money

Prudential boss Tidjane Thiam has been struggling to make headway with sceptical investors who question the value of his US$35.5 billion (RM113.6 billion) acquisition of AIA.

The Sunday Times said officials had been working on the plans for two weeks, since the first signs of problems appeared with the Prudential deal — when the UK Financial Services Authority forced a tweak in the bid and an unprecedented last-minute delay.

The newspaper said a number of Asia’s biggest financial-services firms had been approached by advisers working for the American government. Chinese banks have also been sounded out on their interest.

In a separate report, the Independent on Sunday said AIG had asked Morgan Stanley and Deutsche Bank to refresh their analysis. The two were lead underwriters on the planned flotation before it was dropped in favour of the Prudential offer.

A source familiar with the situation was quoted as saying the two banks had reassured AIG they could still get a flotation away at an attractive price.

Prudential declined to comment on the reports. — Reuters

SHANGHAI, May 23 — The United States today pressed China to give “fair access” for foreign companies, and China stressed the risks both economies face from Europe’s debt woes, ahead of top-level talks in Beijing.

Speaking in China’s commercial epicentre, Shanghai, a day before the start of the Strategic and Economic Dialogue (S&ED) in Beijing, US Secretary of State Hillary Clinton stressed the importance of US economic concerns for relations with China.

“In the coming days, officials at the highest levels of our two governments will be discussing issues of economic balance and competition,” Clinton said in a speech given in a vast hangar at Shanghai airport, referring to the Beijing meeting.

“Transparency in rule making and standard setting, non-discrimination, fair access to sales to private sector and government purchasers alike, the strong enforcement of intellectual property rights are all vitally important in the 21st century global economy,” Clinton told the audience of US and Chinese business executives.

“American companies want to compete in China,” she said, standing in front of a Boeing 737. “They want to sell goods made by American workers to Chinese consumers with rising income and increasing demand.”

Clinton’s remarks underscored how large economic concerns will loom at the two-day S&ED meeting, jostling for attention with a range of other issues, including North Korea.

The United States’ annual trade gap with China fell to US$226.8 billion (RM725.8 billion) in 2009, down from a record US$268.0 billion in 2008. But the Obama administration is keen to lift exports and employment, and the deficit remains a point of friction with Beijing.

The imbalance has fuelled accusations from the US Congress and manufacturing sector that China is manipulating its currency for an unfair trade advantage by keeping the price of its yuan artificially low against the dollar.

But US and Chinese officials have stressed that the meeting in Beijing will not be dominated by the yuan.

In comments published on Sunday, China’s Finance Minister Xie Xuren said cooperation with Washington was all the more important in the face of the European debt crisis.

“At present, risks from European sovereign debt have increased factors of instability in the course of global economic recovery,” Xie wrote an essay published in the Washington Post and on his Ministry’s website.

China and the United States must “each protect macro economic stability and strengthen macro-economic policy coordination, to consolidate the trend towards global economic recovery,” Xie wrote.

Xie’s remarks jarred those of a senior US Treasury Department official who said ahead of the talks with China that Europe’s crisis should have only minimal impact on the global recovery as governments put in place counter-measures.

There has been speculation that China may delay letting its yuan currency rise in value — as Washington has urged -- out of concern that its exports to Europe will suffer.

The US Treasury official, who spoke on condition of anonymity, repeated it was China’s choice to decide what to do about its currency peg but expressed hope Beijing would keep boosting domestic consumption and rely less on exports.

Clinton followed other US officials who have sought to concentrate attention on policies that they claim may unfairly impede US companies hunting for customers in China.

US officials say they are particularly worried about China’s “indigenous innovation” programme to promote home-grown technology, which they say is creating barriers to foreign companies seeking to win government supply contracts for high-tech equipment, energy technology and other sophisticated products.

China says its procurement rules do not unfairly discriminate against foreign companies, but also last month partly modified those rules after rising criticism from US and European companies and governments.

The Chinese Finance Minister Xie said that his country and the United States both benefited from their trade and should oppose protectionism. — Reuters

Xie made the call today in an essay published ahead of high-level talks with US officials in Beijing from tomorrow.

In the essay published in the Washington Post and on his Ministry’s website, Xie (picture) argued that the two big economies powers should find common ground in confronting risks from Europe.

“At present, risks from European sovereign debt have increased factors of instability in the course of global economic recovery,” Xie wrote.

He wrote that China and the United States must “each protect macro-economic stability and strengthen macro-economic policy coordination, to consolidate the trend towards global economic recovery.” — Reuters

NEW YORK, May 23 — Volatility will be the name of the game on Wall Street next week as uncertainty over the euro-zone debt crisis remains and investors will need nerves of steel to make bets on risky assets like stocks.

The Standard & Poor’s 500 index’s drop this week of 10 per cent from recent highs meant the benchmark index is now in a correction amid a rally that started on March 2009.

“This is a tough market. And if you don’t have a strong stomach and you are not one of those people who thrive on volatility ... this is not the time you should be trading,” said Randy Frederick, director of derivatives at the Schwab Centre for Financial Research in Texas, Austin.

On Friday, stocks snapped a three-day losing streak as investors bought beaten-down shares including banks. But for the week, the Dow and the S&P were off around 4 per cent and the Nasdaq fell 5 per cent.

Analysts said economic data due next week and investors’ speculation that equities may have fallen too much could lead to a rebound in the market. But with the downside momentum strong on anxiety over European debt issues, the market can easily turn and create increased volatility.

On the week, the Chicago Board Options Exchange Volatility Index, Wall Street’s favorite yardstick of investor anxiety, rose 30 per cent.

The measure of US stock market volatility closed at 40.10 on Friday, down 12.43 per cent, after rising as high as 48.20, the highest since March 10, 2009.

“Every bear market starts off as a correction so in this kind of environment, investors get anxious about whether this is just a correction or a start of the bear market. The unknown is what makes people uncomfortable, leading to bigger swings,” said Frederick.

He said that the index could swing between mid-30s and high 40s next week.

The VIX is a 30-day risk forecast of stock market volatility. The index typically has an inverse relationship with the S&P benchmark as it tracks option prices that investors are willing to pay as a protection on the underlying stocks.

US Treasury Secretary Timothy Geithner will make a stop in Britain and Germany next week to discuss troubled economic conditions there en route home from China.

“Of course, there is no quick fix to the debt crisis, but the visit is at a good time. We don’t know what will come out of the meetings, but it will probably be some sort of a co-ordinated effort to address the liquidity issue in Europe,” said Jeff Kleintop, chief market strategist at LPL Financial in Boston.

“If it shows that the worst of the financial market pressure is starting to be relieved, it will not only be good for stocks but for all risky assets.”

Global markets across all assets have been pressured for months on concerns that huge deficits in Greece will spread into a wave of debt crisis in the euro zone and eventually jeopardise the global financial system.

Fear that fiscal tightening would kill the economic recovery pummelled equity and commodity prices during the week and caused investors to pay up for safe-haven US government debt.

Investors will look for clues on the state of the labour market when jobless claims data comes out on Thursday.

The number of US workers filing new applications for unemployment insurance unexpectedly rose on the week that ended May 14, government data showed. The increase was the first time since early April, dealing a blow to the labour market recovery.

“The improvements that we have seen in jobless claims have flattened out recently, especially after last week. This week’s data will be a major indicator of whether this is a temporary slump or a long-term decline,” said Frederick.

Housing-related data will also be in focus next week. April’s new home sales data on Wednesday is expected to extend the March uptrend as buyers were spurred on by the impending tax credit deadline. Sales are seen rising to 420,000 units in April from 411,000 in March.

Home prices are seen rising this year and next, though they may dip first and it will take years to recover to pre-crash levels.

Existing home sales, due tomorrow, are seen rising 6.0 per cent to 5.62 million units after growing by 6.8 per cent in March, with forecasts between 5.42 million and 5.80 million.

The S&P/Case-Shiller 20-city index, which will come out on Tuesday, is seen declining 0.3 per cent, seasonally adjusted, in March after a 0.1 per cent dip, and increasing 2.4 per cent year-over-year after a 0.6 per cent rise.

“With so much uncertainty in the bigger global picture, good housing indicators can be seen as an instant trigger to a market rally next week,” said Steven Hagenbuckle, founder of TerraCap Partners, a private equity fund based in New York and Florida.

On Thursday, the government will release its revised estimate of first-quarter gross domestic product. Analysts forecast a reading of 3.4 per cent growth, slightly up from the first reading of 3.2 per cent. — Reuters