Global Markets

Spain's Debt Rating Faces Moody's Downgrade, Puts Country on Eurozone Bailout Watch

Moody's Investors Service (NYSE: MCO) yesterday (Wednesday) said it might downgrade Spain's debt rating due to concerns about high borrowing costs, the poor financial state of its banks, and the country's regional debt.

The ratings firm said the country's vulnerability to refinancing needs in 2011 is triggering weak market confidence.

"Spain's substantial funding requirements, not only for the sovereign but also for the regional governments and the banks, make the country susceptible to further episodes of funding stress," said Moody's analyst Kathrin Muehlbronner.

The country currently has an Aa1 rating from Moody's, which was cut from Aaa in September. The news came a day before a planned bond sale of up to 3 billion euros ($4.01 billion), and at a time when Spain needed to bolster investor confidence in its ability to fix its financial woes.

"The news is another negative for Spain, and only makes tomorrow's Spanish bond auctions even more tricky," Niels From, chief analyst at Nordea Bank AB in Copenhagen, told Bloomberg. "Spain is already struggling to convince market participants that the country can put its own house in order itself."

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Chinese IPOs Making Waves in the Market, but Beware of Bubbles

Record fundraising activity in the market for initial public offerings (IPOs) is pushing valuations for Chinese companies to sky-high levels, raising concerns about a possible bubble.

IPOs are likely to raise more than $300 billion for issuers worldwide in 2010, exceeding the previous record of $295 billion in 2007, despite the sluggish economic recovery in Western markets.

In the first 11 months of 2010, IPOs worldwide already raised $255.3 billion in 1,199 deals, according to a "Year-end Global IPO Update" report from Ernst & Young.

And the red-hot Asian markets, led by China, continued to lead the recovery, raising the most capital ever. Asian issuers have raised $164.5 billion so far this year – already surpassing the $98.2 billion raised in the peak fundraising year of 2006 and accounting for 64% of total global IPO value so far in 2010.

That's more than four times the $40 billion in IPOs completed by the second-ranked North American market. Europe was third, raising $32.8 billion, far outdistancing the Middle East and Africa's $5 billion.

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Sinopec Continues China's Latin American Energy Moves With $2.45 Billion Argentina Deal

China's state-run oil and gas giant China Petroleum & Chemical Corp. (Sinopec) (NYSE: SNP) on Friday announced it would buy Occidental Petroleum Corp.'s (NYSE: OXY) Argentine operations for $2.45 billion, a key sector move highlighting the growing trend of China's increased presence in Latin America's valuable energy properties.

The properties produce about 44,000 barrels of oil equivalent a day. Sinopec said in a statement the purchase would "prove significant in cementing economic ties and boosting trade between China and Argentina."

China's continued venture into the Latin American energy industry has led the country to spend more than $15 billion in deals there this year, with more likely to come.

"There is not a single CEO of a major oil company in Latin America, not one, who has not been approached by the Chinese," a M&A banker at a western bank told the Financial Times.

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Cyberwar Threat from WikiLeaks Hackers Overblown

WikiLeaks supporters have unleashed disruptive cyber attacks on a number of Web sites to get revenge on companies disassociating from the controversial non-profit media group and its founder, Julian Assange.

Since Nov. 29 WikiLeaks has released 250,000 confidential documents detailing U.S. diplomatic interactions with other nations, prompting a number of companies to cut ties with the group – though none have claimed government pressure encouraged them to do so.

The release has caused a freedom of information debate, with some supporting the documents' release and others calling it an act of terrorism.

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U.S. & Euro Regulators Move to Curb Commodity Speculators

U.S. and European Union (EU) regulators are vowing to step up scrutiny on the size and volume of commodity market bets as debate continues to rage about whether excessive speculation is driving up prices on energy, metals and agricultural products.

In an unprecedented rush, investors have pushed a total of $121.2 billion into commodities since the beginning of 2009, according to Barclays Capital. Hedge funds, pension funds and mutual funds in the United States have boosted their positions on oil, silver, corn and wheat to record highs in 2010.

In some commodities, the number of futures contracts outstanding now far outpaces the numbers traded in mid-2008, when commodity market prices shattered records. As a result, regulators in the United States and Europe are considering proposals on how to prevent the so-called speculators from manipulating the markets.

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Four Ways to Sidestep Ireland's Woes and Profit from the EU's Economic Muscle

The $100 billion-plus bailout of Ireland, which followed the $100 billion-plus bailout of Greece, seems at first to validate the standard U.S. view of Europe – that it's a bunch of backward, socialist countries that will be washed away by the tide of history.

According to this view, one European country after another will succumb to the "Greek disease," until the continent ultimately runs out of bailout money.

The conventional wisdom is that U.S. investors should just avoid the European Union (EU) in its entirety.

But U.S. investors who embrace this view – and ignore the economic muscle that exists in key European market economies – will end up leaving an awful lot of money on the table.

For four investment plays that will let investors profit from the EU, please read on...

Debt Crisis Rattles Irish Government as EU Scrambles to Prevent Contagion From Spreading

Ireland's debt crisis has destabilized its government and is fueling speculation that the $118 billion (85 billion euros) bailout may not be enough to keep it from spreading to other Eurozone countries including Portugal, Spain and Italy.

Nervous financial markets yesterday (Tuesday) continued to suggest global investors lack confidence that some governments will be able to manage their debt and cast doubt on the European Union's (EU) ability to contain the crisis.

London Timesthe bond markets are comparable to "hearse chasers" who would soon "take Portugal and Spain to task."

EU leaders tried to calm the markets and issued assuring statements that Ireland's bailout will halt contagion in the euro region, but investors focused on Portugal, which hasn't cut government spending and for years has been mired in sluggish economic growth.

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United Nations Warns of Food Price Hikes, Painting a Picture Similar to 2008's "Silent Tsunami"

The United Nations' Food and Agricultural Organization (FAO) yesterday (Wednesday) warned that food prices could rise through 2011 unless production of major crops rises significantly, outlining a situation reminiscent of 2008's "silent tsunami" food crisis.

The FAO announced in its twice-yearly Food Outlook report that global food import costs will jump 15% in 2010 to $1.026 trillion – dangerously close to the 2008 crisis level of $1.031 trillion. The world food import outlook was revised up from a June estimate of $921 billion.

Increasing global demand is boosting the food bill, and price climbs in grain and sugar – which recently passed its 30-year peak – have signaled even higher prices ahead.

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Chile: The One Emerging Market That Investors Can't Afford to Ignore in 2011

When I review each of the world's emerging markets in order to decide which ones to buy in 2011, I start with two questions:

  • Is the market cheap?
  • And has it under-performed over the past year?

If the answer is "yes" for both those questions, that market is much more likely to get my vote.

But with every rule, there are also exceptions. As we will see.

To discover the one market you can't afford to ignore in the New Year, please read on...

China's Continued Failure to Rebalance Growth Threatens Global Economic Stability

China announced yesterday (Wednesday) that its trade surplus grew 60.7% in October from the month before as efforts to rebalance its economic growth this year have failed. Furthermore, recent policy tightening measures mean domestic demand is unlikely to pick up in the near future.

"The rebalancing of China's economy has an awfully long way to go – in fact it's hardly even got started," Mark Williams, an economist at Capital Economics Ltd. who previously worked at the U.K. Treasury as an adviser to China, told Bloomberg. "In normal circumstances, the world might be willing to wait, but not when the likes of the U.S. are struggling with very high unemployment."

In a sign China's export-driven growth has not shifted to an increase in domestic consumption, China's trade surplus hit $27.15 billion last month, up from $16.9 billion in September. Exports rose 22.9% in October from the year before and imports climbed 25.3%. The trade surplus was slightly higher than expectations of $26.4 billion, according to a poll reported by Dow Jones Newswires.

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