Market Highlights report - tuesday, april 13 2010 (update 1)

Currencies

The best currency to own when China lets the yuan appreciate won’t be the yuan, if history is any guide. It’s everything from South Korea’s won to Singapore’s dollar and Indonesia’s rupiah.

The won rose five times as fast as China’s currency in the 12 months after officials in Beijing last relaxed the foreign- exchange regime in July 2005, . Singapore’s dollar climbed three times as much, the rupiah five times and Malaysia’s ringgit twice as fast.
As President Barack Obama pressed Chinese President Hu Jintao in Washington today to let the yuan rise at a faster pace, traders are betting on a repeat of five years ago as an appreciating currency boosts China’s power to buy Malaysian palm oil to Indonesian coal and Indian copper. Revaluation may also enable Asian nations to do the same with their own currencies without damaging exports, while fueling U.S. trade as the global economy emerges from its deepest postwar recession.
“A Chinese appreciation will kick off tightening in the whole Asian complex of currencies,” . “These currencies are fundamentally cheap.”
Obama reaffirmed to Hu his view that it’s “important” for China to move toward a “more market-oriented exchange rate,” Jeff Bader, senior director for Asia at the National Security Council, told reporters after the meeting on the sidelines of a two-day nuclear security summit in the U.S. capital
Goldman’s View
Singapore will let its currency advance to keep inflation from accelerating after the economy grew more than anticipated in the first quarter, according to Goldman Sachs Group Inc. The rising cost of imports will also spur Taiwan to let its dollar appreciate, it said. Bank of Tokyo-Mitsubishi UFJ Ltd. said on April 8 the won and rupiah may climb about 13 percent against the yen as central banks from Indonesia to Taiwan raise interest rates and reduce currency intervention.
“The heavily managed Asian currencies are the biggest candidates for appreciation once the yuan starts gaining,” said Thomas Stolper, a foreign-exchange analyst with Goldman Sachs in London. “Many of these countries are facing fiscal pressure and would like to see their currencies appreciate. A Chinese revaluation would give them the opportunity.”
Twelve-month non-deliverable yuan forwards traded at 6.6255 per dollar in Hong Kong yesterday, reflecting bets the yuan will climb 3 percent from the spot rate of 6.8257, according to data compiled by Bloomberg. The contracts touched 6.6055 on April 9, the strongest since Jan. 19

Energy

China Petrochemical Corp. agreed to pay ConocoPhillips $4.65 billion for its stake in Syncrude Canada Ltd., a higher price than analysts expected, as Asia’s biggest refiner seeks overseas petroleum reserves.
China Petrochemical, the Beijing-based company known as Sinopec Group, will buy about 9 percent of oil-sands producer Syncrude through its unit Sinopec International Petroleum Exploration & Production Co., according to a statement issued by Houston-based ConocoPhillips yesterday.
The price the group agreed to pay for Syncrude surpassed by $650 million the high end of an estimate by Macquarie Securities of the assets’ worth, . ConocoPhillips received a premium of about 20 percent compared with the value implied last week by Canadian Oil Sands Trust’s market worth, debt and cash, according to a research .
“What it reflects is China’s insatiable appetite for resource accumulation overseas, not to mention the fact that Beijing has a pretty big checkbook,” who rates ConocoPhillips at “underperform” and doesn’t own any of its shares. Molchanov said he thought the stake would fetch about $4 billion.
Canadian Oil Sands Trust is the lead partner in Fort McMurray, Alberta-based Syncrude with a 36.7 percent interest.
Fuel Demand
ConocoPhillips, the third-largest U.S. oil company, said in October it planned to sell $10 billion of assets over two years to help cut debt.
Oil sands are deposits of bitumen, an extra-heavy oil that must be treated for use in refineries to produce gasoline and diesel fuels.
The Syncrude deal shows the Chinese are putting prices on resources out of line with criteria such as the rate of return, said Mark Gilman, an analyst at the Benchmark Co. in New York who has a “hold” rating on ConocoPhillips shares and owns none.
“You don’t need a degree in rocket science to come up with the fact that this is more than twice its economic value,” he said of the Syncrude transaction.
Spending by Chinese companies on mining and energy acquisitions reached a record $32 billion last year.
China, South Korea, Japan and India are seeking overseas resources to drive their economies. The International Energy Agency on March 12 raised its forecast for fuel demand in developing countries, led by China and India, to 41.2 million barrels a day and cut its prediction for Europe and the U.S.
Asset Race
State-controlled PetroChina Co. won approval from the Canadian government in December to buy a stake in Athabasca Oil Sands Corp.’s MacKay and Dover oil-sands projects for C$1.9 billion ($1.9 billion).
Sinopec Group bought Calgary-based Addax Petroleum Corp. for C$8.3 billion last year to add oil reserves. The group’s Hong Kong-listed unit, China Petroleum & Chemical Corp., said on March 29 it will pay $2.5 billion to buy a stake in an Angolan field from its parent to boost crude-oil production.
In the race for assets, Indian companies typically won’t overpay, said Robbert Van Batenburg at Louis Capital Markets in New York.
The Chinese economy grew 10.7 percent in the fourth quarter, the fastest pace since 2007, and is forecast by the United Nations to advance about four times more quickly than the U.S. this year

Stocks

Asian stocks fell, dragging the MSCI Asia Pacific Index down by the most in six weeks, after Alcoa Inc.’s revenue trailed estimates and the yen strengthened.
Alumina Ltd., Alcoa’s venture partner, slumped 5.6 percent in Sydney. Nintendo Co., a maker of video-game consoles that earns 85 percent of its sales abroad, lost 1.1 percent as the yen climbed earlier today to the highest level this month versus the dollar, diminishing the value of U.S. sales. Powerchip Semiconductor Corp. slumped 6.9 percent in Taipei on share-sale plans. China Southern Airlines Co. sank 3.2 percent on concern the nation may delay an immediate appreciation of its currency.
The MSCI Asia Pacific Index dropped 0.7 percent to 127.32 as of 4:43 p.m. in Tokyo, the most since March 4. The gauge has climbed 12 percent from its 2010 low on Feb. 8 as Greece debt concerns eased and improving U.S. economic data strengthened confidence in the global recovery. Stocks in the gauge trade at 1.7 times book value, the highest level since September 2008.
“Valuations are looking a bit stretched,” said Chris Hall, who helps manage about $3.7 billion at Argo Investments in Adelaide, Australia. “No one’s disputing there’s going to be a recovery, but it’s the question of magnitude that’s got people a little bit cautious. Investors are waiting for evidence earnings are sustainable beyond the benefits of stimulus measures.”
Japan’s Nikkei 225 Stock Average declined 0.8 percent and Australia’s S&P/ASX 200 Index fell 0.7 percent. Hong Kong’s Hang Seng Index dropped 0.3 percent. Taiwan’s Taiex sank 1.1 percent.
Greece Bailout
China’s Shanghai Composite Index gained 1 percent, as gains among banks offset declines by airlines.
Futures on the U.S. Standard & Poor’s 500 Index lost 0.2 percent. The gauge rose 0.2 percent yesterday as takeovers and a $61 billion rescue plan for Greece bolstered equities.
“Some people are nervous the Greek bailout is only a short-term Band-Aid, or that it may not be the last bailout to occur,” said Argo’s Hall.
A measure of material producers on the MSCI Asia Pacific Index sank 1.3 percent, the most since Feb. 24. Alcoa’s first- quarter sales of $4.89 billion missed the $5.23 billion average estimate of eight analysts surveyed by Bloomberg, even amid aluminum prices that were 57 percent higher on average in the first quarter than a year earlier. Alcoa’s shares dropped 8 cents in after-hours trading to $14.49