TheChek News Flow

Speculation that a takeover of S&N is imminent is resurfacing again. S&N had been the recurring target of takeover speculations for months, and as before we will argue against such speculations, or at least against a high premium bid. We have been correct for the time being. Our argument is centered on value. S&N is simply too expensive, and any acquisition which would involve a premium would be value destructive. At the current share price, S&N is about as expensive on a relative basis as Covidien in its deal with Medtronic, although S&N’s growth expectations are significantly higher. A premium for S&N would mean the acquisition to be even more overvalued. The market is speculating on a 30% premium which we think is totally unrealistic from a value point of view.

Resumes trading lower by over 70% 

Temasek said to study alternatives on Standard Chartered stake 

Key Ideas :

>>> Up

Societe Generale Lists European Top Equity Picks for 2015

Telecom Italia leading shareholder Telco to be demerged in next two months

Asian Mid-session Update: Euro crashes to 9-year lows below $1.19 as Grexit fears resurface

***Economic Data***

- (AU) AUSTRALIA DEC AIG PERFORMANCE OF MANUFACTURING INDEX: 46.9 V 50.1 PRIOR (3-month low)

- (JP) JAPAN DEC FINAL MARKIT/JMMA MANUFACTURING PMI: 52.0 V 52.1 PRELIM (7th consecutive expansion)

- (KR) SOUTH KOREA Q4 FOREIGN DIRECT INVESTMENT (FDI) Y/Y: 10.1% v 37.9% PRIOR

***Index Snapshot (as of 03:30 GMT)***

- Nikkei225 +0.2%, S&P/ASX +0.1%, Kospi -0.7%, Shanghai Composite +2.4%, Hang Seng +0.3%, Mar S&P500 flat at 2,046

***Commodities/Fixed Income***

- Feb gold +0.6% at $1,193, Feb crude oil -1.9% at $51.66/brl, Mar Copper flat at $2.81/lb

- (JP) BOJ to buy ¥70B in JGB with maturity less than 1-yr, ¥240B in 10-25yr JGB and ¥140B in JGB with maturity over 25-yr

- (KR) South Korea sells 3-yr govt bond at avg yield of 2.13%

- USD/CNY: (CN) PBoC sets yuan mid point at 6.1248 v 6.1190 prior setting (weakest setting since Dec 7th)

***Market Focal Points/Key Themes/FX***

- The open of the first full trading week of the new year was met with extreme volatility in the currency markets, particularly in the euro pairs, as EUR/USD crashed over 120pips to $1.1870s - the lowest levels since March of 2006 - before recovering to $1.1930s. USD also made further ground in the other majors, with GBP/USD briefly falling 150pips below 1.52, AUD/USD down 50pips at $0.8050, and NZD/USD down 80pips around $0.7620. A combination of factors is being attributed to fresh euro selling, including further bearish positioning going into the eurozone flash CPI this week, just as ECB's Draghi last week announced that the central bank sees a higher risk of failing on inflation objectives. Geopolitical news over the weekend related to Greece are also weighing on sentiment - Germany's Der Spiegel reported that Chancellor Merkel is less concerned with the possibility of a Greek exit, calling the fallout as "manageable", while opposition Syriza party leader Tsipras reiterated he would move to end the austerity policies if elected in the polls coming up in just 3 weeks. Local press surveys still see Syriza ahead of the ruling ND party by 30.4% vs 27.3%, though that margin has narrowed slightly.

- Shanghai Composite resumed its steady climb, reaching new 5-year highs above 3,300 despite more audible expectations of slowing growth for China in 2015. Standard Chartered said 2015 GDP would slow to 7.1% from 7.3% forecast for 2014, State Information Center (SIC) estimated 2015 GDP at 7%, and a former Stats Bureau economist went as far as to warn that CPI may post an outright decline this year. In the property sector, China Index Academy recorded its 8th consecutive sequential decline during December, with average prices across top cities falling -0.44% v -0.38% prior, although developers are moving higher on signs of a rebound in Beijing.

- In Tokyo, December final manufacturing PMI slowed marginally from the preliminary estimate but remained in expansion for the 7th straight month. Markit economists noted a further rise in new orders from both the domestic and international markets, as well as input price inflation accelerating due to falling yen. Japan Fin Min Aso also said the economy is emerging from a deflation-driven slump, anticipating a rise in capex that would help return GDP to growth. USD/JPY briefly tested below ¥120 early in the day before returning to Friday highs around ¥120.60.

- Among Fed speakers, commentary from Boston Pres Rosengren (alternate on FOMC in 2015) was most notable, as he urged patience on interest rate liftoff until the Fed is confident inflation is returning to 2% target. He added sluggish inflation growth would allow for "more gradual normalization process", and also pointed to global economic risks as a potential challenge to orderly policy measures.

***Equities***

US/ADRs:

- RIO: May announce a buyback of as much as A$5B (4.8% of market cap) as early as next month - AFR citing resource analysts

- AAL: Said to raise pilot pay by as much as 23% as part of a tentative new contract - financial press

Notable movers by sector:

- Consumer Discretionary: Melco Crown Entertainment 6883.HK -3.8% (to delist in Hong Kong); Seven West Media SWM.AU -2.2% (CFO resigns)

- Financials: China Vanke 000002.CN +6.5%, Poly Real Estate 600048.CN +6.9%, China Merchants Property 000024.CN +7.2% (Beijing Dec home sales rise rapidly)

- Energy: Titan Energy TTE.AU +10.0% (provides drilling update); AWE Ltd AWE.AU +4.3% (receives approval for gas project)

- Technology: Toshiba Corp 6502.JP +1.2% (receives order for nuclear reactor in China)

Vanguard Sets Record Funds Inflow

Investors Gave Stock Pickers a Vote of No Confidence in 2014

Investors gave stock pickers a resounding vote of no confidence in 2014, pouring $216 billion—a record inflow for any mutual-fund firm—into Vanguard Group, the biggest provider of index-tracking products, according to preliminary figures from the mutual-fund group.

Those large inflows accentuate a trend away from fund managers and toward so-called passive investments that mimic indexes and other benchmarks for a fraction of the cost of the typical mutual fund.

Active investments have been hurt by years of subpar performance and high fees. Data through November, the latest available, show investors pulled $12.7 billion in 2014 from actively managed U.S. stock funds while plowing $244 billion into similar passively managed funds, according to fund-research firm Morningstar Inc.

Even hedge funds, which cater to wealthy investors, have lost some of their shine. Hedge funds lagged behind major indexes in 2014 by a wide margin but still continue to attract money.

The merits of passive investing are becoming conventional wisdom among retail investors. In addition, many financial advisers have incentives to recommend low-cost funds because they can charge their own fees without giving investors sticker shock.

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Vanguard, which has long sold index and exchange-traded funds that track baskets of securities, has been the prime beneficiary of the shift, said analysts and industry observers.

The Malvern, Pa., company’s latest inflows in the U.S. top the previous annual record, also set by Vanguard, in 2012. The last time a mutual-fund company that wasn’t Vanguard set an annual record for investor inflows was 2004, when Los Angeles-based American Funds saw $89.7 billion for the year, according to Morningstar.

Vanguard said it had an estimated $31 billion of inflows in December, its highest monthly total ever. The company surpassed $3 trillion in assets under management in September and is the country’s largest mutual-fund firm. The firm with the second-highest inflows through November was Dimensional Fund Advisors, with $26.2 billion, according to Morningstar.

F. William McNabb III, Vanguard’s chairman and chief executive, said in an interview that Vanguard doesn’t set growth goals and tries to avoid a “sales culture” in which profit trumps investor interest. He said the company spent less on advertising in 2014 than in a typical year and hasn’t made significant additions to its sales force.

But Vanguard in recent years has made aggressive moves to help it gain market share at the expense of Fidelity Investments and other rivals. Vanguard has emphasized customer service, expanded outside the U.S. and rolled out new products such as a method of portfolio management that relies on computerized algorithms.

Performance also is behind the shift. Through Dec. 29, about 74% of active stock funds in the U.S. were underperforming their category benchmarks, according to Morningstar. The S&P 500 gained about 15.4% during the period. One of Vanguard’s largest funds, the $198 billion Vanguard 500 Index fund, has matched the index’s gains.

Meanwhile, Vanguard is undercutting many rivals on fees. Investors pay 18 cents for every hundred dollars they invest with Vanguard, compared with $1.24 for the average actively managed mutual fund, Morningstar said. The company also is beating its passive rivals, which charge an average of 77 cents for every hundred dollars.

Vanguard’s corporate structure lets it keep fees low. It is owned by its funds, which in turn are owned by their shareholders. Vanguard operates “at-cost,” charging the funds only enough to cover its cost of operations.

Other fund companies, including BlackRock Inc. and Charles Schwab Corp. , have cut fees but haven’t attracted as many investors as Vanguard, said Daniel Wiener, who publishes an independent newsletter for Vanguard investors.

John Aravosis, a self-employed writer in Washington, D.C., said he moved his individual retirement account into Vanguard in mid-2014 after he realized he was paying nearly half his yearly savings allotment in fees to a longtime broker. He said the performance of his IRA also suffered, causing him to lose out on thousands of dollars in stock-market gains, and that he felt “utterly cheated and violated” by how much he had paid in the past.

Mr. Aravosis, 51 years old, said he has since persuaded his mother and father to move their retirement savings to Vanguard and is helping his brother move his money.

There are dangers for mutual-fund companies when their funds grow too big, said analysts and industry observers. When funds swell in assets, it becomes harder for managers to trade effectively. That can affect returns for existing shareholders.

Mr. McNabb said Vanguard is aggressive about closing funds to new investors when managers believe performance is at risk.

Also, Vanguard has been riding a wave of rising markets. A widespread downturn could steer investors back to stock pickers if they are able to outperform benchmarks during that time, analysts said.

Vanguard’s strategy has pushed large institutional and individual investors to move their money.

The pension fund for Montgomery County, Pa., in 2013 made the unusual decision to move the bulk of its $470 million in assets into Vanguard’s index funds after fund officials spoke with Vanguard’s former chief executive, John “Jack” Bogle. Since then, the fund has seen a return of 12.7% and saved about $1.3 million on fees, said Josh Shapiro, chairman of the Montgomery County Board of Commissioners who serves as chairman of the pension fund’s board.

Mr. Shapiro said he frequently fields calls from other pension funds interested in moving to index funds and is trying to persuade the state’s other two pension funds to move more toward indexing.

While it isn’t possible to directly track investor money from one company to the next, Vanguard also appeared to get a boost from the roughly $80 billion that has fled Pacific Investment Management Co.’s flagship Total Return Bond fund since the departure of star manager Bill Gross at the end of September.

In October, the first full month after Mr. Gross left, Vanguard saw inflows of $10.3 billion into its Vanguard Total Bond Market Index fund, the fund’s highest monthly inflow ever.

Vanguard also may have gotten a boost last year from Warren Buffett , who recommended Vanguard’s S&P 500 index fund in his letter to shareholders of Berkshire Hathaway Inc.

Michael Klein, 34, an account executive at a marketing and sales firm in Corona, Calif., said he was having little success picking stocks for his retirement portfolio when he learned about Vanguard. He said he is moving his portfolio to the firm’s index funds. “Active managers can’t reliably beat the market consistently over time,” he said.