April 15, 2021

Emerging Markets Bracing as Fed Meets

JAKARTA — Higher long-term interest rates in the United States as the Federal Reserve prepares to change its policies are already causing hardship for millions of businesses and workers in emerging markets from Indonesia and India to Turkey and Brazil.

But the economic slowdowns and falling currencies precipitated by capital flight back to the United States seem less severe so far than other recent downturns.

At the IGP Group, Indonesia’s dominant manufacturer of car and truck axles, sales plummeted 95 percent and stayed down for six months when the Asian financial crisis hit in 1997. Four-fifths of the company’s workers lost their jobs.

When the global financial crisis began in 2008, IGP’s sales briefly dropped by nearly a third, and a quarter of the employees were put out of work as temporary workers’ contracts were not renewed.

The latest downturn, which began in early August, has been much more modest. IGP’s axle shipments are down 10 percent in the past month from a year ago. The company’s work force has barely shrunk, to 2,000 from 2,077 at the end of July, though it plans to reach 1,900 by the end of this year.

“These are challenging times, but I don’t think they will be the same as in 2008 or 1998,” Kusharijono, IGP’s operations director, who uses only one name, yelled over a clanking, cream-colored assembly line here for minivan rear axles.

As the Federal Reserve’s monetary policy-making committee concludes its meeting Wednesday, emerging markets around the globe are feeling the effects of investors’ expectations that the American central bank will begin tightening monetary policy.

As long-term interest rates have risen this summer in the United States on bets that the Fed will begin tapering its “quantitative easing” of bond purchases, institutions and rich individuals have shifted tens of billions of dollars out of emerging markets. They have been moving them into dollar-based investments that offer higher yields.

Business leaders and economists across the developing world expect emerging markets to face tougher times in the months and maybe even years ahead. Emre Deliveli, a Turkish economic consultant and columnist, said, “Even if all goes well and emerging markets end up rallying, the era of easy money and abundant capital flows will officially be over on Sept. 18,” when the two-day Fed meeting ends.

But while previous exoduses by investors from volatile emerging markets have caused waves of bank failures, corporate bankruptcies and mass layoffs, the latest retrenchment has been much milder so far.

That partly reflects hopes that the Fed will move very gradually to scale back its bond purchases, business leaders and economists around the world said in interviews this week. The effects have also been limited partly because banks and companies and their regulators in many emerging markets have become much more careful about borrowing in dollars over the past two decades, except when they expect dollar revenue with which to repay these debts.

In 1997 and 1998, “the whole problem began with the banking sector. Now I think the banking sector is much better,” said Sofjan Wanandi, a tycoon who is the chairman of the Indonesian Employers’ Association and part owner of IGP.

Trading in currency and stock markets seems to suggest that some of the worst fears over the summer are starting to recede. The Brazilian real has recovered about 8 percent of its value against the dollar since Aug. 21 and a little over a third of its losses since the start of May, when worries began to spread in financial markets about the vulnerability of emerging markets to a tightening of monetary policy. Stock markets from India to South Africa have rallied from lows in late August, with Johannesburg’s market up 14.7 percent since late June after a swoon earlier than most emerging markets.

“While the Fed hasn’t started the tapering process as yet, there has been a considerable withdrawal of money in the emerging markets and especially in India since May. In my opinion, the major effect has already taken place,” said Sujan Hajra, the chief economist at AnandRathi, a Mumbai-based investment bank.

One lingering question is how much inflation will accelerate in emerging markets. Many of their industries depend heavily on commodities like oil that are priced in dollars.

Keith Bradsher reported from Jakarta, Simon Romero reported from Rio de Janeiro and Ceylan Yeginsu from Istanbul. Neha Thirani Bagri contributed reporting from Mumbai.

Article source: http://www.nytimes.com/2013/09/19/business/global/emerging-markets-bracing-as-fed-meets.html?partner=rss&emc=rss

Weakening Yen Helps Toyota Double Its Quarterly Profit

Profit in the Japanese automaker’s financial first quarter beat analysts’ expectations by a wide margin, and underscored the boost that Toyota and other automakers have received from the economic policies of Prime Minister Shinzo Abe of Japan. Those policies have galvanized Japan’s export industry by weakening the yen by about 15 percent since last year, increasing the value of products sold overseas.

Technically, Toyota sold almost 37,000 fewer vehicles in the latest quarter, compared with the same quarter last year, with sales falling in Europe, Asia and Japan. Sales in Japan have slowed since government incentives for fuel-efficient cars expired last year. Toyota is also struggling in China, the world’s biggest auto market, because consumer enmity over a territorial spat between Beijing and Tokyo has weighed on sales of Japanese brands. Auto sales continue to slump across the board in Europe.

But it was the weaker yen, together with a strong showing in its biggest overseas market, the United States, that lifted Toyota’s bottom line. Economists predict the yen to weaken further, while the latest United States sales figures, for July, showed Toyota surging ahead of Ford for the first time in three years, with a 17 percent jump from the same month last year.

Toyota now expects net income for its full financial year that ends next March to reach 1.48 trillion yen, up slightly from a previous forecast of 1.37 trillion yen and an increase of 54 percent from its net profit last year.

In the latest quarter, net profit rose 93.6 percent from a year earlier to 562.1 billion yen, while operating profit rose 87.9 percent to 663.3 billion yen. Toyota attributed more than four-fifths of its operating profit increase to the weaker yen. Net revenue for the quarter rose 13.7 percent to 6.255 trillion yen compared to last year.

Helped by its strong numbers, Toyota is set to become the first automaker in the world to build more than 10 million vehicles in a single year. It said on Friday that it would build 10.12 million vehicles this calendar year, up 180,000 units from a previous production plan. Those numbers include models made by Daihatsu Motor and Hino Motors, which are part of the Toyota group.

Article source: http://www.nytimes.com/2013/08/03/business/global/toyota-quarterly-profit-nearly-doubles.html?partner=rss&emc=rss

Olympus Sues Executives Over Cover-Up

Olympus shares jumped nearly 30 percent on the announcement, as investors bet that legal action against those implicated in the $1.7 billion cover-up would head off a delisting from the Tokyo Stock Exchange. Shares in the company had lost four-fifths of their value at one point.

Still, critics warned that keeping tainted executives at the helm of Olympus threatened to undermine its turnaround effort by allowing discredited board members to name their successors and subvert meaningful reform. The company remains in dire need of fresh capital after restated accounts showed its shareholder equity at far lower levels than previously disclosed.

Olympus defended its decision. “The plan is for the current board members who were found responsible and are subject to lawsuits to complete passing on their roles to avoid any impact on business,” the company said in a statement.

Olympus, the Japanese manufacturer of cameras and the medical devices called endoscopes, has admitted to concealing losses dating to the 1990s using an elaborate scheme involving offshore funds in a case that has cast a spotlight on corporate governance lapses in Japan.

That admission came after its former president and chief executive, Michael C. Woodford, blew the whistle in October on fraudulent accounting at the company — an action for which he was fired.

Mr. Woodford, who is British, later made a bid to return to the company with a fresh slate of directors, but he abandoned that effort last week after Japanese institutional investors continued to back Olympus’s current management. On Tuesday, he blasted Olympus over its announcement, pointing out that three directors who had fired him instead of investigating his allegations should not be allowed to remain on the board.

“If these three individuals continue in office, it is completely the wrong basis to revitalize Olympus,” Mr. Woodford said. “The only way forward is an entirely new board of directors, untainted by the past scandal,” he said in an e-mailed statement.

Southeastern Asset Management, a U.S. firm that is Olympus’s biggest overseas stockholder, has also urged the company to purge its current management.

Olympus “continues to suffer under shoddy corporate governance and an utterly discredited board,” Josh Shores, a principal at Southeastern Asset, said in a statement last Friday. “We maintain that the board should be replaced and a new board should oversee the company’s revival.”

The Tokyo-based company said it was seeking up to 3.6 billion yen, or $47 million, in damages from 19 executives, including former Chairman Tsuyoshi Kikukawa, former Executive Vice President Hisashi Mori and its former internal auditor Hideo Yamada. A third-party investigative panel appointed by Olympus said last month that the trio had orchestrated the scheme to mask investment losses.

Olympus is also suing Shuichi Takayama, the current president, for as much as 500 million yen, according to the company statement Tuesday.

Olympus refused to make any of its executives available for comment.

The scandal has led to investigations in Japan, the United States and Britain.

Article source: http://feeds.nytimes.com/click.phdo?i=73b93cdec02e593ce8000defa2b98c71