Irish bailout unnerves investors

Stocks slump on fears that an Irish bank rescue plan won't work. The FBI raids two hedge funds in an insider-trading probe. Apple and Hewlett-Packard are higher.

As Thanksgiving week begins in the United States, investors did not appear to be thankful for the one thing they wanted last week: a solution to the Irish debt problem.

Instead, stocks -- especially financial stocks -- slumped on word that the Irish government has asked the European Central Bank and the International Monetary Fund for billions of dollar of help to support Ireland's ailing banking system.

In addition, worries about an insider-trading probe also weighed on financial stocks.

At 1:50 p.m. ET, the Dow Jones industrials ($INDU) were down 97 points, or 0.9%, to 11,106. The Standard & Poor's 500 Index ($INX)was off 9 points, 0.8%, to 1,191, after finishing just about at the psychologically important 1,200 level on Friday.

Tech stocks, especially Apple (AAPL), were giving the Nasdaq Composite Index ($COMPX) some support. The index was off just 3 points, 0.1%, to 2,515. The Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, was off 2 points to 2,134.

Apple was up 0.7% to $308.39. Hewlett-Packard (HPQ), which reportsfiscal-fourth-quarter results after today's close, was up slightly to $42.49.

The U.S. dollar rose against the euro, forcing crude oil and copper lower. Crude oil for January delivery was off $1.15 to $80.83. Copper was off 9 cents to $3.743 a pound. Gold was up slightly to $1,353.60 an ounce.

Interest rates were lower with the 10-year Treasury yield falling to $2.826% from 2.895% on Friday.

Banks lead the S&P 500 lower
The 30 Dow stocks were lower today, along all 10 sectors of the S&P 500.

Financial and energy stocks were among the worst-performing stocks. The S&P 500 financial sector index off 1.4%. The S&P 500 Financial Sector exchange-traded fund (XLF) was off 2% to $14.56.

Bank of America (BAC) was off 3.4% to $11.27. JPMorgan Chase (JPM)was down 2.9% to $38.25.

Mostly, the declines were due to worries about how the Irish situation might affect banks in other countries. Deutsche Bank (DB), Barclays(BCS), Societe Generale (SCGLY) and other big European financial were all down as well.

Energy shares slumped as oil moved lower. ExxonMobil (XOM) was off 2% to $69.10. Schlumberger (SLB) dropped 1.6% to $75.20.

Goldman Sachs slump on insider-trading probe
Goldman Sachs (GS) was off 3.8% to $160.29 after The Wall Street Journal reported this weekend that the investment house is a focal point a three-year investigation into possible insider-trading networks.

Sources told The Journal that the Securities and Exchange Commission and other federal officials are nearing the end of the probe, which includes whether Goldman Sachs bankers divulged information about health-care acquisitions and other transactions.

Earlier today, FBI agents raided the Connecticut offices of hedge funds Diamondback Capital Management and Level Global Investors amid a far-reaching insider-trading investigation, The Journal said.

An FBI spokesman confirmed the raids.

The hedge funds are run by former managers of Steve Cohen's SAC Capital Advisors.

Level Global Investors is a Greenwich, Conn., hedge-fund firm run by David Ganek, a former SAC Capital trader and art collector. He started Level Global in 2003 and earlier this year reported managing about $4 billion in assets.

Diamondback Capital Management, founded, in 2005, is managing $5 billion in assets.

Bank of Ireland, Allied Irish Banks down after bailout request

European equities markets were lower Monday after Moody’s Investors Service said that it will likely reduce Ireland’s rating by several levels after the nation formally requested a bailout from the European Union over the weekend, all of which made analysts and investors worry that the bailout might not be enough to protect markets, especially with trouble still looming for Spain and Portugal.

As part of the bailout plan, Ireland’s banks could be downsized, merged or sold off, according to reports which left the Bank of Ireland (ISEQ: BKIR) down over 19 percent during the session while Allied Irish Banks (ISEQ: ALBK) dropped 6.2 percent.

Banks were lower in London as well, where the FTSE 100 fell 0.91 percent to 5,680.83 and the FTSE 200 was down 0.28 percent to 10,796.5.

Royal Bank of Scotland Group (LSE: RBS) was down 4.62 percent to lead declines on the 100 and in the banking sector, while Lloyds Banking Group (LSE: LLOY) was 4.18 percent lower.

Others in the financial sector also saw declines, with insurance and pensions provider Standard Life (LSE: SL) down 3.1 percent while Legal and General Group (LSE: LGEN) dropped 2.82 percent.
Over on the 250, investment managers Gartmore Group Ltd (LSE: GRT) fell the most as it declined 10.83 percent.

All miners save two were lower, with Aquarius Platinum (LSE: AQP) down the most as it dropped 3.54 percent and only iron-ore miner Ferrexpo (LSE: FXPO) and Vedanta Resources (LSE: VED) up, adding 0.62 percent and 0.59 percent respectively.

The retail sector was mixed with consumer electronics retailer Kesa Electricals (LSE: KESA) up the most, adding 3.88 percent, followed by a gain of 2.96 percent for sporting goods retailer Sports Direct International (LSE: SPD), while the biggest decline in the sector came for supermarkets chain Sainsbury’s (LSE: SBRY), which was down 1.36 percent.

The travel and leisure sector was also mixed as TUI Travel (LSE: TT) added 3.59 percent to lead gains in the sector and on the 100, while Punch Taverns (LSE: PUB) turned in the worst performance in the sector as it dropped 2.49 percent.

The best performance on the 250, meanwhile, came from boiler and pipeline control valve manufacturer Spirax-Sarco Engineering (LSE: SPX), which added 4.77 percent.

The FTSE Eurofirst 300 was down 0.74 percent to 1,094.02 while the Dax fell 0.31 percent to 6,822.05, the CAC-40 was 1.07 percent lower to 3,818.89 and the IBEX dropped 2.68 percent to 9.996.4.

Asia-Pacific regional markets were mostly higher.

The Nikkei 225 was up 0.93 percent to 10,115.2 in Tokyo, while the Topix index added 0.69 percent to 875.48 and the Mothers market gained 2.31 percent to 382.72 and the yen weakened versus the euro on the news regarding Ireland.

The weaker yen helped exporters, including carmaker Toyota (TYO: 7203), which added 1.1 percent, while manufacturer Kyocera (TYO: 6971) was up 2.4 percent.

The oil sector gained on higher prices for crude oil, with Japan Petroleum Exploration (LSE: 1662) gaining 3.3 percent while Inpex (TYO: 1605) was 3.6 percent higher.

Trader Mitsubishi Corp (TYO: 8058) was up 1.4 percent as oil and metals prices gained.

Central Japan Railway (TYO: 9022) added 0.8 percent, Toshiba (TYO: 6502) was up 1.2 percent and Hitachi (TYO: 6501) was 1.8 percent higher on reports that they are among a group of Japanese companies which will bit to be part of the construction of a high-speed rail system in Florida, in the United States.

Other gainers in the region included South Korea’s Kospi, which added 0.17 percent to 1,944.34.
The Sydney Ordinaries gained 0.3 percent to 4,731.8 in Australia, while the S&P/ASX200 was up 0.31 percent to 4,643.5.

Taiwan’s Taiex added 0.83 percent to 8,374.91 while the Sensex was 1.9 percent higher to 19,957.6 in India.

On the other hand, the Shanghai Composite was down 0.15 percent to 2,884.37, the Straits Times Index was 0.2 percent lower to 3,190.92 and the Hang Seng dropped 0.35 percent to 23,524.

New York markets were lower as the Dow Jones Industrial Average dropped 1.15 percent to 11,074.9 at just before 1 p.m. local time, while the S&P 500 was down 1.07 percent to 1,186.86 and the Nasdaq Composite was 0.52 percent lower to 2,505.06.

Crude oil prices were lower in midday trade, with West Texas Intermediate crude down just over $1 per barrel, while in metals markets precious metals were higher but copper had dropped 8 cents per pound.

Strong corporate sector makes European equities attractive, it is suggested

European equities have delivered strong returns in recent months and have outperformed the world over the past two decades but the region continues to receive bad press as an investment destination, it is claimed.

There is a mismatch between perception and reality yet the strength of the region’s corporate sector means that it is well positioned to continue generating attractive returns in the coming year, according to a new analysis from Stephen Macklow-Smith, portfolio manager within the European Behavioural Finance team at J.P. Morgan Asset Management.

‘As an investment choice, European equities have recently suffered from an image problem, dogged by perceptions of sluggish regional growth, high bureaucracy and poor productivity. And yet, European stock markets have consistently generated strong returns: in fact, over the past two decades, the MSCI Europe Index has steadily outperformed the MSCI World Index,’ he says in a new paper.

It examines why European equities have been consistently strong performers, indicates that export strength has powered an equity rebound and concludes that investors need to reconsider European equities.

‘European companies have been transforming themselves over the last two decades, helping drive consistent outperformance from European stock markets. Worries about deflation and sovereign debt defaults, as well as the chances of Europe suffering a Japan style lost decade, all appear overblown. Instead, the outlook for European equities appears attractive,’ he says.

He points to global leadership in exports, a competitive exchange rate, easy monetary conditions and economic recovery in the core eurozone economies in support of his arguments.

‘The efforts of the eurozone periphery to resolve its debt problems will undoubtedly have an effect on regional growth for some time. However, it is important for investors to remember two things: first, investors invest in corporate earnings, not in GDP growth, and corporate Europe is performing very well. Second, peripheral Europe is only a very small component of the MSCI Europe Index,’ he explains.

‘Of course, the debt crisis did shake confidence in the region, with the euro weakening significantly as the core eurozone was forced to bail out the periphery. But European companies have turned currency weakness to their advantage, with export strength powering a strong rebound in regional industrial activity,’ he adds.

Threadneedle to open in Japan and Taiwan

British fund manager Threadneedle plans to double its staff in Asia and open new offices in Japan and Taiwan as part of efforts to grow its regional presence, newly appointed Asia-Pacific chairman Raymundo Yu said.

‘The first stage will involve distribution and marketing, then analysis, then investment management,"’ said Yu, who was chairman for the Asia Pacific region at Merrill Lynch from July 2000 until his retirement in December 2008.

Yu, 55, added that the new offices in Japan and Taiwan would help complement Threadneedle’s existing operations in Hong Kong and Singapore and double staffing to around 30 from 15 in the next 12 months.

Threadneedle, which manages around $100 billion in assets, is a unit of US financial services firm Ameriprise Financial. Ameriprise also owns US based Columbia, which has about $350 billion. The Threadneedle operations in Asia will market Columbia's asset management services. 

Canada tops G20 for ease of paying bus. taxes: Report

Canada is the easiest place to pay business taxes out of all the G20 nations, according to a study of 183 countries by PricewaterhouseCoopers, the World Bank and the International Finance Corporation.

Canada came in tenth place in the study, first among the G20, which measures the overall ease of paying taxes. It compares the number of tax payments per year, the time taken to compile returns and submit tax payments and companies' total tax liability as a percentage of pre-tax profits.

The country’s total tax rate ranking rose to 37 from 103 in 2009. Business tax rates in Canada have been reduced to a low of 29.2%, compared to 49.1% in 2006, the report said.

"Canada is moving in the right direction," said Lincoln Schreiner, Tax Services partner. "The initiatives introduced by the federal and provincial government are aimed at stimulating economic growth, and restoring confidence following the global economic recession."

The study found that countries around the world have focused on improving their corporate tax regimes to improve the rate of collection and to help improve their attractiveness as a place to do business after the recession.

In the past year, 40 economies have made it easier to pay taxes, with Tunisia improving the most. In all, 90 economies have reduced taxes on corporate profits since 2006.

Canada has improved its tax system through the introduction of the Harmonised Sales Tax in British Columbia and Ontario, mandatory online tax returns for some companies with annual revenue of more than $1 million and the potential consolidation of federal and provincial corporate tax returns, the study said.

Despite the changes, Canada’s small businesses say red tape is still costing too much.

A report by the Canadian Federation of Independent Business earlier this year estimated that companies spend more than $30.5 billion annually to comply with regulation, much of it on tax-related matters.

World Bank response system slow: report

Organisations within the World Bank Group of multilateral lenders underestimated implementation challenges and responded to the crisis with “some delay,” according to the Independent Evaluation Group (IEG).

The IEG, an independent body reporting to the Board of Executive Directors of the World Bank rather than Bank management, presented its evaluation of the Bank's activities in a report released this week entitled Word Bank Group Response to the Global Economic Crisis.

While it commended the Bank for demonstrating “preparedness based on its knowledge of poverty impacts, long-term dialogue with country authorities, and ability to expand lending,” it also cautioned that there was a need to strengthen the Bank's ability to act quickly in the event of such crises and its preparedness to carry out financial sector interventions.

The IEG also faulted the private sector arms of the Group, the International Finance Corporation and the Multilateral Investment Guarantee Agency, for, respectively, giving priority to protecting its portfolio and for not producing a significant uptake in crisis response outside Eastern Europe.

Speaking to The Hindu about some of the results of the crisis in India and the impact of the Bank's response Vinod Thomas, Director-General of the IEG, said that in India “the global economic crisis triggered a chain of adverse events, starting with a slowdown in India's exports, which spread to production and investment.”

Overall, Mr. Thomas said, India's growth slowed down across all sectors, with the growth rate falling from a peak of 9.7 per cent in 2006–07 to 6.7 per cent in 2008-09. He said the Bank's Global Economic Prospects Report forecasted India's growth as 8.5 per cent in 2010 and nine per cent in 2011.

In terms of the poverty impact, Mr. Thomas told The Hindu that “even with a quick recovery, the crisis will result in an additional 12 million... living on less than a $1.25 a day by 2015.”

However, he added that during the crisis, the World Bank's 2009-2012 country strategy focused on inclusive growth, infrastructure, and the effectiveness of service delivery. Thus, he noted, even as India became the largest single borrower from the World Bank in fiscal 2010, the Bank earmarked $3 billion to support India's domestic response to the crisis.

Notwithstanding the IEG's criticism, Mr. Thomas lauded the Bank's interventions. He said, “The World Bank Group's response has fitted the nature of the crisis – which called for a fiscal expansion to compensate for sharply declining trade and private capital flows.”

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