Singapore to Allow Domestic-Foreign Law Firm Mergers

Jessica Seah, The Asian Lawyer (15/02/12):

Singapore's Parliament has approved legislative changes that would clear the way for mergers between international and domestic firms.

The island nation's Ministry of Law had announced Tuesday that it had proposed amendments to Singapore's Legal Profession Act permitting foreign law firms to own stakes of up to 33 percent in local law firms. Previously, only individual foreign lawyers, not firms, were permitted to hold such stakes. The amendments were approved Wednesday and will go into effect in the second quarter of 2012.

The government's move reflects changing attitudes in Singapore towards the international legal profession. Local law firms had previously sought protection against competition from international firms and, for years, the latter were restricted to practicing Singapore law through restrictive joint law ventures. In 2008, the government allowed six foreign firms to practice Singapore law as Qualifying Foreign Law Practices (QFLPs), but these likewise faced restrictions.

But leading Singaporean firm Allen & Gledhill confirmed last November that it was in merger discussions with British Magic Circle firm Allen & Overy. At the time, several prominent Singaporean lawyers expressed support for the possible tie-up and said more such deals were likely on the way.

The law ministry said in an email it had reacted to the wishes of local firms. "The international legal services market is now an intensely competitive one," the ministry said. "We have taken the view that local firms which wish to embrace this new environment ought not to be unduly constrained in their business model and strategy. The new flexibility will allow them to compete in this global legal services market through closer collaboration and tie-ups with foreign partners."

As part of the changes, Singapore will also ease its rules to make it easier for senior foreign lawyers, such as Queen's Counsels and Senior Counsels from Australia and Hong Kong, acting on high-end commercial and financial disputes to appear before Singapore courts. Matters related to areas like criminal and family law will still be largely represented by local litigators.


Credit Suisse: Reflation Rally?

Pricing in a recession, but not a financial crisis. Figure 1 highlights that Asia Pacific ex Japan price-to-book has now dropped to 1.52x, close to the 2001 recession level of 1.4x. We believe Asia is already pricing in a recession as ROE in 2001 was around 8–9% versus 14% currently (Figure 15). We estimate that ROE could fall to 12% in the event of a mild recession such as in 2001. Figure 16 highlights that gearing has halved from a high of 47% in 1998 to 23% in 2011E. Our target for the MXASJ (MSCI Asia ex- Japan) for year-end 2012 is 527 (15% potential upside).

Structural ROE stories. The well-known structural growth stories are Astra International, BCA, Belle, Genting, HDFC, Hengan, ITC, Samsung Engineering, Sands China, TCS and Tencent. But all these stocks are trading at substantial premiums to the region. So, instead we suggest stocks with a rising ROE trend such as Keppel, COLI, Cheung Kong and TSMC and stocks gaining market share such as Kia and Hyundai Motors.

Trough valuations stories. We define trough valuation stories as those where the absolute price-to-book is at 2008–09 lows and trade at a discount on our price-to-book versus ROE valuation model. Among the Top 100 stocks by market capitalisation, trough valuation stories include COLI, China Mobile, Bank of China, CCB, ICBC, CNOOC, Cheung Kong, Sun Hung Kai, UOB, BHP, Rio Tinto, POSCO, Hyundai Heavy, LG Electronics and LG Display.

Global equity strategy

There are now signs of modest growth re-acceleration in the US. Yet, leading indicators are consistent with a recession in Europe. We believe that the recovery will be sub-trend, as there is still considerable excess leverage in developed economies(though good balance sheets in the emerging economies, 50% of global GDP, and the corporate sector help). We think there will be renewed monetary easing, as policymakers try to limit the economic impact of the required de-leveraging.

We are benchmark equities: global earnings momentum is poor and there is still considerable negative tail risk in Europe. We are also worried about the planned tightening of fiscal policy in Europe and the US in 2012. However, equities are abnormally cheap relative to bonds and equities are a hedge against inflation risk (with more QE to come).

Our preferred region is the UK, although on a structural basis (i.e., longer term) we are also overweight Non-Japan Asia. We are underweight the US on valuation concerns and Continental Europe on weaker economic and earnings momentum.

Key investment themes: GEM consumer (luxury goods, premium cars, consumer staples), index-linked bond proxies (regulated utilities), defensive cyclicals (software), and quality growth. We are underweight cyclicals.

Source: Asia Equity Strategy: 2012 Outlook, 2 December 2011


BRICS Countries Crystalize Spirit of Practical Cooperation at Delhi Summit

By Xinhua writers Liu Chen, Mao Xiaoxiao, Wu Qiang

As the Fourth BRICS leaders meeting drew its curtain Thursday in the Indian national capital here, the leaders of the five BRICS countries issued the Delhi Declaration.

Experts think that at the meeting, the BRICS countries -- Brazil, Russia, India, China and South Africa have achieved positive results in the fields of pushing forward global governance, promoting world stability and strengthening cooperation among BRICS countries.

The Assistant Foreign Minister of China Ma Zhaoxu said after the meeting that the event has met with "full success".

Especially noteworthy is the fact that BRICS countries have achieved during the one-day meeting a substantial agreement on strengthening financial cooperation among them, which showed that BRICS, as a youthful international cooperative mechanism, is moving in a more practical and more mature direction in its evolvement and growth. CONCRETIZATION OF FINANCIAL COOPERATION

Chinese President Hu Jintao said at the BRICS Leaders meeting that practical cooperation is an important pillar of BRICS cooperation. This has been proved true at the just-ended meeting as the financial cooperation results have become the most prominent for all the results achieved by the member countries in Delhi this time.

With witnessing by leaders of the BRICS countries, the leaders of state banks of BRICS countries signed a master agreement on extending credit facilities in the local currencies of the five countries and a BRICS multilateral letter of credit confirmation facility agreement.

The two agreements adopt the method of promoting bilateral cooperation in a multilateral framework to promote activities of trade, service and investment with the own currencies of the five member countries within their frontiers, which would be helpful for maintaining sustainable development of these countries.

The President of China State Development Bank Chen Yuan who signed the agreements as representative of China, said that the two agreements are one of the important results of the summit, which has deep and far significant meaning for further deepening financial cooperation among BRICS countries.

According to the agreements, the five BRICS countries can use their own currencies in their bilateral trade, investment and financing activities,which could enable them to reduce dependence on the U.S. dollar,avoid risks in international currency ratings and cut trading costs.

It could also promote the growth of trade and investment between member countries, and help push forward internationalization of the currencies of BRICS countries.

In the Delhi Declaration, all the member countries expressed willingness to study the feasibility of setting up a BRICS development bank, which is aimed at collecting resources and providing financial support to infrastructure and sustainable development projects of BRICS countries as well as other emerging and developing countries.

Analysts say that the cooperative mechanism of BRICS countries is beginning to transform from the model of establishing big framework and general direction to methods of implementing substantial cooperative projects in concrete fields.

This reflects the characteristic of stability and practicality of the mechanism. Moreover, the deepening of financial cooperation among BRICS countries is also helpful to the construction of a more balanced and comprehensive system of global trade, currencies and pricing of commodities, thus exerting deep influence on the global economy. COMMEN VOICE ON GLOBAL GOVERNANCE

At the same time, BRICS countries delivered a bigger common voice at the meeting on upgrading the role of developing countries in global governance, while having had coordination and communication on major international issues of common concern and reaching consensus on several such issues.

According to the Delhi Declaration, BRICS countries called for implementation of the quota reform plan of the International Monetary Fund (IMF), in order to reflect the evolving economic situation of the world, the representation and discourse right of emerging markets and developing countries.

The declaration expressed concern over the slow pace of implementation of IMF's plan on organization quota reform and governance reform, while vowing to work with the greater international community to guarantee timely mobilization of sufficient resources by the world monetary organ help improve its governance and help safeguard its legitimacy as global monetary authority.

BRICS countries also welcomed nominating by developing countries of candidates for future World Bank governorship, calling for transparency and selectiveness in the process of choosing leaders of the IMF and the World Bank. BRICS countries also clarified their common or converging stands on the situation in the Middle East, Syria and Afghanistan.

Analysts say that since its birth, BRICS countries have drawn worldwide attention due to its new international cooperation mechanism. Now the influence of BRICS as a group is increasing day by day, which could become a stimulus in the evolution and innovation of the international order. BRIGHTER COOPERATION PERSPECTIVE

Looking at the perspective of the growth of BRICS, analysts pointed out that due to different national situation of the five BRICS countries, it is inevitable for them to meet challenges in the process of deepening cooperation.

However, from a general perspective, the BRICS have a brighter perspective and wider space in future cooperation along with the general increase of their economic strength.

Li Zhongmin, a scholar specialized in BRICS cooperation at the Institute of China Social Science, said that while the BRICS countries still stay at the preliminary stage of cooperation, it is essential for their future development of the cooperation to finance each other's infrastructure projects, internationalize their currencies, provide trade credit to each other, ease visa norms, encourage investment in each other's country and lower the trade barriers for each other.

The Delhi Declaration said the BRICS countries will continue building the mechanism of regular ministerial conferences on finance, budget and agriculture, push forward exchanges in science and technology, sustainable development and urbanization.

Among the plans of action included in the Delhi Declaration are intention to carry out multilateral energy cooperation, scholarly evaluation of long-term strategy of cooperation, as well as dialogue on youth policy and population policy.

Chinese President Hu Jintao told the media of BRICS countries before attending the Delhi summit that BRICS countries have solid basis, great potentials and bright perspectives of cooperation.

He said that as long as all member countries follow the principle of gradual opening, unity and mutual assistance, and make common efforts in this direction, BRICS countries will surely achieve new progresses in carrying out substantial cooperation in all fields and bringing benefits to the people of all countries.

Source: CRIEnglish.com


CFI Investment Outlook 2012

This year, CFI sees stronger growth in both GDP and company profits in the BRIC economies and the other emerging market economies than in the US, the Eurozone and Japan. The recession in the Eurozone will clearly put a damper on the growth in Emerging markets, but there are just too many positive dynamic factors driving these economies forward to stop the traction.

UBS concurs with this scenario in their Global Outlook 2012.

Emerging Markets Still Generating Stronger Growth

We expect slower growth in the US and a recession in the Eurozone to take their toll on emerging markets. Nevertheless, growth should still remain resilient. Exposure to emerging market sovereign bonds offers an attractive opportunity to diversify out of US and Eurozone government bonds. For equity investors, emerging economies’ superior growth prospects create a positive long-term outlook. Volatility in European and US equity markets will affect emerging market equities, and investors need to assess their risk tolerance carefully. The growing demand in emerging markets for basic, branded consumer goods presents an opportunity to limit volatility when seeking exposure to emerging market growth.

Prefer Asia over Eastern Europe

Since we forecast solid economic growth for emerging economies next year, company earnings are also likely to grow at a high single digit rate. We believe that current valuations of emerging markets indicate that investors should be rewarded over 12–18 months.

In short, emerging markets will be an exciting place to invest this year. CFI will throw light at identifying the best regions, countries, sectors and companies.


WEF India Summit: Finally, Something Worth Watching

[caption id="attachment_564" align="alignright" width="300" caption="Chairman and managing director of Reliance Industries Mukesh Ambani attends the opening plenary session of the World Economic Forum (WEF) India Economic Summit in Mumbai."][/caption]

There are downsides to arranging a panel at a conference like the World Economic Forum’s India Economic Summit with broadcast media as partners. This afternoon, a session on corruption started 40 minutes late as we waited for Kiran Bedi, anti-corruption activist and core adviser to anti-graft agitator Anna Hazare, to arrive.

In other circumstances, the event might just have gone on without her. But this was a BBC World Debate, being filmed for TV and radio and host Nik Gowing made some vague reference as to how the broadcaster was obliged to wait for the firebrand former cop (my words, not his) to arrive so she could represent that side of the debate.

Ms. Bedi was late to Mumbai because of an emergency landing of her plane in Nagpur from Kolkata, prompting titters since Ms. Bedi and her air travel habits have been in the news a lot lately. Perhaps, others said, she was flying Kingfisher.

At any rate, when she did show, she proceeded to harangue the audience with her usual shout. But what made the session worth listening to nonetheless was the frankness of the debate about the level of corruption in India and, more importantly, the insights it gave into the battle lines being drawn at a key time in the anti-corruption movement in India.

Ms. Bedi and Team Anna, of course, held the nation’s attention this summer as Mr. Hazare went on a hunger strike to push his version of an anticorruption ombudsman bill on Parliament. The government was caught flat-footed, then made some dreadful tactical decisions, then finally got Parliament to agree to some principles that would be included in a future bill and Mr. Hazare started eating. Since then, the Anna movement has been hit by its own scandals, raising serious questions about whether it can muster the same fanaticism for its cause as it did in August.

The government, in the meantime, has gotten its act together – sort of. It has promised to bring an ombudsman’s bill in the winter session of Parliament that begins later this month. The big issue is to see how far the government will go in enacting Mr. Hazare’s demands (it will concede as little as it thinks it can) and whether Mr. Hazare accepts what the government proposes (because he’d rather declare victory than test his continuing power to rally his troops, in case he can’t.)

Ashwani Kumar, science minister, was Ms. Bedi’s chief antagonist representing the government. It seems clear from his arguments, which were delivered as forcefully as Ms. Bedi’s but with a bit more lawyerly aplomb, that the government’s argument in the next few weeks will be this: We are committed to passing a strong anticorruption bill; we represent the people of this country who elected us to Parliament and can turf us out every five years if they want; we are therefore the institution to channel the people’s wisdom; and the law that will result will represent the will of the people.

What it says to Team Anna is, effectively, this: You cannot go against the will of the people; if you constantly harangue Parliament, then you lead us on a slippery slope away from democracy and toward anarchy; and the ombudsman bill is just one of a wide range of measures we are taking the combat corruption. At one point he described the anticorruption movement on the streets as the 1%, a none-too-subtle reference to the 1% versus 99% equation of the Occupy Wall Street movement. In short, we are the people, you are the mob.

To which Ms. Bedi said, in effect: Blah, blah, blah. “This movement has deepened democracy for the first time in this country,” she said, adding that she had heard enough statements from the government and now only wanted to see action.

One thing to watch will be whether the government takes up Congress party honcho Rahul Gandhi’s suggestion to make the anticorruption office a constitutional body rather than a statutory body. That could make it more robust in the context of Indian institutions. But Ms. Bedi smelled a ploy: Making a constitutional body requires a two-thirds majority in Parliament, which Congress and its coalition partners don’t have. So, she said, the government can bring the motion, fail to bring on board the opposition, then blame the opposition for its failure.

That, she said, would mean “we will go back to agitation after December.” She added: “Please bring in what you can,” by which she meant pass a normal law with a simple majority and worry about making it constitutional later.

“The people of India will decide,” Mr. Kumar said, again adopting for Parliament the “We the People” mantle it appeared to lose this summer. “Parliament will give its verdict in the winter session of Parliament.”

By Paul Beckett

– Paul Beckett is The Wall Street Journal’s South Asia bureau chief. Follow him on Twitter on @paulwsj.


Bank of America Merrill Lynch on Brazil: Detailing the Labor Market Slowdown

Labor markets are finally cooling down in Brazil, despite the better than expected unemployment rate for October released by the IBGE last week. We analyze different aspects of this deceleration, such as disparities among sectors and regions. We also explore the labor markets links with the inflation outlook, especially in the services sector.

Generalized deceleration in labor markets

After creating more than 2 million new jobs in 2010, formal job creation has been decelerating in Brazil since January. The job creation pace has slowed significantly in almost every sector since the beginning of the year, with only sales and services growth remaining above 10%. Conversely, the layoff pace has been relatively stable for most of the categories throughout the year.

The job creation resilience in the sales and services sectors can be explained by the still-strong pace of domestic demand in 2011. As the effects of the recently introduced monetary tightening and sharp deterioration of the global backdrop hit domestic activity, demand faces important headwinds as well. This helps to explain the deterioration in these sectors' performances, especially since July.

Moreover, job creation in the industrial sector reflects its weak performance so far in the year. The latest industrial production data (for September) showed a 1.6% yoy decline and a 0.8% qoqsa decline in 3Q, the second consecutive contraction. Although the recent depreciation of the BRL may help stimulate the sector until year-end, market participants expect the industry to grow only 1.3% in 2011, according to the Brazilian Central Bank's latest survey of market expectations.

As a result, net formal job creation is 20% lower than in 2010 year-to-date. All sectors have positive net results so far, but the signs that the labor markets are losing stem are clear, in our view. As we highlighted a few months ago (see Slow deceleration in labor market), labor markets are a lagging indicator of economic activity. So, we expect further slowdown in formal job creation toward year-end, reflecting the ongoing deceleration in economic growth.

Source: GEMs Daily, Emerging Markets, 30 November 2011


2012 CFI Top 100 Emerging Markets Companies' Nominations

The 2011 CFI Top 100 Emerging Market Companies were compiled by using the nominations and the votes from CFI’s subscriber base and in addition by the judges on the editing board. The criteria included financial performance, such as sales and profit growth, but not the companies’ relative size. In addition, the rankings were compiled by also using qualitative criteria such as the companies’ public image and their excellence in performance on issues such as integrity, quality of products and services, innovation, and also their green and clean-tech profile. The selected award winners are only from the emerging markets continents as shown above, i.e. Latin America, the Middle East and Asia and as such the list excludes companies from other emerging market countries, e.g. Russia.

Table: 2011 CFI Top 100 Emerging Markets Companies' Nominations

Rank
Company Name
Country
Sector

1
HSBC
China
Banking

2
Petrobras
Brazil
Energy

3
Tata Motors
India
Auto

4
Samsung Electronics
South Korea
Technology

5
Petronas
Malaysia
Oil

6
Telmex
Mexico
Tehnology

7
Bank of China
China
Banking

8
Hon Hai Precision Industry
Taiwan
Manufucturing

9
Embraer
Brazil
Transport

10
Vale
Brazil
Mining

11
Dr. Reddy's Lab
India
Health Care

12
Banco do Brazil
Brazil
Banking

13
Barvaria
Colombia
Beverages

14
Etihad Etisalat
Saudi Arabia
Telecom

15
Cemex
Mexico
Cement

16
Itausa-Investimentos Itau
Brazil
Banking

17
China Telecommunications
China
Telecom

18
Siam Cement
Thailand
Materials

19
Grupo Clarin
Argentina
Media

20
Dong Feng Motor
China
Auto

21
Telefonica Brasil
Brazil
Telecom

22
Jardine Matheson
China
Holding

23
LG electronics
South Korea
Technology

24
Lenovo Group
China
Holding

25
Codelco
Chile
Mining

26
Wilmar International
Singapore
Holding

27
Hyundai Motor
South Korea
Auto

28
PDVSA
Venezuela
Oil

29
Electrobras
Brazil
Energy

30
China Life Insurance
China
Financials

31
China Mobile Limited
China
Telecom

32
Titan Industries Ltd.
India
Consumer Durables & Apparel

33
PT Indocement Tunggal
Indonesia
Materials Construction

34
Elektro
Brazil
Technology

35
Want Want
China
Cons Stap Food Products

36
Femsa
Brazil
Beverags

37
China Railway Construction
China
Railways

38
America Movil
Mexico
Technology

39
Movistar
Venezuela
Technology

40
Walmart
Brazil
Retail

41
ICBC Financials
China
Financials

42
Duratex
Brazil
Manufacture

43
Infosys Limited
India
Technology

44
Banco Bradesco
Brazil
Financials

45
Taiwan Semiconductor
Taiwan
Technology

46
JBS
Brazil
Food

47
China Construction Bank
China
Financials

48
BIM
Turkey
Consumer Food & Staples Retailing

49
Quanta Computer
Taiwan
Technology

50
AmBev
Brazil
Cons Stap Beverages

51
CNOOC
China
Energy Oil Production

52
Copec
Chile
Energy

53
Ctrip.com
China
Consumer

54
Reliance Industries
India
Energy

55
Telemar/Oi
Brazil
Technology

56
China Resources
China
Holding

57
CCR
Brazil
Industrials Transportation

58
BR Foods
Brazil
Food

59
Techint
Argentina
Holding

60
CBD
Brazil
Commerce

61
YPF
Argentina
Energy

62
Braskem
Brasil
Chemicals

63
Telefonica
Colombia
Technology

64
State Bank of India
India
Banking

65
China Unicom
China
Telecom

66
Sun Pharmaceutical
India
Health Care Pharmaceuticals

67
SABIC
Saudi Arabia
Holding

68
Flextronics International
Singapore
Holding

69
CPFL ENERGIA
Brazil
Utilities

70
Advanced Info Service
Thailand
Telecom

71
Vivo
Brazil
Technology

72
Grupo EPM
Colombia
Holding

73
Campal Electronics
Taiwan
Technology

74
Gerdau
Brazil
Acero

75
Tencent Holdings Ltd.
China
IT

76
Grupo Ultra
Brazil
Energy

77
Enersis
Chile
Energy

78
Haitian International Hold.
China
Industrials

79
Odebrecht
Brazil
Holding

80
Petrol Ipiranga
Brazil
Energy

81
Thai Oil Public Company
Thailand
Energy

82
HDFC Bank
India
Financials Banks

83
Aneka Tambang
Indonesia
Materials

84
Pemex
Mexico
Energy

85
Bharat Petroleum
India
Energy

86
Banrisul
Brazil
Financials

87
Buenaventura S.A.
Peru
Materials

88
Cencosud
Chile
Commerce

89
Alfa
Mexico
Holding

90
CPC
Taiwan
Holding

91
Agile Property
China
Consumer Staples

92
KDC Holding
Turkey
Holding

93
Far Eastone
Taiwan
Telecom

94
Ecopetrol
Colombia
Energy

95
Yue Yuen Industrial
China
Cons Disc

96
Hindustan Unilever
India
Cons Stap Household

97
Prakarsa
Indonesia
Materials

98
CFE
Mexico
Energy

99
Ref. LaPampilla
Peru
Energy

100
CANTV
Venezuela
Technology

Source: CFI, Fortune, Other


BRIC Economies

The BRIC countries label refers to a select group of four large, developing countries (Brazil, Russia, India and China). The four BRIC countries are distinguished from a host of other promising emerging markets by their demographic and economic potential to rank among the world's largest and most influential economies in the 21st century (and by having a reasonable chance of realizing that potential). Together, the four original BRIC countries comprise more than 2.8 billion people or 40 percent of the world's population, cover more than a quarter of the world's land area over three continents, and account for more than 25 percent of global GDP.

BRIC Countries' Path to 2050

A country’s population and demographics, among other factors, directly affect the potential size of its economy and its capacity to function as an engine of global economic growth and development. As early as 2003, Goldman Sachs forecasted that China and India would become the first and third largest economies by 2050, with Brazil and Russia capturing the fifth and sixth spots. The chart below shows a more recent forecast of the world ranking of the biggest economies in the year 2050.

One BRIC, Two BRICs

The BRIC designation was first coined by Jim O’Neil of Goldman Sachs in a 2001 paper titled “The World Needs Better Economic BRICs.”  The BRIC countries have since gone on to meet and seek out opportunities for cooperation in trade, investment, infrastructure development and other arenas. China invited South Africa to join the group of BRIC nations in December, 2010 and hosted the third annual BRICs Summit in April, 2011.

Key Indicators and Statistics

Economic Growth and Development of the BRICs

From 2000 to 2008, the BRIC countries’ combined share of total world economic output rose from 16 to 22 percent. Together, the BRIC countries accounted for 30 percent of the increase in global output during the period.

To date, the scale of China’s economy and pace of its development has out-distanced those of its BRIC peers. China alone contributed more than half of the BRIC countries’ share and greater than 15 percent of the growth in world economic output from 2000 to 2008. The chart above on key development indicators for the BRIC countries shows the sharp contrast in GDP, merchandise exports and the UNDP’s Human Development Index (HDI) between China and the other BRIC countries.

Growing BRIC Middle Class

The rapid economic growth and demographics of China and India are expected to give rise to a large middle class whose consumption would help drive the BRICs’ economic development and expansion of the global economy.  The charts below depict how the increase in the middle class population of the BRIC countries is forecasted to more than double that of the developed G7 economies.

Science and Technology in the BRICs

The BRIC countries of China, India and Brazil account for much of the dramatic increase in science research investments and scientific publications. Since 2002, global spending on science R&D has increased by 45 percent to more than $1,000 billion (one trillion) U.S. dollars. From 2002 to 2007, China, India and Brazil more than doubled their spending on science research, raising their collective share of global R&D spending from 17 to 24 percent.

China's development planning has targeted a number of scientific fields and related industries, including clean energy, green transportation and rare earths, among others. Since 1999, China's spending on science R&D has grown 20 percent annually to more than $100 billion. By 2020, China plans to invest 2.5 percent of GDP in science research.

Next 11 Emerging Markets

Many analysts and commentators have suggested expanding the original group of four BRIC nations to include other emerging markets. Goldman Sachs has resisted conferring BRIC status on other developing countries on the grounds that their demographics and economic characteristics do not hold the potential for them to rival the economic size or influence of the BRIC countries or today’s leading economies (e.g., U.S. and Japan).

In a nod to the interest in other emerging markets, Goldman Sachs identified another group of economically dynamic and promising developing countries creatively labeled the “Next 11” in its 2005 Economics Paper No. 134 “How Solid are the BRICs?” The Next 11 consists of a broader group of emerging markets with the potential to play significant roles in the global economy, including: Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam.

Mexico and South Korea

Of the Next 11, two countries, Mexico and “perhaps” South Korea, were considered to “have the capacity to become as important globally as the BRICs.” Both OECD countries were excluded from the BRIC grouping on the basis that they were already too much farther along in their economic development than the BRICs and were not likely to attain the economic stature or global influence of the original four BRIC countries.

Indonesia

Indonesia has been one of the stronger performers of the Next 11 group of developing countries. With greater than 230 million people, Indonesia’s population is more than 4 times larger than South Africa’s population and more than 60 percent bigger than Russia’s. At $540.3 billion in 2009, Indonesia’s GDP was nearly double that of South Africa, though it was still less than half the size of Russia’s economy.

South Africa

Despite China’s invitation, Goldman Sachs’ O’Neil has long contended that South Africa’s population of 50 million people, a fraction of Russia’s 143 million and China’s 1.34 billion people, is too small for BRIC status. At roughly $285 billion in 2009, South Africa’s economy was less than one quarter that of Russia’s, the smallest of the original BRIC country economies at about $1,232 billion.


Where To Invest In 2012

As some of the uncertainties surrounding the economy lift over the course of the year, attention is bound to turn back to the fundamentals of the private sector, says Katherine Nixon, chief investment officer for the Northeast region at Northern Trust.

And on that front, things don't look so bad. Corporate profits are hanging tough. Yes, growth has been slowing noticeably in recent months, but earnings for firms in the S&P 500 are still expected to climb an above-average 9% next year, according to S&P Capital IQ.

As for whether stocks represent a good value now, the picture is decidedly mixed. A conservative measure of price/ earnings ratios -- which relies on 10 years of averaged earnings -- would suggest equities are too expensive to load up on. But the S&P's P/E, based on projected profits, points to stocks being a decent buy. "Anyone willing to take on volatility and invest in equities today with a three-year time frame should see large positive returns," said Chuck de Lardemelle, a co-manager of IVA Worldwide Fund.

Meanwhile, interest rates are near all-time lows. That's good news for stocks, but fixed-income investors will have a tough time making money. Tom Atteberry, manager of FPA New Income Fund, notes 10-year Treasuries were yielding less than 2% in the fall. At that paltry level, a fraction of a percentage point increase in rates could wipe out what little your bonds are yielding -- and then some. Yet economists think 10-year rates will climb modestly. So it will be critical to diversify your bond portfolio into other areas, in particular, corporate debt.

The action plan -- In a market likely to produce only modest gains, diversify your fixed-income bets and focus on relatively safe equities.

Stocks: Ride the big dependables. Early on in a recovery, small-company stocks traditionally give you the biggest pop. At this stage, it's the big boys with balance-sheet might that are likely to outperform, as was the case in 2011. Not only do large firms provide greater exposure to foreign markets -- including emerging economies that are growing much faster than the U.S. -- their bigger dividends can account for a sizable portion of your gains in a low-return year, says Northern Trust's Nixon. Funds that pay particularly close attention to high-quality blue chips are Jensen Quality Growth and T. Rowe Price Blue Chip Growth. Both are on the MONEY 70, our recommended list of mutual funds and exchange-traded funds.

Investing: Throw out conventional wisdom

Seek out revenue growers. Brad Sorensen, director of market and sector analysis at the Schwab Center for Financial Research, expects businesses to upgrade technology to boost productivity. It's already happening. In the third quarter, business spending jumped 16.3%. Another area likely to enjoy better-than-average revenue growth is the industrial sector, where firms are seeing strong demand from emerging markets building out their infrastructure. For an added dollop of tech, go with the Vanguard Information Technology ETF, which bulks up on tech giants like Apple and IBM. For industrials, check out iShares S&P Global Industrials.

Bonds: Bet on high yield. As recession fears rose in 2011, economically sensitive high-yield bonds sold off bigtime. Result: The gap in yields between "junk" bonds and short-term Treasuries jumped to more than nine percentage points, up from six points in early 2011. "That spread represents a pretty good value," says Robert Ostrowski, in charge of taxable fixed-income strategy at Federated. LPL Financial market strategist Anthony Valeri says junk is trading as if defaults will spike to 9%, up from 2%. "We just don't see a 9% default rate as remotely likely," he says. Given junk's tendency to bounce around, Valeri recommends keeping a modest stake of 5% to 10% in these bonds. You can accomplish that through a diversified junk fund like Fidelity High Income.

Don't get stuck in the middle. On the other end of the fixed-income spectrum are Treasuries, which won't default but are at risk if rates rise. Treasuries maturing in five to seven years are paying barely more than cash, so it makes little sense to buy them. Ostrowski recommends a "barbell" strategy, with 80% of your Treasuries in short-term securities and 20% in long-term bonds. He says the Fed's campaign to buy long-term Treasuries, dubbed Operation Twist, should make long Treasuries less of a risk. And this strategy could yield around 2.5%, nearly a point more than what seven-year Treasuries are paying.


CFI has identified the best emerging market cities to do business in this year. We have chosen not to rank the cities as their relative competitiveness really depends on what the company in question is actually seeking as their critical success factors. Company specific issues such as the industry sector, labor requirements and infrastructure needs will also determine the attractiveness of any city and thus makes rankings less meaningful.

CFI works with agencies for foreign direct investment and inwards investment into countries and cities in emerging markets.

Table: CFI Top 25 Cities In Emerging Markets To Do Business
(In Alphabetical Order)

Bangalore

Bangkok

Beijing

Bogota

Doha

Dubai

Hong Kong

Istanbul

Jakarta

Kuala Lumpur

Lagos

Lima

Manila

Mexico City

Moscow

Mumbai

Panama City

Rio de Janiero

Riyadh

Salvador do Brasil

Santiago de Chile

Sao Paolo

Seoul

Shanghai

Singapore

Source: CFI, FDI reports, Various


CFI Political Diary for Emerging Markets for 2012

Date
Country
Event

January - March
Egypt
Parliamentary Elections

January 14
Taiwan
Parliamentary and Presidential Elections

March 4
Russia
Parliamentary Elections

March 29
Iran
Presidential Elections

April
South Korea
Parliamentary Elections

May
Algeria
Presidential Elections

June
Egypt
Presidential Elections

June 17-18
Mexico
G20 Summit in Los Cabos

July 1
Mexico
Parliamentary and Presidential Elections

July 1
India
Presidential Elections

September
Hong Kong
Parliamentary Elections

August 28
Ukraine
Parliamentary Elections

October
China
18th National Congress of Chinese Communist Party

December
Kazakhstan
Presidential Elections

December
South Korea
Presidential Elections

Source: CFI, UBS, other


Bank of America Merrill Lynch on Egypt: First Hurdle Passed, More On the Way

The successful holding of elections should help defuse tensions in the short-term, but the transition process remains long, complex and fraught with challenges, particularly revolving around the new Constitution and the SCAF's powers. These points were reinforced by the recent conference call we have held. While political clarity seems unlikely at least until mid-2Q12, this uncertainty weighs down on the economy and adds to the pressure on EGP and rates, in our view.

Elections should offer breathing space

Elections should help offer an exit out of the deadlock seen last week when protest resumed in Tahrir Square. The high election turnout, a first in Egypt, is likely a reflection of the greater confidence people have in the electoral process. While radical factions in Tahrir Square may have boycotted elections, most activists seem to believe in a dual track (participation in the electoral process, street protests to pressure SCAF).

Four main alliances squaring off in elections

Four main alliances (two Islamist and two secular) and a few other smaller ones are squaring off in the elections. The four main alliances are: 1) the Democratic Alliance (led mainly by the Muslim Brotherhood's Freedom and Justice Party, other Salafist parties or the Wafd party breaking off the ranks to contest separately); 2) the Islamist Alliance (led by Salafist group Al Nour Party and al-Gama'a al-Islamiyya's Building and Development Party); 3) the Egypt Bloc (led by the Free Egyptians Party founded by billionaire Naguib Sawiris. While the alliance was originally formed as a coalition of 14 liberal and leftist political parties, it has fragmented and there are but two other parties included: the Social Democratic Party, and al-Tagammu); and, 4) the Competing the Revolution Alliance (largely made up of former members of the Egypt Bloc and comprising the Revolutionary Youth Coalition among a group of other youth, socialist, liberal or moderate Islamist parties). Last, the fragmentation of the main alliances cited above led to several unaffiliated or non-aligned parties, the most significant of which include the Wafd party and parties of ex-NDP figures.

Islamists reportedly take an early lead

While preliminary results are to be announced today, the local press reports that the Muslim Brotherhood (MB) are likely to win at least 40% of the parliamentary seats in the first phase of elections. The main surprise is the rise of the Salafist movement, which is reportedly in second place or disputing it to the secular Egypt Bloc in several districts. None of the NDP remnant parties seem to have done particularly well so far in spite of the late approval of the Treason Law. It is too early to say whether the MB would engage in an alliance with Salafist or secular parties, though pragmatism would likely command an alliance with the latter, if needed.

Source: GEMs Daily - London Edition, 1 December 2011


J.P.Morgan on Egypt: Parliamentary Elections Passed First Test

[caption id="attachment_507" align="alignright" width="300" caption="Elections in Egypt"][/caption]

High turnout for parliamentary elections offers an orderly exit from political turmoil

Power sharing between the Muslim Brotherhood and the Military Council to raise downside risks

Challenging backdrop to finance twin deficits and dwindling FX reserves could force a devaluation

Turnout at the first round of parliamentary elections, which kicked off on November 28, has been stronger than expected despite the country's recent (and worst) wave of violence in Tahrir Square. The elections have been widely seen as relatively fair with violations broadly limited to non-stamped poll paper, delayed opening times, and campaigning during the vote. These elections have ;argely offered an orderly exit from the recent political turmoil, helping to ease tensions and risks of heightened violence. In particular, the Muslim Brotherhood and the Supreme Military Council insisted on keeping the parliamentary elections on schedule despite growing calls for delays. While the first round of the lower chamber elections in 9 out of 27 governorates has been relatively smooth, downside risks remain relatively high in 2012 due to an expected difficult cohabitation between the Muslim Brotherhood and the Military Council as well as a faltering economy and challenges to finance the budget deficit.

Muslim Brotherhood's victory to face achallenging sharing of power

The preliminary results of the parliamentary elections from the 9 out of 27 governorates where the vote was held on November 28-29 suggest the Freedom and Justice Party (Muslim Brotherhood) and the Al-Nour party (Salafists) are taking the lead in most governorates. The widely expected strong performance of the Muslim Brotherhood is also in line with the regional trend after Islamists won 41% of the Constituent Council seats in Tunisia and 27% of the parliament in Morocco. Early indications suggest the FJP could dominate the lower chamber in Egypt, controlling 40%-50% of the seats. However, the stronger-than-expected showing of the Al-Nour party could give the Islamists a two-thirds majority in the lower chamber. The emergence of the Muslim Brotherhood as the country's new political force and recent calls for the new government to be representative of the polls could result in rising tensions in 2012 since the Military Council is set to remain in power until at least June 2012, when the presidential elections are expected to be held. In the meantime, the formation of a government could take an extended period of time since final election results will be ublished by January 13. Importantly, articles 56 and 61 of the provisional constitution provide the Supreme Council with powers to set legislation and oversight over policies which could raise tensions with Islamists during the transition period.

New government to face challenging economic legacy

The slowdown in economic activity and the rapid deterioration in confidence have substantially raised the challenge to finance Egypt's twin deficits. In particular, the rapid exit of foreign investors from the T-bill market and a larger budget deficit pushed domestic yields to new record levels. In addition, it has become increasingly difficult for domestic banks to raise their holdings of government securities. Higher yields and dwindling FX reserves pushed the central bank to raise its policy rates in order to reduce currency volatility and defend USD/EGP at the 6 mark. The central bank action (deposit rates were raised 100bp and lending rates 50bp) when the economy is slowing rapidly shows the commitment to defend the currency. However, we believe the probability of a large currency devaluation has substantially increased as the authorities are quickly running out of options. This will also push headline inflation higher due to a strong FX passthrough.

Egypt's election guide

The vote in 9 out of 27 governorates on November 28-29 represents the first of three rounds of the lower chamber elections (9 governorates in each stage). This will be followed by a second round on December 5 and a third round on January 3, and final results will be announced by January 13. Two thirds of the seats in the lower chamber will be based on the proportional system and the rest of the seats elected through an individual system in which parties can also participate. The upper chamber elections will then be held between January 29 and March 11. The parliament would convene in March 2012 and chose a 100-person committee to write a new constitution within six months. The draft constitution will then be ratified by referendum, and presidential elections are expected to be held by June 30. Half of the 504 seats in the lower house will be reserved for representatives of workers and farmers. Note that according to the new law, 10 members of the parliament will be ppointed by the president or the military councilwhile the president will appoint two thirds of the 390 seats of the upper house. The minimum election age has been lowered to 25 from 30 previously. Individual candidates will be elected directly if they receive more than 50% of the vote in their constituency or through a second round between the four top candidates, in the absence of a clear majority.

Source: Economic Research, December 2, 2011


Bank of America Merrill Lynch on LatAm: Cutting Your Way Down

Latin America is also facing downward pressure on growth, and in our LatAm Macro Weekly ("2012- Keep it up, China, please!") we believe activity is likely to slow to 3.3% from 4.1% in 2011. We also forecast a deceleration in inflation to 3.7% from 4.3% in 2011; therefore, we expect central banks to cut rates with Brazil being the most aggressive (150bp in cuts expected in 2012). It will also be imperative to follow China closely as it could provide important support through exports and its effect on keeping commodity prices high. In our GEMs Daily ("Mexico: dealing with a sensitive MXN") we note that Banxico joined the liquidity-supply trend of global central banks and preemptively set daily USD400mn auctions to prevent illiquidity problems. Although these measures increase the risk for a rate cut today, we think the first cut is more likely at the January 20 meeting. In another of our GEMs Dailies, ("Brazil: detailing the labor market slowdown"), we discuss the deterioration in the labor markets and analyze different aspects of this deceleration, such as disparities among sectors and regions. While the minimum wage increase will put upward pressure on inflation, the weaker employment picture will have an opposing effect and should help to ease concerns for services inflation next year.

Source: GEMs of the Week, December 2, 2011


Morgan Stanley: Firing the Last Round

To explain why, since initiation in late 2006, we have framed our market call by varying our equities weighting within pre-defined limits, a digression into Jonathan's personal history may be relevant:

I would not be here if my grandfather had not avoided death by goring from a water buffalo in Kenya in the 1920s. These are, other than hippopotami, the most dangerous animals in Africa. They weigh well over a ton. He had a single-shot rifle with no time to reload. As it came thundering towards him, he had to stand his ground and wait to fire until it was within 20 yards, as he told it because the skull is so thick. The beast's head ended up over his mantelpiece with the bullet hole clearly visible right between the horns, which were sharply pointed. The moral of this tale, as my grandfather made clear to me as a small boy, is two-fold. First, keep your nerve. Second, try not to get into a situation where you only have one shot to survive.

So, that's why we – and we suspect most investors and asset allocators - vary our equities weighting rather than make binary market calls. One of the horns of the charging buffalo today is the EU sovereign crisis, whilst the other is fears of a China hard landing. Our views on both are discussed in detail below. However, having wasted two shots earlier in the year, with the buffalo now at 20 yards and closing, and with only 2% cash left in our asset allocation model, our judgment is that it has now come to the right time to – once again - fire the last bullet.

Reiterate thesis of the painful birth of the Asia/EM centric global economy

As in 2008, we reassert our belief that the general global macro-economic and financial market environment is characterized by the painful birth of the Asia/EM centric global economy. For more details, see in particular our December 2006 initiation piece, Taking Centre Stage: Five Themes and 2007 Outlook, dated December 11, 2006, and Third Transition in Global Manufacturing – Investment Implications, dated July 25, 2010.

Source: Asia Insight, December 2, 2011


Erajaya Raises $100 Million From Indonesian IPO

The Indonesian mobile retailer sells 32% of its share capital at the bottom of the price range. Meanwhile, New World Development's rights issue ends significantly oversubscribed.

Indonesia’s biggest retailer of mobile phones and other wireless communication products, Erajaya Swasembada, has raised about Rp920 billion ($100 million) from its initial public offering after fixing the price at the bottom of the range.

The company also sold only 32% of its share capital, or 920 million shares, as the management felt it didn’t want to sell any more at that price and $100 million was enough to cover its capital needs. These include the repayment of an $84 million promissory note issued in connection with the acquisition of fellow mobile distributor Teletama Arta Mandiri (TAM) earlier this year. Erajaya initially offered up to 40% of the share capital, although it said that the final size would be capped at $200 million, which at the top end of the price range would have meant a slightly smaller deal size in percentage terms.

Sources said the total order amount was enough to cover the full 40%, but most buyers were price sensitive. About 70% of the demand came from domestic investors, with the rest split between international long-only investors and hedge-funds, including some quite lumpy orders. The allocation was similar to the demand in terms of the domestic/international split, but the source noted that the deal was tightly allocated with the top five accounts getting about 50% of the deal. A key reason for that is that the deal doesn’t have a greenshoe and a tight allocation should help limit the selling when the stock starts trading.

In all about 40 investors participated in the transaction.

One reason for the small number of accounts is likely to be the risk of investing in Indonesian IPOs, particularly while markets are as volatile as they have been in the past few months. The lead time between pricing and the trading debut is quite long in most Asian markets, but it is especially long in Indonesia. Erajaya closed its order books last Monday (except for a few accounts in Boston that met with the company on Tuesday) and fixed the price on Wednesday, but won’t start trading until December 14.

The MSCI Asia ex-Japan index also fell about 8% during Erajaya’s bookbuilding, which kicked off on November 17.

These issues, in combination with the fact that it is so late in the year, seem to have overshadowed Erajaya’s strong position in the Indonesian mobile phone market, where 95% of all mobile subscriptions are pre-paid. According to Frost & Sullivan, the company has a market share of 24%, compared with just 17% for the number two retailer. Indonesia is the third-largest wireless market in Asia.

One syndicate analyst projects that Erajaya will generate profit growth of about 38% between 2011 and 2013, partly driven by the recent acquisition of TAM and an improvement of margins as its portfolio of brands is integrated into its own.

The company operates 236 retail stores in 27 cities and also has a partnership with more than 16,000 third-party resellers. It is licensed to distribute 11 different mobile brands, including Apple, Acer, Huawei, LG, Nokia, Sony Ericsson and its own brand Venera. The acquisition of TAM also added the Blackberry brand to its portfolio and strengthened its position with regard to Samsung.

However, with the deal coming so close to the Christmas holidays, in an extremely challenging market environment and with several billion-dollar-plus IPOs in Hong Kong also competing for investors’ attention, it is no big surprise that international investors were not rushing in.

Erajaya initially offered up to 1.32 billion new shares at a price between Rp1,000 and Rp1,440 and ended up selling 920 million shares at Rp1,000 apiece.

The final price translates into a 2012 price to earnings multiple of 7.7 times, which is fairly attractive for a consumer retailer. However, that was clearly needed as the demand came in mainly at the low end of the range. There are no listed direct comparables in Indonesia, but some investors were said to be looking at Synnex Technology in Taiwan, a retail chain focusing on computers, mobile phones and other home electronics, which trade at 2012 P/E multiple of 14.5 times.

Erajaya was brought to market by Buana Capital, Credit Suisse and J.P. Morgan.

Meanwhile, in Hong Kong, New World Development said last week that its HK$11.3 billion ($1.45 billion) one-for-two rights issue was 309.1% subscribed. The shares were offered at a price of HK$5.68 apiece, which translated into a 36.9% discount versus the close of HK$9.00 on October 18 — the day before the fund-raising was announced. It also worked out as a 28% discount versus the theoretical ex-rights price (Terp) of HK$7.89 on that same day and a 78.2% discount to the company’s net asset value of HK$26.01 as of June 30 this year.

Since the announcement the share price has fallen quite significantly, however, and when the subscription period closed on November 22 it was quoted at HK$6.78. This means the rights issue discount to the latest close had shrunk to just over 16%. On Friday the share price closed at HK$6.62.

The property-to-retail conglomerate will use a large portion of its rights issue proceeds to subscribe to its 69% entitlement in a HK$4.29 billion ($550 million) rights offering by New World China Land that was announced at the same time but will be open for subscription until December 19. New World Development will also act as the sole underwriter for the rest of the New World China Land issue.

New World Development’s right issue had the support of Chow Tai Fook Enterprises, which is owned by New World Development chairman Cheng Yu-tung. The entity took up its 40.5% entitlement in full and also underwrote an additional 90 million shares, or up to 45% of the deal. The rest was underwritten by joint bookrunners HSBC and Standard Chartered. However, with the strong subscription ratio, the underwriters won’t need to buy any shares.

And on Friday, China Outfitters Holdings, a designer of casual menswear, completed its HK$1.13 billion ($145 million) IPO that was offered at a fixed price of HK$1.64 per share. A source estimated that the deal had attracted as many as 50 institutional investors, mainly from Asia but with some participation from long-only European and US funds as well.

The 10% retail portion was about 10 times covered. While the deal was small, this is at least an encouraging sign after retail investors have shunned most other Hong Kong IPOs in the past three months. The deal was already 76% covered at launch by three cornerstone investors and when you take away the 10% allocated to retail investors, there weren’t many shares left for other institutional investors.

The company sold 691.56 million shares, or about 20% of the share capital. Some 69.4% were new shares. The deal size could increase to as much as $167 million if a 15% greenshoe is fully exercised.

The deal was a return to market for China Outfitters, which tried to raise up to $300 million from an IPO in June but was forced to call off the attempt before pricing after failing to attract enough demand. This may explain why it was so aggressive about signing up cornerstone investors this time around. Everbright Private Equity, KKR Apparel and the Sequoia Funds jointly bought $110 million worth of shares.

The stock is scheduled to start trading on December 9. BOC International, Daiwa, ICBCI, RBS and UBS were joint bookrunners.

By Anette Jönsson for FinanceAsia


Sharing of the "Abu Dhabi Experience" To Support Enhanced Environmental Decision Making in Emerging Economies

The Eye on Earth Abu Dhabi 2011 Summit is dedicated to the critical issue of greater access to environmental and societal data for enhanced decision making, especially in emerging economies.

His Highness Sheikh Hamdan also welcomed former President Bill Clinton to the Summit before touring the Exhibition with high-level representatives of the UAE government.The Summit was also attended by H.H. Sheikh Nahyan Bin Mubarak Al Nahyan, UAE Minister of Higher Education and Scientific Research, H.E. Sultan Bin Saeed Al Mansouri, UAE Minister of Economy, H.E. Mariam Khalfan Al Roumi, UAE Minister of Social Affairs, H.E. Humaid Al Qatami, UAE Minister of Education, H.E. Dr Rashid Ahmad bin Fahd, UAE Minister of Environment and Water and H.E. Dr. Maitha Salem Al Shamsi, UAE Minister of State.

In a keynote address during the grand opening of the Summit, H.E. Mohammed Al Bowardi, Chairman of the Executive Committee of the Abu Dhabi Executive Council, Managing Director of Environment Agency - Abu Dhabi and Chair of the Eye on Earth Abu Dhabi 2011 Summit said: "Over the past 40 years, Abu Dhabi has experienced growth at nearly an unprecedented pace. We have experienced the challenges associated with expansion. We have learned from our experience and adjusted wisely and we are a better and stronger community as a result."

H.E. Al Bowardi continued: "Now it is our responsibility to share this Abu Dhabi Experience with others - individuals, institutions and countries - that face similar challenges. In particular we endeavor to share this experience and the lessons we have learned with our brothers throughout the GCC and within the MENA region, as well as with the emerging economies and developing nations across the world."

Presenting a speech entitled "Embracing the Common Vision;" President Bill Clinton highlighted the importance of access to data and information as a critical basis for policy making. President Clinton also took part in a question and answer session in front of a high-level Summit audience.

About the Eye on Earth Summit, President Clinton said: "This is an incredible venue. A few years ago, it would have been unthinkable to have a conference to debate data and emissions here in the Gulf. We are doing this in the UAE because we know the path we are on is not sustainable," and continued, "The economic model we have been following is not sustainable because of the way we consume energy and the depletion of resources. In this context, this is a very good meeting and those of you focused on giving us good data are profoundly important."

Presenting a welcome address on behalf of His Highness Sheikh Mansour bin Zayed Al Nahyan, Deputy Prime Minister and Minister of Presidential Affairs, H.E. Dr Rashid Ahmad bin Fahd, UAE Minister of Environment and Water, said: "The core values that have underpinned the development of the UAE are among the same issues that have the attention of the Eye on Earth Community here in Abu Dhabi over the next 3 days. Information gathering and sharing are at the core of our nation and a preoccupation of our president, who ten years ago while still crown prince of Abu Dhabi, initiated and launched the Abu Dhabi Global Environmental Data Initiative at the 2002 World Summit on Sustainable Development in Johannesburg, South Africa."

The Eye on Earth Summit brings together the global leadership of the environmental information movement, a group dedicated to bringing the benefits of better information to people and decision-makers around the planet. A key goal of the Summit is the adoption of the Eye on Earth Summit Declaration, which will provide input to the United Nations Conference on Sustainable Development to be held in Rio de Janeiro, Brazil, in June 2012.

Speakers including Achim Steiner, Executive Director of the United Nations Environmental Programme (UNEP), Chief Almir Surui, Leader of the Surui people of the Brazilian Amazon, and Rebecca Moore, from Google Outreach, later addressed the Summit delegates concerning the importance of open and shared access to the world's environmental data.

Open to the public, the Eye on Earth Abu Dhabi 2011 Exhibition, which runs until Thursday December 15 is showcasing the very best from around the world in the field of environmental and geospatial data access and analysis including Abu Dhabi's pioneering 2030 strategic vision for a sustainable economy.

Held under the patronage of His Highness Sheikh Khalifa Bin Zayed Al Nahyan, President of the United Arab Emirates, the Eye on Earth Abu Dhabi 2011 Summit & Exhibition is hosted by Environment Agency - Abu Dhabi (EAD), facilitated by Abu Dhabi Global Environmental Data Initiative (AGEDI) and held in partnership with the United Nations Environment Programme (UNEP).

For more information visit, www.eyeonearthsummit.org


Carlos Slim May Pour $14 Billion To Strengthen Latin American Cell Phone Empire

[caption id="attachment_544" align="alignright" width="220"] Carlos Slim[/caption]

Ivan Castano, Forbes (24/01/12):

The richest man in the world wants to make sure his cell-phone company America Movil, the largest in Latin America, remains that way. To do so, Mexican billionaire Carlos Slim Helu could invest at least $13.9 billion to grow the network in Brazil and Mexico this year, analysts said.

Their estimates follow America Movil's announcement last week that it plans to issue $2.5 billion of bonds in the next few years. The notes will be issued in Mexican pesos and will carry maturities from 1 to 40 years, the company said in a regulatory statement.

Spokespeople at America Movil would not say when the first bond sale will take place. One banker at Slim-owned investment bank Inbursa would only say the funds will be used for “general corporate purposes.”

America Movil analysts, however, said the funds will be used to bankroll America Movil’s aggressive plan to grow its smartphone data business in Latin America, particularly in the largest markets: Mexico and Brazil.

“Smartphone data usage is growing 30-40% a year [around the world] but in Mexico, it’s just at 10%,” said Julio Zetina, an analyst with Vector Casa de Bolsa in Mexico City.

Zetina added America Movil’s Telcel Mexican wireless unit and Telmex will together invest at least $8.5bn this year to grow their cell-phone data tranmission capabilities.

“They need to build a whole bunch of new antennas, expand Telmex’s fiber optic network, through which data can also connect from antenna to antenna, or do both,” Zetina said.

Either way, the expansion will be massive as Slim works to dominate the smartphone data industry in Mexico.

America Movil also recently announced plans to plough as much as $5.4 billion into its Brazilian wireless franchise in 2012, up from $5 billion spent in 2011. The company has some $10 billion in cash to grow its business, Zetina said.

Through America Movil, Slim, who had an estimated net worth of $63.3 billion in November, owns several Brazilian assets, including the Claro wireless network, fixed-phone company Embratel and cable TV broadcaster Cable Net.

This year’s capital expenditures will go to build an under-sea cable to transmit data from the US to Brazil, expected to cost $540 million, Claro Brasil’s President Carlos Zenteno was quoted as telling Brazilian daily Folha de Sao Paulo on December 27.

America Movil also wants to broaden its fast-internet for cell-phones (3G) business, enlarge its fiber optic network and bid for the concession of new 4G lines in Brazil in April, an America Movil spokesman confirmed.

Claro is Brazil’s third-largest wireless network with a 25% market share, while Embratel has 18.2% of the fixed-line market, according to telecoms watchdog Anatel. Cable Net is billed the country’s largest cable TV broadcaster with a 40% market share.


Big Banks: Cure or Curse for the Global Economy?

Friday 27 January 2012, CFI with report from the World Economic Forum in Davos, Switzerland with anchor Bloomberg Television

Key Points

Banking reforms are still a work in progress – there is still a long way to go before the global banking system can be considered robust.

Big banks are not the only issue – preventing the failure of large numbers of small and regional banks is just as important.

Regulations should be consistent and cohesive to ensure a level playing field and to prevent regulatory arbitrage.

Eurozone leaders were called upon to seize the opportunity provided by the ECB’s Long-Term Refinancing Operation (LTRO), which has helped stabilize the markets.

Synopsis

The financial crisis of 2007-2008, the worst since World War II, exposed the fragility of the global

banking system. The world cannot accept a return to this perilous situation.

“What we are trying to do at a national, continental and international level is to reduce the probability of a banking system collapse,” said Jean-Claude Trichet, President of the European Central Bank (2003-2011).

A key focus is large, systematically important banks which proved “too big to fail” during the crisis. However, an orderly unwind of a global, complex financial institution is unrealistic. For banks that cannot be broken up, the focus must instead be on measures such as living wills, resolution mechanisms and the use of contingent capital (recapitalization by converting debt to equity).

“Bank regulation continues to be a work in progress. We want to push forward strongly in 2012,” said Lord Turner, Chairman, Financial Services Authority (FSA), United Kingdom.

The automatic equating of being big with being dangerous was challenged. The failure of a host of small banks is systemically equivalent to the failure of a large bank. “Banking is still a relatively fragmented industry,” said Peter Sands, Group Chief Executive, Standard Chartered, United Kingdom. Indeed, the top 10 global banks control a much smaller proportion of assets compared to the top 10 companies in most other sectors.

Regulators were urged to ensure consistency and coherence of regulatory frameworks to ensure a level playing field. The danger of unintended consequences was highlighted, including a reduction in credit availability for businesses and consumers.

Reform should also go much further than the banks. The origins of the crisis lie in the so-called “shadow banking system” of money market funds, hedge funds and structured investment vehicles. The volume of transactions in the shadow banking system grew dramatically in the decade prior to the crisis, reaching its pinnacle of US$ 10 trillion in the United States by late 2007.

The extraordinary increase in speculation and trading activities was also cited as a risk. Singling out high-frequency trading, the question was posed as to how much value there is in price discovery at the nanosecond level. While deep and liquid markets are clearly important, a cautious stance is warranted when assessing such activities.

However, regulators and macro-prudential authorities cannot stabilize the markets alone. European leaders were called upon to deepen federalization of the Eurozone, including moving to Eurobonds. The European Central Bank was praised for bringing some much-needed calm to markets through its three-year LTRO, announced in December. European leaders now need to seize the opportunity to put in place credible plans and concrete actions to achieve fiscal sustainability.

Offering a contrarian view was Nouriel Roubini, Professor of Economics and International Business, Leonard N. Stern School of Business, New York University, USA; Global Agenda Council on Fiscal Crises. “Little has been done to resolve the underlying issues; in fact, we are worse off now than before the crisis,” he said. What is required is a return to the Glass-Steagall framework, with complete separation of commercial and investment banking, he added.

Source: This article was based on a WEF session which was on the record and open to reporting press with the topic as to the role of banks.

The Contributors included:

Luc Frieden, Minister of Finance of Luxembourg
Guillermo Ortiz, Chairman of the Board of Directors, Banorte, Mexico; Global Agenda Council on the International Monetary System
Nouriel Roubini, Professor of Economics and International Business, Leonard N. Stern School of Business, New York University, USA; Global Agenda Council on Fiscal Crises
Peter Sands, Group Chief Executive, Standard Chartered, United Kingdom; Foundation Board Member
Jean-Claude Trichet, President of the European Central Bank (2003-2011)
Lord Turner, Chairman, Financial Services Authority (FSA), United Kingdom; And was moderated by

Maryam Nemazee, Anchor, Bloomberg Television, United Kingdom


Brazilian Blowout Legally Labeled Carcinogenic ... Will It Matter?

Amy Westervelt, Forbes (30/01/12):

Last year women’s magazines and pop culture blogs were afire with the news that the popular Brazilian Blowout–an expensive salon treatment that promises to smooth and straighten hair for up to six months–released formaldehyde, a known carcinogen. Hair Scare! Brazilian Bombshell! It was a story made for clever headlines and consumer backlash. Not only was the treatment exposing women to carcinogens, the products used in the Brazilian Blowout treatment were actually labeled “formaldehyde free,” when they clearly weren’t. Moreover, in the midst of the media blitz, the U.S. federal government’s National Toxicology Program officially added formaldehyde to its list of substances known to cause cancer, and the federal Occupational Safety and Health Administration (OSHA) declared that one product, Brazilian Blowout Acai Professional Smoothing Solution, contains “unacceptable” levels of formaldehyde.

You’ll notice, however, that the Brazilian Blowout did not disappear from salon menus. In September 2011, the FDA sent Mike Brady, chief executive officer of Brazilian Blowout maker GIB LLC, a firmly worded letter stating that the company’s products contain formaldehyde and were thus mislabeled. But while it might seem logical for the FDA to then remove that product from consumers’ reach, instead it focused on the need for the products to be labeled appropriately. According to both the letter in question and the language of the Federal Food, Drug, and Cosmetic Act, it is the manufacturer’s responsibility to ensure that the products it markets are safe and otherwise in compliance with all applicable legal and regulatory requirements.

In addition to the FDA letter, GIB LLC was also sued by the state of California, where it is headquartered. The results of that suit came through today in the form of a settlement that requires GIB, LLC, which does business under the name Brazilian Blowout, to cease deceptive advertising that describes two of its popular products as formaldehyde-free and safe. The company must also make significant changes to its website and pay $600,000 in fees, penalties and costs.

Opponents have argued that consumers essentially have the right to expose themselves to whatever carcinogens they choose. If you’re to pull this beauty product from shelves, the thinking goes, then you’d also have to pull cigarettes. Then again, if beauty products containing carcinogens had to have the same sort of Surgeon General warnings on them that packs of cigarettes do, perhaps companies would think twice about producing such products.

The cigarette analogy works on another level: Remember how smoking bans started when advocates linked second-hand smoke exposure to unfair working conditions? The same route is likely to be taken here, with an eye toward protecting the health and rights of salon workers. Health advocates are pushing for the FDA to step in and do more, especially in light of California’s legal decision.

The FDA, which has little authority to do much in these sorts of cases, thanks to the wording of the Federal Food, Drug, and Cosmetic Act, did warn GIB LLC that failure to correct its violations “may result in enforcement action without further notice, including, but not limited to, seizure and/or injunction.” The Campaign for Safe Cosmetics and the National Healthy Nail and Beauty Salon Alliance are calling on the FDA to follow through with its threat and not only seize Brazilian Blowout products, but ban the use of formaldehyde in hair products. It sounds logical enough, but they may end up with an unlikely opponent in their quest: female consumers.

The thing is, despite nearly two years now of bad press, the Brazilian Blowout is still a popular treatment. Perhaps not quite as popular as it was, but popular nonetheless. Anecdotally, in the past six months I’ve mentioned to at least five female friends who are fond of the treatment that it contains a known carcinogen. Across the board the response was essentially the same, “Doesn’t everything cause cancer these days? Besides, personally I think it’s worth it.”

It’s a response that leads the discussion in one of two ways: On the free market side, there’s the argument that this is a product people want and they should be allowed to buy it, provided they understand the risks; on the public health side, there’s the argument that in some cases consumers need to be protected not only from companies but also from themselves. The same argument crops up around things like bag bans and proposed taxes on unhealthy food and in broader political debates about how and when government should intervene in business. Point being, while the great Brazilian Blowout debate may seem silly, the result of it could have broad implications. (edited version)


A New Generation of Banker

[caption id="attachment_434" align="alignright" width="300"] Alessandra França[/caption]

Brazilian Alessandra França, by no means fits the banking stereotype  at only 26 she has already, established a bank for the poor after reading the biography of Muhammad Yunus, Nobel Peace Prize winner in 2006.

By Marco dos Santos

The young Alessandra França always showed academic promise. At 15, the daughter of a truck driver and a seamstress was studying computer science in the Non-Governmental Organization (NGO) Project Pearl. The NGO dedicated to the empowerment of disadvantaged youth in Sorocaba, São Paulo, where Alexandra grew up. Her progress was rapid.

In four years, she advanced to the student collaborator and later became coordinator of the work. Alexandra obtained a scholarship at a private school, majored in marketing and an MBA in personnel management. In principle, she had everything to pursue a career executive on the executive ladder.

At 16 she read The Banker to the Poor, a book that set her path. The book described how Bengali Muhammad Yunus, Nobel Peace Prize winner in 2006, had built The Grameen Bank (literally, "Bank of the Villages") a banking network that provided  credit efficiently and cheaply to the poor people of Bangladesh, one of the poorest countries in the world. "It was a revelation," she said. Today, at age 25, she coordinates the Banco Pérola ( Pearl Bank), which provides loans to the youth of Sorocaba.

At Project Pearl, Alessandra had noticed that young people who had studied very hard to make their projects work could get no bank credit, even though the required amounts were small.

Thus was born the Banco Pérola – which is in fact, a Civil Society Organization of Public Interest (OSCIP), an entity accountable to the Ministries of Labor and Justice.

The credit is only awarded to young people who have personal projects of enterprises in any area of interest.

“We not only analyze the project but also looked at the character of the client and their reputation amongst neighbors and friends," says Alessandra.   "The financial market can be humanized."

The business model is the same as for Grameen Bank.  Customers must come in groups of three to five people. All are responsible. "If one can not pay, the group is committed to honor its commitment."

The initial capital came from an international organization to stimulate social projects called Artemisia, founded in 2002 and began its activities in Brazil in 2004.

Two years ago, Alexandra entered her project for consideration by Artemisia and had 15 minutes to defend it before a committee. It was a difficult task. One of the examiners asked bluntly: "Do you think young people are trustworthy and will pay the loans?" Even nervous, Alessandra did not hesitate.

The Pearl had a starting capital of R$240,000. Most came from donations. The interest charged is 4% per month. The average size of the loans is R$1,500.

The numbers are still modest. As of January 2012, the bank was providing loans to 150 customers.

Let’s see how far this driven young lady can take her bank  we will be watching.


Let Mexico’s Moguls Battle

[caption id="attachment_574" align="alignright" width="300"] The Soumaya Museum[/caption]

The Economist (04/02/12):

Mexico suffers from two near-monopolies. It should let them fight each other

IN A futuristic art gallery which Carlos Slim opened last year in Mexico City, visitors can enjoy, among other things, a hall of rare coins and share certificates. Sometimes art speaks louder than words.

Mr Slim is the richest man in the world. According to Forbes, he and his family have amassed a comfortable nest egg of $63 billion. (Bill Gates would be richer had he given away less of his stash, or Mr Slim more of his.) In Mexico Mr Slim is a giant: his companies account for more than a third of the stockmarket.

The Slim fortune was made in telephony. After growing moderately rich from property, mining and other businesses, Mr Slim, the son of a Lebanese immigrant named Salim, bought Telmex, Mexico’s state-run telephone monopoly, in 1990. Telmex still has 80% of Mexico’s landlines, and about 75% of its broadband connections. Telcel, its sister company, has 70% of the mobile market. Both now belong to América Móvil, a Slim venture which has spread across 18 countries in the Americas and is the biggest or second-biggest player in all but three. With nearly 250m subscribers, it is the world’s third-biggest mobile-phone company, and accounts for about 60% of Mr Slim’s wealth, according to Forbes. Much the biggest market for América Móvil is Mexico, where profit margins in the stifled mobile sector are among the highest in the world.

Mexicans complain that it is impossible to pass a day without putting pesos into Mr Slim’s pockets. His interests span retail, banking, construction and much else (including an 8% stake in the New York Times). But one huge market eludes him. Under the terms of his Telmex concession, he forfeited the right to enter Mexico’s pay-television business. So whereas América Móvil offers “triple play” packages of phone, internet and television nearly everywhere else in Latin America, in his biggest market Mr Slim is tuned out from TV.

For many years he has tried to chip away at this ban, just as his rivals have tried to loosen his grip on telephones. Neither has succeeded. Mexico’s regulators have found it hard to enforce competition in either market thanks to a blizzard of writs. Between 2005 and 2010, the telecoms sector generated more than 260 applications for injunctions, judgments of annulment and judicial reviews, says a report published on January 30th by the OECD, a group of mainly rich countries which includes Mexico. The “relentless use of injunctions, in particular by [América Móvil]…has replaced, to a large extent, the right and responsibility of government to implement economic policy and regulation,” it says.

This has cost Mexico dearly. Though it is one of Latin America’s richest countries, mobile-phone penetration stands at 88%, among the lowest rates in the continent. In Brazil, a poorer country, it is 119% (ie, it has more mobile phones than people). Prices for customers who make few calls and pay in advance are reasonable. But chattier customers pay more than in many rich countries. Fast broadband is scarce and pricey (see chart). The OECD calculates that excessive pricing in Mexico’s “dysfunctional” telephone and broadband markets has cost the country some $26 billion a year (in purchasing-power parity terms).

The cost to business of slow and patchy internet connections was not included, but is clearly huge. Complaints of downtime and blackouts abound on Apestan.com (roughly, “TheyStink.com”), a consumer-rage website on which Telcel and Telmex attract more complaints than any other company in Mexico.

There are signs that Mr Slim’s grip on Mexican telephones is being prised open. In April Mexico’s Federal Competition Commission (CFC) hit Telcel with a fine of $1 billion, the biggest it had ever handed out, for abusing its dominant position by charging high fees to rivals for connecting calls. Telcel is appealing and has yet to pay up. A new competition law has beefed up penalties for antitrust offenders, with prison terms of up to ten years for collusion. (Mr Slim has not been accused of this.)

A few weeks later the Supreme Court ruled that telecoms rules should continue to apply while they were being challenged in court. This is normal elsewhere, but in Mexico regulatory decisions have been suspended for years while judges puzzle over challenges by Mr Slim and others.

Armed with these new powers, the telephone regulator, Cofetel, has at last succeeded in drastically reducing telephone interconnection fees. As long as these fees are high, “off-net” calls will be more costly than the “on-net” calls made to phones on the same network. This provides consumers with a powerful incentive to join the operator to which most of their friends belong—which in Mexico nearly always means Telcel. In March Cofetel ordered that interconnection fees be reduced from 0.95 pesos ($0.08) to 0.39 pesos, taking Mexico from a relatively high rate to one of the lowest in the OECD. Retail prices have already fallen: Telcel cut the price of its off-net calls by two-thirds, and Telefónica by half. Telmex lowered the price of calls to mobiles (thereby probably reducing the national inflation rate). The cuts may not end there: Cofetel is considering applying “asymmetric regulation” to América Móvil, which could force it to charge less to its rivals than they charge it.

América Móvil is furious. Carlos García Moreno, its chief financial officer, warns that the cut will deter operators from covering poor rural areas, where customers tend to receive more calls than they make. He points out that in most of Europe fees started to drop only when penetration had reached 100%. But no OECD country has an incumbent with a market share like that of Telcel, notes Agustín Díaz-Pinés, an economist at the OECD.

Mr Slim has annoyed foreigners, too. Every year Americans make more than 20,000 years of calls to Mexico, more than to all of western Europe. In 2004 America won a case against Mexico at the World Trade Organisation over Mexico’s failure to stop Telmex from overcharging American companies to dial into the country. Comptel, an American business association, has accused Telmex of not consolidating local area codes (so local calls are charged as long-distance) and of inserting recorded messages into calls from rival carriers, warning that future calls might fail.

Technological change could squeeze Mr Slim. Telephone calls and TV are increasingly delivered through the same cable. Since 2007 cable companies in Mexico have offered bundled services of phone, internet and television, which América Móvil may not do. A quarter of fixed-broadband customers now get online via cable. And as Mexico’s middle class expands, the broadband market is growing by a quarter each year.

Wireless broadband is another threat to Mr Slim. In 2010 an auction of new spectrum allowed his mobile competitors to offer 3G mobile-data services. Televisa, the biggest pay-TV company, which is controlled by the Azcárraga family, is trying to add mobile telephony to its products. Its proposal to buy half of Iusacell, a small mobile operator, was blocked by the CFC on the ground that the other half of the company is owned by TV Azteca, Televisa’s main rival in television.

New technology offers Mr Slim opportunities, too: it could allow him to invade Televisa’s turf. Free-to-air television in Mexico is a stale duopoly in which 70% of viewers tune in to channels broadcast by Televisa, the biggest media company in the Spanish-speaking world. Televisa dominates pay-TV as well, with about 45% of Mexico’s cable market and 60% of the satellite market. According to the CFC, more competition in the pay-TV sector could slash prices and increase the size of the market by more than a third.

Telmex is hammering on the door. In October it cheekily transmitted live footage of the Pan American games via its website. Rivals cried foul, but so far there has been no sanction. In 2008 Mr Slim engineered a deal with Dish, a satellite-TV firm, whereby Telmex would provide billing services for the broadcaster and sell its packages in its shops. Again, rivals have complained, to no avail.

The partnership has been successful. In its first two years Dish won 2m customers, equal to nearly 40% of the satellite market and about 17% of the entire pay-TV market. Its cheapest deal is 109 pesos a month, less than half the cost of the cheapest package with Sky Mexico, the market leader, which is majority-owned by Televisa. Pay-TV could be even bigger: more Mexican homes have TVs than fridges.

Next, Mr Slim craves a broadcast licence of his own, perhaps when Mexico switches to digital television, freeing up enough spectrum for at least two new national free-to-air channels. In 2010 Felipe Calderón, the president, issued a decree bringing forward the digital switchover from 2021 to 2015. The decree was suspended after complaints by incumbent-friendly senators. Cofetel said that it would move ahead with an auction of two new channels. But on January 25th it announced, without explanation, that it had decided to suspend the project indefinitely.

The big prize for Mr Slim would be a change in the rules to allow him to use his vast network of phone lines to deliver television. The copper lines would need to be upgraded to fibre, a project which Telmex has already begun (to provide faster broadband). Cable-TV companies fret that Mr Slim will crush them: he already has 14.4m fixed-line phone customers, whereas their cables are only in 5.5m homes.

Two things hold Mr Slim back. One is that, with a general election due on July 1st, few politicians dare irk the incumbent broadcasters. In 2008 Santiago Creel, a senator who had argued for more competition in television, was blurred out in Televisa’s coverage of a Senate debate. Televisa blamed an “editing error”.

A source says the presidency leant on the CFC (unsuccessfully, in the end) to approve Televisa’s proposed acquisition of half of Iusacell. Cofetel’s announcement that it would shelve plans to auction new free-to-air TV channels was seen by some as a sop to the giant broadcaster. A common saying in the industry is that Mexico’s phone sector may be about four times more valuable than the television market, but the latter is four times as powerful.

Mr Slim’s second weakness is content. Unsurprisingly, Televisa and TV Azteca are unwilling to sell their programmes to pay-TV rivals such as Dish, and there is no rule forcing them to. Televisa’s “Channel of the Stars” pumps out wildly popular telenovelassuch as “Abyss of Passion” and “Hope of the Heart”, to which families tune in religiously. Though they are also broadcast on free-to-air television, many prefer to watch them via cable or satellite, as the signal is much better. About 40% of time spent watching pay-TV is reckoned to be spent watching free channels.

So Mr Slim would have to woo audiences not just with low prices, but with good Mexican programming (imported Argentine telenovelas, with their funny accents, won’t do). It would, in short, mean fierce competition, something that for Mexico’s strangled TV and telecoms markets cannot come soon enough.


U.S. Trade Deficit and Consumer Sentiment Rise

The United States trade deficit widened in November to its largest point in five months, prompting some economists to slightly rein in growth expectations for the fourth quarter.

A separate survey released on Friday showed that consumer sentiment hit an eight-month high in early January as Americans grew more optimistic about job prospects.

The Thomson Reuters/University of Michigan preliminary January reading on its overall index of consumer sentiment rose to 74 from 69.9 in December for the fifth month of gains and the highest level since May 2011.

The report topped expectations of 71.5 and contrasted with December’s weaker-than-expected retail sales reported on Thursday.

“This shows even though the retail sales number this week was disappointing, there could be a little more underlying strength,” said Kathy Lien, director of research at GFT Forex in Jersey City. “I’d be wary of looking at this as a shift in long-term confidence, but I’d look at this as good news today.”

Commerce Department data showed that the trade gap was $47.8 billion in November, exceeding analysts’ forecast of a $45 billion deficit.

“The trade balance deteriorated pretty significantly, and it could shave a few tenths of a percent off our expectation for fourth quarter,” said Russell Price, senior economist at Ameriprise Financial.

JPMorgan Chase said gross domestic product growth for the fourth quarter was now tracking closer to 3 percent than the company’s forecast of 3.5 percent.

A wider deficit shows that more goods and services bought by American businesses and consumers were produced outside the country, subtracting from gross domestic product.

“The external outlook does not bode well for U.S. exports, as a deceleration in global growth will coincide with a stronger U.S. dollar due to lingering financial concerns regarding Europe’s sovereign debt turbulences,” wrote Martin Schwerdtfeger, a senior economist at the TD Bank Group, in a note.

A dip in import prices showed that inflation pressures were still muted, giving the Federal Reserve wiggle room as it holds benchmark interest rates at ultralow levels.

Import prices were down 0.1 percent in December after a 0.8 percent gain in November as oil prices fell, in line with economists’ expectations.

Economic growth in the final quarter of 2011 is likely to have accelerated from the third quarter’s 1.8 percent rate, with many economists expecting an annualized rise of around 3 percent.

Consumer spending, once a crucial pillar of the economy, remains lackluster and sensitive to shocks.

Although some Federal Reserve officials have said further steps may be needed to stimulate the economy, no action is expected at the next Fed policy meeting at the end of the month.

Thirty-four percent of consumers polled in the confidence survey said they had heard of recent job gains, a record high in the survey’s history and well above the 21 percent recorded in December.

“The data suggest a stronger consumer spending outlook, rising to about a 2.1 percent gain in 2012,” Richard Curtin, the survey director, said in a statement.

But consumers still lacked confidence in government economic policies, with the majority rating them unfavorably for the sixth consecutive month.

Americans also remained dour on their personal finances, with just 24 percent expecting their finances to improve in January, compared with 25 percent last month.

The survey’s barometer of current economic conditions rose to the highest level since February at 82.6, from 79.6, while its gauge of consumer expectations rose to 68.4 from 63.6.


Lending Helps JPMorgan, but 4th Quarter Was Soft

Wall Street, more than three years after the financial crisis, has loosened its lending tap. Consumers, however, have yet to reap the benefits.

Results announced on Friday by the nation’s strongest and biggest bank by assets, JPMorgan Chase, point to a divided economy where big businesses are gaining ground while consumers still cannot find their footing.

JPMorgan reported a weak fourth quarter, with earnings down 23 percent compared with the period a year earlier. The bank was hurt by a fourth-quarter slump in investment banking and other Wall Street businesses, which suffered amid the sluggish economic recovery and worries that the European debt crisis will spread.

One significant bright spot was the bank’s growth in corporate loans. The commercial banking unit’s profits rose to $643 million, a 21 percent increase from the previous year, as lending to corporations grew for the sixth consecutive quarter.

The strong results helped JPMorgan turn a $19 billion profit for 2011, up 9 percent from a year earlier.

The bank’s chairman and chief executive, Jamie Dimon, emphasized the uptick in lending. “I believe that you are seeing real loan growth,” Mr. Dimon said on a conference call with journalists. “And I think that will continue.”

The credit surge rippled through corporate America and the nonprofit world, too, as the bank lent to entities as varied as major corporations, hospitals, universities and local governments. Last year, JPMorgan lent $58 million to a cancer research center in Washington State. The bank also lent $17 billion to small businesses in the United States, a 52 percent leap.

“All types of corporations” are taking out loans, Mr. Dimon said, “large, small, medium, all types.”

But the figures highlight the differences between the corporate and consumer economies.

The bank’s student loans dipped more than 7 percent last year. Auto loans dropped nearly 2 percent. JPMorgan’s credit card lending fell 2.5 percent, to $132.2 billion at the end of 2011, though such loans rose 5 percent in the second half of the year.

“The consumer is still deleveraging,” said Jason Goldberg, a senior analyst with Barclays. “It’s not a lack of supply; it’s a lack of demand.”

While consumers are reluctant to take on extra debt when the economic outlook is uncertain, banks like JPMorgan also remain wary of increasing their exposure to individual borrowers, particularly potential homeowners.

JPMorgan made 765,000 mortgages in 2011, but, like other banks, it sells most of them to Fannie Mae and Freddie Mac, the government-controlled housing finance companies. Banks must hold layers of capital against mortgages they keep on their balance sheets, so selling to Fannie and Freddie can be an attractive alternative to holding them.

Nearly 90 percent of all mortgages made in the first nine months of 2011 wound up at a government agency, according to Inside Mortgage Finance, an industry trade magazine.

The reluctance of banks to keep control of mortgages underscores how distant a recovery is in the home loan market. JPMorgan’s holdings of mortgages to people with stronger credit rose by just 2 percent in 2011, to $76.2 billion, while its home equity loans fell 12 percent.

“We’re getting killed in mortgages, in case you hadn’t noticed,” Mr. Dimon said on Friday.

Banks also face a reckoning for their lax lending standards during the mortgage bubble. A wave of lawsuits, filed by Fannie, Freddie and private mortgage investors alike, has loomed large on the business since the dark days of the financial crisis. JPMorgan last quarter recorded a $528 million expense for restocking its mortgage litigation reserves.

“There’s going to be a long tail to this real estate cycle,” Mr. Goldberg said. “This could go on for years.”

Still, JPMorgan on Friday highlighted some encouraging signs for its consumer divisions. The bank set aside $730 million in fewer reserves for loan losses, as its credit card portfolio showed signs of life. That decision also increased earnings for Chase retail financial services, the bank’s consumer banking arm that offers services like mortgages and checking accounts. The unit earned $533 million in the fourth quarter, up from $459 million a year earlier.

JPMorgan, for all its lingering mortgage issues, has emerged from the financial crisis as one of Wall Street’s most dominant banks. In 2011, JPMorgan stripped Bank of America of its title as the nation’s biggest bank by assets.

Bank of America is struggling more than any other big bank to shed the legacy of the subprime mortgage mess.

“JPMorgan is in the best position for no other reason than they don’t have the troubles that Bank of America has,” said Jim Sinegal, an analyst with the research firm Morningstar.

But the JPMorgan profit engine stalled in the fourth quarter amid the weak economic conditions and as new federal rules reined in fees tied to overdrafts and debit cards, onetime revenue drivers. Revenue last year fell about 5 percent, to $99.77 billion, from $104.84 billion a year earlier.

Mr. Dimon, perhaps Wall Street’s most vocal opponent of the recent regulatory crackdown, called the debit card restrictions “a gross miscarriage of justice.”

JPMorgan also disclosed that a $567 million accounting loss weighed down revenue. The investment bank booked the loss in the fourth quarter tied to the perceived riskiness of JPMorgan’s own debt, reversing a one-time gain from last quarter that propped up earnings across Wall Street. In all, the investment bank’s revenue sank 30 percent in the fourth quarter.

Shares of JPMorgan closed down 2.5 percent, or 93 cents, at $35.92.

The revenue struggles are not unique to JPMorgan, a diversified bank seen as a gauge for the performance of Wall Street. When the nation’s other big banks — Goldman Sachs, Morgan Stanley, Citigroup and Bank of America — report earnings next week, most are expected to detail similar slowdowns in revenue.

“It’s hard to think of a bright spot on the revenue side,” Mr. Sinegal said. “That issue is going to linger.”

But Mr. Dimon on Friday offered hints of optimism for his bank — and the broader state of Wall Street and the economy.

“We have a mild recovery that might actually be strengthening,” he said. And the comeback appears to be “broad.”