TheChek News Flow

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MSCI Keeps China Out of Indexes as Korea Upgrade Abandoned (3) 2014-06-11 03:29:40.17 GMT

(Updates to add central bank report in 12th paragraph.)

By Belinda Cao June 11 (Bloomberg) -- China’s mainland-traded shares won’t be included in MSCI Inc.’s global indexes, while South Korea and Taiwan were removed from consideration for an upgrade to developed market status. MSCI, which based its decision on limitations to investing in China’s so-called A shares, may consider an inclusion in 2015, the index provider said in a statement yesterday. The MSCI Korea and MSCI Taiwan indexes will be removed from potential reclassification because of the absence of “any significant improvements” in areas such as the limited convertibility of local currencies and market accessibility. MSCI will introduce by June 27 a China A International Index as a standalone benchmark. The company had been consulting with investors on whether to categorize South Korea as a developed market since 2008, and Taiwan since 2009. Money managers wanted Korean shares to remain in the MSCI Emerging Markets Index because they’ll attract more money as the second- largest component of that gauge rather than as a small part of the developed-markets index, according to BNP Paribas Investment Partners. “China is making some progress, but it sounds like MSCI wants to see the tradability of A shares before they put them in the index,” Alan Gayle, who helps oversee about $50 billion in assets as a senior strategist at RidgeWorth Capital Management, said by phone from Atlanta yesterday. “MSCI is clearly leaving the door open for the inclusion, but it is contingent on performance.”

Investor Consultations

About $2.3 trillion is benchmarked against the MSCI World Index of developed markets versus $1.3 trillion for the emerging-market gauge. South Korea’s Kospi index gained 0.1 percent at 12:24 p.m. in Seoul, while the Shanghai Composite Index slid 0.3 percent. Taiwan’s Taiex index was little changed. MSCI has been consulting with banks and funds on whether to include yuan-denominated A shares in its benchmark Chinese and developing-nation gauges for the past year. Some international investors who measure returns against the indexes have said the proposal is unworkable unless China removes the capital controls that limit access to local securities. “Feedback from investors through this consultation is that they are generally supportive of an inclusion into the index over time,” Remy Briand, MSCI’s head of index research, said in yesterday’s statement. “But the current quota is still too constraining to warrant an inclusion in the mainstream index right now.”

Exchange Link

Under China’s existing rules, only overseas institutions that have been awarded licenses and quotas by two different regulatory bodies can invest in local securities. The combined approved quota of about $94 billion is less than 3 percent of the $3.2 trillion market value of locally-listed companies. Exchanges in Shanghai and Hong Kong agreed in April to allow as much as 23.5 billion yuan ($3.8 billion) of daily trading, opening up the mainland market further to foreign investors while giving wealthy Chinese investors a route to buy Hong Kong stocks. The pilot program is due to start around October. “To put them in an index when most of the investors can’t buy those shares, because of the various restrictions that the Chinese have, doesn’t make sense,” Mark Mobius, who oversees about $50 billion as the executive chairman of Templeton Emerging Markets, said in April. China will expand its programs to allow foreign investors to buy local shares and will scrap quotas when conditions allow, the People’s Bank of China reiterated in its annual report for 2013 posted on its website today.

Emerging Outperformance

Investor sentiment toward emerging-market stocks is improving after more than three years of underperformance versus their developed-nation counterparts. The MSCI emerging markets index has climbed 13 percent since mid-March, more than twice as much as the MSCI World Index. “It’s better for South Korea not to be added to the gauge of advanced markets as it will be easily neglected once it’s included,” Scott Seo, head of Korea equity research at JPMorgan Securities in Seoul, said by phone. Chia Chin-ping, a Hong Kong-based managing director at MSCI, said discussions would resume over South Korea and Taiwan once there are signs of improvement in areas such as currency convertibility. “We do not see any meaningful progress in the foreseeable future,” said Chia. MSCI took the two markets off the list to “reduce speculation about the potential upgrades.” Two of MSCI’s competitors, FTSE and S&P Dow Jones Indices, already classify South Korea as a developed market. The index provider also announced that it is no longer considering a consultation process on the potential exclusion of the MSCI Egypt Index from the emerging-market gauge, citing a “substantial” increase in Egyptian foreign currency reserves since the beginning of the year. Tensions between Ukraine and Russia are being monitored and may result in a review of the treatment of their respective benchmarks if the situation deteriorates due to measures such as sanctions or capital controls, the New York-based firm said.

For Related News and Information: MSCI’s Plan Mocked as China Seen Unready for Global Status FIFW NSN N4J2XE6JIJUO<GO> MSCI Upgrade Unwanted as Emerging Beats Developed: Korea Markets FIFW NSN N6L2XI6TTDSQ<GO> Top emerging-market news: TOP EM <GO> Most-read emerging-market news: MNI EM 1W <GO> Developing economy market moves: EMMV <GO> Emerging-market economic statistics: STAT4 <GO> World equity index rankings: WEIS <GO>

--With assistance from Sharon Cho in Seoul and Weiyi Lim in Singapore.

To contact the reporter on this story: Belinda Cao in New York at +1-212-617-1399 or lcao4@bloomberg.net To contact the editors responsible for this story: Nikolaj Gammeltoft at +1-212-617-1061 or ngammeltoft@bloomberg.net; Michael Patterson at +852-2977-4820 or mpatterson10@bloomberg.net Richard Frost, Chan Tien Hin

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World Bank Cuts Global Growth Forecast After ‘Bumpy’ 2014 Start 2014-06-11 04:00:01.6 GMT

By Sandrine Rastello June 11 (Bloomberg) -- The World Bank cut its global growth forecast amid weaker outlooks for the U.S., Russia and China, while calling on emerging markets to strengthen their economies before the Federal Reserve raises interest rates. The Washington-based lender predicts the world economy will expand 2.8 percent this year, compared with a January projection of 3.2 percent. The U.S. forecast was reduced to 2.1 percent from 2.8 percent while outlooks for Brazil, Russia, India and China were also lowered. The setbacks may be temporary: the 2015 estimate for world economic growth was unchanged at 3.4 percent. “The global economy got off to a bumpy start this year buffeted by poor weather in the United States, financial market turbulence and the conflict in” Ukraine, the World Bank said in its Global Economic Prospects report yesterday. “Despite the early weakness, growth is expected to pick up speed as the year progresses.” Developed economies, where domestic demand is improving as fiscal pressure eases and labor markets recover, are providing the global expansion with momentum just as their developing counterparts fail to accelerate. The bank is projecting growth in China and Brazil will slow this year from 2013. In the report, the World Bank warned emerging markets that the next bout of financial unrest may catch them off guard, recommending smaller budget deficits, higher interest rates and measures to boost productivity.

Fed Policy

In the U.S., Fed policy makers have indicated that they expect the benchmark interest rate, which has been near zero since December 2008, will remain low at least until next year. Over the past year, emerging-market assets have recovered from two sell-off periods, including one after the Fed first indicated in May 2013 plans to trim U.S. monetary stimulus. The extra yield investors demand to hold dollar-denominated debt in developing nations over U.S. Treasuries has since decreased to the lowest since January 2013. That recovery is giving countries a respite to strengthen their economies before the inevitable increase in borrowing costs that will follow the Fed’s interest-rate increase, said World Bank economist Andrew Burns, the lead author of the report. “Our advice to these countries is ‘listen, you’ve got a window here of a year, let’s see what we can do to reduce those vulnerabilities between now and then so that when it does come, you don’t get caught up in the overall problem,” he said in an interview.

Ukraine Turmoil

The bank cut its 2014 forecast for Russia’s growth to 0.5 percent from a January prediction of 2.2 percent. It sees Ukraine contracting 5 percent. “A sharp escalation of tensions in Ukraine poses acute risks to the global economy,” according to the report. “These could operate through a number of channels,” including through commodity and financial linkages. The bank maintained its forecast this year for the euro- area, which is still recovering from its debt crisis, at 1.1 percent. The forecast for Japan was trimmed to 1.3 percent from 1.4 percent. For 2015, the bank raised its predictions for the U.S., the euro area and Japan, which the bank said could underpin growth in emerging markets. Still, many developing countries are already growing at a pace close to their potential and face capacity constraints, while others will be hurt by lower commodity prices, according to the bank. As a group, they are projected to grow 4.8 percent this year, compared with 5.3 percent forecast in January, the bank said.

Brazil, China

The development-aid institution also cut its outlook for Brazil’s expansion to 1.5 percent from 2.4 percent. India is now seen growing at 5.5 percent compared with 6.2 percent estimated in January, and China’s expansion was lowered to 7.6 percent growth from 7.7 percent, the bank’s report showed. “Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40 percent,” World Bank President Jim Yong Kim said in a press release. “Clearly, countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation.”

News and Information: Top Stories:TOP<GO> Economy Shrank Early This Year for First Time Since 2011 NSN N6C6GH6TZ021<GO> Russia Gets First World Bank Investment Since Crimea Crisis NSN N6NHID6TTDS3 <GO> Don’t Fight Money Train Say Buyers Grabbing Emerging-Market Debt NSN N6PD906TTDSR <GO> Top Economy Stories: TECO <GO> U.S. Snapshot: ESNP US <GO> Global Monitor: GEW <GO>

--With assistance from Ye Xie in New York and Catarina Saraiva in Washington.

To contact the reporter on this story: Sandrine Rastello in Washington at +1-202-654-4318 or srastello@bloomberg.net To contact the editors responsible for this story: Chris Wellisz at +1-202-624-1862 or cwellisz@bloomberg.net Brendan Murray, Gail DeGeorge

Asian Market Update: World Bank slashes Global, China, and US GDP outlook for 2014; House Speaker Cantor loses his primary

***Economic Data*** - (AU) AUSTRALIA JUN WESTPAC CONSUMER CONFERENCE INDEX: 93.2 V 92.9 PRIOR; M/M: +0.2% V -6.8% PRIOR - (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence: 102.2 v 102.2 prior - (NZ) NEW ZEALAND MAY RETAIL CARD SPENDING M/M: 1.3% (highest reading in 7 months) V 0.5%E; TOTAL CARD SPENDING M/M: +1.7% V -0.2% PRIOR - (JP) JAPAN Q2 BSI LARGE ALL INDUSTRY Q/Q: -14.6 V 12.7 PRIOR; BSI LARGE MANUFACTURING Q/Q: -13.9 (biggest decline since Q3 2011) V 12.5 PRIOR - (JP) JAPAN MAY DOMESTIC CGPI M/M: 0.3% V 0.1%E; Y/Y: 4.4% (5-year high) V 4.1%E - (KR) SOUTH KOREA APR MONEY SUPPLY L M/M: 0.5% V 0.2% PRIOR; M2 M/M: 0.4% V 0.5% PRIOR - (KR) SOUTH KOREA MAY BANK LENDING TO HOUSEHOLD (KRW): 485.3T V 483.4T PRIOR - (KR) SOUTH KOREA MAY UNEMPLOYMENT RATE (SEASONALLY ADJ): 3.7% V 3.6%E - (PE) Peru Central Bank cuts reserve requirement ratio (RRR) by 50 bps to 11.5% from 12.0%

Market Snapshot (as of 03:30 GMT): - Nikkei225 +0.3%, S&P/ASX -0.3%, Kospi +0.1%, Shanghai Composite -0.2%, Hang Seng -0.4%, Jun S&P500 -0.1% at 1,949, Aug gold +0.1% at $1,261, Jul crude oil +0.1% at $104.45/brl

***Highlights/Observations/Insights*** - World Bank's Global Economic Prospects announced a cut to 2014 worldwide and other GDP projections. Global growth outlook was lowered to 2.8% v 3.2% due to weaker BRICS, China 2014 lowered to 7.6% v 7.7% prior, US forecast cut to 2.1% v 2.8% prior, Japan to 1.3% v 1.4% prior, and Euro area affirmed at 1.1%. Note that China was also the only one of the large economies where 2015 and 2016 GDP is seen lower - 7.5% and 7.6% respectively. US GDP is expected to rebound to 3% the next two years, while Euro area GDP is sen at 1.8% in 2015 and 1.9% in 2016. WB said high-income country recovery is underway, while the pickup in developing world is proceeding slowly.

- PBoC annual report was a reiteration of recent commentary, affirming prudent monetary policy and proactive fiscal policy for 2014, pledging to increase support for direct financing, and looking to accelerate interest rate liberalization.

- Australia Westpac Consumer Confidence for June rebounded from its biggest drop in a year last month but just slightly. Westpac economist said the Index is still in firmly pessimistic territory, as concerns related to the govt's recent budget cuts continued to weigh on consumer sentiment.

- Japan Ministry of Finance released its outlook for the 2nd quarter widely foreshadowing the expected post sales tax hike contraction. The 15pt drop in All Industry manufacturing survey was the biggest since late 2011. MoF did revise its FY14 CAPEX projections higher after a much stronger than expected Q1 Final GDP report in that component to +4.5% from -5.1% prior forecast.

- In a political shock to the Republican side, House Majority leader Cantor (R-VA) lost in his Virginia Primary to a Tea Party activist David Brat. Cantor had been widely speculated to take over the Speakership from John Boehner in the future. Tea Party candidate win also restores that movement's credibility and potentially weighs on GOP bid to retake the majority in the Senate.

***Speakers/Political/In the Papers*** - (CN) PBoC releases 2013 annual report; Reiterates prudent monetary policy and proactive fiscal policy for 2014 - financial press - (CN) China Ministry of Finance (MOF): China May fiscal revenue CNY1.37T, +7.2% y/y; fiscal spending CNY1.28T, +24.6% y/y - financial press - (CN) China Association of Automobile Manufacturers (CAAM) May auto sales 1.91M units, +8.5% y/y, -4.6% m/m - Shanghai Daily - (KR) According to Bank of Korea (BOK), household loans by local banks in Apr rose by KRW5T m/m to KRW695.5T; Biggest increase in 4 months - Korean press - (KR) South Korea Pres Park may reshuffle Cabinet this week - Korean press

***Fixed Income/Commodities/Currencies*** - (JP) BOJ offers to buy ¥200B in JGB with maturity under 1-yr, ¥400B in 5-10yr JGB, and ¥100B in Corporate Bonds - (AU) Australia MoF (AOFM) sells A$700M in 3.25% bonds due 2029; Average yield: 4.2055%; Bid-to-cover: 2.61x - (US) PIMCO's Gross Raises Total Return Fund's holding of US Treasuries to 50% in May from 40% in Apr - (US) API PETROLEUM INVENTORIES: CRUDE: +1.5M v -2Me, GASOLINE: -441K v +0.5Me, DISTILLATE: -298K v +1Me

- In USD majors, the greenback was modestly firmer vs the euro but weaker against JPY, AUD, and NZD. EUR/USD extended its slide by about 25pips to $1.3520, USD/JPY fell nearly 20pip to ¥102.20, while AUD/USD and NZD/USD rose about 20pips above $0.9380 and $0.8540 respectively. Precious metals eked out further gains - Aug gold rose $3 to $1,262 and Jul Silver broke above $19.20.

***Equities*** US markets: - SYNA: Guides Q4 higher to R$300-310M v $280Me ($275-295M prior); +17.7% afterhours - ULTA: Reports Q1 $0.77 v $0.73e, R$713.8M v $699Me; +10.1% afterhours - AIG: Promotes Peter D. Hancock to President and CEO; effective Sept 1st - PRU: Board of Directors authorizes $1B (2.4% of market cap) in share repurchases

Notable movers by sector: - Materials: Daido Steel 5471.JP -3.7% (analyst action); Aichi Steel 5482.JP -3.3% (analyst action); CNNC Hua Yuan Titanium Dioxide 002145.CN +0.9% (raises product price); Discovery Metals DML.AU +7.2% (operations update); Aquila Resource AQA.AU +3.2% (block trades, speculation of a stake increase by Mineral Resources) - Industrials: Downer EDI DOW.AU -10.6% (termination of contract); Shandong Fin CNC Machine 002270.CN +3.0%, Siasun Robot & Automation 300024.CN +1.7%, Dalian Zhiyun Automation 300097.CN +1.0% (China Pres Xi comments on robotics) - Utilities: Beijing Water Business Doctor 300055.CN +5.7%, Beijing Originwater Technology 300070.CN +5.1%, Shanghai Safbon Water Service 300262.CN +10.0% (China submits water pollution curb plan)

After Hours Summary: SYNA +18.0%, ULTA +8.8%, SPWH +1.2%, UNFI -2.2%, STAY -2.0%, BNNY -2.0%, OXM -1.3% following earnings/guidance

After Hours Gainers: Companies trading higher in after hours in reaction to earnings: SYNA +18.0%, ULTA +8.8%, SPWH +1.2%

Companies trading higher in after hours in reaction to news: NAVB +6.2% (announced positive Lymphoseek (technetium Tc 99m tilmanocept) injection results on injection timing and surgery across multiple solid tumor types), PSEC +5.5% (announced there will be no restatement of historical financial statements based on discussions with the Office of the Chief Accountant of the SEC), AVNR +3.5% (announced positive outcome of Phase IIIb COMPASS Trial: a head-to-head study comparing AVP-825 to oral sumatriptan for the acute treatment of migraine), CRDC +2.0% (announced completion of laparoscopic appendectomy procedure with virtually no perceptible scar), JD +0.7% (Hillhouse Capital Management disclosed 14.2% passive stake in 13G filing)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: UNFI -2.2%, STAY -2.0%, BNNY -2.0%, OXM -1.3%

Companies trading lower in after hours in reaction to news: PVA -3.8% (announced proposed private offering of $250 mln of depositary shares representing convertible preferred stock), EXC -2.6% (co plans commence concurrent registered offerings of 50 mln shares of its common stock in connection with forward sales agreements and 20 mln equity units), STAY -2.0% (announced offering of 21 mln paired shares by selling stockholders), AIG -0.3% (named Peter Hancock President and CEO)