Wednesday, February 29, 2012

Investors Can Benefit from High Yield in 2012 - MarketWatch (press release)

 BETHESDA, Md., Feb 27, 2012 (BUSINESS WIRE) -- Investors may be well served allocating a portion of their portfolio to high yield bonds in 2012 to take advantage of attractive relative returns and to provide diversification to their investment portfolios, according to Matt Duch, Lead Portfolio Manager of the Calvert High Yield Bond Fund (CYBAX) at Calvert Investment Management, Inc. Mr. Duch cites the current low-growth environment in the US coupled with favorable fundamentals for domestic corporations as support for another year during which high yield returns may be attractive.

"Headlines, both political and economic, and trading technicals have led to increased volatility in the high yield market," said Matt Duch. "That being said, we believe a well- positioned, well- researched portfolio of high yield credits should outperform most other fixed income categories, albeit at lower than average historical yield levels. Our research is pointing to another year when high yield as an asset class should outpace most other fixed income categories."


"It continues to be an especially attractive area for investors looking for income at a time when interest rates will remain at very low levels," said James Lee, Fixed-Income Analyst at Calvert Investment Management, Inc. "The benefits of adding high yield credits to your portfolio can outweigh the added risks involved by providing higher yields, and the added value of having a well balanced portfolio."


"Several factors are pointing to a favorable environment for high yield in 2012," said Cathy Roy CIO of Fixed Income. "Historically low default rates bode well for the sector as does the generally sound condition of U.S. corporations. US companies also have been strengthening balance sheets by maintaining higher levels of cash and by refinancing debt, allowing them to withstand business or economic slowdowns. Another attractive aspect of investing in US high yield is the fact that the vast majority of issuers have little to no exposure to Europe and China, two areas of the economy that have been of concern to investors."


The Fund seeks high current income in addition to capital appreciation by investing in high yield issues in sectors that represent good relative values. These companies need to have strong cash flows, sound balance sheets and a history of paying down debt.


For more information about the fund and to obtain a prospectus, please visit www.calvert.com


Investment in mutual funds involves risk, including possible loss of principal invested.


High-yield, high risk bonds, which are rated below investment grade, can involve a substantial risk of loss because they have a greater risk of issuer default and are subject to greater price volatility than investment-grade bonds.


Bond funds are subject to interest rate risk and credit risk. When interest rates rise, the value of fixed-income securities will generally fall. In addition, the credit quality of fixed-income securities may deteriorate, which could lead to default or bankruptcy of the issuer where the issuer becomes unable to pay its obligations when due.


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Improve Your Investing With 1 Simple Tip - DailyFinance

Experienced investors know a lot of secrets -- many of which they've learned the hard way -- about smarter investing. But there's a tip that even many longtime investors don't know. If you follow it, it could revolutionize the way you manage your investments -- and improve your overall returns. Best of all, it can make investing a lot more fun.

The carbon-copy approach
Believe me, I know how busy modern life can be. For many, spending a bunch of time on your investments is near the bottom of your priority list. Asset allocation strategies, where you decide how much money you want to invest in particular types of investments and then allocate your available money across them, are a godsend for time-crunched investors trying to put their money to work as efficiently as possible.

But in an effort to find simplicity, investors all too often adopt a cookie-cutter model for their investing. Not only will they follow an asset-allocation strategy, they'll follow it in every single account they have. That may seem like a simple approach, but in reality, it can lock you into a fixed mind-set that makes you miss out on some unique opportunities when they arise.

Ignoring your biggest asset
Why's it a bad idea to carbon-copy your asset allocation in every account you have? Because different types of accounts have different pros and cons. If you don't tailor your investments to fit each account type, you won't take maximum advantage of the benefits different accounts offer.

The most prevalent example I've seen is in retirement accounts. IRAs and 401(k)s have huge advantages over regular investment accounts. Unlike with most accounts, any income you earn in retirement accounts doesn't get taxed when it's paid. That's a huge resource that can make a huge difference to both your tax bill and the amount of time and money you have to spend doing your taxes.

But if you simply use the same asset allocation in your retirement account that you use elsewhere, you aren't making use of its full potential. Sure, you'll get some benefit from your retirement account, but it won't be as big as it could be.

The one-portfolio approach
The key to addressing this problem is simple: In the end, everything you own is one portfolio. No matter how many different brokers you use, how many stocks or funds you own, and how many types of tax-favored accounts you may have, you can achieve the goals of asset allocation by adding everything up and considering it a big single mass of investments.

Realizing that can be the most liberating thing for your investment strategy. For instance, many investors want to own mortgage REITs Annaly Capital (NYS: NLY) and Chimera Investment (NYS: CIM) because their dividend yields present what could be a unique short-term opportunity to cash in on the Federal Reserve's interest rate policy. But spread your mortgage-REIT holdings around taxable accounts, and you'll lose up to 35% of that income in taxes -- plus you'll expose any gains you eventually claim to further taxation. Concentrate mortgage REITs in your retirement accounts, however, and you'll save on taxes.

Foreign dividend stocks can work the opposite way. Right now, European telecoms France Telecom (NYS: FTE) and Telefonica (NYS: TEF) both pay attractive yields, with the sovereign debt crisis and the potential for a long recession on the Continent hurting their future prospects. But if you own them in a retirement account, then you can't recover any foreign taxes that may be withheld from their dividend payments. In contrast, in a taxable account, many can take advantage of foreign tax credits that will effectively credit that money back.

Make your life simpler
Perhaps most importantly, not having to worry whether every single account you have looks exactly the same can reduce your stress level. With investing as challenging as it is, lower stress is a good thing -- and if the freedom to have different investments in different places also earns you some extra returns in the process, that's just a bonus.

Asset allocation is a great approach, but to make the most of it, you still have to find some smart long-term investments. We've got three great stock ideas in the Motley Fool's latest special report on retirement. In addition to those three picks, we also give you some easy-to-follow guidance for setting you a great overall investing strategy. It's free, but read it today while it's still available.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter here.

At the time this article was published Fool contributor Dan Caplinger loves to keep things simple, but he likes extra money even more. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Chimera Investment, Telefonica, and Annaly Capital. Motley Fool newsletter services have recommended buying shares of Annaly Capital and France Telecom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy is the simplest thing you could ever imagine.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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Tuesday, February 28, 2012

Nomura Holdings: Japanese Equities To Outperform Japanese Bonds - Seeking Alpha

Marc Faber told us to buy Japanese equities last year, stating that government bonds in Japan would underperform equities. One of his stock picks was Nomura Holdings (NMR), which has a dividend of 2% and price to book ratio of 0.65. Its last quarter net earnings were $US 200 million, but it has experienced big losses in the previous quarters. Since Marc Faber disclosed his position in Nomura, the stock fell 20% to date. Nomura is a highly speculative play on Japanese equities, but I believe Japan is undervalued by investors.


I fully concur with Marc Faber to buy Japanese equities, and the best play for this is Nomura Holdings. If people start loving Japanese equities, Nomura will flourish as it is the primary brokerage service in Japan. Let's see why equities will outperform bonds.



Japanese 10 Year Government Bonds have been going up for 30 years and have recently started topping out. The 10 year government bond yield bottomed out at 1% (see chart 1).


While Japanese government bond yields will only return 1%, the dividend yield of Japanese equities has gone up to an average of 2.5% (see chart 2). This means that you will get a higher return in dividends when buying Japanese equities over Japanese government bonds. This cross-over happened somewhere around year 2007, where dividend yields crossed above bond yields. I strongly believe Japanese investors will switch their government bonds into Japanese equities.


One reason for this switch is the Japanese balance of trade (see chart 3) and Japanese current account (see chart 4). Since 2011 the Japanese balance of trade has been going significantly negative and the Japanese current account surplus has been going down. All this started to happen after the Fukushima disaster. As a consequence Japan will import more than it exports, which means more Japanese yen are going out of the country than money is flowing into the country. As these Japanese yen will be converted by foreigners into U.S. dollars, euros, gold etc..., the Japanese yen will diminish in value against other currencies. Recently, it was reported that the yen dropped to the lowest level against the U.S. dollar in 7 months.


This drop in the yen is felt by the Japanese consumer through inflation. The inflation rate is still extremely low in Japan (see chart 5). But when inflation starts to come in, the worst thing to have are Japanese government bonds, because the Japanese yen is losing its value. It isn't unthinkable that Japan will go into hyperinflation some day because of the huge government debt.


Considering that Japan has been deserted by fund managers, I think the best contrarian play would precisely be to buy Nomura Holdings at this time.


Disclosure: I am long NMR.


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Investors: What Do You Really Want? - DailyFinance

I recently sat down with Meir Statman, a professor of finance at Santa Clara University and the author of the book What Investors Really Want. Meir is an expert on behavioral finance and socially responsible investing. ?

James Early: A big premise of your book is that whether we are buying an iPad, a fleece pullover from Patagonia made from recycled soda bottles, or a Prius -- and I bought all three recently -- we are not just buying the product; we are buying into a lifestyle. We are buying into an image. You basically say that we do that with investments, too. Can you elaborate? 

Meir Statman: Yes. When you ask investors why they invest, the answer is always, of course, to make money. But if you explore it a bit, you see that it is much more than that. It is much more like an iPad in that stocks and other investments have utilitarian benefits. Making money is one, but there are also expressive and emotional benefits in messages that you send when you have an iPad: that you are part of a club, that you are forward-looking, and so on. ?

An obvious investment example is socially responsible investing, where people care about making money, of course, from socially responsible funds, but they also want to have the feeling that we have when we drive a Prius -- that we are taking care of the environment. ?

Or another one that might be related to the audience of The Motley Fool: the joy of investing, of poring over stocks, of talking with people about it. It really is a hobby, very much like fixing an old car. The difference is that people will tell you that fixing cars is a hobby -- that they do it because they enjoy it -- but when it comes to investing, people are either blind to themselves or lying to others when they say that all they care about is money. ?

Early: I used to work in the hedge fund industry (as a quick anecdote), and I was amazed that these managers would go to conferences -- and they would have run money for 10 years; at that point, the track record is really what matters -- but their presentation materials had 10 pages on manager background and only one or two pages on returns. And they were still attracting money. In other words, people just seemed so drawn to the image -- to the prestige of investing with particular hedge funds -- over the actual returns. Now maybe that's different these days, but at the time, it was true. ?

Statman: I doubt that it's different these days. If you think about Bernie Madoff, the way he got people in was not just because he had relatively high and stable returns, but also because of the cachet that he had. He was renowned for first rejecting people who wanted to invest with him, and then, when their friends pleaded with him, he reluctantly admitted them to the club. And it worked very well while it worked. ?

Early: We're not very smart sometimes, are we?

Statman: Well, it's not that people are not very smart; we are generally smart. It is just that, sometimes, we are stupid. But I think that we have to forgive our stupidity to ourselves. We are only human. And we have to realize that eventually, money is for something, and sometimes that something is the enjoyment of playing with the money itself. It is a matter of keeping things in proportion. Play with your investments if you enjoy playing, but don't put your retirement money into some get-rich-quick scheme that is going to backfire on you.?

Early: Let's go back to socially responsible investing, and let's just do a hypothetical. Pretend that I have heard that the Kimberley Process, which governs the diamond trade [aiming to prevent blood diamonds from entering the market], is flawed. So I refuse to invest in Anglo American [(OTC: AAUKY)], which now owns De Beers. But then I learn that industrial companies actually use 75% of all diamonds mined. Is the world too complicated for socially responsible investing? ?

Statman: In some ways, it is complicated. I mean, people are complicated, and companies are complicated as well. You will not have a perfect person, and you will not have a perfect company, and so it is a question of: What kind of flaws are you willing to accept? For some people, it is not to be involved in blood diamonds. For others, it is about employee relations. How does the company treat its employees? For some, it is matters of religion -- that they are opposed to abortion. And so you have to figure out what matters to you, and if something is sufficiently revolting to you, and you decide not only not to use the product, but also to stay away from the company's stock, good for you. ?

Early: Meir, your book talks about a lot of different cognitive errors or traps that investors may fall into. In your view, what are some of the very most common or most powerful? ?

Statman: I think that faulty framing comes first, because investors frame the investment game or the trading game wrong, and they end up losing. When you buy a stock because you are sure that it will go up, you always have to ask yourself: Who is the idiot on the other side of the trade? Because in every trade, there is an idiot, and if you don't know who it is, it is you. ?

The way to frame a trading game is not like playing tennis against the wall -- where you can place yourself in the right spot to hit the ball back -- it is like playing tennis against Roger Federer on the other side of the net, and when you know that $100,000 is on the line for the winner. Then you hesitate to enter the game. The same should be the case when you are considering buying a stock or buying gold or buying anything else. Trading often is going to defeat you. ?

Hindsight is another one that is very important. I think that we have this tendency to think that we knew for sure in 2007 that the markets would go down in 2008. If we actually wrote down what we thought in 2007 in ink and went back to read it, we probably said something like, "It looks like stocks are kind of high. It looks like something is funny in housing. I think that we should think about it," and so on. But when 2008 and 2011 come, what we remember is that we knew for sure that stocks will go down, and all the ifs and buts kind of disappear. ?

Early: It seems like a lot of the focus in behavioral finance is on identifying these cognitive errors or biases and thinking of ways to avoid them. Why doesn't someone start a cognitive errors exploitation fund? Isn't that what successful investing comes down to -- simply exploiting the emotional weaknesses of others? ?

Statman: Well, there are funds that try to do just that, but if you think about it, the entire finance industry -- not the entire, but big portions of the financial industry -- are really designed to do precisely that. That is, to exploit the cognitive errors of others, except that it is their customers' errors that they exploit. In other words, it is managers of active funds that charge 1.5% or 2% who are really reaping the benefits of cognitive errors of investors who think that by investing with them, they are going to gain more money. ?

Early: Interesting. Can you broadly discuss how you invest personally? ?

Statman: I invest in index funds exclusively, but I hasten to add this is not for everybody. That is, I drive an old Toyota, even though I can afford pretty much any car I want, because that is my style; that is my notion of myself. But if you want to buy a Lexus because you want some prestige, if you want to invest in a hedge fund because you want some prestige, go ahead. If you like the zoom of a sports car, go ahead and buy that. Just don't tell me that the sports car that you have is going to get you to work faster. It won't -- but it will make you feel good. And if an active fund and trading makes you feel good, fine. Just don't waste your retirement money on those kinds of gadgets. ?

Early: That sounds like the truth. Are you optimistic that the current world economy will create above-average buying opportunities? ?

Statman: Who knows? I don't know, but ask me in a year and I will tell you that I knew for sure. I don't know. I don't know. I really am a diversified investor who has stock funds, domestic, international, bond funds. I have money such that I will not be poor; that's what bonds are for. I have money for a chance to be rich; that is what stocks are for. And I just ride whatever bubble comes up and down. That is, I know from my research -- and that is very important -- that we trust science. I know from my science and other people's science that people who try to time the market mostly end up being losers. So avoiding doing stupid things makes me half smart. ?

This interview originally appeared in James' Motley Fool Income Investor newsletter. To find out more ways Meir Statman seeks to avoid the common behavioral pitfalls of the average investor, head online and check out his blog at whatinvestorswant.wordpress.com.

At the time this article was published James Early does not own any of the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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Blue Gold: Will Investing in Water Stocks Be the Next Big Trend? - DailyFinance

The world's population is growing, and developing areas are demanding more clean water. Since 2001, the water sector has beaten the S&P 500 by 11% annually, according to Business Insider.

But how do you invest in the elusive concept of water? Business Insider gives 13 different ways on how to invest in blue gold, sourced from Jefferies:

1. Municipalities: "Key factors influencing municipal demand for water treatment equipment include population growth, consumption of potable water per capita, and the need to fix or replace aging infrastructure ... Leading companies in municipal water include Pall Corporation."

2. Water Treatment Chemicals: "Water treatment chemical companies include those who produce coagulants, flocculants, corrosion, and scale inhibitors, biocides, antifoaming agents, adsorbents, fluoridation agents to name a few ... Ashland and Ecolab are two leading companies."

3. Industrial: "The industrial segment of the water industry is expected to grow 10-20 percent in developing countries. But expect political constraints to limit price hikes for utilities that provide fresh water and wastewater disposal."

4. Pumps: "Leading companies include Flowserve, which manufactures pumps, seals and valves for water management end-markets, and Gorman-Rupp, a $300 million manufacturer of pumps, pumping stations, castings and control equipment."

5. Pipes: "The U.S. faces significant infrastructure investment requirements over the coming decades and Jefferies recommends long-term plays on infrastructure companies. Stock picks include Northwest Pipe."

6. Residential: "A.O. Smith is the leading manufacturer of water heaters in the residential and commercial space in the U.S. The residential water heater business is largely replacement. Pentair's principal products include residential and light commercial water pumps, filters, and filtration systems."

7. Filtration: "Leading companies include Pall, which supplies filtration, separation and purification technologies to the energy and water markets."

8. Distribution: "Investors will likely look for opportunities created by regulations that impact water distribution systems. The distribution segment of the water industry is expected to grow 10-15 percent in developing countries."

9. Irrigation: "Micro or drip-irrigation is the most promising market, making companies like Monsanto a good bet. Irrigation projects have the most impact in the Middle East and Northern Africa, which account for more than 53 percent of all water demand. South Asia is second with 36 percent of all water demand."

10. Valves: "The repair and replacement of water infrastructure in the developed world has provided an opportunity for water investors. The EPA expects 45 percent of existing infrastructure to be replaced by 2020 and this is expected to benefit companies involved in supplying valves. This could make Flowserve Corp, which manufactures valves for the water management market, a good long-term play."

11. Bottled Water: "Bottled water represents a high-profile market, with an estimated $96-$100 billion in sales in 2010. In the U.S. there is more demand for bottled water than there is for alcohol and coffee. Consumer and regulatory backlash, however, is a perpetual risk."

12. Desalination: "Improved cost effectiveness and booming demand for water in a number of arid regions are driving growth in desalination demand to rates well above the overall water sector. Desalination equipment companies that would make good stock picks include Pentair, Energy Recovery, and Flowserve."

13. Disinfection/Purification: "Emerging purification systems which can lessen energy costs and increase throughput have an extremely receptive audience in an energy constrained world. Growth rates in the disinfection/purification subsector are expected to be among the highest in the industry."

Business section: Investing ideas
Interested in getting involved in water investment? To dig deeper into the options, we list below the companies mentioned in this article.

Do you think increasing demand for water is inevitable? If so, which companies do you think are poised to benefit? (Click here to access free, interactive tools to analyze these ideas.)

1. AO Smith (NYS: AOS) : Engages in the manufacture and sale of water heating equipment to the residential and commercial markets in the United States and internationally. Market cap at $2.15B

2. Ashland (NYS: ASH) : Operates as a specialty chemicals company in the United States and internationally. Market cap at $4.94B

3. Ecolab (NYS: ECL) : Develops and markets products and services for the hospitality, foodservice, health care, and industrial markets primarily in the United States. Market cap at $14.43B

4. Energy Recovery: Engages in the development, manufacture, and sale of energy recovery devices and pumps primarily for use in seawater and brackish water desalination worldwide. Market cap at $0.13B

5. Flowserve (NYS: FLS) : Develops, manufactures, and sells precision engineered flow control equipment. Market cap at $6.69B

6. Gorman-Rupp: Designs, manufactures, and sells pumps and related fluid control products worldwide. Market cap at $703.37M

7. Monsanto (NYS: MON) : Provides agricultural products for farmers in the United States and internationally. Market cap at $41.64B

8. Northwest Pipe: Manufactures and markets large-diameter, high-pressure steel pipeline systems for use in water infrastructure applications, primarily related to drinking water systems. Market cap at $238.45M

9. Pall Corp.: Manufactures and markets filtration, purification, and separation products and integrated systems solutions worldwide. Market cap at $7.28B

10. Pentair: Operates as a diversified industrial manufacturing company worldwide. Market cap at $3.85B

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.

Kapitall's Alexander Crawford does not own any of the shares mentioned above.

At the time this article was published The Motley Fool owns shares of Ecolab. Motley Fool newsletter services have recommended creating a synthetic long position in Monsanto. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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Monday, February 27, 2012

Marc Faber: Living Standard Gone - My Loans Consolidated

Marc Faber talks on Yahoo Finance, “One day we will notice that the standards of living have really gone down, and the employment situation won’t improve.”






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Thailand second to China as top investor market - Independent Online

During 10 turbulent years in Thailand, Kittiratt Na-Ranong tackled jobs ranging from president of the stock exchange to manager of the national soccer team, an underperforming outfit nicknamed the War Elephants.

Now, Kittiratt, 54, has taken on a task with significant implications for fund managers such as Templeton Emerging Markets Group executive chairman Mark Mobius, for market-leading companies such as Intel and Toyota Motor and for consumers of the world’s most important staple food, rice.

Kittiratt said as deputy prime minister and finance minister his task was to convince investors the government could build defences to prevent the recurrence of floods that last year inundated thousands of factories critical to global supply chains as well as a swath of the paddies that supply 29 percent of international rice shipments.

As the waters slowly receded, they laid bare this Southeast Asian country’s extraordinary economic importance to the rest of the world.

Thailand is second only to China among the world’s best emerging markets for investors. The ranking looks at a series of measures such as market transparency and prospects for growth over the next four years.

Thailand’s tiny, $303 billion (R2.3 trillion) stock market as of February 22, accounted for just 0.6 percent of the market value of world equities. As of 2011, its gross domestic product per capita was a mere $5 281 less than half that of Mexico’s. The country is prone to disruptions, ranging from coups d’état and civil strife to tsunamis and floods.

Yet Thailand has developed such successful electronics and auto industries it now produces from 35 to 40 percent of all computer hard-disc drives and, in 2010, built more light trucks than Japan.

In agriculture, besides being the world’s biggest rice exporter, Thailand ranks number one in rubber and number two in sugar. The country that brands itself the Land of Smiles has consistently remained one of the world’s top 20 tourism destinations, attracting more visitors in 2010 than Greece.

Even as the government of Prime Minister Yingluck Shinawatra begins spending a promised 480bn baht (R121bn) on dykes and post-flood reconstruction, it’s working on a longer-term goal – the transformation of an economy heavily dependent on cheap-labour exports into a more consumption-driven model.

Its populist strategy is to give 67 million Thais more spending power by raising urban wages by 40 percent to about $10 a day and guaranteeing farmers they will receive a price for their rice that’s as much as 44 percent above the market rate. Such government initiatives, on top of the chaos caused by the deluge, could inflict a big extra cost on Thai-based manufacturers, rice exporters and their customers worldwide.

Hit by floods

While Kittiratt predicted Thailand’s economy would grow 7 percent this year, Singapore-based Credit Suisse economist Santitarn Sathirathai said the rate might be only 3 or 4 percent. The Thai rice price surged 28 percent from July to mid-November, when it reached a three-year high of $663 a ton.

Templeton’s Mobius is making a big bet on the government’s strategy paying off – and on the Thai economy. Thai stocks comprised 21 percent of the $16.9bn Templeton Asian Growth Fund as of January 31 – second only to Chinese stocks.

In the fourth quarter of 2011, despite the floods, Thailand’s SET index jumped 12 percent to become the world’s fourth-best performer. It has risen a further 11 percent this year as of February 22.

As Kittiratt and Yingluck, Thailand’s first female prime minister, implement their reconstruction programme, Thai companies like cement makers and banks will cash in on a construction-led boom this year, said Aberdeen Asset Management, Scotland’s biggest fund manager.

From 1971 to 2010, Thailand’s annual GDP growth averaged 6 percent despite coups and financial crises.

As buoyant as the Thai economy is, the human and economic cost of last year’s floods has been immense.

About 800 people died, economic growth in 2011 probably plunged to 0.1 percent from a forecast 4 percent, and total damage to the $346bn economy could reach $46bn, the government estimated.

Spectacular comebacks

In 1998, in the wake of the Asian financial crisis, its economy contracted 10.5 percent before rebounding to grow 4.4 percent the next year. Since then, the country has staged spectacular comebacks from a 2004 tsunami and 2006 coup – and the debilitating political protests that followed.

While Kittiratt said recent flood-related damage would be short-term, Thailand will always be threatened by inundation.

In July, torrential rains started falling in northern Thailand.

An area larger than Greece became a world of water. Factories operated by companies such as Honda Motor and Canon were swamped. Even companies that stayed dry, like Toyota, couldn’t escape the impact as their parts makers went under.

Although many companies predicted 2012 production would bounce back, the effect on their bottom lines was not easily erased.

On December 12, Intel, the world’s biggest chipmaker, reduced its fourth-quarter revenue forecast by $1bn. On January 10, Ford said its Asia-Pacific and Africa operations would post a loss.

Biggest investor

Japanese companies fared even worse. In December, Toyota said the Thai floods would cost it $1.53bn as the car maker slashed its profit forecast for the year ending in March by 54 percent. But Toyota chief executive Akio Toyoda said in November the company didn’t consider reducing investment in Thailand.

Selling the plan

In January, the government announced its plan. It approved 350 billion baht for flood defences

. Kittiratt, the man selling the plan, said

in dealing with the floods, there’s no room for failure.

Survival is a historical challenge for Thai governments. Since 1946, Thailand has been rocked by 15 successful or attempted coups and 28 changes of prime minister

The last coup, in 2006, overthrew the elected government of Thaksin Shinawatra, Yingluck’s brother. Tensions culminated in 2010 in violent street protests in which 92 people died. Yingluck, a 44-year-old rookie politician, assumed office in August.

Any new bout of revolving-door leadership could threaten flood-prevention efforts, Aberdeen’s Adithep said. A bigger risk to Thailand’s stability could be the royal succession. King Bhumibol is the world’s longest-reigning monarch, having ascended the lotus throne in 1946. As military and civilian strongmen came and went, Bhumibol remained Thailand’s sole stabilising presence..

By comparison, his heir, twice- divorced Crown Prince Maha Vajiralongkorn, 59, has had to fight off unwelcome publicity about his personal life. A more immediate concern is the performance of the present government.

Yingluck, who has a master’s degree in public administration from Kentucky State University, entered politics last year after a career as an executive in her family’s companies.

Abhisit Vejjajiva, opposition Democrat party leader and a former prime minister, questioned Yingluck’s qualifications as a head of government. But Jetro’s Iuchi said his meetings with Yingluck gave him confidence in her abilities. Yingluck declined to be interviewed.

In 2010, Thailand was by far the biggest rice exporter, shipping 9 million tons. In the same period, its nearest rival, Vietnam, shipped 6.7 million tons.

Overtaken by Vietnam

At a waterfront warehouse on the Chao Phraya River, veteran rice exporter Chookiat Ophaswongse predicted that in 2012, Thailand’s rice exports would plunge by 30 percent.

Apart from flood disruptions, the government’s willingness to pay above-market rates to farmers is making Thai rice noncompetitive, said Chookiat, 57.

As of February 22, the price of Thai rice, an Asian benchmark, had fallen about 15 percent from its November peak.

Investor Marc Faber is more optimistic. He said he didn’t expect the floods to have any impact on Thailand’s long-term prospects.

In 2000, Swiss-born Faber, who oversees $300m at Hong Kong-based Marc Faber, moved his family home to Chiang Mai, a 1 000-year-old walled city 700km north of Bangkok.

In October, floods seeped into the house he built on the banks of the Ping River. Faber, 66, publisher of the Gloom, Boom & Doom Report, said he’d continue to invest in Thailand.

Similarly, US-born Bill Heinecke, who owns hotels managed by Four Seasons Hotels and Marriott International in Thailand as well as his own Anantara-brand resorts, has made a bigger bet on the country than most.

Heinecke, 62, gave up his US citizenship in 1992 to take Thai nationality. Since then, his Minor International has been rattled by the Asian financial crisis, the tsunami and a political protest in 2007 that closed Bangkok’s two airports for a week, stranding 400 000 travellers.

During the worst times, Heinecke’s hotel occupancy rates plunged to less than 20 percent, he said. And yet his business has grown from a single hotel to 70 resorts, 1 200 restaurants and 200 retail stores.

Shares of Minor International, in which King Bhumibol owns a 2.2 percent stake, rose more than 12-fold in the 10 years ended on February 22 – five times the increase in the benchmark index.

In November, Heinecke went ahead with the opening of his latest, riverside Anantara hotel. This was at the height of the floods, with the swollen Chao Phraya reaching the edge of the hotel’s lawns.

“We weren’t going to change the plan,” Heinecke says. “Thailand has a habit of bouncing back.” – Bloomberg


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Saturday, February 25, 2012

Investing in school the right move - Flathead Publishing Group

Investing in rebuilding the Whitefish High School is the right move to ensure the future health and growth of our wonderful community.

My decision to vote in support of the proposed bond reminds me of a decision that I made 11 years ago to relocate my business to a new facility. At the time, leaving our historic downtown location was a painful and controversial option. But when I evaluated my options as a business owner, I realized that my only means of growing the business was to invest in a new facility. While it would have been easier to stay with the status quo, I realized that fixing up the old location wouldn’t alleviate its fundamental shortcomings — lack of parking for our inventory and our customers, limited space for our service department and the fact that the old building was simply worn out.

Relocating and building new proved to be the right investment. Our sales went up. Our service business increased. And no less important, our employees felt that we had invested in them so they were willing to invest in us by committing their careers to the business and working hard to provide a quality customer experience.

The situation at our high school is remarkably similar. We have a worn-out building. No amount of lipstick can change the fact that it doesn’t work in today’s environment. It has served Whitefish families well for five decades but our kids today face a much more complex world than we did. They need the right technology and facilities to support their teachers in providing them the skills they need to compete. Many Whitefish families understand this problem and are making the decision to send their kids to Kalispell where they offer a facility that meets today’s needs. We need Whitefish students in Whitefish schools.

While we are talking about investing in a facility, I believe it’s really the people; in this case the teachers and students — that make the enterprise successful. But I believe it’s time that the owner of our schools, the people of Whitefish, invest in them for the long-run and prove to them that we are here to stay. Just as my employees did in my business, our teachers and our students will step up their performance and re-invest in our community with their time, energy and intelligence.

This time around, the school district has done a good job of making a business-like assessment of its needs. It’s a practical plan to provide a long-lasting solution. It is true that we could spend half as much to make it look a little better. But that would be a very short-term solution as it would not mitigate the current building’s functional, structural and code deficiencies, making it a waste of time and capital. Instead, the proposed plan for the building strikes the right balance between renovating the parts of the existing building that can be done cost effectively and replacing those that are both too expensive to fix and too difficult to re-work to meet our real needs.

Furthermore, the District has done something never before attempted or accomplished in Montana, it actually sought and secured other money before asking the voters for theirs, offering us the chance to buy a $19 million building for only $14 million.

Just as I realized 11 years ago in my own business, we can’t afford today to live in yesterday. I believe it’s now time to move forward by voting yes to fix our school.

— Don Kaltschmidt


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Trade Deficit Will Prove to Be Good for Japanese Stocks - CNBC.com

Japan’s trade deficit surged to a record high in January underscoring the grim outlook for the world’s third largest economy. However, equity strategists believe the weak economic data will compel the Bank of Japan to further expand its asset purchase program, offering a boost to the country’s undervalued stocks.

Tokyo stock screensGrant Faint | Photographer's Choice | Getty Images

“This trade deficit is a very good thing, it provides a lot of excuses and a lot of reasons for the Bank of Japan and the Ministry of Finance to come in with new policies and different ideas of what they are going to do with the economy,” Glen Wood, Partner & Head of Sales of equity research firm, Ji Asia, told CNBC.

Japan on Monday reported a worse-than-expected trade deficit of 1.475 trillion yen ($18.59 billion), more than 50 percent larger than the previous record of a 967.9 billion yen deficit seen in January 2009 during the midst of the global financial crisis.

Analysts say this a clear call for further stimulus by the BOJ, which unexpectedly expanded its asset purchase program by 10 trillion yen last week as part of efforts to weaken the yen and beat deflation. Since the announcement, the yen has fallen over 2.5 percent against the dollar and continues to hover near multi-month lows against other major currencies.

“(A weaker yen) is great for exporters and the whole investment in Japan theme and I think you are going to see capital shift back into Japan,” said Wood.

Market watchers expect further asset purchases by the BOJ, which will push the yen further down against the dollar in weeks to come, thereby benefiting the country’s exporter stocks that have been hard hit by the strength of the currency.

"At the end of the day if this weakness of the yen is engineered correctly, I think it’s the broad Japanese market that would actually have a substantial rally,” Clay Carter, Head of International Equities, Perennial Investment Partners, said.

Marc Faber, editor of the Gloom Boom & Doom Report, told CNBC last week that Japan was his favorite equity market based on the yen weakening past key levels against the dollar.

“I think there's a good chance that Japanese stocks will surprise on the upside," Faber said.

John Vail, Chief Global Strategist, Nikko Asset Management added, "We are overweight on Japanese equities for the next to 3-6 months, valuations are extremely low. Things are looking quite good in Japan right now especially as the yen is weakening."

While exporters are likely to be the main beneficiary of weakness in the Japanese currency, Wood says cyclical stocks in the shipping and steel sectors also look attractive on the back of an improving outlook for the U.S. economy.

“The yen sensitive sectors are obviously moving the fastest, but on top of that you will get tailwinds coming from U.S. (economic data) – that’s great for some of the cyclicals,” Wood said.


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Friday, February 24, 2012

What To Look At Before Investing In That Rental - Business Insider

Lower home prices and mortgage rates are causing many people to consider taking the real estate investment plunge. But as with any big financial investment, what may be a good strategy for some, may be harmful for others.

Something to keep in mind: If you are planning on trading cash in lower risk CDs or bonds for real estate, you are trading into a dramatically higher risk asset. However, if if you do decide to jump into the investment property game, you should make sure to vet the property investments you plan to acquire to better increase the chances that the real estate you buy will increase your net wealth, not decrease it.

This is, of course, assuming you already understand the most important item in investing: making sure the property you are buying is cash-flow positive based on conservative estimates, and provides you a fair rate of return on your investment. Read more about estimating cash-flow on properties here.

What other items and issues does a buyer need to review when buying an investment property?

Most people know to always have a home inspection done when they are buying property. While a competent home inspector will note all the items working or not, the inspector is not pricing out the costs to get all those items repaired, nor other items like painting, flooring, etc. that you might plan to have done. It’s your job to put together a list of all the work and get with your contractor to price them out. Put that number into your financial analysis and note that properties in poor condition rarely sell at a large enough discount to compensate for all rehabilitation work that needs to be done!

When you buy property, a title policy protects you in case there is a title problem, like the seller’s ex-fiancée was a part owner in the property but didn’t sign off on the sale. In this case, it is the title insurer’s problem and they will cover costs to defend you and settle any dispute, up to the policy maximum limit, unless the title issue was “Excluded” from the title policy.

The Schedule of Exclusions will note issues the title insurance policy will not cover, like recorded easements. It is vital to review the information there as well as in the title abstract. If there is a title issue that was “excluded” from coverage, it is your problem, not theirs.

Your land, lot, or condominium — plus parking spaces and storage — will also have a defined legal description of what you own. There may be a county plat showing it and/or you might want to have a survey done of the lot lines. Either way, you should walk the property and compare when you physically see to what is on the plat/survey to make sure you are comfortable that no neighbors’ fences, driveways, etc. are encroaching on your lot. If it is a condominium, make sure you review the recorded rights to your interior space, patios, parking spaces, storage, etc.

If you are buying a property in a common interest development like a condo or town home, you are not only buying your individual unit, you are buying into the larger entity. Thus, you are responsible for your share of the cost to pay for those, via HOA fees. There are many many risks related to HOAs, a few range from unfunded reserves for repairs and replacements to litigation and water issues. You can do analysis to better reduce your risk of buying into an HOA that is in a disastrous state, but you have to do the hard work of doing the proper due diligence.

You also need to make sure you are getting a fair deal on your mortgage financing. Just getting one bid from one lender is not good enough. Shop around to get pricing from at least two lenders and carefully compare those mortgage bids to determine which one gives you the best fees versus interest rate deal. It’s not easy to do as the Good Faith Estimate forms are quite complicated, but that’s no excuse for not doing the proper analysis.

Lastly, do you have the proper type and amount of insurance coverage in place? Make sure to sit down with your insurance agent and determine what you need to be adequately covered. Look into umbrella policies as well as earthquake, interior condominium HO-6 policies and any other coverage you need. Pick your real estate agent‘s brain so you have the proper coverage for your risks.

A real estate investment, whether rental property or a home, is the largest, most complicated, and riskiest purchase you will ever make. Experienced investors know how to better reduce their exposure with the proper due diligence; you need to make sure you know how to do the proper steps too!

It’s your money, and your retirement, at risk. You don’t want to find out, after disaster strikes, that you could have reviewed, analyzed, researched and done the hard work upfront to have protected yourself and avoided that issue from ever happening in the first place.

Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a Zillow Blogger, the author of several books including “Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate”, and loves kicking the tires of a good piece of dirt! See more at ProfessorBaron.com.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

This post originally appeared at Zillow.


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Private equity firm bets on Asia's frontier markets - Moneycontrol.com

As investors chase yields by investing in high growth emerging markets, private equity firm Leopard Capital is looking beyond traditional economic powerhouses like China and India, to less talked about frontier markets including Myanmar, Bangladesh and Cambodia based on their future growth potential.


"Myanmar will be one of the great investment stories of 2013, it`s changing very rapidly now. This is a country, for 50 years that missed out on the whole Asian miracle," said Douglas Clayton, Founder and CEO of Leopard Capital, which is in talks to launch a fund there.


"It is going to catch up very rapidly as the reforms take place.... everything is being changed, (from) the foreign exchange regime to the foreign investment code, and so on," he added.


Cayman Islands-based Leopard Capital was set up in 2007 to invest in "pre-emerging" markets. The firm`s consulting partners include veteran investors such as Marc Faber and Jim Walker.


In terms of investment opportunities in Myanmar, Clayton says the firm is looking at sectors which represent the "essentials of life" including power, Internet, agriculture and financial services.


However, he notes that the lack of a stock exchange in the country means that it is difficult for institutional and retail investors to gain exposure to the market now. According to local media sources, Myanmar`s government has committed to developing a viable stock exchange in the country by 2015, and will start selling shares in state-owned enterprises this year.


Emerging manufacturing hubs


In addition to Myanmar, Clayton says Bangladesh and Cambodia, both of which are emerging manufacturing hubs and have growing consumer markets, look attractive.


"Bangladesh is one of the cheapest places to manufacture in, and as China gets more expensive, factories are rapidly moving down into places like Bangladesh and Cambodia," he said.


In Bangladesh, the potential lies in traditionally "Indian-dominated" sectors such as textiles, pharmaceuticals, technology and outsourcing, he said. "We have a chance to `relive` the now foregone India play."


According to Clayton, the best ways to invest in Bangladesh are via the stock market, the Dhaka Stock Exchange, which slumped over 35% in 2011, or private equity funds. Leopard Capital is currently putting together a USD 100 million fund for Bangladesh.


In Cambodia, where the company manages the country`s first private equity fund worth USD 34 million, sectors including financial services, consumer goods, power and telecom infrastructure and property, are the main focus, he said.


He said the 35 banks and 11 cell phone operators in Cambodia, most of which are international companies, illustrate the vast potential of the market.


While there is huge growth opportunity in these frontier markets, there are also risks to conducting business there, the most "daunting" being the lack of in-depth managerial experience within most of the local companies seeking capital, he said.


"Our team has to provide intensive operational support to help bring some portfolio companies up to international best practices," Clayton said.



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Thursday, February 23, 2012

Investing Mistakes: A Result Of Your DNA? - The Guru Investor

February 22, 2012 by The Guru Investor

How much of our investment success or failure is a result of our genetic makeup? An intriguing new study attempts to answer just that question, The Wall Street Journal’s Jason Zweig notes on WSJ’s Total Return blog. 

The study, performed by finance professors Henrik Cronqvist of Claremont McKenna College and Stephan Siegel of the W.P. Carey School of Business at Arizona State University, draws on “two sets of remarkable data” from Sweden, Zweig says. One data set is available because the Swedish government until recently collected data about each holding of taxpayers’ investment accounts, Zweig says, and the other is available because the Swedish government enters all twin births in a national registry. Cross-referencing the two data sets, the professors were able to track how similar or different twins’ investing behaviors were. They looked to see whether sets of twins demonstrated five main behavioral investing mistakes: inadequate diversification, excessive trading, reluctance to sell at a loss, chasing hot recent performance, and trying to get rich quick.

“Cronqvist and Siegel found, across the twins in their sample, that genetic variation explained between one-quarter and nearly one-half of the extent to which investors suffered from these biases,” Zweig reports. “Inadequate diversification scored the highest, with genetic effects explaining 45.3% of the variation across investors. At the low end, 25.7% of the degree to which investors traded too much was explained by their genetic variation.”

Zweig notes that there obviously is more to a person’s investing decisions than DNA. “But there’s good reason why Wall Street’s marketers invoke urgency, familiarity, temptation and a lottery mentality when they’re selling products and services,” he adds. “Millions of investors are probably born with the genetic predisposition to underdiversify, trade too much, chase hot returns and bet on longshots. … This new research hammers home how vital it is for us all to realize, in the immortal words of Benjamin Graham, that ‘the investor’s chief problem — and even his worst enemy — is likely to be himself.’”

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Thailand Proving Best After China Among Global Emerging Markets - Bloomberg

Enlarge image Kittiratt Na-Ranong, Thailand's deputy prime minister Kittiratt Na-Ranong, Thailand's deputy prime minister Kittiratt Na-Ranong, Thailand's deputy prime minister and minister of commerce, predicts the economy will grow as much as 7 percent in 2012.

Kittiratt Na-Ranong, Thailand's deputy prime minister and minister of commerce, predicts the economy will grow as much as 7 percent in 2012. Photographer: Brent Lewin/Bloomberg

During 10 turbulent years in Thailand, Kittiratt Na-Ranong tackled jobs ranging from president of the stock exchange to manager of the national soccer team, an underperforming outfit nicknamed the War Elephants.

Now, Kittiratt, 54, has taken on a task with significant implications for fund managers such as Templeton Emerging Markets Group Executive Chairman Mark Mobius, for market-leading companies such as Intel Corp. (INTC) and Toyota Motor Corp. (7203) and for consumers of the world’s most important staple food, rice, Bloomberg Markets reports in its March issue.

As deputy prime minister and finance minister, Kittiratt says, his task is to convince investors that the government can build defenses to prevent the recurrence of floods that last year inundated thousands of factories critical to global supply chains as well as a swath of the paddies that supply 29 percent of international rice shipments.

“We have learned from the pain and will not let this happen again,” he says.

As the waters slowly receded, they laid bare this Southeast Asian nation’s extraordinary economic importance to the rest of the world.

In a Bloomberg Markets ranking, Thailand is second only to China among the world’s best emerging markets for investors. The ranking looks at a series of measures such as market transparency and prospects for growth over the next four years.

Thailand’s tiny, $303 billion stock market as of Feb. 22 accounts for just 0.6 percent of the market value of world equities. As of 2011, its gross domestic product per capita was a mere $5,281, less than half that of Mexico’s. The country is prone to disruptions ranging from coups d’etat and civil strife to tsunamis and floods.

And yet Thailand has developed such successful electronics and auto industries that it now produces from 35 to 40 percent of all computer hard disk drives and, in 2010, built more light trucks than Japan.

In agriculture, besides being the world’s biggest rice exporter, Thailand ranks No. 1 in rubber and No. 2 in sugar. The country that brands itself the Land of Smiles has consistently remained one of the world’s top 20 tourism destinations, attracting more visitors in 2010 than Greece.

“Until these floods, people had no idea how important Thailand is in the global marketplace,” says Thiraphong Chansiri, 45, president of Thai Union Frozen Products Pcl. (TUF)

Thiraphong’s Bangkok-based company, which owns the Chicken of the Sea brand in the U.S. and John West in Europe, is the world’s No. 1 producer of canned tuna.

Even as the government of Prime Minister Yingluck Shinawatra begins spending a promised 480 billion baht ($15.7 billion) on dykes and post-flood reconstruction, it’s working on a longer-term goal: the transformation of an economy heavily dependent on cheap-labor exports into a more consumption-driven model.

Its populist strategy is to give 67 million Thais more spending power by raising urban wages by 40 percent to about $10 a day and guaranteeing farmers they will receive a price for their rice that’s as much as 44 percent above the market rate.

Such government initiatives, on top of the chaos caused by the deluge, could inflict a big extra cost on Thai-based manufacturers, rice exporters and their customers worldwide.

“The issue is the timing, coming when companies have already been hit by the floods and the global slowdown,” says Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG.

While Kittiratt predicts that Thailand’s economy will grow as much as 7 percent this year, Santitarn says the rate may be only 3 or 4 percent.

The Thai rice price surged 28 percent from July to mid- November, when it reached a three-year high of $663 a metric ton.

Asked if government policies would push up the price of Thai rice on global markets, Kittiratt says over a breakfast of chili-laced rice soup, called khao tom, in a Bangkok hotel:

“I hope they do. Why should a bowl of rice in a restaurant cost only one-third the price of a bottle of mineral water?”

Templeton’s Mobius, who oversees more than $40 billion, is making a big bet on the government strategy’s paying off -- and on the Thai economy.

Thai stocks comprised 21 percent of the $16.9 billion Templeton Asian Growth Fund as of Jan. 31 -- second only to Chinese stocks.

Mobius’s calculation that the floods wouldn’t sink the Thai economy is borne out by the numbers.

In the fourth quarter of 2011, despite the floods, the SET Index jumped 12 percent to become the world’s fourth-best performer. It has risen a further 11 percent this year as of Feb 22.

“Many investors have questioned our investments in the country,” Mobius says. “However, we have found good companies that could survive downturns and rise even stronger afterwards. Those companies have now proven their resilience.”

Mobius isn’t alone is his optimism.

As Kittiratt and Yingluck, Thailand’s first female prime minister, implement their reconstruction program, Thai companies such as cement makers and banks will cash in on a construction- led boom this year, according to Aberdeen Asset Management Plc, Scotland’s biggest fund manager.

“The building-materials sector is bursting at the seams,” says Adithep Vanabriksha, who helps manage $4.5 billion from Aberdeen’s office in Bangkok, the Thai capital.

Among his picks: Siam Cement Pcl (SCC) and Siam Commercial Bank Pcl (SCB), two blue chips controlled by the Crown Property Bureau, which manages the assets of Thai King Bhumibol Adulyadej.

Thailand, the only Southeast Asian country never to be colonized, has come a long way in recent decades.

A feudal absolute monarchy until 1932, it had a per capita income of just $200 as recently as the late 1950s, according to United Nations figures.

As the Vietnam War raged in the 1960s, the U.S., an ally of Thailand, built military bases, roads and ports.

Successive Thai governments offered incentives, including tax breaks, to foreign investors who were also lured by a combination of cheap labor and, more recently, Thailand’s strategic location in a region of 575 million consumers.

Toyota opened its first factory in 1962, and other Japanese titans, such as Canon Inc. (7751) and Sony Corp. (6758), followed.

In 1983, Cupertino, California-based Seagate Technology Plc (STX), the world’s biggest maker of hard disk drives, began production in Bangkok.

Western Digital Corp., its Irvine, California-based rival, followed suit, as did U.S. automakers Ford Motor Co. (F) and General Motors Co.

Hundreds of Thai companies sprang up to supply parts. From 1971 through 2010, Thailand’s annual GDP growth averaged 6 percent despite being buffeted by coups and financial crises.

As buoyant as the Thai economy is, the human and economic cost of last year’s floods has been immense.

Some 800 people died, economic growth in 2011 probably plunged to 0.1 percent from a forecast 4 percent and total damage to the $346 billion economy could reach $46 billion, according to government estimates.

Thailand has a history of pulling itself back from the brink.

In 1998, in the wake of the Asian financial crisis, its economy contracted 10.5 percent before rebounding to grow 4.4 percent the following year.

Since then, the country has staged spectacular comebacks from a 2004 tsunami and a 2006 coup -- and the debilitating political protests that followed.

While Kittiratt says the recent flood-related damage will be short-term, Thailand will always be threatened by inundation: After all, much of the Thai economic miracle takes place on flood plains that are just 2 meters (6-1/2 feet) above sea level.

Bangkok is at the best of times a watery place.

The broad, brimming Chao Phraya River laps against many of the capital’s luxury hotels, sacred Buddhist temples, the gold- spired Grand Palace and even Siriraj Hospital, where King Bhumibol, 84, has spent the past two years receiving treatment for spinal and other ailments.

The city and surrounding areas are also crisscrossed by a network of man-made canals.

In July, torrential rains started falling in northern Thailand. By October, reservoirs north of Bangkok became so full that authorities decided to release 9 billion cubic meters (318 billion cubic feet) of water into the Chao Phraya basin, the Thai heartland.

An area larger than Greece became a world of water. Factories operated by companies such as Honda Motor Co. and Canon were swamped. Even those companies that stayed dry, such as Toyota, couldn’t escape the impact as their parts makers went under.

Although many companies predict that 2012 production will bounce back, the effect on their bottom lines was not easily erased.

On Dec. 12, Santa Clara, California-based Intel, the world’s biggest chipmaker, reduced its fourth-quarter revenue forecast by $1 billion, saying a shortage of hard disk drives as a result of the floods had cut production of personal computers.

In January, Intel reported sales of $13.9 billion for the fourth quarter after earlier predicting revenue of as much as $15.2 billion for the period.

On Jan. 10, Ford said its Asia-Pacific and Africa operations would post a loss for the same reason.

Japanese companies fared even worse. Japan is the biggest foreign investor in Thailand; it pumped $3.15 billion into the country in 2010.

In December, Toyota said the Thai floods would cost it $1.53 billion as the automaker slashed its profit forecast for the year ending in March by 54 percent.

Nonetheless, Toyota Chief Executive Officer Akio Toyoda said in November the company wasn’t considering reducing investment in Thailand.

Other major Japanese companies are unlikely to leave either, says Setsuo Iuchi, president of the Japan External Trade Organization (Jetro) in Thailand.

What they may do, though, is spread the risk by also looking at neighboring countries such as Indonesia and Vietnam for future expansion.

“Many companies are now reviewing the location of resources,” Iuchi says. “They want to see a proper water- management plan from the Thai government.”

In January, the government announced its plan. It approved 350 billion baht for flood defenses.

Kittiratt, the man selling the plan, worked as a banker, stockbroker and asset manager, overseeing $500 million, before founding his own company, zinc oxide maker Univentures Pcl.

From 2001 to 2006, he served as president of the Stock Exchange of Thailand during a period when the market capitalization tripled, though he quit after failing to secure what might have been the country’s biggest-ever listing: Thai Beverage Pcl, a beer and whiskey maker that sold $865 million of shares in Singapore.

Kittiratt then spent a year managing the national soccer team. On his watch, the War Elephants’ global ranking improved to 98th from 122nd. Kittiratt left after Thailand failed to qualify for the 2010 World Cup.

In dealing with the floods, he says, there’s no room for failure.

“Any administration that lets this happen again cannot survive,” he says.

Survival is a historical challenge for Thai governments. Since 1946, Thailand has been rocked by 15 successful or attempted coups and 28 changes of prime minister.

The last coup, in 2006, overthrew the elected government of Thaksin Shinawatra, Yingluck’s brother, for what the military claimed was corruption. He fled the country in 2008 and is living in exile in Dubai.

Since then, Thai society has split, pitting the minority urban elite against the pro-Thaksin rural poor. Tensions culminated in 2010 in violent street protests in which 92 people died.

Yingluck, a 44-year-old rookie politician, assumed office in August. Her victory, which drew on support for her brother, made her the sixth prime minister in as many years.

Any new bout of revolving-door leadership could threaten flood-prevention efforts, Aberdeen’s Adithep says.

“Such large projects require a lot of will and continuity, and there’s a risk that government instability could be a constraint,” he says.

A bigger risk to Thailand’s stability could be the royal succession.

King Bhumibol is the world’s longest-reigning monarch, having ascended the lotus throne in 1946. As military and civilian strongmen came and went, Bhumibol remained Thailand’s sole stabilizing presence.

Though his powers are limited by the constitution, he wields much influence, and many Thais regard him as semidivine.

By comparison, his heir, twice-divorced Crown Prince Maha Vajiralongkorn, 59, has had to fight off unwelcome publicity about his personal life.

A more immediate concern is the performance of the present government.

For Yingluck, who has a master’s degree in public administration from Kentucky State University, the floods were a baptism of fire. Seventeen years younger than Thaksin, she entered politics only last year after a career as an executive in the family’s property and telecommunications companies.

Abhisit Vejjajiva, opposition Democrat party leader and a former prime minister, questions Yingluck’s qualifications as a head of government.

“It’s not a job you should learn on the job,” says Abhisit, 47, who’s a career politician.

Jetro’s Iuchi says his meetings with Yingluck gave him some confidence in her abilities.

“She doesn’t have much experience politically, but I think she’s smart,” he says. Yingluck declined to be interviewed for this article.

Along the Chao Phraya River, hulking black barges wait to have their holds filled with Thai rice.

In 2010, Thailand was by far the biggest rice exporter, shipping 9 million tons. During the same period, its nearest rival, Vietnam, shipped 6.7 million tons.

At a waterfront warehouse, veteran rice exporter Chookiat Ophaswongse says he’s worried. He predicts that in 2012, Thailand’s rice exports will plunge by 30 percent and may be overtaken by Vietnam.

The reason: Apart from the disruption caused by the floods, the government’s willingness to pay above-market rates to farmers is making Thai rice noncompetitive, says Chookiat, 57, whose family-owned Huay Chuan Rice Co. has been trading the grain for 50 years.

“Thailand will be in a very bad position,” he says.

As of Feb. 22, the price of Thai rice, an Asian benchmark, had fallen about 15 percent from its November peak.

Investor Marc Faber is more optimistic. He says he doesn’t expect the floods to have any impact on Thailand’s long-term prospects.

In 2000, Swiss-born Faber, who oversees $300 million at Hong Kong-based Marc Faber Ltd., moved his family home to Chiang Mai, a 1,000-year-old walled city 700 kilometers (435 miles) north of Bangkok.

In October, floods seeped into the teak house he built on the banks of the Ping River. Faber, 66, publisher of the Gloom, Boom & Doom Report, says he’ll continue to invest in Thailand.

“Some companies will have second thoughts about expanding their Thailand operations, but the majority will continue to operate here,” he says.

Similarly, U.S.-born Bill Heinecke, who owns hotels managed by Four Seasons Hotels Inc. and Marriott International Inc. in Thailand as well as his own Anantara-brand resorts, has made a bigger bet on the country than most.

The son of a Voice of America correspondent, Heinecke, 62, gave up his U.S. citizenship in 1992 to take Thai nationality.

Since then, his Minor International Pcl (MINT) has been rattled by the Asian financial crisis, the tsunami and a political protest in 2007 that closed Bangkok’s two airports for a week, stranding 400,000 travelers.

During the worst times, Heinecke’s hotel occupancy rates plunged to less than 20 percent, he says. And yet his business has grown from a single hotel to 70 resorts; 1,200 restaurants, including a Burger King franchise; and 200 retail stores, including Gap Inc. outlets.

Shares of Minor International, in which King Bhumibol owns a 2.2 percent stake, rose more than 12-fold in the 10 years ended on Feb. 22 -- five times the increase in the benchmark index.

In November, Heinecke went ahead with the opening of his latest, riverside Anantara hotel. This was at the height of the floods, with the swollen Chao Phraya reaching the edge of the hotel’s lawns.

“We weren’t going to change the plan,” Heinecke says. “Thailand has a habit of bouncing back.”

-- With assistance from Daniel Ten Kate and Suttinee Yuvejwattana in Bangkok. Editors: Stryker McGuire, Jonathan Neumann

To contact the reporters on this story: William Mellor in Sydney at wmellor@bloomberg.net; Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net

To contact the editor responsible for this story: Laura Colby at lcolby@bloomberg.net.


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Asia Stocks, Euro, Aussie Fall Amid Greece Rescue Talks; Treasuries Drop - Bloomberg

U.S. Stocks Retreat  Feb. 21 (Bloomberg) -- Debt-stricken Greece won a second bailout after European governments wrung concessions from private investors and tapped into European Central Bank profits to shield the euro area from a precedent-setting default. David Tweed reports from Brussels on Bloomberg Television's "Countdown" with Linzie Janis and Owen Thomas. (Source: Bloomberg)


U.S. equities pared early gains as a surge in oil dragged down transportation and consumer shares while Greece’s approval for a second bailout failed to spur enough confidence to keep the Standard & Poor’s 500 Index at an almost four-year high. Treasuries declined.


The S&P 500 rose 0.1 percent to 1,362.21 at 4 p.m. in New York after earlier climbing as much as 0.5 percent to top its highest closing level since June 2008. The Dow Jones Industrial Average trimmed its advance after climbing above 13,000 for the first time since May 2008. The Stoxx Europe 600 Index lost 0.5 percent. The 10-year U.S. Treasury yield jumped six basis points to 2.06 percent. Oil reached a nine-month high near $106 a barrel as Iran said it stopped selling to France and Britain.


European finance ministers approved 130 billion euros ($173 billion) in aid for Greece by tapping into European Central Bank profits and coaxing investors into providing more debt relief to shield the region from a default. The early rally in U.S. equities was also triggered by better- than-estimated earnings at companies from Home Depot Inc. to Macy’s Inc.


“When you reach a headline level, there’s always some fall-back in the short-term,” Madelynn Matlock, who helps oversee about $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “Having a deal in Greece means that at least in March we don’t have the prospect of a disorderly default facing us. Obviously, this doesn’t solve any long-term problems. On top of that, in a climate where nobody in the developed world has wonderful growth, the last thing you need is higher oil prices.”


Energy companies in the S&P 500 rallied 0.8 percent as a group, paced by gains of more than 1 percent in Exxon Mobil Corp. and Chevron Corp. The Bloomberg U.S. Airlines Index slumped 6.4 percent, the most since October, amid concern about higher fuel costs. US Airways Group Inc. lost 11 percent and United Continental Holdings Inc. sank 9.1 percent.


Gauges of clothing makers and retailers of food and consumer staples lost at least 1.4 percent for the biggest declines among 24 industries in the S&P 500. Wal-Mart Stores Inc. (WMT) slid 3.9 percent, the most since August, after the biggest retailer’s quarterly earnings trailed analysts’ estimates as an emphasis on low prices hurt margins.


The S&P 500 earlier rose as much as 0.5 percent to 1,367.76, above its highest close since June 2008. Alcoa Inc. (AA) rose 2.6 percent for the biggest gain in the Dow, which closed 15.82 points higher at 12,965.69 after climbing as high as 13,005.04.


About three shares fell for each that advanced in the Stoxx 600 (SXXP). Segro Plc, the U.K.’s largest publicly traded owner of industrial properties, sank 2.1 percent after saying net asset value declined 9.8 percent. Real-estate companies fell 1.5 percent as a group for the biggest drop among 19 industries.


Europe is still struggling to avoid the threat of default as investors warned Greece will soon risk violating the terms of its second bailout in three years. The nation signed up to a program of austerity and economic reform aimed at slashing debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year.


Economists from Citigroup Inc. to Commerzbank AG concluded Greece may again fail to deliver on austerity goals amid a fifth year of recession, looming elections and social unrest.


“The Greek bailout keeps the wheels on the bus,” James Dunigan, who helps oversee $107 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a phone interview. “The ride is a little smoother, but it doesn’t solve the longer-term issues.”


The two-year Treasury yield increased less than one basis point to 0.303 percent following an auction of $35 billion of the notes. The notes yielded 0.310 percent, matching 0.310 percent in pre-auction treading and compared with 0.25 percent at the previous sale on Jan. 24. The Treasury auction drew a bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, of 3.54 compared with an average of the past 10 auctions of 3.49 percent.


The Dollar Index, which tracks the U.S. currency against those of six trading partners, fell 0.3 percent. The Australian dollar weakened against all 16 of its major counterparts, losing 0.8 percent versus the U.S. currency, after minutes of the nation’s most-recent central bank policy meeting showed there is scope for monetary easing.


Brent oil for April settlement increased $1.63, or 1.4 percent, to $121.68 a barrel on the London-based ICE Futures Europe exchange.


Iran stopped selling oil to France and Britain yesterday, preempting a European Union ban, an official news website said. EU nations bought a combined 18 percent of Iran’s exports of crude and condensates, or 452,000 barrels a day, in the first half of 2011, according to the U.S. Energy Department. France purchased 49,000 barrels a day and the U.K. 11,000 barrels.


Nineteen of the 24 commodities tracked by the S&P GSCI Index advanced, sending the gauge up 1.7 percent. Copper advanced the most in 11 weeks, climbing 3.5 percent to $3.8445 a pound in New York. Spot gold increased 1.2 percent to $1,755.60 an ounce and silver advanced 3.7 percent.


Commodities also rallied in the first U.S. trading session since China’s central bank cut reserve requirements for banks in an effort to boost lending and support economic growth. U.S. markets were closed yesterday for the Presidents’ Day holiday.


The yield on the Spanish two-year note declined seven basis points to 2.76 percent as the government sold 2.5 billion euros of three- and six-month bills. The yield on the 10-year Italian bond dropped four basis points to 5.44 percent, driving the extra yield investors demand to hold the securities instead of bunds six basis points lower.


The MSCI Emerging Markets Index (MXEF) lost 0.3 percent. Russia’s Micex Index slid 1.3 percent. The Turkish lira slipped 0.6 percent after the central bank cut its highest lending rates. India’s Sensex rose 0.8 percent after trading resumed following yesterday’s holiday.


To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net


To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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Wednesday, February 22, 2012

Marc Faber Likes U.S. Real Estate & Concubine Tenants (EWJ, THD, IYR, EWZ, FXI ... - ETF Daily News

Dominique de Kevelioc de Bailleul:  Gloom Boom Doom Report publisher Marc Faber was back on Fox Business, Friday, with his latest thoughts on Greece, China, stocks, U.S. real estate, and some creative ideas for male real estate investors during these troubled times.


“It’s a symptom of a wider problem that we have over-indebted governments in the Western world and Japan (NYSEArca:EWJ), and this is just a small plate, a small appetizer to much larger problems and a much larger crisis,” Faber said about strained Greece negotiations with the EU.  As for stocks, generally, the Swiss pony-tailed expat from Thailand (NYSEArca:THD) believes the rally from the December lows has been too strong to jump on board, yet, especially during the seasonally weak month of February for equities.  He also has been watching the weakest sectors of the economy (home builders and banks) for clues to the overall market direction for the coming weeks.


“Basically, what has happened, the market peaked out last May in 2011, then it dropped to 1,074 on October 4th on the S&P.  Now we’re up 25 percent,” Faber explained.  “The market is very overbought right now, and any excuse for profit taking is now being taken.  And I think February is traditionally a weak seasonal month, so we’ll go down first for a while.


“I would just wait a little bit [before buying stocks] because, take for instance the home builders and the banks: the home builders, in some cases, are up 100 percent from the lows, last October [and] November; the banks are up 60 to 70 percent from the December lows.  I would just wait here a little bit because, we don’t know how bad the correction will look like—could be 100 points on the S&P, could be 200 points.”


Like Peter Schiff of Euro Pacific Capital, Faber likes high-yielding foreign stocks, especially in the area of the world that which Faber is most knowledgeable and comfortable—Asia.


“Well I bought some shares in November [and] December of last year, and I’m not going to sell them because they are high dividend shares in Asia, and I quite like the Asian markets.”


Faber especially likes “Singapore REITs and real estate related companies in Thailand, because they knocked off the industrial park companies following the flooding of the Thai … some Thai industrial states,” adding, “and some shares in Hong Kong.”


Following the lows in December, globally, stocks have move up in tandem as the so-called ‘risk-on’ trade drew investors off the sidelines back into stocks, as investors anticipated a loosening of monetary policy among the world’s dominate central banks.


Moreover, India, whose currency took a mini-crash last year of approximately 20 percent within a one-month period, has rallied back from its nearly 54 rupee level low against the U.S. dollar at the end of 2011, now trading at the 49 handle, as the risk-on trade flows back more strongly into emerging markets once again.


“Actually, what is interesting, in this rally, since early January, emerging markets have done best,” Faber pointed out.  “India is up 14 percent, and the currency has strengthened.  So you’re up almost 20 percent, in essentially, a month’s time.  So all these markets have become overbought—near term.”


Generally, Faber doesn’t like stocks in the U.S.; he likes the battered down residential real estate market (NYSEArca:IYR), instead.


“I like real estate in the U.S…  Just buy a house,” he chuckled.


In typical Faber style, he went on to share an anecdote from his most recent destination.  This time, the vignette takes place in Phoenix, a city among the worst hit by the across-the-board U.S. residential real estate crash.


“I was in Phoenix the other day,” Faber began.  “Then, the taxi driver took me to the hotel, nice hotel, Fairmont.  And then he told me the person that I just drove before you—I drove him to a five-bedroom house.  He told me he just bought it for $120,000.  Where in the world can you buy a five-bedroom house for $120,000?  I would buy it, live in one bedroom and rent out four bedrooms to concubines.”


But he wouldn’t rent out spare rooms to any foursome of concubines, according to Faber; the concubines must pay rent to him so that the property would throw off cash.


“If you take a very bearish view of the world, then at least—if you own property, you still own it—you pay for cash and get the cash flow as I suggested [from the concubines].  And if you are very bullish about the world, it means the demand for real estate will go up.”


Faber continued, sharing his observation from his earlier stop in Miami.  There, Faber said he witnessed the ‘crane index’, firsthand.


“I was three days in Miami.  Three years ago, I counted 47 cranes, building highrises,” he said.  “This time around, I counted one crane, destroying a building.  So, the market has cleared, actually, in Miami.”


Faber noted the frustrations that foreigners across the globe face when seeking overseas bank accounts outside their native countries—which has been a growing trend since the Asian currency of 1997-8, and magnified by the current ruse by many nations disguising capital controls with ‘fighting terrorism’.


“A lot of money has come from Latin America, from Russia because, if you want to open a bank account somewhere, they ask so many questions.  But as a foreigner, you can go buy a condo,” Faber said.


Globally, Faber is less concerned with the drama playing out in Greece.  His concern focuses upon the only economy primarily responsible for driving global growth (mostly from resources purchases) since the collapse of Lehman Brothers in 2008.  That country, of course, is China (NYSEArca:FXI).


“When we talk about Greece, the major issue for the world economy is China,” he explained.  “And China has been slowing down.  Industrial production is down; electricity consumption is down; exports were down; and cement production is down; steel production is down.  So, many indicators point to a meaningful slowdown in the [world] economy.”


According to Faber, the countries of Australia (NYSEArca:EWA) and Brazil (NYSEArca:EWZ) are most vulnerable to a marked decline in Chinese consumption, especially of raw materials—which has recently given rise of talk among some analysts that the Aussie dollar and Brazilian real may be due for a decline due to a China slowdown.


At the end of the interview, the two Fox Business hosts thanked Faber for his appearance and for “the information about the concubines.”


Faber replied, “Yes, yes, yes [about the concubines].  It’s most important; it’s an urgent matter.”



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US Housing Among Most Attractive Assets: Marc Faber - CNBC.com

The housing market in the south of the United States is among the most attractive asset classes in the world, Marc Faber, the editor of the Gloom Boom & Doom Report, told CNBC on Friday, because while homebuilder stocks had rallied, property prices hadn't moved much.

"If you look at the supply of homes, new construction, and you compare it to immigration into the United States, to the growth of the population, then these (southern) markets are very attractive from a longer term perspective," Faber told Bernie Lo on CNBC’s Straight Talk.

Among the markets he pointed to were Atlanta, Phoenix and Miami. Faber said investors could earn a rental yield of 8 percent per year and buy homes in the south of the U.S. at a 40 to 50 percent discount to construction costs.

Faber said he went to see homes in Phoenix and Atlanta, and in some cases, U.S. homes were cheaper than those in Thailand, where he lives.

At the same time, the fact that people couldn't get credit to buy homes in the U.S. was helping to boost the rental market, he added.

Faber said plenty of investors were already making money by buying distressed homes, but he said the fragmented nature of the market didn't benefit large investors with billions of dollars of capital. Rather, he said it was more nimble investors who were doing well.


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Monday, February 13, 2012

Deal or No Deal? M&A Predictions for the Year Ahead - Wall Street Journal (blog)

The Indian stock market has begun to rally of late and the rupee seems to have halted its free fall. Yet some say it’s too soon for investors and companies to heave a sigh of relief.

Agence France-Presse/Getty ImagesCross-border investments into India could come from cash-rich companies in Japan and the U.S.

If 2011 was a tough year for companies across several industries, 2012 won’t be a whole lot better, industry insiders say.

In an attempt to curtail inflation, India’s central bank raised interest rates several times through most of 2010 and 2011. Apart from curbing inflation, the consecutive rate increases dampened the availability of credit across sectors. This has made several companies financially vulnerable –perfect targets for acquisitions.

Munesh Khanna, head of advisory and senior partner at Grant Thornton India, an accountancy and advisory firm which advises Indian businesses on their global strategies, says he expects several Indian companies to be financially stressed. This is because of a combination of reasons—a slowing economy, high interest costs, a surging dollar and increasing rates on the foreign currency convertible bonds. These are bonds issued by Indian multinational firms to raise money in the different currencies they operate with. One way to deal with these stresses is to join forces.

“A lot of Indian companies are beginning to see the value in consolidation,” he says.

The Wall Street Journal spoke with three firms to get their predictions for the M&A market for the year ahead. Here are some of the key trends.

Cross border investments

“There’s definitely a stress in the [Indian financial] system,” says Ashok Wadhwa, the group chief executive of Ambit Group, a Mumbai investment bank. Companies have been feeling the pinch and are in need of cash, he says.

Mr. Wadhwa says cross-border investments into India could come from cash-rich companies in Japan and the U.S. Japanese companies, across sectors, are typically prudent and have a lot of cash on their balance sheets. With limited opportunities for growth at home, and having already invested in the U.S. and China, India is the next frontier for these companies, he says.

On the American side, many of the large U.S. companies, like Apple Inc. and PepsiCo Inc., already get a good chunk of their revenues from outside the country and are eager to take part or expand their presence in the consumption-driven Indian economy.

Mr. Wadhwa also expects Indian companies to go overseas to make acquisitions, partly driven by a need to hedge themselves against the slowdown in the Indian economy as well as the policy paralysis in the government. The Indian government has been hit by a string of corruptions scandals for more than a year and critics have accused the government of not passing many major initiatives since it was elected to a second term in office in 2009.

Which sectors will see the next set of deals?

Mr. Wadhwa expects to see mergers between equals or acquisitions by bigger rivals in telecom, power and financial services. A common theme across these sectors is that there are too many players as a result of which margins to make profits are significantly thin.

He is also predicting a consolidation in the infrastructure side of media and entertainment including in direct-to-home satellite service and cable TV. These require a lot of capital, which has been generally tight because of high interest rates.

Apart from telecom, Grant Thornton’s Mr. Khanna expects to see some deals in steel and mining sectors, insurance and the airline sectors. All these areas are overcrowded with several unprofitable, small to medium sized players who will be bought out by larger players, he says.

Mr. Khanna is expecting a shakeout in the insurance sector as well as this is another sector with too many players.

Mr. Wadhwa agrees on the airline sector and has been predicting a change in legislation before the budget session to invite foreign direct investment. (Earlier today a panel of Indian ministers recommended allowing foreign airlines to invest in the aviation sector)

“I don’t see why global strategic companies should not be allowed to invest in Indian companies,” he said. Middle eastern airlines like Etihad, Emirates, Qatar, for instance, would have a strategic interest in investing in Indian firms as a significant number of Indians work in the region, he says.

What will be the role of public markets?

Grant Thornton’s Mr. Khanna says the domestic capital market is pretty shallow. Large parts of several of the big corporates that trade on the Indian indices are owned by the promoters of those companies and by financial institutional investors, leaving very few shares to freely float and be bought by retail investors. As a result, stock markets go up when foreign institutional investors and foreign funds come in but “that won’t be happening in a hurry” because of the political deadlock.

Apart from that, despite its recent gains, the stock market continues to be pretty choppy and many privately held companies are putting on hold their plans to go public because of which the IPO market will be tepid, at best. Companies that were hoping to go public to raise cash may instead fall back on the private equity firms.

Where, then, are private equity firms likely to invest their money?

Darius Pandole is a partner at New Silk Route Advisors Pvt. Ltd., an Asia-focused private equity firm that was co-founded by former McKinsey & Co. head Rajat Gupta that now has $1.4 billion under management.

The good news in the current gloomy economic environment, he says, is that valuations of companies are down anywhere from 15% to 25% from a year ago. This means promoters are willing to sell their companies at a lower price, making several companies a lot more attractive for investors like him.

However, he has no doubts that it will be a tough year and investors will have to tighten their belts and maintain an investment discipline. His advice is to look at well-managed growth companies that can deliver results through cycles.

“As we look for companies to invest in, we look for management teams that possess competence and integrity, business models that are scalable and sustainable through cycles,” says Mr. Pandole.

Another key criteria for Mr. Pandole as he makes any investments is the “visibility of exit options,” he says. Most private equity firms that made investments in India in the past five to six years haven’t had much success in exiting those investments. One typical exit route for firms like Mr. Pandole’s is to take the company public—a dim option for this year with a rocky stock market.

Some of the sectors that are high on his list of possible opportunities include infrastructure, consumer services (anything that has a play on India’s growing young and middle class), manufacturing in technically-oriented sectors like high-end pharmaceutical and auto ancillaries.

Within infrastructure, Mr. Pandole says he will be focused on construction companies, renewable energy, ports and logistics.

You can follow India Real Time on Twitter @indiarealtime.


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