Of froth and bubbles
.…. and fundamentals

In 2003, the Bombay Stock Exchange's Sensex index passed what was seen as the psychologically crucial 4,000 mark. It closed Thursday at 14,203.72, and many traders expect it to hit 15,000 this year.

Stock-watching has become an obsession in India, one that rivals cricket and Bollywood. Believing in India's stock markets means believing in India itself — and in the country's ability to transform its combination of a young population, a dilapidated infrastructure, chaotic streets and unbridled optimism into a corporate superpower.

For now, markets in India are on a roll, surpassing even the rosiest forecasts, thanks in part to a young, wealthy, expanding middle class that is banking on aggressive corporate growth. While Alan Greenspan, the former chairman of the U.S. Federal Reserve, is offering warnings about China, Indian indexes have hit new highs drawing in foreign investors and Wall Street banks.

Many Indian companies are looking to take advantage of the fervor. This week, the country's largest public offering came to the market, the $2.4 billion float of the real estate company DLF. Later this month, the state bank ICICI plans to tap markets in India and the United States for $5 billion.

The frothy share prices and large initial offerings are exacerbating a debate in India. Market bulls say a fundamental shift is under way as consumers tie their personal wealth more closely to India Inc., paving the way for a more prosperous middle class. But bears have begun to talk about a bubble fueled by naïve optimism and day trading. Indian investors have forgotten, critics say, the heavy losses they suffered after fraud racked the markets in the early 1990s and the technology bubble broke a few years ago.

Source : As stocks soar in India, everyone wants in (International herald Tribune)

Chinese Stocks : Rebound from Free Fall

China's stocks have been in a virtual free fall since the government tripled the tax on securities trading on May 30. The slide has wiped out more than $500 billion of market value - more than the combined GDP of Taiwan and Singapore.

The benchmark Shanghai index closed more than 8% lower on Monday on concerns that the government is set to launch further measures to cool the gravity-defying rise, including a capital gains tax. On Tuesday, a late rally saw the market rebound to finish more than 2.5% higher after a volatile day of trading that saw a 7% decline earlier in the day.

In an apparent bid to reassure investors, editorials in official newspapers have said that the market's medium- and long-term outlook was still positive, and that the tax hike was merely aimed at speculators. Terming the fall as a healthy short-term correction that won’t hurt the “bull run”, the newspapers have advised investors to take a long-term view of the development of the Chinese capital markets and the importance of the financial reforms.

The meteoric rise of the Chinese stock market has led to widespread fears of a bubble-in-making and warnings of dramatic corrections. Significantly, global markets, which were shaken by a heavy Chinese market sell-off in late February, appear relatively calm to the latest meltdown.

Will the Bubble Burst?
Chinese Stocks Plunge as Transaction Tax Trebled

China's main share index has fallen 6.5% in Wednesday trading following the government’s decision to triple the tax on stock transactions. The move is seen as an effort to cool the overheated market that has led to fears of a possible bubble.

The Shanghai Composite Index had risen 62% this year to Tuesday's record close and has quadrupled in value since the start of 2006. Last week former Federal Reserve chairman Alan Greenspan warned of a looming correction in the Chinese stock market.

It’s the unprecedented demand from domestic investors that has fueled the rally. There is a flood of fresh money from millions of new investors – including students and pensioners - sinking their savings into the stock market in the hope of super returns as there is a scarcity of other investment options.

The number of stock trading accounts has risen to about 100 million, with tens of thousands being opened every day. It is reported that 300,000 people a day opened brokerage accounts last week. The finance ministry is tripling the stamp tax on stock trading to 0.3 percent, from 0.1 percent, effective Wednesday. Although investors are sanguine about growth prospects and many feel that the correction may be short-lived, there are fears that the government will follow with more steps to curb speculation and excessive flow of money into the stock market.

S&P Beats 1500, Dow Jones at New High

Better-than-expected earnings, positive economic data, M&A news driving the market

The raging bulls continue to scale the mountains as S&P500 beat the 1500 point once again since late 2000 and the Dow made another new high of 13241.38. The economic data continues to paint an optimistic picture of controlled inflation and steady growth. That, along with the great earnings so far, continues to fuel the bulls ahead.

Besides economic and earnings data, what has added to the upbeat mood on the Wall Street is a spate of corporate takeover news. After Rupert Murdoch’s News Corp. offered to buy Wall Street Journal publisher Dow Jones & Co. for $5 billion, there are reports that Microsoft has renewed talks to take over Yahoo Inc. and Reuters Group has received a preliminary takeover offer. The frenzied activities on M&A front are seen as bullish signs for the future of the economy.

Dow Jones dream run continues

The Dow Jones Industrial Average reached an all-time high marking a record for the third day in a row, as Federal Reserve Chairman Bernanke painted a broadly optimistic picture of the economy. The 30-stock index has risen seven straight months - the longest winning streak since 1995 - and has gained 2.4% in 2007. It closed at 12,767.57 this Friday, basking in the optimism generated by Bernanke's testimony and positive data on wholesale prices, while shrugging off another set of data that showed a continued slowdown in the housing market.

The Fed Chairman sounded less hawkish in his semi-annual congressional testimony than expected, spurring expectations that interets rates will remain on hold and will be cut later this year. He assessed that there were some indications that inflation pressures were beginning to diminish. Since there was much noise in monthly data, it may be some time before the Fed could be confident that underlying inflation was moderating as anticipated. He noted that core inflation rate remained somewhat elevated. However, if activity expanded over the next year or so at a moderate pace as anticipated by the FOMC, pressures on both labour and product markets should ease modestly. Consumer spending has been the "mainstay" of growth, and the worst housing slump in more than a decade won't have a significant effect on other parts of the economy, Bernanke said.

Reflecting anticipation of lower rates, the yield on the benchmark 10-year U.S. Treasury note has fallen to 4.69 percent.

Red ink on the bourses,

Bears are coming back .....

After recording strong gains last year – though punctuated by unprecedented volatility - Indian stock markets have begun the year 2007 on a hesitant note. Are bears coming back? Or is it the usual caution ahead of the earnings season?

Sensex shed over 200 points on Monday, as investors pressed sell button in line with other Asian markets. The fall was led by frontline IT stocks on concerns that the appreciation of the rupee and a slowdown in the US economy might hurt earnings of software. This is the third consecutive day of fall in Indian equity market.

While the 30-share blue-chip index of the BSE today ended 208.37 points down at 13,652.15 (-1.50%), NSE’s Nifty closed 50 points down at 3,933.40 (-1.26%). Besides IT stocks, heavy selling was seen in auto and metal counters. Overall breadth of the market was, however, positive and some buying was seen in mid-cap and small-cap scrips.

The quarterly earnings season kicks off later this week with Infosys results on 11th. While the incoming numbers will drive the sentiments in the coming weeks (and, numbers and guidance are generally expected to be good), there are some uncertainties going ahead. Although economy is expected to post robust growth, there are concerns ranging from high valuations, uncertainty in the metals market to looming interest rate hikes.

Bulls, Bulls Everywhere
DJ 12K, Hang Seng 18K, Sensex 13K, ………

Stock markets across the world are scaling new heights - from US to Europe to Asia. From Wall Street to Tokyo, from Frankfurt to Singapore, from Paris to Manila, from Zurich to Mumbai – there is a bull party going on at the bourses everywhere.

Dow Jones Industrial Average is near its all time high and closed above the 12000 milestone this week registering a weekly gain of 0.4 percent, despite concerns that profit growth has peaked. European stocks rose for fourth consecutive week, led by metals and commodities stocks, as metal prices gained and OPEC agreed to cut oil production.

Hong Kong's Hang Seng Index is at 6-year high and ended the week at 18,113.55 with a weekly gain of 0.7 percent riding on the euphoria generated by the ICBC IPO and strong growth in China Mobile subscriptions. Japan's Nikkei 225 Stock Average added 0.7 percent this week to close at 16,651.63 reflecting robust corporate earnings - marking the fourth consecutive week of gains. South Korea's Kospi added 1.2 percent this week, as the tensions from North Korea's nuclear test ease with diplomacy likely to take the centre-stage. Shares in Singapore and Indonesia are also at new all-time highs.

In India, the BSE Sensex, though generally showing signs of fatigue during the week as it approached the psychologically important 13000 level, ended up on Saturday at a special 75-minute trading session arranged to mark the festival of Diwali. The blue-chip 30-share index had closed at 12,928.18 on Oct. 16 and has been a little hesitant since then. The overall positive sentiment and expectations of strong corporate earnings in the coming weeks is likely to propel the markets beyond 13000.

Mount 13K – An Arduous Climb for Sensex

The Indian stock markets have reached a new all-time high, leaving behind the memories of the “May Mayhem”. A month-long bear grip during May-June this year had knocked down the key indices by about 30%. The crash had been triggered by concerns on higher interest rates following a trend of monetary tightening across the world led by US Federal Reserve, as also high oil prices. These concerns have since receded, as US Fed has ended a two-year streak of interest-rate hikes and oil prices have dropped over 20 percent from record highs. Overseas investors have flocked back to the world’s second fastest growing economy in a big way, as the economy promises sustained growth.

The benchmark sensitive index Sensex of Bombay stock Exchange ended at 12736 on Friday, convincingly surpassing the record close of 12,612 set on May 10. This marks a gain of 45 percent in 90 sessions since the index hit a low of 8800. On a weekly basis, the 30-share index recorded a gain of 2.9 percent, when the quarterly earnings season got off to a flying start with Infosys numbers. More fireworks are expected in coming weeks as more and more numbers pour in. Most of the frontline stocks are likely to report robust earnings growth.

India, the Asia's fourth largest economy, is expected to grow by over 8 percent for the fourth year in a row. The economy grew 8.9 percent in the quarter ended June 30. The Indian growth story is now being seen as much more sustainable than ever before. The growth in Indian economy is expected to be led by the themes of strong domestic demand, outsourcing and infrastructure.

The overseas investors are looking to benefit from the rapid growth and the great long-term story that they expect to unfold. They put a record amount of US$10.7 billion into the Indian market last year and this year's net purchases have been US$5.37 billion. Since June 14, they've bought local shares worth US$2.77 billion, surpassing the amount they sold during the slump. Domestic investors are also contributing to the market's gains in a significant way. Domestic funds remained buyers of stock during the slump, purchasing shares worth $1.12 billion from May 10 to June 14. Since the low in June their purchases have amounted to US$1.78 billion.

Incidentally, the bulls are calling the shots on bourses across the globe. From Dow Jones in US to FTSE, CAC, DAX in Europe and Nikkei, Hangseng, Sensex in Asia – it’s bright and sunny everywhere.

What makes Chinese banks hot?

The world's biggest initial public offering coming from the largest bank of the world’s fastest growing economy has seen huge demand from institutional investors from across the world. The Industrial and Commercial Bank of China (ICBC) plans to debut in Hong Kong and Shanghai on Oct. 27. This will be the first IPO to be simultaneously listed on both stock exchanges.

If priced near the top of the range (which is almost certain), the issue will garner US$22 billion, beating the record of $18.4 billion set in 1998 by a Japanese mobile-telecoms operator NTT Mobile Communications Network Inc. The sale will also place ICBC among the ten most highly valued banks in the world, with a market capitalisation close to $130 billion.

ICBC is the latest in a series of massive IPOs launched by Chinese banks during the past year. Bank of China, the country’s second largest lender, raised US$11.2 billion with an IPO that was the fourth-largest on record. China Construction Bank, the mainland's no. 3 bank, raised US$8 billion in October 2005.

What makes Chinese banks ‘hot’? It’s the strong growth recorded by these banks in the sizzling economy that is luring the institutional investors. There is a scramble among the financial powerhouses of the world like Goldman Sachs, Morgan Stanley and Citigroup to gain a foothold into the Chinese banking system. For them, these banks are a sort of a proxy for China itself: vast, diverse, growing fast, and with extraordinary scope for internal restructuring. Economist terms the ICBC IPO as a single transaction that could sum up the knowns and unknowns surrounding China's red-hot economy. According to an Economist article, “…ICBC, however valuable, also reflects the murkier side of life in the Chinese economy. Political considerations often come first, information is unreliable, and openness in the banking system is questionable, despite conditions tied to China's entry into the World Trade Organisation.”

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Euphoria, mad rush, and ............. crisis ?

http://rupwaliaktiwari.blogspot.com/2006/10/euphoria-mad-rush-and.html

Dow Jones at all-time high

The blue-chip Dow Jones industrial Average Index has surpassed the record close of 11,723 reached in January 2000, amid mixed economic news and lower oil prices. The earlier peak had been reached in 2000 at the height of the tech bubble.

While crude has fallen below $62 a barrel (over 2% decline), the widely tracked ISM Manufacturing Index, a key indicator of national industrial activity, showed a weaker-than-expected reading. The Manufacturing Index posting a reading of 52.9 still reflected steady overall growth. Meanwhile, a government report on construction showed a surprise rise in construction spending and a realtors’ report on home re-sales suggested that the slowdown in housing would be gradual. Lower oil prices and a cooling economy ease the inflation concerns and provide more flexibility to the Fed.