Yuan Strengthens, But Asian Stocks Plunge

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For the first time in seventeen years the yuan has surpassed 6.4 per dollar, thanks to the Federal Reserve’s efforts to keep interest rates low. According to the International Monetary Fund, the stronger yuan will help governments reduce inflation and rebalance the nation’s development, as well as stabilize the global economy.

“The inflation and trade data, together with the Fed’s policy to maintain extremely low interest rates, have fueled faster appreciation,” explained Banny Lam of CCB International Securities in Hong Kong. “Strong economic growth, supported by the latest export figures, also provides investors with confidence to buy the yuan in these turbulent times.”

However, the European debt crisis has had a negative effect on the positive turns in Asia. In countries such as Japan, stocks have suffered severe losses. Mazda Motor Corp, the Japanese carmaker, is one of many companies highly dependent on Europe. Mazda has slumped 4.3 percent, while Canon Inc., Nikon Corp. and numerous others have met similar fates.

“As Europe’s debt crisis spreads, concern is mounting about damage to the financial system,” explains Mitsushige Akino at Ichiyoshi Investment Management Co. “We may slip back into a global equity slump.”

Asian Shares Plunge on Downgrade

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Asian shares plunged today on the S&P downgrade of American debt. Chinese shares fell almost 4 percent, while the Nikkei and Heng Sang fell 2%. The Chinese hold a lot of American debt and now that it has been downgraded the borrowing will probably stop. Despite the obvious connection to the downgrade, the severe plunge in stock prices maybe also due to the weakening global economy,  most notably America’s.

When America weakens economically Asian exports tend to be hurt as one of the biggest consumers of Asian products is the USA.

 

China Worried about US Debt Downgrade and QE3

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With China holding 1.16 trillion dollars of US debt, the current crisis and what the Fed decides to do about will have implications to China. Many believe that the US will undertake QE3 (quantitative easing) which allows more cash in the system, but has the effect of devaluing the US dollar.  Countries like China and Russia have already warned the US about the effects of these policies, yet with a high unemployment rate trillions of dollars worth of debt coupled with growing entitlements, the US has little room to maneuver.

Asia Set to Follow the Middle East

As Middle Eastern markets tumbled on the news of the S&P downgrade of US sovereign debt all eyes are on Asia, most notably China and their markets’ reaction to the downgrade.  The assumption is that there will be a sell off roiling markets in Europe and then back on Wall Street.  With news that the S&P could in fact do another downgrade if the proposed cuts are not made has supercharged the potential catastrophe in the markets.

Pakistan to Maintain Close Chinese Relations

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It has been agreed that “cordial relations” will be maintained between China and Pakistan.  According to Inamul Haq (the country’s former state Minister for Foreign Affairs), everyone is in total agreement on this.  At a recent seminar, he said that Chinese investments and projects in Pakistan had reached $25bn and that this figure was increasing all the time.  He said, “I believe that the US will not leave Afghanistan which is a center from where they can watch China, Pakistan, Iran and other important regional players.  Afghanistan is home to billions of gold and copper reserves while same is the case with Pakistan which has untapped reserves of gold, copper, oil and gas worth billions of dollars.”

Efforts by Chinese Government

In addition, according to an article in Dawn Prof. Zhong Rong said the Chinese government had been making significant efforts to “ensure economic development in Xinjiang province.”  The country is about to invest substantial capital in Xinjiang to try and increase the GDP ratio “and per capita income of the people of Xinjiang Province.”

UAE Investment Map to Encourage Foreign Investors

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In an effort to encourage foreign investors to bring their capital to Abu Dhabi, the UAE has set up a “consolidated investment map,” according to a report in the Khaleej Times.  Together with the Ministry of Economy’s Investment Department, Dar-Al-Tawasol (a private marketing firm) has developed a “strategy to market the investment potential of the seven emirates to the global investors, in a project that would span seven years.”  By the end of the year, as noted by the marketing company’s CEO, Feras Dahlan, four investment promotion offices will be open with plans for more in the coming years.

Deciphering the Map

So what would the map do?  According to Dahlan, it would “disseminate information to potential investors, and guide them into the country.”  He explained this to diplomats in Abu Dhabi.  It is hoped that efforts will be coordinated to “promote the UAE as an investment hub” through these offices.  As a way of bringing initial investments, the first focus will be on the 12 industrial nations: Argentina, Brazil, China, Germany, India, Italy, Japan, South Korea, Spain, Turkey, UK and the US.

Investment Opportunities

The main areas of possible investment will be: aluminum, automotive, aviation, energy, renewable energy and ICT sectors.  It seems that these areas specifically have a “huge potential to attract foreign investment.”  There are other areas that also might be attractive to foreign investors such as: education, health, finances and tourism.

Project Launch

The project is due to start in Abu Dhabi via an international investors’ conference on November 9th to 11th.  The aim is that this conference will become an annual event and will be held in a different emirate each year, on a rotation basis.  It also seeks to: “highlight the investment opportunities in the each of the federating units in line with their investment plans.”

Asian Stocks Rallied, But Will it Last

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With news from President Obama that there has been a debt ceiling deal within a day Asian stocks rallied from their current slump, yet the rally as positive as it is could sputter if the US congress fails to pass the deal and doesn’t raise the debt ceiling by Tuesday.  Many Asian countries are particularly sensitive to the USA debt situation since many (most notably China and Japan) are holders of US debt.

Although a default may happen, many argue that an Asian fear of defaulting on their obligations is an over reacting since the the US Government would take care of that first. Even without that fact, Asia’s connection to the US consumer base is vital and with a default or just a downgrade, the USA economy would be imperiled even more hurting Asia’s economy as well.

Big Asian Yukon Investments

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It looks like Asia has really been putting their money where their mouths are, proving their huge support of Yukon industries.  Indeed, according to a report in CBC News Canada, they have invested more than $1bn in its mineral and gas industries over the last five years.  Ex-Minister of Economic Development Jim Kenyon, spent his time in this position really pushing Chinese companies to make investments in Yukon’s mineral resources.

Intelligent Investments

It has made sense that the investors have poured all this money in.  According to Kenyon, it has been a great way of “securing access to the territory’s resources.”  At least three mining projects and one gas play in the territory have been the recipients of Chinese investments.  Over the last four years, government officials claimed that there had been six deals that had taken place between Asian investors and Yukon-based companies.  As well, as Kenyon said last Thursday in a CBC News interview, “if you’re willing to go that route, then you are going to be very successful in the long run, if you’ve got a good product.”

In total, according to a government official, more than $460m worth of Asian investments has been put into Yukon projects.  But vis-à-vis related spending, that figure automatically increases to more than $1bn.

Tamil Nadul: Industrial Hub

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Making it Big for the Japanese

It seems that Tamil Nadu (located on the Coromandel Coast of the Bay of Bengal in India), might be getting industrial hub status for Japan.  According to an article in IBN Live, various Asian companies have been “growing four-fold in the state during the last five years and plans are underway to set up an industrial township in Mahabalipuram.”

Omega Project

Right now, around 70 percent of the land has been acquired.  According to an official, the Omega project agreement should be finalized “soon.”  All in all though, it will take around a decade to complete, with the first phase due for completion in around half that time.  There has been a quadrupling of the firms from 2006/7 where it stood at around 65 companies to today’s figure of 245.  Anticipation by the state is that this will increase to 300 by the end of 2011.

Attraction of Japanese Investments

Apparently these days, Japanese investments are very attractive in China.  This is because the state may view it as “top government officials from power, Metro Water, non-renewable energy and ports provided insights into where the investments are possible in the infrastructure sector between the two countries at a seminar.”

Japan’s Interest in Chennai

What makes Chennai (Tamil Nadu’s capital city) so attractive to Japan?  Possibly it is due to the fact that around 30 percent of Japanese firms are working in India.  According to Chennai’s Consul-General, Consulate General, Masanori Nakano, “we see the state as being close to the South East Asian countries and as a gateway to the West Asia, Africa and Europe. Availability of highly skilled manpower and investment-friendly policies were the other advantages.” Further, an economic co-operation has been signed between JETRO (Japan External Trade Organization) and the State Guidance Bureau.

India Investment Drop

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Last month saw an all-time foreign institutional investment (FII) drop in India through participatory notes (P-Notes).  As a recent report detailed in Business Standard noted, the figures dropped to less than 10 percent for “the first time since 2003.”  According to director of institutional equities and chief strategist of Padmakshi Financial Services, Sailav Kaji, “many P-Note investors had built up short positions in the earlier months. These shorts would have got squared off in the rally and internally adjusted,”

There was an increase of P-Note exposure from January to May from Rs 1.34 lakh crore to Rs 1.61 lakh crore “without corresponding inflows into the Indian markets.”  But then the following month things took a nosedive.  Between January and May, although Indian markets were extremely popular, receiving “net inflows of around Rs 700 crore, suggesting most positions built up through P-Notes could have been short positions.”

June Jaunts

So what happened in June?  What happened from the high of the previous five months?  It wasn’t great when the country encountered deregulated diesel prices.  That was probably what led to the Sensex rally that according to brokers, “consumed many of these shorts.”  Then there were worries that there would be another P-Notes crackdown which caused P-Note investors to move their monies to the standard FII route.

Further, P-Note issuers were required to give details of the notes’ end beneficiaries on “an upfront basis regularly” At the start, investors who wanted to remain anonymous, or those who didn’t make an official registration, would veer towards P-Notes.  There has now been a request that P-Notes will only be given to those individuals “regulated by an appropriate foreign regulatory authority and should be issued after compliance with ‘know your client’ norms.”  Once these rules were put in place, there was an average of 15-16 percent drop of P-Notes’ share during the bulk of 2009/10, “down from 35-38 percent in 2007/8.

PTT Pcl Investment Plans

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The PTT Pcl has big plans. The firm – Thailand’s largest energy firm and third largest oil and gas company according to market value – has plans for investments of $100bn in the next decade.  According to the company’s Chief Executive Prasert Bunsumpun, at the end of this, it is anticipated that annual group revenue will reach $200bn.  The company controls over “30 petroleum, gas exploration, petrochemical and refinery businesses.”

Spending Plans

So, the next question is, how would the money be allocated?  Around 50 percent of it would go towards foreign investment; the remaining half to petroleum exploration and production.  First though, the plans need to get through the board.  So by the end of this month the five-year plan is being put to the board.

According to an article in BusinessWeek, with the plan, the expectation is that the PTT will invest approximately 300bn baht. Over 400bn baht is due to go to PTT Exploration and Production Pcl (PTTEP) and over 200bn baht to the refinery and petrochemical areas in which it works.

Coal Boosts

In addition, as Bansumpun pointed out, the PTT plans to “boost its coal output to 30-40 million tons in 2015 and to 70 million tonnes in 2020 from 10 million tons now.”  It plans to do this once it has acquired Straits Resources Ltd., (Australian coal miner).