PRO 16-12-2012_Layout 1 12/16/2012 1:35 AM Page 1
Sunday, 16 December, 2012
Rupee-dollaR paRIty
Importers pushed towards forward booking dollar at Rs 101! KARACHI
T
ISMAIL DILAWAR
He value of the rupee is touching the lowest ebb against the dollar in the history of Pakistan, apparently, because of the country’s fast depleting foreign exchange reserves. According to official data, the country held dollar reserves of $ 13.37 billion up to the week that ended on Dec 7. Of this total, over $ 4.8 billion belong to the private banks with the State Bank left with only $ 8.5 billion in hand. This downward trend in Pakistan’s forex reserves is said to be a major reason for a persistent devaluation of rupee against the greenback that appreciated by over Rs 3 against the Pakistani currency during last three months. Friday saw the rupee trading at the lowest level of Rs 98.40 versus dollar. The dealers in the local money market, however, think otherwise and point finger at the profit-crazy bankers while assigning major reasons to the ongoing negative balance in the rupee-dollar parity. Talking to Pakistan Today, the money exchangers claimed that the banks had panicked the importers by creating rumors in the market. The rumors, the exchangers alleged, include the spread of misleading forecasts that the dollar was set to appreciate further against the rupee owing to Pakistan’s fast depleting forex reserves that are being drained out to the International Monetary Fund (IMF) in the face of heavy debt repayments. “Resultantly, the panicked importers are rushing to the banks for forward booking of the dollar for six months,” said Malik Bostan of Forex Association of Pakistan (FAP). The importers, Bostan said, were placing advance orders with the banks for the greenback at a rate as high as Rs 101. “The banking cartels take benefit out of forward booking,” he claimed. Such speculations whereas have allegedly pushed the importers towards forward booking of the US currency, in which they have to clear their import bills, the same is said to have led to hoarding of the greenback. As claimed by a local currency dealer, Shahid Usman, who accused the banks of sitting over a heavy chunk of dollars, thus creating a shortage in the inter-bank and open market. “The banks say we have no dollars available as the State Bank is not providing us with the same,” the dealer said. Usman seconded the impression that the banks were forcing the importers towards forward booking by spreading rumors. However, when contacted a senior
banker rejected the allegations as “baseless” and said the dollar’s appreciation was because of the hype created by the market sentiments coupled with reports of Islamabad’s intention to seek a fresh bailout package from the IMF. “Rupee is weakening because the dollar is strengthening,” he said. “The same had also happened in 2008 when Pakistan had sought the IMF’s SBA package. The dollar had then shot up to Rs 84 from Rs 61,” the banker argued. The banker opines that the present PPP-led government would not go for a fresh IMF loan on the back of positives like Balance of Payment showing a surplus in the first five months and improved inflow of worker remittances. The FAP chairman Bostan, how-
ever, insisted that such negatives would keep pressure mounting on the already volatile rupee. “The government must interfere and the State Bank should come up with a clear statement on the status of its reserves,” the money dealer proposed. Also, he demanded of the economic mangers to take urgent steps towards the realization of foreign financing pledged or budgeted under various heads. This, he said, included $ 600 million under Coalition Support Fund, $ 800 million proceeds against the PTCL privatization and foreign inflows to come through the issuance of third generation licenses to the telecom sector. Bostan also urged the government to press the IMF for rescheduling of the debt repayments which, he claimed, were being repaid at a much higher rate of 4.5 percent against the Fund’s international market rate of 1 percent. Despite the apparent trust deficit on the two sides, the money exchangers and bankers agree that if the remedial measures were not taken the rupee would keep losing face to the dollar and would slid down to Rs100. “If the inter-bank rates also rose on Monday the dollar would soon cross the Rs 100 mark,” said a currency dealer. A banker in one of the leading banks, however, foresees this possibility by February or March next year.
Call for freezing 5pc GST on tractors for another year LAHORE APP
Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) Saturday urged the government to extend the reduced levy of 5 percent on tractors sale for another year with a view to sustain manufacturing growth which was under threat of closure due to gas supply suspension and power loadshedding. PAAPAM Vice Chairman Usman Malik said here that reduction of sales tax to 5 percent put the tractor industry and its allied hundreds of
KCCI rejects 50bps rate-cut by SBP
KARACHI STAFF REPORT
Karachi Chamber of Commerce and Industry (KCCI) Saturday expressed its dissatisfaction over the 50 basis points decrease in the discount rate by the State Bank of Pakistan on Friday. In a statement issued here Saturday, President KCCI Muhammad Haroon Agar said the business community was expecting a decrease of 100 basis points in discount rate which was also a long-withstanding demand to bring the discount rate to a single digit. He said the decrease of 50bps would not be much beneficial and urged the regulator to drastically cut down the discount rate to the level of 6 to 7 percent enabling the business community for level-playing field with the competitors in the region. The deteriorating law and order situation, energy crises and exorbitant increase in the POL prices have already slowed the pace of industrial and commercial activities as well as the economy. The high discount rate has also brought an upshot and increase in the cost of doing business, said Agar. The tightened monetary policy, he said, had also impeded the progress of private sector with adverse affects on the economy. “Due to increased discount rates, the NonPerforming Loans of banks are also increasing, therefore, the state of affairs demand government to take notice of the facts before taking decisions,” the KCCI chief said. He opined that a rate-cut to 6-7 percent would enhance in the country economic and commercial activities and would also be a ray of hope motivating the abroad shifted industrial units to come back to Pakistan. This he said would also increase the domestic and foreign investment, something the country needs the most.
vending units across the country back on track, bringing tractor rates in the reach of small landholders- a step forward in farm mechanization, maximizing per acre yield. Auto industry was again facing a steep decline in production
and any change in Sales Tax regime at this point may lead to closure of industry, he apprehended. He said auto industry appreciated the senior industry minister for continued support for automotive vendors, as on his personal persuasion, the government agreed to reduce sales tax to 5 percent from 16 percent. Usman Malik said last year's decision of government not only facilitated the tractor manufacturers and vendors attached with this sector but also gave a boost to agriculture sector. The reduced GST would continue to increase the sale of tractors and ease the problems being faced by the tractor manu f ac t u re rs and the farming community, he maintained. H e claimed that without sales tax, the local industry would produce up to 100,000 tractors that would ensure jobs for 68,000 workers, besides increasing mechanization of agricultural farms.
China lets foreign sovereigns, central banks exceed $1b investment limit China's foreign exchange regulator has removed the $1 billion limit for foreign sovereign wealth funds, central banks and monetary authorities buying Chinese assets through the Qualified Institutional Investor Programme (QFII) NEws DEsK The new regulations, published on the website of the State Administration of Foreign exchange (SAFe), did not specify a new top limit, merely that the funds can apply to invest over $1 billion. The policy is aimed at sovereign wealth funds like Qatar Holdings and the Hong Kong Monetary Authority, both of which have already been approved to invest up to $1 billion each through QFII.
SAFe will retain the right to approve or deny individual applications on a caseby-base basis. Chinese regulators have said in the past that facilitating increased foreign investment in Chinese assets will help restore confidence in China's stock markets, which have declined by over 60 percent since November 2007. But the total amount of foreign money allowed to enter the domestic stock market remains small, and the new rules do not increase it.
Combined foreign investment in China's stock market accounts for only 1 percent of total market capitalization. The overall net quota for the QFII programme remains at its current $80 billion, of which SAFe has only allocated $36 billion for use by QFII funds as of November 30. Foreign appetite for Chinese equities has shown some signs of increase in recent months, especially in Hong Kong, but the weak performance of stock-focused QFII funds - and com-
plaints about high fee structures - has dampened appetite. (GRAPHIC: Comparison of QFII fund performances in China. To drum up additional interest, Chinese regulators, including officials from the Shanghai and Shenzhen stock exchanges, went on an overseas tour in September to advocate for Chinese equities and QFII in particular. The new regulations also relax restrictions on the ability of funds to remit principal and income from investments, but made no further clarifications as to
how China will tax QFII profits, an area of enduring uncertainty for QFII investors. Chinese stock markets on Friday had their biggest single-day jump since 2009, which some analysts attributed to expectations of further relaxation of rules on foreign investment in stocks. Others, however, offered alternative explanations for the unusual jump, such as behind-thescenes share buybacks by state-owned entities trying to engineer a rebound for the end of the year.
PRO 16-12-2012_Layout 1 12/16/2012 1:35 AM Page 2
Global shares fall on US fiscal worry; oil up on China Global shares fell on unease over the lack of progress in US fiscal negotiations and on signs of a deepening recession in the euro zone, but data indicating strong expansion in Chinese manufacturing helped lift oil prices
C
NEws DEsK
HINA'S vast manufacturing sector expanded in early December at the fastest pace in 14 months as new orders and employment rose, a survey showed, adding to evidence of a pick-up in the Chinese economy. The dollar fell from a near nine-month high against the yen while the euro surged to its highest level against the greenback since early May as U.S. inflation data affirmed the Federal Reserve's ultra-easy monetary policy. Talks between President Barack Obama and House of Representatives Speaker John Boehner on budget negotiations designed to avert the "fiscal cliff" were seen at an apparent standstill on Friday. Some $600 billion in tax hikes and spending cuts that are set to begin in January, unless lawmakers reach a deal, are seen as a threat that could tip the U.S.economy back into recession. Frustration has mounted over the lack of progress, reflected in a 0.6 percent drop in the S&P 500 on Thursday. "The uncertainty that (the fiscal talks) is creating is basically holding the markets hostage in the short term," said Andres Garcia-Amaya, global market strategist at J.P. Morgan Funds, in New York. The Dow Jones industrial average .DJI closed down 35.71 points, or 0.27 percent, at 13,135.01. The Standard & Poor's 500 Index .SPX fell 5.87 points, or 0.41 percent, at 1,413.58. The Nasdaq Composite Index .IXIC slid 20.83 points, or 0.70 percent, at 2,971.33. Weighing on the Nasdaq was a 3.8 percent drop in shares of tech giant Apple (AAPL.O) after UBS cut its price target to $700 from $780 and the iPhone 5 debuted in China to a cool reception. The stock, which closed at $509.79, has tumbled in recent months for several reasons after peaking at $705 in September, including investors locking in profits ahead of scheduled capital-gains increases for next year. The MSCI global stock index .MIWD00000PUS fell 0.04 percent to 336.67 points. european shares slipped as investors banked profits after hitting 18-month highs earlier in the week, and some said the pan-european index was vulnerable to a deeper correction the longer U.S. budget talks remain at an impasse. The FTSeurofirst 300 .FTeU3 closed down 0.1 percent at 1,133.36. "The bad news is, in large part, we've seen the market ignore relatively good news in the economic data stream as we focus on the fiscal cliff," said Art
Hogan, managing director of Lazard Capital Markets in New York. China's manufacturing data was encouraging for its key trading partners, including the United States, and for the prospects for world economic growth. China is the world's second-largest oil consumer. Brent crude settled $1.24 higher at $109.15 a barrel, the first weekly gain this month after two weeks of losses. U.S. crude rose 84 cents to settle at $86.73. But the outlook for the euro zone economy remains gloomy. Disappointing German manufacturing sector figures and a rise in euro zone unemployment overshadowed a small pick-up in purchasing manager data. The German manufacturing purchasing managers index slipped to 46.3 in December from 46.8 the previous month, remaining well below the 50 threshold that divides growth from contraction and missing the consensus Reuters poll forecast for a rise to 47.2. "All in all, the picture for the(euro zone) economy has not changed much after today's data," said Annalisa Piazza, an economist at Newedge Strategy in London. "GDP is expected to continue to contract in Q4-12, and there are no signs of improvement for the first part of next year." The euro rose 0.64 percent to $1.3160, while the dollar slipped 0.15 percent to 83.48 yen. The yen had earlier weakened after Japanese media reported the conservative Liberal Democratic Party is set for a resounding victory in elections on Sunday, cementing speculation that the party's leader, Shinzo Abe, will be in a strong position to push for bold monetary easing. "Abe has been making pretty strong comments about inflation targeting, and if we look at the economy Japan needs a lower currency without a doubt," said Maurice Pomery, managing director at consultants Strategic Alpha. "This is going to put pressure on the BoJ. It's the start of a move lower in the yen that has a long way to go." The benchmark 10-year U.S. Treasury note was up 8/32 in price to yield 1.7041 percent. The U.S. Labor Department said its Consumer Price Index dropped 0.3 percent last month as a sharp decline in gasoline prices offset increases in other areas. It was also the largest drop since May and followed a 0.1 percent gain in October. "The crux of this report is simply that the inflationary backdrop remains very benign, providing the Fed with considerable breathing room to keep monetary policy accommodative," said Millan Mulraine, a senior economist at TD Securities in New York.
Business 02
Apple falls on lower shipment forecasts, muted China debut
Apple Inc shares fell 3.9% on Friday after the iPhone 5 debuted in China to a cool reception and two analysts cut shipment forecasts
J
NEws DEsK
efferies analyst Peter Misek trimmed his iPhone shipment estimates for the Jan-March quarter, saying that the technology company had started cutting orders to suppliers to balance excess inventory. Shares of Apple suppliers Jabil Circuit Inc, Qualcomm Inc, Skyworks Solutions Inc, TriQuint Semiconductor Inc, Avago Technologies Ltd, and Cirrus Logic Inc also fell in early trading. Apple shares have lost a quarter of their value since they hit a life high of $705.07 on September 21, as it faces increasing competition from phones using Google Inc's Android operating system. Misek cut his first-quarter iPhone sales estimate to 48 million from 52 million and gross margin expectations for the company by 2 percentage points to 40 percent. UBS
Investment Research cut its price target on Apple stock to $700 from $780 on lower expected iPhone and iPad shipments for the March quarter. The brokerage said it was modeling more conservative growth for the world's biggest technology company after making supply chain checks that revealed that fewer iPhones were being built. "Some of our Chinese sources do not expect the iPhone 5 to do as well as the iPhone 4S," UBS analyst Steven Milunovich wrote in a note to clients. Apple launched the iPhone 5 in China on Friday, a move widely expected to bring the Cupertino-based company some respite from a recent slide in market share in China, but early reports indicated that demand may not be as great as expected. "The iPhone 5 China launch has been surprisingly muted but (we) are unsure how much weather (snow) or the required preordering (to prevent riots) are factors," Misek said. Apple shares fell as low as $508.50 in morning trading on the Nasdaq on Friday.
LAHORE: Punjab Governor Latif Khosa awarding Ph.D Degree to Riaz Khan (Superindenting Engineer Highways Deptt), Vice Chancellor Taxila Engineering University Abass Ch and Controller Examination Khalid Mehmood are Present.
Wall StReet Week ahead
Holiday ‘on standby’ as clock ticks on cliff The last two weeks of December are traditionally quiet for stocks, but traders accustomed to a bit of time off are staying close to their mobile devices, thanks to the ‘fiscal cliff’ NEws DEsK Last-minute negotiations in Washington on the so-called fiscal cliff - nearly $600 billion of tax increases and spending cuts set to take effect in January that could cause a sharp slowdown in growth or even a recession - are keeping some traders and analysts from taking Christmas holidays because any deal could have a big impact on markets. "A lot of firms are saying to their trading desks, 'You can take days off for Christmas, but you are on standby to come in if anything happens.' This is certainly different from previous years, especially around this time of the year when things are supposed to be slowing down," said J.J. Kinahan, chief derivatives strategist at TD Ameritrade in Chicago. "Next week is going to be a Capitol Hill-driven market." With talks between President Barack Obama and House Speaker John Boehner at an apparent standstill, it was increasingly likely that Washington will not come up with a deal before January 1. Gordon Charlop, managing director at Rosenblatt Securities in New York, will also be on standby for the holiday sea-
son. "It's a 'Look guys, let's just rotate and be sensible" type of situation going on," Charlop said. "We are hopeful there is some resolution down there, but it seems to me they continue to walk that political tightrope... rather than coming up with something." Despite concerns that the deadline
will pass without a deal, the S&P 500 has held its ground with a 12.4 percent gain for the year. For this week, though, the S&P 500 fell 0.3 percent. BEWARE OF THE WITCH: This coming Friday will mark the last socalled "quadruple witching" day of the year, when contracts for stock options, single stock futures, stock index options
and stock index futures all expire. This could make trading more volatile. "We could see some heavy selling as there is going to be a lot of re-establishing of positions, reallocation of assets before the year-end," Kinahan said. RETHINKING APPLE: Higher tax rates on capital gains and dividends are part of the automatic tax increases that
will go into effect next year, if Congress and the White House don't come up with a solution to avert the fiscal cliff. That possibility could give investors an incentive to unload certain stocks in some taxrelated selling by December 31. Some market participants said taxrelated selling may be behind the weaker trend in the stock price of market leader Apple (AAPL.O). Apple's stock has lost a quarter of its value since it hit a lifetime high of $705.07 on September 21. On Friday, the stock fell 3.8 percent to $509.79 after the iPhone 5 got a chilly reception at its debut in China and two analysts cut shipment forecasts. But the stock is still up nearly 26 percent for the year. "If you owned Apple for a long time, you should be thinking about reallocation as there will be changes in taxes and other regulations next year, although we don't really know which rules to play by yet," Kinahan said. But one indicator of the market's reduced concern about the fiscal cliff compared with a few weeks ago, is the defense sector, which will be hit hard if the spending cuts take effect. The PHLX Defense Sector Index .DFX is up nearly 13 percent for the year, and sits just a few points from its 2012 high.
Sunday, 16 December, 2012