CIC Seeks Commodities, Property as Hedge, Lou Says

By Bloomberg News

Oct. 28 (Bloomberg) -- China Investment Corp., the country’s sovereign wealth fund, said it has $110 billion for overseas investments and will focus on buying into commodities companies and property as a hedge against accelerating inflation.

“Now we are seeing expectations of medium and long-term inflation, and the value of major currencies may have to fall to a new equilibrium level,” Chairman Lou Jiwei told a forum in Beijing today, according to a transcript of his comments posted on financial portal hexun.com. “Investing in major commodities can be a hedge. So is investing in real estate.”

CIC, which held almost $300 billion in assets at the end of last year, is seeking resources from Indonesia to Canada to support expansion in the world’s fastest-growing major economy. It spent at least $3.69 billion on resources in September, buying stakes in Indonesia’s PT Bumi Resources, Noble Group Ltd. and in the London-traded unit of Kazakhstan’s state-run energy company.

“China needs to diversify its foreign reserves investments away from U.S. Treasuries and it lacks resources, so it has to be buying minerals from a national strategy point of view,” said Helen Wang, a Shanghai-based analyst with DBS Vickers Hong Kong Ltd. “Now may not be the best time in terms of prices, but they may be betting that commodities prices will be even higher in the next five to 10 years.”

Copper prices in London have almost doubled this year on Chinese demand while crude oil has added 86 percent in New York.

The fund has made “not bad” returns from overseas holdings this year after pumping more money into stocks, mining, energy and real estate, Lou said. CIC sees opportunities in “many” commodities companies after asset bubbles burst in the financial crisis, he added.

‘Long-term’ Returns

“Our strategy is just long-term risk-adjusted return, is making money,” Lou said. “Now is the opportunity. I don’t care about how many tons of oil to ship home, I care about whether stocks are worth more money.”

Overseas investments by Chinese companies surged 190 percent to $20.5 billion in the third quarter from a year earlier, the Ministry of Commerce said yesterday. Chinese businesses’ non- financial direct investments in Africa, mainly in mining, manufacturing and construction, jumped 79 percent in the first nine months to $875 million, the ministry said yesterday in a separate statement.

China’s sovereign wealth fund is increasing investments in commodities firms after losing money on financial companies including Blackstone Group LP and Morgan Stanley.

SouthGobi Energy Resources Ltd., a unit of Ivanhoe Mines Ltd., said Oct. 26 it has obtained $500 million of financing from CIC to expand and develop coal reserves in southern Mongolia.

JSC KazMunaiGas, Bumi

CIC bought an 11 percent stake in Astana, Kazakhstan-based JSC KazMunaiGas Exploration Production for about $939 million, it said Sept. 30. A week earlier it bought $1.9 billion of debt from Jakarta-based Bumi Resources, Indonesia’s biggest coal producer, and paid $850 million for a 15 percent stake in Noble Group, a Hong Kong-based commodity supplier. Vancouver-based Teck Resources Ltd., Canada’s largest diversified mining company, sold a 17 percent stake to CIC in July.

China’s economy, the world’s third largest, expanded at the fastest pace in a year in the third quarter as stimulus spending and record lending growth helped the nation lead the world out of recession. Gross domestic product grew 8.9 percent from a year earlier.

The world’s biggest buyer of commodities including soybeans, cotton and iron ore, will expand 8.2 percent this year, compared with a March forecast of 7 percent, the Asian Development Bank said this month.

‘A Certain Percentage’

CIC should set aside “a certain percentage” of its investments in commodities because they’re important to China’s economic growth, Lou said. A “bigger” part of the fund’s investments in mining, energy and real estate were made in the open market through external agencies and not disclosed to the public, he said, adding that direct investments are less efficient and more difficult to adjust.

CIC is preparing for “rebalancing” overseas investments to further boost returns, Lou said without elaborating, according to the transcript. The company has completed nearly half of its overseas investments, he said.

To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net

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Gold to Rise to $2,000 Amid ‘Massive’ Inflation, Superfund Says

By Kim Kyoungwha

Oct. 28 (Bloomberg) -- Gold may rise to a record $2,000 an ounce in the next three years as investors hedge against “massive” inflation sparked by governments printing money, according to Superfund Financial Singapore Pte’s Aaron Smith.

“In the next few years, after the deflation cycle, we’ll see massive inflation,” Managing Director Smith, 30, said in an interview. “Soon, when you go to buy a cup of coffee, you’ll pay $20 or $30 because the dollar won’t be worth anything.”

The company’s Superfund Green Gold A Fund, which has more than doubled since its inception in 2005, has lost 15.6 percent this year because of higher volatility, said Smith, who joined in 2002. Gold rose to an all-time high this month as governments including the U.S. boosted debt to combat the global recession.

“When the U.S. dollar crashes, all the paper currencies have to crash, otherwise if their currencies are too strong, their economies will be weak,” said Smith, who issued similar gold forecasts in May and earlier this month. “Another excellent buying opportunity for investors is silver.”

Gold for immediate delivery, which touched a high of $1,070.80 an ounce on Oct. 14, traded at $1,039.32 at midday in Singapore. The metal has strengthened 18 percent this year, while the Dollar Index, a six-currency gauge of the dollar’s strength, fell 6.4 percent.

Gold Forecasts

Smith joins investors including Shayne McGuire, director of global research at the Teacher Retirement System of Texas, and Jim Rogers in forecasting higher gold prices. Pension funds will increase gold holdings as currencies decline, McGuire said on Oct. 22. Gold will probably top $2,000 in the next decade as the dollar weakens, Rogers said Oct. 7.

Superfund, founded in 1995 and backed by $1.6 billion in assets, specializes in so-called managed futures, using its own trading system to generate buy and sell calls on stock, bond, currency and commodity futures. Still, the company’s flagship Superfund A, which gained 35.4 percent last year, has lost 24 percent this year, Smith said.

The ratio of silver to gold, currently at 62.35, will be “cut in half” in the next three to five years as millions of people in South Asia and China buy the metal as an alternative because they can no longer afford gold, Smith said. Silver has soared 46 percent this year to $16.65 an ounce.

To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net

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Japanese Stocks Fall on Profit Concerns; Toshiba, Canon Decline

By Akiko Ikeda and Patrick Rial

Oct. 28 (Bloomberg) -- Japanese stocks fell for a second day as companies from ship operators to electronics makers reported weaker earnings or cut forecasts.

Leopalace21 Corp. plunged 16 percent after the real-estate company predicted a loss from a profit. Kawasaki Kisen Kaisha Ltd. dropped 4.5 percent, leading declines by shipping lines after widening its loss forecast yesterday. Canon Inc., the world’s largest camera maker, sank 3.4 percent after reporting a seventh-straight quarterly profit decline. Toshiba Corp. lost 4.6 percent after maintaining its full-year estimates while saying the outlook for the global economy is “highly opaque.”

“The thought is starting to creep into people’s minds that once stimulus measures run out, the recoil will run rather deep,” said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages the equivalent of $14 billion. “Earnings might be good now, but that’s looking to the past, and everyone is more worried about the uncertain future.”

The Nikkei 225 Stock Average fell 1.4 percent to 10,075.05 at the market close in Tokyo. The broader Topix index dropped 0.8 percent to 888.80, with almost twice as many shares declining as advancing. Stocks in the benchmark are valued at 37 times estimated earnings, compared with 17 times for the Standard & Poor’s 500 Index.

Shimano Inc., the world’s biggest maker of bicycle parts, retreated 6.9 percent to 3,660 yen, the sharpest decline this year. The company cut its full-year net income forecast 28 percent due to a slump in sales of bikes and fishing equipment. Net income fell 58 percent for the nine months ended Sept. 30.

Leopalace21 Plunges

Leopalace21 plunged by the daily limit of 16 percent to 528 yen after forecasting a net loss of 19.1 billion yen, compared with its earlier projection for 8.7 billion yen in net income. The company cited a slow recovery in the rental market, low occupancy rates and a writedown.

Property stocks climbed the most among the Topix’s 33 industry groups in the fiscal first half to September, gaining 37 percent, compared with 18 percent for the broad benchmark.

“Real-estate stocks advanced during the first half because of expectations for their condominium and rental-office businesses, however none of them is improving,” said Masaru Kimura, an analyst at Cosmo Securities Co. “Tighter restrictions on banks’ equity capital and a rise in long-term interest rates are also negative factors for the stocks.”

Leopalace tumbled the most among the 1,687 companies in the Topix today. Real-estate companies had the largest decline among the index’s 33 industry groups, followed by shipping lines.

Shipping Lines Decline

Ship operators extended declines from yesterday, when they reported earnings and forecasts. Kawasaki Kisen tumbled 4.5 percent to 337 yen. The company widened its annual net forecast loss to 79 billion yen ($858 million) from 31 billion yen.

Nippon Yusen K.K., Japan’s largest line by sales, retreated 2.6 percent to 338 yen, its lowest since September 2001, after the company cut fleet spending plans by half and widened its loss forecast fivefold. Mitsui O.S.K. Lines Ltd. dropped 2.2 percent to 539 yen.

Among stocks that climbed, Honda Motor Co., Japan’s second- largest carmaker, rallied 3.3 percent to 2,940 yen after boosting its full-year profit forecast to 155 billion yen, compared with an earlier projection of 55 billion yen. The company cited government stimulus measures that are lifting demand for fuel-efficient vehicles in China and Japan.

Honda had the steepest increase in the Nikkei and was the biggest positive contributor to the Topix.

Koito Manufacturing Co., a headlamp maker, climbed 4.3 percent to 1,315 yen after increasing its full-year net income outlook to 6 billion yen from 1 billion yen, from rising demand for less-polluting cars.

DeNA, Canon, Toshiba

DeNA Co. jumped by the daily limit of 16 percent to 285,200 yen, the sharpest advance in the Topix. Hiroshi Kamide, an analyst at KBC Securities, lifted the operator of auction and shopping Web sites to “buy” from “hold,” citing management’s re-focus on gaming contents.

Toshiba, Japan’s biggest chipmaker, lost 4.6 percent to 519 yen, the biggest drop in a month, and was the most-actively traded stock by value in Japan. The company kept its annual outlook unchanged, even after reporting a first-half loss that was narrower than forecast.

Canon slumped 3.4 percent to 3,460 yen, the sharpest slide in six weeks. The camera maker posted its seventh-straight quarterly profit drop as the stronger yen eroded the value of exports. Third-quarter net income fell 56 percent to 36.7 billion yen, the company said.

Canon and Toshiba were the biggest drags on the Topix.

To contact the reporter on the story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net.

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Asian Stocks Decline on Earnings Concern; Japan’s Yen Advances

By Shani Raja and Patrick Rial

Oct. 28 (Bloomberg) -- Asian stocks fell, dragging the MSCI Asia Pacific Index to a three-week low, as losses at National Australia Bank Ltd. and Canon Inc.’s lower profit raised concern about the strength of the global recovery. The yen advanced.

National Australia fell 2.8 percent after posting a second- half loss amid rising bad-debt charges. Canon, the world’s largest camera maker, lost 3.4 percent as it reported its seventh-straight drop in quarterly profit. Toshiba Corp. sank 4.6 percent after warning of a “highly opaque” economic outlook. BlueScope Steel Ltd. dropped 3.5 percent in Sydney as rising Chinese steel inventories raised oversupply concerns.

The MSCI Asia Pacific Index lost 1.2 percent to 116.49 as of 5:08 p.m. in Tokyo, set to close at the lowest since Oct. 6. The gauge has surged 65 percent from a more than five-year low on March 9 amid signs stimulus measures around the world are reviving the global economy.

“The thought is starting to creep into people’s minds that once stimulus measures run out, the recoil will run rather deep,” said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages the equivalent of $14 billion. “Earnings might be good now, but that’s looking to the past, and everyone is more worried about the uncertain future.”

Japan’s Nikkei 225 Stock Average lost 1.4 percent and China’s Shanghai Composite Index added 0.3 percent. South Korea’s Kospi Index slumped 2.4 percent. Australia’s S&P/ASX 200 Index dropped 1.4 percent.

Hong Kong’s Hang Seng Index fell 1.8 percent, with Sino Land Co. sinking 4.6 percent on concern the city’s government will act to curb property speculation.

Honda, Astellas

Among companies that rose, Honda Motor Co., Japan’s second- largest carmaker, surged 3.3 percent after tripling its full- year earnings forecast. Astellas Pharma Inc. gained 1.5 percent after agreeing to pay for global rights to develop and sell an experimental drug for prostate cancer.

Futures on the U.S. Standard & Poor’s 500 Index rose 0.1 percent. The measure dropped 0.3 percent yesterday as a gauge of confidence among the country’s consumers unexpectedly fell.

The yen gained against all 16 of the most-active currencies on speculation the pace of the global economic recovery will slow, reducing demand for higher-yielding assets. Japan’s currency rose to 135.19 per euro from 135.89 in New York yesterday, after earlier reaching 134.85, the highest level since Oct. 20.

Economic Reports

Better-than-estimated economic and earnings reports have helped fuel a global stock-market rally since March. The advance has driven the average price of companies in the MSCI Asia Pacific Index to 1.55 times book value, up from 1.03 times at this year’s low in March.

“The market’s in a bit of a wait-and-see mode,” said Prasad Patkar, who helps manage about $1.3 billion at Platypus Asset Management in Sydney. “In this stage of the recovery, valuations always looked stretched. The market is forward- looking and expecting an earnings recovery to come through.”

The MSCI index has lost 1.2 percent since the end of September, and is set for its first monthly decline since February amid speculation governments will begin to withdraw stimulus measures.

Australia this month became the first country in the Group of 20 nations to boost borrowing costs since the start of the credit crisis. India’s central bank governor indicated yesterday that it was time to shift policy toward stemming inflation.

Net Loss

National Australia, the country’s biggest lender to businesses, fell 2.8 percent to A$29.83. The net loss of A$75 million ($68 million) in the six months ended Sept. 30 compared with a profit of A$1.85 billion in the year-earlier period, the Melbourne-based bank said today. Commonwealth Bank of Australia lost 3.8 percent to A$53.03.

Canon slumped 3.4 percent to 3,460 yen after its third- quarter net income fell 56 percent to 36.7 billion yen from a year earlier. The company maintained its estimates for full-year earnings and sales.

“Some investors had expected an upward revision of the full-year earnings forecasts because of Canon’s robust camera business,” said Tetsuya Wadaki, a Tokyo-based analyst at Nomura Holdings Inc., who recommends buying the stock.

Toshiba dropped 4.6 percent to 519 yen, the most since Sept. 28. The chipmaker’s second-quarter loss narrowed on cost reductions, helping Toshiba beat its first-half forecast. Still, the outlook for the global economy in the second half of its fiscal year “remains highly opaque,” Toshiba said.

Steel Supply

BlueScope Steel Ltd., Australia’s largest steelmaker, slumped 3.5 percent to A$3.05. JFE Holdings Inc., Japan’s No. 2 producer, sank 2.8 percent to 2,935 yen. Posco, South Korea’s biggest steelmaker, dropped 3.7 percent to 524,000 won.

Steel inventories held by large Chinese companies jumped 10 percent in the first nine months of the year, the Ministry of Industry and Information Technology said, adding to evidence of rising oversupply in the world’s largest producer of the metal.

The nation’s cabinet in August said it was studying curbs on overcapacity in industries including steel. Monthly steel production in China reached records for four months from May through August.

In Hong Kong, Sino Land dropped 4.6 percent to HK$14.80. New World Development Co., controlled by billionaire Cheng Yu- tung, slumped 4.3 percent to HK$16.78.

Property Market

Hong Kong Financial Secretary John Tsang signaled at a meeting that the government is prepared to act to stop the property market becoming “unfair” and “unhealthy,” the South China Morning Post reported today.

For property stocks, “it’s more of a psychological impact,” said Marco Mak, head of research at Tai Fook Securities Ltd. “As long as the government isn’t having any administrative intervention, the pullback will be short term.”

Honda Motor climbed 3.3 percent to 2,940 yen after forecasting net income of 155 billion yen in the year ending March, compared with an earlier target of 55 billion yen.

Astellas, Japan’s second-largest drugmaker, gained 1.5 percent to 3,390 yen. The company agreed to pay as much as $765 million to California-based Medivation Inc. for global rights to develop and sell the prostate cancer drug.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net.

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Deutsche Bank Said to Be Near Deal for Sal. Oppenheim Holding

By Aaron Kirchfeld

Oct. 28 (Bloomberg) -- Deutsche Bank AG, Germany’s biggest lender, is poised to buy the Luxembourg-based holding company of wealth manager Sal. Oppenheim Jr. & Cie. for about 1 billion euros ($1.48 billion), two people familiar with the matter said.

The family owners of Sal. Oppenheim will retain 25 percent in an operating unit of the asset and wealth management business in Cologne, Germany, said the people, who declined to be identified because talks are private. An agreement may be announced as soon as today after Deutsche Bank’s supervisory board meets, said the people.

Chief Executive Officer Josef Ackermann is seeking control of Sal. Oppenheim, Germany’s biggest independent private bank, to cut reliance on investment banking and bolster the asset and wealth management business. The acquisition would almost double Deutsche Bank’s assets under management in the private-wealth unit to more than 300 billion euros and add about 150 million euros in operating profit a year, according to estimates by Morgan Stanley analysts.

Spokesmen for Deutsche Bank and Sal. Oppenheim declined to comment. Die Welt yesterday reported the structure of the transaction, which the German newspaper said has tax benefits.

Sal. Oppenheim, run by the seventh generation of the same family, put itself up for sale after reporting its first loss since World War II last year from soured investments in companies such as insolvent German retailer Arcandor AG as well as derivatives and real estate. The bank in April posted a 2008 net loss of 117 million euros.

Wealth-Management Unit

Deutsche Bank is only interested in the wealth management business and Sal. Oppenheim is seeking a buyer for its investment bank. The company’s effort to sell the advisory and securities unit is focused on Macquarie Group Ltd., Australia’s biggest investment bank, and won’t be completed until after the Deutsche Bank transaction, the people said. Italy’s Mediobanca SpA previously dropped out of negotiations.

Deutsche Bank loaned 350 million euros to Sal. Oppenheim to help the wealth manager pay off loans to other banks, two people familiar with the matter said in September. The loan followed 300 million euros in financing provided by Deutsche Bank in August that the wealth manager used to raise capital. Deutsche Bank received Sal. Oppenheim shares as collateral, paving the way for a stake purchase, the people said.

Sal. Oppenheim says it became Europe’s largest independent bank after its 2004 purchase of BHF-Bank from ING Groep NV for 600 million euros. The company, which employs about 4,000 people, traces its roots to a commission and exchange house founded in 1789 by Salomon Oppenheim Jr.

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

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PGE Prices Europe’s Biggest IPO This Year at $2.1 Billion

By Pawel Kozlowski

Oct. 28 (Bloomberg) -- PGE SA, Poland’s largest power group, priced its initial public offering at the top of its range, valuing Europe’s biggest IPO this year at 5.97 billion zloty ($2.1 billion).

State-owned PGE, which is offering 259.5 million shares, or a 15 percent stake, set the final price at 23 zloty a share, the company said on its Web site. That was in line with the 23-zloty median estimate of 13 fund managers surveyed by Bloomberg News on Oct. 21, and compares with a 17.50 zloty to 23 zloty indicative price range.

PGE, also known as Polska Grupa Energetyczna, will sell 15 percent of the shares in its IPO to individual investors, compared with an earlier planned 10 percent. Demand from institutional and individual investors amounted to 45 billion zloty, according to the statement.

Poland had the biggest number of new listings in Europe after NYSE Euronext in the first nine months of 2009, attracting 22 companies, compared with 23 at the world’s largest operator of stock markets, according to PricewaterhouseCoopers LLP statistics cited on the Warsaw bourse’s Web site.

The state-owned company, picked to develop Poland’s first nuclear plant, is seeking cash to make acquisitions and replace aging generation capacity. PGE estimates it will have to spend 38.9 billion zloty on expansion through 2012, including investment to meet European Union environmental requirements.

Profit Doubled

PGE, whose net income almost doubled to 1.79 billion zloty in the first half of 2009, may post a 3.17 billion zloty profit for the full year, according to BRE Bank SA estimates.

The IPO price of 23 zloty values the company at 12.6 times BRE’s estimate of 2009 earnings. That’s more than the valuation of 9.6 times earnings for CEZ AS, the Czech Republic’s biggest utility, and the 9.5 ratio for RWE AG of Germany. Verbund and EVN AG, Austrian utilities, trade at 13.6 and 12.9 times this year’s estimated earnings, according to Bloomberg data.

Companies from Banco Santander SA’s Brazilian unit to Aviva Plc’s Delta Lloyd NV are holding IPOs this year after the MSCI World Index climbed 65 percent from its 2009 low on March 9.

The IPO, managed by Goldman Sachs Group Inc. and UniCredit SpA, will be the largest in Europe since EDP Renovaveis SA, the renewable-energy unit of Portugal’s biggest utility EDP- Energias de Portugal SA, sold 1.57 billion euros ($2.3 billion) of shares in May last year.

Asset Sales

Poland is speeding up sales of state assets to raise 36.7 billion zloty through 2010 to help finance a budget gap the government expects will almost double next year. The government will sell an additional 10 percent stake in PGE next year, according to the prospectus.

The government plans an IPO of its second-largest power group, Tauron Polska Energia SA, in the first half of the next year. The state-owned utility wants to raise as much as 4 billion zloty and the government may decrease its stake to below 50 percent while retaining control of the company.

The stock of state-controlled coal producer Lubelski Wegiel Bogdanka SA has soared 54 percent since its IPO in June, lifting the company’s valuation to 13.3 times estimated earnings from 9.4 times, according to data compiled by Bloomberg.

To contact the reporter on this story: Pawel Kozlowski in Warsaw pkozlowski@bloomberg.net

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Apollo, Chiquita, Illumina, Psychiatric: U.S. Equity Preview

By Lu Wang

Oct. 28 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Apollo Group Inc. (APOL US): The owner of the University of Phoenix reported said the enforcement division of the Securities and Exchange Commission commenced an informal inquiry into the company’s revenue recognition practices.

Chiquita Brands International Inc. (CQB US): The seller of bananas and other produce said that, excluding some items, it earned 20 cents a share in the third quarter. Analysts, on average, expected the company to post a loss of 15 cents, according to a Bloomberg survey.

By Lu Wang

Oct. 28 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Apollo Group Inc. (APOL US): The owner of the University of Phoenix reported said the enforcement division of the Securities and Exchange Commission commenced an informal inquiry into the company’s revenue recognition practices.

Chiquita Brands International Inc. (CQB US): The seller of bananas and other produce said that, excluding some items, it earned 20 cents a share in the third quarter. Analysts, on average, expected the company to post a loss of 15 cents, according to a Bloomberg survey.

Harris Corp. (HRS US): The maker of military radios boosted its forecast, projecting profit of at least $3.85 a share for the year. The company had previously predicted $3.50 at most.

Illumina Inc. (ILMN US): The maker of equipment to analyze DNA said that, excluding some items, it expects to earn 25 cents a share at most in the fourth quarter. That trailed the 27-cent average estimate from analysts in a Bloomberg survey.

Psychiatric Solutions Inc. (PSYS US): The provider of behavioral-health programs to children reduced its full-year forecast after third-quarter profit missed analysts’ estimates.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

Harris Corp. (HRS US): The maker of military radios boosted its forecast, projecting profit of at least $3.85 a share for the year. The company had previously predicted $3.50 at most.

Illumina Inc. (ILMN US): The maker of equipment to analyze DNA said that, excluding some items, it expects to earn 25 cents a share at most in the fourth quarter. That trailed the 27-cent average estimate from analysts in a Bloomberg survey.

Psychiatric Solutions Inc. (PSYS US): The provider of behavioral-health programs to children reduced its full-year forecast after third-quarter profit missed analysts’ estimates.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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Vitamin Shoppe IPO Hands Blackstone Cash After Dot-Com Crash

By Michael Tsang and Rita Nazareth

Oct. 28 (Bloomberg) -- Vitamin Shoppe Inc.’s initial public offering is giving investors a second chance to buy a stake in the retailer of nutritional supplements a decade after its dot- com unit sold shares at the peak of the Internet bubble.

The company, Blackstone Group LP and the family of founder Jeffrey Horowitz raised $155 million yesterday after selling 9.1 million shares above the forecast price range, according to Bloomberg data. The $17-a-share offer values Vitamin Shoppe at about $470 million and exceeds the $14 to $16 that the North Bergen, New Jersey-based retailer sought.

Vitamin Shoppe was the 17th U.S. company to raise money in an IPO since September, the busiest period in almost two years, as sellers take advantage of a credit-market thaw to unload shares into the biggest equity rally since the 1930s. The listing was Vitamin Shoppe’s second foray into the IPO market, after the initial sale of its VitaminShoppe.com Inc. unit in 1999 lost more than 90 percent for investors in less than two years as Internet stocks collapsed.

“This is a retail story, not a dot-com story from 10 years ago,” said Scott Billeadeau, who helps manage about $19 billion at Fifth Third Asset Management in Minneapolis. “They’ve raised the price because of demand. It’s a very good story.”

Charlotte, North Carolina-based Bank of America Corp.’s Merrill Lynch & Co. investment banking unit, Barclays Plc in London and New York-based JPMorgan Chase & Co. were the lead underwriters for the sale.

Vitamins, Hardwood Floors

Vitamin Shoppe is the first IPO of a retail chain store since Toano, Virginia-based Lumber Liquidators Inc., which sells hardwood flooring, offered shares in November 2007. Vitamin Shoppe originally filed in May 2007, before the start of the credit crisis. The company withdrew its registration statement in February this year and resubmitted it in July.

IPOs have increased after the Standard & Poor’s 500 Index rallied more than 50 percent from a 12-year low in March and the U.S. government lent, spent or guaranteed $11.6 trillion to shore up banks and revive the economy.

Prior to yesterday’s offerings, the amount raised in IPOs since September accounted for almost two-thirds of this year’s $11.3 billion in sales. The last time more U.S. companies went public over a two-month period was in December 2007 and January 2008, when there were 26, data compiled by Bloomberg show.

‘New Condition’

Palatine, Illinois-based Addus HomeCare Corp., which provides home nursing care, and Vitamin Shoppe added to the tally after raising a combined $209 million. Addus sold 5.4 million shares at $10 apiece yesterday, lower than its forecast range of $11 to $13.

“There is an IPO market now, which is a new condition,” said Lawrence Creatura, who invests in small-company stocks at Pittsburgh-based Federated Investors Inc., which oversees about $400 billion globally. “We came through a period when access to equity capital was impossible.”

Vitamin Shoppe sold 7.67 million shares, while New York- based Blackstone, the world’s largest private-equity firm, and the Horowitz family offered a combined 1.43 million shares, according to planned offer amounts in a regulatory filing.

After the IPO, Vitamin Shoppe will be 55 percent controlled by Irving Place Capital, the former Bear Stearns Cos. buyout fund that oversees $4.4 billion, the filing showed. The New York-based private-equity firm didn’t offer any common stock in the sale.

Long-Term Debt

Vitamin Shoppe intends to use its portion of the IPO proceeds to redeem about $64 million in preferred stock held by its owners and repay about $40 million in debt, according to the regulatory filing. The retailer had about $165 million in long- term debt prior to the offering.

The company earned 37 cents a share in the six months that ended in June, the regulatory filing showed. That implies a valuation of about 23 times profit over a full year, cheaper than the average ratio of 26.5 times estimated 2009 earnings for companies in the S&P SmallCap 600 Index, data compiled by Bloomberg show.

The vitamin retailer was founded by Jeffrey Horowitz in 1977 and opened its first store on the corner of 57th Street and Lexington Avenue in New York. Horowitz sold 70 percent of the company to the private-equity unit of JPMorgan and FdG Associates in 1997.

Vitamin Shoppe sold shares in its online unit VitaminShoppe.com on Oct. 7, 1999, raising $50 million. VitaminShoppe.com fell 11 percent on the first day of trading on the Nasdaq Stock Market. The shares rebounded and reached an all-time high of $17.1875 on Nov. 26, 1999.

One Dollar

The company then tumbled more than 90 percent as the technology bubble burst and it posted five consecutive quarters of losses. VitaminShoppe.com was delisted on April 16, 2001, after its parent company took it private for $1 a share.

Irving Place, then known as Bear Stearns Merchant Banking, paid $310 million to buy a controlling stake in Vitamin Shoppe in December 2002.

IPOs evaporated in the fourth quarter of last year after New York-based Lehman Brothers Holdings Inc. filed for the world’s biggest bankruptcy and caused a credit-market freeze. Only one company, Phoenix-based Grand Canyon Education Inc., sold stock in the last three months of 2008.

The drought lasted until September as an average of two U.S. companies a month went public, the slowest pace since at least 1995. While the number of deals has picked up, IPO performance has been the worst since at least 1995, data compiled by Bloomberg show.

Smallest Advantage

The IPOs of 16 American companies since September have beaten the S&P 500 by 1.2 percentage points on average in the first month of trading through yesterday, the smallest margin in Bloomberg data going back 14 years. Offerings by U.S. companies have beaten the S&P 500 by an average 21.3 percentage points after their listings, the data show.

Before yesterday’s IPOs, five companies had to cut their offer prices to attract investors, while only two companies -- Jersey City, New Jersey-based Verisk Analytics Inc. and A123 Systems Inc. of Watertown, Massachusetts -- priced shares above their forecast range.

PGE SA, Poland’s largest power group, priced Europe’s biggest IPO this year at the top of its range yesterday, valuing the Warsaw-based company at 5.97 billion zloty ($2.1 billion).

To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.

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The Rise In The New Zealand Dollar Help Slow Down Inflation

Daily Forex Fundamentals | Written by ecPulse.com | Oct 27 09 08:20 GMT |

New Zealand's Prime Minister indicated that the rise in the local currency does not reflect the current economic conditions seen by the country, and since the rise in the New Zealand dollar helped slow down inflation, the central bank does not see the need to start raising rates for now. The New Zealand central bank led by Alan Pollard may not face pressures to start raising rates in the upcoming period, since inflation is under control for now especially with the appreciation of local currency against other currencies that reduces the imported inflation, since import prices become lower. The consumer price index rose by 1.3% during the third quarter of the year, therefore it remains within the comfort zone of the central bank between 1.0-3.0%. And since the interest rates in New Zealand are higher than its trading partners, the country depends on the rise of its local currency. The New Zealand dollar is expected to remain near its highest levels, especially since interest rates stabilized in the United States between 0.0-0.25% and in Japan at 0.1%. Therefore, many worldwide investments head to New Zealand in order to benefit from the higher return resulted from the interest rate, which is higher than in other countries. This increases demand on the local currency, which consequently will keep rising Although the economy will benefit from the appreciation of the local currency, this will certainly, create problems for exports, which became less competitive. The Finance Minister Bill English demanded focusing on exports to push the economy into recovery and overcome the recession, and he also criticized the exaggerated rise in the New Zealand dollar which does not reflect the real conditions in the economy. Alan Pollard stated last week that the rise in the local currency is not what prevents the central bank from raising interest rates, and that the bank's decision to maintain interest rates at their lowest level at 2.5% was to support domestic consumption and strengthen investments that could compensate for the fall in exports, thereby support the economy. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk

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Forex Technical Update

Daily Forex Technicals | Written by India Forex | Oct 27 09 08:17 GMT |

Rupee : The Indian Rupee maintains strength in short to medium term horizon due to weaker dollar overseas and huge inflows and higher equities. 45.80 would remain as an important support . Exporters Sell at rallies from 46.45 to 47.50 in short to medium term . Rupee broke the important resistance at 46.80 on dollar , commodities and equity correction overseas.Room till 47.14 (38.2 % retracement of last fall). Exporters sell at every rise importers stay open. (USDINR - 46.88).Bullish. Euro : EURO bullish momentum was paused on Friday and corrected yesterday around 200 pips.Bullishness is valid till it holds a even key support level 1.4850 area. Break of 1.48 clearly would signal major correction in euro driving other currency pairs also lower against dollar.Immediate resistance at 1.5050. Breaking which bullishness will resume again. (EurUsd-1.4880) Neutral. Sterling: GBP encountered selling at 1.6400 levels yesterday. Buying can happen incase it is unable to break 1.6250 today. Break of pound above 1.6400 price might start to regain it's bullish momentum once again.The bias remains neutral. (GBPUSD - 1.6340) Bearish. Yen : JPY attempted to push higher yesterday but failed to move below my key support level 91.40 and closed higher at 92.23 indicating bullish momentum is still there. 92.50 area remains potential strong resistance. Only valid break above that area could lead us to further bullish scenario. Key support level also remains at 91.40.( USDJPY -92.07) Bullish Aud :AUD is unable to break past 0.9300 levels . The daily weekly and monthly charts are highly overbought and major correction is expected till 0.8950 levels which can be considered as fresh buying opportunities for Aud.(AUDUSD- 0.9180) Bullish. Gold : Gold corrected till $1036.90 levels yesterday (as expected) on the back of weak commodities and stocks. It is currently trading at $1042 levels. Immediate resistance now comes at $1046 levels where intraday selling can be expected. (GOLD 1042.23) Neutral. Dollar IndexDollar index has rebounded strongly from 74.90 levels and currently trading at 76.08 levels. Further upside gains are expected till the cluster resistance at 76.75 levels (55 EMA in Daily chart). Daily stochastic is showing flat.(DI- 76.03) Neutral India Forex http://www.indiaforex.in DISCLAIMER These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsible for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.

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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Oct 27 09 08:11 GMT |

CHF The pre-planned break-out variant for buyers was implemented with the achievement of minimal estimated target. OsMA trend indicator having marked break out of key resistance levels by considerable bullish activity rise and gives grounds to the choice of buyers'direction priority for today. On the assumption of it, as well as of the descending direction of indicator chart we can assume probability of rate return to Ichimoku cloud border at 1,0120/40 levels where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for buying positions on condition of the formation of topping signals the targets will be 1,0180/1,0200, 1,0240/60, 1,0300/20 and (or) further break-out variant up to 1,0360/80, 1,0420/40. The alternative for buyers will be below 1,0080 with the targets of 1,0020/40. GBP The estimated test of key resistance range levels was not confirmed but the preservation of minimal bullish activity priority gives grounds to suppose preservation of trading plans made before almost intact. Namely, we can suppose probability of the achievement of Senoku Span B of Ichimoku indicator at 1,6400/40 resistance levels where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term sales on condition of formation of topping signals the targets will be 1,6340/60, 1,6240/80 and (or) further break-out variant up to 1,6180/1,6200, 1,6140/60, 1,6080/1,6100. The alternative for buyers will be above 1,6540 with the targets of 1,6580/1,6600, 1,6640/60, 1,6700/20. JPY The pre-planned short positions from key resistance range were implemented and the achievement of minimal estimated targets is supported by current bearish activity cycle according to OsMA trend indicator version. Therefore, for opened sales, the targets will be 91,40/60, 90,80/91,00 and (or) further break-out variant up to 90,20/40, 89,60/80. The alternative for sales renewal will be above 92,60 with the targets of 93,00/20, 93,40/60, 94,00/20. EUR The pre-planned break-out variant for sales was implemented with the achievement of main estimated target. OsMA trend indicator, having marked break-out of key supports by considerable sales activity rise and gives grounds to prefer bearish choice of planning of trading operations for today. On the assumption of it as well as considering ascending direction of indicator chart we can assume probability of rate return to Ichimoku cloud border at 1,4920/40 levels where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for sales on condition of the formation of topping signals the targets will be 1,4860/80, 1,4800/20 and (or) further break-out variant up to 1,4740/60, 1,4680/1,4700. The alternative for buyers will be above 1,5000 with the targets of 1,5040/60, 1,5100/20. FOREX Ltd www.forexltd.co.uk

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Risk Appetite Wanes As Equities Falter

Daily Forex Fundamentals | Written by AC-Markets | Oct 27 09 08:09 GMT |

Market Brief There were very few scheduled risk events yesterday but a late slump across equity markets prompted a defiant rally from the USD, and caused EURUSD to plummet from 1.5000 to 1.4840 lows (currently 1.4920). GBP spent yesterday as one of the best performers against the USD, perhaps predictable given the extent of Friday's sell-off; but despite CAD gaining some ground as BoC's Carney failed to repeat or expand on his prior currency intervention comments, it too later succumbed to the wave of USD strength. The move appeared to be triggered by an aggressive sell-off in the S&P on high volumes, led predominantly by financial and insurance names. Specifically, there was speculation about the imminent withdrawal of home-buyer tax credits that dragged down banking stocks, as investors panicked about the consequences for the housing market without stimulus. It is likely there will be more to come in this corrective move; the high volumes going through on the equity futures may highlight a near-term top – and whilst we do still believe the broader global recovery trade still dominates, we have been long overdue a correction and at some stage investor confidence in equity valuations will run out of steam for this leg of the rally. Given the high correlation between EURUSD, equities and gold, it's unsurprisingly then that gold plunged through downside support to touch a low of $1037 overnight (currently $1042). Asian equities are down across the board this morning; the blame apportioned to the slump in commodity prices. Today's key risk events will be Swedish PPI, Eurozone M3 and US Consumer Confidence. Although the latter is likely to be the biggest market mover, we feel risk sentiment will be more sensitive to any moves in the equity markets in the coming session that economic data. ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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Takenaka Says Hatoyama Pushing Economy ‘Backward’

By Toru Fujioka and Tatsuo Ito

Oct. 27 (Bloomberg) -- Heizo Takenaka, the architect of policy changes credited with securing Japan’s longest postwar economic expansion, blasted the government that took office last month for undermining prospects for the nation’s recovery.

“The government is taking a small step forward and a big step backward,” Takenaka, who served in cabinet posts including economy minister from 2001 to 2005, said in an interview in Tokyo last week. “My biggest concern is that they don’t have any overarching economic policies to bolster growth.”

Takenaka’s criticism reflects concern among some economists that Prime Minister Yukio Hatoyama’s plans to support households may do little to spur the recovery while swelling the world’s largest public debt. Japanese stocks have lagged behind a global rally because the ruling Democratic Party of Japan hasn’t said how it will tackle fiscal woes and sustain growth, Takenaka said.

“Their policies are like a construction project for a fabulous kitchen and living room that don’t take the rest of the house into account,” said Takenaka, 58, who is now a professor at the Tokyo-based Keio University. The government may be forced to backtrack on its policies in a year to contain the swelling debt burden, he said.

Growth Gap

The world’s second-largest economy could expand around 2.5 percent annually if the government pursued an agenda that includes deregulation and lowering corporate taxes, Takenaka said, adding that growth would be slower than 1 percent under the DPJ-led initiatives.

Earlier this decade, Takenaka pushed Japan’s debt-laden banks to write off 19 trillion yen ($207 billion) in bad loans when he served as financial services minister under former premier Junichiro Koizumi.

He also held the economic and fiscal policy portfolio and oversaw plans to sell the Post Office, the holder of Japan’s largest pool of bank deposits, in an effort to spur competition in the financial industry and reduce what he regarded as wasteful public spending.

The Hatoyama administration’s decision to scrap plans to sell shares of Japan Post Holdings Co., together with a lack of policies to revive the economy and cut debt are “the biggest factors for a slower recovery in Japanese stocks,” Takenaka said.

Lagging Behind

The Nikkei 225 Stock Average has dropped 2.8 percent since the DPJ won the election on Aug. 30, while the Dow Jones EURO STOXX 50 Index gained 1.1 percent and the Dow Jones Industrial Average rose 3.4 percent. The yield on Japan’s benchmark 10-year bond has risen 8 basis points to 1.395 percent.

Deputy Prime Minister Naoto Kan said this month that he doesn’t intend to set a goal for balancing the budget now because the government’s focus is on lowering the jobless rate, an indication that fiscal discipline isn’t a priority.

“Some fiscal spending is needed now to avoid a recession,” Takenaka said. “But if you don’t cut spending, that will create a fiscal deficit problem, so it’s important that they toe the right line between these two things.”

Hatoyama, 62, said yesterday in a parliamentary address that his government’s “most important agenda” will be to help regional economies and aid businesses to support the economic recovery.

Budget Requests

Ministries this month asked to spend a record 95 trillion yen next fiscal year. Public debt is approaching twice the size of gross domestic product, according to the Organization for Economic Cooperation and Development.

“The problem with the DPJ’s election manifesto was that they lacked a growth strategy,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former Bank of Japan official. “Pursuing economic growth would allow them to also help restore fiscal health.”

Takenaka acknowledged that some of the government’s policies, including Transport Minister Seiji Maehara’s plans to make Tokyo’s Haneda Airport an international hub, may bolster growth.

Other plans to abolish highway tolls, reduce tuition fees and cut the gasoline tax may exacerbate deflation by lowering consumer prices about 1 percentage point, he said. The Bank of Japan will forecast this week that price declines will extend into fiscal 2011, damping the recovery, according to the median estimate of 15 economists surveyed by Bloomberg.

Takenaka said he was “stunned” by Financial Services Minister Shizuka Kamei’s decision to scrap the sale of Japan Post and appoint former top Finance Ministry official Jiro Saito to head the company.

The DPJ had opposed so-called amakudari, or the practice of former government officials taking positions at state-run entities. Last year it blocked the government’s nomination of Toshiro Muto, who held the same post as Saito at the ministry, as central bank governor.

Saito’s selection “is the biggest parachuting in history, with one of the most famous bureaucrats,” Takenaka said. “Even worse, he accepted the appointment without knowing what he’ll need to do with company.”

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Tatsuo Ito in Tokyo at Tito2@bloomberg.net

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French Consumer Confidence Advances, Helped by Lower Prices

By Mark Deen

Oct. 27 (Bloomberg) -- French consumer confidence climbed in October for a third month as lower energy prices improved disposable income and government support spurred growth.

A gauge of household sentiment rose to minus 35 from minus 36 in September, Paris-based national statistics office Insee said today. Economists expected a reading of 35, a Bloomberg survey showed.

French consumers, helped by tax cuts, state incentives to buy cars and falling oil prices, have boosted the economy this year, lifting France out its deepest recession since World War II. Whether they’ll keep spending as energy prices recover and unemployment rises will be key to Europe’s second-largest economy in the months ahead.

“The behavior of consumers will be crucial” for 2010, said Gilles Moec, an economist at Deutsche Bank AG in London. “Households will have to face the disappearance of the deflation windfall” and a deteriorating labor market.

Consumer prices dropped from last year’s levels in each of the past five months as the price of crude oil fell from the record highs hit in mid-2008.

That effect is diminishing just as joblessness is rising. Jobless claims rose by 21,600 in September to 2.57 million, the Labor and Finance ministries said yesterday.

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

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Home Prices in U.S. Probably Steadied, Consumer Confidence Rose

By Shobhana Chandra

Oct. 27 (Bloomberg) -- Home values in the U.S. kept stabilizing and consumer confidence rose, bolstering the case that an economic recovery is at hand, economists said before reports today.

The S&P/Case-Shiller index covering home prices in 20 cities fell 11.9 percent in August from a year earlier, the smallest drop in 19 months, according to the median forecast of economists surveyed by Bloomberg News. Sentiment this month climbed, a report from the Conference Board may show, even as Americans continue to fret over employment prospects.

Rising home sales, due in part to government programs including the first-time buyer credit and efforts to lower borrowing costs, have helped stem the slump in property values that precipitated the worst recession since the 1930s. Sustained gains in household spending, the biggest part of the economy, may be harder to come by as joblessness mounts.

“Home prices are clearly in a bottoming-out process and we’ll be at much more comfortable levels by next year,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado. “Consumers still face headwinds. The panic is over, but people need to see outright positive news on the horizon before we’ll get a big jump in confidence.”

The S&P/Case-Shiller figures, due at 9 a.m., would follow a 13.3 percent drop in the year ended July. Projections in the survey ranged from declines of 11 percent to 13.3 percent. Year-over-year records began in 2001. The gauge rose in June and July on a monthly seasonally adjusted basis.

Monthly Gain

Englund is among economists predicting the S&P/Case- Shiller report will show prices kept climbing in August compared with a month earlier. In July, the home-price index rose 1.2 percent from the prior month, the biggest gain since October 2005.

At 10 a.m., the New York-based Conference Board may report that its sentiment index rose in September to 53.5 from 53.1. Estimates in the Bloomberg survey ranged from 48 to 57.

In the latest evidence of rising demand, existing home sales in September jumped to a 5.57 million annual rate, more than economists forecast and the highest in more than two years, according to data from the National Association of Realtors issued last week.

Housing and manufacturing are leading the stabilization in the economy, the Federal Reserve said in the Beige Book survey of conditions in its 12 district banks during September and early October.

Fed Observation

“Most districts reported that housing market conditions improved in recent weeks, primarily from a pickup in sales of low- to middle-priced houses,” the Fed said.

One risk to the emerging stabilization is foreclosures, which worsen the property glut. Foreclosure rates will climb through late 2010, peaking only after the unemployment rate reaches 10.2 percent in the second quarter, Jay Brinkmann, chief economist at the Mortgage Bankers Association, said this month.

Unemployment, which is projected to exceed 10 percent by early 2010, according to the median estimate in a Bloomberg survey earlier this month, will also limit demand. Economists and industry groups are among those projecting home sales will also cool in the absence of the $8,000 credit for first-time buyers, due to expire Nov. 30. Lawmakers are debating extending the credit.

The Standard & Poor’s Supercomposite Homebuilding Index has climbed 22 percent since the beginning of July on the improving outlook for housing, compared with a 16 percent increase in the S&P 500 index. The builder index fell yesterday on concern that the tax-credit program may not be extended.

‘Low Level’

“The residential housing market appears to have stabilized, but it has done so at a very low level,” William Foote, chief executive officer of USG Corp., North America’s largest maker of gypsum wallboard, said Oct. 21 on a conference call. The Chicago-based company posted its eighth straight net loss last quarter as sales dropped 32 percent from a year ago.

Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

                        Bloomberg Survey

==================================================
                        Case Shil   Consumer
                          Monthly     Conf
                             YOY%    Index
==================================================

Date of Release              10/27    10/27
Observation Period            Aug.     Oct.
--------------------------------------------------
Median                      -11.9%     53.5
Average                     -11.8%     53.3
High Forecast               -11.0%     57.0
Low Forecast                -13.3%     48.0
Number of Participants          33       74
Previous                    -13.3%     53.1
--------------------------------------------------
4CAST Ltd.                  -11.9%     51.5
Action Economics              ---      54.0
Aletti Gestielle SGR          ---      52.0
Ameriprise Financial Inc      ---      55.0
Argus Research Corp.          ---      55.0
Banesto                     -11.3%     54.4
Bank of Tokyo- Mitsubishi     ---      51.2
Bantleon Bank AG              ---      54.5
Barclays Capital            -12.0%     54.0
Bayerische Landesbank         ---      53.0
BBVA                        -12.5%     54.6
BMO Capital Markets         -12.3%     54.5
BNP Paribas                   ---      54.0
BofA Merrill Lynch Resear   -11.0%     55.0
Briefing.com                -13.0%     52.6
C I T I C Securities        -12.1%     53.2
Calyon                        ---      54.0
Capital Economics           -12.0%     54.0
CIBC World Markets            ---      52.0
Citi                          ---      53.0
ClearView Economics         -11.1%     55.0
Commerzbank AG              -11.3%     55.0
Credit Suisse                 ---      53.0
Daiwa Securities America      ---      54.0
Danske Bank                   ---      51.5
DekaBank                      ---      52.0
Desjardins Group            -12.4%     53.5
Deutsche Bank Securities      ---      55.0
Deutsche Postbank AG          ---      54.5
DZ Bank                     -12.0%     53.5
First Trust Advisors          ---      51.1
Fortis                        ---      55.0
Goldman, Sachs & Co.          ---      52.0
Helaba                        ---      52.5
Herrmann Forecasting        -12.5%     55.0
High Frequency Economics    -11.5%     50.0
HSBC Markets                -11.9%     52.0
Ibersecurities                ---      52.5
IDEAglobal                  -11.5%     56.0
IHS Global Insight            ---      52.5
Informa Global Markets        ---      55.0
ING Financial Markets       -11.8%     52.5
Insight Economics           -11.3%     54.0
Intesa-SanPaulo               ---      51.5
J.P. Morgan Chase           -12.0%     53.0
Janney Montgomery Scott L   -11.7%     53.0
Jefferies & Co.               ---      55.0
Landesbank Berlin             ---      48.0
Landesbank BW               -11.0%     53.0
Maria Fiorini Ramirez Inc     ---      53.5
MFC Global Investment Man     ---      52.0
Moody’s Economy.com           ---      51.0
Morgan Stanley & Co.          ---      54.0
National Bank Financial       ---      54.0
Natixis                     -12.0%     53.5
Newedge                       ---      53.5
Nomura Securities Intl.     -13.3%     ---
Nord/LB                       ---      52.5
RBS Securities Inc.           ---      49.0
Ried, Thunberg & Co.        -11.3%     54.0
Schneider Foreign Exchang     ---      53.4
Scotia Capital              -12.0%     53.1
Societe Generale              ---      55.0
Standard Chartered          -11.5%     53.5
Stone & McCarthy Research     ---      51.0
TD Securities               -11.3%     54.0
Thomson Reuters/IFR           ---      54.0
UBS                         -11.8%     51.5
UniCredit Research          -11.4%     57.0
University of Maryland      -12.3%     54.2
Wells Fargo & Co.             ---      53.2
WestLB AG                     ---      54.5
Westpac Banking Co.         -11.3%     51.5
Woodley Park Research       -12.5%     52.1
Wrightson Associates          ---      54.0
=================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Hungary to Be World’s Fiscal Leader, BofA Says

By Tasneem Brogger and Agnes Lovasz

Oct. 27 (Bloomberg) -- Hungary is poised to emerge from the global recession as a leader in fiscal health as years of economic pain brought on by government austerity measures pay off, according to Bank of America Merrill Lynch.

“Hungary’s massive fiscal tightening contributed to its economic decline,” said Radoslaw Bodys, central and eastern Europe economist at BofA Merrill Lynch Global Research, in an interview. “This is why Hungary is going to be the world’s fiscal leader next year.”

The nation that joined the European Union in 2004 has relied on a 20 billion-euro ($30 billion) International Monetary Fund-led loan since its debt-reliant economy succumbed to the credit crisis, forcing it to curb spending and levy more taxes to comply with the fiscal terms of the bailout. The efficiency of budget cuts will leave Hungary with a 1.3 percent surplus next year, adjusted for cyclical swings, Bodys estimates.

“In 2011, Hungary will probably be one of the only major countries in the world likely to be easing fiscal policy when the whole world is tightening,” Bodys said, referring to the 40 economies that BoA tracks worldwide. “That’s what makes Hungary in the longer term perspective quite an interesting and potentially a very strong outperforming country.” He expects the economy to grow as much as 5 percent in 2011.

The country’s fiscal outlook also means it’s one of the best placed in the region to adopt the euro, Bodys said.

“Honestly, I think Hungary can do it any time,” Bodys said. “I can imagine a scenario in which they enter the exchange rate mechanism even next year, and definitely before Poland.”

Reverse Measures

The country’s bond market reflects investor anticipation of a fiscal recovery.

The yield on the three-year 6.75 percent note has shed 1.7 percentage points in the past three months to 6.95 percent on Oct. 26, according to Bloomberg prices. That’s lower than the benchmark two-week deposit rate, which the central bank cut to 7 percent on Oct. 19. The yield on Poland’s comparable three-year note is up 4 basis points in the same period at 5.43 percent.

Hungary’s borrowing requirement will fall 24.8 percent next year, compared with a 24.4 percent increase for Poland, Bank of America Merrill Lynch estimates.

The budget deficit will improve to 3.8 percent of gross domestic product in 2010 from 3.9 percent this year, the government of Prime Minister Gordon Bajnai estimates.

The economy will contract 6.7 percent this year and 0.9 percent in 2010, the government predicts, before returning to growth in 2011.

‘Very Simple’

Hungary is preparing for a fifth year of spending cuts to meet the terms of the bailout. The government has also raised taxes and trimmed subsidies since 2006 to narrow the deficit, the widest in the EU at the time, after burgeoning expenditures led to the nation missing its targets for the shortfall every year between 2001 and 2006.

Growth will pick up as years of fiscal prudence allow authorities to ease policy as other countries are forced to reverse stimulative measures deployed through the crisis, according to Bodys.

“Growth is going to recover while inflation and the fiscal deficit will remain very low,” he said. “That will allow them to grow even faster in 2011 because they will be able to cut taxes in that year. The growth outlook looks good and the appreciation pressure on the currency will be strong. Being positive on the Hungarian fixed income market is very simple.”

Currency Play

Hungary’s potential to be central Europe’s top performer marks a reversal of the status quo, which ranked Poland the “strongest and Hungary the weakest,” Bodys said. “I think this is going to remain the case next year, when we expect Poland to grow 3.5 percent and Hungary to grow 0.2 percent. I think this may reverse from 2011.”

While buying Hungarian bonds over Polish debt based on “purely fundamental aspects” makes good sense, according to Bodys, Poland may reward investors who only buy the currency.

“Poland’s not a clear fixed income play; I would say it’s a clear foreign currency play,” Bodys said. “I’m very bullish on the Polish economy over the next year, which means the pressure on the currency will be clearly towards an appreciation.”

Poland is the only member of the European Union to have avoided a recession since the credit crisis started. Output grew 1.1 percent in the second quarter, and will probably expand 0.9 percent this year, the Finance Ministry estimates. The economy will grow 1.2 percent in 2010, according to the government.

“From the purely fundamental macroeconomic perspective the appreciation outlook of the zloty currently is the strongest since early 2004,” Bodys said. “This is mainly a function of growth and trade balance dynamics. What it means is that the currency is going to appreciate and you don’t want to miss that.”

To contact the reporter on this story: Tasneem Brogger in London at tbrogger@bloomberg.net

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