Finance & Business World

The British pound’s decline has been overdone and investors should buy the currency to prepare for a “steep” economic recovery, said Stephen Jen, managing director of macro and currencies at BlueGold Capital Management LLP.

The currency will have to appreciate to about $1.75 from about $1.63 now to reflect the economic potential of the U.K., Jen said. That would be the highest level since October. He expects the dollar to weaken as a “lukewarm” recovery in the U.S. will reduce the greenback’s appeal as a refuge.

“A lot of people seem to be bearish on the pound at the moment because it’s so easy to tell a U.K.-negative story,” Jen said in an interview in London yesterday. “The U.K. may actually recover earlier and steeper than the euro zone. The country has a very aggressive monetary policy and a cheap currency. And it’s underowned.”

The U.K currency lost 18 percent against the dollar and 7.5 percent against the euro in the past year as the economy sank into the worst recession in a generation online cash advance. That forced the central bank to cut the benchmark interest rate to a record low of 0.5 percent and print money to buy government debt and other assets this year in an attempt to revive the economy.

BlueGold was set up in February 2008 by former commodity traders Pierre Andurand and Dennis Crema. Jen, 43, joined the hedge fund in May after 13 years at Morgan Stanley.

More hedge funds and large speculators have positioned for a decline in the pound against the dollar rather than a rise — so-called net shorts — every week since August, according to figures from the Commodity Futures Trading Commission.

“The pound at the current level is quite cheap for a currency of a country that has a very unique status in an important part of the world,” Jen said. “If you are a young professional and you want to make it big in Europe, the place to go is London.”

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Taiwan will continue to push for an economic cooperation accord with China, Premier Liu Chao-shiuan said today, adding “there’s no delay” in the process.

The two sides expect to finish a joint study on the planned economic agreement before the end of September and complete negotiations this year, Minister of Economic Affairs Yiin Chii- ming said at a business breakfast in Taipei. The island is also working on signing a separate financial deal with the mainland, Liu said at the same event.

The Taiex stock index rose as much as 1.2 percent after plunging the most in a month yesterday on concern accords with China to ease restrictions on trade and finance could be delayed. Taiwan is seeking closer ties with the mainland to support an economy that it forecasts may contract at a record pace this year amid declining exports and business investment.

“Negotiations will take time as an economic agreement involves many facets,” said David Dong, who helps oversee the equivalent of $1.5 billion of assets at President Investment Trust Corp. in Taipei. “The market overreacted yesterday as it is inevitable talks with China will have twists and turns.”

President Ma Ying-jeou’s government wants to sign agreements with China that would waive tariffs and give preferential market access for the island’s banks, brokerages and insurers.

Stock Market

Negotiations for an economic cooperation framework between China and Taiwan should begin this year, with the signing of a deal in 2010, Lai Shin-yuan, chairwoman of the island’s Mainland Affairs Council, said July 12. The comments helped spark a 3.5 percent slump in the share index yesterday.

The Taiex index rose 0.9 percent to 6,592.43 at 10:14 a cash advances.m. in Taipei. Shares in Cathay Financial Holding Co., the island’s largest publicly traded financial-services company, increased 0.8 percent and those in Fubon Financial Holding Co. gained 0.7 percent. Taiwan Semiconductor Manufacturing Co. rose 1.3 percent.

The Taiwan dollar advanced 0.1 percent after falling yesterday to the lowest since May 6 against the U.S. currency.

Ties between China and Taiwan have improved since Ma took office in May last year, abandoning his predecessor’s pro- independence stance. The two sides started direct flights, shipping and postal services across the Taiwan Strait on Dec. 15, ending a six-decade ban.

Unemployment Forecast

The jobless rate may climb to 6 percent in June and July, Premier Liu also said today. That would surpass the record 5.84 percent rate reached in May.

Taiwan’s economy shrank an unprecedented 10.24 percent in the first quarter from a year earlier, the statistics bureau said May 21. Gross domestic product may contract 4.25 percent this year, it forecast.

The government plans NT$858.5 billion ($25.9 billion) of spending over four years, equal to about 6 percent of GDP, on infrastructure, consumer grants and tax cuts to revive growth.

Taiwan has earmarked NT$313 billion for economic stimulus next year, the Council for Economic Planning and Development said yesterday.

China and Taiwan split in 1949 after a civil war brought the communists to power in the mainland, forcing the Nationalist Kuomintang to flee to the island. China regards Taiwan as one of its provinces and has threatened to invade if it declares formal independence.

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The U.S. economy appears poised to resume expansion in the second half of this year with “subdued” growth, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said in a commentary in the Atlanta Journal-Constitution.

“I see the economy beginning to recover in the second half of this year,” Lockhart said in the printed commentary. “However, I expect growth to be relatively subdued for some time after it turns positive.”

Lockhart said he believes the recession is continuing, though “the pace of decline has slowed.” There are “some signs of stabilization” in housing, manufacturing, employment and consumer spending, he said quick payday loan.

Employers in the U.S. cut 467,000 jobs in June, more than anticipated by economists, pushing the unemployment rate to the highest in almost 26 years, the Labor Department reported July 2. The jobless rate of 9.5 percent has already met Fed policy makers’ projection in April that unemployment would peak at between 9.2 and 9.6 percent in the fourth quarter.

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Indonesia’s economy may double in the next six years as the world’s biggest exporter of power- station coal and largest producer of palm oil taps surging demand from India and China, CLSA Asia-Pacific Markets said.

China, India and Indonesia will generate $10 trillion of wealth for investors by 2015, Nicholas Cashmore, head of Indonesia research at CLSA Asia-Pacific Markets, said in a note titled “Chindonesia: Enter the Komodo,” a reference to the reptile found only in eastern Indonesia. The three economies are Asia’s “next growth triangle,” he said.

Feeding the needs of the world’s two most-populated nations as demand from Western countries slows may help President Susilo Bambang Yudhoyono meet his target of boosting growth to 7 percent in his second term. Indonesia wants be included among the so-called BRIC nations of Brazil, Russia, India and China, Emil Salim, a presidential adviser, said.

“Together, China and India are increasingly becoming the biggest marketplace for almost everything sold on the planet,” Cashmore said in the report published yesterday. Indonesia plays a symbiotic role in the emergence of China and India and “as this role becomes more pronounced in years to come, it will boost growth, investment and consumption.”

India’s industrial production increased at the fastest pace in eight months in May, the statistics agency said yesterday. The South Asian nation, the biggest buyer of Indonesia’s palm oil and cashew, may overtake China next year as the world’s fastest growing major economy, according to the World Bank.

BRIC Membership

China’s economy will expand 7.2 percent in 2009 from a year earlier, the Washington-based lender said. Indonesia’s exports to China grew 16 percent last year, compared with a 10.7 percent expansion in demand from the U.S., the second-largest buyer of Indonesian products.

Indonesia’s economic acceleration provides a case for its inclusion among the BRIC economies, Morgan Stanley said in a report to clients last month.

The $433 billion economy can expand “significantly” more than 7 percent once Yudhoyono fixes the nation’s congested roads, neglected ports and ageing power plants, according to Joachim von Amsberg, the World Bank’s representative in Jakarta unique business cards.

Yudhoyono is set to win a second term after presidential elections this week, providing the 59-year-old former general with a mandate to double spending on roads and power to $140 billion by 2014.

Congested Roads

Fixing Indonesia’s congested roads, neglected ports and ageing power plants needs to be among Yudhoyono’s top priorities for him to achieve his goal of boosting growth and reducing poverty, according to nine of 11 chief executive officers contacted in the past month by Bloomberg News.

He also needs to improve transparency in Indonesia’s legal system and reduce corruption to attract global investors, the survey found.

“Keeping the drive for fair and transparent practices and processes, which helps secure a level playing field for all,” will help business in Indonesia, Stuart Dean, Southeast Asia president of General Electric Co. said in a response to the survey last month.

In 2007, Tata Power Co., which is building a 4,000-megawatt plant in western India, bought a 30 percent stake in two coal mining units owned by Indonesia’s PT Bumi Resources. The $4.14 billion plant will run on coal from the Indonesian mines.

India’s coal imports will more than double to 100 million tons by 2012 from 40 million tons, estimates Kaamil Fareed, a senior trading manager at the Coal & Oil Group, which supplies coal in India and Pakistan. That’s about 40 percent of Indonesia’s estimated coal production for this year.

“As a leading supplier of commodities, Indonesia is leveraged to the growth of Chindia,” Cashmore said referring to China and India. “Indonesia is ready to rise in the world economic hierarchy and take its place alongside China and India.”

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Indonesia’s economy is set to emerge a “winner” after avoiding the worst of the global financial crisis, the World Bank’s country director said.

Asia’s fastest-growing major economy after China and India can expand “significantly” more than 7 percent once President Susilo Bambang Yudhoyono fixes the nation’s congested roads, neglected ports and ageing power plants, according to Joachim von Amsberg, the World Bank’s representative in Jakarta.

Yudhoyono is set to win a second term, providing the 59- year-old former general with a mandate to double spending on roads and power to $140 billion by 2014 and pull 33 million people out of poverty. Southeast Asia’s largest economy may expand as much as 4 percent this year, von Amsberg said.

Faster growth and a “maturing democracy together put Indonesia in an incredibly exciting position to come out as a winner from this global turmoil,” von Amsberg said in an interview yesterday in Jakarta. “It shows that Indonesia is a positive outlier in the world right now.”

Indonesia’s move to increase deposit insurance, boost coordination with the central bank and strengthen bank supervision helped the nation largely avoid the worldwide credit crisis, von Amsberg said.

Asia’s third-most populated country has also skirted recession, unlike many of its neighbors that rely more on exports. Declining interest rates helped boost consumption, which accounts for more than 60 percent of Indonesia’s gross domestic product car loans for people with bad credit.

‘Time to Accelerate’

The $433 billion economy expanded 4.4 percent in the first quarter from a year earlier, compared with a 6.2 percent contraction for Malaysia and Thailand’s 7.1 percent slump. Indonesia’s central bank has cut its benchmark interest rate by 2.75 percentage points since December.

“ To guard growth, spending must be increased,” said Elvyn G. Masassya, investment director at PT Jaminan Sosial Tenaga Kerja, Indonesia’s biggest pension fund manager. “This is a time for us to accelerate.”

Masassya, who manages about $6.9 billion in assets, expects Indonesia’s benchmark stock index to extend its gain by 20 percent as Yudhoyono continues policies to boost growth after his re-election victory.

Boosting investment to fix Indonesia’s roads, ports and power plants needs to be among Yudhoyono’s top priorities, according to nine of 11 chief executive officers contacted in the past month by Bloomberg News. He also needs to improve transparency in the legal system and reduce corruption to attract global investors, the survey found.

“If the new government shows decisiveness in overcoming some bottlenecks, that will be a huge statement,” von Amsberg said.

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Malaysia’s industrial production fell the least in six months in May, boosting optimism the worst of the manufacturing slowdown may be over for Southeast Asia’s third-biggest economy.

Production at factories, utilities and mines dropped 11.1 percent from a year earlier, after declining a revised 11.7 percent the previous month, the Putrajaya-based Statistics Department said today. That compares with the median forecast for an 11 percent fall in a Bloomberg survey of 21 economists.

Malaysia’s economy is expected to improve in the coming months after contracting in the first half of the year, central bank Governor Zeti Akhtar Aziz said this week. Prime Minister Najib Razak is easing investment rules to attract funds into the country as he seeks to revive an economy forecast by the government to shrink as much as 5 percent in 2009.

“Overall production output has turned after hitting the trough in February, and should continue to grind northward in the months ahead,” said Irvin Seah, an economist at DBS Bank Ltd. in Singapore.

Malaysia’s manufacturing output shrank 15.2 percent in May, today’s report showed. Mining dropped 3 percent, while electricity production fell 2.1 percent. Industrial production tumbled 13.2 percent in the first five months from a year earlier.

Ringgit Falls

Gross domestic product contracted 6 cash advance payday loans.2 percent in the first three months of the year. The economy probably performed “very much the same” in the second quarter, Bank Negara Malaysia’s Zeti told reporters yesterday. Overseas shipments have dropped for eight consecutive months, with the most recent data showing a 29.7 percent decline in May from a year earlier.

The Malaysian ringgit fell to the lowest in more than two months today on concern the economy slid into a recession in the second quarter amid declining exports. The currency declined 0.4 percent to 3.5775 per dollar as of 1:07 p.m. in Kuala Lumpur, according to data compiled by Bloomberg.

“In the short term, we see volatility in our exchange rate, just like we see volatility in the major currencies,” Zeti said yesterday. “As our underlying fundamentals are expected to improve, the currency can also be expected to strengthen gradually over time.”

The International Monetary Fund said yesterday the global economic rebound next year will be stronger than it forecast in April as the financial system stabilizes and the pace of contractions from the U.S. to Japan moderates.

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Australia’s central bank kept interest rates unchanged for a third month amid signs the lowest borrowing costs in half a century and government spending are helping the economy skirt the global recession.

Reserve Bank Governor Glenn Stevens left the overnight cash rate target at 3 percent in Sydney today, as forecast by all 20 analysts surveyed by Bloomberg News.

Australia was one of the few major economies including China and India to grow in the first quarter as government cash handouts and rate cuts stoked consumer spending. Growth may slow after recent reports showed exports dropped to a 14-month low, bank lending fell, home building approvals declined by the most since 2002 and job advertisements tumbled for a 14th month.

There is still “some scope for further easing of monetary policy, if needed,” said Stevens, who slashed borrowing costs by a record 4.25 percentage points in six moves between September and April.

“Economic conditions in Australia have to date not been as weak as expected a few months ago,” he added.

The Australian dollar rose to 79.86 U.S. cents at 3:16 p.m. in Sydney from 79.67 cents just before the decision was released. The two-year government bond yield fell 1 basis point to 3.81 percent. A basis point is 0.01 percentage point.

‘Clear Message’

“The Reserve Bank is becoming slightly more upbeat about the global and Australian economies,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney.

Policy makers are also sending “a clear message that they’re not thinking of raising rates anytime soon,” he added.

Signs of a recovery in the Asia region include recent reports showing China’s manufacturing expanded for a fourth month in June, Japan’s industrial output rose for a third month in May and South Korean manufacturers’ confidence reached a nine-month high in July, recent reports show.

“Growth in China has strengthened considerably, which is having an impact on other economies in the region, including Australia,” Stevens said today. China is Australia’s largest trade partner.

Australia’s economy grew 0.4 percent in the first quarter from the previous three months, and retail sales increased 1 percent in May, twice as much as economists estimated, buoyed by spending at department stores and restaurants cashadvance.com. The services industry expanded for the first time in 15 months in June.

Profits Rise

The surge in spending is boosting earnings at companies including David Jones Ltd. The nation’s second-largest department store chain said last week that earnings after tax will rise by between 20 percent and 30 percent in the six months ending July 25.

Prime Minister Kevin Rudd’s government has distributed A$12 billion ($9.6 billion) in cash handouts to households this year and is spending A$22 billion to upgrade roads, railways, ports and schools.

Households with an average A$250,000 home loan are paying A$7,000 a year less than they were at the start of September, which is equal to about 8 percent of family incomes, according to Reserve Bank calculations.

“Monetary policy has been eased significantly,” Stevens said today. The effects of lower borrowing costs “will still be coming through from some time yet,” he added. “Fiscal measures are also providing considerable support for demand.”

Global Rates

Policy makers in the U.S., Europe and the U.K. are also keeping borrowing costs unchanged to spur their economies. The European Central Bank left its benchmark rate at a record low of 1 percent on July 3, and the Bank of England will keep its rate at 0.5 percent on July 9, economists predict. The U.S. Federal Reserve has held the overnight lending rate at between zero and 0.25 percent since December.

“The global economy is stabilizing,” Stevens said. “Downside risks to the outlook have diminished, with conditions in global financial markets improving this year.”

Signs of a pickup in Australia’s economy have prompted investors to increase bets Australia’s benchmark interest rate will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.

Traders forecast the key rate will be 52 basis points higher in a year, the index showed at 3:05 p.m. in Sydney today. After the bank’s June 2 meeting, they tipped 26 points of gains.

“We don’t think we’ll see any further easing,” said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney.

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The International Monetary Fund’s board of directors approved the issuance of bonds to the lender’s 186 members for the first time as it seeks additional sources of money to lend during the global recession.

The board made the move in a vote today and did not place a limit on the note sales, Andrew Tweedie, the Washington-based IMF’s finance chief, said on a conference call with reporters. The bonds are part of a wider effort to seek $500 billion in new funding as the lender helps countries from Iceland to Pakistan combat the global financial crisis.

The securities, the culmination of months of talks between the fund and its members, will offer the largest emerging-market nations a new way of making IMF contributions while they seek greater say at the fund. China, Brazil and Russia have favored the bonds instead of regular contributions as they wrangle with other members over redistributing the IMF’s voting power.

“We expect other countries will follow suit, perhaps other emerging markets,” John Lipsky, first deputy managing director at the fund, said in a Bloomberg Television interview today. “Also, some developed and advanced economies may find this an attractive way to participate in international support for the IMF’s efforts.”

Buying Plans

An IMF official, speaking on condition they not be named, said the board initially considered limiting the bond sales to $150 billion, based on the level of interest from member states. Board members decided against such a cap because IMF needs will evolve over time, the official said.

China’s government has said it will buy $50 billion in notes. Russia and Brazil last month said they would each buy $10 billion of bonds from the IMF. India has also indicated it would contribute to an IMF bond program. The four nations make up the so-called BRICs.

“This is a victory for the BRICs, particularly China,” said Claudio Loser, the former director of the IMF’s Western Hemisphere department. “Because they will be investing in the fund they will have, directly or indirectly, some say in the governance of the fund that goes beyond their quota.”

The IMF’s “quota” system allocates voting rights to member states based on their financial contributions.

The note sales probably would not reach the $500 billion in new funding that the lender is seeking, Lipsky said.

Drawing Rights

The notes will be denominated in Special Drawing Rights, or SDRs, which represent a basket of currencies consisting of the U.S. dollar, the euro, the yen and the British pound. Note sales denominated in SDRs would be paid interest on a quarterly basis, the IMF said.

Chinese officials have sought a greater role over time for SDRs in an effort to reduce the U fast payday loan no faxing.S. dollar’s dominance in the global economy.

The current official rate for SDRs is 0.37 percent, set using a weighted average of three-month rates in the component currencies. That compares with the 0.195 percent rate for three- month U.S. Treasury bills. One dollar is currently equivalent to about 0.65 SDR.

The IMF makes money on its loans by charging countries more than the SDR interest rate. The fund’s board agreed June 22 to keep its lending rate unchanged at 1 percentage point above this year’s SDR interest rate.

Purchase Agreements

Interested member states will first need to enter a purchasing agreement with the IMF before becoming eligible to buy notes. Participants must have a “sufficiently strong balance of payments position,” Tweedie said.

The notes will have a maximum maturity of five years along with three-month interim maturities that could be extended by the fund, Tweedie said.

Leaders from the Group of 20 industrial and emerging nations agreed in April to boost IMF coffers by $750 billion to help the Washington-based agency shore up nations roiled by the credit crunch. The U.S. last month agreed to boost its contribution for the IMF by more than $100 billion.

Treasury yields climbed this year and the dollar fell in part on concern that foreign central banks would reduce holdings of U.S. financial assets just as the Obama administration sells a record amount of debt to finance a growing budget deficit and pull the economy from the deepest recession since the 1930s.

China’s central bank last month renewed its call for a new global currency and said the IMF should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar. Lipsky said on June 6 it’s possible some day to take the “revolutionary” step of making SDRs a reserve currency.

World Bank

SDRs were created by the IMF in 1969 to support the Bretton Woods exchange-rate system that collapsed in 1971. They act as a unit of account rather than a currency. The cash is disbursed in proportion to the money each member nation pays into the fund.

Separately today, the World Bank, formed in the wake of World War II to help nations reduce poverty, said its lending commitments in the 2009 fiscal year reached a record $58.8 billion after $38.2 billion in the previous year.

The bank announced the lending totals in a statement from Washington, citing the global economic crisis as the reason for the increase.

“We expect this to continue well into 2010, as the pace of recovery is far from certain,” said World Bank President Robert Zoellick.

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New Zealand businesses were more optimistic in June amid a drop in borrowing costs and signs of a global recovery that may bolster exports.

A net 8.3 percent of companies surveyed expect sales and profit will rise over the next 12 months compared with 5.5 percent in May, according to a report released by ANZ National Bank Ltd. in Wellington today. The net figure subtracts the number of pessimists from optimists.

More businesses say exports will improve while profit expectations are up among retailers and manufacturers, adding to signs the economy may recover later this year from the worst recession in more than three decades. Reserve Bank Governor Alan Bollard said on June 11 he expects to keep the benchmark interest rate at a record low of 2.5 percent until late 2010.

“The economy continues to contract, but the positive spin is that the pace of contraction is occurring at a slower rate,” said Cameron Bagrie, chief economist at ANZ National Bank.

A net 5.5 percent of the 402 companies surveyed expect the broader economy will improve compared with 1 cheapest personal loan rates.9 percent in the April survey.

Eleven percent of firms say exports will pickup compared with 5.8 percent in April amid signs of a recovery in global markets. Japan’s industrial production climbed 5.9 percent in May, matching a gain in April that was the fastest since 1953, a report yesterday showed.

Still, New Zealand firms remain pessimistic about profits, investment and the labor market, today’s survey showed.

Seventeen percent of companies plan to fire workers this year, compared with 16 percent in May. The ratio of companies expecting reduced profits was unchanged at 24 percent. A net 5.6 percent expect to cut investment over the next year.

ANZ said its composite growth indicator based on profit, hiring and investment intentions remains negative and the labor market outlook is “particularly poor.”

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