Saturday, May 31, 2008

India on the rise with economy Booming

The world's most populous democracy has jumbo growth prospects. Here's how to invest now.

For the 12 months ending March 31, 2005, foreign investment in India was an estimated $13.5 billion. That's on top of $16 billion invested in the same period a year earlier. Private-investment giant Blackstone Group has announced plans to open an office in Mumbai and invest up to $1 billion in India. And the Sensex, the index of the Mumbai stock exchange, has surged 72% over the past year.

What's behind the rising interest in India? Some cite the rapid growth in outsourcing, the practice of hiring third-party companies to handle functions that companies used to manage in-house. Indian companies such as Infosys and Wipro have turned the outsourcing trend into an offshoring boom--and attracted U.S. investors starved for growth. Sales and earnings at Infosys, for example, grew more than 40% in its last fiscal year, and its American depositary receipts--ADRs are certificates that trade on a U.S. exchange and represent foreign shares--are up 12% this year.

The outsourcing phenomenon has, in turn, created good jobs in India and given a boost to a growing middle class of consumers who are buying homes, cars, and expensive consumer goods--a big change for the world's second-most-populous nation. Samir Mehta, who manages the Eaton Vance Greater India fund, says that just ten years ago college grads lived with their parents, rarely owned cars, and paid for everything in cash. Now, he says, young professionals are taking out mortgages and acquiring credit. And because India is a young, educated country--half the population is under the age of 25--analysts expect demand for goods and services such as banking, telecommunications, and cars will grow dramatically in the next ten to 15 years.

And while China continues to be the world's fastest-growing major economy--its gross domestic product rose more than 9% last year--India is no slouch: GDP has been growing 6% to 7% annually. Moreover, many investors think India's democratic government and huge English-speaking population will give it an edge over China and other rising nations in doing business with Western corporations. "Everybody knows about the terrific growth," says Prakash Melwani, a senior managing director with Blackstone. "In India, one has the rule of law, the democracy. We felt we had real downside protection." 

Individual investors have a couple of ways to bet on India. The government limits direct investment in shares of Indian companies to registered investors. That means that most individuals must either invest in a fund that buys Indian stocks (more on that in a moment) or buy one of a handful of Indian stocks with ADRs. Money-management professionals say investors interested in the latter strategy should consider a pair of financial institutions that offer a simple way to bet on the continued growth of the overall Indian economy: HDFC Bank (HDB, $48) and ICICI Bank (IBN, $22). Both companies are benefiting from Indians' desires to own homes and establish credit.

HDFC started out as a corporate bank, but it began lending to consumers three years ago and has been adding more than 100 branches a year. Eaton Vance's Mehta says the company is managed much more like an American bank--a number of its founding executives came from Citibank--than a government-run entity. He admits the stock is not cheap: It trades at about 3.3 times book value and roughly 20 times estimated earnings for fiscal 2006. However, HDFC has consistently delivered 25% to 30% earnings growth, a trend Mehta expects to continue for the next three to five years.

But ICICI may be the better bargain. A consumer-oriented bank, it too is riding India's newfound consumerism and frenzy for real estate. Fiscal-fourth-quarter earnings increased 35%, thanks to strong lending growth and a big income boost from banking and other fees. But the stock trades at just 15 times 2006 estimated earnings--a price/earnings ratio closer to those of less entrepreneurial state-owned banks. This "is unrealistic," a recent Morgan Stanley note said, "given ICICI Bank's better quality income stream."

For those looking to cash in on outsourcing, most analysts recommend buying software and services giant Infosys Technologies (INFY, $77). Indeed, fund managers liken it to General Electric and other U.S. stalwarts: It is simply a must for any India portfolio. And while the company is trading at a lofty 38 times estimated earnings for fiscal 2006, fans say it still isn't too late to buy in. "It is the bellwether stock of the Indian market and one of the best- managed companies in the tech sector," says Nishid Shah, chief investment officer of Birla Sun Life Asset Management Co., which manages the Excel India fund.

Offshoring has come under attack from unions and politicians in the U.S., but analysts believe U.S. companies will continue to look for ways to reduce costs by shipping work overseas. Perhaps the biggest risk for Infosys is price competition from rival Indian outsourcing companies. Indeed, Mark Bickford-Smith, co-manager of the T. Rowe Price International Stock fund, likes Infosys. But he favors shares of rival I-flex, a smaller tech company that Bickford-Smith thinks has greater growth potential. Most of us can't buy I-flex directly, though, because it is one of the many up-and-coming Indian companies that don't yet have ADRs trading on a U.S. exchange.

To get exposure to these lower-profile but fast-growing firms, investors should use a mutual fund. The question is how big a bet to place on India. "People don't need a fund devoted to just one country," says Arijit Dutta, a mutual fund analyst for Morningstar. He likes T. Rowe Price New Asia fund (PRASX), which invests about 20% of its assets in India--enough to benefit from the economic growth but not so much that its performance is volatile. Its three-year annualized return is a healthy 20%, and its expense ratio is about half that of the average fund in its category.

If investors really want to embrace India fully, however, Dutta suggests Mehta's Eaton Vance Greater India (ETGIX), which invests at least 80% of its assets in the subcontinent. The fund has a steep 2.77% expense ratio but boasts a three-year annualized return of 40%. Another all-India portfolio with a similar record is the Morgan Stanley India Investment fund (IIF). The closed-end fund typically holds shares in some 40 Indian companies and trades like a stock on the New York Stock Exchange.

As hot as India is right now, is it a good idea to jump in right away? Ridham Desai, an Indian equity strategist for Morgan Stanley, thinks the Indian market is a bit overheated. He says there's a good chance it will come down 15% or so in the next year. "In my view, investors don't have to pull the trigger tomorrow morning," he says. "I think it may be a good time to visit ideas and prepare for better prices to come." But for investors who don't feel comfortable trying to time such a swing, there may be no moment like the present to make a long-term bet on India.

Australian stock market Crashes - Loses $25b

The market lost $25 billion today, reflecting more than a 2 per cent drop in New York on Friday.

The All Ordinaries Index dropped 106 points to 5,949 and the ASX 200 slipped 100 points to 5,920.

On the Sydney Futures Exchange, the September share price index contract lost 89 points to 5887 on a volume of 17,254 contracts.

CommSec chief equities economist Craig James says the market is likely to be volatile for some time.

US markets in turmoil

US equity markets ended in turmoil on Friday, after a senior executive of mortgage underwriter Bear Stearns said that the "fixed income market turmoil was the worst in 22 years''.
US data also was on the weak side, with jobs figures fanning worries about the strength of the economy. 

"Investors are still unsure how many skeletons there are in the closet in the US sub-prime mortgage market," he said.

"Until they get certainty about the state of that market then we are going to see further jitters.

"We certainly saw that in terms of the Australian share market today, down in the order of 1.75 per cent."

It was a bad day for the banks.

Australia's biggest investment bank, Macquarie Bank, continued to be dragged down by concerns over the mortgage market in the United States.

It lost 6.6 per cent to $70.05.

Global investment company Babcock and Brown dropped about 4 per cent to $24.02.

The other major banks also dropped in value amid speculation the Reserve Bank will raise interest rates on Wednesday.

TheNational Australia Bank k shed 63 cents to $37.37 and the Commonwealth Bank slipped 51 cents to $52.80.

How the Mortgage [U.S.Sub-prime] Crisis Arose and Infected the World

 The slide started innocuously in April after New Century Financial, a mortgage lender whose principle borrowers were Americans with less-than-stellar credit, filed for bankruptcy protection.

Its customers were people who may have been late on credit card payments, maybe even filed bankruptcy in the previous years, but still wanted that shot at the American dream: a home of one's own.

Lenders, flush with cash and eager to exploit new markets so they could, in turn, lend more money and increase their profits, were only too happy to oblige.

Hedge funds and banks worldwide saw a market flush with opportunity and took their fill, buying mortgage-backed securities to bolster their own bottom lines.

A month later, USB AG, the giant financial company, said its hedge fund business had lost 150 million Swiss francs in the first quarter largely on the back of investments it made in the U.S.subprime mortgage fieldd. Then in July, Wall Street's Bear Stearns closed a pair of hedge funds after it lost more than US$20 billion on mortgage-backed investments.

The company called them isolated incidents, trying to dismiss their importance but investors weren't convinced and its shares slid, resulting in the dismissal of co-chief operating officer Warren Spector.

Markets came to head late last month and early in August as concern mounted that those mortgage securities may not have been as firm as people thought. It was capped by the August 6 bankruptcy by Melville, N.Y.-based American Home Mortgage Investment Corp.

American Home, once the nation's 10th largest mortgage lender, said it fell victim to "extraordinary disruptions" that effectively cut off the funding it needed to make new loans. Falling U.S. home prices and a spike in payment defaults scared investors away from mortgage debt, including bonds and other securities backed by home loans.

By then, banks worldwide were looking at their portfolios and finding sizable exposure and hedge funds were closing down in a bid to stave off investors who wanted to redeem their stakes, essentially, a modern day run on a bank.

On Thursday, France's biggest bank, BNP Paribas, froze US$2.2 billion held in three funds because their exposure to subprime prime mortgages in the U.S. solidified fears that risk was spreading worldwide.

With cash reserves running low, banks were refusing to lend to each other and the interest rates that banks charged each other rose well above the 4 percent level set by the ECB, prompting its unprecedented injections on Thursday and Friday, followed in part by the U.S. Federal Reserve and central banks in Asia, too.

AUSTRALIA'S Mortgage Crisis 2008 May

AUSTRALIA'S mortgage crisis is deepening and for the first time threatening to produce "affluent stress" - financial grief among higher income families - as new figures show that more than 700,000 households will come under some mortgage pressure by June.

About 300,000 are expected to fall into the worst "severe stress" category, possibly leading to forced sales and foreclosures, as consumers struggle under the weight of higher interest rates and rising living costs.

The major banks, faced by higher funding costs, are expected to again raise their variable mortgage rates by about 15 basis points, putting even more households under severe mortgage stress.

The dire predictions are contained in the latest JP Morgan/Fujitsu Mortgage Industry Report. It says more than 700,000 households will come under "mild" stress, the symptoms of which include borrowing on credit cards to make mortgage repayments.

Bank profits are now expected to come under pressure.

"The real question is, if the RBA does not move interest rates, can the banks actually increase their home loan rates?" he said.

The probability of a further RBA rate rise in May has now dropped sharply.The Australian Securities and Investments Commission released an alarming report that showed that a number of fringe lenders and mortgage brokers were refinancing consumers into loans they could not afford.

The report found some fringe lenders would allow borrowers to enter into a cycle of unaffordable loans in which they defaulted and refinanced several times until the equity in their home was exhausted.

Mortgage broker numbers are tipped to halve from 10,000 to 5000 in the next two years.



USA Mortgage Rates and Terms by State

USA Mortgage Rates and Terms by State

Mortgage interest rates and loan to values (LTV) vary in the USA, by state. Hence, each state has it's own seperate criteria that have to be met.

Breaking US Mortgage NewsChanging conditions in the US mortgage market mean that the rates below are subject to change at any time. Loan to value rates and interest rates in particular may fluctuate rapidly and without warning. Current approximate average USA mortgage rates are about 6.50%, at 70% loan to value.


For states including Florida, New York City, Arizona, California, Nevada, Colorado, Hawaii, Massachusetts, North and South Carolina, New Jersey, Texas and Virginia, the following basic facts apply:

  • Max Loan to Value: 70% LTV
  • Max term: 40 years
  • Minimum Loan: £ 36,200
  • Mortgages available: Repayment and interest only

Dollar strengths against the Euro and the Yen

Dollar strengths against the Euro and the Yen

by Benny Menashe

Finotec Group Inc.


The Dollar was steady in the early trading, holding near a three-month high against the Yen, after a positive revision of the US economical data leaded investors to speculate that the Federal Reserve will raise interest rates this year. The Dollar traded at 105.35 against the Japanese currency at 7:00am GMT. US short-term interest rate futures reveal that investors believe that the Fed will keep interest rates on hold at 2 percent in June and raise them later this year. A trader from a major Japanese bank reveal Reuters that technical signals will turn bullish if the Dollar manages to break the next resistance level of 106 Yen; if this happens, the Dollar can raise to 108 and then to 110 Yen.

The jump in US bond yields and the slump in oil prices on Thursday also boosted the greenback against the Euro; the Dollar traded at 1.5532 against the Euro at 7:00am GMT. Oil prices movements have a great impact on the Dollar, as hiking oil prices usually leads to concerns that US consumers and businesses won’t be able to overcome the credit crisis. The Euro’s depreciation was also supported by the release of retail sales in Germany, Euro Zone’s strongest economy, that unexpectedly drop for a second month in April, supporting speculation that the ECB will cut interest rates in a near future. “The dollar looks strong”, said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital. “With the market turmoil calming down, people are focusing on inflation risks. Falling oil prices are positive for U.S. growth, bringing some relief to people.”

UK Consumer Confidence dropped yesterday to the lowest level since Margaret Thatcher quit the office in 1990. The Pound traded at 1.9781 against the Dollar and at 0.7845 against the Euro at 7:00am GMT. The British currency is appreciating versus the Euro on speculation policy makers will keep interest rates on hold in June at 5 percent, in order to fight inflation. However, investors believe that the Bank of England will be forced to cut interest rates until the end of the year, as the economy is showing signs of slow down; the Pound is forecasted to drop to a record low against the Euro by year-end, to 81 pence, wrote Michael Klawitter, a currency strategist at Dresdner.

Concerning economic data for today, investors will be paying attention to the release of CPI Flash Estimate y/y in the Euro Zone, which is expected to rise 0.2 percentage points, having a positive effect on the nation’s currency. Also, Canadian GDP is expected to boost the Canadian Dollar, as is forecasted to rise 0.2 percentage points from last month. To finish, US Personal Spending m/m is predicted to push the Dollar down, as is expected a drop of 0.2 percentage points from April, to 0.2 percent.

Forex Market Commentary and Analysis May 2008

EURO

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5520 level and was capped around the $1.5665 level.  The common currency has now been given for three consecutive days and stops were reached below the $1.5560 level, representing the 38.2% retracement of the move from $1.6020 to $1.5280.  Data released in the U.S. today added to the growing consensus that the U.S. economy may have averted the technical definition of a recession in Q1 as Q1 GDP was upwardly revised to an annualized +0.9% rate from the previous estimate of +0.6%.  The Q1 GDP deflator printed at 2.6% and the Q1 core PCE price index ticked lower to 2.1% from 2.2%, still above the Federal Reserve’s perceived upper comfort zone limit of 2.0%.  Also, weekly jobless claims were up 4,000 to 372,000 while continuing jobless claims printed at 3.10 million.  


PN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥105.35 level and was supported around the ¥104.60 level.  The pair reached its highest level since 14 May as traders refocused their attention on inflationary pressures in the U.S., growing confident that the U.S. will avert a technical recession. As expected, the Japanese government formally nominated Keio University economic professor Kazuhito Ikeo to become a member of Bank of Japan’s Policy Board. There are currently two vacancies on the Policy Board, including a deputy governorship for which Ikeo may have been nominated.  The issue remains politically contentious, much as the March appointment of now-Governor Shirakawa. Policy Board member Kamezaki today said “As for future monetary policy, we must collect and analyze as much information as possible, including (data from) overseas economies such as in the U.S. and Europe, the global financial market, and moves in energy and (raw) material prices.

April retail sales rise 0.1% y/y to ¥11.19 trillion.  The Nikkei 225 stock index climbed 3.03% to close at ¥14,124.47. Dollar bids are cited around the ¥103.00/ 101.35 levels. 


STERLING

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9675 level and was capped around the $1.9815 level.  The pair retraced some of its intraday losses during the North American session.  Data released in the U.K. today saw May CBU retail sales volumes print at -14, up from -26 in April while the prices sub-index surged to +56, reaching its highest level since May 1992.  Bank of England Monetary Policy Committee member Blanchflower reported “Our forecast is that inflation will come down in the medium term, but our concern is that we wouldn't want economic activity to drop dramatically. If there's a sense we are moving to a recession, we will have to make sure we don't.”  It was also reported that Nationwide May house prices were off a record 2.5%.  Cable bids are cited around the US$ 1.9360/ 1.9100 levels.  The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7850 level and was capped around the ₤0.7915 level.


SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0365 level and was capped around the CHF 1.0485 level.  Data released in Switzerland today saw Q1 employment levels rise to 3.9 million from 3.88 million in Q4.  U.S. dollar offers are cited around the CHF 1.0760 level.  The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6295 and CHF 2.0710 levels, respectively.