Archives for March 2015

Reuters / Nguyen Huy Kham

The dramatic 3-year 240 percent surge in biotech, which had raised valuation concerns and fear of a new Nasdaq bubble, has cooled down. Nasdaq on Thursday continued to fall after its Wednesday steepest one-day decline, over fears stocks were overpriced.

Nasdaq futures plunged 46 points at a Thursday opening after the previous day’s 118-point slide. Some market watchers have warned that biotech shares have enjoyed a great run-up, and that companies in the sector have become overvalued. On Thursday futures for the Dow Jones Industrial Average slid to 17,699 while SP 500 dropped 0.17 percent to 2,058.

The bubble is popping: Nasdaq Biotech ($IBB) 3 days drop is the largest in 1 year $IBB#bubble#biotechpic.twitter.com/plloDbVYYj

— Tim Martyn (@investazy) March 26, 2015

Biotech stocks grew faster than any other sector in the US, with the capitalization of shares in the Nasdaq Biotechnology Index up about 240 percent since the beginning of 2012, the Wall Street Journal reported.

The rise outstrips the 82 percent gain in the Nasdaq-100 index of the largest technology companies listed on the exchange. The top companies in the biotech sector Gilead Sciences, Amgen, Biogen and Celgen, have each gained tens of billions of dollars in market cap over the past year.

“If any part of the market reminds me of the go-go tech years, its biotech,” chief investment officer at BMO Private Bank Jack Ablin told the Wall Street Journal.

Nasdaq biotech shares have advanced 27.4 percent over the past six months and roughly 17 percent so far this year, compared with gains of 7.3 percent for the Nasdaq-100 over the past six months and 1.4 percent this year. The biotech sector also accounted for about 25 percent of US-listed IPOs in 2014.

In 2000 when the Nasdaq Composite Index set its record close of 5048.62, the biotech sector wasn’t so developed, which raises fears that companies in the sector have become overvalued.

Biotech stocks are a high risk for investors as they depend on various factors such as drug trial decisions and running out of funding. The sector stocks are focused on new therapies and innovations and are notorious for their risk which often sparks investor enthusiasm. Shares of biotech companies waiting for new drugs to be approved are the most popular.

“To us, shares of biotech companies find themselves entering bubble territory,” Darren Pollock, portfolio manager at Cheviot Value Management, was cited as saying by the WSJ. “We think investors are applying too high a success rate on biotech molecules.”

Some analysts suggest the excitement surrounding the biotech sector’s success is the latest sign that low interest rates are encouraging investor to take excessive risks. However, if the economy slows or rates start climbing, investors could turn more conservative towards the pharmaceutical companies.

Article source: http://rt.com/business/244193-nasdaq-drop-biotech-bubble/

Flags of Russia, the EU and France. (RIA Novosti / Vladimir Sergeev)

French and Russian business leaders say the economy and policy must be separated, as Western sanctions against Russia are causing French companies to suffer by losing market share.

Politics can go against the interests of countries that seek to strengthen economic ties, in the case of France and Russia, both countries have to work in that strengthening direction, says Michelle Assouline of the Movement of the Enterprises of France (MEDEF).

“It turns out that political decisions transform into an economic weapon. The sanctions that seem to be directed against Russia, are directed against French companies,” she explained at a round table entitled “Reliable business cooperation. Russia out of the conjuncture” held on Wednesday in Paris.

Vladimir Yakunin, the CEO of Russian Railways also took part in the round table and stressed that “economy and politics should be separated from the standpoint of ideological implementation.”

“The most important thing is that we feel optimistic about the future and are eager to implement new projects,” he said.

The businessmen discussed the prospects of Franco-Russian cooperation in various sectors of economy, from banking to the restaurant business. All the participants, including policymakers, agreed that sanctions are counter-productive, and the only thing they do is destroying healthy economic relations.

“The sanctions were imposed and suggested by bureaucrats, politicians. In fact, Europe doesn’t agree with how the sanctions are applied,” Claude Goasgen, the mayor of 16th district of Paris, said.

One of the issues discussed was the delivery of Mistral-class helicopter carriers to Russia. Members of French National assembly suggest the situation proves France is unreliable in conducting international affairs.

“I am very unhappy with the fact that France has decided not to supply Mistral ships to Russia,” said Sanches Encerra, a member of National Assembly. “I think this is a mistake from all points of view. This undermines the credibility of France as a reliable partner, and we, the deputies, strongly promote the idea that sanctions are quite a harmful phenomenon.”

READ MORE: Russia may sanction French companies over Mistral non-delivery – media

In a separate interview with RT Maurizio Patarnello, CEO of Nestle, Russia, said no sanctions can undermine the relations between Russia and his company that last more than 40 years.

“It’s not a purely financial calculation, there is also the fact we want to supply our products to Russian consumers,” he said adding that at the same time it’s extremely difficult to give forecasts, as there are so many factors that are not in the hands of Russia.

Talking about a possible increase in investment Patarnello said it will depend on the course of events, as now “having a return on investment is more challenging.”

“If we continue to experience growth in a category, we will continue to invest. Should we not have a growth, because the consumer may cut back on their consumption and expenses, and then we’ll of course have to review our investment plans,” he said.

Article source: http://rt.com/business/244329-russia-france-business-sanctions/

RIA Novosti / Iliya Pitalev; Reuters / Ilya Naymushin

The ruble gained 1.5 percent against the dollar Thursday, reaching 56.08, the best performance since December 2014. The Russian currency was buoyed by rising oil prices, but experts warn crude could be a false friend for the currency.

On Thursday, the ruble marked its eighth consecutive day of gains, the best winning streak since mid-2013. The rise of the ruble is supported by high oil but that is only part of the newfound success, as gains this year have been not always been in sync with oil.

#Russia Ruble rallies on higher #oil price. pic.twitter.com/7cAs0Ocmug

— Holger Zschaepitz (@Schuldensuehner) March 26, 2015

While Thursday’s success was attributed to unrest in Yemen and the threat to global energy Wednesday’s was not – a puzzle to analysts who are trying to gauge the ruble’s reliance on crude.

READ MORE: Oil plummet: Crude dives below $45 for first time since 2009

Oil has played a much less prominent role in the ruble’s exchange rate in the first three months of 2015. Thursday’s success was also attributed to the Russian tax season, which prompted companies to buy up rubles in exchange for foreign currency.

“I would say oil is not a major factor if we look at the last two months,” Pantyushin said. “We see an overall renewed demand on the ruble coming from foreigners. Also, the tax payment season pushed up the value of the currency.”

The trend is supported by Central Bank data, which shows that Russians are selling the dollars and euros they stocked up on in December. International monetary reserves increased for the first time since November 2014. Last week, from March 13-20, reserves rose $1.2 billion to $352.9 billion. In January, the same trend dominated, with Russians selling off $6.7 billion in dollars and euros at banks and exchanges.

“The strengthening trend started a week ago, despite weakness in the crude oil price. This has surprised many Russia observers and prompted speculation that the currency has finally managed to decouple from the oil dynamic, a factor that has been driving the ruble for many years,” the BCS note said.

The ruble’s rally has prompted Russia’s Ministry of Economy to change their forecast predicting that the ruble will strengthen to 40 rubles against the dollar if oil prices return to $100 per barrel, the most positive of three scenarios ran. By 2018, the ruble could crawl back to 50 rubles per 1 USD, as long as oil prices grow by about 4 percent.

The forecasts are contingent on western sanctions being lifted.

Ruble overshoot?

“Overall, with Brent crude trading at $55/bbl, we believe the current Rb/USD rate (Rb56.8 /$) is an overshoot. We expect that once tax payments season ends in two days the currency will correct to its fair value which, at this level of oil prices, in our view is around RUB58-59/$ levels,” BCS said.

Sberbank CIB agrees that the 55-56 ruble-to-dollar range witnessed in the past two days is a bit too optimistic, and in the second quarter predicts the ruble to trade in the 60-62 range.

VTB, Russia’s second-largest bank, said that reaching 55 rubles is attainable, but not a given, as it depends on importer and exporters demand for foreign currency versus rubles.

Last week, Finance Minister Anton Siluanov announced that the worst was over for the Russian economy, and that it had entered a period of stabilization. The breathing space is in thanks part to more steady oil prices in 2015, as well as the West’s reluctance to slap Moscow with more sanctions.

READ MORE: Russia overcomes the worst, sees stabilization – finance minister

On December 16, the ruble spun into a freefall, with the dollar hitting 80 and the dollar and crossing the 100 mark threshold versus the euro. Since what was dubbed “Black Tuesday,” the ruble has rebounded by more than 30 percent.

The collapse in oil prices, and the subsequent devaluation of the ruble, has made Russia’s economic slowdown even more painful.

Article source: http://rt.com/business/244353-russian-ruble-march-26/

The Arkticheskaya jack-up floating drilling rig of Lukoil company set up near the resort town of Zelenogradsk, located on the Baltic Sea. (RIA Novosti / Igor Zarembo)

The economic crisis and Western sanctions have complicated Arctic exploration by state-owned Rosneft and Gazprom, bringing the issue back onto the government agenda.

“Lukoil and a number of other companies have repeatedly presented arguments in favor of granting private companies with the appropriate infrastructure and technology the right to take part in offshore projects,” Kremlin spokesperson Dmitry Peskov said Thursday commenting on a Kommersant report suggesting the idea has been approved by the presidential administration.

“The issue has been on the agenda for quite a while now, but the decision has not been made yet, discussion is under way. There’s a divergence of opinion on the subject,” he added.

In early March, presidential aide Andrey Belousov reported to Vladimir Putin on Lukoil’s request for private companies to have access to the Arctic shelf and “supported it in principal,” Kommersant daily reported on Thursday, citing its sources. Belousov asked the government to submit proposals before May 1. Belousov added that the possibility of liberalization has already been agreed at the operating level with Deputy Prime Minister Aleksandr Khloponin, Energy Minister Aleksandr Novak and the head of the Ministry of Natural Resources Sergey Donskoy. However, both the government and Lukoil have refused to comment.

The state-run energy majors Rosneft and Gazprom have a monopoly on exploration of the Arctic shelf, and private companies such as Lukoil have been insisting they should be allowed into the area. The Western sanctions are another issue complicating full-scale shelf exploration.

READ MORE: ExxonMobil boosts Russian oil assets by 450% in 2014, despite sanctions

At the end of July 2014 the US and the EU introduced an embargo on supplying some types of equipment designed for Arctic, deepwater and shale oil projects to Russia. In September, the US government stopped American companies delivering goods, technologies and services to six Russian energy companies – Gazprom, Rosneft, Lukoil, Surgutneftegaz, Gazprom Neft and Novatek.

As of January 1, 137 licenses for shelf exploration were approved, of which 49 belonged to private companies. These licenses were issued before the amendments to the law “On Subsoil” made in 2008 that allow only state-owned companies Rosneft and Gazprom to explore the shelf.

Belousov doesn’t consider the pace and scale of exploration carried out by the state companies satisfactory, which “poses significant risks to the task of maintaining oil and gas production in the long term.”

Moreover, the obligations of Rosneft and Gazprom “do not provide sufficient exploration degree of the areas,” according to the Ministry of Natural Resources. The area explored by Rosneft and Gazprom does not exceed 0.25 route kilometers per 1 square km with the standard of 0.35-0.5 route kilometers.

Belousov said that Russia needs to maintain control over the investment in offshore by introducing “strict preliminary qualification” and fixing a preferential right to shelf exploration by a company that had led the exploration.

Lukoil is experienced in carrying out shelf exploration, particularly in the Caspian Sea, although the development of the Arctic will require more resources, said Valery Nesterov of Sberbank Investment Research to Kommersant.

Though the state companies are slowing the pace of work because of the sanctions and low oil prices, the demand for Arctic oil will be much higher in a few years, and the oil industry should fully prepare for it, he added.

Article source: http://rt.com/business/244189-arctic-lukoil-private-company/

Amman, Jordan (Reuters / Muhammad Hamed)

Russia has signed a $10 billion agreement with Jordan for the construction of the country’s first nuclear power plant. Jordan currently lacks local energy sources and struggles to meet its growing electricity demand.

The agreement between Russia’s state-run Rosatom and the Jordan Atomic Energy Commission was signed on Tuesday in Amman. The contract is for the construction of a two-unit 2,000 megawatt power plant in the north of the country by 2022.

“I would like to stress that Rosatom and the entire Russian nuclear sector take Jordan’s invitation to build its first nuclear plant as a big trust,” Rosatom chief Sergey Kiriyenko said, adding that cooperation with Jordan would open the door for future nuclear fuel supply deals. “The nuclear power plant is the embodiment of a strategic partnership.”

Jordan imports around 95 percent of its energy needs, at a cost of about 20 percent of its GDP, according to the data from the World Nuclear Association. Practically all the electricity generated in Jordan today comes from power plants using imported oil and gas. The demand for electricity is growing by more than seven percent annually due to a rising population and industrial expansion. Jordan wants to develop nuclear power to meet the increasing demand.

“As you know, we lost the oil from Iraq, natural gas from Egypt, and the country has been bleeding and losing on an average $3 billion every year,” Khalid Toukan, head of the Jordanian Atomic Energy Commission was cited as saying by Al Jazeera. He also added that nuclear power was definitely one of the solutions the country needed to graduate from its total dependency on oil and gas.

“The Russian technology we chose in a very competitive process suits Jordan’s needs in terms of power generation and the ability to produce electricity at very competitive prices,” Toukan told a news conference.

READ MORE: Russia to build first nuclear power plant in Jordan

Rosatom won the tender for the construction of the nuclear plant in Jordan in November 2013, beating a Japanese-French consortium of Mitsubishi Heavy Industries and Areva.

The nuclear plant is expected to satisfy Jordan’s entire electricity demand and possibly export electricity to Syria and Iraq. Its first unit is to be commissioned in 2024, and the second in 2026.

The $10 billion project will be the biggest Russian-Jordanian deal. Jordan will own a controlling stake by providing 50.1 percent of the funding with the rest of the money coming from Russia.

READ MORE: Russia to help Egypt build ‘a whole new nuclear power industry’ – Putin

Last month, Russia and Egypt signed a memorandum of understanding to build that country’s first nuclear power plant during President Vladimir Putin’s visit to Cairo.

Also this year Rosatom agreed to build two reactors in Hungary and plans to build more facilities in Iran in addition to the Bushehr plant Russia completed in 2011.

Article source: http://rt.com/business/243853-russia-jordan-nuclear-plant/

Reuters / Petar Kujundzic

The UK has become the first country in Europe to open a yuan-denominated money market fund, cutting out the middle man for investing in China.

The exchange-traded fund is listed on the London Stock Exchange, with trading available in pounds, euro, and yuan, according to the British government.

It allows investors direct access China’s interbank lending market, instead of going through an intermediary. China’s second largest lender, China Construction Bank International, will be home to the money-market fund, supported also by Britain’s HSBC and Germany’s Commerzbank.

In 2014, the same bank was granted permission to process transactions in yuan, making it more convenient for companies in the UK to use the Chinese currency.

“The launch of this (fund) will provide further opportunities for British and other global investors to invest directly into China,” Andrea Leadsom, a junior British finance minister said, as quoted by Reuters.

London, a global financial center rival to New York or Hong Kong, has been courting China and its banks to start doing more business in London with the yuan.

READ MORE: Chinese yuan now top 5 major intl payment currency

Last year Britain was the first country in the West to issue a yuan-denominated bond.

China, the world’s second largest economy, has been pushing the yuan as a rival to the dollar in the global financial system since 2010. Last year, the Bank of China opened up yuan clearing hubs in London and Frankfurt. As of January 2015, the yuan was the fifth most-used currency in international payments. The next obstacle for the yuan is becoming an IMF reserve currency.

Earlier this month, the UK became a founding member of the China-led Asia Development Bank, the first major Western country to support the project. France, Germany, Austria, Switzerland, Luxembourg, and others quickly followed suit, ultimately forcing the US to accept its emergence as a rival to the World Bank.

Article source: http://rt.com/business/244005-china-london-yuan-market/

A general view of the signing ceremony of the Asian Infrastructure Investment Bank at the Great Hall of the People in Beijing October 24, 2014. (Reuters/Takaki Yajima)

Austria is looking to join the China-led Asian Infrastructure Investment Bank (AIIB), Xinhua news agency reported, citing a top official. It is the latest European nation to invest in the bank, which is seen as the future rival of the US-based World Bank.

READ MORE: Australia ponders ‘vote of confidence’ on joining China-led bank, Japan on fence

“Austria has already had close economic and political ties with the Asian region and has always been so far very positive about international projects,” Johannes Frischmann, a spokesman for Austrian Finance Minister Hans Joerg Schelling, told Xinhua, adding that the nation “now checks for the membership.”

The AIIB has been approached by 27 prospective founding members, with the UK, France, Germany, Italy, Luxembourg, and Switzerland recently applying. The application deadline has been set for March 31.

Other nations will still be able to join the AIIB after the deadline expires, but only as common members, Chinese Finance Minister Lou Jiwei said last week.

China wants to see the AIIB operational before the end of 2015.

READ MORE: France, Germany, Italy to join China-led $50bn infrastructure bank

Washington recently shifted its tone towards the AIIB, which is seen as a rival of the US-led World Bank, the International Monetary Fund (IMF), and the Manila-based Asian Development Bank (ADB) which is dominated by Japan and the US. Previous reports implied that there was a negative reaction from Washington; however, it has now proposed to work in partnership with the AIIB, according to The Wall Street Journal.

US officials have been skeptical, expressing fears that it may undermine the World Bank and the IMF. However, the Chinese finance minister gave assurances that the AIIB will not compete with existing international organizations, but will instead reinforce them.

The International Monetary Fund, World Bank, and Asian Development Bank have also expressed their support for the China-led international bank.

IMF chief Christine Lagarde said on Sunday that the fund would be “delighted” to cooperate with the AIIB.

The China-led infrastructure bank is expected to launch with an initial subscribed capital of $50 billion and focus on financing infrastructure projects across Asia – including energy, transport and telecommunications infrastructure, urban and rural development, and the environment.

Article source: http://rt.com/business/243753-austria-china-infrastructure-bank/

RT @Russian_Council: Is the #AIIB the New Bretton Woods? By Y. Lisovolik (@DeutscheBank) http://t.co/WkRqdacmtv pic.twitter.com/Rp80c8q37C

— Anton Tsvetov (@antsvetov) March 24, 2015

Chinese state newspaper lambasted the comment, calling the attitude towards China childish paranoia.

“Essentially there was no more of this cold war attitude that the US was having towards China. Was boycotting the AIIB, but it received massive pushback from very important governments around the world, so the US did not get its way,” Tucker said.

The British government was the first to announce that they would be a founding member of the financial institution, which is largely seen as a rival to the World Bank. Luxembourg and Switzerland were the latest to sign up along with France, Germany, and Italy.

READ MORE: France, Germany, Italy to join China-led $50bn infrastructure bank

Similar to the World Bank, the Asia Infrastructure Investment Bank (AIIB) will offer financing for infrastructure projects, but mostly in the Asia, especially in developing economies.

READ MORE: Washington ‘shifts tone’ towards China-led infrastructure bank

The bank was launched in October 2014 and is due to be fully operational by the end of 2015.

“What people in the US have yet to recognize, is that China’s economy is probably by some measures as big, or bigger than the US, and the US needs to start engaging China as a partner.”

The Chinese economy has been keeping pace with the world’s biggest, the US, and in October, surpassed the superpower in terms of purchasing power adjusted GDP

The idea for the new development bank was first floated when China unveiled plans in October 2013.

Article source: http://rt.com/business/243569-china-development-bank-us/

Reuters / David Gray

The Chinese authorities plan to shut the last coal-fired power plant in Beijing and replace it with gas-fired plants in 2016 in order to reduce the critical levels of pollution in the city.

Beijing authorities intend to stop the China Huaneng Group 845-megawatt coal power plant in 2016, according to the city’s economic planning agency.

Last week, the city closed the plants owned by local Guohua Electric Power Corp. and Beijing Energy Investment Holding Co. In 2014 the authorities shut down the fourth major coal powered plant owned by China’s Datang Corp.

Coal-fired power plants will be replaced by four gas-fired with at least double the capacity says the agency.

By 2017 the Beijing authorities plan to reduce coal consumption by 13 million metric tons from 2012 levels in order to reduce the poisonous concentration of pollutants in the air.

READ MORE: China to slash coal consumption by 160mn tons in 5 years

The level of air pollution in China was more than double the national standard in 2014 with the indicators of environmental pollution over the limit in 90 percent of 161 Chinese cities. The level of small particles that pose a danger to human health, averaged 85.9 micrograms per cubic meter in 2014 in Beijing compared with the national standard of 35.

The closure of all large coal power plants in the city would reduce annual coal consumption by 9.2 million metric tons, Bloomberg reports citing Tian Miao, analyst at North Square Blue Oak Ltd in Beijing. The emissions of carbon dioxide in the air, in turn, would be reduced by roughly 30 million tons.

Article source: http://rt.com/business/243561-china-coal-power-plants/

Reuters / Stringer

The Chinese economy is showing further signs of a slowdown with the indicator of manufacturing activity, the purchasing managers’ index (PMI), dropping to an 11-month low in March.

The HSBC Flash China Manufacturing PMI for March fell to 49.2, compared with 50.7 in February, according to the survey by HSBC and financial data provider Markit, published on Tuesday. March figure slipped below the 50 level which separates expansion from contraction compared with the previous month when PMI climbed to its strongest level since July.

READ MORE: China manufacturing PMI hits 4-month high in February but exports dive

The weaker than expected Chinese PMI shows employment and prices are all softening in the manufacturing sector and suggests the 2014 fourth-quarter weakness in the world’s second largest economy is extending into the beginning of the new year.

“The HSBC Flash China Manufacturing PMI signaled a slight deterioration in the health of China’s manufacturing sector in March. A renewed fall in total new business contributed to a weaker expansion of output, while companies continued to trim their workforce numbers”, Annabel Fiddes, economist at Markit said commenting on the survey.

Manufacturing companies continued to benefit from falling input costs, stemming from the recent global oil price decline, she added. Relatively muted client demand has led firms to pass on savings in a bid to boost new orders, and cut their selling prices at a similarly sharp rate, according to Fiddes.

With both output and input prices continuing to fall, industrial deflation is expected to worsen. While weaker factory activity will put pressure on decision makers to step up their efforts to boost economic growth.

The central bank will likely bolster growth by cutting interest rates once this year and lower the proportion of reserves banks are required to maintain, an economist with China International Capital Corp. Bob Liu, told the Wall Street Journal.

READ MORE: China cuts economic growth target to 7%, lowest in 25 years

Earlier in March, China’s Central Bank cut its benchmark lending and deposit rates by a quarter of a percent, which sparked a brief rebound in metals prices. However, prices have fallen back after the Chinese government said it expected the economy to grow by about 7 percent in 2015 compared to a 7.5 percent target last year. Data released for the early part of this year suggests Chinese demand is already weakening.

Asian stocks turned mixed Tuesday over China’s lower than expected Flash PMI reading. The Hang Seng China Enterprises Index dropped 1.4 percent. The Shanghai Composite Index ended slightly higher, gaining for a tenth straight day in a rally that has pushed major Chinese indexes to their highest levels in nearly 7 years. Japan’s Nikkei stock average slipped 0.2 percent, pulling away from the previous session’s 15-year highs.

The Flash PMI report is based on about 90 percent of responses to surveys sent to more than 420 manufacturers. Final PMI data on March will be released on April 1, 2015.

Article source: http://rt.com/business/243489-china-pmi-survey-economy/