Australian dollar to sink below US70¢ ‘by year-end’

The best forecaster of the Australian dollar isn’t swayed by the recent surge in the currency, predicting it will fall back below US70¢ by year-end.

For Konrad Bialas, a foreign-exchange strategist in Warsaw at TMS Brokers, the bulk of the Aussie’s depreciation is behind it after the currency dropped 20 per cent in the 12 months through September and touched a six-year low of US68.96¢ on September 7. Don’t expect a rally though, according to Bialas, who estimates it will end this year at US69¢, 6 per cent lower than its close in New York on Friday. The currency will recover to US71¢ in the final quarter of 2016, he predicts.

“The probability is still significant” that the Australian dollar will retest its 2015 low before the end of the year, Bialas wrote in response to e-mailed questions. “I can agree that China fears from August-September were exaggerated,” but “the outlook isn’t that rosy to buy any risky assets without hesitation,” he said.

The Australian dollar hit a seven week high on Friday on expectations the US Federal Reserve will delay raising its interest rate. On Monday morning, the local unit was trading at US73.24¢, up from US72.85¢ on Friday. On Friday evening, it peaked at US73.40¢, its highest level since August 21.

It climbed 4.1 per cent for the week, the biggest advance since December 2011. The median of forecasts compiled by Bloomberg is for the currency to end the year at 69 cents, with the range of estimates extending from US66 to¢ 75¢ cents.

Financial Review

Goldman Has 40 Stocks You Should Buy and 40 You Should Sell

In Goldman Sachs’s latest quarterly chartbook, analysts point out that everything from gold to mutual funds isn’t looking so hot. Meanwhile, the Standard & Poor’s 500-stock index has posted negative returns of 5 percent so far this year.

Still, Goldman analysts led by David Kostin have some suggestions for investors seeking solace in an otherwise troubled trading environment. By looking at companies with the greatest difference between analysts’ price targets and the current stock price, they make 40 buy and 40 sell suggestions.

On that basis, companies including Wynn ResortsGeneral Motors,Macy’sAppleTiffany, and PayPal make Goldman’s top 40 you should buy.

Of course, there are a number of firms that represent a lot of downside potential, including Transocean, which Goldman believes has the potential to fall more than 60 percent. Others on the list include NasdaqMicrosoft, Yum! BrandsUnder Armour, and Kellogg.

Of course, the last time Goldman made a big call for the S&P 500 — on Aug. 17, when the bank said the index was likely to move sideways and end the year at 2,100 — was just before the market cracked. Its analysts have since revised the call and are now forecasting the S&P 500 will end 2015 in the red at 2,000.

Let’s see if their calls on individual stocks fare better.

Bloomberg Business

ASX loses $55 billion in savage resources stocks sell-off

A shock decline in UK-listed mining giant Glencore coupled with a sharp drop on Wall Street triggered panic selling in resources stocks, sending the local market to its lowest level in more than two years on Tuesday.

Energy and mining stocks – including a staggering 6.6 per cent drop in BHP – led the falls, as the benchmark ASX200 index plummeted 3.8 per cent to 4918.4, shaving off nearly $55 billion in market cap, while the broader All Ordinaries fell 3.6 per cent to 4958.1.

It was the worst day on the market since August 24, when the ASX200 closed 4.1 per cent lower, and the lowest for the ASX200 since July 2013.

Financial Review

Macquarie makes first investment in Chinese aged care

Macquarie Capital has made its first foray into China’s fast-growing aged care sector, investing $US11 million in a company with ambitions to roll-out facilities across the country.

China Senior Care, founded by American lawyer Mark Spitalnik, is set to open its first facility in the eastern city of Hangzhou late this year or early in 2016.

It is targeting wealthy Chinese senior citizens and is expected to charge as much as 45,000 yuan ($A10,000) a month to rent a room in the 64-bed facility, which has been described as a serviced apartment with 24 hour medical care.

“We are really at the beginning of the industry [in China],” Mr Spitalnik told the Australian Financial Review. “The ageing population and the introduction of the One Child Policy in 1979 means there are more and more seniors with less and less people to look after them.”

China has one of the world’s most rapidly ageing populations, with demographics comparable to its north Asian neighbours Japan, South Korea and Taiwan.

The National Bureau of Statistics estimates 10.1 per cent of China’s population or 137 million people were aged over 65 at the end of last year. On current projections this will double to 20 per cent by 2040.

There are no barriers to foreign investment in China’s aged care sector, although like much of the country the regulatory environment is complicated and time consuming.

“Given the size of the market, whoever is here will do well,” Mr Spitalnik. “Many international players opt for joint ventures because they think it will be easier. But I wanted to be in control of my own destiny. There’s a saying in China – ‘same bed, different dreams.'”

Financial Review

ANZ predicts RBA will cut interest rates to 1.5%

ANZ Bank economists expect the Reserve Bank to cut official interest rates to a new record low of 1.5 per cent next year in response to a worsening global economy and stubbornly high unemployment.

ANZ economists Warren Hogan and Justin Fabo on Thursday argued that the extra support would be needed to boost an economy still suffering from a plunge in mining investment.

“We now expect the RBA to cut the cash rate by a further 50 basis points next year, taking the cash rate to 1.50 per cent,” they said.

Previously, the bank’s economists had forecast the RBA had finished cutting rates and would keep interest rates on hold at 2 per cent throughout the rest of this year and 2016.

An official cash rate of 1.5 per cent would be the lowest ever seen since the RBA was given the power to set monetary policy independently of the government.

“Risks to growth in Australia’s major trading partners in Asia, and Australia’s terms of trade, are skewed to the downside, with China in particular facing several significant challenges,” the economists said.
At the same time, they argued the domestic economy would next year receive less support from the housing market and the lower Aussie dollar.

The Sydney Morning Herald

Economists React: China Caixin Manufacturing PMI Fell To 78-Month Low

The preliminary Caixin Manufacturing Purchasing Managers’ Index, an initial gauge of Chinese factory activity, fell to a to a 78-month low in September, adding another sign of weakness to the world’s second-largest economy.

Last month, when a similar reading hit a 77-month low, worried investors sold their investments in a number of financial markets. Given that September’s data looks worse, what could happen this time? Economists weigh in, edited for style and length:

Continued weakness in China’s manufacturing sector – the flash Caixin manufacturing purchasing managers’ index was 47 in September, a 78-month low – underscores the weakness of exports as external demand wilts and domestic demand is unable to pick up the slack. New export orders really collapsed. It means global trade is facing headwinds, and even China can’t escape that. This is a reminder that China is not out of the woods yet. I think this will push them to accelerate policy even more. They have to do more on cuts in bank reserve-requirement ratio, although they’ll probably hold the line on currency. –Frederic Neumann, HSBC

Wall Street Journal

China to launch QDII2 overseas investment scheme soon in six cities

China will soon launch a new pilot scheme in six cities allowing individuals to invest directly overseas, the official Securities Times reported on Tuesday, potentially unleashing billions of dollars in Chinese savings on global stock and bond markets.

The Qualified Domestic Individual Investor programme, commonly known as QDII2, is the second iteration of a scheme whose first version was limited to institutions. It will initially be launched in six Chinese cities: Shanghai, Tianjin, Chongqing, Wuhan, Shenzhen and Wenzhou, the Securities Times said, quoting unnamed sources.

Individuals with at least 1 million yuan ($160,000) of financial assets can apply to join, the report said.

QDII2 would be Beijing’s latest step to deregulate China’s capital markets, following the launch of the Shanghai-Hong Kong stock connect last November which allows Chinese individuals to buy stocks in Hong Kong.

The previous QDII scheme, which allowed institutions to invest overseas within set quotas, proved unpopular with most investors, which analysts blamed poor marketing by domestic fund managers and a general lack of interest among Chinese retail investors.

QDII2 would be wider in scope than the Hong Kong connect programme, which is focused on guiding Chinese investors into stocks related to China and offers little opportunity for risk diversification, while keeping a tight rein on the risk of capital flight.

QDII2, on the other hand, will allow individual Chinese investors to snap up shares in New York, London or Paris.


China allows yuan currency to drop for third day

China has set the guiding rate for its yuan currency lower for a third consecutive day.

But Thursday’s rate of 1% down against the dollar was a smaller margin than the shock cuts earlier in the week.

The bank had on Tuesday announced it would start setting the daily rate based partly on the previous day’s trading, bringing the yuan closer to a free-floating currency.

The move triggered concerns over a currency war to boost China’s exports.

Recent economic data had seen a decline in Chinese exports, adding to the worries that the world’s second largest economy was headed for a prolonged slowdown.

A weaker yuan will make products cheaper abroad, meaning Chinese companies are more competitive on international markets.


From BBC

HSBC says China buyers hunting Australian infrastructure assets

Several of China’s largest state-run infrastructure groups will bid for a string of port and utility deals in Australia by year-end, reflecting the shift away from deals in the iron ore and coal sectors.

Banking giant HSBC has arranged funding for two of the largest inbound Chinese investments into Australia, in the past year: China Merchants Group, which teamed up with Hastings Funds Management in a $1.75 billion deal to secure a 98-year lease on the Port of Newcastle last year, and more recently China Communications Construction Company for its $1 billion acquisition of former Leighton subsidiary John Holland.

From Sydney Morning Herald

China and Angola sign cooperation deals

China and Angola sealed eight agreements on Tuesday covering areas such as economic cooperation, transportation, electricity and financing as Africa’s second-largest oil producer continues to face problems caused by falling crude prices.

The agreements were signed in Beijing after a meeting between President Xi Jinping and Angolan President Jose Eduardo dos Santos, who arrived on Monday for his first official visit to China in seven years.

China is willing to help Angola transform its rich natural and human resources into development results and achieve independent and sustainable development, Xi said.

China will encourage its enterprises to invest in Angola, participate in its industrial parks and infrastructure construction and help it to diversify its economy, he added.


China Daily