional taxes on private residential property purchases to curb excessive investment.

Singapore’s Measures

The city-state has been attempting to rein in prices since 2009, when the government barred interest-only loans for some housing projects and stopped allowing developers to absorb interest payments for apartments still being built.

Home prices in Singapore are 13 percent above the high seen in the second quarter of 1996 and 16 percent higher than the “more recent peak” in the second quarter of 2008, the government said.

Tsang’s comments echo those of Chief Executive Donald Tsang, who said last month that the city may see “a couple of quarters of bad times” as Europe’s debt crisis roils global markets. Growth may slow to 2 percent in 2012, down from the official estimate of 5 percent this year, Donald Tsang said.

The rising risk in the global economy will create pressure on Hong Kong’s labor market, with a quarter of it related to the export industry, John Tsang said Nov. 20. The city’s unemployment rate rose to 3.3 percent in the three months ended October, the first time in six months.

Home prices dropped 3.5 percent from the peak in June, according to an index compiled by the Centaline Property Agency Ltd., the city’s largest closely held property broker. The value of home sales slumped 40 percent in November from a year earlier, according to the Land Registry.

The government’s property curbs have achieved their “desired effect,” Victor Lui, an executive director at Sun Hung Kai, said at a media briefing after the developer’s annual general meeting in Hong Kong today. Short-term speculative buyers are almost “all gone from the market,” Lui said.

The city’s government pledged in October to build subsidized homes and ensure supply of land for private housing, after it imposed stamp duties on homes sold within two years from the date of purchase in 2010 and raised down-payments for some homes.

To contact the reporter on this story: Franz Wild in Johannesburg at fwild@bloomberg.net; Sophie Leung in Hong Kong at sleung59@bloomberg.net

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

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Singh Retail Retreat ‘Nail in the Coffin’ for India Opening

By Andrew MacAskill and Kartik Goyal - Dec 8, 2011 1:20 PM GMT+0700

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Dec. 8 (Bloomberg) -- Gurcharan Das, author and former managing director of Procter & Gamble Co., and an international advisor for Wal-Mart Stores Inc., talks about the Indian government's reversal of a decision to allow overseas retailers to expand in the country. Das speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Prime Minister Manmohan Singh’s decision to backtrack on plans to let overseas retailers expand in India may undermine efforts to revive growth and curb inflation, while deepening a yearlong paralysis in government.

The 79-year-old Singh, credited with sparking India’s economic transformation when finance minister two decades ago, yesterday bowed to opposition protests that had forced repeated adjournments of parliament since the Nov. 24 move to allow foreign investment in multibrand retail. Finance Minister Pranab Mukherjee told lawmakers the decision was suspended until a consensus could be reached.

The reversal indefinitely puts off an influx of foreign investment from companies including Wal-Mart Stores Inc. (WMT) and Tesco Plc (TSCO) that are bidding to enter the $396 billion market, at a time when the rupee is already trading near a record low. It also adds to a list of unfinished economic initiatives that includes a proposed tax overhaul and changes to how land is acquired for infrastructure projects.

“It is frustrating to look at unresolved issues and know that they’re resolvable if you can get some leadership and orientation around them,” John Flannery, chief executive officer for General Electric Co. (GE)’s India unit, said in an interview yesterday.

India’s $1.7 trillion economy expanded last quarter at the slowest pace in almost two years after the central bank raised interest rates to slow inflation. The rupee has fallen almost 14 percent this year as investors sold emerging-market assets on concern Europe’s debt crisis will lead to a global recession.

Local Suppliers

In an attempt to kick start the economy, Singh had approved allowing overseas companies including Carrefour SA (CA) to own as much as 51 percent of retailers selling more than one brand, as long as they sourced 30 percent of their products from local suppliers. International retailers are currently restricted to wholesale operations.

Singh argued that opening the retail sector to foreign investors would tame inflation and reduce food wastage in a country where 40 percent of vegetables rot before they can be sold. Foreign companies would bring expertise growing crops and developing a supply chain to keep food fresh, he said at a rally of his ruling Congress party in New Delhi last month.

The government immediately ran into resistance from its two largest coalition partners, Trinamool Congress and the Dravida Munnetra Kazhagam, as well as from opposition parties. Small shopkeepers, who said the plan would wipe out their jobs, joined a one-day union strike Dec. 1 to protest the move.

‘Even More Cautious’

“For anyone hoping that this government would do something, it’s effectively another nail in the coffin,” said Robert Prior-Wandesforde, Singapore-based head of India and Southeast Asia economics at Credit Suisse Group AG. “They will be even more cautious in taking reforms forward than they were before.”

The government has just 10 days left of a crucial session during which it’s seeking to sign into law proposals to set up an anti-graft agency with power to punish civil servants. Transparency activists say they will renew protests that roiled the government in August if the bill isn’t passed this year.

The government has failed to push through any major pieces of legislation since the middle of last year after being embroiled in corruption charges, including allegations against a former minister, bureaucrats and businessmen over a 2008 sale of mobile-phone licenses. Opposition lawmakers’ protests against the government’s failure to check graft had disrupted the previous three sessions of parliament.

‘Political Suicide’

While Singh may have bought breathing space for his administration, both have been badly damaged, said Surjit Singh Bhalla, chairman of New Delhi-based Oxus Fund Management.

“This is political suicide on the part of the Congress government,” Bhalla said in a phone interview. “The only conclusion one can draw is that this government has lost any moral authority to lead. It is completely inexplicable.”

Shares of retailers who could have tied up with foreign companies fell in Mumbai trading today. Shoppers Stop Ltd. lost 1.5 percent to 344.45 rupees at 11:24 a.m. local time, while Pantaloon Retail India Ltd. (PF) dropped almost 4 percent. Trent Ltd. (TRENT) was 2.5 percent lower at 932.15 rupees. The benchmark BSE India Sensitive Index fell 2.2 percent.

Pantaloon, the country’s largest listed retailer, had jumped 13 percent on Nov. 24, before the government announced relaxing the retail rules, and another 16 percent the day after. Rival Shopper’s Stop gained 12 percent over the same two days.

Ambani Call

The government’s decision was “deeply disappointing” and “highly regressive,” Harsh Mariwala, president of the Federation of Indian Chambers of Commerce, said in a statement.

The rupee touched a record low of 52.73 to the dollar on Nov. 22 as overseas funds turned net sellers of stocks amid slowing growth, rising interest rates and the failure of policy makers to rein in prices. Benchmark inflation has stayed above 9 percent all year.

“We currently have a run on the rupee because we have a total loss of confidence in the government’s capacity to govern,” said Prem Shankar Jha, an independent political analyst and former aide to former Prime Minister Vishwanath Pratap Singh. “The failure to push through FDI in retail is symbolic of the government’s lack of ability” to win arguments.

Reliance Industries Ltd. (RIL) Chairman Mukesh Ambani, India’s richest man, last month urged the government to prioritize laws to bolster the economy.

Disappointments

Major economic changes in the remaining two years of Singh’s second term are unlikely, said Jay Shankar, chief economist at Religare Capital Markets Ltd. in Mumbai. That may rule out opening pension, insurance and aviation sectors to foreign investment, he said.

“The government is now facing more challenges from its coalition partners to carrying out reforms than it is from opposition parties,” Shankar said in an interview.

After leading Congress to its biggest victory in two decades at elections in 2009, Singh has disappointed the businesspeople and analysts who expected him to build on his 1990s’ dismantling of India’s state-dominated economy. Instead, his government has continued a focus on direct support for the nation’s poor, in a country where more than three-quarters of the people live on less than $2 a day.

Singh enacted a jobs plan in 2006 that gives 100 days’ work to any rural household that requests it, and this year indexed the pay rates to the pace of inflation.

Regional Polls

Welfare systems, which include a food security bill that will provide cheap grain to nearly three-quarters of India’s 1.2 billion people, have been promoted by Rahul Gandhi. He probably will lead the ruling party into the 2014 election, according to Eurasia Group, after taking over as party president from his mother, Sonia Gandhi. She was treated overseas in August for a medical condition neither the family nor the party will discuss.

Faced with at least five regional elections next year, including one in Uttar Pradesh, India’s most populous state, the government may refrain from making controversial decisions, said Religare’s Shankar.

After those regional ballots “we will be heading into general elections and the closer we get to that, the less likely you are likely to bring out reforms,” Shankar said.

“This is the beginning of the end for this Congress government,” said Bhalla of Oxus. “The government is floundering. The opposition knows these guys are extremely vulnerable and they are just going to keep on attacking them.”

To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Andrew MacAskill in New Delhi at amacaskill@bloomberg.net

To contact the editors responsible for this story: Hari Govind at hgovind@bloomberg.net; Peter Hirschberg at phirschberg@bloomberg.net

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German Stocks Advance Before ECB Meeting; Deutsche Bank Shares Lead Gains

By Julie Cruz - Dec 8, 2011 4:00 PM GMT+0700

German stocks (UKX) rose amid speculation the European Central Bank will announce measures to fight off a recession as the region’s leaders meet to lay the foundation for a fiscal union.

Allianz SE (ALV) and Munich Re paced advances in European insurance companies, increasing more than 1 percent. Deutsche Bank AG (DBK) led gains in the benchmark DAX (DAX) Index, climbing 2.1 percent. Centrotherm Photovoltaics AG jumped after Citigroup Inc. recommended buying the stock.

The DAX added 1.1 percent to 6,057.41 at 9:59 a.m. in Frankfurt. The gauge declined yesterday after Chancellor Angela Merkel’s government said it opposes running the euro area’s temporary rescue fund along with its permanent bailout facility. The broader HDAX Index gained 1 percent today.

ECB policy makers meeting in Frankfurt will cut the benchmark interest rate by a quarter percentage point to 1 percent, according to 53 of 58 economists in a Bloomberg News survey. They may also loosen collateral criteria to give banks greater access to cheap cash and offer longer-term loans, said three euro-area officials with knowledge of the deliberations.

Hours later, leaders will convene in Brussels to debate a solution to the region’s debt crisis, for the fifth time in 19 months. The ECB says that governments must address the cause of the turmoil, while it focuses on enabling banks to lend more.

Allianz, Europe’s biggest insurance company, gained 1.3 percent to 80.70 euros, while Munich Re, the world’s largest reinsurer, advanced 1.6 percent to 95.98 euros. A gauge of insurance companies was the best performer among the 19 industry groups in the Stoxx Europe 600 Index today.

Deutsche Bank, Germany’s biggest bank, rose 2.1 percent to 30.13 euros, the first increase in three days.

Centrotherm surged 11 percent to 10.30 euros after Citigroup initiated coverage of the renewable energy company with a “buy” recommendation.

-- With assistance from Gabi Thesing and Jeff Black in Frankfurt. Editors: Srinivasan Sivabalan, Andrew Rummer

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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European Stocks Climb Amid ECB Support Hope

By Peter Levring - Dec 8, 2011 3:12 PM GMT+0700

European stocks rose amid speculation the European Central Bank will announce measures to boost the economy as the region’s leaders meet to lay the foundations for a fiscal union. U.S. futures fluctuated and Asian shares fell.

The benchmark Stoxx Europe 600 Index advanced 0.5 percent to 242.52 at 8:10 a.m. in London, halting a two-day decline. The gauge posted its biggest rally since November 2008 last week as central banks lowered the interest rate on dollar funding and China reduced its reserve ratio for banks.

“A rate cut of at least 25 basis points is expected from the ECB, but what may be more important is what will be said at the press conference,” said Robert Talbut, who helps oversee about $70 billion as chief investment officer at Royal London Asset Management Ltd. “We’re looking for words that the summit will bring forward early and significant additional policy from the ECB on bond buying. People will be hanging onto the words of any policy makers in the next 48 hours.”

The Stoxx 600 slipped 0.2 percent yesterday after Germany rejected combining the current and permanent euro-area rescue funds and expressed pessimism over the outcome of a two-day European Union summit that starts today in Brussels. The gauge posted its biggest rally since November 2008 last week as central banks lowered the interest rate on dollar funding and China reduced its reserve ratio for banks.

U.S., Asian Shares

Futures on the Standard & Poor’s 500 Index fell 0.1 percent today, while the MSCI Asia Pacific Index dropped 0.6 percent after economic data from Japan and Australia signaled the global economy is slowing.

Japan’s Nikkei 225 Stock Average (NKY) retreated 0.7 percent after machinery orders fell 6.9 percent in October from September, missing the median forecast of a 0.5 percent gain by 27 economists surveyed by Bloomberg News.

Australia’s S&P/ASX 200 index fell 0.3 percent as the nation’s employers cut 6,300 workers in November from the previous month, trailing the 10,000 extra jobs forecast in a Bloomberg survey of 22 economists.

ECB policy makers meeting in Frankfurt will cut the benchmark interest rate by a quarter percentage point to 1 percent, according to 53 of 58 economists in a Bloomberg News survey. They may also loosen collateral criteria to give banks greater access to cheap cash and offer longer-term loans, said three euro-area officials with knowledge of the deliberations.

ECB Rates

The ECB announces its rate decision at 1:45 p.m. in Frankfurt and President Mario Draghi holds a press conference 45 minutes later. European Union leaders will meet for dinner at 7.30 p.m. in Brussels for talks on a “comprehensive” solution to the region’s debt crisis that will continue tomorrow.

BNP Paribas (BNP) SA, the biggest French bank, advanced 1.6 percent to 33.51 euros. Results of tests from the European banking regulator released today will show French lenders’ capital shortfall shrank from the October estimate of 8.8 billion euros ($11.8 billion), a person with direct knowledge of the matter said.

Tesco Plc (TSCO) slipped 1.4 percent to 391.4 pence. The U.K.’s largest supermarket chain said a sales decline continued in the third quarter as cost-conscious Britons were weighed down by unemployment fears and rising fuel and food bills. Revenue at U.K. stores open at least a year fell 0.9 percent, excluding fuel and value-added tax, in the three months ended Nov. 26.

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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Asian Stocks Fall as Aussie, Korean Won Weaken on Europe, Economic Outlook

By Lynn Thomasson and Norie Kuboyama - Dec 8, 2011 1:41 PM GMT+0700

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Dec. 8 (Bloomberg) -- Michael Kurtz, chief Asian equity strategist at Nomura Holdings Inc., talks about the outlook for Asian financial markets and his investment strategy. Kurtz speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Play Video

Dec. 8 (Bloomberg) -- Wilfred Sit, Asia chief investment officer for Baring Asset Management, talks about the outlook for Asian financial markets in 2012 and his investment strategy. Sit speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up" .(Source: Bloomberg)

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Dec. 8 (Bloomberg) -- David Roche, president of Independent Strategy and a former Morgan Stanley global strategist, talks about the impact of the European sovereign debt crisis on financial markets and the outlook for the global economy. Roche speaks with John Dawson, Angie Lau, Zeb Eckert and David Ingles on Bloomberg Television's "Asia Edge." (Source: Bloomberg

Asia stocks (MXAP) and the South Korean won fell as Europe’s leaders struggle to resolve the sovereign-debt crisis and reports showed unexpected declines in Japanese machinery orders and Australian employment.

The MSCI Asia Pacific Index retreated 0.7 percent as of 3:31 p.m. in Tokyo. The Nikkei 225 Stock Average dropped from a one-month high and Australia’s currency fell against most of its 16 major counterparts. The won sank 0.5 percent to 1,131.43 per dollar. The yield on 10-year benchmark Treasuries was little changed at 2.03 percent following the biggest decrease in almost a month yesterday. Gold for immediate delivery slid 0.2 percent.

The European Central Bank may announce a range of measures today to fight off a recession as leaders in the region meet to lay the foundations for a fiscal union. The Bank of Korea and the Reserve Bank of New Zealand cited risks of slowing economic growth after leaving borrowing costs unchanged. A Bloomberg poll of global investors showed 61 percent of respondents predict China (MXCN) will face a banking crisis in the next five years.

“As the meetings get closer, investors have turned cautious,” said Masaru Hamasaki, who helps oversee the equivalent of $24 billion as chief strategist at Toyota Asset Management Co. in Tokyo. “There’s been a switch from a feeling that we were going to get some visibility on the situation to a cooler stance, where people are in a wait-and-see mood.”

Euro Area Lending

The euro was little changed at $1.3409. The ECB will cut the benchmark interest rate by a quarter percentage point to 1 percent, according to 53 of 58 economists in a Bloomberg News survey. Policy makers may also loosen collateral criteria to give banks greater access to cheap cash and offer longer-term loans, said three euro-area officials with knowledge of the deliberations.

More than two shares fell for each that rose in the MSCI Asia Pacific Index today. The gauge jumped 8 percent last week, the most since August 2007, after the Federal Reserve and five other central banks lowered the cost of dollar funding and China cut the proportion that banks need to hold as reserve capital.

Futures on the Standard & Poor’s 500 Index slipped 0.1 percent to 1,262.80. Jobless claims in the U.S. probably fell to 395,000 last week from 402,000 the prior week, economists in a Bloomberg News survey estimated before a Labor Department report today.

Singapore’s Straits Times Index (FSSTI) slumped 1.7 percent as developers tumbled. The government imposed additional taxes on purchases of private residential property to curb excessive investment after home prices rose for nine quarters.

‘More Cautious’

“People are somewhat more cautious,” said Terrace Chum, Hong Kong-based managing director of greater China equities for Manulife Asset Management, which oversees $199 billion. “Europe will continue to be a drag as problems there aren’t going to be resolved so soon.”

Australia’s S&P/ASX 200 slid 0.3 percent. The so-called Aussie weakened 0.3 percent to $1.0266. The number of people employed fell by 6,300 after a revised increase of 16,800 in October, the statistics bureau said in Sydney today. The median estimate in a Bloomberg News survey of 22 economists was for a 10,000 advance.

The Nikkei 225 (NKY) fell 0.7 percent, paring an earlier drop of 1.1 percent. Machinery orders, an indicator of capital spending, slipped 6.9 percent from a month earlier, the Cabinet Office said in Tokyo. The median forecast of 27 economists surveyed by Bloomberg News was for a 0.5 percent gain.

Tepco Slumps

Tokyo Electric Power Co. tumbled for a fifth day, losing 11 percent. The company whose power plant is at the center of the worst nuclear emergency in 25 years will be taken over by the government and most of the management replaced, the Mainichi newspaper said, without giving the source of the information.

Prime Minister Yoshihiko Noda’s Cabinet is debating Tokyo Electric Power Co.’s situation, and it is “too early” for ministers to discuss whether to nationalize the utility, Chief Cabinet Secretary Osamu Fujimura told reporters in Tokyo.

The cost of insuring Asian corporate and sovereign bonds against non-payment increased, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rising 3 basis points to 191 basis points, Royal Bank of Scotland Group Plc prices show. That’s the highest since Dec. 6, according to data provider CMA.

Copper gained for the first time in three days, adding 0.2 percent to $7,833 a metric ton. Oil gained 0.3 percent to $100.74 a barrel.

Gold ETFs

Gold for immediate delivery declined 0.2 percent to $1,738.6 an ounce. Holdings in bullion-backed exchange-traded funds dropped to 2,356.716 metric tons yesterday from the all- time high of 2,358.206 tons on Dec. 6, according to Bloomberg data.

The Shanghai Stock Exchange Composite Index was little changed after erasing an earlier decline of 1.3 percent on speculation that China may further loosen monetary policy to combat slowing growth. Hong Kong’s Hang Seng Index (HSI) fell 0.9 percent.

Data tomorrow may show China’s industrial output increased 12.6 percent last month, the slowest pace since August 2009, based on the median forecast of economists surveyed by Bloomberg. Consumer prices probably increased 4.5 percent from a year ago, compared with a 5.5 percent rise in October, according to the Bloomberg survey.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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Web-Name Expansion Could Be ‘Disaster,’ FTC Chairman Says

By Eric Engleman and Jeff Bliss - Dec 8, 2011 4:25 AM GMT+0700

A plan to add hundreds of Internet domain names beyond .com and .net may be a “disaster,” U.S. Federal Trade Commission Chairman Jon Leibowitz told a House Judiciary subcommittee.

The program is more costly than necessary for businesses and would let con artists set up fraudulent websites, Leibowitz said today in a hearing of the House Subcommittee on Intellectual Property, Competition and the Internet.

The domain-name system expansion, authorized by the Internet Corporation for Assigned Names and Numbers, “could be very harmful,” Leibowitz said. “We see enormous cost to consumers and businesses and not a lot of benefit.”

Icann, a non-profit that manages the Web’s address system under a U.S. Commerce Department contract, approved a plan in June to expand the number of top-level domains beyond the commonly used .com, .net and .org in a move to spur online innovation.

The group will start accepting applications for Web suffixes including company and brand names, cities and words like .book or .shopping, starting Jan. 12 for a three-month window. Applications will cost $185,000 for each domain.

General Electric Co. (GE), Johnson & Johnson (JNJ) and Coca-Cola Co. are among more than 40 companies that last month joined with the Association of National Advertisers to oppose the expansion, saying it will increase costs for companies, confuse customers and create new risks of Internet fraud.

Monitoring Program

“We appreciate the concerns raised by Chairman Leibowitz,” Brad White, a spokesman in Washington for Marina del Ray, California-based Icann, said in an e-mail.

“Icann has already committed to vigilantly monitor for abuses” to the new domain program, White said. “If and when any program abuses arise, there are mechanisms in place to address them.”

The Commerce Department is “sensitive to the concerns being raised by some companies” about the introduction of the new top-level domains, Assistant Secretary of Commerce Lawrence Strickling said in an e-mail today.

“We will closely monitor the execution of the program and are committed to working with stakeholders, including U.S. industry, to mitigate any unintended consequences,” Strickling said, without elaborating.

The Senate Commerce Committee, led by Senator Jay Rockefeller, a West Virginia Democrat, is scheduled to hold a hearing tomorrow on the domain expansion program, with witnesses from Icann, the Commerce Department and the advertisers’ group. The House Energy and Commerce Committee also plans to hold a hearing on the Icann program next week.

The FTC doesn’t have authority over Icann. The agency has the power to act when companies engage in unfair and deceptive trade practices.

To contact the reporters on this story: Eric Engleman in Washington at eengleman1@bloomberg.net; Jeff Bliss in Washington at jbliss@bloomberg.net

To contact the editors responsible for this story: Michael Shepard at mshepard7@bloomberg.net; Mark Silva at msilva34@bloomberg.net

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Chinese Firms Tired of Wall Street Shift to H.K.

By Mark Lee - Dec 8, 2011 7:25 AM GMT+0700

Chinese technology companies that raised $7.8 billion from Wall Street investors in initial public offerings during the past 12 years have at least one good reason to delist in New York and take their business to Hong Kong.

Valuations appear to be significantly higher in Hong Kong. Perfect World Co. (PWRD), China’s fourth-biggest online games operator, trades at 3.9 times its estimated earnings in New York, while smaller rival NetDragon Websoft Inc. (777) is valued at 13 times in Hong Kong. Such disparities may push some technology companies to consider moving back east, said Victoria Mio, a senior portfolio manager at Robeco Group in Hong Kong.

More strict oversight by New York regulators and allegations of fraud from short-seller Muddy Waters LLC have suppressed the USX China Index of 174 Chinese stocks trading on Wall Street by 21 percent this year. The gauge trades at 12 times earnings, compared with 20 times for Hong Kong’s Hang Seng Composite Information Technology Index. (HSCIIT)

“I am tired of the U.S.,” Yang Tianfu, chief executive officer of Harbin Electric Inc. (HRBN), said in a phone interview. “We just couldn’t communicate with the investors.”

‘Overtake’ Wall Street

The Harbin, China-based maker of electric motors delisted from the U.S. last month and can “easily” complete a listing in Hong Kong or Shanghai, Yang said.

Companies wanting to leave Wall Street may choose Hong Kong because listing in Shanghai or Shenzhen would require them to restructure into domestic Chinese firms, said Richard Lim, a Palo Alto, California-based partner at GSR Ventures, which invests in technology companies in China.

China Renaissance Partners, a Beijing-based investment bank that advised New York-listed E-Commerce China Dangdang Inc. (DANG) and NetQin Mobile Inc., is working on potential deals that may result in listings in Hong Kong, Chief Executive Officer Bao Fan said. Some involve U.S.-listed companies that may be taken private, he said without naming them.

“Hong Kong, over time, will overtake the U.S. as the preferred place of listing for Chinese technology companies,” Bao said. “In the long term, the core group of holders in these Chinese technology firms will have to be Chinese,” rather than overseas, investors, he said.

18 Delistings

In October, Shanghai-based Internet companies Shanda Interactive Entertainment Ltd. (SNDA) and China Real Estate Information Corp. (CRIC) unveiled plans to delist from the U.S. after their shares underperformed Hong Kong-traded rivals. They join 16 other U.S.- listed Chinese companies that announced delisting plans since 2010, according to data from Roth Capital Partners LLC, a Newport Beach, California-based financial firm.

“Some Chinese companies listed in the U.S. that trade at low valuations may consider delisting and go public in Hong Kong,” said Mio, whose fund managed $188 billion of assets, including the Hong Kong-traded stock of Tencent Holdings Ltd. (700), China’s biggest Internet company by revenue, as of September.

Funtalk China Holdings Ltd. (FTLK), a Beijing-based mobile-phone retailer that delisted from New York in August, “won’t rule out” listing in Hong Kong, said Francis Wan, a senior vice president.

48 IPOs

NetDragon, based in Fuzhou, southeast China, is also more expensive than New York-listed Chinese online game firms Shanda Games Ltd. (GAME), Changyou.com Ltd. and Giant Interactive Group Inc. (GA), according to Bloomberg data.

Teal Willingham, who represents Beijing-based Perfect World at Christensen International, said the company doesn’t comment on its share price.

At least 48 Chinese technology stocks, including Baidu Inc. and Youku.com Inc. (YOKU), completed IPOs in the U.S. since 2000. By comparison, 17 did in Hong Kong.

Hong Kong Exchanges & Clearing Ltd. (388), operator of Asia’s third-biggest stock market, offers “a perfectly good listing platform” for Chinese technology companies, said Mark Dickens, the exchange’s head of listings. There are plans by investment banks to take some Chinese companies currently traded in New York for listings in Hong Kong, he said.

“We heard investment bankers had been exploring the opportunities,” Dickens said in an interview.

Muddy Waters

About 100 companies are seeking the exchange’s approval to list their shares or are planning share sales after having received approval, Dickens said at a Nov. 30 forum in Hong Kong.

Focus Media Holding Ltd. (FMCN), a Shanghai-based outdoor advertising company, plunged 40 percent in New York trading on Nov. 21 after a report by Muddy Waters alleged the Chinese firm had overstated its assets.

Spreadtrum Communications Inc. (SPRD), a Chinese chip designer, declined as much as 34 percent in intraday trading on June 28 after the short seller alleged the company had misstated financial results.

The Securities and Exchange Commission sent letters seeking explanation of corporate structures at U.S.-listed Chinese companies, including Shanda Interactive and Kongzhong Corp., said Paul Boltz, a Hong Kong-based partner at Ropes & Gray.

The SEC in June cautioned investors about buying shares in companies formed by reverse mergers, a maneuver used by more than 400 Chinese businesses to gain stock-market listings in North America while avoiding the scrutiny of a public offering.

JP Morgan

The buyouts of Chinese companies from stock-market investors in New York, and relisting them in markets offering higher valuations, may generate profit for private-equity investors.

“There is a real interest among private-equity funds in these companies,” said Mark Tobin, co-director of research at Roth Capital. Some U.S.-listed Chinese companies are trading at valuations “far below” those of private companies in China, he said.

Shanda Interactive Chairman Chen Tianqiao’s group, which plans to buy out the company, discussed financing with JPMorgan Chase & Co. (JPM), the company said Oct. 17. PAG Asia Capital, a Hong Kong-based alternative investment manager, helped fund the management-led buyout of Funtalk.

Most of the Chinese companies trying to list in the U.S. are relatively small and are subject to an increasingly difficult regulatory environment, Bao said. Hong Kong also has the benefit of having a sophisticated, international capital market, he said.

“Most of the U.S. investors don’t understand China very well,” Bao said.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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Zynga Gets Publicity Lift From Word Game-Engrossed ‘30 Rock’ Star Baldwin

By Andy Fixmer and Douglas Macmillan - Dec 8, 2011 8:27 AM GMT+0700

Zynga Inc. has Alec Baldwin to thank for giving its “Words With Friends” word game a publicity boost.

Baldwin, star of NBC’s “30 Rock,” was so engrossed in the Scrabble-like game he got ejected from an American Airlines flight for refusing to stop playing. The actor took his phone into the plane’s lavatory, slamming the door hard enough to alarm pilots in the cockpit, American Airlines said today on its page on Facebook Inc.’s social network.

“Flight attendant on American reamed me out 4 playing WORDS W FRIENDS while we sat at the gate, not moving,” Baldwin, 53, said in a post to Twitter Inc.’s microblogging service yesterday after the incident.

After Baldwin refused to turn off his phone and obey signs requiring seat belts, he was removed from the flight, according to the airline’s statement.

“The passenger was extremely rude to the crew, calling them inappropriate names and using offensive language,” American Airlines said.

Baldwin today apologized to other passengers, while criticizing a flight attendant for singling him out, and said others were also using their phones.

“I guess the fact that this woman, who had decided to make some example of me, while everyone else was left undisturbed, did get the better of me,” he wrote in a Huffington Post article.

Good Publicity

Zynga, which plans to sell shares in an initial public offering, is the biggest maker of games on Facebook Inc. Still, it’s less well understood by many of the investors targeted by its IPO marketing effort, currently under way, said Michael Pachter, an analyst at Wedbush Securities. Baldwin’s American Airlines flap may raise Zynga’s profile, he said.

“This is phenomenal for Zynga,” said Pachter, who’s based in Los Angeles. “The problem for Zynga with investors has been that the average portfolio manager doesn’t relate to their games. This definitely helps change their perception.”

Zynga took up Baldwin’s cause with Twitter posts featuring the phrase, “#LetAlecPlay.” “Words With Friends” is Zynga’s sixth most popular game, according to Appdata.com.

Baldwin was removed from a flight to New York from Los Angeles, the actor said on his Twitter account. American Airlines parent AMR Corp. (AMR) filed for bankruptcy protection from creditors on Nov. 29.

“He loves WWF so much that he was willing to leave a plane for it, but he has already boarded another AA flight,” Matthew Hiltzik, a spokesman for Baldwin, said in a statement.

‘Words With Friends’

Adam Isserlis, a spokesman for San Francisco-based Zynga, declined to comment beyond the company’s posts on Twitter.

“Words With Friends” was created by Newtoy Inc., a McKinney, Texas-based game developer acquired by Zynga in December 2010. A version of the game with advertising is free on Apple Inc. (AAPL)’s AppStore, while a commercial-free version costs $2.99.

Zynga is seeking to raise as much as $1 billion in the biggest IPO by a U.S. Internet company since Google Inc.’s debut. The “Let Alec Play” graphic features a scoreboard saying, “A Baldwin 1, American Air 0.”

To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Douglas Macmillan in New York at dmacmillan3@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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LivingSocial Is Said to Get Funding Valuing It at $6 Billion

By Douglas MacMillan - Dec 8, 2011 7:12 AM GMT+0700

LivingSocial.com, the online-coupon provider that competes with Groupon Inc., lined up $400 million in funding that gives it a valuation of about $6 billion, according to a person with direct knowledge of the matter.

The company has already sold $176 million of the total, Washington-based LivingSocial said in a filing with the U.S. Securities and Exchange Commission. The funding will be a mix of equity and debt, said the person, who declined to be identified because the figure hasn’t been disclosed. The investment will come from both existing and new backers, the person said.

LivingSocial, which was in talks with banks earlier this year about raising $1 billion in an initial public offering, shifted plans after other Internet companies faced turbulent debuts in the public markets. Groupon, which has a market capitalization of $13.6 billion, has seen its shares dip as much as 24 percent below its IPO price last month. The stock is now trading at 5.8 percent more than its initial price.

As LivingSocial grows and expands into new cities, it requires funds to hire and train more salespeople, said A.B. Mendez, a social-media analyst at WJB Capital in New York.

“LivingSocial has made the claim that they have a human sales representative on the ground in every city where they have a daily-deal presence,” Mendez said. “In theory, LivingSocial’s model is as human-capital intensive, if not more, than Groupon.”

Fueling Expansion

Executives and backers have discussed a round of funding valuing the company at $6 billion since September. LivingSocial plans to use the new investment to fuel operations and expansion, said the person familiar with the matter.

The company has almost doubled in value since April, when it raised $400 million at a valuation of $3.5 billion, two people with knowledge of the matter said at the time. With the $400 million in funding unveiled today, LivingSocial has received a total of $1.03 billion from investors, including Grotech Ventures, Institutional Venture Partners, T. Rowe Price Group Inc. and e-commerce site Amazon.com Inc. (AMZN)

LivingSocial delivers daily discounts on restaurants, hotels, events, and other goods and services. The daily-deal market may generate $4.17 billion in U.S. sales in 2015, compared with $1.97 billion this year, according to research firm BIA/Kelsey in Chantilly, Virginia.

U.S. consumers will spend $80 million to $100 million on daily-deal gifts between Thanksgiving and Christmas, estimates Yipit, a website that aggregates offers from a range of companies. That amount is up from $15 million to $20 million during the same period a year ago, Yipit said.

Other technology companies are pushing ahead with their IPOs, even if valuations are coming down. Zynga Inc., which earlier expected to be valued at as much as $10 billion in its IPO, now aims to sell shares at a valuation of up to $7 billion.

To contact the reporter on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Buffett’s $2 Billion Solar Bet Receives ‘Attractive’ Power Rates

By Christopher Martin - Dec 8, 2011 12:00 PM GMT+0700

Warren Buffett’s Berkshire Hathaway Inc., which is buying a $2 billion solar project in California, may have picked the right time to invest in the industry.

The 550-megawatt Topaz project will qualify for a federal incentive because construction began last month, and it will sell electricity under a long-term contract that was completed before prices for solar panels fell 44 percent in the last year. Berkshire’s MidAmerican Energy Holdings utility unit and First Solar Inc. (FSLR), the project developer, announced the deal yesterday.

Topaz, which will use First Solar panels, may be the last large solar farm to qualify for the U.S. Treasury Department incentive program, which is set to expire this year. It will likely sell power at a higher price than projects that are seeking contracts from utilities now, said Paul Clegg, an analyst at Mizuho Securities USA in New York.

“The smart guys are getting into these early projects because they have very attractive power-purchase agreements,” Clegg said in an interview. “Financing won’t be as easy at the rates being signed for the latest ones.”

First Solar projects that are currently being built will sell power for 14 cents to 16 cents a kilowatt-hour, said Alan Bernheimer, a spokesman for the Tempe, Arizona-based company. By 2014, he expects its solar farms to sell power at 10 cents to 12 cents a kilowatt-hour, he said.

The price of the Topaz deal wasn’t disclosed and Bernheimer wouldn’t give the rates at which it will sell electricity. PG&E Corp. (PCG)’s San Francisco-based utility agreed in August 2008 to buy Topaz’s power for 25 years.

‘Favorable Terms’

“The reason this project made sense is because the power purchase agreement was signed three years ago at very favorable terms,” Sanjay Shrestha, an analyst at Lazard Capital Markets in New York, said in an interview. He has a “buy” rating on First Solar.

Prices for power sold under these long-term contracts are coming down, and the expected expiration of a federal incentive may further erode profit margins for large projects, Shrestha said. The Treasury Department’s 1603 program, which offers cash grants equal to about 30 percent of renewable energy projects’ development costs, is set to end Dec. 31.

First Solar received $3.1 billion in federal loan guarantees for three other solar projects that it later sold. Buffett is chairman and chief executive of Omaha, Nebraska-based Berkshire.

Loan Guarantees

The Topaz plant was offered a conditional guarantee that the company couldn’t complete because it was unable to meet some of the requirements before the U.S. Energy Department loan guarantee program ended Sept. 30. MidAmerican Energy said the purchase shows that solar energy is viable without government backing. Solyndra LLC, a failed solar panel company, received a guarantee under the same program.

“Buffett’s investment shows that solar has come of age,” Shrestha said. The end of the grant program “takes away some of the incentive but there will still be viable large scale solar plants.”

The billionaire’s endorsement may also help First Solar sell other solar farms, even if they have power-purchase deals with lower rates, Clegg said. “I don’t doubt they will find buyers for more of their projects,” he said. “The returns probably won’t be as good as the ones that have already been sold.”

First Solar has sold and begun building projects using its panels to buyers including General Electric Co., NextEra Energy Inc., Exelon Corp. and NRG Energy Inc. Projects that First Solar is developing and for which it still needs buyers total 600 megawatts, according to a company presentation on Oct. 26.

Biggest Acquisition

MidAmerican may not be one of the buyers, said Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett.”

“I would guess this is specific to MidAmerican and this particular deal,” he said in an e-mail. Though Buffett has voiced support for renewable energy, “I wouldn’t think he’s going to run around and buy solar assets.”

Buying Topaz will provide a “nice set” of cash flow for MidAmerican, Jenny Chase head of solar analysis at Bloomberg New Energy Finance, said in an e-mail. “This is the biggest acquisition of a single photovoltaic project anywhere,” she said.

The Topaz project in San Luis Obispo County is expected to be complete in 2015. It’s the third-largest solar farm announced to date in the U.S., tied with First Solar’s Desert Sunlight plant, also in California, and trailing plants that NRG Energy and Cannon Power Corp. are developing, according to New Energy Finance.

To contact the reporter on this story: Christopher Martin in New York at cmartin11@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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Trapped by a $50,000 Degree in a Low-Paying Job

By Janet Lorin - Dec 7, 2011 12:00 PM GMT+0700

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Sayer, unsure of what she wanted to do after graduating from college in 2006, figured a master’s degree was “a safe bet.” Source: Laura Sayer via Bloomberg

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Ellis, 28, took about $160,000 in federal loans to attend Fordham Law School. Because his student debt is so high compared to his salary, Ellis said he expects to qualify for a plan that would let him pay 15 percent of his salary for 25 years, and whatever debt is left after that is forgiven. Photographer: Scott Wagner via Bloomberg

Laura Sayer, unsure of what she wanted to do after graduating from college in 2006, figured a master’s degree was “a safe bet.”

With $5,000 in undergraduate loans from her time at the University of Cincinnati, Sayer was set back $50,000 more after completing the Interdisciplinary Master’s Program in Humanities and Social Thought at New York University. The 27-year-old now makes about $45,000 a year as an administrative assistant for a nonprofit group, a job that didn’t require her advanced degree.

More people are losing the same gamble as a 33 percent jump in U.S. graduate school enrollment in the past decade, coupled with an 80 percent surge in tuition and required fees, runs headlong into a weaker job market. Universities are fueling the trend by offering more one- and two-year programs in areas from environmental science to sports management that rarely come with financial aid other than the option for loans.

“Students need to be more skeptical that the income, debt and job-placement statistics that they’re being shown about graduate schools may not reflect individual experiences,” said Mark Kantrowitz, publisher of FinAid.org, a website with educational-lending information. “It’s like the advertisements on TV for weight-loss programs: the results are not typical.”

About one-third of people with master’s degrees make less money on average than a typical bachelor’s degree holder, said Stephen J. Rose, a labor economist with Georgetown University’s Center on Education and the Workforce, citing U.S. Census data.

‘Making Mistakes’

“Some people are making mistakes and other people are just making choices that this is what they want to do,” Rose said. “In this bad environment, many people with master’s degrees are employed but in relatively low-paying positions.”

Students who attend professional schools, such as for law, medicine and business, accumulate even more debt. Medical school graduates have a mean indebtedness of $161,290, up 55 percent since 2002, not adjusted for inflation, according to the Association of American Medical Colleges. Average tuition and fees for private law schools have jumped 73 percent since 1999 to $35,743 in 2009, an American Bar Association survey shows.

The median tuition and fees for an MBA at a private school has gained 66 percent from 2001-2002 to $49,500 for 2010-2011, according to a survey by the Association to Advance Collegiate Schools of Business.

Men with master’s degrees make an average of $14,500 more a year than those without the degrees, and for women it’s about $10,000, according to Rose’s analysis of Census data. Advanced degrees in computers, engineering, business and nursing lead to the highest salaries. Master’s degrees in education, fine arts, teaching and liberal arts fare the worst.

Trapped for Decades

Gerrald Ellis, 28, took about $160,000 in federal loans to attend Fordham Law School, and then spent a year searching for a job. He eventually found work at a four-lawyer firm in White Plains, New York, doing consumer protection work.

Because his student debt is so high compared to his salary, Ellis said he expects to qualify for a plan that would let him pay 15 percent of his salary for 25 years, and whatever debt is left after that is forgiven.

“I’m trapped for at least two decades,” said Ellis, who lives in Harlem with a classmate who also borrowed more than $100,000. “The debt has an impact on everything, where I decide to live, what job I take. I can’t even imagine having kids with this kind of debt burden. Multiply that by a whole generation.”

Change in Law

After a change in federal law in 2006, graduate students became eligible to borrow federally backed loans that covered the full cost to complete their degrees, while undergraduates are limited to $27,000 over four years, according to Kantrowitz.

The number of students enrolled in graduate schools, excluding law and medicine, totaled 1.7 million last year, a 33 percent jump from 2000, according to data from the Council of Graduate Schools, which represents more than 500 universities.

Federal and private student loans outstanding for graduate and undergraduate education is approaching $1 trillion, and surpassed U.S. credit-card debt in June 2010 for the first time, said Kantrowitz, who analyzed federal loan data and modeled private student-loan volumes. Defaults are at their highest since fiscal 1997, according to the Education Department.

Of the $93 billion in total federal and private education loan debt in 2007-2008, the most recent federal data available, about 30 percent was for graduate and professional debt, Kantrowitz said.

Pathway to Success

The predicaments of people like Sayer and Ellis have become a rallying cry for Occupy Wall Street protesters, and students at schools from City University of New York to the University of California system demonstrated last month against tuition increases.

President Barack Obama in October announced rules to lower the burden for some with federal loans and met this week with a dozen heads of public and private universities about ways to curb rising education costs.

Debra Stewart, president of the Washington-based Council of Graduate Schools, said advanced schooling is still the “pathway to success in the modern economy.”

“The more education you have, the more highly regarded you are going to be in the workplace,” she said.

Well before the economic recession and tuition increases made students evaluate whether to invest in graduate school, universities had expanded their master’s degree offerings over the past 15 years.

Expanded Offerings

Robert Manuel, dean of Georgetown’s School of Continuing Studies, said a master’s degree from his program is worth the debt. His school offers six master’s of professional studies degrees, including in sports and real-estate management, and has about 980 students.

“I see the impact and I see the transformation that happens in these students as they go through the program,” Manuel said in an interview. “It’s worth every dollar.”

The cost to complete the degrees is about $40,000, which includes tuition, fees and estimated living expenses, said Stacy Kerr, a spokeswoman for Washington-based Georgetown University. Students take one to five years to finish, depending on their personal situations. About half take loans, with annual average borrowing of about $21,000, she said.

Nearby George Washington University has expanded programs at its Graduate School of Political Management, offering degrees in legislative affairs, political management and strategic public relations. Enrollment has doubled since its founding in 1995 to about 250 full-time students, paying roughly $53,000 for their degree including living expenses, said Dennis Johnson, the acting executive director.

Career Prospects

Evening classes are aimed at students with day jobs and they leave with contacts among the faculty, many of whom work in the field and can help alumni land jobs, he said.

“I’m very much sold that this is a good idea,” Johnson said.

Sayer, the NYU graduate, said while she learned critical- thinking skills, her career prospects won’t allow her to pay off her debt anytime soon.

“Even if I didn’t know what field it would lead me to, I thought it would be worthwhile for my professional career,” said Sayer, who lives in the Crown Heights neighborhood of Brooklyn with two roommates.

Many of the students who enroll in the master’s of “Social Thought” program directly from college do so with an eye toward a Ph.D., said John Beckman, an NYU spokesman.

“The numbers have shown, and will continue to show, over time that an investment in an advanced degree will yield better career prospects and income,” Beckman said.

Game Show Winnings

The decision to go to graduate school was easy for Zach Safford, who finished Williams College in Massachusetts in 2009 with no debt.

The 24-year-old recently completed a master’s in design ethnography at the University of Dundee in Scotland for about $18,000 and found work immediately doing qualitative research for a company in New York.

He said he paid for the degree with $25,000 won on the television game show Jeopardy!

“If I had to borrow, it would have certainly been a much more complicated decision,” he said.

To contact the reporter on this story: Janet Lorin in New York at jlorin@bloomberg.net

To contact the editor responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net

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Asia Stocks Fall on Data, Before EU Summit

By Kana Nishizawa and Norie Kuboyama - Dec 8, 2011 10:35 AM GMT+0700

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Dec. 8 (Bloomberg) -- Robert P. Browne, chief investment officer at Northern Trust Corp., talks about the European debt crisis, global stock markets and his investment strategy. Browne speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Play Video

Dec. 8 (Bloomberg) -- Wilfred Sit, Asia chief investment officer for Baring Asset Management, talks about the outlook for Asian financial markets in 2012 and his investment strategy. Sit speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up" .(Source: Bloomberg)

Asian stocks (MXAPJ) dropped ahead of a European summit on the region’s sovereign debt crisis, and after economic data from Japan and Australia signaled the global economy is slowing.

Tokyo Electric Power Co., the operator of the power plant at the center of the biggest nuclear disaster in 25 years, sank 8 percent after the Mainichi newspaper reported it may be effectively nationalized. Hitachi Construction Machinery Co., a Japanese construction machinery maker, declined 1.6 percent. LG Electronics Inc. (066570), a home appliances maker that gets more than a fifth of its revenue from Europe, fell 3.3 percent in Seoul.

City Developments Ltd. (CIT), Singapore’s second-biggest real- estate company by market value, led declines among the city’s property developers after the government imposed additional taxes on purchases of private residential property.

“As the European meetings get closer investors have turned cautious,” said Masaru Hamasaki, who helps oversee the equivalent of $24 billion as chief strategist at Toyota Asset Management Co. in Tokyo. “There’s been a switch from a feeling that we were going to get some visibility on the situation to a cooler stance, where people are in a wait-and-see mood.”

The MSCI Asia Pacific Index (MXAP) slid 0.9 percent to 117.18 as of 12:21 p.m. in Tokyo. All 10 industry groups on the measure dropped, with more than three stocks falling for each that rose.

Japan’s Nikkei 225 Stock Average (NKY) retreated 1.1 percent after machinery orders fell 6.9 percent in October from September, missing the median forecast of a 0.5 percent gain by 27 economists surveyed by Bloomberg News.

Australia’s S&P/ASX 200 index fell 0.3 percent as the nation’s employers cut 6,300 workers in November from the previous month, missing the 10,000 extra jobs forecast in a Bloomberg survey of 22 economists.

Interest Rates

New Zealand’s NZX 50 Index dropped 0.5 percent after the central bank left interest rates at a record low of 2.5 percent today and cut its economic growth predictions. South Korea’s Kospi Index (KOSPI) declined 0.5 percent as the central bank refrained from raising borrowing costs for a sixth straight month amid a global slowdown. Hong Kong’s Hang Seng Index fell 0.8 percent, while Singapore’s Straits Times Index lost 1.6 percent.

The MSCI Asia Pacific Index declined 14 percent this year through yesterday, compared with a gain of 0.3 percent by the Standard & Poor’s 500 and a 12 percent slump by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.9 times estimated earnings on average, compared with 12.7 times for the S&P 500 and 10.6 times for the Stoxx 600.

Pressure Intensifies

LG Electronics fell 3.3 percent to 72,500 won in Seoul, while Hutchison Whampoa Ltd. (13), an owner of ports in Germany, Italy and Spain, retreated 0.9 percent to HK$67.65 in Hong Kong.

Pressure on Europe’s leaders to halt the spread of the region’s debt crisis at a summit in Brussels this week intensified as the European Union had its AAA long-term rating put on “creditwatch negative” by S&P following a similar action on 15 euro-area governments.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are expected to argue for rewriting European Union treaties to tighten control of national budgets at the meeting of euro zone leaders tonight and tomorrow.

“Investors can’t buy or sell until they see the results of the European meetings,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “Stocks have been rising on expectations the European Union and the European Central Bank may take some action, but now investors need to see whether the results meet or beat expectations.”

Hitachi Construction declined 1.6 percent to 1,367 yen in Tokyo, while Fanuc Corp. (6954), a maker of industrial robots, slid 0.8 percent to 12,990 yen.

Tepco Action

Tokyo Electric Power, known as Tepco, dropped 8 percent to 253 yen after the Mainichi newspaper said the government’s Nuclear Damage Liability Facilitation Fund may buy preferred shares worth at least 1 trillion yen ($12.9 billion) from the utility by next summer, without saying where the information came from. Most of Tokyo Electric’s management will be replaced, the report said.

City Developments sank 7.1 percent to S$9.31 in Singapore, the second-biggest drop in the MSCI Asia Pacific Index after Tepco. CapitaLand Ltd. (CAPL), an operator in residential and commercial properties, dropped 6.9 percent to S$2.43. Keppel Land Ltd., the real-estate unit of Keppel Corp., retreated 6.8 percent to S$2.45.

Singapore developers declined after the government required foreigners and corporate entities to pay an additional 10 percent stamp duty when they buy homes in the city. Permanent residents purchasing a second home as well as citizens buying their third residential property also need to pay an additional tax of 3 percent, the government said in a statement yesterday.

To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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Poll: Investors Predict China Bank Crisis

By David J. Lynch - Dec 8, 2011 12:13 PM GMT+0700
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Residential and commercial properties are illuminated at dusk in the Louhu district of Shenzhen, China. Evidence of slowing growth in China -- including the weakest manufacturing performance in more than two years, falling home sales and ebbing export growth -- has stoked concern that non-performing loans will climb in China. Photographer: Forbes Conrad/Bloomberg

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Dec. 8 (Bloomberg) -- David Roche, president of Independent Strategy and a former Morgan Stanley global strategist, talks about the impact of the European sovereign debt crisis on financial markets and the outlook for the global economy. Roche speaks with John Dawson, Angie Lau, Zeb Eckert and David Ingles on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

Most global investors predict China will face a banking crisis within the next five years, paring their appetite for the nation’s shares and eroding confidence in its leadership, a Bloomberg Global Poll indicated.

Sixty-one percent of respondents said they anticipate a crash in the financial industry by late 2016, and only 10 percent were confident China’s banks will escape trouble, according to the quarterly poll of 1,097 investors, analysts and traders who are Bloomberg subscribers conducted Dec. 5-6.

Evidence of slowing growth in China -- including the weakest manufacturing performance in more than two years, falling home sales and ebbing export growth -- has stoked concern that non-performing loans will climb in the world’s second-largest economy. The risk is a legacy of a record 17.6 trillion-yuan ($2.8 trillion) lending boom unleashed by Premier Wen Jiabao in 2009-2010 amid the global recession.

“The deep-seated misallocation of resources, particularly in the real estate and banking sectors, will lead to a combination of political and economic instability,” says Lance Depew, managing director of UPI Management LLC in Santa Barbara, California, and a participant in the poll. “I expect further macroeconomic weakness and sub-par returns in the stock market for the foreseeable future.”

Stocks Slide

The MSCI China/Financials Index of shares has tumbled 22 percent this year, underperforming the broader MSCI China Index of equities, which is down 17 percent. China Life Insurance Co. (2628) has declined 32 percent and Bank of China Ltd. (3988) 30 percent, contributing the most to the financial index’s losses.

Enthusiasm for Chinese stocks has flagged among Bloomberg users. In the latest poll, 21 percent called China one of the best places to invest over the next year. That was less than half the 44 percent who named China in an October 2009 Bloomberg survey.

Thirty-five percent of respondents said they expect China’s economic growth to slow to less than 5 percent from the 9.1 percent year-on-year pace recorded in the third quarter. Thirty- one percent anticipated “serious political or economic instability that stalls growth.” American investors were the most pessimistic, with 40 percent expecting a Chinese crisis.

A plurality of 46 percent of investors described the Chinese economy as “deteriorating” -- up from 38 percent in September -- compared with 40 percent who said it was “stable.”

Goldman’s Outlook

The skepticism contrasts with the outlook of economists from Goldman Sachs Group Inc. and the International Monetary Fund, who predict China will avoid a growth slump while defusing inflation. Goldman Sachs, in a Dec. 1 report, projected the nation’s gross domestic product will rise 8.6 percent next year and 8.7 percent in 2013.

A relatively low central government debt burden gives Premier Wen Jiabao’s administration the fiscal wherewithal to address a jump in non-performing loans. The IMF estimates the government’s gross debt-to-GDP ratio at 27 percent this year, compared with 100 percent for the U.S. and 233 percent in Japan.

The World Bank said last month that while China faces the risk of a “strong” impact from a real-estate correction, it has “ample” scope to cushion its economy. Policy makers have begun responding to the signs of a weakening outlook, with the People’s Bank of China last week lowering banks’ reserve requirements for the first time since 2008 to encourage lending.

Best in Class

“China, simply put, is the best managed major economy on the planet,” said Anthony Stephens, an equity trader with Standard Chartered Bank in Hong Kong and a survey participant.

Most investors in the poll don’t anticipate China’s relative economic performance translating into broader influence that would displace the U.S. as the world’s preeminent superpower.

Forty-one percent of poll respondents said that the U.S. would remain militarily dominant even as the Chinese economy eventually overtakes it in size. An additional 27 percent said China would “never surpass” the U.S. as the top global force. Only 25 percent agreed that China would “inevitably replace” it as the No. 1 superpower.

President Barack Obama’s administration has sought to enhance the U.S.’s stature in Asia this year, an initiative Secretary of State Hillary Clinton has described as a “pivot” toward the region after a decade of American focus on war in the Middle East. As part of the approach, the administration is seeking a free-trade agreement with Pacific nations including Malaysia, Vietnam and Singapore, and last month enhanced its security ties with Australia.

U.S. in Asia

Global investors are skeptical of the U.S. effort, highlighted when Obama hosted the annual 21-nation Asia-Pacific Economic Cooperation summit in Honolulu last month and attended an East Asia Summit in Bali, Indonesia. Fifty-six percent said the campaign “will not enhance U.S. influence and end up antagonizing China,” compared with 30 percent who expect it to serve as an “effective counterweight” to Chinese power.

“China’s rising power and the United States’ traditional role are increasingly coming into conflict in the region,” said Michael Swaine, author of “America’s Challenge: Engaging A Rising China in the 21st Century” and a senior associate at the Carnegie Endowment for International Peace. “These two countries have very different views on what sustains prosperity and stability.”

Leadership Assessment

Investors this year have become less enamored of Chinese President Hu Jintao, with 47 percent saying they were optimistic about his leadership, compared with 38 percent who described themselves as pessimistic. In January, Bloomberg customers favored Hu by a 60 percent to 30 percent margin.

China is in the midst of a planned leadership shift that will culminate late next year with the 18th Communist Party Congress. The conclave, which occurs every five years, is likely to tap Vice President Xi Jinping as China’s next president and Li Keqiang, currently vice premier, as prime minister.

Ahead of that comes an annual conference by top government officials this month that may affirm the shift to stimulus already telegraphed by last week’s bank reserve-ratio cut. Goldman analysts also predict an endorsement of “structural” tax cuts in the wake of rapid gains in fiscal revenue.

Global investors are confident the new team will continue the shift toward private enterprise devised in the late 1970s by Deng Xiaoping. In the poll, 49 percent of Bloomberg customers said the Chinese leadership will move toward free markets, while 37 percent forecast a tightening of state control over the economy. Asian investors were most upbeat, with 55 percent anticipating further opening.

Next Administration

Among the tasks that may face the next government is clearing any wreckage left from a surge in non-performing loans. The IMF, in its first formal evaluation of China’s financial system Nov. 15, called for further moves toward a “market-based financial system,” including upgraded bank risk-management systems and additional skilled personnel for the central bank and regulatory agencies.

“Many government liabilities are hiding in the banking system,” says Yin-Chen Chang, a consulting associate at Waterland Securities in Taipei, Taiwan.

The Bloomberg Global Poll was conducted by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 3.0 percentage points.

To contact the reporter on this story: David J. Lynch in Washington at dlynch27@bloomberg.net

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net

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Jive IPO Gets Boost From Billion-Dollar Cloud Deals

By Peter Elstrom - Dec 7, 2011 8:59 PM GMT+0700

Jive Software Inc. has every reason to lift its initial public offering price after billion-dollar cloud-computing acquisitions led by SAP AG and Oracle Corp.

Jive, a social-networking software maker, said last week it aims to raise as much as $117 million in an IPO that would value it at up to $573 million. That was before SAP’s (SAP) agreement Dec. 3 to buy SuccessFactors Inc. for $3.4 billion, or 52 percent more than its value before the offer. Six weeks earlier, rival Oracle snagged RightNow Technologies Inc. for $1.5 billion.

SAP is paying 11.7 times SuccessFactors’ sales over the past 12 months. At a similar ratio, Jive would be valued at more than $800 million. Software makers are paying up for targets that charge fees to access applications online, rather than licensing programs for desktops. Jive’s IPO may get a boost as investors try to benefit from a shift to cloud services, a market that Gartner Inc. says may reach $148.8 billion in 2014.

“Everybody is looking around and saying, ‘Where can I play that trend?’” said Jeff Richards, a partner at GGV Capital in Menlo Park, California, which was a venture investor in SuccessFactors. (SFSF) “Jive has achieved some scale and is an up-and- coming area.”

Cloud Shift

Jive’s software lets company employees collaborate on projects and communicate with customers. The company counts NetApp Inc., Avon Products Inc., Yum! Brands Inc. and Nike Inc. among its clients. Revenue has surged in the past three years as workers seek the kind of social-networking features they get from Facebook Inc. and Twitter Inc. for corporate use.

Some of the world’s biggest technology companies, including Microsoft Corp., Hewlett-Packard Co. and International Business Machines Corp., are moving to the so-called cloud, where customers can save money by renting software delivered over the Web and accessing it anywhere, instead of installing it on their own machines. The global market for cloud services was about $68.3 billion in 2010, according to Gartner.

Jive began offering its product on a subscription basis starting in 2007. The company lets customers install software on their own premises or have it hosted offsite. In its prospectus, the company said that its subscription model “provides financial visibility through renewable revenues and cash flows.”

Jive, based in Palo Alto, California, plans to sell 8.33 million shares for $8 to $10 apiece, with stockholders offering an additional 3.37 million shares, according to the Nov. 30 filing. The final pricing is expected on Dec. 13.

If Jive were to seek a valuation of $800 million, it would have to sell shares at about $14 apiece.

Crop of IPOs

At least three other U.S. companies that sell software as a service have registered for IPOs since August. ExactTarget Inc., a provider of e-mail marketing services, filed in November, three months after rival Eloqua Ltd. Bazaarvoice Inc., whose software helps companies communicate with their customers, announced IPO plans in August.

SuccessFactors, which makes software used to manage employee performance, has more than 3,500 customers and 15 million subscribers in 168 countries.

Jive’s sales in the nine months through September climbed 73 percent from the same period a year earlier to $54.8 million.

Still, like SuccessFactors, Jive is losing money as it invests in growth. Sales and marketing costs rose 55 percent in the first three quarters from a year earlier, and the company’s net loss almost doubled to $38.1 million.

Tolerating Losses

Investors will put up with losses as long as Jive and other cloud companies keep expanding and meet analysts’ revenue predictions, said Brenon Daly, an analyst at research firm The 451 Group in San Francisco. Responsys Inc., a provider of marketing software, forecast fourth-quarter sales last month that trailed estimates, pushing the stock down 24 percent the next day.

“The investment community is saying, ‘We will help underwrite your business with the understanding that you’re going to make all your numbers,’” Daly said.

Ana Andreescu, a spokeswoman for Jive, declined to comment, citing the pre-IPO quiet period.

The global market for social customer-relationship management software, where Jive competes with companies such as Salesforce.com Inc. (CRM), will jump to $1 billion in 2012 from $625 million last year, according to Gartner. Other rivals include software giants Microsoft and IBM, as well as Lithium Technologies Inc., a startup based in Emeryville, California.

‘Very Nice Exits’

Sequoia Capital, which profited earlier this year from Linkedin Corp.’s IPO, stands to benefit the most if Jive’s value rises. The Menlo Park-based venture firm paid $57 million for a stake that would be worth about $170 million at the high end of the expected offering. Kleiner Perkins Caufield & Byers paid $40 million for a stake worth about $67 million at that price.

The acquisitions by Oracle (ORCL) and SAP, the largest maker of business-management software, may also help other cloud-based startups fetch higher prices, said Kris Duggan, chief executive officer of business-software startup Badgeville Inc., also based in Menlo Park. Until recently, Salesforce was the only acquirer, he said.

“People thought for a long time Salesforce.com was the only game in town,” Duggan said. “Now it’s everybody. You can create some very nice exits.”

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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