By R M Cutler
MONTREAL - The Nikkei 225, the most-watched Asian index in North America, has along with other regional benchmarks been in a volatile holding pattern for the past week, held hostage to news of a US recession. This cannot go on.
US markets often follow the Nikkei up or down if the movement is confirmed in the meantime by European equities markets, which open after Japan closes and close after New York opens. Yet the Nikkei's movements are frequently themselves a response to American macroeconomic data - such as pointers to a recession.
On February 4, for example, the Nikkei 225 index was down 4% led lower by consumer-goods exporters to the American market. After it led world markets lower at the beginning of the week of January 21, the Nikkei has vacillated in a range of roughly 12,600 to 13,800, for which there is no real technical support aside from a brief intermediate high in mid-October 2005.
Traders in the Far East are waiting to see the performance of the American averages, which are near either the bottom of a new trading range or a new intermediate low. For the Standard & Poor's 500 average, the key level is 1326.
A bit of recent history helps to establish this connection. January 22 was the Tuesday of the extraordinary Federal Reserve three-quarter-point rate cut before market-open. It followed a Monday holiday in the US that was strongly down in East Asia and Europe, where markets were open. Since markets close on Tuesday in Asia before they open on Tuesday in New York, the Nikkei 225 had had two sessions over the long American weekend. For those two sessions, it was down 8% (or 9.5% including the previous Friday, January 18).
The Fed, faced with a futures market indicating that the main US indexes would begin catching up with the Nikkei, down their maximum collar (at the bottom of their permitted range against the index's current value) and dropping like a rock, then made its move. That day the S&P500 closed at 1310, rising to 1396 on February 4 (there is a technical resistance at 1403) before falling to the 1326 support around which it closed on February 5, 6 and 7. This does not definitively mark a bottom because the volume was unimpressive, indeed just short of anemic.
The Hang Seng Index in Hong Kong has not been as lucky as the Nikkei, although since the crisis was averted on January 22, it too has been in a range (between about 24,000 and 25,000) but with extreme day-to-day volatility. Other East Asian exchanges have more or less tracked the Hang Seng, including the South Korean KOSPI Composite and the Taiwan TSEC Weighted Index.
The Nikkei 225 has also been a sort of benchmark for tracking even India's BSE Sensex 30 (reflecting trade in Mumbai, which often has its own dynamic, although often with less volatility than East Asian markets) as well as the Australian All Ordinaries (although the latter, with typically greater volatility and slightly better performance).
The only reason why American shares did not fall further this week (through the Thursday of this writing) and seek to move downward out of the 1326-1403 range, is that there were no absolutely disastrous earnings reports on which to fixate attention. Even a Fed Board member's public remarks that interest rates could not be cut forever because of the danger of inflation, was not enough to rattle traders.
Indeed, the publication of further discouraging data on the US economy did not prevent a minor recovery of shares in the retail and financial sectors, due mainly to earnings reports. This reversed a three-day Wall Street decline, and as a result European shares are expected to open up on Friday, February 8, rebounding off their own technical support levels, following Wall Street's pattern so far this week.
Short-term patterns indicate the attempt to establish a trading range in Europe as well as New York (and Toronto, but for different reasons). However, further bad news of the liquidity crisis in the banking sector may challenge this trading range on the bottom side in the medium term, if not sooner.
An adverse response to that news in Asia would do nothing to dampen the reaction in European and American markets. The development of the macroeconomic situation and decisions of central bankers will play key roles in determining the evolution of the markets in such a case.
R M Cutler is a Canadian international affairs analyst who may be found at http://www.robertcutler.org
Saturday, February 9, 2008
Google spits the dummy
By Martin J Young
HUA HIN, Thailand - Unless you've been asleep all week, you'll already know the big tech story and may be considering the implications of Microsoft's US$44.6 billion bid for Internet stalwart Yahoo!, which has been around since the beginning of the commercial web. The root cause of this bid, according to a number of analysts, is Google, which is certainly not taking this news lying down.
The magic figure offered by Microsoft is based on $31 per share, which was 62% more than the stock's most recent closing price. This makes any attempt by Yahoo to inflate the price or fight for its independence a tough move to make. Microsoft chief executive Steve Ballmer said the buyout could be completed by the end of the year. He rejected suggestions that the takeover would be anti-competitive and continued to state that the creation of a more powerful "number two" to Google on the Internet would be good for consumers.
The scale of the proposed deal has analysts aflutter as they reach for their hype boxes. "If it goes ahead, the Microsoft and Yahoo merger would be one of the major events in the history of the Internet," stated Alex Burmaster from Nielsen Online, an Internet media and market research firm. Tech blogs have been hot with speculation on a possible amalgamation of 250 million Hotmail users and 300 million Yahoo users and whether Microsoft will simply consume its latest acquisition or focus on the overlapping services, clean out the redundancies and concentrate on what each company currently does best.
The fact is that Yahoo has been struggling recently with a falling share price and having to cut its workforce. It simply cannot ignore Microsoft's offer. Some even say the deal represents a show of confidence by Microsoft in the straggling Internet company. Yahoo founder Jerry Yang has tried to reassure staff with a circulated email stating "absolutely no decisions have been made. This proposal is just that - a proposal, you can be sure the board is going to review it thoughtfully and carefully, and do what's right for our great company."
Google, which already has over half the share of the global search market and more than both Microsoft and Yahoo combined, formally responded on its official blog this week. David Drummond, Google's senior vice president, corporate development and chief legal officer, stated, "Microsoft's hostile bid for Yahoo raises troubling questions." Troubling indeed if you look at what a combined force of "Microhoo!" or "Yahsoft" may be capable of.
Google's official response appears loaded with hypocrisy if you read deeper into it; the cyber dummy has been spat. "This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: openness and innovation," stated Drummond, who seemed to neglect to mention the fact that Google's web ranking system and algorithms are a closely guarded secret that play tens of thousands of web developers across the globe like puppets on virtual strings, struggling to keep up with what will appease the almighty search god this month.
The statement went on to ponder on the premise of more control over Internet portals, email, communications and personal computers by the two rivals should they merge; it failed to take into account that Google is doing exactly the same with its recent foray into the mobile-phone market, among other avenues.
It's all very well Google ranting about an "evil empire" and innovation when it is wealthy enough simply to buy it up at will and envelop other companies such as YouTube, Blogger, Picasa and DoubleClick, to name a few. Google may even be considering offering its own partnership with Yahoo, but a bid would be out of the question due to antitrust constraints. What Google really has its eye on is Yahoo's search advertising division which, if outsourced, would yield greater profits for both search companies and leave Microsoft in the dust in that department.
Advertising is a key factor, as Yahoo and Microsoft combined would be able to compete far better for paid search revenues than they can as individual companies. Google has over 80% of the search share in many European countries and almost 60% in the US. Internet research company IDC stated that Google has more than 32% of the US online advertising market, and a combined Microsoft and Yahoo company would have nearly 23%.
Both potential partners also have strong ties to the popular social networking craze that is taking over the Internet. Microsoft has bought a stake in Facebook and serves ads there while Yahoo possesses other popular social networking platforms such as Flickr, Delicious and Yahoo Answers. Together they could offer some serious competition to the Google steamroller. However, this is unlikely to happen for a couple of years, in which time the search behemoth won't be waiting around. The jousting will continue, but the more light that gets shone onto this market will only reveal how much dominance Google already has in it.
Software
Microsoft has rolled out its Service Pack 1 for Windows Vista to manufacturing this week. The first annual update for the operating system is long overdue and it is hoped by the software giant that the glitches will be ironed out and more people will make the switch.
First impressions by analysts and testers are not favorable. While file transfer speed seems to have been improved, many other annoyances seem to linger. Installation, for one, takes a while and requires a number of reboots, and many of the obtrusive security alerts and reminders still remain. A slew of new websites and applications has been released since the emergence of Vista to help users clean out the bloat and streamline the system. Microsoft will release the official SP1 as a download and integrate it into new systems with the operating system in March.
Internet
Conspiracy theorists have had a field day over the recent Internet cable cuts in the Mediterranean following reports of further damage to cables compromising Internet access in the Middle East. With reports claiming up to five cables have been cut or damaged within a week, its no surprise that the blogosphere has been a hotbed of speculation that this is the prelude to World War III.
Everyone from Islamic extremists to the US Central Intelligence Agency has been blamed, but the explanation is far more likely to be something as benign as a fishing boat anchor. Cable repair company Global Marine Systems stated, "Undersea cable damage is hardly rare; more than 50 repair operations were mounted in the Atlantic alone last year. But last week's breaks came at one of the world's bottlenecks, where Net traffic for whole region is funneled along a single route."
Other misinformation comes from the misreporting of how many cables were actually cut. Some publications seem to have counted one twice and other sources attribute bandwidth bottlenecks to power outages and not scuba diving jihadis!
Martin J Young is an Asia Times Online correspondent based in Thailand.
HUA HIN, Thailand - Unless you've been asleep all week, you'll already know the big tech story and may be considering the implications of Microsoft's US$44.6 billion bid for Internet stalwart Yahoo!, which has been around since the beginning of the commercial web. The root cause of this bid, according to a number of analysts, is Google, which is certainly not taking this news lying down.
The magic figure offered by Microsoft is based on $31 per share, which was 62% more than the stock's most recent closing price. This makes any attempt by Yahoo to inflate the price or fight for its independence a tough move to make. Microsoft chief executive Steve Ballmer said the buyout could be completed by the end of the year. He rejected suggestions that the takeover would be anti-competitive and continued to state that the creation of a more powerful "number two" to Google on the Internet would be good for consumers.
The scale of the proposed deal has analysts aflutter as they reach for their hype boxes. "If it goes ahead, the Microsoft and Yahoo merger would be one of the major events in the history of the Internet," stated Alex Burmaster from Nielsen Online, an Internet media and market research firm. Tech blogs have been hot with speculation on a possible amalgamation of 250 million Hotmail users and 300 million Yahoo users and whether Microsoft will simply consume its latest acquisition or focus on the overlapping services, clean out the redundancies and concentrate on what each company currently does best.
The fact is that Yahoo has been struggling recently with a falling share price and having to cut its workforce. It simply cannot ignore Microsoft's offer. Some even say the deal represents a show of confidence by Microsoft in the straggling Internet company. Yahoo founder Jerry Yang has tried to reassure staff with a circulated email stating "absolutely no decisions have been made. This proposal is just that - a proposal, you can be sure the board is going to review it thoughtfully and carefully, and do what's right for our great company."
Google, which already has over half the share of the global search market and more than both Microsoft and Yahoo combined, formally responded on its official blog this week. David Drummond, Google's senior vice president, corporate development and chief legal officer, stated, "Microsoft's hostile bid for Yahoo raises troubling questions." Troubling indeed if you look at what a combined force of "Microhoo!" or "Yahsoft" may be capable of.
Google's official response appears loaded with hypocrisy if you read deeper into it; the cyber dummy has been spat. "This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: openness and innovation," stated Drummond, who seemed to neglect to mention the fact that Google's web ranking system and algorithms are a closely guarded secret that play tens of thousands of web developers across the globe like puppets on virtual strings, struggling to keep up with what will appease the almighty search god this month.
The statement went on to ponder on the premise of more control over Internet portals, email, communications and personal computers by the two rivals should they merge; it failed to take into account that Google is doing exactly the same with its recent foray into the mobile-phone market, among other avenues.
It's all very well Google ranting about an "evil empire" and innovation when it is wealthy enough simply to buy it up at will and envelop other companies such as YouTube, Blogger, Picasa and DoubleClick, to name a few. Google may even be considering offering its own partnership with Yahoo, but a bid would be out of the question due to antitrust constraints. What Google really has its eye on is Yahoo's search advertising division which, if outsourced, would yield greater profits for both search companies and leave Microsoft in the dust in that department.
Advertising is a key factor, as Yahoo and Microsoft combined would be able to compete far better for paid search revenues than they can as individual companies. Google has over 80% of the search share in many European countries and almost 60% in the US. Internet research company IDC stated that Google has more than 32% of the US online advertising market, and a combined Microsoft and Yahoo company would have nearly 23%.
Both potential partners also have strong ties to the popular social networking craze that is taking over the Internet. Microsoft has bought a stake in Facebook and serves ads there while Yahoo possesses other popular social networking platforms such as Flickr, Delicious and Yahoo Answers. Together they could offer some serious competition to the Google steamroller. However, this is unlikely to happen for a couple of years, in which time the search behemoth won't be waiting around. The jousting will continue, but the more light that gets shone onto this market will only reveal how much dominance Google already has in it.
Software
Microsoft has rolled out its Service Pack 1 for Windows Vista to manufacturing this week. The first annual update for the operating system is long overdue and it is hoped by the software giant that the glitches will be ironed out and more people will make the switch.
First impressions by analysts and testers are not favorable. While file transfer speed seems to have been improved, many other annoyances seem to linger. Installation, for one, takes a while and requires a number of reboots, and many of the obtrusive security alerts and reminders still remain. A slew of new websites and applications has been released since the emergence of Vista to help users clean out the bloat and streamline the system. Microsoft will release the official SP1 as a download and integrate it into new systems with the operating system in March.
Internet
Conspiracy theorists have had a field day over the recent Internet cable cuts in the Mediterranean following reports of further damage to cables compromising Internet access in the Middle East. With reports claiming up to five cables have been cut or damaged within a week, its no surprise that the blogosphere has been a hotbed of speculation that this is the prelude to World War III.
Everyone from Islamic extremists to the US Central Intelligence Agency has been blamed, but the explanation is far more likely to be something as benign as a fishing boat anchor. Cable repair company Global Marine Systems stated, "Undersea cable damage is hardly rare; more than 50 repair operations were mounted in the Atlantic alone last year. But last week's breaks came at one of the world's bottlenecks, where Net traffic for whole region is funneled along a single route."
Other misinformation comes from the misreporting of how many cables were actually cut. Some publications seem to have counted one twice and other sources attribute bandwidth bottlenecks to power outages and not scuba diving jihadis!
Martin J Young is an Asia Times Online correspondent based in Thailand.
China’s retail rethink
By Josh Adams
BEIJING - It’s three o’clock on a sunny Saturday afternoon in December, and Beijing’s Pacific Century Place department store is all but deserted. Bored sales clerks in the cosmetics section give each other makeovers as a few shoppers wander by on their way to the basement supermarket. Despite the glitzy decorations and pre-Christmas sales promotions, it looks as if the store’s hefty prices are just not right for most of the capital’s shoppers.
In the lengthy run-up to 2008 Olympics in August, retail development has become a competitive sport in China’s urban centers, with Chinese consumers acquiring a taste for Western-style superstores and exclusive, big-name brands. Eager to cash in on the perceived spending spree, developers have been rushing to construct outsized shopping emporiums - China now has over 400 malls and large scale retail spaces, with more than 20 currently under construction in Beijing alone.
Unfortunately for some developers, it seems as though the growth in construction may have outpaced growth in disposable income. While many Chinese love to visit luxury local malls with their feel-good finery, fewer are willing to hand over the large sums of cash necessary to keep them in profit. Jillian Chen, a Beijing office worker browsing in Pacific Century Place, comments, "I like to visit malls like this one, but unless there are big sales I usually can’t afford to do more than window shop."
While Prada boutiques and Tissot displays are seemingly de rigueur for many Chinese malls looking to display their stylish credentials, focusing on the wealthy elite may have effectively alienated them from the country’s massed ranks of aspiring middle-income families. Vanity may be their undoing.
David Hand, managing director of the Beijing office of Jones Lang La LaSalle, one of the world’s largest commercial real estate service companies, comments, "In my view only 10% or 20% of China’s malls will realize their true profit potential. Poor management, poor location, poor design, poor choice of tenants and the fact that these places are just too big and too pricey are all contributing factors. As the market becomes increasingly saturated the underperformers will naturally find themselves squeezed out."
Malls built outside the downtown areas of major cities could have trouble surviving, said Steven Beesley, co-founder of the Institute of Shopping Center Management in Hong Kong.
"Many urban residents, especially the older generations, still like to shop locally and simply can’t afford mall prices,'' he said. "Upwardly mobile younger Chinese are visiting these megastores, but it’s doubtful they’re spending enough to support the construction boom."
Despite all the hype about increased spending, on average Chinese consumers still save about half of their income - after deducting basic living expenses, there’s little left to splash out on a Louis Vuitton handbag or French Connection sweater. According to government data reported by Forbes, the per capita disposable income of China’s urban residents jumped 19.5% in the first-quarter of 2007, but is still only 3,935 yuan (US$550). A recent report by Morgan Stanley found that consumption in China is still only 35% of gross domestic product, about half the rate in the US.
Since 1978, the retail sector in China has undergone radical change. Store ownership has diversified considerably, increasing numbers of foreign retailers have been allowed to enter the country, and many retail formats developed in Western economies have been introduced. The total opening up of the Chinese retail sector in January 2005, as agreed with the WTO, gave fresh impetus to the boom, and has driven up demand for properties in both Beijing’s core and non-core shopping areas.
Considering the escalating figures it’s easy to identify the main drivers of China’s great mall frenzy. The growing Chinese middle class now numbers over 100 million, with household incomes in this bracket increasing annually by 12% to 15%. The proportion of urban dwellers in China has grown from less than 20% in 1980 to over 40% today and will reach 60% by 2030. Last year, Chinese consumers spent 8.9 trillion yuan (US$1.2 trillion), a 13.7% year-on-year increase.
In the face of these increases, however, a growing number of analysts are concerned that the ongoing surge in mall building will flood the market and drive down profit to unsustainable levels. Wang Yao, the deputy secretary general of the China Industrial Association, recently told a retail forum in Shanghai that China’s mall development urgently needs better control. "China has too many shopping malls at the development phase," he said in remarks published last autumn. "There will be more and more dead malls if no efforts are made to improve management."
According to a report last summer by McKinsey & Co, many Chinese retailers have a limited understanding of how consumers shop, and as a result many malls are failing to fulfill their potential. Despite record sales in 2007, China’s retailers earn an average profit of around 1%, compared to 3% to 5% in the West.
In the hope of surviving the inevitable squeeze, some market-savvy developers are now constructing so-called "mixed-use centers" - projects that combine retail, dining, entertainment and residential living units, such as the upcoming Yueda Xinyi Time Mall in Shanghai and Sanlitun SOHO in Beijing. They are also restructuring their retail side, focusing more on housing shops that sell affordable products, and less on glamorous high-end brands that still remain out of reach for the majority of Chinese consumers.
Richard Wang is executive general manager at Gulfland Property Development, who is responsible for construction of "The Gate", a 120,000-square-meter mixed development in the so-called "West CBD" area of Zhongguancun, in northwest Beijing, recognised as a technology hub of China. He comments, "We wanted to create a destination attractive to everyone, not just a building for the wealthy minority. All the tenants in our retail space were carefully chosen to reflect the brand-conscious and lifestyle-oriented nature of our target consumers."
After China’s post-Olympic glow fades away and market forces really start to bite, it’s likely that the trend away from high-end store-dominated malls will gather increasing momentum - those developers who continue to ignore China’s middle-class shoppers do so at their own peril.
Josh Adams is a freelance writer and photographer who has lived in Beijing for the last two years.
BEIJING - It’s three o’clock on a sunny Saturday afternoon in December, and Beijing’s Pacific Century Place department store is all but deserted. Bored sales clerks in the cosmetics section give each other makeovers as a few shoppers wander by on their way to the basement supermarket. Despite the glitzy decorations and pre-Christmas sales promotions, it looks as if the store’s hefty prices are just not right for most of the capital’s shoppers.
In the lengthy run-up to 2008 Olympics in August, retail development has become a competitive sport in China’s urban centers, with Chinese consumers acquiring a taste for Western-style superstores and exclusive, big-name brands. Eager to cash in on the perceived spending spree, developers have been rushing to construct outsized shopping emporiums - China now has over 400 malls and large scale retail spaces, with more than 20 currently under construction in Beijing alone.
Unfortunately for some developers, it seems as though the growth in construction may have outpaced growth in disposable income. While many Chinese love to visit luxury local malls with their feel-good finery, fewer are willing to hand over the large sums of cash necessary to keep them in profit. Jillian Chen, a Beijing office worker browsing in Pacific Century Place, comments, "I like to visit malls like this one, but unless there are big sales I usually can’t afford to do more than window shop."
While Prada boutiques and Tissot displays are seemingly de rigueur for many Chinese malls looking to display their stylish credentials, focusing on the wealthy elite may have effectively alienated them from the country’s massed ranks of aspiring middle-income families. Vanity may be their undoing.
David Hand, managing director of the Beijing office of Jones Lang La LaSalle, one of the world’s largest commercial real estate service companies, comments, "In my view only 10% or 20% of China’s malls will realize their true profit potential. Poor management, poor location, poor design, poor choice of tenants and the fact that these places are just too big and too pricey are all contributing factors. As the market becomes increasingly saturated the underperformers will naturally find themselves squeezed out."
Malls built outside the downtown areas of major cities could have trouble surviving, said Steven Beesley, co-founder of the Institute of Shopping Center Management in Hong Kong.
"Many urban residents, especially the older generations, still like to shop locally and simply can’t afford mall prices,'' he said. "Upwardly mobile younger Chinese are visiting these megastores, but it’s doubtful they’re spending enough to support the construction boom."
Despite all the hype about increased spending, on average Chinese consumers still save about half of their income - after deducting basic living expenses, there’s little left to splash out on a Louis Vuitton handbag or French Connection sweater. According to government data reported by Forbes, the per capita disposable income of China’s urban residents jumped 19.5% in the first-quarter of 2007, but is still only 3,935 yuan (US$550). A recent report by Morgan Stanley found that consumption in China is still only 35% of gross domestic product, about half the rate in the US.
Since 1978, the retail sector in China has undergone radical change. Store ownership has diversified considerably, increasing numbers of foreign retailers have been allowed to enter the country, and many retail formats developed in Western economies have been introduced. The total opening up of the Chinese retail sector in January 2005, as agreed with the WTO, gave fresh impetus to the boom, and has driven up demand for properties in both Beijing’s core and non-core shopping areas.
Considering the escalating figures it’s easy to identify the main drivers of China’s great mall frenzy. The growing Chinese middle class now numbers over 100 million, with household incomes in this bracket increasing annually by 12% to 15%. The proportion of urban dwellers in China has grown from less than 20% in 1980 to over 40% today and will reach 60% by 2030. Last year, Chinese consumers spent 8.9 trillion yuan (US$1.2 trillion), a 13.7% year-on-year increase.
In the face of these increases, however, a growing number of analysts are concerned that the ongoing surge in mall building will flood the market and drive down profit to unsustainable levels. Wang Yao, the deputy secretary general of the China Industrial Association, recently told a retail forum in Shanghai that China’s mall development urgently needs better control. "China has too many shopping malls at the development phase," he said in remarks published last autumn. "There will be more and more dead malls if no efforts are made to improve management."
According to a report last summer by McKinsey & Co, many Chinese retailers have a limited understanding of how consumers shop, and as a result many malls are failing to fulfill their potential. Despite record sales in 2007, China’s retailers earn an average profit of around 1%, compared to 3% to 5% in the West.
In the hope of surviving the inevitable squeeze, some market-savvy developers are now constructing so-called "mixed-use centers" - projects that combine retail, dining, entertainment and residential living units, such as the upcoming Yueda Xinyi Time Mall in Shanghai and Sanlitun SOHO in Beijing. They are also restructuring their retail side, focusing more on housing shops that sell affordable products, and less on glamorous high-end brands that still remain out of reach for the majority of Chinese consumers.
Richard Wang is executive general manager at Gulfland Property Development, who is responsible for construction of "The Gate", a 120,000-square-meter mixed development in the so-called "West CBD" area of Zhongguancun, in northwest Beijing, recognised as a technology hub of China. He comments, "We wanted to create a destination attractive to everyone, not just a building for the wealthy minority. All the tenants in our retail space were carefully chosen to reflect the brand-conscious and lifestyle-oriented nature of our target consumers."
After China’s post-Olympic glow fades away and market forces really start to bite, it’s likely that the trend away from high-end store-dominated malls will gather increasing momentum - those developers who continue to ignore China’s middle-class shoppers do so at their own peril.
Josh Adams is a freelance writer and photographer who has lived in Beijing for the last two years.
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