Goldman Sachs, Apple Might Top This Wish List

Leave it to tiny Singapore to tell us where the global economy is heading. We used to look to the gargantuan U.S. economy for guidance on financial trends. After Wall Street’s collapse, we turned to the Group of 20 nations. More insight might be gleaned looking at an island nation with 5 million people.
The idea that a place with no natural resources and a state-capitalism model is a global bellwether will strike many as absurd. Yet Singapore Exchange Ltd.’s attempted takeover of Australia’s stock exchange shows how Asia’s money is changing the face of finance and geopolitics as we know it. Singapore Exchange’s A$8.1 billion ($7.9 billion) bid for ASX Ltd. might not go through amid an outcry from Australian lawmakers. It almost doesn’t matter. The point is that fast- growing and cash-rich Asia is about to go shopping in ways that might shock the biggest developed economies.
This transaction is full of chutzpah. Singapore’s stock market is half the size of Australia’s and the deal looks expensive. The real issue is ambition. Singapore is clearly prepared to spend big to get economies of scale that don’t come naturally. Expect more of this dynamic in Asia -- even from smaller countries that get little attention globally.
How will the West respond when China, Japan and India go on a mergers-and-acquisitions tear? And those are just Asia’s three biggest economies. Executives from Seattle to London should also expect more phone calls from acquisitive companies in South Korea, Indonesia, Taiwan, Hong Kong and sovereign wealth fund managers everywhere.

Next Wave

China has been scooping up energy assets around the globe, and has $2.6 trillion of reserves to accelerate the campaign. It seeks to leapfrog over the years needed to build domestic corporate powerhouses. In today’s world, it’s easier to buy a chunk of International Business Machines Corp. than create and cultivate brands over time. As the yuan rises, tech leaders like Nokia Oyj or Motorola Inc. become cheaper for mainland executives. Why censor Google Inc. when you can just own it? The next wave of globalization features developing nations buying the crown jewels of developed ones, and it will be messy. In 2005, the U.S. Congress freaked out when China’s CNOOC Ltd. bid for oil company Unocal Corp. and scuttled the deal. Just wait until China sets its sights on Boeing Co., Microsoft Corp.
or Goldman Sachs Group Inc.

Goldman Envy

This last name has long been coveted in Asia. Government officials in Tokyo and Seoul crave having globally known, savvy and profitable financial leaders. That tends to be code for having their own Goldman. Now, Asia could just buy the real thing. Well, try to at least. It’s hard to believe developed-market lawmakers would let many household names fall easily into Asian hands. Creative attempts would be made to explain why Pacific Investment Management Co. being acquired by foreigners poses a national- security threat. Or why Apple Inc. or cable news network CNN
must remain American concerns.
Never mind how these arguments might run afoul of World Trade Organization rules. The next few years will see a disorienting flurry of takeover bids from Brasilia to Beijing, putting politicians in unprecedented positions. Nationalistic
tendencies will collide with globalization as never before. Singapore helped prove the point that Asia has money at a time when others don’t. Its investment firms in recent years took stakes in Citigroup Inc., UBS AG, Barclays Plc and others, shoring up some of capitalism’s biggest names. Bidding for Australia’s ASX is the next logical step and a reminder that Singapore’s long game is worth watching.

Bet on Gambling

Take casinos, which are suddenly the rage in conservative Singapore. The government realized it had to let its hair down to net more of the tourism dollars flowing elsewhere in Asia. Welcoming casino-resorts run by Genting Singapore Plc and Las Vegas Sands Corp. was a gamble that is clearly working. So was revamping downtown to host Formula One races. Tourist arrivals are exploding, and other Asian capitals are racing to emulate Singapore’s success.
Singapore is working to reinvent itself as a biotechnology hub with reasonably liberal immigration laws to feed its development. Its transparent financial system has been a magnet for hedge funds setting up shop in Asia. The ASX bid is recognition that Singapore can’t grow much beyond its domestic market and must look outward.

Opportunities Abound

Asia wants to avoid Japan’s arrogant and ill-considered purchases during the bubble years. Buying Rockefeller Center and the Pebble Beach golf course didn’t work out so well for investors. Officials and executives in Singapore, Beijing, New Delhi and Seoul must avoid the temptation for such vanity deals. Opportunities abound, though. Several governments are sitting on hundreds of billions of reserves and companies are hoarding cash. Add the desire to grow economies and corporate balance sheets and you have a clear recipe for expansion – and a huge one as Asia floods markets with more equity than ever amid booming demand for initial public offerings. This shopping spree will shake up the global power balance like rarely before. Perhaps nowhere is this huge shift more apparent than in tiny Singapore.

This interesting article was published by William Pesek on Bloomberg on Oct 29.

Boom or Building of Another Bubble?

Sunday morning… As I opened my Times of India a barrage of advertisements fell down. Mostly local malls announcing various schemes & offers for the Diwali season. But the front page was different today. Of course it was a big 2 full page ad for a property developer as has been the case for more than a month now. But today it was for a big developer in Delhi announcing 14% assured returns for 7 years for a 15 acre commercial property that was being developed. Now this was different.. When was last time that developers announced 100% assured returns in 7 years for a commercial property in Delhi by giving full page ads in Mumbai editions? I think early 2008 after the sensex had begun its historic descent. This is because typically real estate market trails financial market at least by few months. This made me stop sipping my tea and think. I have been observing for last 2 months that ads giving picturesque details about “Great Value” for various properties have suddenly gone up. The frequency and number of stalls in MCHI exhibitions have increased. The bulge of property times edition on weekends has suddenly swelled with more and more glossy ads clamouring for my attention. Various freebies are on offer again…. Latest one being savings of more than 1 lac in property value plus a chance to win furnishing of 4 lacs from a prominent developer in Mumbai. (Again see today’s Mumbai Mirror – 2 full page colour ad). But real estate rates have gone up. I know it first-hand because after buying a flat for myself around a year and half ago the rates in my locality are up by more than 50% and the developers are becoming less and less willing to negotiate with every passing day. Yet when I walked out I got 4 calls in next one month enquiring about my interest in the same property. Now what was that? Are the developers trying to hold on to prices even the demand has dried up exactly like they were doing in 2007 & 2008? Also the properties that were offering ready possession flats a year ago are still offering ready possession flats. Trust me.. 3 years of house hunting experience has made me a keen observer of real estate ads.

This is a case in point. Let me give you some more food for thought.

Number of IPOs so far this year is 63. It was 21 in 2009, 36 in 2008, 96 in 2007 and 73 in 2007.

SMSs offering “Dream Gains” from stock tips have reached the number of at least 15 a day.

A newly joined graduate trainee offered me a stock tip in a Z category stock assuring me triple digit returns in 3 months.

My colleagues discuss stock prices more than cricket and movies.

Number of calls per day from placement consultancies have again reached 2007 level. That too without updating my resume for more than a year.

New banks are calling me to offer credit cards and my existing banks are more than willing to double the limit on the cards I already have.

After doubling the price in last one year, the modular kitchen company I designed my kitchen from is again offering 40% flat discount.. That too in Diwali time.

Make my trip is again offering me mouth-watering deals for exotic locations. Like it did in 2009.

Is this Diwali for real or an ignited fire cracker about to burst? As far as I am concerned, I am cashing out of equities.

Biggest bubble in history’s growing every day

An interesting article in today's Economic Times

5th February, 2010

Biggest bubble in history’s growing every day

WILLIAM PESEK
REAL estate, stocks, credit. China sure has its share of bubbles. Oddly, little attention is paid to the biggest one of all. China’s currency reserves grew by more than the gross domestic product of Norway in 2009. Its $2.4 trillion of reserves is a bubble all its own, one growing before our eyes with nary a peep out of those searching for the next big one. The reserve bubble is actually an Asia-wide phenomenon. And we should stop viewing this monetary arms race as a source of strength. Here are three reasons why it’s fast becoming a bigger liability than policy makers say publicly. One, it’s a massive and growing pyramid scheme. The issue has reached new levels of absurdity with traders buzzing about crisisplagued Greece seeking a Chinese bailout. After all, if economies were for sale, China could use the $453 billion of reserves it amassed last year to buy Greece and Vietnam and have enough left over for Mongolia. Countries such as the US used to woo the Bill Gross’s of the world to buy their debt. Now, they are wooing governments. Gross, who runs the world’s biggest mutual fund at Pacific Investment Management, is still plenty important to officials in Washington. He’s just not as vital as the continued patronage of state asset managers in places like Beijing. You have to wonder what folks at the International Monetary Fund are thinking these days. Their aid packages tend to come with messy requirements, such as ‘get your economy in order’. China’s are merely about scoring resources or geopolitical points. We have already seen China throw lifelines to Wall Street giants, including Morgan Stanley. Entire countries seem like the natural next step. China’s huge arsenal of reserves is increasing its global influence. The trouble is, China is trapped in an arrangement of its own making. As China and other Asian nations buy more and more US treasuries, it becomes harder to unload them without causing huge capital losses. And so they keep adding to them. “This is a titanically large foreign-exchange trade,” says David Simmonds, Londonbased analyst at Royal Bank of Scotland Group. “It’s the biggest one history has ever seen and there’s nowhere for these reserves to go.” China aims to diversify out of US treasuries into other assets and commodities. The question that governments are grappling with is which markets are deep enough to absorb China’s riches? Gold? Oil? Euro-area debt? The Madoff family’s next Ponzi scheme? The challenge for China alone is like trying to park an Airbus A-380 super-jumbo in a Volkswagen. Like all pyramid schemes, there’s no easy end in sight and things could end badly. If the dollar collapses, panicked selling by central banks looking to limit losses would shake global markets more than the US credit crisis has. Two, reserves are dead money. The wisdom of currency stockpiling came from the chaos of 1997. Speculators sensed authorities in Thailand were sitting on few reserves, and they were right. Their attack on the Thai baht set the stage for an Asian meltdown. Governments spent the 2000s determined not to repeat the mistake. Three, reserves add to overheating risks. When policy makers buy dollars, they need to sell local currency, increasing its availability and boosting the money supply. Next they sell bonds to mop up excess money in economies. It’s an imprecise science that often leads to accelerating inflation. The strategy works out to be an expensive one. — Bloomberg