>>> What to look at this week end - 29th & 30th of August 2015

Dow+1.11% S&P+0.91% Nasdaq+2.60% Russell+0.53$ Nikkei-1.54% Hang Seng -3.56% Shanghai-7.85% Brazil+3.14% EuroStoxx+1.21% Eurostoxx 600 +0.52% FTSE +0.97% CAC+0.95% Dax+1.72% Ibex+0.79% MIB+1.14% SMI -0.15%
After China refrained from expected stimulus moves over the weekend, global markets went into hysterics on Monday morning. Chinese stocks went negative on the year, helping to trigger a mini flash on at the New York open, sending the S&P 500 into its first correction in three years. China fears hit emerging markets again, exacerbating tensions in the market that were already on edge about the uncertainties surrounding an impending Fed rate hike. Chinese stimulus finally materialized after the Shanghai market closed on Tuesday, helping to reverse US stocks that morning though they retested the Monday lows by the end of the session. The fever broke on Wednesday as Chinese stocks stabilized, and bargain hunters began pouring in, sending most global equity markets higher through the back half of the week. Trading volumes remained very heavy during what is normally a quiet late August week and currency and commodity markets experienced wild volatility spikes as well. By the end of a week that shook complacent markets, the DJIA ended with a 1.1% gain, the S&P500 was up 0.9%, and the Nasdaq added 2.6%.


Macro :
- ECB’s Constancio: Inflation Influenced by Negative Demand Shocks
- El-Erian Says Jobs Report Could Be Key to Fed in September
- Obama Inches Closer to Veto-Proof Support for Iran Nuclear Deal
- Fed, ECB, BOE Officials All Say They See Inflation Rising
- 3 Reasons Markets Lost Faith in China's Economy, At a Glance

Keep an eye on :
- ABG/P SM : Abengoa in Talks With BlackRock to Back Share Sale: Cinco Dias
- AGS BB : Ageas Agrees to Sell Hong Kong Unit to JD Capital for EU1.23b
- AH NA : Ahold Raised to Baa2 from Baa3 by Moody’s, Outlook Stable
- ALU FP : Alcatel Changed Incentive Plan Conditions Because of Nokia Deal
- ALU FP : Alcatel CEO May Get Up to EU13.7 Million as He Quits, JDD Says
- ALV GY : Borealis, Allianz Said to Jointly Bid for City Airport:Telegraph
- AVV LN : Aveva shares gain on talk of possible counterbids from US and German engineering groups - FT
- BXLT US ; Baxalta Said in Talks to Buy Ariad to Boost Oncology Offerings
- BAYN GY : Bayer to Weigh New Three-Pillar Structure, Handelsblatt Reports
- DBK GY : Deutsche Bank Job Cuts May Cost Billions, Welt Am Sonntag Says
- ENI IM : Eni discovers ‘supergiant’ gasfield near Egypt - FT
- ISAT LN : Inmarsat Confirms Successful Launch of Third GX Satellite
- LHA GY : Lufthansa to Combine Airline’s Pilot Training Centers: Spiegel
- SAB LN : SABMiller Said to Strengthen Takeover Defenses: Sunday Times
- SHP LN : Shire Said Ready to Cut Costs $1b on Baxalta Deal: Sunday Times
- SYNN VX : Artisan Partners Says Syngenta Threw Away $15b-$20b: WSJ
- VOW3 GY : German Carmakers Cut 2015 China Sales Outlook on Turmoil: Focus
- VOW3 GY : Volkswagen to Sell 19.9% Stake in Suzuki Motor Corp After Ruling

WSJ : Fed’s Fischer: ‘Good Reason’ to Think U.S. Inflation Will Move Higher

Fed’s Fischer: ‘Good Reason’ to Think U.S. Inflation Will Move Higher
Vice chairman says Fed shouldn’t ‘wait until inflation is back to 2% to begin tightening’

JACKSON HOLE, Wyo.—The Federal Reserve’s No. 2 official said there is “good reason” to think sluggish U.S. inflation will firm and move back toward the U.S. central bank’s 2% annual target, touching on a significant assessment facing the Fed ahead of its September policy meeting.

“Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding inflation down—oil prices and import prices, particularly—dissipate further,” Fed Vice Chairman Stanley Fischer said Saturday at the Federal Reserve Bank of Kansas City’s annual economic symposium.

In its last policy statement, the Fed said its first interest-rate increase will come after “some further improvement in the labor market” and when officials are “reasonably confident” inflation will move back to the central bank’s 2% annual target. Mr. Fischer, speaking less than three weeks before the Fed’s Sept. 16-17 meeting, didn’t declare whether those conditions had been fulfilled. “I will not and indeed cannot tell you what decision the Fed will reach by Sept. 17,” he said.
He said the Fed awaits the Labor Department’s August jobs report on Sept. 4. The past three months have seen monthly nonfarm payrolls growth average 235,000, “well above the amount needed to continue the strengthening of the labor market,” he said.

As for inflation, “with regard to our degree of confidence in this expectation, we’ll need to consider all the available information, and factors relevant to certainty and uncertainty about those projections for the economic outlook, before we make that judgment,” he said.

On Friday, Mr. Fischer told CNBC that “it’s early to tell” what the Fed will do at its September meeting. Some policy makers in recent days have signaled support for beginning to raise short-term interest rates that have been pinned near zero since December 2008, while others have said recent financial-market volatility and worries about China’s economy could justify delaying the long-awaited liftoff.

Mr. Fischer said Saturday that Fed officials are following “developments in the Chinese economy and their actual and potential effects on other economies, including and especially the United States, even more closely than usual.” Later, in response to a questioner who said anticipation of a Fed rate increase was one factor behind the Chinese stock market’s recent decline, he expressed skepticism. “The stock market went up…when people knew what our interest-rate policy was, and it collapsed…when they also knew what our interest-rate policy was, so I’m not quite sure which part of that might be the influence of the Fed,” he said.

When the time comes to raise rates, Mr. Fischer said, “we will most likely need to proceed cautiously” and with inflation low, “we can probably remove accommodation at a gradual pace. Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2% to begin tightening.”

In his remarks, Mr. Fischer discussed various forces that he said have restrained U.S. inflation, including declines in energy prices, softness in non-oil commodity prices, the strengthening of the dollar and slack in the economy.

Despite improvement in the labor market, “we have seen no clear evidence of core inflation moving higher over the past few years,” Mr. Fischer said. “This fact helps drive home one important point,…that while much evidence points to at least some role for slack in helping to explain movements in inflation, this influence is typically estimated to be modest in magnitude, and can easily be masked by other factors.”

The decline in energy prices over the past year “ought to be largely a one-off event,” he said, but he added that it is “plausible” to think the dollar’s rise will restrain output growth “through 2016 and perhaps into 2017 as well.”

An important factor, he said, is that longer-term inflation expectations “appear to have remained generally stable since the late 1990s.” The Fed, however, should be “cautious in our assessment that our inflation expectations are remaining stable” in part because “measures of inflation compensation in the market for Treasury securities have moved down somewhat since last summer,” he said.

But Mr. Fischer added that “you do need to be wearing your glasses to see” the decline in a chart, and that such movements “can be hard to interpret” and “may reflect factors other than inflation expectations, such as changes in demand for the unparalleled liquidity of nominal Treasury securities.”

Mr. Fischer, the former governor of the Bank of Israel, spoke Saturday on a panel about inflation dynamics with Bank of England Gov. Mark Carney, European Central Bank Vice President Vítor Constâncio and Reserve Bank of India Gov. Raghuram Rajan.

WSJ : Tribunal Finds Suzuki-VW Alliance Has Terminated

Tribunal Finds Suzuki-VW Alliance Has Terminated
Arbitrator orders Volkswagen to unload its 19.9% stake in Suzuki

TOKYO—An international court has ordered Volkswagen AG to sell its nearly 20% stake in Suzuki Motor Corp., allowing the Japanese auto maker to extricate itself from a fruitless tie-up after a four-year struggle.

The decision, by the London Court of International Arbitration, stamps an official imprimatur on the divorce between VW, one of the world’s largest auto makers, and Suzuki, which is a niche player globally but has a strong presence in India and other emerging markets. Their partnership went sour not long after the deal was struck in 2009, highlighting the challenges facing the growing number of international alliances in the auto industry.

Though the arbitrator ruled that Suzuki could buy back its stake from VW, it also said Suzuki breached the alliance agreement. Suzuki said it might have to pay damages to the German car maker, adding that details would likely be addressed in future arbitrations.

Volkswagen said it expected an earnings boost from the sale of the Suzuki stake, which was valued at about $3.8 billion at the close of trading Friday. “We welcome the clarity created by this ruling,” it said in a statement.

But the decision, provided to the auto makers this weekend, raises questions over whether Suzuki can succeed on its own. Auto makers face rising development costs to meet tougher fuel-consumption regulations and deep-pocketed technology giants such as Google Inc. and Apple Inc. are looking at the sector.

Osamu Suzuki, the 85-year-old chief executive of the Japanese car maker, said his company won’t seek new partners soon. “The premise of our future is that we will be independent,” he said at a news conference Sunday.

When the two companies entered their partnership, Suzuki hoped to tap Volkswagen’s advanced fuel-efficient technology, while Volkswagen coveted the Japanese car maker’s expertise in small cars and India. Suzuki’s Indian subsidiary, Maruti Suzuki, is the best-selling auto maker in that rapidly growing market. In 2010, Volkswagen purchased a 19.9% stake in Suzuki for around €1.7 billion ($1.9 billion at current exchange rates).

But differences in corporate culture soon emerged. Volkswagen alleged that Suzuki breached the alliance agreement by buying diesel engines from Fiat SpA of Italy; Suzuki denied that this was against the terms. In late 2011, Suzuki filed for arbitration.

While the dispute was a headache for Volkswagen, which hoped to fill in the missing pieces of its global portfolio, it had a bigger impact on Suzuki, preventing it from rejuvenating its leadership while it scrambled to develop fuel-efficient technologies.

In June, Mr. Suzuki handed over the title of chief operating officer to his son Toshihiro, saying he couldn’t wait any longer for the arbitrator’s decision or else the auto maker would be left behind.

The elder Mr. Suzuki stayed on as CEO. On Sunday, when asked whether he would step down, Mr. Suzuki said he hadn’t thought about it.

Over the past two years, Suzuki has developed new fuel-efficient technologies on its own.

Unsettled issues remain over the alliance dispute. Suzuki is set to purchase the shares from Volkswagen based on the market price, but the companies didn’t say when the buyback would take place.

Suzuki executives also didn’t say whether the company would have to raise fresh capital to do so, or whether it would cancel the shares it buys back.

Suzuki owns a 1.5% stake in Volkswagen. It will consider what to do with those shares, said Vice Chairman Yasuhito Harayama.

FT : Luxury groups wait on Chinese stock take

Luxury groups wait on Chinese stock take

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For western producers of expensive drinks, clothes and handbags, doing business in China is no longer a life of luxury.
A month-long slide in Chinese share prices has made the country’s consumers “less open to celebrate good moments,” as Gilles Bogaert, finance director of Pernod Ricard, put it last week.

They are certainly opening fewer of the French company’s Martell XO premium cognac bottles. With a typical price tag of €150 or more, sales of this type of aged cognac fell by double-digits in the year to June 30. Less expensive Martell fared better.
Sharp falls in the Chinese stock market, amid concerns over an economic slowdown, represent a further potential blow to Pernod in its second-biggest market — and just as the company appeared to be recovering from President Xi Jinping’s 2013 clampdown on lavish spending by government officials.
Although its spirits sales in China were down 2 per cent in the last financial year, that was a significant improvement on the previous year’s 23 per cent drop.
But Pernod’s drink brands are by no means the only luxury goods to experience rapidly falling Chinese sales.
Swiss watch exports to the country have wound down sharply — by 40 per cent in July, compared with the same month last year. More expensive watches have been much harder hit than those costing less than SFr200, according to the Federation of the Swiss Watch Industry.
Tag Heuer, a watch brand owned by LVMH, said recently it would close one of its shops in Hong Kong due to lower regional demand.
Global luxury goods companies have become heavily reliant on Chinese big spenders, who account for 30 per cent of worldwide spend in the sector, up from 3 per cent just a decade ago.

Last week’s move by the Chinese central bank to devalue the renminbi has also added to the sector’s woes, by making luxury imports more expensive.
Investors in western luxury goods companies have reacted by selling off shares in recent weeks. Those hit include the French groups LVMH, Rémy Cointreau, Hèrmes and Kering, owner of Gucci — down an average 13.1 per cent since August 1. Others to suffer share price falls were Switzerland’s Richemont, down 11.7 per cent, and the UK’s Burberry, down 11.9 per cent.
Analysts are trying to calculate how big a hit to sales of luxury goods can be expected.
For the time being, many believe the slowdown will only worsen if the market volatility leads to a general deterioration in the economy or wage rates.

One reason for optimism is that Chinese consumers depend far less than Americans on the stock market for wealth creation. And, despite the turmoil of the past few weeks, the Shanghai Composite index is still 45 per cent higher than it was a year ago.
As Luca Solca, analyst at Exane BNP Paribas, points out: “If this was happening in the USA, we would see a very negative effect on discretionary spend. But, to be fair, given the prior explosion of the Chinese equity market, we would have seen a corresponding spectacular growth in discretionary spend. We have seen neither so far.”
However, Tiffany & Co, the New York-based jeweller that last week bucked the trend by reporting a double-digit rise in quarterly sales, said it was impossible to predict how the fall in share prices would affect spending.

Mark Aaron, vice-president of investor relations, says: “In the same way that it’s not possible to quantify the positive wealth effect from a rising stock market on our sales growth in China in the past couple of years, it’s similarly difficult to predict any potential negative effect on sales in magnitude or duration from their recent stock market correction or currency devaluation.”
Pernod’s chief executive Alexandre Ricard admits sales over the past month have been “soft” and that the outlook will only become clear until the “make-or-break” Chinese new year next February.
A further variable factor to be considered is the fact that an overwhelming proportion of Chinese luxury goods purchases — some 75 per cent — are made outside the country, not inside. High import duties on luxury items can make the same Burberry trenchcoat or Louis Vuitton handbag at least 30 per cent cheaper to buy in Europe than in China.

These purchases can be made while undertaking personal travel, by placing orders with third-party so-called “daigou” shoppers, or online.
Brian Buchwald, chief executive of Bomoda, a New York and Shanghai based market research company, says luxury companies should be spending less on new stores within China and more on e-commerce to exploit this trend.
“We have seen a significant growth in spending by the Chinese consumer — just not in China. So there is a massive opportunity for luxury goods companies to increase sales by investing more in technology,” he said.

Luxury companies also point out that whatever the short-term pain, the demographic and luxury spending outlook in China is still highly favourable.
As Johann Rupert, chairman of Richemont — which owns Cartier jewellery and Montblanc pens — said earlier this year: “We’ve seen this before on a number of occasions. So, yes, we have problems in China; everybody’s got problems in China. How long it’s going to last? I don’t know. I’m in it for the long term.”

FT : Eni discovers ‘supergiant’ gasfield near Egypt

Eni discovers ‘supergiant’ gasfield near Egypt

Italian energy group Eni has discovered what it says is a “supergiant” gasfield off the coast of Egypt, the largest ever found in the Mediterranean Sea and which could provide a much-needed boost for the country’s economy.
Eni, one of Europe’s biggest oil and gas companies, said on Sunday that the Zohr discovery “could become one of the world’s largest natural-gas finds” and would play a “major” role in meeting Egypt’s natural gas demand for decades once fully developed.

The field held a possible 30tn cubic feet of gas, or 5.5bn barrels of oil equivalent (boe), said the company, which has examined well results and geophysical data from the Zohr 1X NFW well located in 1,450 metres of water in the Shorouk exploration block. It covers an area of 100 square km, about 200km off the coast of Egypt.
Claudio Descalzi, chief executive of Eni, discussed the results with Egyptian president Abel Fattah Al-Sisi in Cairo on Saturday.
“It’s an exciting moment for us and also for Egypt,” he said. “This historic discovery will be able to transform the energy scenario of Egypt.”
“This brings potential relief to the country’s energy situation in terms of both availability and price,” said Mohamed Abu Basha, Egypt economist at EFG Hermes. “It is also potentially a source of foreign exchange.”
Mr Abu Basha said the size of the find was equivalent to 45 per cent of Egypt’s reserves.
The field could also give Europe a new supply option, lessening its dependence on imported Russian gas.
Mr Descalzi told the Financial Times that the find meant Egypt would not need to import gas for at least 10 years. “Egypt can rely on this discovery for the next decade. They have found a very important supply for the future.”
The field, he said, could hold as much as 40tn cubic feet of gas and oil that could yet be found with further exploration: “I think we can discover more.”
Eni would immediately appraise the field “with the aim of accelerating a fast-track development” that would use existing infrastructure.
A final investment decision could be made this year, with drilling likely in 2016 and first production following soon afterwards. Peak output could reach 2.5bn to 3bn cubic feet a day, or roughly 65 to 80m cubic metres a day, he added.
Such large oil and gas finds have become rare in recent years as companies have had to spend bigger sums on new technology to explore in hard to access deepwater areas and other higher cost regions.
US and European majors have had little to show for their efforts, the ‘Big Five’ of BP, Chevron, ExxonMobil, Royal Dutch Shell and Total shedding more than a billion barrels of reserves in 2014, according to figures in their annual reports, the sharpest decline in at least six years.
Figures from IHS, the research company, show discoveries of new oil and gas reserves dropped to their lowest level in at least two decades last year.
Eni, however, said that exploration had been central to its growth strategy. In the past seven years it had found 10bn barrels of resources and 300m in the first half of this year.
Eni, which has been active in Egypt since 1954 through its IEOC subsidiary, is the main oil and gas producer in the country, with equity production of 200,000 boe a day.

(BN) Middle Eastern Stocks Rally Led by Oman After Oil-Price Rebound

Middle Eastern Stocks Rally Led by Oman After Oil-Price Rebound
2015-08-30 13:59:51.503 GMT


By Yaacov Benmeleh, Sarmad Khan and Deema Almashabi
(Bloomberg) -- Omani stocks led a rally in most equity
markets across the Middle East after oil prices had the biggest-
weekly jump in more than six years.
The MSM30 Index advanced 1.5 percent, the most since
January, to 5,904.44 at the close in Muscat. Dubai’s DFM General
Index climbed 1.1 percent to the highest in more than a week,
and Saudi Arabia’s Tadawul All Share Index gained as much as 4.6
percent before closing 1.1 percent higher.
Brent crude closed 10 percent higher last week, trading
above $50 per barrel after data showed second-quarter growth in
the U.S. exceeded economist forecasts, spurring renewed investor
optimism over the global economic outlook. The six nations of
the Gulf Cooperation Council are home to about 30 percent of the
world’s proven reserves of oil, the price of which had plunged
this month on concern of an oversupply and slowing expansion in
China.
“It’s an unbelievable rally considering the battering oil
took in the past few weeks,” said Wadah Al Taha, the Dubai-based
chief investment officer of Al Zarooni Group, who favors
investing selectively in regional markets over the short term.
“The positive close in international markets, especially with
China rallying again and U.S. equities ending the week on a
positive note, is also helping sentiment.”

‘More Clarity’

The Standard & Poor’s 500 Index gained 0.9 percent last
week, masking a volatile period in which the U.S. benchmark
plunged the most since 2011 to enter a correction, only to rally
more than 6 percent over two days. The gauge is down 5.5 percent
for the month, the most since May 2012.
Saudi Arabia’s benchmark equity index entered a bear market
last week, and the DFM General Index recorded daily losses of as
much as 7 percent and gains of as much as 4.6 percent in the
same period. Brent crude closed below $45 per barrel for the
first time in six years on Aug. 24.
“There’s no doubt that the main reason for the Saudi market
rally is the significant increase in oil prices on Friday,” said
Mohammed Al-Suwayed, the Riyadh-based head of capital and money
markets at Adeem Capital. “I’m waiting for the August close on
Monday to make sure that there is no retracement in prices, but
I’m cautiously optimistic for the rest of the week.”
Qatar’s QE Index rose 0.4 percent and Kuwait’s SE Price
Index added 0.5 percent.
Today’s moves don’t “mean that we are in an uptrend,” Al
Taha said. “We need more clarity in terms of global economic
numbers and stability in oil prices to be able to determine
that.” 
Abu Dhabi’s ADX General Index fell 0.2 percent and
Bahrain’s BB All Share Index slipped 0.1 percent.

Egypt Aid

While Egypt’s EGX 30 Index lost 0.3 percent, Emaar Misr for
Development, which in June held the country’s biggest initial
public offering since 2011, climbed 7.8 percent. That pares the
stock’s loss since its trading debut to 34 percent.
Next month, Saudi Arabia will provide Egypt $2.9 billion of
aid in the form of petroleum products and grants for economic
development, Al Mal newspaper reported today. North Africa’s
biggest economy has relied on financial assistance from Gulf
Arab allies since a military takeover in 2013.
Israel’s TA-25 Index climbed 0.5 percent, led by Nice
Systems Ltd. The country’s natural gas explorers, including
Delek Drilling LP and Avner Oil Exploration LLP, rose following
the increase in oil prices, according to Saar Golan, an equities
trader at Bank of Jerusalem Ltd. in Tel Aviv.

For Related News and Information:
Top Stories:TOP

--With assistance from Ahmed A. Namatalla in Cairo.

To contact the reporters on this story:
Yaacov Benmeleh in Tel Aviv at +972-3-542-7137 or
ybenmeleh@bloomberg.net;
Sarmad Khan in Dubai at +971-4-3641045 or
skhan170@bloomberg.net;
Deema Almashabi in Riyadh at +966-11-211-8033 or
dalmashabi@bloomberg.net
To contact the editors responsible for this story:
Samuel Potter at +971-4-3641050 or
spotter33@bloomberg.net
Shaji Mathew

(BN) If the Options Market Is Right, China’s Stock Rescue Is Doomed

If the Options Market Is Right, China’s Stock Rescue Is Doomed
2015-08-30 16:00:01.5 GMT


By Kana Nishizawa
(Bloomberg) -- Options traders have never been so
pessimistic on China’s stock market, betting the government’s
renewed effort to prop up share prices is doomed to fail.
The cost of bearish contracts on the China 50 exchange-
traded fund surged to the highest level versus bullish ones
since they started trading in Shanghai six months ago. The so-
called skew also climbed to a record for a similar ETF in the
U.S., even as government buying drove China’s benchmark index to
a 10 percent rally in the final two days of last week.
While policy makers are trying to bolster the market before
President Xi Jinping takes the stage in a World War II victory
parade this week, bears argue that valuations are too high for
the rally to last. Chinese investors have about 5 trillion yuan
($783 billion) of borrowed money riding on stocks, and many of
them are looking for a chance to exit, according to Bank of
America Corp.
“More and more people are not convinced about A shares,”
said Tony Chu, a Hong Kong-based money manager at RS Investment
Management Co., which oversees about $20 billion. “Ultimately,
the government needs to reduce intervention and let more de-
leveraging happen.”
Puts that pay out on a 10 percent drop in the China 50 ETF
cost 7 points more on Friday than calls betting on a 10 percent
gain, according to implied volatility data on one-month
contracts. As recently as Aug. 24, the bullish contracts were
more expensive. For the U.S.-listed Deutsche X-trackers Harvest
CSI 300 China A-Shares ETF, the skew reached a record 38 points
on Aug. 27 and closed the week at 28 points.
Chinese policy actions last week suggest authorities are
intent on putting a floor under share prices. On Tuesday, the
central bank announced its fifth interest-rate cut since
November and reduced the amount of cash banks must set aside for
reserves. State buying on Thursday propelled the Shanghai
Composite to a rally of more than 5 percent in the final hour of
trading, according to people familiar with the matter, an
advance that extended into a 4.8 percent gain on Friday.

‘Unstable Situation’

China’s intervention is part of a broader effort to ensure
nothing detracts from the Sept. 3 parade, an event the
government will use to demonstrate its rising military and
political might. Authorities have also closed thousands of
factories to curb pollution and ordered some vehicles off the
road.
For BofA strategist David Cui, equity valuations and
earnings growth aren’t appealing enough to support the market in
the absence of government buying.
Equities on mainland bourses traded at a median of 53 times
reported earnings last week. That’s the most among the 10
largest markets and more than twice the 19 multiple for the
Standard & Poor’s 500 Index. Analysts have cut their 2015 profit
estimates for Shanghai Composite companies by 8.8 percent this
year, according to data compiled by Bloomberg.
Cui is also worried about the impact of selling by
leveraged investors. Margin loans tracked by Chinese exchanges
have dropped by half from their June peak to about 1.1 trillion
yuan, a figure that doesn’t take into account equity-backed debt
extended by trust companies and other lenders.
“That’s a very unstable situation,” said Cui, who estimates
the Shanghai Composite needs to fall another 35 percent before
shares become attractive. “The government will not support the
market forever.”
The $5 trillion tumble in share prices from mid-June
through last Wednesday has damaged confidence so much that state
buying isn’t enough to lure back investors, according to Kenny
Tang, chief executive officer of Jun Yang Securities Co. in Hong
Kong. It may take further cuts to borrowing costs and reserve
requirements to convince funds to return, he said.
The Deutsche X-trackers Harvest ETF ended last week down
6.2 percent at $32.70 in New York, extending its loss from a
June record to more than 40 percent. The China 50 fund declined
4.7 percent.
“The market sentiment is still quite volatile,” Tang said.
“People are worried that after the rebound there will be some
selling pressure.”

For Related News and Information:
Top emerging-market news: TOP EM
Most-read emerging-market news: MNI EM 1W
Developing economy market moves: EMMV
Emerging-market economic statistics: STAT4

--With assistance from Zhang Shidong in Shanghai.

To contact the reporter on this story:
Kana Nishizawa in Hong Kong at +852-2977-4627 or
knishizawa5@bloomberg.net
To contact the editors responsible for this story:
Sarah McDonald at +61-2-9777-8684 or
smcdonald23@bloomberg.net
Michael Patterson, Nikolaj Gammeltoft

>>> SABMiller hires Robey Warshaw to advise on M&A strategy

SABMiller hires Robey Warshaw to advise on M&A strategy 

SABMiller an FTSE-100 brewing company, has hired the investment bank Robey Warshaw to advise on M&A strategy, The Sunday Times reported. The newspaper cited City sources for the information.

The item noted growing speculation that listed Belgian competitor Anheuser Busch-InBev [EBR:ABI] will make an offer for SABMiller. AB Inbev is backed by the buyout group 3G Capital Partners.

The newspaper's Agenda column noted that SABMiller's share price closed at 3045p in London on Friday, 28 August, having traded at slightly less than 3800p per share several months ago.

SABMiller’s market capitalisation stood at GBP 49.40bn (EUR 67.98bn) on Friday's close.

>>> GVC to return if outbid for Bwin.party by 888, 888 has other alternatives if

GVC to return if outbid for Bwin.party by 888, 888 has other alternatives if bid fails 

GVC Holdings CEO Kenny Alexander said he will “come back” if rival 888 Holdings makes a “greater” bid for Bwin.party digital entertainment, The Daily Telegraph reported. Alexander, speaking on Friday, 28 August, said he is confident that GVC’s offer for Bwin will win.

Bwin, a listed Gibraltar-based online gambling website operator, recommended 888 Holdings’ GBP 900m (EUR 1.23bn) cash plus shares offer in July. However, Bwin has in recent weeks held discussions with GVC to resolve issues with the Isle of Man-based online gambling company’s improved offer, which values Bwin at GBP 1.03bn, the item noted.

Bwin this week asked GVC to submit its best bid and said it will give an update on Tuesday, 1 September.

GVC’s offer comprises 25p cash plus 0.231 GVC shares per Bwin share. GVC claims that its proposal includes more synergies than the 888 offer, which comprises 39.5p cash plus 0.44 888 shares.

888 Holdings’ executive chairman Brian Mattingley said that the bigger cash component highlights the strength of his company’s offer for Bwin. Mattingley also defended the minimum USD 70m (EUR 62.5m) synergies outlined in 888’s bid, arguing that the synergies were less than the EUR 135m proposed by GVC because 888’s offer involves synergies, rather than cost savings. It is impossible to take out EUR 135m of costs and not destroy value, Mattingley added. The executive chairman would not say whether 888’s existing bid was final, saying that the company would review the offer if it failed.

A Financial Times report quoted Mattingley, who said that even if 888 fails in its bid to acquire Bwin, the company has other other potential tactical and strategic acquisitions in its sight.

As previously reported, GVC has backing from Cerberus Capital Management for its bid for Bwin.

Bwin.party digital entertainment’s share price closed 1.1p up at 116.4p in London on Friday, giving the company a market capitalisation of GBP 959m.

Daily Telegraph, Financial Times

Barron's : U.S. Blue Chips With Fat Dividends Offer Value

U.S. Blue Chips With Fat Dividends Offer Value

After last week’s market selloff and rebound, stocks of companies such as GE, JPMorgan Chase, Merck, and BlackRock offer value plus income.

The worst may be over.

U.S. stocks roared higher for much of last week, reversing Monday’s gut-wrenching losses and leaving major indexes with modest gains at week’s end. Investors concluded that a still-healthy U.S. economy is unlikely to be derailed by a slowdown in China, and took comfort in Thursday’s news that second-quarter gross domestic product grew by a revised 3.7%. Wall Street also cheered indications that the Federal Reserve might shelve a potential interest-rate hike in September. U.S. economic growth could average close to 3% in the second half of this year, hardly gloomy conditions associated with a bear market.

The Street quickly came around to the view of bullish strategists such as Goldman Sachs’ David Kostin, who observed in a client note that only 2% of sales generated by companies in the Standard & Poor’s 500 index come from China, and less than 1% of U.S. exports go to China. “We expect the U.S. economy will avoid contagion and continue to expand,” he wrote.

Kostin projects the S&P 500 will return to 2100 by year end, which implies a 5% gain from Friday’s close of 1989.

“The stock market responded sharply and excessively to fears of a slowdown in China,” says Charles Lieberman, chief investment officer of Advisors Capital Management, a New Jersey investment firm. “The U.S. doesn’t export a lot to China. The countries that are vulnerable are commodity producers like Australia and Canada.”

Jeremy Grantham, chief investment strategist at GMO in Boston, says the U.S. economy and stock market “flag very few of the real bubble indicators. The economy doesn’t look like it’s on the cusp of recession. Housing is picking up, and hiring is good.”

Lieberman and many other investors saw a buying opportunity after the market plunge on Monday, when the Dow industrials fell 588 points, or 3.5%, its largest daily percentage decline since 2011. One of the most attractive parts of the stock market could be dividend-paying blue-chip stocks, many of which yield 3% or more. These include General Electric (ticker: GE), JPMorgan Chase (JPM), Merck (MRK), BlackRock (BLK), DuPont (DD), and Procter & Gamble (PG).

Dividend payers in the S&P 500 have lagged behind the overall market this year, as investors have favored low or no-yielding growth stocks such as Amazon.com (AMZN), Facebook (FB), Netflix (NFLX), Google (GOOGL), Valeant Pharmaceuticals International (VRX), and Allergan (AGN). Investors can now put together portfolios with bond-like yields and growth potential.

SOME WOULD ARGUE that the market recovery has been too neat, and that it is hewing too closely to the script put forth by many strategists, which called for a quick and brisk bounce-back. But there’s a reason for the snapback: While stocks, as measured by the S&P 500, aren’t cheap by historical standards at a current 16 times forward earnings, they aren’t expensive, either. The earnings yield, the inverse of the price/earnings ratio, is 6%, or more than 2.5 times the yield on the 10-year Treasury bond. As Barron’s noted last week (“A Late-Summer Swoon, Not a Crash,” Aug. 24), the S&P 500 dividend yield of 2.2% matches that of the 10-year Treasury.

The Dow Jones Industrial Average gained 1% in last week’s recovery, to 16,643, almost 1,000 points above its closing low on Tuesday of 15,666. The big drop of 588 points came on Monday, but that was more than offset by a 618-point rise on Wednesday. The S&P 500 index finished on the week at 1989, up 1% after bottoming at 1868 on Tuesday. Both averages are still in the red for the year, however, with the Dow industrials off 7% and the S&P down 3%.

About a third of the sales of S&P 500 companies are generated outside the U.S., but that figure probably overstates the impact of overseas economies. Energy companies, for instance, get almost half their sales outside of the U.S., but much of their production is outside the U.S., too. As the table nearby illustrates, energy has been the worst sector in the S&P 500 this year, with an 18% decline. Investors have done better with U.S.-focused sectors such as financials and health care.

WHERE SHOULD INVESTORS LOOK now? Some managers like above-average dividend payers, which have lagged behind high-growth stocks this year.

“We emphasize large-cap companies with tremendous financial strength that have grown their dividends over time,” says Hank Smith, chief investment officer at Haverford Trust in Radnor, Pa. “The market selloff and the concurrent decline in bond yields highlight an opportunity. Investors can get better income from stocks than bonds, and also get growth in income with stocks, which you don’t get in fixed income.”

But he admits there’s “no free lunch” with stocks: “You have to tolerate volatility.”

Smith cites a group of attractive companies, including McDonald’s (MCD), DuPont, GE, JPMorgan, Wells Fargo (WFC), Coca-Cola (KO), P&G, ExxonMobil (XOM), and Chevron (CVX).

GE, at about $25, isn’t cheap at 19 times estimated 2015 earnings. But profits could grow at a double-digit rate in coming years, as it aims to create what it calls a “focused infrastructure and technology company,” with 90% of earnings coming from industrial business by 2018. GE is divesting the bulk of its financial-services operations.

While the Street remains skeptical of GE, the company aims to return $90 billion of cash to investors from 2015 through 2018. With reduced financial-services earnings, GE plans to maintain the current dividend of 92 cents a share through 2016 and increase it thereafter. The stock now yields 3.7%.

McDonald’s, at $97, looks fully priced at 20 times estimated 2015 earnings, but there is considerable restructuring potential at the fast-food giant, given its large real estate holdings. Activists are circling. McDonald’s shares, now yielding 3.5%, could get a nice lift if the company ever gets a management team like Brazil’s 3G Capital, which delivered at rival Burger King with a weaker hand. Burger King is now part of Restaurant Brands International (QSR).

In the drug sector, Merck’s shares may not reflect the big potential for its immuno-oncology drug, Keytruda, which was highlighted in last week’s cover story (“Race for the Cure”). Merck, at $55, trades for 15 times projected 2015 earnings, a discount to its peers, and yields 3.3%. Bernstein analyst Tim Anderson carries an Outperform rating on the stock with a $70 target, having called it “out of favor with a high-value pipeline.” Barron’s wrote a positive piece on Merck this past spring, when the shares were at $58 (“Merck Builds a Pipeline to Profits,” June 22).

Novartis, at $98, yields 2.7%—less than Merck. It has a higher price/earnings multiple, but that is offset by one of the best projected growth rates among major drug companies through 2020.

JPMorgan may be the best-run of the major banks, and generates earnings from more sources than most peers. Yet, at $64, it trades at a modest valuation of less than 11 times future earnings, and yields 2.7%.

BlackRock, the world’s largest asset manager with almost $5 trillion under management, also has best-in-class management led by CEO Larry Fink. At $314, shares trade for 16 times estimated 2015 earnings and yield 2.8%. BlackRock returns about 75% of its profits to shareholders in dividends and buybacks. At a time when the asset-management industry has fallen from favor, as investors embrace passive strategies and exchange-traded funds over actively managed mutual funds, BlackRock is in a strong position as the No. 1 manager of ETFs with its iShares franchise.

Warren Buffett usually doesn’t make investment mistakes, but International Business Machines (IBM) so far has been a loser. The CEO of Berkshire Hathaway (BRKA) paid an average of about $160 for a $12 billion stake in IBM, mostly acquired in 2012, and Big Blue’s shares now trade for about $148. Buffett remains a believer, and IBM’s valuation is one of the lowest among major tech companies at 9.4 times estimated 2015 profit. The stock yields 3.5%. “All it would take for the stock to go up significantly would be for IBM’s quarterly earnings to beat on the top and bottom line, and for management to offer some positive comments,” Smith says.

THE STREET’S ENTHUSIASM for Intel (INTC) has waned as optimism about its inroads into chips for mobile devices has been replaced by concerns about its exposure to the eroding PC market. With Intel down more than 20% this year, to $27, it looks appealing, at less than 13 times projected 2015 earnings. It yields 3.5%.

P&G’s many stumbles, including missteps that led to the sale of its beauty business to Coty (COTY) this summer, have depressed its shares, which are off more than 20% this year, to $71. With the selloff, its shares yield 3.7%. P&G’s valuation is about average for the sector, but it is arguably one of the most undermanaged of the major consumer companies and is ripe for improvement.

After P&G offered disappointing guidance for the fiscal year ending in June 2016 when it reported its June quarterly results last month, Bernstein analyst Ali Dibadj said, “We remain interested in the stock given the potential at P&G, but we continue to be frustrated. Investor patience is running low. Perhaps the time for more drastic measures at P&G is here.”

He has an Outperform rating and a $87 price target.

Reflecting weakness in most of its major markets, DuPont has fared poorly this year, with its shares down 26%, to $52, reflecting the spinoff of Chemours (CC), its titanium-dioxide business, in July. DuPont trades for 16 times projected 2015 profits and yields 2.9%. Activist investor Nelson Peltz’s Trian Partners lost its attempt to gain board seats but remains a large holder and a likely influence on the company.

Ford Motor (F) delivered better-than-expected second-quarter profit last month and offered strong second-half guidance. The Street wasn’t impressed, however, and its shares are languishing, as investors worry about a potential weakening in the hot U.S. auto market and a slowdown in China. As a result, at about $14, Ford trades for just eight times projected 2015 earnings and yields 4.4%.

Even with the market recovery, there are plenty of appealing dividend-rich companies with underappreciated prospects.