Financial Page International

30 May 2009 - Global Markets Review
Dear Ladies & Gentlemen,

In a week where North Korea became 'trigger happy' with their missiles, Global financial markets managed to rise a little over the week although there most definitely remains an underlying sense of uncertainty as to whether markets are truly out of the woods yet.

One more bank in trouble; the Irish government is investing up to €4bn (£3.5bn) in Anglo Irish bank in an attempt to save the scandal-hit property lender that Dublin nationalised in January.

There has also been an underlying 'fear' obviously, that markets have gained too much too quickly and there still remains amongst many - myself included - the view that all is not quite what it appears in terms of Global Stockmarkets.

However, that hasn't stopped some markets from leaping forward.

Hong Kong skipped past 18,000 in a heartbeat Friday and it doesn't seem like just two months ago when it was sat at 12,000.

And whilst rightly or wrongly, stockmarkets around the world have been gaining steam, one market has outperformed all others. Russian equities have more than doubled since they touched lows in January - gaining particular momentum since the return of risk appetite at the start of March.

Since March 1, the Dollar denominated RTS index has risen 90%. This compares with a rise of 30% on the S&P 500, the US benchmark stock index, and 25% on China's Shanghai Composite index, the biggest emerging market index, over the same period.

The stellar performance of the Russian markets is due to a combination of factors as a mix of receding fears of a financial meltdown among western banks and stabilising economic indicators boosted hopes of a global recovery, increasing investors' appetite for riskier assets, such as Russian equities.

The resurgence in oil prices, which have spiked above $65 a barrel from just above $40 in early March, and the fact that Russian equities had fallen much lower than other leading emerging markets are other key attractions for investors. Russian stocks, which are mostly in the oil and gas sector, not only gave an investor exposure to oil, they became much cheaper than peers in other markets.

Worries over Russia's unpredictable politics have also been largely shrugged off by investors intent on taking advantage of the rally. Geopolitical squabbles with Georgia and Ukraine and doubts over corporate governance and the rule of law have mostly been forgotten - for the time being.

Russia's Rouble has benefited from these factors, too, as it has been helped by rebounding equities and investors seeking higher yielding assets in a more risk-hungry environment. It has jumped 16% against the Dollar since 1 March.

Russia's RTS index fell 76.2% between the end of 2007 and March 1 this year. This was a much larger drop than the world's other biggest emerging stock markets of Brazil, India and China, which together with Russia make up the Brics.

China's Shanghai Composite index fell 60.4% over the same period, India's BSE Sensex index dropped 56.2% and Brazil's Bovespa index fell 40.2%.

Valuations plunged on the RTS with the forward price earnings multiple for stocks dropping to 3.4 on March 1, compared with an average since 2004 of 7.7. This was much lower than the other big emerging markets, such as China on a multiple of 13. Forward multiples on the leading Russian companies, such as Gazprom, Lukoil and Rosneft, also fell sharply.

The G20 announcement in April, which pledged more money to the International Monetary Fund for emerging markets, also helped accelerate the Russian market's ascent as it provided a powerful signal to investors that the world's leaders would not allow any emerging market economies to default.

However, analysts say the Russian market's sharp trend higher could easily be reversed.

They warn that Russian equities could be more vulnerable to a sell-off because the country's fragile economy - expected to contract by about 7% this year - is highly indebted and relies too heavily on oil. Geopolitical risks could resurface, too. Russian politics, as was the case with the invasion of Georgia last August, can always produce a nasty surprise.

The oil price, in particular, creates a lot of uncertainty as opinion is divided over whether it can continue to rise. Some analysts warn demand for oil could weaken sharply as the world economy continues to slow and US producers, which have built up stocks, stop buying.

Corporate debt levels are also extremely high compared with other economies. Russian banks and companies need to refinance about $90bn this year in foreign denominated bonds and loans, according to RBC Capital Markets.

This could prove difficult to roll over in credit markets that are only open for the biggest and strongest institutions. Analysts expect many Russian banks and companies to go bankrupt as they struggle to repay or refinance their debt.

So Russia has done well but will it continue to do so? For those of you looking to enter an emerging market right now, I'd forget Russia and China, Brazil has some strength there but still has some 'clearing out' to do.

For me, there is just one Emerging Market in my opinion that is worth going into at the moment - and that is Africa; and this is why I am recommending it currently as the most sensible Emerging Market play.

On to the numbers for the week that was:
US Markets 
How the US did this week .....
 US SummaryUS stocks rallied, capping the first three-month gain for the Standard & Poor's 500 Index since its record in 2007, as commodity, transportation and financial shares jumped on speculation the global economy is recovering.

Freeport-McMoRan Copper & Gold Inc., CSX Corp. and Capital One Financial Corp. added at least 4%. Raw-Material producers led the gains as the Reuters/Jefferies CRB Index of 19 commodities extended its jump this month to 14%, its best advance since 1974. Treasuries pared a weekly drop, while the Dollar weakened below $1.41 a Euro for the first time this year.

The Standard & Poor's 500 Index added 1.4% to 919.14 at 4:05 p.m. in New York, with almost all of the advance coming after 3:30 p.m. as investors snapped up shares in the final minutes of May's 5.3% advance. The Dow Jones Industrial Average increased 96.53 points, or 1.2%, to 8,500.33. Seven stocks rose for every two that fell on the New York Stock Exchange.

Benchmark indexes were whipsawed earlier as a gauge of business activity near Chicago unexpectedly decreased. Then, the Reuters/University of Michigan index of consumer confidence for May came in slightly better than forecast at 68.7.

Gross domestic product fell at a seasonally adjusted 5.7% annual rate from January through March, the Commerce Department said in its revised estimate of first-quarter 2009 GDP.

Meanwhile the Nasdaq Composite was 0.2% higher for the day, 3.7% up for the week at 1,754.95, and the Dow Jones Industrial Average was up 0.2% for the day and up 1.7% for the week at 8,422.12.

For the month, the S&P was up 4.2%, also on track for its longest winning streak since the three months ended October 2007.

Shares in General Motors fell 45.1% to 79 cents. Hopes of finding a faster exit from bankruptcy rose after some of GM's biggest bondholders agreed to a sweetened 11th-hour offer from the troubled carmaker, whose board met on Friday.

Under the terms of the offer, the holders of $27bn of unsecured bonds would get up to 25% of the restructured company, much more than the 10% stake previously proposed.

The move paves the way for GM to spend a shorter period in bankruptcy, in a fast-track process similar to that being used by Chrysler, which filed for Chapter 11 protection on April 30.

Energy stocks were in focus again as crude hit $66 a barrel. The S&P energy index was up 4.9% for the week. Shares in Dow component ExxonMobil were up 1% to $69.50 and Chevronshares were 3% higher at $66.45.

Computer maker Dell said on Thursday that its earnings in the most recent quarter fell 63% as a result of lower sales, but still beat expectations. Dell shares were up 5.5% at $11.48.

Shares in Tiffany rose 4.8% to $27.61 even though the retailer said earnings fell 64% as consumers continued to cut spending on luxury items.

Microsoft and Google took direct aim at each other's core businesses as they showed off ambitious new services that represent some of their biggest internet development efforts.

While the services - a new search engine from Microsoft and a bid to replace traditional e-mail and instant messaging by Google - generally attracted positive reviews from analysts, several questioned whether they would do much to change the balance of power in the showdown between the world's biggest software and internet companies.

Google shares rose 5.3% to $414.15 and Microsoft was 3.5% higher at $20.41.

The financial sector rallied strongly over the course of the week with the S&P financial index up 3.7 per and the investment banking index up 4.9%.

Time Warner will separate all of AOL by the end of the year in a move that will end nine years of painful cohabitation and help the global media conglomerate focus on creating content for television, movies and publishing.

The board of directors has authorised the move, the company said on Thursday. Time Warner shares were down 6.8% at $30.03.

The alternative investment sector was in focus after Fortress Investment Group, a listed private equity and hedge fund company with $26.5bn in assets, neared an agreement that would mark the first step in a push into US retail banking. Fortress shares rose 14.4% to $4.58.

S&P raised its recommendation on shares of retailer J Crew from "buy" to "hold". Its shares rose 30.5% to $25.67.
European Markets 
What has been happening in Europe this week .....
 Europe SummaryEuropean equities rose for a third consecutive month in May, having rallied 31.8% since March lows.

However, last week's gains were muted, with the FTSE Eurofirst 300 index rising only 0.7% to 862.17.

The Dow Jones Stoxx 600 Index rose 0.6% this week to 208.21. The measure added 4% in May, gaining for a third straight month and bringing the rally since March 9 to 32% amid optimism the $12.8 trillion pledged by the US government and the Federal Reserve will help to end the first global recession since World War II.

Mixed economic data - from the US and within Europe - meant markets struggled for direction. But indices did close higher every day but Thursday, when they followed Wall Street down.

Carmakers had a tumultuous week, with merger talks between Volkswagen and Porsche seemingly no closer to being resolved and fears over Porsche losing big profit recorded from holding VW options because it might not have the cash to exercise them.

Over the week, VW fell 4.4% to €213.49 and the Porsche holding group fell 5.2% to €42.85.

Italy's Fiat on Friday pulled out of German government-led acquisition talks for Opel. Reports that rival bidder Magna was close to striking a deal for General Motors' German operations sent Fiat shares 4.1% lower. Over the week, Fiat fell 4% to €7.51.

Renault and Japanese affiliate Nissan said on Friday they would strengthen their alliance as a cost-cutting measure - news welcomed by investors. Renault rose 3% to €27.06 over the week. Peer Peugeot surged 8% to €21.32.

BMW and Daimler rose 1.3% to €25.39 and 3.4% to €25.85, respectively.

Danone, the world's biggest yoghurt maker, fell 10.2% to €35.13 after announcing a €3.bn ($4.2bn) cash call this week.

Banks were the week's biggest risers, having led the rally since March - but there were exceptions.

It has been hard to separate losers from winners among financials. But in the last few weeks, we've seen more dispersion.

Indeed, S&P's equity research recently changed its recommendation on some of the region's banks and insurers, downgrading the recently bailed-out KBC from "buy" to "hold". KBC lost 5.8% to €14.50 and Commerzbank fell 1.2% to €5.53.

But Société Générale, which on Friday gave the details of its €1.7bn preferential share issuance, was among the risers, adding 5.4% to €41.

Anglo American Plc and Total SA led commodity producers higher after base metals and crude oil increased. Tesco Plc paced an advance among retailers as investors sought shares of companies whose profits are more closely tied to economic growth. United Internet AG rallied 27% after agreeing to buy Freenet AG's digital subscriber-line business.

Total, Europe's third-largest oil company, rose 2.7%. Royal Dutch Shell Plc, the biggest, advanced 1.8%. Cairn Energy Ltd., the U.K. explorer operating on six continents, increased 3.9%.

Seadrill Ltd. added 8.8% after the Norwegian oil-rig company controlled by billionaire John Fredriksen said first- quarter net income was $243.2 million, beating the $148 million average estimate of 10 analysts surveyed.

A measure of retailers in the Stoxx 600 rose 1.8%. Tesco, the U.K.'s biggest retailer, climbed 4%. Metro AG, Germany's largest, rallied 4.7%.

United Internet, Germany's third-largest Web-access provider, jumped 27% after agreeing to buy Freenet's digital subscriber-line business for 123 million Euros ($174 million) in cash and shares, adding about 700,000 customers.

Construction and material stocks dropped 2.7% as a group, the worst performance in the Stoxx 600. Royal BAM Groep NV sank 10% after the Dutch builder reported first- quarter earnings that missed analysts' estimates, caused by a loss at the company's property division.

Genmab A/S tumbled 19% as US regulators said it's difficult to tell whether the Danish biotechnology company's experimental Arzerra drug will yield significant health benefits for leukemia patients.
The UK Market 
Did it follow the Global trend .....
 UK MarketsRecovery hopes and rights issue speculation put the housebuilders in demand on Friday as the London market moved higher.

Housebuilders rallied after Nationwide's index of house prices unexpectedly rose 1.2% in May, the second gain in three months.

The hint of stabilisation sparked talk that a round of equity issues was imminent. So far this year, only Taylor Wimpey and Berkeley Group have tapped shareholders for funds.

The speculation on Friday centred on Persimmon, up 5.4% to 364p, with the group rumoured to be close to launching a rights issue that would help fund land purchases.

Redrow, ahead 3% at 195½p, is also widely expected to use new equity to pay down debt. Taylor Wimpey was up 9.4% to 32p and Berkeley gained 0.9% to 886½p.

However, Barratt Developments missed the trend, losing 2.5% to 158½p.

Commodity stocks helped push the FTSE 100 higher by 0.7%, or 30.4 points, to 4,417.94. The index was up 4.1% in May, its third straight monthly rise.

Miners led the blue-chips risers on Friday, with Lonmin up 8.4% to £14.28, ENRC gaining 5.8% to 649p and Xstrata up 5.3% to 684p.

But Fresnillo, the silver miner, was the sharpest faller after Morgan Stanley sold a large block of the tightly held shares late in the day. This resulted in a messy closing auction in which 7.8m shares were traded - about seven times the average daily total.

Thomas Cook was down 3.3% to 221¾p on fears that Arcandor, its majority shareholder, has not met the requirements to receive state aid.

A government-ordered audit has concluded that the German retailer carried too much risk, Manager Magazine claimed. Arcandor, which rejected the report, needs to refinance €650m (£570m) of debt by June 12, and has been rumoured to be using much of its Thomas Cook stake as collateral on loans.

With Sterling hitting its highest level since early November, Dollar earners in defensive sectors saw some pressure. Sage fell 2% to 190p and Vodafone was down 1% at 116p.

Sports Direct was up 4.4% to 83½p after Goldman Sachs took the retailer off its "sell" list in a generally upbeat sector review.

Goldman also moved to "buy" ratings on Debenhams, up 2.2% to 92¼p, and Kesa Electricals, 3.9% firmer at 120¾p. But the more optimistic view led Goldman to cut Halfords to "sell", as it saw the car-parts specialist less geared to an earnings recovery. Halfords was flat at 323½p.

ITV extended its recent rerating, up 4.7% to 38¾p after the Office of Fair Trading said rules protecting its advertisers should be reviewed. Shares in the broadcaster have soared 35% this week, boosted by Goldman Sachs and Merrill Lynch both switching to "buy" ratings.

Cookson rose 5.5% to 270p after Merrill Lynch played down fears over lending covenants. Amending terms on its debt would cost Cookson less than £60m in arrangement fees and interest, equivalent to about 20p per share, the broker said.

Meanwhile, evidence that electronics and steel customers have stopped destocking led Merrill to raise its price target on the shares to 400p.
Asia Pacific Regional Markets 
Did they set the tone or follow the lead .....
Asiapac IndicesJAPAN

Tokyo stocks closed at their highest level in more than seven months Friday as oil developers and other commodity-related stocks surged and month-end stock fund window-dressing gave the market a critical late boost.

The Nikkei 225 Stock Average closed up 71.11 points, or 0.8%, at its intraday high of 9522.50, its highest closing level since Oct. 15.

The window dressing effect - often seen at monthly and quarterly-end periods - was likely a large factor behind the Nikkei's strength toward the end of the session, suggested Nikko Cordial senior strategist Tsuyoshi Kawata. "It's not that the market has found fresh positive cues," he said.

While a further rise on Wall Street may help the Nikkei extend gains next week, I see 9700 as the next resistance level.

Investors may have pushed the market a little too high on mere expectations for an economic recovery, improvements in production figures can be credited mainly to a rebound after earlier drastic manufacturer output cuts, and may not necessarily be backed by demand growth. Data released before the opening bell showed Japan's April industrial output rose 5.2% on-month, stronger than the 3.3% rise expected by the market.

The Topix index of all the Tokyo Stock Exchange First Section issues rose 2.32 points, or 0.3%, to 897.91.

Trade volume was moderate at about 2.6 billion shares, spiking late.

June Nikkei 225 futures ended up 60 points, or 0.6%, at 9510 on the Osaka Securities Exchange.

For the week, the Nikkei added 3.2%, and was up 7.9% for May. The index is up 7.4% year-to-date.

Shares of oil developers surged after crude futures rose to $65.08 overnight, their highest settling price since Nov. 5. Energy developer Inpex rose 6.3% at Y771,000, while Japan Petroleum Exploration jumped 9.8% to Y4,910.

Crude futures may extend their gains near-term, but their recent rally is probably being fueled by speculative buying rather than actual demand, Mizuho Investors Securities analyst Hirofumi Kawachi said.

Shippers were also sharply higher after the Baltic Dry Index industry benchmark rose 4.2% overnight for the 19th consecutive session. Mitsui O.S.K. Lines added 5.1% to Y676 after setting a fresh 2009 intraday high. Credit Suisse analyst Osuke Itazaki noted that as the BDI's rally (the index is up 86% over the last month) depends so heavily on Chinese iron ore demand that a sharp rise in inventories could spell the end of the surge.

Shares of banks and retailers were also weak as premarket data showed a worsening jobless rate and weak household spending data. Mizuho Financial Group fell 1.3%, while Seven & i Holdings dropped 1.7% to Y2,300.

In other cash markets, the Osaka Securities Exchange rose 94.34 points, or 0.5%, to 17,997.01, while the Jasdaq Securities Exchange ended up 6.11 points, or 0.6%, at 1,101.75.

SOUTH KOREA

South Korean shares closed slightly higher Friday on the continued improvement in industrial production data in April.

The Korea Composite Stock Price Index, or Kospi, finished up 3.72 points, or 0.3%, at 1395.89.

Industrial production in April rose on month for the fourth straight month as expected. On year, industrial production in April continued to shrink, but at a slower contraction of 8.2% compared with a 10.5% drop in March.

The 12-month average leading index, an indicator of how the economy will perform in the months to come, stayed in negative territory, but improved significantly, shedding just 0.1% on year versus a 2.0% drop in March.

However, domestic institutions resumed heavy stock selling again, offloading a net KRW274.2 billion of stocks, while foreigners extended their buying spree for the 11th straight day, picking up a net KRW350.8 billion.

Investors are expected to closely watch various economic data due next week, not only from South Korea but also from the US, to confirm expectations of an economic recovery, added Lee at Tong Yang Securities.

Shares of several Samsung Group units either trimmed early losses or extended gains after the South Korea's highest judicial court upheld a lower court ruling that found former chairman Lee Kun-hee not guilty of allegations of dubious bond transactions aimed at transferring corporate governance to his only son, said analysts.

Samsung Card ended up 5.1% at KRW47,450, and Samsung Electronics ended 0.2% lower at KRW558,000, off the day's low of KRW550,000.

Improvement in the production output data helped lift both technology firms and car makers.

Hyundai Motor gained 2.2% to KRW69,300, while LG Electronics rose 0.4% to KRW120,000.

But most shipbuilders and financial stocks retreated after recent gains, with Hyundai Heavy Industries falling 4.4% to KRW215,000, Shinhan Financial (055550.SE) declining 1.7% to KRW31,450 and Daewoo Securities dropping 1.9% to KRW20,550.

HONG KONG

Overnight gains on Wall Street helped Hong Kong shares extend their rising streak to an eight-month high Friday, with Chinese financial companies leading the way.

But analysts said profit-taking pressure is strong as the local benchmark index has risen 17% since the start of May.

The blue-chip Hang Seng Index rose 285.73 points, or 1.6%, to 18,171.00 after trading between 17,833.74 and 18,227.79 during the session. It was its highest closing level since Oct. 2's 18,211.

Turnover totaled HK$92.17 billion, down from HK$93.06 billion Wednesday. The Hong Kong market was closed Thursday for the Dragon Boat Festival.

BOC Hong Kong jumped 11% to HK$12.34. It had risen just 0.7% between May 1 and May 27, compared with the Hang Seng Index's 15.2% rise over the same period.

Strong rotational buying interest also buoyed other Chinese financial companies. Bank of China rose 7.7% to HK$3.48 and Ping An Insurance ended 5.2% higher at HK$53.75.

CHINA

Markets in China have been closed Thursday and Friday for a Public Holiday.

TAIWAN

Likewise the market in Taipei, closed Thursday and Friday for a Public Holiday.

THE PHILIPPINES

Philippine stocks closed 1.48% higher Friday following the Bangko Sentral ng Pilipinas' (BSP's) reduction of its interest rates anew and the US market's rebound Thursday.

The bellwhether Philippine Stock Exchange index rose 34.94 points to 2,389.31 while the all-share index surged 37.91 points or 2.48% to 1,567.87.

The trade volume swelled to 4.44 billion shares worth P3.98 billion ($83.70 million). Foreign investors were net buyers at P175 million ($3.68 million).

Advancers beat decliners 76 to 36 while 48 stocks closed flat.

Only one of the six sub-index sectors shed its value. The service sector slipped by 0.28% or 3.60 points to 1,261.42, while property shares jumped by 2.74% or 22.14 points to 829.74.

Domestically, the BSP announced another round of reduction in key policy interest rates by 0.25% to ensure market confidence and boost public spending amidst the global economic crisis.

It was the fifth consecutive time that the BSP has reduced its key policy rates since December 2008. With the central bank's latest move, the overnight borrowing rate was cut to 4.25% while the overnight lending rate down to 6.25%.

The BSP made the announcement after government data showed that the Philippine economic growth slowed to 0.4% in the first three months.

Companies in the 30-stock index, however, finished mixed Friday.

Index heavyweight Philippine Long Distance Telephone Co. lost 0. 67% or P15 ($0.32) to P2,210 ($46.48) .

The holding company of the Philippines' richest man Henry Sy Sr. meanwhile regained its value. Shares of SM Investments Corp. rallied by 14.52% or P42.50 ($0.89) to P335 ($7.05).

SINGAPORE

Singapore shares ended higher Friday, tracking regional bourses' gains following a strong lead from the US markets overnight.

The benchmark Straits Times Index closed up 1.6%, or 36.11 points, at 2329.08 - the highest level so far this year. Volume was at 3 billion shares compared with 2.29 billion Thursday, while gainers outnumbered losers 457 to 166.

Wilmar ended 5.1% higher at S$4.92, in part due to stronger crude oil prices, which boosted sentiment for commodity plays.

Golden Agri-Resources retraced some of the recent losses that occurred due to its announcement of a 17-for-100 rights issue on Wednesday. It closed 4.9% higher at S$0.425.

Continued optimism that the local economy may have hit bottom during the first quarter buoyed property shares. City Developments rose 4.5% to close at S$9.45, while CapitaLand finished 2.7% higher at S$3.80.

A slight decline in April bank loans compared with March led to UOB and OCBC's underperformance against the index. UOB closed 0.4% lower at S$14.26, while OCBC was 0.8% higher at S$7.24.

INDONESIA

Up 0.73%. The Jakarta Composite Index gained 13.96 points to 1,916.83.

The JCI index was led by buying in commodity-related stocks.

Coal miner Indo Tambangraya jumped 7.7% to 19,500 rupiah, while rival Bukit Asam advanced 4.2% to 11,250.

MALAYSIA

Share prices on Bursa Malaysia ended the week higher supported by positive regional sentiments, with stocks like Sime Darby and Tenaga Nasional leading the gainers list.

At close, the benchmark Kuala Lumpur Composite Index (KLCI) added 2.87 points to 1,044.11, after opening 5.56 points higher at 1,046.8.

The Plantation Index jumped 36.32 points to 5,295.77 and the Industrial Index perked 34.64 points to 2,322.10 but the Finance Index shed 89.17 points to 8,004.49 while the FBMEmas Index increased by 30.34 points to 6,984.21.

The FBM30 Index climbed 28.9 points to 6,677.27, the FBMMesdaq Index shed 12.02 points to 4,039.69 and the FBM2BRD Index added 27.51 points to 4,574.77.

Advancers led decliners by 386 to 253 counters, while 216 counters were unchanged, 383 untraded and 35 others suspended.

Volume rose to 1.769 billion shares worth RM2.362 billion from Wednesday's 1.076 billion shares worth RM1.029 billion.

Of the heavyweights, Maybank slid 10 sen to RM5.05 sen, Bumiputra-Commerce fell 15 sen, IOI Corp shed eight sen to RM4.52, while MISC, Public Bank and Genting all ended flat at RM8.40, RM8.60 and RM5.45 respectively.

Volume on the Main Board rose to 1.576 billion shares worth RM2.297 billion from the 930.160 million shares worth RM981.930 million on Thursday.

Turnover on the Second Board perked to 79.398 million units valued at RM37.235 million from 55.972 million units valued at RM29.759 million Thursday.

Volume on the Mesdaq Market climbed to 71.438 million shares worth RM18.310 million from 48.341 million shares worth RM13.294 million Thursday.

Warrants jumped to 32.024 million units valued at RM5.378 million from 21.7 million units valued at RM33.586 million previously.

On a sectoral basis, consumer products accounted for 41.956 million shares traded on the Main Board, industrial products 459.177 million, construction 117.069 million, trade/services 582.779 million, technology 14.961 million, infrastructure 26.402 million, finance 88.406 million, hotels 3.460 million, properties 207.163 million, plantations 33.327 million, mining 2,000, REITs 1.592 million, and closed/fund 236,900.

THAILAND

Up 0.90%. The Stock Exchange of Thailand composite index closed up 0.9% Friday, gainingh 4.98 points to close at 560.41.

The market was boosted by speculative buying of energy stocks as many markets in the region were.

Coal producer Banpu jumped 7.00 baht to close at 318.00 Baht. PTT Plc rose 3.00 to 220.00.

Bangkok Bank shed 0.75 Baht to 88.00 Baht and Kasikornbank also gained 0.25 to 56.00.

INDIA

Fresh buying in blue chips and better-than-expected economic growth data helped Indian shares end at an over eight-month high Friday.

The Bombay Stock Exchange's benchmark Sensitive Index, or Sensex, closed up 329.24 points, or 2.3%, at 14,625.25, after trading between 14,319.87 and 14,727.28.

It last closed above this level at 14,662.61 on Sept. 10. The 30-stock index ended the week with a 5.1% gain, its twelfth consecutive weekly gain.

Dow Jones technical analysis estimates the Sensex will trade in a 14,000-15,500 range next week.

India's gross domestic product expanded 5.8% from a year earlier in the January-March quarter, as higher government spending and robust performance in other services offset a slump in manufacturing.

The rate of expansion was higher than a median 5.0% expansion estimated by economists.

On the National Stock Exchange, the 50-stock S&P CNX Nifty ended up 111.85 points, or 2.6%, at 4,448.95.

Total traded volume on the Bombay Stock Exchange was INR84.24 billion, compared with Thursday's INR70.07 billion. Gainers outnumbered losers 2,147 to 649, while 56 stocks were unchanged.

The BSE Realty Index gained the most among the 13 sectoral indexes on the exchange, rising 6.8% to 3,819.89. Stocks jumped on expectations that with more companies raising funds through equity share placements with institutions, funding projects and retiring debt will become easier.

DLF, the nation's largest property developer by sales, rose 8.4% to INR403.30. Parsvnath Developers Chairman Pradeep Kumar Jain told CNBC TV18 that it will raise between $100 million and $150 million by selling shares to institutions. Its shares hit a 5% upper limit to close at INR96.80.

ACC jumped 8.6%, the most in percentage terms on the index, to close at INR783 as investors bought heavily into the counter.

Infrastructure companies continued to rise on expectations that the budget, to be presented in the first week of July, will focus heavily on this sector.

Larsen & Toubro rose 4.8% to INR1,405.60, Jaiprakash Asscociates climbed 8.2% to INR207.50, while state-run Bharat Heavy Electricals rose 2.7% to INR2,174.90.

Reliance Industries, India's most-valued company, rose 2.6% to INR2,277.50, while Tata Consultancy rose 6.1% at INR699.75.

State-run Oil & Natural Gas ended up 4.0% at INR1,175.90 after Oil Minister Murli Deora's comments raised hopes that it may not have to bear the subsidy burden to compensate state-run fuel retailers for selling cheaper retail fuel.

Deora said the government will consider deregulating diesel and gasoline prices. Among state-run oil retailers, Hindustan Petroleum rose 8.3% to INR363.30, while Indian Oil gained 6.9% to INR609.30.

AUSTRALIA

The Australian share market had its highest closing level for the week Friday, helping generate its third consecutive monthly rise, after Wall Street recovered on a successful US bond auction and commodity prices rallied on falling inventories.

The benchmark S&P/ASX 200 index closed up 62.1 points or 1.7% at 3817.7 after rising as high as 3822.8.

The index rose 1.5% for the week and 1.0% in May, the third monthly increase and the first time that the market has risen three months in a row since the height of the bull market in 2007.

Gains were broad-based and focussed on cyclical stocks.

Banks rose strongly, with ANZ up 3.4% to A$15.90, Commonwealth Bank up 3.5% to A$35.14, Westpac up 2.3% to A$18.87 and National Australia Bank up 1.8% to A$22.02.

Other financials, which had been viewed as potential targets of short sellers this week, outperformed, with QBE Insurance rising 1.7% to A$19.34, Westfield up 2.6% to A$10.92 and Macquarie Group up 3.6% to A$31.65.

In diversified resources, BHP Billiton rose 1.9% to A$34.66 and Rio Tinto rose 0.9% to A$64.54.

Elsewhere in materials, Fortescue Metals rose 2.3% to A$2.62, Newcrest Mining rose 1.9% to A$32.96, Alumina rose 5.1% to A$1.35 and Bluescope steel rose 2.6% to A$2.38.

Energy stocks were generally firm, with Woodside rising 0.8% to A$43.35 and Oil Search up 2.1% to A$5.46.

Turnover in Paladin, Arrow Energy and Energy Resources soared due to their inclusion in the MSCI Australia Index at the close on Friday.

However, all three stocks closed well below intraday highs, amid profit taking from traders.

Paladin fell 0.4% to A$5.02, ERA fell 3.1% to A$24.53 and Arrow fell 2.3% to A$3.75.

NEW ZEALAND

New Zealand shares ended the week on a positive note as an uptick in risk appetite bolstered sentiment Friday.

The benchmark NZX-50 ended up 1.6%, or 42 points, at 2764.17.

Investors were still upbeat about whiteware maker Fisher & Paykel Appliances after news earlier this week that China's giant appliance company Haier Group will be its new 20% cornerstone shareholder.

The stock gained 3.8% to NZ$1.10 on fairly high volume.

Construction company Fletcher Building added 3.2% to NZ$6.50. The stock likely got a lift from news earlier Friday that residential building permits issued in April rose a seasonally adjusted 11.2% from March when they fell a revised 1.7% on the month. Excluding apartments, the consents rose 4.5% on the month.

Insurer Tower ended 7.0% higher at NZ$1.68 after posting a strong fiscal first-half net profit, lifted by non-cash items and improved performances in most of its key divisions.

National carrier Air New Zealand ended flat at NZ$1.06. Earlier Friday the company said it would cut its group wide capacity by a further 3% for the 2010 financial year as demand continues to wane.

The New Zealand share market will be closed Monday for a public holiday. Brokers said investors would be watching Wall Street for cues for early next week.
Global Commodities 
'Food for thought' or 'a Grain of truth' .....
 CommoditiesCrude oil prices were on course on Friday for their strongest monthly rise in more than 10 years following this week's Opec meeting where the oil producers' group delivered a surprisingly upbeat assessment of demand.

Nymex July West Texas Intermediate hit a seven-month high of $66.47 on Friday before easing to trade 92 cents higher at $66 a barrel, up 7% this week.

US crude prices have risen 29.1% in May,on track for their best monthly performance since March 1999.

ICE July Brent gained 76 cents to $65.15 a barrel, up 7.2% this week.

Abdalla El-Badri, Opec's secretary-general, said oil prices could rise to $70-$75 a barrel by the end of the year.

"The outlook is improving," said Mr El-Badri, who also conceded that the market's fundamentals were "still weak".

Also providing support to oil prices this week were disruptions to production in Nigeria following attacks by militants, and US inventories data, released on Thursday, which showed a larger-than-expected fall in crude stocks as refineries stepped up activity for the summer driving season. Noting that risk appetite was improving, analysts at Barclays Capital said commodities were regaining favour among institutional investors, with hedge funds increasing their exposure in recent weeks.

Barclays pointed out that net long positions (bets on prices rising) in US commodity futures markets had risen above 800,000 lots for the first time since July 2008.

Also, the aggregate net long position as a percentage of open interest (all active contracts) had increased to 12%, the highest in 10 months.

Gold hit the $980-a-troy ounce level Thursday before easing back to $979.90, up 2.2% on the day and gaining 2.5% this week. It was helped by concerns about rising levels of government debt.

Silver rallied 6.4% to $15.56 this week and was on course for a gain of 26% in May, its best monthly performance for 22 years.

The Baltic Dry Index, the benchmark for freight costs for commodities such as iron ore and coal, surged 25.4% this week as strong Chinese demand for raw materials led to severe congestion at ports in China.
Global Currencies 
In for a Penny, in for a Pound .....
UK Markets
 The Yen suffered this week as investors abandoned the currency in search of higher returns elsewhere.

Analysts said the Yen's underperformance reflected the upward momentum in long-term yields outside of Japan.

The yield on 10-year government debt in the US, Eurozone and the UK has increased by 150 basis points, 70bp and 80bp, respectively, since the start of the year.

In contrast, the rise in Japan has been more muted, with the yield on 10-year Japanese government bonds rising just over 30bp.

Moreover, yields outside Japan have risen strongly in the past couple of weeks.

Over the week, the Yen fell 1% to Y95.76 against the Dollar, lost 1.5% to Y134.92 against the Euro and fell 2% to Y154.05 against the Pound.

The Yen fell more markedly against commodity-linked currencies amid increasing confidence that the worst of the global recession was over.

The Yen fell 2.8% to Y76.24 against the Australian Dollar over the week and dropped 4.4% to Y60.98 against the New Zealand Dollar.

Rising equity markets and signs that the global economy had stabilised, such as a rebound in Japanese industrial production and the first rise in German retail sales in four months - saw the Dollar come under pressure as investors abandoned the haven of the US currency.

The Dollar index, which tracks its progress against a basket of six leading currencies, dropped to a fresh low of 79.392 for the year. The Dollar also lost 0.4% to $1.4082 against the Euro on the week.

The Dollar fared worse against the Pound, however, as Sterling surged 1% to a seven-month high of $1.6081 over the week.

Analysts said rising equity markets and encouraging data, including a rise in UK house prices in May, boosted the Pound, which notched a rise of 8.8% against the Dollar over the month, its strongest performance since March 1985.

Sterling increased as much 1.6% to $1.6198, the highest level since 5 November, and posted a 9.3% monthly gain, the biggest since 1985. Nationwide Building Society said UK house prices unexpectedly jumped 1.2% in May, and the market researcher GfK NOP reported consumer confidence matched the highest level in almost a year.

Elsewhere, the Swedish krona dropped sharply after the country's central bank announced it was rebuilding its foreign exchange reserves by SKr100bn ($13bn).

Stefan Ingves, governor of the Riksbank, said the country needed to build up its reserves in case the global financial crisis worsened.

The comments heightened concerns over the Swedish banking sector's exposure to the slowdown in the Baltic states. Over the week, the krona dropped 1.8% to SKr7.5700 against the Dollar and lost 2.1% to SKr10.6690 against the Euro.

South Africa's Rand posted its fourth monthly advance, extending its longest winning streak since 2004, as investors speculated lower borrowing costs will hasten an economic recovery and companies repatriated earnings.

The Rand was little changed, adding 0.1% to 8.0201 per Dollar as of 5:00 p.m. in Johannesburg, taking this month's increase to 5.9%. The currency has rallied 27% since February in its longest stretch of monthly gains since December 2004.

And to close currencies Friday, late Dollar selling ahead of a long holiday weekend helped the RMB bounce back from a six-week intraday low against the US Dollar Wednesday.

Traders said the market will take cues from the Dollar-RMB central parity rate Monday, after the fixing was set sharply higher for two days in a row this week.

On the over-the-counter market, the Dollar ended at CNY6.8281, down from Wednesday's close of CNY6.8306. It traded between CNY6.8280 and CNY6.8372, its highest intraday level since it hit CNY6.8398 on 14 April.
China 
Key news eminating from China this week .....
 China MarketsA senior European business representative has accused Beijing of deliberately locking foreign suppliers out of contracts under its Rmb4,000bn ($586bn, €421bn, £365bn) stimulus package.

"All the foreigners are out of the race" for a package of 25 wind turbine orders worth more than €5bn, said Joerg Wuttke, president of the European Union Chamber of Commerce in China. "It seems that the central government has decided that this must be awarded to Chinese manufacturers and not foreigners who have invested big in China."

The complaint is a significant contrast to the message Beijing has sought to convey, that it is making a contribution to help salvage the sagging global economy.
 
I would like to mention at this point, that did Mr Wuttke seriously expect China, a country that was ostensibly heavily affected by the US and European 'greed' that created the Credit Crunch, in their rebuilding efforts to open the door to those nations that had ostensibly created the global crisis? 

At an EU-China summit in Prague last week, José Manuel Barroso, the European Commission president, and Wen Jiabao, the Chinese premiere, presented a united front in pledging to resist protectionism.

Since the beginning of the year, Beijing has sent government and corporate officials on "buying missions" to the US and Europe.

Mr Wuttke said the bidding criteria for the wind projects were set in a way that made it difficult for foreign suppliers to win, focusing solely on the turbine unit price and excluding factors such as life-cycle cost and rates of return, which are considered in wind power tenders elsewhere.

The failure of the world's leading wind turbine makers including Vestas, Gamesa, Suzlon and GE to even make it into the second round of the bidding has caused frustration as they have invested big in response to Beijing's demand that they source at least 70% of their components locally.

"Now these steps seem to only have the effect to help strengthen the domestic players," said a foreign wind turbine 'executive' who asked not to be named.

China has more than 70 wind turbine makers which have grabbed an increasing share of the market in recent years. In 2008, foreign companies supplied just 24.4% of newly-installed capacity, says the Chinese Wind Energy Association.

Industry sources said the pattern of forcing foreign companies to foster domestic competition through local content and technology transfer demands was a "déjà vu" in China. "The industry is worried that this pattern might also apply to other segments like the nuclear industry and trains," said Mr Wuttke.

China installs 90-100GW in nuclear power generation capacity a year, making it the world's largest market for such equipment. But it has said it will not approve foreign reactor projects unless the supplier commits to technology transfer.

At a meeting in Brussels earlier this month, the EU and China discussed the importance of ensuring that their companies were able to compete fairly for contracts arising from their respective economic stimulus packages.

**********************************

China's official foreign exchange manager is still buying record amounts of US government bonds, in spite of Beijing's increasingly vocal fear of a Dollar collapse, according to officials and analysts.

Senior Chinese officials, including Wen Jiabao, the premier, have repeatedly signalled concern that US policies could lead to a collapse in the Dollar and global inflation.

But Chinese and western officials in Beijing said China was caught in a "Dollar trap" and has little choice but to keep pouring the bulk of its growing reserves into the US Treasury, which remains the only market big enough and liquid enough to support its huge purchases.

In March alone, China's direct holdings of US Treasury securities rose $23.7bn to reach a new record of $768bn, according to preliminary US data, allowing China to retain its title as the biggest creditor of the US government.

"Because of the sheer size of its reserves SAFE [China's State Administration of Foreign Exchange] will immediately disrupt any other market it tries to shift into in a big way and could also collapse the value of its existing reserves if it sold too many Dollars," said a western official, who spoke on condition of anonymity.

The composition of China's reserves is a state secret but Dollar assets are estimated to comprise as much as 70% of the $1,953bn total and China owns nearly a quarter of the US debt held by foreigners, according to US Treasury data.

The collapse of Fannie Mae and Freddie Mac, the US mortgage financiers, last summer prompted SAFE to adjust its strategy and start buying far more short-term US government securities, instead of longer-maturity bonds and notes.

This approach is widespread in the market because of expectations that the US will have to raise interest rates in the medium term to deal with rising inflation, as a result of all the money that it is printing.

But SAFE has not fundamentally changed its strategy of allocating the bulk of its burgeoning foreign exchange reserves to US Treasury securities, it has been intimated.

SAFE traders were "very negative" on Sterling because of expectations of renewed weakness of the UK currency but SAFE was neutral on the Euro and bullish on the Australian Dollar.

The Pound ended last week at its strongest since December, shrugging off a warning over the UK's soaring public debt from Standard & Poor's, a rating agency.

The US Dollar fell to its lowest level of the year against major currencies last week. Treasury yields spiked to six-month highs as investors focused on the willingness of creditors to fund a deficit that was expected to be about 13% of gross domestic product this year.

China's determination to keep buying US government debt is helping Washington fund its soaring budget deficit and there is no indication that Beijing will shy away from continued purchases, the Obama administration's budget chief told a congressional sub-committee last week.

As its reserves soared in recent years, SAFE began trying to diversify away from the Dollar, It has been adding to its gold stocks and taking small equity stakes in publicly listed companies all over the world.

Over the long term, Beijing hopes to reduce the size of its enormous reserves and cut exposure to US Treasury bonds by encouraging state-owned enterprises to use foreign exchange to acquire competitors abroad.

Chinese outbound foreign direct investment nearly doubled from 2007 to $52.2bn last year. Beijing announced a plan last week to ease restrictions on domestic companies to make it easier to buy and borrow foreign exchange for offshore investment.

**********************************

US Treasury Secretary Tim Geithner will reassure Chinese leaders that the US is commited to long-term fiscal discipline on his trip next week to Beijing, a senior Treasury official said on Thursday.

Mr Geithner will also urge his hosts to accelerate moves to shift the composition of China's economy, so it relies less on exports and more on domestic demand, the official added.

His comments came amid heightened concern in US markets about China's continued appetite for US government bonds and other assets and anxiety in China about potential losses on its US investments.

Richard Fisher, the president of the Dallas Fed, on Thursday challenged the view that foreign central banks are shying away from longer duration Treasuries, saying "there continues to be strong demand".

But he highlighted the severe fiscal challenges facing the administration - including what he estimated was $104,000bn in unfunded entitlement liabilities - and said the US central bank "can ill-afford to be perceived as monetising debt".

Mr Geithner will describe the required rise in US national savings and growth in Chinese consumption as two sides of the same coin, both required to rebalance the global economy once the crisis is over.

The aim is to lay the foundations post-crisis of "more balanced, more sustainable global growth," the official said.

He said Mr Geithner would also praise China for its contribution to supporting global demand during the crisis - including the world's second biggest fiscal stimulus - and urge the Beijing leadership to continue these efforts.

Notably, the official did not highlight China's currency as a top issue for the talks, even though the US continues to see Chinese currency reform as necessary to accomplish the required rebalancing and expects some discussion of currency issues.

The mix of issues reflects the shifting relationship between the two countries, which remain heavily reliant on each other for trade and financing.

The senior Treasury official said Mr Geithner will argue that for the US, global rebalancing means "laying out a path to bring down the fiscal deficit" while also making investments in health, infrastructure and energy to increase productivity.

"The US household savings rate has already risen, will probably continue to rise and the fiscal deficit will come down," he said.

For China, as well as a number of other economies, it would mean boosting domestic demand so these nations are less reliant on US consumption for growth.

The US Treasury Secretary will urge China to increase spending on health, education and pensions, to reduce the need for precautionary saving, increase credit availability and boost household incomes.

I actually believe that what America 'wants' and what it will actually 'get', will be an entirely different outcome, I really do.
Summary  
The coming week looks like .....
Commodities Indices
 Next week in the US particularly, we are awash with 'data' and I think we are most certainly in for a volatile week one way or the other; just by definition of the sheer weight of numbers/facts that the US Market has to deal with.

GM is expected to file for bankruptcy protection Monday, the government-imposed deadline for the 100-year- old auto maker to restructure itself into a viable company.

Meanwhile, economists expect the US unemployment rate to climb to 9.2% for May; that report is due next Friday. Also on tap this coming week will be the month's figures on auto and same-store sales.

The Obama administration plans to usher GM into bankruptcy court Monday and push through a restructuring that will cost taxpayers billions of Dollars more than previously envisioned, turning what once was one of the most profitable companies in the world into a government ward.

Under the latest plan, the US would provide the Detroit auto maker with at least $30 billion in financing to carry it through and out of bankruptcy, on top of the $20 billion in loans the government has given the company. It also agreed to turn the loans into a controlling ownership stake in GM of up to 72.5%.

Meanwhile, Chrysler, which entered bankruptcy at the end of April, could emerge as soon as next week, assuming a judge approves sale of the company's assets to Italian auto maker Fiat.

Economists are predicting May unemployment will rise to 9.2% from 8.9% a month earlier. The government will release the latest job statistics next Friday. On Thursday, Richard Fisher, president of the Dallas branch of the Federal Reserve, predicted the unemployment rate would reach as high as 10% before reversing, saying employment didn't trough until 21 months after the end of the 2001 recession.

Auto makers and retailers will report May sales on Tuesday and Thursday, respectively. New-vehicle sales are expected to rise from April but still remain far below year-earlier levels. Also, car-shopping Web site Edmunds.com predicted Ford and Toyota may come within striking distance of GM. Edmunds sees May sales at 890,000 vehicles, down 36% from a year earlier but up 8.9% from April.

On the retail front, this will be the first monthly sales report since 1979 without data from Wal-Mart, which said in April it would stop reporting such figures. Strong results at the world's largest retailer and drugstore chains drove the biggest monthly gain in same-store sales last month since August, at 1.2%. Lower-end department stores also posted improved results, signaling that consumers are increasing their spending beyond the discount chains.

The government will report on April personal income and spending rates as well as April construction spending Monday. Also due that day is the Institute for Supply Management's May index of manufacturing activity. That group will report on the service sector Wednesday.

On Tuesday, the National Association of Realtors will issue its April pending home sales index. The index increased 3.2% in March.

Also out Wednesday are data on April factory orders, which are expected to rise slightly. A revised number for first-quarter productivity is expected Thursday.

Among appearances by Federal Reserve officials: Chairman Ben Bernanke will testify about the federal budget before House lawmakers Wednesday and present welcoming remarks to a conference on financial markets and monetary policy Thursday in Washington.

Investors will be on the lookout for any further signals on quantitative easing when the European Central Bank and the Bank of England announce their decisions on Thursday.

Analysts see the ECB leaving rates on hold but pushing ahead with and possibly extending a plan to buy up to 60 billion Euros in covered bonds.

The focus will also be on growth forecasts for the next year and the message they send about the pace of any recovery. Less is expected immediately from the BoE, whose members voted unanimously to extend QE by 50 billion Pounds in May, but Cenbank watchers will be watching for indications they will go further, later.

Next week's EU economic calendar includes the June 1st release of EU manufacturing PMI expected at 38 compared to 36.8 last month.

On Tuesday, EU April unemployment will be released expected unchanged at 8.9%. On Wednesday, EU Q1 GDP will be released expected at -1.8% compared to -1.6% last quarter. EU May services PMI along with April PPI will also be released on Wednesday. The service PMI is expected to rise to 44.5 compared to 43.8 last month. PPI is expected to fall 0.5% compared to -0.7% last month.

On Thursday, EU April retail sales will be released expected at -2% compared to -4.2% last month.

Here in the Asia Pacific Region, eyes will remain firmly focused on North Korea to see what their next move will be - or more importantly, how China will react once it reopens after this weekend's Public Holiday.

In Japan, there is no economic data to be released and so I see Japan lacking direction for the best part of the week.

Australian economic calendar includes the Monday release of the Q1 company profits expected at -7% compared to - 6.5% last quarter. Q1 business inventories will also be released the same day and are expected at -1% compared to 1.4% last month, along with April retail sales expected to rise 2.4% compared to 2.2% last month.

Tuesday sees April building approvals released, expected at -20% compared to -16.5% last month. Q1 current account will also be released on Tuesday and these are expected to narrow to $A -4.8  billion from $A -6.50 billion last quarter.

On Wednesday, Q1 GDP will be released and is expected to come in at -0.2% compared to -0.5% last quarter. April trade balance will also be released on Thursday and should widen to $A2.65  billion from $A2.50  billion last month.

All told then, quite a lot of data in the US, Europe and Australia particularly and so I feel that we can expect a somewhat 'choppy' week ahead.
As always, I will keep you posted with major developments as/when they occur in the week ahead.
 
In the meantime, I wish you all a very pleasant weekend.
 
Market Newsletter Written By 


Adrian Page

Managing Director
Financial Page International
 
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