Asian markets tumble again on Yen carry-trade woes

The global decline, which wiped out $1trillion in market value last week, continues unabated. Rex Mathew reports.

Markets across Asia have extended their losses from last week on heavy unwinding in Yen carry-trades. Malaysia has lost over 4.5 per cent today while Singapore is down 4 per cent. Japan has slipped 3.5 per cent while the Shanghai index in China, which saw an 8.8 per cent crash last Tuesday, has lost nearly 3 per cent. Hong Kong is down 3 per cent while South Korea and Indonesia have lost over 2.5 per cent each.

Japanese investors exploit the low domestic interest rates to borrow locally in Yen and invest them proceeds in better yielding securities abroad. Such transactions are called Yen carry-trades and the total volume of such transactions is estimated at around $200 billion.

These trades become non-profitable when the Japanese Yen appreciates against other global currencies and when domestic Japanese interest rates rise. Japan had doubled its overnight lending rate from 0.25 per cent to 0.50 per cent on 21 February. (See: Bank of Japan doubles interest rate to 0.5 per cent)

The Japanese Yen appreciated 3.7 per cent against the US Dollar and 3.5 per cent against the Euro last week. This triggered an unwinding of the carry trades by Japanese investors and the process is continuing today as well. Though exact estimates are not available, it is likely that part of the Japanese investments in Indian equities is in fact carry trades.

Rising Yen would affect the earnings of large Japanese companies, which rely heavily on exports. There is also the possibility that other regional currencies would also rise in tandem against the US Dollar and the Euro, which would affect Asian exports. This comes at a time when there are widespread fears of a further slow down in the US, the main market for Asian exports.

Last week, the Morgan Stanley Capital International (MSCI) World Index, which tracks major global markets, slipped 4.5 per cent. This was the worst weekly decline in more than four years and came after rising concerns about a recession in the US economy apart from Yen carry-trade unwinding. Last week's global sell-off is estimated to have wiped off a staggering $1.5 trillion in market value.

Fears of a US recession had led to a 4.2-per cent fall in the Dow Jones index last week. The S&P 500 index lost 4.4 per cent while the NASDAQ index, dominated by technology stocks, slipped 5.9 per cent. MSCI Asia Pacific index lost 3.5 per cent last week while the MSCI emerging markets index tumbled 6.7 per cent.

European markets also saw their worst decline in more than 4 years last week. Major European indices dropped an average 5.5 per cent last week. Germany's Daxx index slipped 5.6 per cent, France's CAC gave up 5.1 per cent and the FTSE in London declined 4.5 per cent last week.

In India, the Sensex and the Nifty gave up over 5 per cent each last week - for the second consecutive week. In morning trades today, the Sensex dropped over 500 points while the Nifty slipped more than 150 points

TATA - CORUS - Commitee to Oversee Merger!

Soon a committee will be appointed to oversee the TATA STEEL and CORUS merger, Ratan Tata Chairman Tata Sons stated.
After the merger also dutch Corus will be delisted( and acc to sources it would be delisted in this month of april!). The committee will comprise of representatives from both the company.
Ratan Tata and Corus Chairman James Leng were in Jamshedpur to mark the Founder's Day celebration of Tata Steel.

Nokia sales, profit top forecasts

World's No. 1 handset maker preserved handset margins

LONDON (MarketWatch) -- Nokia Corp., the world's largest maker of mobile phones, on Thursday delivered a forecast-beating 19% increase in fourth-quarter profit as it managed to preserve margins in its handset business.

Net income at the Finnish group improved to 1.27 billion euros ($1.65 billion), or 0.32 euros a share, from 1.07 billion euros, or 0.28 euros a share, a year earlier. Excluding one-time items, Nokia would have earned 0.30 euros a share.

Sales climbed 13% to 11.7 billion euros.

Consensus forecasts from analysts were for earnings of 0.28 euros a share on sales of 11.6 billion euros.

Nokia proposed an annual dividend of 0.43 euros a share compared to 0.37 euros a share in 2005.

shares rose 4.7% in Helsinki morning trading.

Margins preserved even as average selling prices slip

Nokia said it shipped 106 million handsets in the quarter, up 19% sequentially and 26% year on the year. Although the average selling price of its handsets slipped to 89 euros from 93 euros in the third quarter, the group's handset operating margin, a closely watched measure of profitability, rose to 17.8% from 17.1% a year ago.

The average selling price of phones has dropped consistently at Nokia and other players as a higher proportion of phones sold are basic models targeted to emerging markets such as India and China.

Nokia's closest rival, last week posted a 48% drop in quarterly profit as its mobile-phone margins and the average selling price of its handsets collapsed. See full story.

Nokia estimated its market share at 36% in the quarter, flat from the third quarter, but up from 34% a year ago. It said it expects to maintain its market share in the first quarter.

"Nokia was able to increase its share of the global-device market significantly in 2006 to an estimated 36%, clearly solidifying our No. 1 position in the industry," Chief Executive Olli-Pekka Kallasvuo said in a statement.

"We achieved this result through the strengths of Nokia's world-class brand, products, cost structure and efficiency, without sacrificing our operating margins or cash flow."

Regarding the industry as a whole, Nokia reiterated its forecast for device volume growth of up to 10% from an estimated 978 million units in 2006. It said it sees some decline in industry average selling price next year.

Goldman Sachs last week upgraded Nokia to buy, saying it believes a perfect storm of negative news, including Motorola's profit warning and the launch of Apple's iPhone, has coincided with the bottom of the Finnish company's profit cycle.

The broker said it expects new products to drive a recovery in sentiment as well as average selling prices and gross margins during the first half of 2007

EBay profit rises 24%; sales up 29%

SAN FRANCISCO (MarketWatch) -- EBay Inc. late Wednesday reported fourth-quarter profit climbed 24% as sales rose more than expected, helped by a surge in its electronic-payments business and higher prices for the items eBay sells online.

The online auctioneer also issued a full-year profit forecast that exceeded Wall Street expectations and announced an extension of its share buyback program, helping send its shares (EBAY :

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EBAY30.00, +1.38, +4.8% ) up 10% in after-hours trading.

The San Jose, Calif.-based company said net income for the period ended Dec. 31 rose to $346 million, or 25 cents a share, from $279 million, or 20 cents, a year earlier.

Excluding the costs of employee stock options and other items, eBay said it would have earned 31 cents a share. In October, eBay forecast it would earn between 27 cents and 28 cents a share on that basis.

Sales rose 29% to $1.72 billion, topping the company's own expectations and the $1.67 billion estimate of analysts polled by Thomson First Call.

The results indicate a strong finish to a mixed year for eBay, which faced a backlash from some of its online sellers after it raised fees, and skepticism from Wall Street after it shut its operations in China after investing heavily there.

"EBay's core business is performing nicely and 2007 looks to bring more margin expansion and more stock buybacks," said Mark Mahaney, a Citigroup analyst who described the results as "unambiguously more positive." Mahaney has a buy rating on the stock.

Revenue from eBay's PayPal payments business rose 37% to $417 million, or a quarter of the company's total, while sales in its online marketplace business rose 24%.

EBay also saw healthy growth in its other businesses, with revenue from its Skype Internet phone division more than doubling from a year ago to $66 million.

While eBay Chief Executive Officer Meg Whitman said Skype's performance was encouraging, yet sales of its premium products are "not yet developing as quickly as we hoped" when it bought the company in late 2005.

EBay will try to goose Skype profits by adding new features, such as text messaging, she added during a conference call after eBay's results were announced.

The San Jose, Calif.-based company is looking to new areas for a boost as growth in its traditional auctions business has slowed in recent years.

"PayPal is a key component of our growth," eBay Chief Financial Officer Bob Swan said in an interview. Swan said of eBay's Skype and Shopping.com units, "they are expanding our breadth and capability."

In eBay's international markets, Swan said the company stabilized previously weakening overseas markets, including Germany and the U.K., and generated a record amount of free cash flow during the quarter.

The overall results were proof, Swan said, of a pay-off for what many saw as a risky move eBay made earlier in the year to raise fees on some of its highest-volume sellers.

In that shift, eBay increased how much it charges to list items in eBay stores, which generate less profit for eBay than its auctions business, to improve the quality of listings and encourage more sellers to use the auction method.

"I think the fundamental difference between expectations and the report was some underestimated our revenue per listing growth," Swan said.

EBay's results were also helped by a slightly lower tax rate, which fell to 28% from 29%.

For 2007, eBay said it expects to post earnings excluding certain items between $1.25 and $1.29 a share, more than the $1.23 a share average estimate of Wall Street analysts.

EBay expects upto $120 million in sales this year from secondary ticket-seller StubHub Inc., which eBay announced on Jan. 10 it is purchasing for $310 million in cash.

The company also announced Wednesday that it authorized the company to repurchase another $2 billion in company stock over the next two years, in addition to the $1.7 billion eBay has spent since July 2006.

"We don't believe the long-term value of the company was adequately reflected in the stock price," Swan said.

EBay shares rose as high as $33.15, or 10.5%, in late trading after the results were announced.

Market Forces Worked to Cool Oil Prices, API Says

[19-Jan-2007] U.S. oil demand dipped last year as mild winter weather and high fuel prices led airlines and other industries to find ways to cut fuel use, according to the American Petroleum Institute (API). During a media briefing Friday, API Chief Economist John Felmy and Ron Planting, head of statistical analysis, said 2006 presented challenges to energy producers and consumers but the market responded as rising supplies of gasoline and other fuels helped cool prices during the second half of the year. API officials also talked about challenges facing the oil and natural gas industry in 2007.