Ahad, 2 Februari 2014

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The Star Online: Business

This week seen to determine whether global economy and market uncertainties fade away

Posted: 02 Feb 2014 04:50 PM PST

LONDON: This week will go a long way to determining whether the uncertainty hanging over the world economy and markets fades after a rocky January or lasts further into the year.

A raft of global business surveys, jobs data from the United States and central bank meetings in Europe should offer a clearer view on how well the global economy is faring at the start of 2014.

Most economists have been expecting a better 12 months after three years of slowing global growth, but the recent turmoil in emerging markets has given them pause for thought.

MSCI's global index <.MIWD00000PUS> posted its largest monthly decline since May 2012 in January, sliding 4 percent.

Emerging markets <.MSCIEF> were down 6.6 percent for the month - their worst January since 2009 - after another turbulent day on Friday, when the Russian rouble slid and bond yields rose sharply across the board.

"Markets in the major economies will continue to be subject to trends in emerging markets (this) week, both in terms of overall currency and stock market sentiment," said Philip Shaw, chief economist at Investec.

First up are purchasing managers' indexes (PMIs), which survey thousands of businesses worldwide. While the PMIs from Europe and the United States are expected to show more growth, particular attention will be paid to those from China.

"There are … potential flashpoints in the form of various Chinese PMI indices - signs of a slowdown in the pace of economic activity in China would result in the risk-off lights starting to flash again."

The other key data will be Friday's jobs report from the United States.

The world's No.1 economy added the fewest workers in nearly three years in December - just 74,000 non-farm jobs - although the consensus of economists polled by Reuters points to a rebound in January.

Still, there could be potential for another nasty surprise.

"As if forecasting the monthly change in nonfarm payrolls were not hard enough, the outlook for January payrolls is clouded by poor weather, difficult seasonal adjustment, annual benchmark revisions, and methodology changes," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.


Fears about emerging economies intensified after Turkey, South Africa and India failed to halt a wholesale capital flight by raising their interest rates. The Federal Reserve's decision to withdraw more of its monetary stimulus and weak Chinese data added to the concerns.

With Turkey and South Africa's hikes in particular aimed at countering steep currency depreciations, the pressure is on other emerging central banks to follow suit.

"One of the underlying issues is that the market believes that real rates are just too low in emerging markets in an environment of falling liquidity provision," said Ishitaa Sharma, global markets analyst at Citi, in a note to clients.

"Given that the Fed is likely going to continue tapering according to schedule, the market is likely going to continue to demand higher real interest rates from at least the more vulnerable emerging markets."

India's central bank governor, Raghuram Rajan, last week criticized what he called a breakdown in global monetary coordination, saying developed countries could not wash their hands of the turmoil their actions caused in emerging markets.

European Central Bank President Mario Draghi will have a chance to address the emerging market worries after the central bank's policy decision on Thursday.

Euro zone inflation fell to 0.7 percent in January, putting the ECB under further pressure to meet its target of keeping inflation below but close to 2 percent.

"This outcome clearly raises the chances of ECB policy action," said Nick Matthews, economist at Nomura, who raised the prospect of more interest rate cuts to record lows.

"While we recognize that the probability of further easing has risen significantly, on balance we believe that the ECB might want to accumulate a bit more information before taking such a decision."

The Bank of England, also meeting on Thursday, is not expected to announce any change to interest rates, although there is a small chance it might make a statement to clarify its forward guidance.

More likely, though, it will wait until its quarterly inflation report next week to reveal how it will conduct forward guidance from here.

Looking further ahead, Bank of Japan policymakers meet next week to set monetary policy. The sharp selloff in emerging markets plays into the hands of those at the BoJ who fear the pick-up in exports is lackluster and so may require extra monetary stimulus sooner rather than later.- Reuters

Britain&#39;s Defence Ministry cuts US$2.47bil on military support contracts

Posted: 02 Feb 2014 04:45 PM PST

LONDON: Britain's Ministry of Defence (MoD) plans to cut 1.5 billion pounds ($2.47 billion) from the money it pays defence companies annually to help maintain and retool its military equipment, the Financial Times reported.

An MoD spokeswoman declined to confirm the figure, but said the MoD was looking to make savings across all of its contracts.

The paper said the cuts, which are equivalent to a fifth of the MoD's 7.5 billion pound annual spending on support contracts, would likely take several years to roll out. (http://link.reuters.com/gep56v)

The ministry would need to wait until many of its existing support contracts expired before it could renegotiate them, the FT added.

The Defence Equipment and Support unit, the MoD's procurement arm, spends about half its annual budget on servicing equipment, outsourcing the work to companies such as BAE Systems and Babcock International Group.- Reuters

Global automakers scour India&#39;s backroads in search of dream market

Posted: 02 Feb 2014 04:38 PM PST

MUMBAI: For global automakers, the dusty backroads of rural India could be the new El Dorado.

As economic torpor suffocates demand for new cars in India's megacities, incomes are growing faster in small towns and country areas. That's pushing the likes of General Motors <GM.N> and Honda Motor Co <7267.T> to fan out in search of buyers in places where fewer than 20 people in every thousand own a car - for now.

Standing firmly in the way are strong home-grown brands. With local services plentiful and repairs cheap, Maruti Suzuki India Ltd <MRTI.NS>, Mahindra and Mahindra Ltd <MAHM.NS>, and Tata Motors Ltd <TAMO.NS> dominate the rural vehicle market where foreign automakers are seen as expensive and distant.

Foreign companies showing cars at the Delhi auto show, starting on Wednesday, have already poured billions of dollars into factories, product development and marketing in India's once-booming car market.

Still, no foreign car maker has a share of more than 6 percent in India's passenger vehicle market aside from South Korea's Hyundai Motor Co <005380.KS> with 15 percent.

Car makers see success in rural areas as vital, as slow economic growth, high interest rates and rising fuel prices mean overall sales are headed for their second straight year of decline. Though the need for rural sales has been recognized, success could yet prove illusory.

Japan's Honda entered India nearly two decades ago but will still have only 170 dealerships by end-March, compared with market-leading Maruti's current 1,300. Of the 60 sales outlets Honda plans to open in India in the fiscal year that starts in April, 43 will be in small towns.

"It's very easy to travel once in three-four years to a place 100 kilometers away to buy," said Jnaneswar Sen, senior vice president of sales and marketing at Honda India. "It becomes a bit of a hassle for the customer to travel 100 or 150 kilometers every few months to get the car serviced."

Like most foreign carmakers in India, however, Honda is seen as a premium brand, beyond the reach of price-sensitive rural buyers. To expand its potential market, Honda last year launched the entry-levelAmaze sedan, which starts at about 520,000 rupees ($8,300) and has helped it nearly double its market share to 4.7 percent.

Smaller towns and cities account for nearly two-thirds of Amaze sales, the company said.

"Smaller towns and rural areas are a gold mine that foreign automakers are yet to tap efficiently," IHS Automotive analyst Anil Sharma said.

"One of the prerequisites for any automaker to be successful in rural areas would be availability of after-market services. Since the population is more dispersed in rural areas, what we probably need is services like mobile workshops."

Selling foreign cars to rural India remains tough. Deepanshu Rai, who lives in Raigad, a small town about 100 kilometers from Mumbai, said he never considered buying a foreign model when he bought his first car about 10 months ago, an Alto 800 hatchback made by Maruti.

"If you buy a foreign brand, it won't have a service centre everywhere. You may have to travel far even for a small issue," said the 22-year-old Rai, who works for a mapping company.


For Maruti, the opposite is true. Founded in Gurgaon, outside the Indian capital of New Delhi in 1982, Maruti accounts for nearly one in two new cars sold in India.

Though it has drawn on the small-car knowhow of Japan's Suzuki Motor Corp <7269.T>, its majority shareholder, Maruti is seen as so home-grown that in the 1980s, the word "Maruti" was used generically to mean any car.

On narrow rural roads, it's cheap small cars jostle for space with Mahindra's sturdy utility vehicles, tractors, motorbikes and bullock carts, with foreign models scarce. Spare parts, including fakes, are cheap and ubiquitous, and mechanics everywhere can fix a Maruti, keeping maintenance costs down.

Maruti's deep rural penetration has helped it defend its market share amid the industry's two-year downturn. That's despite the onslaught of new models launched by foreign rivals.

Next in line will be Nissan Motor Co's <7201.T> relaunched low-end Datsun brand. At the Delhi auto show Datsun will showcase a hatchback to compete with Maruti's Alto 800, which starts at 280,000 rupees.

Areas with populations of less than 10,000 people account for 31 percent of Maruti's sales so far in the fiscal year that ends in March, said Mayank Pareek, Maruti's chief operating officer for marketing and sales, adding the company began a heavy push to target rural buyers five years ago.

"Unlike urban markets, in the rural markets customers are very loyal. So you get a big first-mover advantage," he said.

General Motors has been selling cars in India since 1996. It has a market share of just 3.5 percent and 273 dealerships, increasing to 300 by the end of the next fiscal year. Most of the new outlets will be in smaller towns and rural areas, said P. Balendran, vice president at GM India.

"With higher growth expected in rural areas as compared with the metros, we expect the share of rural markets in our overall sales increasing in the future," he said.

One thing that is certain in the push by global car makers beyond India's big cities is more choice for the growing number of rural buyers. Until a few years ago, many rural buyers essentially had just one choice to make - the color of their Maruti 800, the hatchback predecessor to the Alto.

Krishnakant Shinde, a farmer in Gove, a village about 250 kilometers from Mumbai, says he was the first in his village to buy a Volkswagen AG <VOWG_p.DE> when he upgraded last October to a Vento sedan from a Maruti Swift Dzire entry-level sedan.

Volkswagen, which has market share of just 2.25 percent in India, said it doesn't plan new outlets in the country this year. But it opened a dealership in Satara, a regional hub about 15 kilometers from Shinde's home, about two years ago.

"Volkswagen the company wasn't new to me, but I didn't buy earlier as I was worried about spare parts and servicing," said Shinde, a sugar cane and dairy farmer.

"Now, since they have opened a showroom and service centre in Satara, I decided to buy."

($1 = 62.4600 Indian rupees)- Reuters- Reuters

Kredit: www.thestar.com.my

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