The Wall Street Journal Asia No. 127 dated Wednesday, March 02, 2011

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As of 11 a.m. ET

DJIA 12205.49 g 0.17% FTSE 100 5935.76 g 0.97%

Nikkei 225 10754.03 À 1.22% Shanghai Comp. 2918.92 À 0.47% Hang Seng 23396.42 À 0.25% Sensex 18446.50 À 3.50% S&P/ASX 200 4826.40 g 0.11%

Why the dollar's reign is near an end

VO L . X X X V N O. 1 27

Change from a year earlier in Japan’s consumer prices

3%

(India facsimile Vol. 2 No. 188)

1 0 –1 –2 –3

1990s

2000s

Source: Japan’s Ministry of Internal Affairs and Communication

Wednesday, March 2, 2011

ASIA

asia.WSJ.com

Japan’s Nikkei Stock Average

The lost decades Japan’s falling consumer prices have gone handin-hand with weak stocks and a soft economy.

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Bank of Japan Governor Masaaki Shirakawa

20000

Ko Sasaki for The Wall Street Journall

SK. MENPEN R.I. NO: 01/SK/MENPEN/SCJJ/1998 TGL. 4 SEPT 1998

Australia: A$6.00(Incl GST), Brunei: B$7.00, China: RMB25.00, Hong Kong: HK$18.00, India: Rs25.00, Indonesia: Rp18,000(Incl PPN), Japan: Yen500(Incl JCT), Korea: Won2,500,

MICA (P) NO. 164/10/2010

Malaysia: RM6.00, Pakistan: Rs140.00, Philippines: Peso80.00, Singapore: S$4.00(Incl GST), Sri Lanka: Slrs180(Incl VAT), Taiwan: NT$60.00, Thailand: Baht50.00, Vietnam: US$2.50

KKDN PP 9315/10/2011 (026992)

THE JOURNAL REPORT: FOREIGN EXCHANGE Pages R1-R8

10000

0

1990s

2000s

Source: WSJ Market Data Group

BOJ chief hits out at critics BY JON HILSENRATH AND MEGUMI FUJIKAWA TOKYO—The Bank of Japan has been stung for years by charges of intransigence in responding to this nation’s moribund economy. Now it is punching back. Masaaki Shirakawa, the BOJ’s bookish, rail-thin governor, is on an unapologetic campaign to make a case that might surprise his detractors: The Japanese central bank is in fact a misunderstood pioneer of innovative monetary

U.S. probes Sands

policies meant to combat price deflation, such as nearzero interest rates and aggressive securities purchases, that other big central banks now are trying. And it continues to seek ways to push the boundaries of monetary policy by trying to reawaken Japan’s animal spirits. In an apparent paradox, he also makes the case that these policies don’t always work, and he is now focused on trying to redefine the way economists understand deflation, a debilitating drop in con-

China Beijing appeared to reinstate restrictions on foreign journalists as the government tried to stifle calls for a “Jasmine Revolution.” Page 4

lated notes. U.S. Fed Chairman Ben Bernanke, when he was at Princeton, was among those lecturing the Japanese for being too timid. He has since told associates he regrets his sometimes-harsh tone then. Mr. Bernanke had an opportunity to explain his own policies Tuesday, when he gave his semiannual testiPlease turn to page 12 Bernanke on inflation.............. 3 Shirakawa opens up................. 4

Youku rides euphoria, but growth path unclear BY LORETTA CHAO

Casino operator Las Vegas Sands said U.S. authorities are investigating its compliance with foreign anticorruption laws related to its Macau operations. Page 15

sumer prices across the economy. He argues that the Bank of Japan’s hands are tied because weak consumer spending and business investment are related as much to the country’s declining population, which the bank can’t control, as to money supply, which it can. “I have a lot of frustration with simplistic criticism,” Mr. Shirakawa said in a lengthy interview with The Wall Street Journal in a meeting room near his office, armed with stacks of carefully col-

BEIJING—Online video company Youku.com Inc. narrowed its loss in its first quarter as a publicly traded company—a period that has illustrated enthusiasm as well as uncertainty about China’s Internet sector. Youku’s debut on the New York Stock Exchange Dec. 8 was the strongest first-day performance for a stock in the U.S. in five years. The company’s shares more than tripled over the first two days of trading from their initial offer price of $12.80, but have oscillated between $50 and less than $30 each since. Beijing-based Youku on

Tuesday reported a fourthquarter net loss of 37.7 million yuan ($5.7 million), or 0.89 yuan (13 cents) per American depositary a share, compared with a loss of 46 million yuan, or 2.26 yuan a share, a year earlier. Executives haven’t said when they expect Youku, which raised about $200 million in its initial public offering and has a market value of about $4 billion, to turn a profit. Youku shares were down $2.57, or 6.6%, at $39.02 Tuesday morning in New York. Other Chinese Internet companies with similarly high levels of interest include instant-messaging and games

OPINION: How to get tough with Libya’s thugs Pages 9, 11

company Tencent Holdings Ltd., which has a market cap of nearly $50 billion—more than double that of Yahoo Inc. though it generates less than half the revenue. Meanwhile, Baidu Inc., China’s largest search engine, trades at nearly 50 times its earnings for the year. And Oak Pacific Interactive, operator of social-networking site Renren.com and shopping-deals site Nuomi.com, plans to raise as much as $1 billion in a Hong Kong IPO this half. “I think there is a reasonable premium you can apply to any company that is in the nexus of both a rapidly growing industry and a rapidly Please turn to page 19

Libyan rebels repel attacks on oil center Government opponents in the oil city of Al-Zawiya repelled an attempt by forces loyal to Libyan dictator Col. Moammar Gadhafi to retake the city closest to the capital, and rebels in two other opposition-held cities also held off pro-Gadhafi forces, witnesses By Margaret Coker in Tripoli, Libya, and Charles Levinson in Benghazi, Libya said Tuesday. Antiregime forces have been fighting to consolidate their gains as the international community weighs new moves to isolate the longtime Libyan leader, including the possibility of creating a no-fly zone over Libya. Witnesses in Al-Zawiya said pro-Gadhafi forces battled rebels for six hours overnight but couldn’t retake control of the city 50 kilometers west of Tripoli. They said the last of several assaults by the Gadhafi loyalists came at around 3 a.m. local time.

Rebels also fought to retain control of Misrata—Libya’s third-largest city, 200 kilometers east of Tripoli—and Zintan, 120 kilometers south of the capital. “Allahu Akbar [God is great] for our victory,” residents of Al-Zawiya chanted as they paraded through the city’s main square. Some carried on their shoulders an air force colonel they said had just defected to the rebels’ side. “We were worried about air raids but that did not happen,” said one resident. The Al-Zawiya rebels, who include mutinous army forces, are armed with tanks, machine guns and antiaircraft guns. They fought back proGadhafi troops, armed with the same weapons, who residents say attacked from six directions. There was no word on casualties. “We will not give up AlPlease turn to page 14 Yemen leader blames Obama for stoking Arab unrest ...... 14

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THE WALL STREET JOURNAL.

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Wednesday, March 2, 2011

PAGE TWO

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What’s News—

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is in jeopardy due to a stalemate with House Republicans. 6

Business & Finance n Federal Reserve Chairman Ben Bernanke said the U.S. central bank is prepared to fight inflation, although expectations are not for a sustained price rise. He also defended the Fed’s policies and blamed demand for commodityprice increases. 3

n Carl Huttenlocher, head of Highbridge Capital Management’s Asia investments, is leaving the hedge-fund firm. He oversaw about $2 billion in assets. 22 n A new rule that would allow Americans and other foreign individuals to buy Indian mutual funds may not find takers anytime soon. 20

n World-wide manufacturing jumped in February, as U.S. manufacturing activity turned in its best performance since May 2004 and similar data from Asia indicated regional growth is intact. 6

n The Hong Kong-based Woo family bought an 8% stake in Italian fashion house Ferragamo. 17

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n Japan’s Kan passed his first full-year budget through parliament, but the prime minister is far from securing the survival of his government beyond the next few weeks. 3

n The EU’s highest court declared illegal the widespread practice of charging men and women different rates for insurance. 21 n Rajat K. Gupta, who headed McKinsey from 1994 to 2000, was charged with insider trading in a civil administrative proceeding filed by the U.S. SEC. 20 n Goldman Sachs said it could lose up to $3.4 billion in litiga-

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n Yemen’s president accused Obama of fomenting unrest in the Arab world, an unusually vociferous move from a leader who has been receiving millions of dollars in military aid from the U.S. to fight a local arm of al Qaeda. 14 n Beijing widened a corruption probe to include a senior Railways Ministry engineer involved in China’s $300 billion high-speed rail project, a month after the removal of the railways minister. 5

n In a sign that Japan’s privateequity market could be coming back to life, U.S. firm Carlyle Group said it agreed to buy manufacturer Tsubaki Nakashima from a unit of Nomura Holdings. 16

n China appeared to reinstate some restrictions on foreign journalists lifted ahead of the 2008 Beijing Olympics, barring reporting from areas where online activists have called for protests. 4

Agence France-Presse/Getty Images

n Japan’s auto sales fell 14% in February as the end of government grants to spur sales continued to weigh on demand. 17

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Business & Finance: Gap takes aim at Japan market. 15

World-Wide

n Las Vegas Sands said it is being investigated by U.S. authorities regarding its compliance in Macau with the Foreign Corrupt Practices Act. 15

n GM and Toyota said their U.S. auto sales rose at least 42% in February, raising hopes the auto industry will report one of its strongest showings in months. 17

Inside

Fashion: Christian Dior moves to fire designer John Galliano. 16

n Russia plans to install antiship and antiaircraft missiles on the Kuril Islands, a move likely to heighten tensions with Japan, which claims the territories.

The Tokyo Sky Tree project, a transmission tower under construction in Tokyo, is the world’s tallest freestanding broadcast structure, the owner said. The tower is 601 meters tall, and when completed later this year it will stand at 634 meters, Tobu Tower Sky Tree Co. said. tion-related matters involving securities it underwrote for which the purchasers are suing to recover losses or to force the firm to buy them back. 21

n Indonesian inflation unexpectedly slowed in February due to easing food prices, but some analysts still expect the central bank to raise its policy rate Friday. 6

n Daiichi said it will spend $805 million to buy privately held California drug maker Plexxikon. 17

n Obama’s effort to win U.S. congressional ratification by July of a free-trade deal with South Korea

n Tensions escalated in Iran as antigovernment protests erupted across the nation in reaction to the arrest of opposition leaders. n A Vietnamese dissident was released on bail after calling for a revolution inspired by Mideast protests, state-run media said.

Corporate News: Small firms find cash lifeline in China. 18

n China filed a case with the WTO over U.S. antidumping measures against Chinese shrimp.

ONLINE TODAY Most read in Asia

1. China Mobilizes Against Activists 2. Yen Level ‘Not Working as Additional Risk Factor’ 3. No-Fly Zone Eyed in Libya 4. Where Have the Good Men Gone? 5. Inflation Prompts Subsidy Spree

Scene

blogs.wsj.com/scene

Driver’s Seat

Hollywood readies for a fight as China focuses on the development of film and television production.

‘Do what you love doing.’ If you hate your job, ‘you’re going to come home angry and depressed.’ GM executive Diana Tremblay on her work-family juggle

Most emailed in Asia 1. Inflation Prompts Subsidy Spree 2. Oil’s Rise Threatens Economic Growth 3. Why Chinese Mothers Are Superior 4. Opinion: An Embarrassment of Riches 5. Sweating Out a Fever

The Juggle

blogs.wsj.com/juggle

Rolls-Royce reveals a photo of its electricpowered Phantom ultraluxury sedan. blogs.wsj.com/drivers-seat

Heard on the Street: China SAFEly diversifies reserves. 28 THE WALL STREET JOURNAL ASIA Dow Jones Publishing Company (Asia) 25/F, Central Plaza, 18 Harbour Road, Hong Kong Tel 852-2573 7121 Fax 852-2834 5291 www.wsj-asia.com SUBSCRIPTIONS and Address Changes, please telephone our local customer service hotline, Hong Kong/Taiwan: 852-2831 2555; Beijing: 86-10 6581 4090; Shanghai: 86-21 5836 8228; Indonesia: 62-21 527 7592; Japan: 81-3 6269-2760; Korea: 82-2 756 1695; Malaysia: 60-3 2026 4061; Philippines: 63-2 848 5873; Singapore: 65-6415 4000; Thailand: 66-2 652 0871; India: 91-11 6462 0215. Or email: [email protected] ADVERTISING SALES worldwide through Dow Jones International. Hong Kong: 852-2831 2504; Singapore: 65-6415 4300; Tokyo: 81-3 6269-2701; Frankfurt: 49 69 29725390; London: 44 207 842 9600; Paris: 33 1 40 17 17 01; New York: 1-212 659 2176. Or email: [email protected] Trademarks appearing herein are used under license from Dow Jones & Company. USPS 337-350ISSN 0377-9920

Wednesday, March 2, 2011

THE WALL STREET JOURNAL.

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WORLD NEWS

Fed alert for inflation

Borrowed time Japanese government bonds issued, in trillions of yen ¥50 Construction bonds

Deﬁcit-ﬁnancing bonds

Bernanke doesn’t expect sustained price rise, defends bank’s policies

30

BY MICHAEL R. CRITTENDEN AND IAN TALLEY

20 10 0

FY2001 ’02

’03

’04

’05

Note: Fiscal years starting April 1

’06

’07

’08

’09

’10

’11

Source: Ministry of Finance, Japan

Japan passes budget but new tests loom BY YUKA HAYASHI TOKYO—Japanese Prime Minister Naoto Kan passed his first fullyear budget through parliament Tuesday, but he is far from securing the survival of his government beyond the next few weeks. Mr. Kan’s hold on power has grown shakier in recent days as he has struggled on two fronts. Opposition parties have refused to engage in discussions over how to find money to execute the new budget. Meanwhile, confrontation with members of his own ruling party has intensified, raising the specter of a breakup. Unless he can break the logjam by the end of March, Mr. Kan could be forced out, becoming the sixth prime minister to vacate the top government job in less than five years. Alternately, Mr. Kan could try to hold on to power by calling general elections two years ahead of schedule, risking a huge potential defeat of his ruling Democratic Party of Japan.

Unless he can break the budget logjam by the end of March, Prime Minister Kan could be forced out. Either way, with few prospects for the establishment of a steady government that could control the legislative process, Japan’s political paralysis would likely deepen. That would fuel concerns about the future of its economy, already weighed down by government debts and the soaring costs of the aging and shrinking of the population. Two major U.S. rating agencies recently lowered their views on Japan’s sovereign debts, citing the government’s inability to solve its fiscal problems. “The chance of Prime Minister Kan surviving the current political crisis is small,” said Koichi Nakano, associate professor of political science at Sophia University in Tokyo. “He is facing strong calls to quit, the kind that can hardly be reversed once started.” The prime minister’s plight was highlighted Tuesday, as 16 DPJ lawmakers failed to show up for an important session at the lower house to vote on the government’s budget plan for the new fiscal year starting April 1. These members are close to former party chief Ichiro Ozawa and have been protesting the party brass’s recent decision to distance themselves from the scandal-tainted senior lawmaker. The row represents the growing

divide within the DPJ, a center-left party made up of politicians with eclectic backgrounds and political views. Facing the nation’s tough fiscal and economic conditions, Mr. Kan and other party leaders are increasingly leaning toward fiscal consolidation and growth-oriented policies such as trade liberalization. That, with the banishment of Mr. Ozawa, has alienated others in the party. Those members, who include Mr. Ozawa, prefer to stick with the party’s original campaign pledges in 2009 for steps to prop up households through direct handouts. The infighting has disappointed voters, who propelled the DPJ to power with an overwhelming mandate just a year and a half ago. According to a poll published Monday by the Nihon Keizai Shimbun economic daily, the support rating for Mr. Kan’s cabinet slumped to 22%, a new low. On Tuesday, the main opposition party threatened to bring a no-confidence vote against the prime minister in the upper house, where the DPJ lacks a majority. Members of the Liberal Democratic Party complain that the DPJ rammed the budget plan through the DPJ-controlled lower house. Japanese law ensures that the national budget becomes automatically effective 30 days after the lower house’s approval even if the upper house votes it down. But the opposition-controlled upper house’s approval is needed for a separate bill to issue bonds that would fund the budget. “I’ve thought passing and executing the budget was the most pressing task for us, so I am filled with gratitude,” a smiling Mr. Kan said after the lower house approved the budget. When asked about the 16 members’ absence, Mr. Kan called it “disappointing.” Other tax-related bills likely to face opposition include legislation to implement a 5% cut in the corporate income-tax rate promised by the ruling party last year as an economic stimulus step. Markets are closely watching the fate of the budget-related bills as an indication of the government’s ability to manage the increasingly difficult fiscal situation. Failing to approve the deficit-financing bills could trigger harmful rises in the yields of Japanese government bonds, given the growing jitters about sovereign risks around the world. “If the government runs out of cash, how would the bond market react?” asked Taro Kono, an opposition lawmaker. “They may completely ignore us, but it’s a risk we can’t afford to take.” —Toko Sekiguchi contributed to this article.

Federal Reserve Chairman Ben Bernanke said Tuesday the U.S. central bank is ready to respond to a surge in global commodity prices, though he said inflation expectations remain low. Appearing before a Senate panel to deliver his semiannual report on the state of the economy, Mr. Bernanke reiterated that the U.S. economic recovery is gaining traction even as job growth and the housing market remain weak. The Fed projects U.S. gross-domestic-product growth in a range of 3.5% to 4% for 2011, Mr. Bernanke said, and there may be reason for optimism on the jobs front in the coming quarters. Mr. Bernanke, who appears both Tuesday and Wednesday on Capitol Hill to discuss the economy, used his testimony to underscore the Fed’s close focus on the politically volatile subject of inflation. While the central bank continues to project low inflation levels for the next several years, he acknowledged the uptick in a number of headline commodity prices since summer. While these increases are most likely to result in “at most, a temporary and relatively modest increase” in higher prices for U.S. consumers, Mr. Bernanke made clear the Fed won’t hesitate to act if a sustained rise in oil or other materials threat-

ens the economic recovery. “We will continue to monitor these developments closely and are prepared to respond as necessary to best support the ongoing recovery in a context of price stability,” Mr. Bernanke said. He told lawmakers that rising gas prices don’t currently pose a significant risk to the economy. He also played down the role the Fed has had in the surge in global prices, continuing the central bank’s offensive against criticisms that its accommodative stance and quantitative-easing efforts are contributing to spikes in commodity prices. Noting that unrest in the Middle East has caused oil and gas prices to rise in recent weeks, Mr. Bernanke said it is global demand—particularly from some emerging-market economies—that is to blame. “Commodity prices have risen significantly in terms of all major currencies, suggesting that changes in the foreign-exchange value of the dollar are unlikely to have been an important driver of the increases seen in recent months,” he said. Still, he did say the Fed’s various efforts to pump money into the U.S. economy over the past several years appear to have been successful. While some foreign officials have been critical of the Fed’s announcement last year of a $600 billion bond-buying plan, known as QE2, Mr. Bernanke said market indicators

suggest the economic outlook has improved since its unveiling. “Of course, it is too early to make any firm judgment about how much of the recent improvement in the outlook can be attributed to monetary policy, but these developments are consistent with it having had a beneficial effect,” he said. In a nod to concerns from some on Capitol Hill about the Fed’s exit strategy, Mr. Bernanke repeated his position that the Fed has a number of tools to tighten monetary policy when appropriate. In response to questions, he said the Fed will be judging in the next few months whether the current economic recovery is self-sustaining enough for the bank to start to pull back its stimulus efforts. Mr. Bernanke said the Fed can’t stay “too easy too long” and must act before some economic indicators—such as full employment—reach acceptable levels. Lawmakers questioned the central bank chairman extensively about the U.S. deficit. Mr. Bernanke told the Senate Banking Committee the No. 1 long-term problem facing the U.S. economy is the mounting federal debt and deficit, though he shied away from supporting specific proposals. “It is certainly something that needs to be addressed to get us back on a sustainable path,” over the next five to 15 years, he said. —Jon Hilsenrath contributed to this article.

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THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

WORLD NEWS: ASIA

BOJ’s Shirakawa ponders academic career left behind

Associated Press

A security guard stands watch Tuesday in an area of Beijing that is now off limits to foreign journalists working in China.

China tightens leash on foreign journalists China appeared to reinstate some restrictions on foreign journalists that were lifted in the run-up to the 2008 Beijing Olympics as the government tried to stifle online activists’ calls for a “Jasmine Revolution.” By Jeremy Page in Beijing and James T. Areddy in Shanghai Dozens of foreign reporters have been told by Chinese police officers in the past few days that they require special permission—or are completely forbidden—to report from areas of Shanghai and Beijing where activists have called for silent “strolling” protests. Chinese Foreign Ministry spokeswoman Jiang Yu on Tuesday said regulations on foreign reporters’ interviews haven’t changed, citing a government order that says only that the consent of the subject individual or company is required. But she also said local governments can implement “specific operating details” of the rules to ensure an “unhindered interview environment.” Police in Shanghai summoned a Wall Street Journal reporter Tuesday and told him that the government of the city’s Huangpu district had decided the area around the Peace Cinema, one of the designated protest sites—and adjacent to the central People’s Square—was now off limits to foreign reporters. “From now on do not go to those places to do reporting,” the officer said. Another Wall Street Journal reporter was told by police Sunday that he needed special permission to report from the designated protest site in Beijing, a McDonald’s outlet on the central shopping street of Wangfujing. On that street Sunday, police detained and assaulted several foreign reporters; one working for Bloomberg television was grabbed by five plainclothes officers, dragged along the ground by his leg, punched in the head and beaten with a broomstick. “This is the worst aggression against the foreign press we’ve seen

since the Olympics in 2008,” said Bob Dietz, the Asia coordinator for the Committee to Protect Journalists. “Such a heavy-handed response discredits the ruling Chinese Communist Party and highlights their fear of popular opposition.” When asked if the regulations have reverted to their pre-Olympics state, the Foreign Ministry’s Ms. Jiang said the government order that allows journalists to interview anyone who consents is still in effect. Jon Huntsman, the U.S. ambassador to China and potential Republican presidential contender, issued a statement Monday saying he had met several foreign reporters who were “illegally detained or harassed” on Sunday. “This type of harassment and intimidation is unacceptable and deeply disturbing,” said Mr. Huntsman, who angered some Chinese nationalist bloggers by appearing at the Beijing protest site on Feb. 20, the first Sunday on which activists urged people to gather. The U.S. Embassy said he was there by coincidence. “I am disappointed that the Chinese public-security authorities could not protect the safety and property of foreign journalists doing their jobs,” he continued. “I call on the Chinese government to hold the perpetrators accountable for harassing and assaulting innocent individuals and ask that they respect the rights of foreign journalists to report in China.” In a similar statement issued after meeting foreign reporters, the European Union’s delegation in China urged authorities to respect foreign journalists’ rights. Meanwhile, anonymous online activists issued fresh protest appeals through Twitter and other foreign websites, which are blocked in China but visible to wealthier urbanites who use proxies and virtual private networks to circumvent Web filters. One called for protests in 35 cities every Sunday, and another urged people not to go to work or school on Fridays. It was unclear who was behind

the appeals. While the earlier ones don’t appear to have generated many actual protests, it was hard to tell because many of the designated sites are busy shopping areas that are usually crowded on Sundays anyway. But the strong response by China’s security services to the calls for protest suggests how concerned the country’s leaders are about the potential for unrest and demonstrates the extent of the Internet and physical controls they rely on to maintain the Communist Party’s monopoly on power. The new police restrictions on foreign reporters appear to contradict a pledge made ahead of the 2008 Beijing Olympics to allow reporters to work anywhere in China and interview anyone who consents. Special permission remains required to report from Tibet. Some reporters were barred from visiting certain areas affected by the Sichuan earthquake in 2008, but the central government said that was because local authorities were unaware of the regulation. Reporters for Chinese media organizations are on a much tighter leash than foreign correspondents, who are required to have journalism visas approved by the Foreign Ministry and issued by local police departments but aren’t subject to direct controls over what they publish. A 1992 assault by plainclothes Chinese security officers left Todd Carrel, a reporter for U.S. network ABC with permanent back injuries. He was attacked in Tiananmen Square while covering the third anniversary of the 1989 crackdown on pro-democracy protests there. Ms. Jiang said that Beijing police “properly handled” the incidents at Wangfujing and that they gave clear explanations to journalists at the scene. She also said that the Bloomberg journalist reported the attack on him to police in Beijing’s Dongcheng District and that the police will investigate it in accordance with regulations. —Owen Fletcher in Beijing contributed to this article.

Masaaki Shirakawa is arguably the most powerful man in Japan—and perhaps the country’s least-known public figure. The strait-laced, low-key Bank of Japan governor usually speaks in a scholarly monotone, even when discussing the subject he’s known to be most passionate about: central banking. In 80 minutes with The Wall Street Journal/Dow Jones Newswires Friday, Mr. Shirakawa opened up a touch. He called Milton Friedman’s “A Monetary History of the United States” “one of my favorite reads.” He said time constraints forced him to give up golf, and now he swims once a week. He professed admiration for Naoko Takahashi, Japan’s gold medal marathon runner in the 2000 Sydney Olympics. She’s known as Q-Chan, and some BOJ staff have given Mr. Shirakawa the same nickname, comparing his indefatigable ability to hold marathon meetings to her famous endurance. While Mr. Shirakawa showed no signs of self-doubt about how he and his colleagues have battled deflation—the only “mistake” he felt the BOJ had made over the past quarter-century was in letting the bubble inflate too far in the 1980s—he did admit to harboring some questions about a crucial early career decision: giving up his Ph.D. at the University of Chicago to continue his work at the BOJ. As he recalled it: “At that time I was 26 or 27 years old, and…I didn’t expect to become excited about studying at Chicago. But…studying at Chicago was so exciting. And I wanted to continue to study to get a Ph.D. degree. But in those days, the bank didn’t understand the meaning of a Ph.D., frankly speaking. Therefore I was faced with the difficult choice of going back to the Bank of Japan or quitting the Bank of Japan. Since I didn’t have courage I decided on going back to the Bank of Japan.” While he said he quickly got caught up in his BOJ work, he

added: “I don’t know if my decision was right. If I decided differently, my career would of course have been different. And that life would also be the exciting one. So I can’t compare the current situation with the other option.” —Jacob M. Schlesinger

Nintendo 3DS: nearly sold out in Japan? It may come with a health warning, but Nintendo Co.’s 3DS game system nearly sold out its first batch of shipments to retail outlets in the first two days since the new 3-D portable game machine debuted in Japan on Saturday, according to a local research firm. The research arm of Japanese videogame magazine publisher Enterbrain said the 3DS sold 371,326 units on Saturday and Sunday. Separately, Nintendo said it had shipped out 400,000 3DS units to Japanese retailers ahead of the launch, although the company said the shops could stagger sales if they so choose. Japanese consumers certainly flocked to stores in droves over the weekend to be among the first to shell out 25,000 yen (about $305) to buy a 3DS, which plays 3-D games without requiring special glasses to create the illusion of depth. The strong first-weekend sales come in the face of concerns that a warning by Nintendo about possible health risks from 3-D for children six years old and younger could crimp sales. The predecessor to the 3DS, the Nintendo DS, sold about 440,000 units over a four-day period when it launched in Japan in 2004. Enterbrain calculated the DS figures over a four-day period because the DS launched on a Thursday and the company tracked its sales through the weekend. —Daisuke Wakabayashi Keep up on Japan minute by minute with The Wall Street Journal’s Japan Real Time at http://blogs.wsj.com/japanrealtime

Ko Sasaki for The Wall Street Journal

Bank of Japan Gov. Masaaki Shirakawa speaking in an interview Friday.

Wednesday, March 2, 2011

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THE WALL STREET JOURNAL.

WORLD NEWS: ASIA

China fires railways engineer BY JAMES T. AREDDY SHANGHAI—One of China’s most prominent corruption probes in years widened to include a senior Ministry of Railways engineer directly involved in the country’s $300 billion high-speed rail project. Zhang Shuguang was removed from his position as deputy chief engineer of the ministry and placed under investigation within the Communist Party for alleged “severe violation of discipline,” the state-run Xinhua news agency said Tuesday. In China, that terminology typically refers to allegations of corruption, and Mr. Zhang’s firing follows last month’s removal under similar circumstances of the railways minister, Liu Zhijun. China’s ambitious high-speed rail network—the world’s largest—has been the envy of many in the global transportation industry, as well as a major point of pride for Beijing as a technological achievement. The World Bank estimated in a report last year that China spent $163 billion on the network from 2007 to 2009 and would spend an additional

$100 billion in 2010, with the ultimate tab totaling some $300 billion. The widening of the probe to target Mr. Zhang could indicate Chinese authorities suspect corruption has played a part in the expansion. As one of the most public faces on the high-speed rail rollout, Mr. Zhang has frequently cheered the Chinese milestones in public as a representative of the ministry. For instance, when a new north China link opened in December hitting a top speed of 380 kilometers an hour, he said, “The CRH380A is the world’s fastest and most technologically-advanced high-speed train.” He spoke of future trains that run at 500 kilometers an hour. Yet, such boasting has also made Mr. Zhang and other top Chinese railway engineers the targets of criticism from some foreign railequipment companies. Foreign companies including Kawasaki Heavy Industries Ltd., Siemens AG, Alstom SA and Bombardier Inc., provided technology and equipment to help build China’s network. A Kawasaki Heavy executive Tuesday repeated a charge made

High-speed spending China's investment in its high-speed rail network, in billions of U.S. dollars Estimate

$100 80 60 40 20 0

2007

’08

’09

’10

Source: World Bank

last year that the 380 train, slated to run between Beijing and Shanghai, is a “version” of Kawasaki’s 200-250 kilometer-an-hour Hayate, whose technology Kawasaki agreed to transfer in 2004. China’s government has offered no information on what exactly the Railway Ministry officials are suspected of. The removal of Mr. Liu was a particularly significant strike.

A lifelong railways official, he had taken over in 2003 as the country was planning a railway connection to Tibet and embarking on the 13,000-kilometer high-speed railway project. China’s ruling Communist Party frequently targets officials for corruption, but the railways minister was one of the most senior officials ever to fall. In 2007, authorities executed Zheng Xiaoyu, the former head of China’s food and drug watchdog, for taking bribes from pharmaceutical companies. That came a year after Shanghai Party Secretary Chen Liangyu was dismissed for graft. He was later sentenced to 18 years in prison. At least one question about the probe was put to Premier Wen Jiabao during an online chat he held Sunday with Internet users ahead of the annual legislative session beginning this week. Mr. Wen said dealing with abuse of authority would be a primary task in 2011, adding that some officials have too much unchecked power. —Norihiko Shirouzu contributed to this article.

Train arsonists in India receive death penalty BY ARLENE CHANG MUMBAI—A special Ahmedabad court handed down death sentences to 11 Muslims convicted of setting fire to a train in the western Indian state of Gujarat nine years ago, triggering one of India’s worst outbursts of communal violence. The court gave a lesser sentence of life imprisonment to the 20 others convicted of participating in the 2002 massacre, which left dead nearly 60 Hindus returning from a religious pilgrimage. The resulting violence killed more than 1,000 people—mostly Muslims. The court last week had found 31 of 94 people accused in the case guilty of conspiracy and murder. The other 63 were acquitted. Defense lawyer I.M. Munshi plans to appeal in the Gujarat High Court, said the Press Trust of India. The riots in Godhra, east of Ahmedabad, continue to spark debate over the years—mostly about whether the fire that killed the Hindu pilgrims was deliberately set.

More than 800 seafarers are currently held hostage in appalling conditions by armed gangs of Somali pirates. Subjected to physical and psychological abuse for months at a time, they are held to ransom for millions of dollars. Merchant ships are being attacked daily and run a gauntlet of gunfire and rocket-propelled grenade attacks. Apart from the human cost, piracy is strangling key supply routes and costing the global economy $12 billion a year. The lawlessness has spread right across the Indian Ocean - through which half the world’s oil supply passes. A hijacked tanker with 2 million barrels of oil represents 20% of daily oil imports to the USA. The freedom of the seas, on which we rely for the safe delivery of 90% of world trade, is threatened. 80% of pirates caught are released to attack again. Why? Lack of political will. You can help stop this evil trade in human hostages and help restore the freedom of the seas. Visit www.SaveOurSeafarers.com - you’ll find letters to email to your government demanding action.

6

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

WORLD NEWS: ECONOMY

U.S., Asian factories hum World-wide manufacturing jumped last month, according to data from several countries, as U.S. manufacturing activity turned in its best performance since May 2004 while similar data from Asia’s key economies indicated the regional growth story remains intact. The readings indicate the U.S. economy, which has been mending slowing, could get a shot in the arm from the manufacturing sector. Meanwhile, a slight moderation in China’s figures reflected the weeklong Lunar New Year holiday more than any real loss of momentum, economists said. India’s readings suggested regional strength continued. Europe also showed strength. The final results of a survey by financial information firm Markit out Tuesday showed the euro zone’s manufacturing sector grew at the strongest rate for nearly 11 years in February. On Tuesday, the Institute for Supply Management’s U.S. manufacturing index moved to a strong 61.4 from 60.8 in January. The overall index had been expected to come in at 60.9. Readings over 50 indicate growth. “New orders and production, driven by strength in exports in particular, continue to drive the composite index,” said Norbert Ore of the private U.S. research group, who directs the survey. In the details of the report, the ISM said that inflationary pressures continued to mount, with the prices index at 82.0, from 81.5. Factory operators are facing rising input costs from commodities, as well as from energy prices. China’s official Purchasing Managers Index, issued by the China Federation of Logistics and Purchasing and the National Bureau of Statistics, fell to 52.2 in February from 52.9 in January, its third consecutive month of decline. A separate index from HSBC, prepared by Markit, fell to a seven-month low of 51.7 in

Associated Press

BY MICHAEL S. ARNOLD AND MICHAEL S. DERBY

Asia’s manufacturing sector grew in February. Above, a China garment factory.

Continued strength China’s PMI (HSBC)

China’s ofﬁcial PMI

India’s PMI (HSBC)

55

55

55

50

50

50

45

45

45

40

40

40

2009

'10

'11

2009

'10

'11

2009

'10

'11

Note: Readings above 50 indicate expansion; readings below, contraction Sources: Markit Economics (HSBC); China Federation of Logistics & Purchasing (Ofﬁcial China PMI)

February from January’s 54.5. Experts said February’s lower readings probably reflect the long holiday closure at the beginning of the month. A similar index for India showed manufacturing growth accelerating in February, with HSBC’s India PMI rising to 57.9 from 56.8. Coming after data Monday showed Indian gross domestic product grew a robust 8.2% in the October-December period, the strong PMI reading suggests Asia’s growth is continuing apace.

India’s manufacturing PMI “has been a little bit of a regional leading indicator” in recent months, said Glenn Maguire, Asia-Pacific chief economist for Societe Generale. Mr. Maguire predicted that China’s PMI would rise again in March. “It’s always difficult to interpret the data around the Lunar New Year and we’re looking for the numbers to bounce back into the 53-54 range in March, which for China is consistent with strong expansion,” he said. Other data from around the re-

gion Tuesday showed growth remaining robust. HSBC’s PMI for Taiwan fell to 55.8 in February from 59.8 in January, also affected by the Lunar New Year holiday but still well in growth territory. In Australia, a manufacturing index from the Australian Industry Group-PricewaterhouseCoopers rose 4.4 points in February to 51.1, creeping back into expansionary territory. Elsewhere, South Korean exports grew more than expected in February, while headline inflation in Thailand and Indonesia eased slightly but core inflation rose. “The fundamentals of the regional economy are fairly robust and the monetary stimulus coming through is still very sizable despite the tightening we’ve recently seen in Korea and China,” said Frederic Neumann, co-head of Asian economic research at HSBC. “If anything, risks are still on the upside.” Price pressures are likely to intensify in the second quarter as oil prices continue to be factored in, “adding to the challenges that policy makers face across the region,” Mr. Neumann said. “They still need to raise rates, and the danger is that they’re behind the curve.” Societe Generale’s Mr. Maguire compared the pullback in the Thai and Indonesian headline inflation figures to the situation in 2007-2008, when prices paused briefly before rising. “What we’re seeing with the moderation in Thai and Indonesian inflation is certainly not a trend reversal. We’re going to see inflation pressures quite pronounced” later in the year, he said. “Manufacturing activity continues to expand at a strong pace, inflation has made the most marginal of pullbacks, risks remain to the upside and central banks need to tighten more,” Mr. Maguire said. In Europe, the Markit final eurozone manufacturing purchasing managers’ index, a gauge of activity in the sector based on a survey of about 3,000 companies, rose to 59 in February from 57.3 in January, the highest reading since June 2000.

Price pressures ease in Indonesia BY FARIDA HUSNA AND ANDREAS ISMAR JAKARTA—Inflation in Indonesia unexpectedly slowed in February due to easing food prices, but some analysts expect the central bank to raise its policy rate nevertheless during its rate review Friday. Price pressures have become a focal point for investors in emerging markets such as Indonesia, where the inflation rate is above the central bank’s target range. Fitch Ratings on Friday cited inflation as one of the constraints holding back the country’s debt from attaining investment grade. Annual inflation eased to 6.84% in February from January’s 7.02%, the official Central Statistics Agency said. The February reading was lower than the 7.15% median forecast of 10 economists polled by Dow Jones Newswires. Bank Indonesia has an inflation target range of between 4% and 6% this year. Compared with the previous month, the consumer-price index rose 0.13% in February, also tamer than the 0.4% increase forecast in

the Dow Jones poll. In January, the index rose 0.89% on month. However, annual core inflation—which excludes volatile food prices and costs controlled by the government—accelerated to 4.36% from January’s 4.18%. The chairman of the Central Statistics Agency, Rusman Heriawan, attributed the easing to a downward trend in prices of foodstuffs that he

Backing up Indonesia's subsidy costs for fuel and electricity, in trillions of rupiah Forecast

150

100

50

0

2004

’06

’08

Source: Indonesia government

’10 ’11

said is likely to continue. Inflationary pressures may continue to ease on the food front, with the statistics agency saying that the country’s rice production will likely rise slightly to 67.3 million metric tons this year from an estimated 66.4 million tons last year. Rice is the staple food for the majority of Indonesia’s 235 million people. “For Indonesia, the worst of food inflation is probably behind us, and the upcoming harvest months should provide further relief. Yet, the strong momentum in domestic demand is likely to keep inflationary expectations elevated,” OCBC economist Gundy Cahyadi said. “Even at 6.8%, the underlying trend for inflation remains tilted toward the upside, and we continue to see risks that inflation may inch higher above 7.5% in the second quarter...another 25 basis points rate hike should follow this Friday. Any U-turn on this front may mean that we are going to see the rupiah surrendering some of its recent gains,” the economist added. A basis point is 1/100th of a percentage point. Bank Indonesia raised its bench-

mark policy rate in February to 6.75%, its first rate move since August 2009. Separately, Bank Indonesia’s Darmin Nasution said in a seminar that the central bank needs to observe the impact on wages of higher inflation expectations and persistent food-price increases to pre-empt any spiralling-up effect. Those concerns over quickening inflation may prompt the government to delay implementing a plan to limit the consumption of subsidized fuels for private cars in the greater Jakarta area. Bank Indonesia forecast the plan could add around 0.7 percentage point to headline inflation this year. The plan is supposed to take effect April 1 in the greater Jakarta area before being extended to areas in Java and Bali in July, Sumatra in January 2012, Kalimantan in July 2012 and Sulawesi in 2013. But some officials have indicated they may need to revise the schedule. Any delay to the fuel rationing plan would lower inflationary pressures and provide some leeway for the central bank to stand pat Friday.

U.S.-South Korea deal bogs down BY ELIZABETH WILLIAMSON WASHINGTON—The Obama administration’s effort to win Congressional ratification by July of a freetrade deal with South Korea is in jeopardy due to a stalemate with House Republicans on when to act on stalled trade pacts with Colombia and Panama. House Speaker John Boehner (R., Ohio) wants the pacts with South Korea, Colombia and Panama to be considered together. President Barack Obama and his top trade negotiator, Ron Kirk, have been reluctant to agree to submit the three deals simultaneously. Mr. Obama and Mr. Kirk have said they want the South Korea treaty ratified by July 1, when a pact between Korea and the European Union takes force, potentially putting U.S. companies at a disadvantage. The Colombia and Panama agreements were stalled by a Democraticled Congress, and Republicans now say that unless they link them to South Korea—a deal the Obama administration wants—the two smaller pacts would likely be stalled indefinitely. The three pending deals are critical to Mr. Obama’s trade agenda, which envisions doubling U.S. exports by 2015. The South Korea pact, worth $11 billion in U.S. exports, is the largest of the three deals by far. Many union leaders and their Democratic allies in Congress have opposed all three trade deals. Mr. Kirk late last year negotiated changes in provisions of the South Korean pact related to auto trade that won the support of the United Auto Workers and Ford Motor Co. The trade pact with Colombia has been stalled for years mostly over concerns among union leaders and some congressional Democrats over the Colombian government’s treatment of union organizers. Administration trade officials say they made progress in meetings with the Colombian government last week. An administration official declined Monday to give a time frame for resolving labor issues with Colombia, saying that also depended on Bogota. The official acknowledged the looming impasse, adding that the White House had stepped up its efforts to resolve them with Colombia and with U.S. unions. “In Korea we have already completed a strong agreement with broad support” from business and labor, the official said. “So we are eager to move it forward.” The Panama agreement is being held up awaiting passage of Panamanian legislation dealing with tax inequities and labor protections. But the outstanding issues with the Colombia pact are seen by U.S. negotiators as more thorny. In an interview, Rep. Kevin Brady, (R., Texas), chairman of the Trade subcommittee of the House Ways and Means Committee, said he told the White House not to send the Korea pact to Congress without the other two deals. Ways and Means is the likely first stop in the pact’s ratification process. The committee’s chairman, Rep. Dave Camp, (R., Mich.) has said he wants to ratify the Korea, Colombia and Panama deals by July. 1.

Nikon, left; TDK

All hail ... analog? WHY THE DIGITAL REVOLUTION MAY BE FAILING US 8

LIFE & STYLE

WEDNESDAY, MARCH 2, 2011

asia.WSJ.com

Singles may save music industry Now that individual tracks are easy to buy, will artists become more creative? [ Postmodern Times ] ERIC FELTEN

Auctions of America by RM

This 1957 Ferrari 250 Testa Rossa fetched $12.4 million in 2009.

OBJECT OF DESIRE

Bidding on Batmobiles

Louisa Bertman

The music business has been wringing its hands over the dramatically decreasing ka-ching of the cash register. There may not be agreement on the exact magnitude of the industry’s collapse—cataclysm or mere catastrophe?—but one main cause is clear: the humble “single.” Until digital downloads came along, to get a copy of the one hit tune found on a given album, you had to buy the whole CD, a technology that effectively killed off the old 45 rpm vinyl single. But now, in the age of iTunes, the single is back from the brink of extinction. Instead of making a purchase north of $15, consumers can get the one song they want, unbundled, for a dollar, more or less. Revenues, not surprisingly, are down. Lady Gaga is likely to sell far more copies of the individual track “Born This Way” than she will copies of the CD. And she’s hardly the only artist embracing the single, which is quickly becoming the main way people purchase music. While the switch may be a disaster for the recording industry’s bottom line, it just might be the best thing to happen, musically, to a business grown stale and stagnant. How many promising acts got the boot over the years because the big album didn’t sell enough to justify the bloated cost of producing 45 minutes of music? How much better if bands could record and release a tune or two at a time, not only keeping costs lean but gaining the flexibility to hone and revise their sound as listeners give them immediate feedback. Singles once gave musicians the chance to rework and refashion their best material. In the course of four years, Ellington released eight different records of the signature song “East St. Louis Toodle-oo.” He was able to give his composition legs by reintroducing it over and again, dressed each time in a new arrangement—an early sort of remixing, if you will. I suspect that singles also had something to do with the culture of producing “standard” tunes. If one band or singer had a hit with a song, other bands could knock out their own versions and have them in jukeboxes and stores within weeks. If the revitalized singles market helps generate a new generation of standards, that alone would be cause for celebration. At the same time, the new age of the single might help musicians

take more artistic chances: The investment in time and money is so much less for a single that artists may take risks with individual tracks that they are not able to do with the big make-or-break discs. Singles allowed musicians to keep themselves more regularly before the public. Frank Sinatra pioneered the “concept album,” the idea of programming a long disc with thematically unified songs, and did so brilliantly with such albums as “Come Dance With Me.” But he also used a steady release of first-rate singles, such as “Witchcraft,” to give his audience something fresh to buy every few months. It is a marketing strategy

that artists have been relearning as the technology evolves. Over the years, singles came to be viewed almost with derision. Concept albums did much to establish the notion that the only worthy ambition of recording artists was to produce long-format discs. Consider the judgment of George Martin, the Beatles’ producer, from his memoir, “All You Need Is Ears.” He wrote that 1967’s “Sgt. Pepper’s Lonely Hearts Club Band” “was the album which turned the Beatles from being just an ordinary rockand-roll group into being significant contributors to the history of artistic performance.” It’s a remarkable statement. The band that

redefined modern celebrity was just “an ordinary rock-and-roll group” until “Sgt. Pepper”? Alas, for every “Sgt. Pepper,” there are thousands of discs with one or two tunes for which the producers had hopes plus enough filler to bulk the project up to album length. Now that music buyers are making their purchases piecemeal, there’s no need for the padding. The only music worth recording will be the music worthy enough that it has a chance to be bought for its own sake. If that means less junk gets produced and released, the triumph of the single just might be a rebirth, not the death, of the music industry.

Ten million Americans are car collectors. That estimate, by publisher Dave Kinney of carauction tracker Hagerty Price Guide, includes serious collectors as well as those with a classic car (say, an old Ford Mustang) that they no longer drive but can’t bear selling. Every year, these collectors (and a few overseas buyers) spend more than $500 million at more than 500 auctions held in the U.S., Mr. Kinney says. An auction in Fort Lauderdale this weekend, March 4-6, is one of the larger of these—more than 400 cars will be up for sale. One is a 1957 Imperial Crown convertible once owned by Howard Hughes. Just 1,167 were built by Chrysler, according to the auction catalog, and the car is expected to bring at least $120,000. Another is a Batmobile, expected to sell for between $200,000 and $275,000. The Batmobile was built to promote the 1995 movie “Batman Forever.” Some buyers don’t collect cars for profit or for display; other buyers have a more financial interest. Two years ago, a 1957 Ferrari 250 Testa Rossa sold for $12.4 million, a car-auction record. Many of the cars up for sale this weekend have far more modest price tags. A 1981 Rolls Royce Silver Spur with 29,000 miles on it, and all power gadgets in working order, has an estimated value of $15,000 to $20,000. As for the Batmobile, buyers shouldn’t plan on driving it home. It isn’t legal to drive, says Donnie Gould, president of the Auctions America division of RM Auctions, which is conducting the Florida sale. He adds, “You’d probably cause six accidents at the first six stoplights.” —Stan Sesser

8

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

LIFE STYLE

An ode to analog in the digital age When it comes to the quality of photos and music, the digital revolution may be failing us On Dec. 30, Dwayne’s Photo in Parsons, Kansas, ceased processing Kodachrome film and the world passed an important if little-heralded milestone: the end of a beautifully saturated color transparency film that was immortalized by Paul Simon in his 1973 song (“Mama don’t take my Kodachrome away”). Kodak had long since ceased its manufacture and the lab’s decision was yet another stage in the slow death of chemical, film-based photography. Visual and audio reproduction have undergone massive changes as their underlying technologies shifted from analog to digital over the past two decades. It’s clear that it is far more convenient to snap photos with a digital point-and-shoot or listen to music on an iPod. But whether the quality of images or music has improved is, however, a highly debatable proposition, one that is contested by legions of enthusiasts who have continued to cling to older technologies not out of Luddite resistance to change, but because they believe the shift to 1’s and 0’s is actually making things worse. Photography and music have been hobbies of mine ever since I was a child when I built Dynakits and had my own darkroom. I was introduced to high-end audio by the political theorist Allan Bloom, who back in the early 1980s had what seemed to me a crazily expensive Linn Sondek turntable and a collection of over 2,000 records. I started collecting historical Nikons when I inherited an F2A from my father, and these days I seem to spend as much time thinking about gear as I do analyzing politics for my day job. Let’s begin with how photography has changed. Ansel Adams’s iconic images of the Sierras were taken with an 8-inch-by-10-inch view camera, a wooden contraption with bellows in which the photographer saw his subject upside-down and reversed under a black cloth. Joel Meyerowitz’s stunning photographs of Cape Cod were taken with a similar mahogany Deardorff view camera manufactured in the 1930s. These cameras produce negatives that contain up to 100 times the amount of information produced by a contemporary top-of-the-line digital SLR like a Canon EOS 5D or a Nikon D3. View cameras allow photographers to shift and tilt the lens relative to the film plane, which is why they continue to be used by architectural photographers who want to avoid photos of buildings with the converging vertical lines caused by the upward tilt of the lens on a normal camera. And their lenses can be stopped down to f/64 or even f/96, which allows everything to be in crystalline focus from 3 inches away to infinity. (Ansel Adams, Edward Weston and Imogen Cunningham were part of a group called “f/64” in celebration of this characteristic.) Perhaps the most important feature of these older film cameras was their lack of convenience. They had to be mounted on tripods; it took many minutes to shoot a single frame; and they were hardly inconspicuous. In contrast to contemporary digital photographers who snap a zillion photos of the same subject and hope that one will turn out well composed, view camera photography is a more painterly activity that forces the photographer to slow

The Heads of State for The Wall Street Journal

BY FRANCIS FUKUYAMA

down and think ahead carefully about subject, light, framing, time of day, and the like. These skills are in short supply among digital photographers. Older cameras were far better built. A few years ago I was given a Leica M3 once owned by my uncle, who joined the U.S. Army to get out of an internment camp for JapaneseAmericans during World War II. He was sent to Germany where he acquired the Leica around the time I was born. This camera, with its f/2 Summicron, a classic, fast, tack-sharp lens, still takes beautiful pictures. How many digital cameras will still be functioning five years from now, much less 50? Where are you going to buy new batteries and the media to store your photos in 2061? The digital revolution produced even worse consequences for music reproduction. When the digital compact disc was introduced in the early 1980s, the marketing types heralded this as “perfect sound forever.” The only problem was that early CDs simply didn’t sound good: They were thin, harsh and unpleasant to listen to. It turns out that old-fashioned vinyl records, like photographic film, are actually a pretty good way of storing information. Sound is inher-

ently analog; converting sound waves to grooves on a record does not involve the same loss of information as their conversion to digital data. If you don’t believe this, you’ve probably never listened to a goodquality record on a high-end turntable. By high-end, we’re talking about

It turns out that oldfashioned vinyl records are actually a pretty good way of storing information. turntable-tonearm-needle combinations that cost upward of $10,000—that’s right, five figures— from manufacturers like VPI, Basis or SME. On such devices, there is hardly any background noise; sound is three-dimensional, detailed and has a liveness that most mass-market CD players or iPods cannot begin to match. There is no inherent reason why digital music has to sound worse than analog; the problem was all in implementation and standards. About 10 years ago Sony introduced a new

digital format, the Super Audio Compact Disc, that could finally hold its own against good quality vinyl records. But SACDs never caught on, and the mass market moved in exactly the opposite direction with the spread of MP3s and iPods. The MP3 is a digital compression technology that throws away a lot of information in order to reduce file size. It’s quantity over quality, essentially. Listening to an iPod through a highend audio system is a painful experience and a big step backward even from the Red Book CD standard by which all musical compact discs have been encoded since the 1980s. Today, I’ve made peace with the digital revolution. A company called GigaPan makes a device that pans a digital camera and stitches together large numbers of images to produce monster photographs with far more resolution than a view camera. A couple of years ago I built myself a music server—a computer dedicated to playing music that currently stores more than 300 gigabytes of losslessly compressed music (that is, better than your average MP3s), which it outputs through a highquality Benchmark digital-to-analog converter. I can flip through five ver-

sions of a Mahler symphony with a mouse click, and honestly find it a lot more convenient and often better-sounding than spinning vinyl on my Oracle turntable. Still—while I can now download high-resolution digital music from a company called HDtracks, the experience doesn’t compare with shopping at Serenade Records in Washington, a music emporium owned by a pair of brothers from Turkey who knew everything about historical recordings of classical music. When they retired and Serenade closed, my quality of life took a nose dive. Don’t believe the marketing hype of the techie types who tell you that newer is always better. Sometimes in technology, as in politics, we regress. This point will be brought home to lots of people when their hard disks crash and they find they’ve lost all of their photos forever. Photos of my children, by contrast, are safely stored in the closet in boxes of Kodachrome slides. Mr. Fukuyama is author of “The Origins of Political Order: From Prehuman Times to the French Revolution” (forthcoming from Farrar, Straus & Giroux).

Wednesday, March 2, 2011

THE WALL STREET JOURNAL.

9

OPINION: REVIEW OUTLOOK

A Union Education

T

he raucous Wisconsin debate Kennedy let some federal workers orgaover collective bargaining may be nize (though not collectively bargain) ugly at times, but it has been for the first time in 1962, a gambit to worth it for the splendid public educa- win union support for his re-election tion. For the first time in decades, after his cliffhanger victory in 1960. Americans have been asked to look unIt’s important to understand how der the government hood at the causes revolutionary this change was. For deof runaway spending. What they are cades as the private union movement discovering is the monopoly power of rose in power, even left-of-center politigovernment unions that have long been cians resisted collective bargaining for on a collision course public unions. We’ve with taxpayers. Though previously mentioned it arrived in Madison What Wisconsin reveals FDR and Fiorello La first, this crack-up was Guardia. But George about public workers inevitable. Meany, the legendary We first started and political power. AFL-CIO president durrunning the nearby ing the Cold War, also chart on the trends in opposed the right to public and private union membership bargain collectively with the governmany years ago. It documents the great ment. transformation in the American labor Why? Because unlike in the private movement over the latter decades of economy, a public union has a natural the 20th century. A movement once led monopoly over government services. An by workers in private trades and manu- industrial union will fight for a greater facturing evolved into one dominated share of corporate profits, but it also by public workers at all levels of gov- knows that a business must make profernment but especially in the states and its or it will move or shut down. The cities. union chief for teachers, transit workers The trend is even starker if you go or firemen knows that the city is not back a decade earlier. In 1960, 31.9% of going to close the schools, buses or the private work force belonged to a firehouses. union, compared to only 10.8% of govThis monopoly power, in turn, gives ernment workers. By 2010, the numbers public unions inordinate sway over had more than reversed, with 36.2% of elected officials. The money they collect public workers in unions but only 6.9% from member dues helps to elect politiin the private economy. cians who are then supposed to repreThe sharp rise in public union mem- sent the taxpayers during the next bership in the 1960s and 1970s coin- round of collective bargaining. In effect cides with the movement to give public union representatives sit on both sides unions collective bargaining rights. Wis- of the bargaining table, with no one sitconsin was the first state to provide ting in for taxpayers. those rights in 1959, other states folIn 2006 in New Jersey, this led to lowed, and California became the big- the preposterous episode in which Govgest convert in 1978 under Jerry Brown ernor Jon Corzine addressed a Trenton in his first stint as Governor. President rally of thousands of public workers

and shouted, “We will fight for a fair flict. Mr. Walker is the better friend of contract.” He was promising to fight the union manufacturing worker in Oshhimself. kosh than is Mr. Trumka. Thus the collision course with taxNotice, too, how fiercely the public payers. Public unions depend entirely unions are willing to fight for collective on tax revenues to fund their pay and bargaining power even if it means pubbenefits. They lic job layoffs. thus have every Without Mr. incentive to Walker’s budget The Rise of Government Unions elect politicians reforms, WisUnion membership as a share of public and private who favor consin will have work force, 1973-2010 higher taxes and to begin laying more governoff thousands of 40% ment spending. workers as early 35 Public The great expanas this week. 30 sion of state and The unions 25 local spending would rather 20 followed the rise give up those 15 Private of public unions. jobs—typically 10 Professors for their 5 Fred Siegel and younger mem0 Dan DiSalvo ‘73 ‘83 ‘93 ‘03 bers—than give point out that up their political Source: Union Membership and Coverage Database, maintained by Barry Hirsch and David Macpherson even during the negotiating adReagan years, vantages. They growth in state know some fuand local government jobs was double ture Governor or legislature will get the rate of population growth. The ef- those jobs back, as long as they retain fect on the private economy is a second their inordinate political clout. order problem for public unions, as This is the imbalance of political we’ve seen from the recession’s far power that Mr. Walker is trying to more damaging impact on private than break up, and he is right to do so. As on public workers. important, the public in Wisconsin and Current AFL-CIO chief Rich Trumka around the U.S. seems to be listening has tried to portray Wisconsin Gover- and absorbing his message. nor Scott Walker’s reforms as an attack The cause has been helped by the on all unions, but they clearly are not. sit-ins and shouting of union members, If anything, by reining in public union the threats toward politicians who dispower, Mr. Walker is trying to protect agree with them, and by the flight of private workers of all stripes from the Democratic state senators to undistax increases that will eventually have closed locations in Illinois. It’s hard to to finance larger government. Regard- claim you’re protecting democracy ing public finances, the interests of when you won’t show up to vote. Taxpublic union workers and those of pri- payers need to win the battle of Wisvate union taxpayers are in direct con- consin for the sake of self-government.

The Reluctant American

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he rebellion in Libya is moving quickly, with antiregime forces consolidating their hold over the east, setting up a provisional government and restarting oil exports. From his bunker in Tripoli, Moammar Gadhafi vows to fight to the end while his elite units and African mercenaries kill the Libyan people to protect him and his sons. Not moving rapidly has been the world’s sole superpower, which remains behind the curve, struggling to respond and reluctant to lead. President Obama waited until last Wednesday to make his first public statement. He didn’t mention Gadhafi by name and deferred to the Europeans to push for U.N. sanctions. White House officials are now explaining his reticence by saying the U.S. couldn’t act forcefully until all Americans were evacuated from Libya. In a front page article in Sunday’s Washington Post, Ben Rhodes, the deputy national security adviser for strategic communications, was in full selfjustification mode: “When you’re sitting in government and you’re told that ignoring that advice”—to temper U.S. rhetoric and action in Libya—“could endanger American citizens, that’s a line you don’t feel very comfortable crossing.”

A U.S. President must take care to more energy than President Obama. Mr. protect Americans. But even if this was Cameron said he is working with allies the White House calculation, you don’t on a plan to enforce a no-fly zone over want to talk about it publicly. In trying Libya to prevent Gadhafi from using his to blunt criticism of air force against rebel his boss at home, Mr. forces. General Andul Rhodes has told the Time to recognize the Fatteh Younes, who renext rogue regime in signed as interior minLibyan provisional Gadhafi-like straits ister and defected to how easy it is to para- government. the opposition, told al lyze U.S. policy. You Jazeera on Monday don’t even need to that his forces want a hold Americans hostage. All you need to no-fly zone as long as no foreign plane do is keep them around with an implicit lands on Libyan soil. “We do not in any threat that you might do so. This will way rule out the use of military assets,” not make it easier to get Americans out Mr. Cameron said. of harm’s way in the next crisis. If only Secretary of State Hillary Throughout the Libyan uprising, Eu- Clinton could be as direct. Speaking beropean leaders—especially British fore the U.N. Human Rights Council in Prime Minister David Cameron and Geneva, which voted to “suspend” French President Nicolas Sarkozy—ha- Libya’s membership on Monday, she ven’t been tongue- or action-tied by said that “we will continue to explore the plight of their nationals. This all possible options for actions. . . . weekend, German and British special Nothing is off the table.” But she didn’t forces rescued a couple hundred of put much on the table. their nationals in covert missions withWhile the French sent two planes out Libyan assent. The U.S. sent a cat- with humanitarian relief supplies to amaran and ferry to Tripoli, after Libya, the U.S. set aside $10 million and Libya denied permission for a plane to pledged to study Libya’s needs. On land. The ships were stuck in port for Monday the Pentagon announced plans two days due to bad weather and fi- to move armed forces into the renally brought the 167 Americans out by gion—a process that should have Friday night. started more than a week ago. The U.S. European leaders continue to show made no promises to support a no-fly

zone. Mrs. Clinton spent her time lobbying the Russians for their continued support in the U.N. Security Council, while the battles in Libya raged on. The U.S. could begin to exceed a Belgian level of global leadership by reaching out to the opposition and extending formal recognition to their provisional government. Though this might make Mr. Obama uncomfortable, America remains a global power with exceptional standing to provide a new Libyan government with legitimacy. The U.S. should also be prepared to sell arms to the opposition if they request it. The U.N.’s new arms embargo isn’t likely to deter anyone who is still willing to sell Gadhafi arms at this point, but it might cause some countries not to arm the opposition. The world made that blunder in Bosnia. The moral and strategic case for U.S. leadership in Libya is obvious. A terrorist regime is slaughtering people who will appreciate America’s support and protection. A bloody civil war could create chaos that turns Libya into a northern African failed state, an ideal home for terrorist groups. The U.S. should support a provisional government that can take over when the regime collapses to restore order with as little bloodshed as possible. What is Mr. Obama waiting for?

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Wednesday, March 2, 2011

OPINION

Is There an Arab George Washington?

Letters To The Editor *

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Food For North Korea’s Poor, But Not for Its Government

[ Global View ]

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terms, there was no U.S. food assistance to the North. President Bush held firm to this principle and did not “fold.” In 2008, however, the administration did start a 500,000-ton food assistance program because it negotiated an agreement that had by far the best terms that the U.S. or WFP ever enjoyed on access and monitoring for food aid to North Korea. This included access to all North Korean provinces except two, the right to do nutritional surveys and the right to have a significant number of Korean speakers as part of the aid team. The U.S. negotiated these terms on behalf of the WFP and a consortium of NGOs. The agreement was terminated in March 2009 in midstream after the disbursement of 170,000 tons when the North stopped agreeing to these conditions. The main condition, I am told, for the restart of any new talks on U.S. food aid by the current administration is the DPRK’s adherence to the terms of the 2008 agreement. Obama administration officials certainly deserve credit for sticking to a principled approach, but I believe they would readily admit that it was one that they inherited from the previous administration. VICTOR D. CHA Chevy Chase, Md. *

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Efficiency Really Isn’t Everything In “Is Your Job an Endangered Species” (op-ed, Feb. 18-20), Andy Kessler carries his argument for the obsolescence of whole classes of jobs and objects too far. He unfavorably compares the time-keeping capability of a $9,000 Rolex against an iPhone. Why buy such an expensive “gimmick” when the phone, as one of its many functions, keeps better time? But that’s not the purpose of the Rolex. Its purpose is a status symbol. Indeed, I would argue how many people need atomicclock, time-keeping accuracy anyway? By this logic, museums no longer need the expense and overhead of their collections of Rembrandts and Van Goghs since excellent and widely available digital images exist. The world does not work that

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way. We are not headed toward an elimination of jobs and objects based on cost alone. There will always be a very high level of demand for such things because of the distinction they carry. Look at China, the world’s fastest-growing market for such luxuries and services. Yes, it’s true I can book my own travel online and check my iPhone for the time. But being able to casually name-drop “my travel agent” or “my stock broker” or “my lawyer” is essential, not a luxury, in the dating scene of Los Angeles. P. THOMAS WOLF Costa Mesa, Calif. Mr. Kessler says “Forget bluecollar and white-collar. There are two types of workers in our economy: creators and servers.” This rudimentary worker typology does not include meddlers: enviro-Marxists, czars, regulators and wannabe regulators (mostly college students), statists of all stripes, staffs of elected officeholders, enemies of the republic (especially those within it), haters of capitalism and individual liberty, college faculties, union and community organizers, and anyone connected with the United Nations. Had Mr. Kessler examined the meddler category, he would have concluded that the American work force is growing by leaps and bounds. JULIE MAHLIN Cincinnati

On learning that George Washington intended to follow up his victory at Yorktown by retiring to his farm at Mount Vernon, George III told the painter Benjamin West: “If he does that, he will be the greatest man in the world.” The British monarch may have wound up stark raving mad, but he knew a thing or two about the seductions of power. We celebrate Washington today as the greatest of the founding fathers. But the fame he gained during his lifetime owed mainly to his willingness to relinquish the vast powers he had repeatedly been granted, and which were his for the keeping. That’s a rarity in the history of revolutions, in which the distance from liberation to despotism—from euphoria to terror—is usually short. The French Revolution began with a Declaration of the Rights of Man. It very nearly ended in an extinction of those rights. The uprisings now sweeping the Arab world threaten to retrace that familiar arc. Consider the irony of last month’s massive protests in Cairo’s Tahrir Square. Until Egypt’s corrupt but tolerant monarchy was overthrown in 1952, the square was known as Midan El-Ismailiya after Ismail Pasha, the great 19thcentury Egyptian Westernizer. It became Liberation Square only after Gamal Abdel Nasser’s 1952 coup, yet another calamitous revolution that began brightly with promises of democracy. Now we’re being told that this time it’s different. A day after the demonstrators began to gather on Tahrir Square last month, an Egyptian friend of mine—a former independent member of parliament with close ties to the secular opposition—explained that difference: “It’s a revolution without papas,” he told me. No Nasser, no Ben Bella, no Arafat, just ordinary people in their millions demanding their long-denied civil and political rights. I’d love to think that my friend is right. And there’s no shortage of pop-political philosophy explaining how in our networked, horizontal, spontaneously organizing era of Facebook and Twitter, there’s no longer a need for credible leaders or effective political

Corbis

BY BRET STEPHENS You are correct in raising skepticism about whether the world’s answer to North Korea’s latest call for food assistance would result in any positive changes in Pyongyang’s behavior (“Kim’s Hungry Regime,” Review & Outlook, Feb. 25-27). About 30% of food assistance to the North gets diverted out of the hands of the needy to the military. Moreover, inflows of food have correlated with Pyongyang’s crackdown on the fledgling markets and reinstitution of the government-run public distribution system as the regime uses food rations to reassert political control. But you err in castigating the Bush administration for “usually fold[ing]” on food requests from the Democratic People’s Republic of Korea while praising President Obama for a conditions-based and tougher approach. In reality, both administrations have rightly taken a consistent and principled approach on this issue. As a member of the National Security Council staff under President George W. Bush, I was always told that the president maintained that the U.S. would be willing to meet the majority of the World Food Program’s (WFP) annual appeal for North Korea if the regime allowed adequate access and monitoring to ensure the food got to those most in need. Because Pyongyang never agreed to these

Paris, 1793: Most revolutions trace a familiar arc from euphoria to terror. parties. Just click the install button on People Power 3.0 and the program will run itself. Yet until technology recasts human nature, human nature will be what it always has been. And human nature abhors a leadership vacuum. When revolutions are successful, it’s not that they have no “papas”; it’s that they have good papas. So it was with Washington, or with Mandela—men of hard-earned and unmatched moral authority, steeped in the right values, who not only could defeat their adversaries but rein in the tempers of their own followers. What happens when revolutions don’t have such leaders? The French Revolution is Exhibit A. Exhibit B might be Lebanon’s Cedar Revolution of 2005, which took place following the assassination of the charismatic former premier Rafik Hariri. Millions of Lebanese poured into Beirut’s Martyrs’ Square on March 14 to demand the end of Syrian occupation. The Syrians obliged. Elections gave pro-Western groups clear majorities in parliament. The country seemed settled on a better course. In May of that year I went to Lebanon to see things for myself. “Wherever I go here, the impression is of a people intent on making up for lost time, and determined never again to be dragged down by extremism,” I wrote. “It is these Lebanese, one senses, and not Hezbollah, who are making the country anew, and who are doing so, at long last, in the absence of fear.” Re-reading those lines today, with Hezbollah in firm control of a puppet government and the various leaders of the March 14

movement murdered, dismembered or politically neutered, is enough to make me cringe. But it’s also a useful lesson in the limits of the very kind of people power now being celebrated in Egypt. It’s not enough to be against, or to bring down, a hated regime. It’s not even enough to be for something, at least in the sense in which the Arab world now seeks a freer and more representative political dispensation. What’s required is the statesmanship that can give concrete form to a hazy political dream. It would be nice to believe that this kind of statesmanship will emerge unbidden from decent quarters, which probably explains the fascination with Egyptian Google exec Wael Ghonim. But the perennial political problem is that good people usually lack political ambition. They cede the field to charlatans, romantics and jackals. As Americans look at what is happening in the Middle East, it’s natural that their sympathies should lie with the demonstrators. Natural, too, is the belief that movements consisting mainly of oppressed people in search of a better life will lead to decent regimes that care for those people. And maybe that will turn out to be true. But also true is that America’s revolutionary history was exceptional because we had a Washington while the French had a Robespierre and the Egyptians had a Nasser. We owe today’s Arabs our optimism, and the benefit of the doubt. They owe themselves the real lessons of our example.

Write to [email protected]

Notable Quotable Michael Barone writing Feb. 26 in the Washington Examiner: It’s a question that puzzles most liberals and bothers some conservatives. Why are so many modestincome white voters rejecting the Obama Democrats’ policies of economic redistribution and embracing the small-government policies of the Tea Party movement? It’s not supposed to work out that way, say the political scientists and New Deal historians. Politics is supposed to be about who gets how much when, and people with modest incomes should be eager to take as much from the

rich as they can get. . . . [But people] are entitled to base their vote on the things they think important. . . . The recoil in 2010 against the Obama Democrats’ vast expansion of the size and scope of government seems to have a cultural or a moral dimension . . . It was a vote, as my Washington Examiner colleague Timothy P. Carney wrote last week, expressing “anger at those unfairly getting rich—at the taxpayer’s expense.” Those include well-connected Wall Street firms like Goldman Sachs that got bailed out and giant corporations like General Elec-

tric that shape legislation so they can profit. They include the public-employee unions who have bribed politicians to grant them pensions and benefits unavailable to most Americans. A government intertwined with the private sector inevitably picks winners and losers. It allows wellpositioned insiders to game the system for private gain. It bails out the improvident and sticks those who made prudent decisions with the bill. Modest-income Americans think this is wrong. They want it fixed more than they want a few more bucks in their paychecks.

Wednesday, March 2, 2011

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THE WALL STREET JOURNAL.

OPINION

BY JOHN BOLTON U.S. President Barack Obama has trumpeted Saturday’s U.N. Security Council decision to refer Moammar Gadhafi to the International Criminal Court for prosecution. Although Gadhafi deserves punishment, the ICC will not accomplish it. Invoking this marginal organization as an instrument of justice is simply an abdication of responsibility. It pretends to address an international crisis while actually doing the opposite. The ICC is one of the world’s most illegitimate multilateral in-

Mr. Obama’s embrace of the International Criminal Court is typical of his buck-passing approach to world affairs. stitutions. The court’s vast prosecutorial authority is unaccountable to any democratic polity. The United States rejected this approach at its founding, separating the prosecutorial and judicial powers and placing the prosecutors under elected executive branch officials to ensure accountability and legitimacy. The Bush administration wisely reversed the Clinton administration’s endorsement of the ICC by

“unsigning” its foundational treaty in 2002. It then secured more than 100 bilateral agreements to prevent U.S. citizens from being transferred into ICC custody. To date, the ICC has been weak and ineffective, essentially acting as a European court for African miscreants. Nonetheless, its prosecutor is an international version of America’s own postWatergate “independent counsel” model. Based on the execrable record of these prosecutors, the U.S. Congress, with broad bipartisan support, allowed the law authorizing the appointment of these counsels to sunset in 1999, although there has been sporadic resort to such procedures since. Under whatever guise, the independent-counsel approach has led to gross miscarriages of justice, such as Patrick Fitzgerald’s 2003-07 investigation of how Valerie Plame’s CIA employment became public. In that case, one target, Scooter Libby, was pursued into the ground while others more culpable were allowed to emerge unscathed. Champions of the ICC theorize it will deter future crimes. Reality proves otherwise. The court has been operational since 2002, so the most persuasive evidence is that almost 10 years after the court’s inception, Gadhafi was sufficiently unimpressed that he is doing what comes naturally for terrorists and dicta-

Bloomberg

A United Nations Court for Gadhafi?

Gadhafi uses the General Assembly podium to his advantage in 2009. tors. History is full of cases where even military force or the threat of retaliation failed to deter aggression or gross criminality. If the West is not prepared to use cold steel against Gadhafi, why should he or any future barbarian worry about the ICC? The plain if deeply unpleasant fact is that history’s hard men are not deterrable by the flimsy threat of eventual prosecution. This underlines why the court itself is so otherworldly. It does not operate in a civil society of shared values and history, but in the chaotic, often brutal realm of international politics. Resorting to the ICC cannot change matters of international politics and power into matters of law.

A new Libyan government should be responsible for dealing with Gadhafi’s atrocities. Every crime he is responsible for, from the terrorist bomb that destroyed Pan Am Flight 103 over Lockerbie, Scotland, in 1988, to his current street massacres, has been done in the name of the Libyan people. They are the ones who should judge Gadhafi, as Iraqis did with Saddam Hussein. Gadhafi’s fate will raise hard questions for any successor Libyan government. But it is entirely appropriate that it be Libyans who confront and decide such issues and bear the consequences, good and bad, of determining how to dispense justice to him. Political maturation for Libya’s

citizens, as for those of any country, will not come from outsiders making judgments for them, but from them making their own decisions and living with the results. Obviously, Libya is in no condition today to deal with Gadhafi and his cohorts. But if he and his key aides survive the current violence, they can be incarcerated and tried later, with international assistance to new Libyan authorities if appropriate. Immediate logistical difficulties do not justify shifting the moral and political responsibility of dealing with Gadhafi away from his countrymen to remote international bureaucrats. Mr. Obama’s ready embrace of the International Criminal Court exemplifies his infatuation with handling threats to international peace and security as though they were simply local street crimes. It also reflects his overall approach to international affairs: a passive, legalistic America, deferring to international bodies, content to be one of 15 Security Council members rather than leading from the front.

Mr. Bolton served as U.S. ambassador to the United Nations from 2005 to 2006 and is the author of “Surrender Is Not an Option: Defending America at the United Nations and Abroad” (Simon & Schuster, 2007).

Little Bits Go a Long Way [ Bookshelf ]

The Information: A History, a Theory, a Flood By James Gleick (Pantheon, 526 pages, $29.95) BY JOHN HORGAN In 1989, I traveled to a Boston suburb to interview Claude Shannon, the inventor of information theory. Then 73, Shannon was shy and his memory was poor, so his wife, Betty, answered many of my questions. Shannon seemed to enjoy himself most when showing off his collection of games and gadgets, including a juggling W.C. Fields robot, a maze navigated by a mechanical mouse and seven chess-playing machines. My two-page profile in Scientific American didn’t come close

to doing justice to Shannon, who died in 2001. After all, this playful polymath—whose work bridged electrical engineering, mathematics, computer science, physics and even philosophical logic—was among our era’s most influential thinkers. His work, especially his 1948 paper “The Mathematical Theory of Communication,” helped spawn today’s digital devices and communications technologies. Information theory has also inspired a radical new scientific worldview, which proposes that reality is composed not of matter but of bits of information. James Gleick’s “The Information” gives Shannon his due and much more. As promised in its subtitle, “The Information” describes Shannon’s achievement (“a theory”) and helps us appreciate it by tracking information’s myriad manifestations (“a history”) from 5,000-year-old cuneiform records of barley sales all the way up to today’s digital super-abundance (“the flood”). In the course of informing us about information, Mr. Gleick illuminates the histories of mathematics, artificial intelligence, quantum mechanics, genetics and other fields that we have come to understand better thanks to Shannon’s theory. What, exactly, is information? Prior to Shannon, Mr. Gleick notes, the term seemed as hopelessly subjective as “beauty” or “truth.” But in 1948 Shannon, then working for Bell Laboratories, gave information an almost magically precise, quantitative defini-

tion: The information in a message is inversely proportional to its probability. Random “noise” is quite uniform; the more surprising a message, the more information it contains. Shannon reduced information to a basic unit called a “bit,” short for binary digit. A bit is a message that represents one of two choices: yes or no, heads or tails, one or zero. Shannon’s simple formulation provided a framework for coding information digitally and hence more efficiently. Information theory also turned out to have deep connections to other Big Ideas. Entropy, the core concept of thermodynamics, measures the disorder of systems and, paradoxically, their potential for yielding information. The insights of information theory also have helped shed light on the interplay between randomness and order in so-called chaotic phenomena, as well as on the uncertainty principle of quantum mechanics. In the 1990s, the physicist John Wheeler, whom Mr. Gleick says was “the last surviving collaborator of both Einstein and Bohr,” proposed that all of physics could be recast in terms of information theory. Wheeler dubbed his idea “the it from bit.” By “it,” Wheeler meant all the components of physical reality, including particles, forces and even space and time. Every “it,” he wrote, “derives its function, its meaning, its very existence” from “answers to yes or no questions, binary choices, bits.” Today other physicists are beginning to think of the entire universe as a cosmic computer. “Increas-

ingly,” Mr. Gleick comments, “the physicists and the information theorists are one and the same.” No author is better equipped for such a wide-ranging tour than Mr. Gleick. Some writers excel at crafting a historical narrative, others at elucidating esoteric theories, still others at humanizing scientists. Mr. Gleick is a master of all these skills. As he traces the evolution of intertwined ideas, he provides vivid portraits of Shannon and other pioneers of our Information Age, including Charles Babbage, whose unbuilt 19th-century “Analytical Engine” anticipated modern computers, and Alan Turing, whose machines helped the Allies crack German codes during World War II. A key theme throughout ”The Information” is that of self-referentiality. When did humans first think about thinking? Write about writing? Conceptualize concepts? What dictionary first defined the word “define”? (It was an English dictionary published in 1582, according to Mr. Gleick.) The ancients knew self-referential conundrums such as the liar’s paradox. (“This statement is false.”) But in the 1930s Kurt Gödel pinpointed a similar logical knot at the heart of mathematics. His notorious Incompleteness Theorem demolished any hope of discovering a foolproof method for yielding mathematical truth—for, in effect, distinguishing signal from noise. The inherent limitations of reason loom large toward the end of ”The Information,” when Mr. Gleick switches his focus to “the

flood”—the torrent of information released by our digital technologies. He ponders the same questions that Nicholas Carr fretted over in his recent book, “The Shallows”: Is the amount of information inversely proportional to wisdom? As information surges, will noise swamp signals? Will the false and trivial overwhelm the true and meaningful? Every information technology, Mr. Gleick reminds us, has aroused these sorts of concerns. Plato worried that writing would lead to mental laziness, but without writing we might not know that Plato ever existed. Mr. Gleick concludes on an upbeat note. “Meaningless disorder is to be challenged, not feared,” he writes. “We can be overwhelmed or emboldened.” Neither information theory—as Shannon often emphasized—nor any other methodology can find meaning for us. Each of us has to discover—or create—meaning on our own.

Mr. Horgan, director of the Center for Science Writings at Stevens Institute of Technology, is the author of “The End of Science” and “Rational Mysticism.” Comments? The Journal welcomes readers’ responses to all articles and editorials. It is important to include your full name, address and telephone number. Please send letters to the editor to: [email protected]

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Wednesday, March 2, 2011

IN DEPTH

Associated Press

BOJ chief hits out at critics in the West

Central banks around the world have been experimenting with unorthodox policies as they struggle with the aftermath of the financial crisis. The BOJ is now a window on the challenges that come with this. Continued from first page mony on the economy to Congress. He was expected to take heat from Republicans for risking inflation. Central banks around the world have been experimenting with unorthodox policies as they struggle with the aftermath of the financial crisis. The BOJ, long thought unique, is now a window on the challenges that come with this, as well as on the political challenges central banks increasingly are facing today. In Japan, politicians have formed a group called the Anti-Deflation League; one leader of it gives Mr. Shirakawa a grade of “F.” Responding to the central bank’s critics, the 61-year-old Mr. Shirakawa said, “The Bank of Japan has been a lonely forerunner that has implemented novel, innovative measures in a large-scale manner.” He added, speaking in English and regularly clearing his throat as he searched for precise, carefully hedged language, “When we announced these measures, these measures attracted little attention or were considered as bizarre measures. But, in retrospect, the so-called credit easing adopted by the Federal Reserve is essentially the same as what we did in the early 2000s.” When pressed, he declined to name a single mistake the BOJ had made in 15 years of fighting deflation. He wryly pointed back at Western critics who blamed Japan’s prolonged stupor on the BOJ and missed the makings of America’s own housing bubble. Mr. Shirakawa, who studied at the University of Chicago in the 1970s, is turning the tables. At closed meetings that top central bankers hold regularly in Switzerland, Mr. Shirakawa has been reading carefully scripted mini-lectures to his counterparts. At a meeting in September, as the Fed

was preparing to launch a bond-buying campaign to spur the economy, Mr. Shirakawa warned about the limitations of such unconventional policies, based on Japan’s experience. And in a series of speeches, he has been taking his case to the public. He peppered one speech last year with 34 footnotes, 23 pages of charts and 33 references to scholarly work. The gist of Mr. Shirakawa’s case: Far from being asleep at the switch, the BOJ in the 1990s and 2000s helped to stave off a U.S.-like Depression after Japan’s bubble burst. He also says the central bank hasn’t gotten enough credit for continuing small but significant experimental policies that he

hopes will act as “a catalyst” to spur broader risk-taking and policy changes in Japanese government, business and banking. Using another scientific metaphor, he says he is trying to help reverse Japan’s “decrease in economic metabolism,” a job the central bank is taking on only because nobody else seems to be able or willing to do so. Mr. Shirakawa is emerging as an unlikely voice for the Japan leadership at home and abroad, in part because, even under intense criticism, he is the most stable policy maker in a weakened government. In his roughly three-year tenure, he has worked with four prime ministers and seven finance ministers. Last year, the Bank for International Set-

tlements, a coordinating body for central banks, made him vice chairman of its board, the first time a Japanese official has had so high a position there since the 1930s. Japan has been a puzzle to economists for years, like a patient with a low-grade fever that doesn’t get worse, doesn’t get better and won’t go away. Textbooks predicted that after Japan’s property bubble burst in the early 1990s and consumer prices started falling, prices would go into a downward spiral. The spiral never happened. Instead, 15 years of very minor but nagging deflation set in, and the economy’s growth rate slowed to a crawl. The BOJ became a laboratory for unorthodox but ultimately ineffective policies. It has bought Japanese government bonds, as-

Ramping up

Bank of Japan’s balance sheet

Federal Reserve’s balance sheet

Bank of Japan and Federal Reserve have swollen their asset holdings in response to crisis

¥150 trillion

$2.5 trillion Other

120

2.0 Mortgagebacked securities

Other 90

60

30

Stocks, corporate debt, ETFs, REITs

Government bonds

1.5

1.0 Treasury notes and bonds

0.5

Treasury bills 0 2001 '02 '03 '04 '05 '06 '07 '08 '09 '10 Note: ¥1 trillion = $12.246 billion

Japanese treasury bills

0.0

2003 '04 '05 '06 '07 '08 '09 '10

Federal agency debt securities

Sources: Bank of Japan; Federal Reserve

Wednesday, March 2, 2011

13

THE WALL STREET JOURNAL.

IN DEPTH ‘The Bank of Japan has been a lonely forerunner.…The so-called credit easing adopted by the Federal Reserve is essentially the same as what we did,’ says Masaaki Shirakawa.

Reuters

set-backed securities, corporate debt and even stocks. The purchases pumped money into the financial system and were also meant to encourage risk-taking by banks and investors, Mr. Shirakawa says. But they failed to reinvigorate the economy or end deflation. In October, the BOJ added a new twist—five trillion yen (about $60 billion) of securities purchases that included exchangetraded stock funds and real-estate investment trusts. After an intense debate last year the bank took the especially unusual step of channeling cheap loans toward a few favored industrial sectors, including energy, environment and health care. “The facility in itself may not be able to solve the fundamental problems that Japan is faced with,” Mr. Shirakawa says. “But it could perform as a catalyst to initiate muchneeded reactions by the government, firms and banks to collectively address the problem.” Officials now are taking a close look at pushing that even further, perhaps funneling money to firms that package bank loans and other assets into securities, in an attempt to recharge moribund credit markets. The program is controversial inside the BOJ because such targeted lending typically isn’t the domain of a central bank. Things might be turning up for the bank, after another economic contraction in the fourth quarter. The BOJ projects the economy will expand at about a 2% annual rate for the next couple of years, aided by growth in Asian developing economies. With Japan’s currency stable and its economy expanding again, pressure on the BOJ to do more has diminished. The bank expects Japan to climb out of deflation, too. Yet the excitement over 2% growth is testament to Japan’s sharply diminished expectations. “There is no imminent hope for Japan to crack out of this weak growth trajectory,” said Stephen Roach, nonexecutive chairman of Morgan Stanley’s Asian operations. Mr. Shirakawa is developing his own ideas about how deflation works. He was trained in part by Milton Friedman; Mr. Shirakawa proudly notes he took the legendary economist’s last Chicago class in 1975. Mr. Friedman said inflation was purely a function of how much money a central bank gets circulating through an economy. More money causes more inflation. Mr. Shirakawa says Japan’s experience shows deflation can’t be fixed by simply flooding the economy with cash. “That proposition has been disproven by the facts,” he says. He says another factor has been at work: Japanese businesses and households have become so discouraged about the economy’s long-term growth prospects, largely because of the nation’s declining population and slower productivity growth, that they keep reining in their spending. Those are problems he says the BOJ can’t fix on its own, even though it is rolling out programs he says might help. The critics say that all along, the BOJ has been too late to move, too timid when it did move and too eager to pull back its policies when the economy seemed to be on the mend. Mr. Bernanke has tried to avoid what he sees as BOJ mistakes. He cut interest rates quickly as the U.S. financial crisis deepened. And the Fed chief dislikes the term “quantitative easing,” a term that became associated with Japan’s money-pumping efforts in the 2000s. Mr. Bernanke, rather than emphasize how much money he is injecting into the financial system, is focused on how many long-term securities he is taking out of the hands of private investors, which he believes leads to more risk-taking while also curbing long-term interest rates. The Fed’s holdings of long-term government bonds and government-backed mortgage debt have rocketed to $1.7 trillion from $457 billion in January 2009. The Bank of Japan has been reluctant to dive too aggressively into Japanese government bonds. Its holdings grew to 67.2 trillion yen in 2004 from 45.7 trillion yen in 2001, but they are lower today than in 2004. Koichi Hamada, a Yale professor and former teacher of Mr. Shirakawa in Tokyo, says

Japan’s economy can absorb the spike in its currency (so far) The yen’s spike against the dollar has spooked Japan, as it dents the costcompetitiveness of its exports. But Bank of Japan Governor Masaaki Shirakawa told the Journal that the current value of the yen “is not working as an additional risk factor” for the beleaguered Japanese economy.

the BOJ’s latest securities-buying program of five trillion yen is just a tenth of the Fed’s most recent bond-purchase program and is too small. It isn’t just pride that drives the BOJ governor to speak out. Central banks, though they try to act otherwise, are political entities as much as technocratic ones. Centralbank chiefs around the world have been jolted by the political backlashes they have faced since the financial crisis. Many are trying to win back public opinion. Mr. Bernanke has gone on the CBS show “60 Minutes” twice in three years to explain his decisions. The Bank of Japan also faces political attacks, a threat to its prized independence, which dates only to 1998. The Anti-Deflation League, formed last year within the ruling Democratic Party of Japan, now includes nearly a quarter of all representatives in the lower house of the Diet. Rival party members who typically war over other issues mingled a week ago at a cocktail party meant for BOJ bashing. The group wants to bind the Bank of Japan to a target of achieving rising consumer prices. If it can’t reach that target, “maybe we should be able to fire them,” said Yoichi

His comments suggest the BOJ doesn’t see an immediate need to ease monetary policy further to weaken the currency. But the BOJ chief said he’s carefully watching movements in the currency market and is ready to act if necessary. “In recent years, the yen was used as a safe-haven currency,” he said. “So, once global

Kaneko, the parliamentarian who gives Mr. Shirakawa an “F” for his efforts. “He is a very good scholar, but he hates to make a commitment,” Mr. Kaneko says. Another nightmare scenario, from the BOJ’s perspective, would be if it were forced by politicians to fund the government’s immense debt, which after years of fruitless fiscal stimulus has grown to twice annual economic output. Mr. Shirakawa says he has no intention of going down this path. He has no apologies for critics. The attacks don’t stand up to scrutiny, he says. One example: His opponents say the BOJ’s programs aren’t big enough. Mr. Shirakawa fires back that the bank’s asset holdings, one measure of how aggressive it has been, are larger than the Fed’s as a percentage of economic output. The Bank of Japan’s asset holdings haven’t grown much lately, and are below a December 2005 peak. But critics don’t recognize how much they did grow last decade as the BOJ battled to revive Japan’s economy, he says. The BOJ governor has spent most of his career inside the central bank. As a young man in the 1970s, he got a two-year leave to study at Chicago. His professors were im-

uncertainty emerges, then the yen is likely to appreciate.” He added: “We are not ruling out the possibility of expanding the comprehensive package” of easing steps introduced in October. BOJ officials are considering funneling money to firms that package bank loans into securities, to revive moribund credit markets.

pressed and wanted him to stay to get a Ph.D. The BOJ told him he had to return if he wanted to keep his job. “Since I didn’t have courage, I decided on going back to the Bank of Japan,” he says. In some ways, Mr. Shirakawa runs the central bank like the intense graduateschool experiences of his youth. As he rose through the ranks, he developed a reputation for conducting brainstorming sessions that dragged on for hours, and making demands for detailed research from the staff. Behind his back, underlings teasingly called him Q-Chan, the nickname of Japanese marathon runner Naoko Takahashi, fabled for running back-to-back marathons as part of her regular training. Mr. Shirakawa doesn’t mind the analogy. “The Bank of Japan was a forerunner,” he says.

WSJ.com ONLINE TODAY: Read a transcript of Mr. Shirakawa’s interview with the Journal and watch a video with Jon Hilsenrath and Japan editor Jake Schlesinger discussing the BOJ governor’s policies at WSJ.com/World

14

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THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

MIDDLE EAST

Yemen leader blames unrest on U.S. SAN’A, Yemen—Yemeni President Ali Abdullah Saleh accused U.S. President Barack Obama of fomenting unrest in the Arab world, in a speech on a university campus here, as around 10,000 protesters outside called for his resignation. “Every day we hear a statement from Obama saying, ‘Egypt you can’t do this, Tunisia don’t do that,’ ” Mr. Saleh said in the speech. “What do you have to do with Egypt? Or with Oman? Are you president of the United States, or president of the world?” The U.S. has viewed Mr. Saleh as a key counterterrorism ally, and has given his government millions of dollars in military aid. U.S. State Department spokesman P.J. Crowley said the protests are “not the product of external conspiracies.” Mr. Saleh has ruled Yemen for over three decades. Recent protests, spurred by revolts in Tunisia and Egypt, have caused fears that he could be overthrown. With 35% unemployment and prevalent corruption, discontent has been festering in the republic for years. Antigovernment demonstrations have grown steadily for over a month, and turnout grew in the wake of violence by government loyalists and riot police. As Mr. Saleh met with around 500 students and academics at San’a University on Tuesday, thousands of protesters nearby, chanted: “We want the president to flee.” At midday on Tuesday, Sheikh Abdel Majeed Zindani, an influential Islamic scholar who the U.S. has labeled a “specially designated global

Agence France-Presse/Getty Images

BY OLIVER HOLMES

Yemeni President Saleh railed against the U.S. in a speech Tuesday, as protesters nearby called for his ouster. terrorist,” addressed antigovernment demonstrators to say he was joining them. “No matter how long it takes, no matter how many lives, the regime with fall,” he told the crowd, who had just finished praying in unison. The address worried some students that Mr. Zindani would try to hijack the demonstrations to further

his own political agenda. After the speech, many protesters complained that Mr. Zindani’s comments on implementing an Islamic caliphate in Yemen would send conflicting messages to the international community that the republic was “full of terrorists.” However, many said they were pleased Mr. Zindani and the reli-

gious opposition was joining demonstrators with the shared aim of ousting the president. A similar-size pro-government protest was held about a mile away. Mr. Saleh’s remarks on the White House were unexpected. The president, who is 64 years old, has been a close ally to the U.S. since the USS Cole, a Navy destroyer, was bombed

in 2000 by al Qaeda while it was harbored in the Yemeni port of Aden, killing 17 American sailors and injuring 39. Since the bombing, the U.S. and Yemen have worked closely on counterterrorism, collaborating in the fight against the local al Qaeda. Mr. Saleh told his small audience that he would “reveal a secret” that there is an “operations room in Tel Aviv with the aim of destabilizing the Arab world.” He said the White House ran the operations room. Mr. Saleh also criticized U.S. Ambassador Gerald M. Feierstein, who he said was spending time with the opposition and giving them “instructions.” A U.S. Embassy spokesman, calling the comments “unfortunate,” said “the U.S. is actively engaged in promoting dialogue and a peaceful resolution of the issues in Yemen.” Mr. Saleh sought support from tribal and military leaders over the weekend, but lost the allegiances of some key allies after the deaths of some protesters. On Monday, Mr. Saleh offered to form a unity government, but the opposition coalition rejected the proposal outright and stated they would join the protesters for demonstrations this week. U.S. Secretary of State Hillary Clinton has called on Mr. Saleh to pursue political and economic change, but has also reaffirmed U.S. military and developmental support—underscoring Washington’s need for a cooperative leader in San’a. Mr. Saleh, who has ruled since 1990, has offered some concessions, including a vow not to seek re-election in 2013.

Continued from first page Zawiya at any price,” said one witness. “We know it is significant strategically. They will fight to get it, but we will not give up. We managed to defeat them because our spirits are high and their spirits are zero.” The witnesses in Al-Zawiya said youths from the city were stationed on the rooftops of high-rise buildings to monitor the movements of the pro-Gadhafi forces and warn if they thought an attack was imminent. They also spoke about generous offers of cash by the regime for the rebels to hand control of the city back to authorities. Col. Gadhafi, Libya’s ruler of 41 years, has already lost control of the eastern half of the country since protests demanding his ouster began two weeks ago. He still holds Tripoli and nearby cities, as his regime has launched the harshest crackdown in the Arab world, where authoritarian rulers are facing an unprecedented wave of uprisings. More than 140,000 people have fled Libya to Egypt and Tunisia in a growing exodus from the chaos engulfing the country, refugee officials told the Associated Press. United Nations refugee agency spokeswoman Melissa Fleming said Tuesday “the situation is reaching crisis point” at the Libya-Tunisia border, where authorities say up to 75,000 people have fled Libya since Feb. 20. Egyptian authorities say 69,000 people have crossed over from Libya since Feb. 19. International pressure to end the crackdown has escalated dramati-

cally in the past few days. The U.S. Treasury Department on Monday froze $30 billion in assets controlled by Col. Gadhafi and his family, in what the Obama administration said was the single-largest seizure of foreign funds in U.S. history. The U.S. also moved naval and air forces closer to Libya on Monday and said it was keeping all options open, including patrols of the North African nation’s skies to protect its citizens from their ruler. The Obama administration is demanding that Col. Gadhafi relinquish power immediately. France said it would fly aid to the opposition-controlled eastern half of the country. The European Union imposed an arms embargo and other sanctions, following the lead of the U.S. and the U.N. Russia’s top diplomat on Tuesday ruled out the idea of a no-fly zone as “superfluous” and said world powers must instead focus on fully using the sanctions the U.N. Security Council approved over the weekend. That suggests that Russia, a vetowielding member of the Security Council, could put up resistance to any efforts to gain broad international accord to enforce a no-fly zone. The Security Council hasn’t begun discussing a no-fly zone, according to a Western diplomat, who added that evidence of Libya firing on its people from the air is weak. Susan Rice, the U.S. ambassador to the United Nations, on Tuesday urged Col. Gadhafi to consider exile, saying she is worried the African na-

Associated Press

Libya rebels repel pro-Gadhafi attacks on cities

Children with monarchist-era flags watch antigovernment protesters Tuesday. tion could plummet into a “humanitarian disaster.” “It’s important that he get off the stage,” Ms. Rice said told CBS on “The Early Show.” In Misrata, pro-Gadhafi troops who control part of an air base on the city’s outskirts tried to advance Monday. They were repulsed by opposition forces, who included residents with automatic weapons and defected army units allied with them, one of the opposition fighters said. No casualties were reported. The fighter said his side had captured eight soldiers, including a senior officer, a claim that, like much of the information provided by both sides,

wasn’t possible to verify. The opposition controls most of the air base, and the fighter said dozens of anti-Gadhafi gunmen have arrived from farther east in recent days as reinforcements. In Zintan, residents said an attack by pro-Gadhafi forces Monday night was the second since the city fell into rebel hands late last month. But, they added, Gadhafi loyalists were bringing in reinforcements, possibly to stage a bigger attack on the city. They said rebel forces also were in control of a nearby area known as the Arab Mountain Line that includes the small towns of Lanut, Kikla and Kabo. Col. Gadhafi’s launch of a broad

offensive against the uprising on Monday indicates the regime is digging in for a long standoff. In Tripoli, witnesses said troops, tanks and artillery from the two elite brigades that defend the city have been moved in recent days to ring the southeast outskirts of town. Air traffic has also increased over the past two nights near the Mitiga military airport on Tripoli’s east side, said neighbors. Col. Gadhafi and his officials have sought to counter reports that Libya’s uprising was a popular one. “My people love me,” Col. Gadhafi said in an interview with ABC News. “They would die for me.” Libya’s undersecretary for foreign affairs, Khalid Kiam, said recent international penalties were part of a concerted campaign to weaken Libya and take control of its vast oil resources. Mr. Kiam added that allegations of government forces’ indiscriminate firing on demonstrators and widespread killing of civilians were false. “The conspiracy is big,” he said. “We don’t understand how the international community is taking sides when their reports are based on false media reports.” Mr. Kiam said the Libyan government intends to restart a national process with tribal leaders and prominent intellectuals around the country to bring about a peaceful solution to the unrest. It was unclear whom the government has invited to such negotiations. —Joe Lauria in Damascus contributed to this article.

As of 11 a.m. ET

Euro 1.3829 À 0.11%

Yen/US$ ¥82.05 À 0.17%

Yen/A$ ¥83.44 À 0.02%

Oil 98.24 À 1.31%

Gold 1423.10 À 0.98%

Auto makers post strong U.S. sales with help from a firmer economy

10-year Treasury g 12/32 yield 3.461%

3-month Libor 0.30950

Can China turn rhetoric into meaningful action?

BUSINESS& FINANCE. BUSINESS & FINANCE 17

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

Las Vegas Sands’ 2010 net revenue by geography MACAU U.S.

$4.22 billion

asia.WSJ.com

Gap expands Japan push Retailer to launch e-commerce site and plans to introduce Old Navy

$1.52

SINGAPORE $1.26

The Sands Macao Hotel

HEARD ON THE STREET 28

BY MARIKO SANCHANTA

Sources: the company (revenue); Bloomberg News (photo)

U.S. investigates Las Vegas Sands BY KATE O’KEEFFE HONG KONG—Las Vegas Sands Corp. said it is being investigated by U.S. authorities over its compliance with antibribery laws in its operations in Macau, which has become a cornerstone of the casino company’s business and the gambling industry’s major source of growth. Las Vegas Sands in its annual report filed Tuesday said it had received a subpoena from the U.S. Securities and Exchange Commission requesting that the company produce documents related to its compliance with the Foreign Corrupt Practices Act and that the Justice Department “is conducting a similar investigation.” The law prohibits U.S. companies from making payments to foreign officials to get or keep business. Las Vegas Sands is expanding its presence in Asia as revenue from its Las Vegas operations remains stagnant. China’s Macau overtook the Las Vegas Strip as the biggest gambling market in the world in 2006 and last year raked in about four times the Strip’s revenue. Las Vegas Sands, which has three casinos in Macau, last year opened its first casino in Singapore. The U.S., is stepping up enforcement of the Foreign Corrupt Practices Act. Eight of the top ten largest settlements under the law occurred last year, according to a report by the Hogan Lovells law firm, which represents companies in FCPA matters. Sands said it believed the subpoena stemmed from allegations in a wrongful-termination lawsuit filed in October against the company by its former head of Macau operations, Steve Jacobs. Las Vegas Sands spokesman Ron Reese described the government investigations as “fact-finding inquir-

ies” and denied the allegations made by Mr. Jacobs, the former chief executive of Sands China Ltd., as it did when he filed his lawsuit. Las Vegas Sands said it will cooperate with the investigations. The SEC declined to comment, and the Justice Department wasn’t immediately available. Mr. Jacobs, in a suit filed in Nevada, said he was wrongfully fired after refusing to carry out illegal demands by Las Vegas Chairman Sheldon Adelson. Mr. Jacobs’s suit alleges that he was asked to use “improper leverage” against unnamed senior Macau government officials to help the company secure rights to sell apartments at its Four Seasons property. The lawsuit says he was asked to arrange “secret investigations” on the officials so that any negative information could be used against them. A representative for Macau’s government declined to comment when the suit was filed, but the city’s top gambling regulator said recently he was unconcerned by Mr. Jacobs’s allegations about the investigations. Mr. Jacobs in his suit also says he was told to threaten to withhold business from unnamed major Chinese banks “unless they agreed to use influence with newly elected senior government officials of Macau” to get “favorable treatment.” Mr. Jacobs declined to comment Tuesday. Las Vegas Sands in July removed Mr. Jacobs as chief executive of Sand China. It subsequently said he had exceeded his authority and failed to keep the company’s board informed of important decisions. In filings related to lawsuit, he has denied those allegations. Mr. Jacobs had been appointed as CEO in 2009 and oversaw the unit’s US$2.5 billion initial public offering of stock that November.

TOKYO—As the retailing landscape in Japan becomes increasingly competitive, U.S. clothing retailer Gap Inc. is gearing up to launch its long-awaited e-commerce site there and plans to bring its lower-priced Old Navy chain to the market, according to a company executive. The moves come as the U.S. apparel giant ramps up its presence in Asia, its next frontier for growth. John Ermatinger, Gap’s president of Asia Pacific, said during an interview that the company plans to open 11 stores this year in Hong Kong and China. The retailer dipped its toe in the lucrative Chinese market in November, opening four stores and launching its Chinese e-commerce site, and its first store in Hong Kong is set to open in October. Mr. Ermatinger also said “discus-

sions are along quite a long way” for bringing Old Navy to Japan. “We are very bullish. It’s not a matter of if we do it. It’s a matter of timing.” As the U.S. consumer market matures and becomes saturated, Gap is launching an aggressive push to catch up internationally with its competitors, with its attention squarely focused on China. The company has said that by 2013, it wants international and online operations to generate 27% of revenue versus 16% in 2007. Some observers say the company’s push into China, in particular, is too little, too late. Fast Retailing Co.’s Uniqlo chain had 76 stores in China by the end of August and aims to have 1,000 stores in China by 2020. The Zara chain, owned by Spain’s Inditex SA, had 60 stores in China as of Oct. 31. “I don’t hold the belief [that we were late],” Mr. Ermatinger said.

Chronomat 01

WW W.B WWW. BREIT TL L I N G .C .COM

“We spent a lot of time researching the market. The best is yet to come in China—the runway is so long and there are so many cities that have yet to be penetrated.” Gap’s largest presence in Asia is in Japan, where it launched in 1995 and has 130 directly owned Gap stores, including outlets, and 29 Banana Republic stores and outlets. On Thursday it is set to launch a swanky four-floor store in Ginza, Japan’s poshest shopping district, which once boasted the most expensive real estate in the world. Gap and others see promise in Japan. “The Japanese consumer is the most astute fashion consumer in the world, and also in Asia,” Mr. Ermatinger said. “We are still bullish about Japan. We still think there are tremendous opportunities here with online, Old Navy, more stores. … Please turn to next page

16

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

BUSINESS FINANCE

Carlyle lines up rare deal in Japan Private-equity firm to buy bearing maker Tsubaki Nakashima; more transactions seen BY ALISON TUDOR AND ATSUKO FUKASE

Scarce

Private-equity firm Carlyle Group is buying Japanese ball-bearing maker Tsubaki Nakashima Co. from Nomura Holdings Inc. for 66 billion yen (US$804 million) including debt, a rare buyout in a country where funds have long struggled to secure deals. The buyout would be Japan’s largest acquisition by a private-equity firm since Boston-based Bain Capital bought telemarketer Bellsystem24 Inc. from Citigroup Inc. for $1.1 billion in late 2009, according to data tracker Dealogic. “We’re seeing the recovery of the Japanese private-equity market,” said Tamotsu Adachi, co-head of Carlyle Japan in an interview. Carlyle’s pipeline of deals is more robust than in previous years, said Mr. Adachi, as his team of about 20 deal makers talks to Japanese companies about buying noncore divisions to help them cope with fierce global competition and the rise of competition from China. “Top management of Japanese companies have a sense of urgency to change themselves and globalize.

Japan’s private-equity deals, in billions of dollars $10 8 6 4 2 0 2002

'05

*Year to date

'10 '11* Source: Dealogic

This year will be a much better year for private-equity firms in Japan,” Mr. Adachi said. Founded in 1936, Tsubaki Nakashima makes steel balls, ball screws and ball ways, used in the feeding mechanisms of machinery. Its products turn up in places ranging from consumer electronics and optical instruments to lasers. Nomura investment unit Nomura Principal Finance Co. acquired Tsubaki Nakashima in February 2007 for

101.4 billion yen including debt. The Japanese brokerage expects to book a small gain on the deal with Carlyle, a person familiar with the matter said. The parties didn’t disclose additional financial details. Tsubaki Nakashima is looking to expand in emerging markets. Carlyle hopes to enhance its management with experts in other markets and introduce customers in regions where the firm hopes to grow. “One area we are particularly talking about is South America,” said Mr. Adachi. Private-equity firms use a mixture of debt and their own funds to make investments. Credit dried up and deal making slowed dramatically during the 2008 financial crisis. In 2007, the volume of private-equity deals in Japan hit $11.5 billion, with 135 transactions, but that figure shrank to $3.4 billion and 70 transactions in 2010, Dealogic said. Financing now seems more available, which may give deal making a boost this year. “Japanese banks have re-established their strength and are providing leveraged loans to private-equity funds like us, but they are more se-

lective in terms of who they will help and what kind of companies they will provide with debt,” said Mr. Adachi. Carlyle, which opened an office in Tokyo in 2000 and has invested in 12 other Japanese companies, funded its acquisition of Tsubaki Nakashima mainly in the Japanese banking market. But for many funds with fewer roots in Japan, increased firepower won’t solve their biggest problem: finding deals in the country. Japanese managers are generally reluctant to sell assets to private-equity buyers, fearing social stigma if the funds lay off employees and weigh companies down with debt. Many Japanese buyouts have come from private-equity firms or principal-finance arms of banks selling to each other. Such deals are known as secondary buyouts. As a result, Japan remains a peripheral market for many global funds. The U.S. and European markets had private-equity volumes of $94.1 billion and $78.2 billion, respectively, in 2010, while the fast-growing Chinese market had $5.2 billion worth of deals last year.

Continued from previous page We’re not done.” Despite Japan’s aging population, persistent deflation and slow growth, retail goods in the country are sometimes significantly more expensive than in the U.S. For example, a lace-backed cardigan retails for 7,800 yen ($95.34) in Japan, but is on sale for as little as $34.99 on the U.S. website. It is unclear whether Gap would be successful in continuing to charge a hefty premium in Japan in the age of information transparency. Mr. Ermatinger defended the company’s pricing policies in Japan, saying he thought “pricing is always going to be determined by the consumer. … The price differentiation will continue as far as we’re concerned. There are quality differences, workmanship differences.” In addition to competing with the size of home-grown rival

Uniqlo—which has nearly 800 stores in Japan and sells jeans for as little as 1,000 yen, or around $12—Gap’s Japan strategy also faces the recent entry of inexpensive, fast-fashion competitors such as Hennes & Mauritz and Forever 21. “Uniqlo and others have trained the Japanese consumer to be valueoriented. If any company can pose a competitive threat, it is likely Gap with their Old Navy experience in the U.S.,” said Brian Salsberg, the head of McKinsey & Co.’s retail and consumer group in Japan. Mr. Ermatinger said that the company is open to merger-and-acquisition opportunities in Asia as a way to grow quickly in the market. “We’re a company with no debt; we generate a good amount of free cash flow, so M&A is always on our list,” Mr. Ermatinger said. “It’s a matter of finding the right compatible company.”

Reuters

Gap to introduce Old Navy brand to Japanese shoppers

John Ermatinger, Gap Asia Pacific president, says the retailer is bullish on Japan.

Dior moves to dismiss Galliano BY CHRISTINA PASSARIELLO PARIS—Christian Dior launched a dismissal procedure against John Galliano, its star designer, as the iconic French fashion house moves to distance itself from anti-Semitic statements he allegedly made. French police have been investigating Mr. Galliano’s actions. Making anti-Semitic remarks is illegal in France, and can bring up to six months in prison. On Tuesday, Dior said it had launched the procedure to fire Mr. Galliano because of the “odious behavior and comments” displayed by the designer in a video that circulated widely on the Web Monday. Mr. Galliano’s lawyer couldn’t immediately be reached for comment Tuesday. Dior is part of the luxury goods empire of LVMH Moët Hennessy Louis Vuitton. Sidney Toledano, Dior’s chief executive, said, “I condemn with the greatest firmness the comments made by John Galliano, in total contradiction with the essential values which have always been defended by Christian Dior.” Dior had suspended Mr. Galliano last Friday after a late-night argument in a bar during which the designer allegedly made anti-Semitic and racist slurs against two patrons. The suspension was in place pending the results of a police investigation into the incident. It is unclear whether the video posted Monday is from the same night or from another moment. The video shows the designer making a series of anti-Semitic remarks to people sitting at a table next to him in a restaurant and declaring an admiration for Adolf Hitler. Dior’s high-profile Paris fashion show is scheduled for Friday. Last week, Mr. Galliano’s lawyer had said that his client would be at the event “as normal.” Like many of his peers, Mr. Galliano is as famous for his outsize persona as he is for his fashions. His runway bows alone—during which he struts on the catwalk in outlandish outfits, such as astronaut or navy captain suits—are as anticipated as his extravagant ball gowns.

INDEX TO BUSINESSES AND PEOPLE Businesses This index of businesses mentioned in today’s issue of The Wall Street Journal is intended to include all significant reference to companies. First reference to the companies appears in bold face type in all articles except those on page one and the editorial pages. Alcoa ............................. 23 Alibaba Group...............19 Alstom.............................5 Aluminum Corp. of China.....................18,23 Apple.............................19 Baidu...............................1 Bain Capital..................16 Bank of America...........21 Barclays Capital ........... R5 Bellsystem24................16

BNP Paribas ................. R5 Bombardier ..................... 5 Cambridge Place Investment Management Inc ....... 21 Carlyle Group................16 Charles Schwab............21 China Central Television...................19 Chrysler Group..............17 Citigroup.............16,21,R5 Credit Suisse Group.....R5 Daiichi Sankyo..............17 Dentsu...........................23 Deutsche Bank.............R5 Facebook .................. 19,23 Fast Retailing...............15 Fifth Third Bancorp......23 FM Global.....................R4 Ford Motor.................6,17 Forever 21.....................16 Franklin Resources.......20 FujiFilm Holdings..........17 Gap................................15 General Electric............23 General Motors.............17 Goldman Sachs Group..21 Google...........................19

HDFC Asset Management..............20 HDFC Bank....................23 Hennes & Mauritz........16 Hewlett-Packard...........19 Highbridge Capital Management..............22 Honda Motor.................17 HSBC Holdings.............R5 ICICI Bank.....................23 Inditex...........................15 J.P. Morgan Chase .. 22,R5 Karma Capital Management LLC......20 Kawasaki Heavy Industries.....................5 Landesbank BadenWuerttemberg...........21 Las Vegas Sands.....15,23 L.M. Ericsson................19 Lorillard.........................23 LVMH Moët Hennessy Louis Vuitton.............16 Mahindra & Mahindra..23 Maruti Suzuki...............23 Mazda Motor................17 Merck & Co. Inc............17 Mitsubishi Motors........17

Morgan Stanley............21 Motorola Mobility Holdings.....................19 MVP RV.........................18 Nintendo ......................... 4 Nissan Motor................17 Nokia.............................19 Nomura Holdings .... 16,R5 Oak Pacific Interactive...1 Plexxikon Inc.................17 Salvatore Ferragamo....17 Samsung Electronics....19 Sands China..................15 SAP................................19 Shimao Property Holdings.....................21 Shinsei Bank.................23 Siemens .......................... 5 Sina ............................... 19 Société Générale..........R5 Sony .............................. 19 Standard Chartered......21 State Bank of India......23 Subaru of America.......17 Sumitomo Mitsui Financial Group ......... 23 Tata Motors..................23

Television Broadcasts .. 19 Tencent Holdings............1 Toyota ........................... 17 Tsubaki Nakashima Co.16 UBS...............................R5 Verizon Communications........23 Walt Disney..................19 Wharf Holdings............17 Winston Global Energy 18 Wmode ......................... R4 Yahoo...............................1 Youku.com.......................1

People This index lists the names of businesspeople and government regulators who receive significant mention in Today’s Journal. Adachi, Tamotsu...........16 Adelson, Sheldon..........15 Agrawal, Ashish...........R3 Agarwal Parker, Nandita......................20

Altman, Stuart.............15 Amrolia, Zar.................R5 Bagguley, Mike.............R5 Barve, Milind................20 Bernanke, Ben.........22,23 Boillereau, Frédéric......R5 Borthwick, Douglas......20 Buetow, Gerald.............23 Builione, Todd...............22 Burton, Michael............R5 Buyukkayali, Olgay.......R3 Cahyadi, Gundy...............6 Chang, Joyce.................R3 Chatterjee, Deepak.......20 Chua Hak Bin..................6 Chung, Winston............18 Comiskey, Charles ........ 22 Devine, Paul..................17 Dietz, Bob.......................4 Dubin, Glenn.................22 Ermatinger, John..........15 Feig, Jeff ...................... R5 Franzese, Michael.........22 Galliano, John...............16 Giddis, Kevin.................22 Haley, George ............... 18 Hanemann, Thilo..........18

Huttenlocher, Carl........22 Jacobs, Steve................15 Johnson, Don................17 McCadden, Ken.............R6 Koo, Victor....................19 Liu, Dele........................19 Liu Xiangming...............18 Lu, Frank.......................21 McDonnell, Mark..........R6 Mishr, Hemant..............20 Nakano, Koichi................3 Nakayama, Joji.............17 Nayar, Vineet................20 Nordberg, Bert..............19 Ozaki, Kiyoshi...............17 Pardee, Scott................R7 Prakash, Jaya................20

Purves, Christopher.....R5 Reese, Ron....................15 Roach, Stephen.............13 Rohrbaugh, Troy...........R5 Serebriakov, Vassili......22 Shiga, Toshiyuki ........... 17 Slavkin, Heather .......... R7 Tarling, Malcolm...........21 Toledano, Sidney .......... 16 Wiedmann, Martin.......R5 Williams, Brad..............18 Wolf, David.....................1 Woodward, Bob............R4 Xiong Weiping..............18 Yam, Siva......................18 Yetsenga, Richard........R3 Yohai, Leon...................R6

Corrections Amplifications The Dow Jones Industrial declined 2.1% last week. A article and a What’s News Monday’s edition incorrectly average fell 2.3%.

Average Markets item in said the

Wednesday, March 2, 2011

THE WALL STREET JOURNAL.

17

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BUSINESS FINANCE

Daiichi buys Plexxikon to bolster cancer drugs BY SHAWN SCHROTER

Bloomberg News

General Motors sales are off to a strong start with domestic volume for the first two months up 36% from a year ago.

GM’s U.S. sales rise 46% Incentives fuel climb; Toyota, Nissan, Ford also post higher volumes BY JEFF BENNETT AND JOHN KELL General Motors Co. and Toyota Motor Corp. each said their U.S. auto sales jumped at least 42% in February, raising hopes that the economic upturn will lead the auto industry to report one of its strongest showings in almost 18 months. Ford Motor Co. and Chrysler Group LLC each reported volume gains of at least 13% while Nissan Motor Co. said its U.S. new-vehicle sales jumped 32%. Honda Motor said its sales rose 22%. GM sold 207,028 vehicles in February, up from 141,951 a year ago, driven by a 70% rise in sales of cars and trucks to consumers. The retail sales gain was aided by incentives and discounts, and was magnified because GM’s sales a year ago were some of its weakest in memory. GM and Chrysler said they expect February seasonally adjusted annualized sales to be at or above 13 million cars and light trucks. If that proves true, February’s sales would be the first to break the 13 millionmark since the government’s cash for clunkers rebates caused a spike in sales in August 2009. “You’ve got a lot of people who aren’t feeling they aren’t going to

get fired or laid off. You’ve got people who are making big ticket purchases again,” said Al Castignetti, U.S. sales chief for the Nissan brand. “You have a lot of pent-up demand from the last two years.” GM’s U.S. sales analyst, Don Johnson, said rising gas prices as a result of the current turmoil in the Middle East could pose a threat to sales in the months head. But he added that GM has seen no evidence yet that higher pump prices are slowing consumer purchases. According to the U.S. Energy Information Agency, average gas prices in the nation were up 68 cents a gallon from a year ago, to $3.83 as of Feb. 28. That is 19 cents higher than just a week earlier. If gas prices top $4 a gallon, Mr. Castignetti said he would expect to see changes in consumer purchasing patterns change. In 2008, gas prices spiked to $4 a gallon, and sales of high-margin trucks and sport-utility vehicles plunged, hurting many auto makers, especially the Detroit three. Both GM and Nissan achieved their monthly sales gains with the help of higher sales incentives, according to dealers. GM was offering as much as $5,000 off the price of certain Silverado pickup trucks, while Nissan ran a program that of-

fered dealers bonuses for hitting sales targets for a period that included the month of February, these dealers said. GM defended its use of incentives to help maintain the sales momentum it began experiencing in the fourth quarter. “When you look at our February results there is clearly a lot more going on here then a mere incentive move of a few hundred dollars,” Mr. Johnson said. GM is managing its inventory, using better advertising and has a stronger dealer network, and those factors helped boost sales, he added. GM’s Buick and Cadillac brands reported sales surged 73% and 70%, respectively. Sales of Chevrolet cars and trucks increased 43% and the GM brand had a 59% increase. The rises were in comparison to a particularly weak showing a year ago, when GM was still reeling from its reorganization in bankruptcy court. Its sales in that month were one of the lowest monthly totals in years. Since 1995, only GM’s sales from January and February 2009 were lower than those of February 2010. GM said it sold 281 battery-powered Chevrolet Volts in February, down from 321 in January. —Kate Linebaugh contributed to this article.

Auto sales in Japan slide 14% BY YOSHIO TAKAHASHI TOKYO—Japan’s auto sales fell 14% in February as the end of government grants to spur sales continued to weigh on demand. But the sales drop was the smallest in five months, possibly signaling an end to the auto market’s weakest point in recent months. Sales of new cars, trucks and buses fell to 252,634 vehicles in February, from 294,886 vehicles a year earlier, the Japan Automobile Dealers Association said Tuesday. The figures don’t include sales of minivehicles with engines of 660 cubic centimeters or less. February marked the sixth straight month of decline in Japan, the world’s third-largest auto market after China and the U.S. But it was the smallest year-to-year drop

since September, when sales fell 4.1%, and the third straight month that the scale of the decline shrank. These positive signs accompany a diminishing sense of caution among industry executives after September’s end to government support for sales of fuel-efficient vehicles. Kiyoshi Ozaki, chief financial officer at Mazda Motor Corp., was the latest industry executive to say sales are recovering. In a recent interview, Mr. Ozaki said the auto maker’s domestic sales bottomed out in October. Mazda posted a net loss for the October-December quarter amid a slide in the company’s domestic sales. Toshiyuki Shiga, chairman of the Japan Automobile Manufacturers Association, has said he expects auto sales to turn upward in Sep-

tember from a year earlier. A recovery in domestic sales would be a relief for Japanese car makers, which have been burdened by unprofitable domestic production operations as the yen hovers near a record high against the dollar. A strong yen makes locally produced vehicles less competitive abroad and cuts into income earned overseas when repatriated. In February, domestic sales of Toyota Motor Corp. vehicles fell 21% to 115,000 vehicles from the same month a year earlier. Those at Honda Motor Co. fell 16% to 34,387 vehicles. Nissan Motor Co. sales fell 7.8% to 44,212, according to the auto-dealers association. Mazda sold 13,381 vehicles in February, off 18%, while Mitsubishi Motors Corp. logged a 29% fall to 4,285 vehicles, the association said.

TOKYO—Hoping to tap into its promising pipeline and technology platform, Daiichi Sankyo Co. said Tuesday that it will spend $805 million to buy privately held California drug maker Plexxikon Inc. Japan’s second-largest pharmaceutical company by sales said the acquisition will help it obtain certain co-promotion rights in the U.S. for the late-stage-cancer drug PLX4032, being jointly developed by Plexxikon and Roche. Plexxikon’s main research areas are cancer and central-nervous-system disorders, as well as autoimmune, neuro-inflammatory and cardiorenal diseases. Flush with cash and facing limited prospects at home, Japanese drug makers have been taking advantage of the strong yen to step up foreign acquisitions recently, attempting to expand operations to more lucrative overseas markets. On Monday, FujiFilm Holdings Corp. said it would buy all of the equity interests in two biodrug-manufacturing units of the U.S. pharmaceutical giant Merck & Co. For Daiichi, the fiscal year ending in March is shaping up to be another bumper year for profits. It expects to post a group net profit of 70 billion yen ($852 million) nearly double last year’s 41.9 billion yen. The Plexxikon deal calls for addi-

tional potential payments totaling approximately $130 million, based on near-term launch milestones with respect to PLX4032, Daiichi said. Plexxikon is conducting Phase I studies of kinase inhibitors for rheumatoid arthritis and metastatic cancer. “The acquisition of Plexxikon not only accelerates our entry into the oncology market but strengthens our pipeline and will enable us to achieve our mid- and long-term business objectives of providing world-class, innovative pharmaceuticals in core areas of unmet medical need,” said Daiichi Sankyo CEO Joji Nakayama. Daiichi, known for its bloodpressure treatment Benicar, said its researchers will draw upon Plexxikon’s proprietary ScaffoldBased Drug Discovery Platform—which uses structural data to guide chemistry for early leads—to develop new treatments. Daiichi said that the purchase, which is expected to conclude after clearance under the U.S. Antitrust Improvements Act, will be done on a debt-free basis and will be internally funded. In afternoon trading on the Tokyo Stock Exchange Tuesday, Daiichi’s shares reversed five days of losses and were up 0.3% at 1,758 yen ($21.40), trailing the 0.9% gain in the Nikkei Stock Average.

Woo family buys into Ferragamo MILAN—The Hong Kong-based Woo family has bought an 8% stake in Italian fashion house Salvatore Ferragamo SpA. The luxury-goods maker, which is based in Florence, also said it will increase its stake in its China-based distribution companies to 75% from 50% by acquiring shares from the Woo family. Financial details of the transaction weren’t disclosed.

Peter Woo is the chairman and majority shareholder of Hong Konglisted Wheelock & Co. and Wharf Holdings Ltd., two companies with about €15 billion ($21 billion) of market capitalization. Their operations include real estate, hotels, telecommunications and ports. Ferragamo Chief Executive Michele Norsa on Sunday dismissed reports that the company is planning to list in Hong Kong.

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Wednesday, March 2, 2011

CORPORATE NEWS

Small firms find a lifeline in China After halting production, a California recreational-vehicle maker gets jump-start from big investor far from home BY ANGUS LOTEN

Stepping up China's global outward direct investment, in billions*

$50 40 30

David McNew for The Wall Street Journal

Two years ago, Brad Williams halted production at his 250-employee recreational-vehicle company and eventually laid off more than 200 workers, unable to find cash to keep his factory humming when sales slowed. “During the downturn, we went on the hunt for capital, but after 44 presentations we came up short,” says Mr. Williams, 56 years old. Today MVP RV Inc. is on the verge of hiring 1,200 workers and boosting production by some 30,000 motor homes to 40,000 this year. The difference is a $310 million investment from a Chinese entrepreneur who sees Asia as an untapped market for American-made RVs. “It’s almost something out of a fairy tale,” Mr. Williams says. His Riverside, Calif., company is one of a growing number of small U.S. companies benefiting from a surge in foreign direct investment from China. Once dominated by purchases of U.S. Treasury bonds, Chinese foreign investment is shifting to mergers and acquisitions, joint ventures and taking stakes in new businesses. Private-sector Chinese businesses and investors put nearly $5 billion into U.S. firms of all sizes last year, more than double the amount in 2009, according to the Rhodium Group, a New York re-

20 10 0 ’04

Brad Williams, left, is hiring 1,200 at MVP RV, thanks to a $310 million investment from China. ‘It’s almost something out of a fairy tale,’ he says. search firm. That’s a small fraction of the more than $55 billion that has flowed from the U.S. to China, according to the U.S. Commerce Department. But the flow of private-sector investment toward the U.S. from China is expected to grow substantially, says Rhodium research director Thilo Hanemann. It isn’t clear how much of the Chinese investment funds go to small businesses. Many of the deals with small businesses are under $10 million and involve Chinese inves-

tors looking for early-stage U.S. partners as an entree into the U.S. market and for exporting goods and services back to China,, says Siva Yam, president of the U.S.-China Chamber of Commerce. Recent deals have involved clean-energy, automotive, aerospace, information-technology and healthcare industries, he says. The White House, meanwhile, is encouraging small-business owners to seek global partnerships. Of the nearly 30 million small and midsize companies, only 1% currently sell goods abroad, trade fig-

’06

’08

’10

*Excludes ﬁnancial sector

Source: China's Ministry of Commerce via CEIC

ures show. George Haley, a marketing professor at the University of New Haven in Connecticut, says although China investors provide welcome capital to U.S. companies, he worries that the ultimate goal in smallbusiness investments is part of an effort by Beijing to relocate the companies to China and reap gains in technology, resources and jobs. Mr. Williams, however, describes MVP RV’s deal as a partnership, not a takeover. “We’re not exporting jobs, we’re exporting products. We’re a homegrown company that

happens to have a partner from China,” he says. His lifeline arose almost by accident. When sales were slow last year, Mr. Williams traveled with a team of MVP RV executives to Shenzhen, China, as part of plan to remake the company as an electric-car manufacturer. Talks with the Chinese electriccar company he’d gone to meet collapsed, but Mr. Williams was introduced to Winston Chung, whose company, Winston Global Energy, makes batteries for electric vehicles. Over the course of several months, Mr. Chung became the majority shareholder in MVP RV in exchange for his $310 million investment. Messrs. Williams and Chung hope to develop a battery-powered motor home for sale in the U.S. and export to China’s rapidly expanding automotive market. Mr. Williams says although Mr. Chung is a majority owner, the company was very clear throughout negotiations that the MVP RV team will be running the business. He would regret being perceived as having sold out the company and offshoring jobs. Mr. Williams adds, “That fear is unfounded. As American businesses, we should not be fearful of partnering with foreign investors. This is something we need to do.”

Chalco posts profit, expects robust 2011 SHANGHAI—Aluminum Corp. of China Ltd., or Chalco, expects a strong but challenging 2011 as the global economy continues to regain momentum and demand for aluminum increases because of spending on mass transit. China’s largest alumina producer by output said Tuesday that it swung to a net profit in 2010 amid higher aluminum prices and increasing sales in the domestic market. “The industry is still oversupplied and production costs are still rising, but ongoing construction of nationwide highways and railways will need a lot of high-end aluminum products, which Chalco specializes in. So we’re confident of seeing another strong year,” Chairman Xiong Weiping said. Chalco will continue its diversification into the iron-ore, copper, thermal-coal, coking-coal and rareearth sectors, as its core business faces oversupply and rising raw-material costs, Mr. Xiong said Tuesday. The company said that it swung to a net profit of 778 million yuan ($118.4 million) in 2010, compared with a net loss of 4.65 billion yuan a year earlier. The most recent results were below the average profit forecast of 975.1 million yuan from 11 analysts polled by Thomson Reuters. Chalco expects its 2011 capital expenditure to be about 22.5 billion yuan, mainly dedicated to securing 500 million tons of bauxite in the domestic and overseas markets, Mr. Xiong said. “This will be part of our long-term project to realize an in-

dustry chain of coal, power and aluminum,” he said. In addition to aluminum projects Chalco is developing in Saudi Arabia and Malaysia’s Sarawak state, the company will seek bauxite resources, primarily in Southeast Asia, and will build more alumina plants there if it succeeds, Mr. Xiong said. Chalco has started new talks with the government of Australia’s Queensland state about exploring bauxite and alumina resources at the company’s Aurukun project, after Chalco shelved a plan to develop the three billion Australian dollar (US$3.05 billion) project in July, Mr. Xiong said. Domestically, Chalco has started operation at its Zunyi alumina plant in Guizhou province, and has ramped up production at its plant in Chongqing municipality, he said. The company also aims to secure five million tons of coal assets nationwide, in areas such as Xinjiang Autonomous Region, Inner Mongolia, Gansu Autonomous Region and Qinghai and Guizhou provinces, Mr. Xiong said. Chalco said it expects China to consume 18.7 million tons of aluminum this year, up 13% from its estimated consumption in 2010. Global aluminum consumption could rise 5.5% to 43.2 million tons in 2011, the company said. Chalco said its revenue for 2010 totaled 120.99 billion yuan, an increase of 72% from 70.27 billion yuan a year earlier, under Chinese accounting standards. —Yue Li

Wednesday, March 2, 2011

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THE WALL STREET JOURNAL.

CORPORATE NEWS

Sony Ericsson aims for growth in China

Rocky road Youku’s daily share price since its IPO in December $45

35

30

25

Youku.com founder and CEO Victor Koo (wearing scarf) rings the opening bell at the New York Stock Exchange in December.

D 2010

J ’11

F

M

Sources: Thomson Reuters; Zuma Press (photo)

China’s Youku narrows loss Continued from first page growing market,” said David Wolf, chief executive of Wolf Group Asia, a Beijing-based marketing-strategy firm. But “too many people, particularly institutional investors, are worried about missing ‘the next Baidu,’” he said. “All of this creates a situation where risks are acknowledged and then forgotten, and that may well be at work in the case of the Internet sector.” It’s unclear, for example, whether online video companies will be able to generate consistent profits or whether the Chinese government will keep allowing them to control their content. China has more Internet users than any other nation. But its online sector is regulated by authorities, who recently called for tighter Internet controls to help prevent social unrest. Deutsche Bank last week downgraded to “sell” the shares of China’s Sina Corp, whose microblogging service, Sina Weibo, has become one of the most popular new forums for sensitive political discussion. Meanwhile, two top Chinese sites, Baidu and Alibaba Group consumer marketplace Taobao, were named Monday by the U.S. Trade Representative as examples of “notorious

markets” for piracy. An Alibaba spokesman noted that the USTR acknowledged the company’s efforts to address piracy and said Taobao “will continue to work closely with brand owners and others to further enhance the level of trust and integrity in our online marketplaces.” Baidu declined to comment. Youku, which has been sued over pirated videos, now works with content owners to remove the videos from its website. And Victor Koo, the company’s chief executive, said Youku has systems in place to comply with Chinese censorship regulations. Youku’s revenue more than doubled to 152.5 million yuan in the fourth quarter. Advertising sales were strong as the site gained traffic and expanded its video offerings. Mr. Koo said advertisers are allocating more money for Internet ads. Youku forecast that revenue this quarter will more than double from a year ago. Youku operates similarly to Google Inc.’s Youtube, which has said it is close to being profitable. But Mr. Koo said the Chinese market offers a unique opportunity because it is easier for Chinese sites to gain the rights to television content than in the U.S., where there is more

competition from cable networks and other entertainment services. “The attractiveness of the Internettelevision business in China is the fact that there’s really no such legacy,” he said The company, which reported 216 million unique business and residential visitors in January and 58 million visitors from Internet cafes in October, focuses more on acquiring the rights to broadcast professionally produced video content on its website than Youtube does. Mr. Koo said it recently added content from Walt Disney Co., National Geographic television, Hong Kong’s Television Broadcasts Ltd., and China Central Television. Youku is testing a service through which users would pay to view premium content, including popular films such as “Inception,” and educational videos, such as courses for college entrance exams. Mr. Koo said the service so far is immaterial to Youku’s revenue. Youku Chief Financial Officer Dele Liu said the company is optimistic that its financial results will improve in the mid- to long-term, with bandwidth costs shrinking as a portion of revenue and content costs accounting for less than 20% of revenue. —Bob Davis in Beijing contributed to this article.

SAP not in merger talks, chief says BY CHRISTOPHER LAWTON AND PHILIPP GRONTZKI German software giant SAP AG said it isn’t in talks to sell itself, dampening persistent market rumors of an impending deal. “We’re not having any talks with anyone,” SAP Co-Chief Executive Jim Hagemann Snabe said during an interview. He added that the morethan-30% increase in SAP’s share price over the past year, which added €20 billion ($27.6 billion) to the company’s market value, makes SAP a less-attractive target. Solid demand for SAP’s business software amid the global economic recovery has fueled the share-price rise. Despite those gains, SAP’s narrow focus and relatively modest size have fed speculation it would be an attractive target as the maturing technology sector consolidates around industry giants such as International Business Machines Corp. and Hewlett-Packard Co. “The best medicine for SAP to

stay independent is to stay successful,” Mr. Snabe said during the interview at the CeBit technology conference in Hannover, Germany. Mr. Snabe’s comments come as the company has been trying to extend its reach into new areas. At the Cebit conference SAP launched so-called on-demand software, where companies pay a monthly fee to access the software using the Internet instead of a traditional license fee. The Sales OnDemand software, which the company previewed Tuesday, is intended to help sales professionals better connect with their colleagues and manage customer information. It will be generally available by the second quarter, the company says. Mr. Snabe said the product is unique, in part because it allows professionals to interact with each other in a similar way that Facebook Inc. allows its users to interact with friends. He added the company will

launch other on-demand products that manage travel expenses or human resources by early next year. Mr. Snabe reiterated SAP’s guidance that the company would increase its software and software-related services sales between 10% and 14%, this year, and pledged to reach €20 billion in sales by the middle of this decade. SAP reported sales of €12.5 billion in 2010. He added that given uncertainties in the world, such as oil prices, the company will revisit the guidance quarterly. On-demand software, a fastgrowing segment of the software market that is cutting into traditional software-license sales, is one aspect of SAP’s growth strategy. The Walldorf, Germany, concern also plans to offer business applications, including its new on-demand sales tool, for mobile devices such as tablets and smartphones. In July, the company purchased Sybase, a Dublin, Calif., provider of enterprise mobile software, for $5.8 billion.

BEIJING—Sony Ericsson is open to partnerships such as joint ventures in China’s gaming industry and plans to sell its new cellphoneand-videogame device, Xperia Play, in the country, Chief Executive Bert Nordberg said Tuesday. Mr. Nordberg, who was speaking during an interview, declined to give a timeline for the device’s launch in China but said the handset maker will need at least three months to make preparations, such as expanding the games available from Chinese developers. Sony Ericsson, a 50-50 joint venture between Sony Corp. of Japan and Telefon AB L.M. Ericsson of Sweden, has struggled in recent years with losses and falling market share in the competitive smartphone space. It is focusing on higher-end devices running Google Inc.’s Android operating system, such as the Xperia Play, in a bid to improve its margins and raise its share of global market revenue. The company unveiled Xperia Play at the Mobile World Congress show in Barcelona last month. Xperia Play, a crossover of the PlayStation Portable gaming console and a cellphone, is the first attempt in years by a major manufacturer to combine cellphone and full gaming capabilities in the same product. Mr. Nordberg said he expects the device to reach U.S. stores in early April at network operator Verizon Wireless, and then Western Europe. China is on track to become the company’s biggest market for mobile phones around 2013-14, Mr. Nordberg said. Sony Ericsson ranked fifth in smartphone sales in China with a 7.2% share in the fourth quarter, behind Nokia Corp., Samsung Electronics Co., Motorola Mobility Holdings Inc. and Apple Inc., according to Beijing research firm Analysys International. Mr. Nordberg also said there

Bloomberg News

BY OWEN FLETCHER

40

Sony Ericsson Chief Executive Bert Nordberg expects China to become the company’s biggest market for mobile phones around 2013-14. might be a small fluctuation in the company’s 2011 results because of foreign-exchange rate changes. Roughly half of Sony Ericsson’s revenue is in currencies besides the euro, he said. The company is hedging against fluctuations in the dollar and the euro, and usually makes its hedging investments about six months in advance, he said. “I know what I’ll pay for a dollar and a euro [for the] next six months,” Mr. Nordberg said. Mr. Nordberg said he doesn’t see any need for capital injection and doesn’t expect any changes to the company’s ownership structure. Mr. Nordberg also said that Sony Ericsson is seeking acquisition opportunities at small, innovative companies in various areas, such as “closed” social-networking groups, but he declined to name any companies that are possible targets.

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Wednesday, March 2, 2011

MARKETS

New havens for investors Dollar, once a favored refuge, loses ground to yen and franc BY TOM LAURICELLA For years, whenever significant political or financial turmoil reared its head anywhere on the globe, investors would turn to the U.S. dollar as a haven. Yet as the chaos in North Africa has grown over the past month, investors have largely shunned the dollar and sought shelter elsewhere. They have turned to other traditional islands of stability, buying Japanese yen and the Swiss franc. What has especially raised eyebrows has been the move by investors to buy euros, a currency traditionally seen as a riskier prospect than the dollar, especially with the euro zone’s debt problems still largely unresolved. This has sparked a debate over whether the dollar has lost its safehaven status. “Over the last 20 years, people have always moved into the dollar on any sort of uncertainty in the global economic space, but what we’ve seen over the past two weeks is actually a terrific move out of the dollar,” says Douglas Borthwick, a managing director at Faros Trading in Stamford, Conn. That, he says, reflects the emergence of a lack of confidence in the dollar as a safe place to stash money in times of trouble, thanks in part to concerns about rising government budget deficits in the U.S. Some say it reflects a broader move in global financial markets where, very slowly, the dollar is facing competition from other currencies as a reserve currency. Others see the lack of dollar buying as reflecting the specifics of the turmoil that started in Tunisia in late January and has spread over the past month. The inflationary impact of rising oil prices is seen as tilting the odds more in favor of in-

Diminished dollar The dollar has dropped as investors pile into the Swiss franc and Japanese yen Dollar vs. Swiss franc

3.0% 1.5 0.0

Dollar vs. yen

–1.5 –3.0

February Source: Thomson Reuters via WSJ Market Data Group

terest-rate increases in Europe. In the U.S., the Federal Reserve has said it still believes core inflation is contained, despite rising energy prices. So for now, the argument goes, there are better havens available to investors than the U.S. currency. “Safe-haven buying is very dependent on the exact nature of the shock,” says Jeff Young, head of North American foreign-exchange research at Barclays Capital. “If it’s a shock that triggers risk aversion, but the underlying cost is going to hurt the U.S. disproportionately more than Switzerland, you wouldn’t expect the dollar to be on the list of safe havens.” Since Jan. 24, the day before protests began in Egypt that would ultimately topple its government, the dollar has lost ground against the currencies of every one of socalled G-10 industrialized nations except the New Zealand dollar, which has suffered in the wake of last week’s earthquake. Even on individual days when events have sent a scare through the financial markets, the dollar hasn’t

benefited. On Jan. 25, when the protests in Egypt first flared up, the euro advanced more than two cents to almost $1.39. This contrasts with other episodes of flight-to-safety currency buying in the past. During the 2008 global financial crisis, the dollar rose by roughly 24%. Analysts at BCA Research also point out that some investors also are looking to gold as a more appealing haven investment. “We would agree with this assessment,” the analysts wrote. Gold rose 5.7% in February, its biggest monthly gain since April 2010. When it comes to the buying of euros, many strategists point to the idea that the jump in oil prices over the past few weeks has increased conviction among investors that the European Central Bank will be more likely to raise interest rates before the year is out. However, the Federal Reserve is widely seen as not viewing higher oil prices as an inflation risk and thus not tightening monetary policy until 2012. Mr. Borthwick at Faros says that focus on oil misses the point of flight-to-quality buying, which is that investors are thinking first and foremost of moving their money somewhere safe where they can be sure they will get it back. With investors increasingly wary of the ability of the U.S. to solve its fiscal problems and the Fed perceived to be “printing dollars” as part of its quantitative-easing strategy to support the economy, there’s less confidence that the U.S. dollar is “safe” in the sense, Mr. Borthwick says. “It’s the knee-jerk reaction that matters,” he said. “Nowadays the knee-jerk reaction is buy euros and not to buy dollars. The mindset of buying euros is a complete switch.”

India funds face a grind in selling to foreigners BY SHEFALI ANAND NEW DELHI—A new rule that would allow foreign individuals to buy Indian mutual funds may not find takers any time soon. On Monday, Indian Finance Minster Pranab Mukherjee said in his annual budget address that he will soon allow foreign investors to buy stock mutual funds managed by Indian fund companies. So far, only foreign institutional investors who are registered with the Indian capital markets regulator, the Securities and Exchange Board of India, can buy India-managed funds. Indian fund companies would face a costly task of marketing their products abroad and servicing foreign investors. They face competition from India-dedicated mutual funds available in foreign countries. “Indian fund houses will have to work very hard to establish their credentials and position themselves as fund houses, which have a very good track record,” says Deepak Chatterjee, managing director and chief executive officer at SBI Funds Management Pvt. Ltd. Several large Indian fund houses expect to tap overseas investors once the rules become clearer.

“Building up the international business is important to us,” says Milind Barve, managing director of HDFC Asset Management Co. “Individual investors in the U.S. and Europe want to participate in the Indian growth story,” says Nandita Agarwal Parker, principal at Karma Capital Management LLC, a U.S.-based private fund manager. She believes that the Indian government “is trying to diversify the flows that are coming to India.” Among the details that still are unclear is how foreign fund buyers will meet Indian rules on verifying investor details. Investors will be required to meet “Know Your Customer” norms prescribed by the Reserve Bank of India, which include sharing details like an individual’s Permanent Account Number (an Indian tax ID). It isn’t clear what information foreigners will have to provide. The new rule “sounds good on paper, but we need to see the fine print,” says Jaya Prakash K., head of products at Franklin Templeton Asset Management (India) Pvt. Ltd., a unit of San Mateo, California-based Franklin Resources Inc. He says “there might be some impact, but not as much as being made out.”

Destination India Several American companies have mutual fund units or joint ventures based in India. Here are some of the largest companies Assets under management as of December 2010, in billions of U.S. dollars

Fund company Franklin Templeton Asset Management (India) Private

$8.8

DSP BlackRock Investment Managers

6.2

FIL Fund Management Private (Fidelity)

2.0

Principal PNB Asset Management Private

1.3

J.P. Morgan Asset Management (India) Private

1.2

Sources: Association of Mutual Funds in India; WSJ reporting

Insider case hits ex-Goldman official

Your Business is

our Business. Visit asia.WSJ.com/subscribe to start your subscription today.

asia.WSJ asia. WSJ.com WSJ .com

NEW YORK—The former head of McKinsey & Co. provided improper tips to Galleon Group founder Raj Rajaratnam about companies in which he was a board member, including a $5 billion investment in Goldman Sachs Group Inc. by Warren Buffett’s Berkshire Hathaway Inc., according to a U.S. Securities and Exchange Commission proceeding filed Tuesday. Rajat K. Gupta, who headed McKinsey from 1994 to 2000, was charged with insider trading in a civil administrative proceeding filed by the SEC’s Division of Enforcement on Tuesday. He left the consulting firm in 2007. Mr. Gupta, a former director at Goldman and a board member with Procter & Gamble Co., allegedly provided Mr. Rajaratnam with tips about the results for both companies, in addition to the Berkshire investment in 2008. Mr. Rajaratnam is slated to go to trial next week in a closely watched insider-trading case. “Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets,” said Robert Khuzami, director of the SEC’s Division of Enforcement.

Bloomberg News

BY CHAD BRAY

Rajat K. Gupta tied to Galleon figure. A lawyer for Mr. Gupta didn’t immediately return a phone call seeking comment Tuesday. Mr. Gupta’s lawyer previously said that Mr. Gupta has “neither violated any law nor done anything else improper.” Mr. Gupta, a friend and business associate of Mr. Rajaratnam, allegedly called Mr. Rajaratnam after a special telephone conference call by Goldman’s board and tipped him to the Berkshire investment and Goldman’s coming public equity offering before it was announced in Septem-

ber 2008, according to the SEC. Within a minute after the call, Mr. Rajaratnam allegedly arranged for Galleon funds to purchase more than 175,000 Goldman shares, the SEC said. Mr. Rajaratnam liquidated his holdings the day after the information became public, making $900,000 in illicit profits, the SEC said. Goldman Sachs declined to comment Tuesday. Mr. Rajaratnam, who goes to trial on criminal conspiracy and securities-fraud charges next week, has separately been charged by the SEC in a civil lawsuit. He has denied wrongdoing. A spokesman for Mr. Rajaratnam declined to comment Tuesday. Mr. Gupta, who left Goldman’s board last May after not standing for re-election, also allegedly provided Mr. Rajaratnam with details about Goldman Sachs’s positive financial results in the second quarter of 2008 and its negative results in the fourth quarter of 2008, the SEC said. Mr. Rajaratnam allegedly generated more than $13.6 million in illicit profits related to his trading before Goldman’s second-quarter announcement and avoided more than $3 million in losses based on the tip regarding fourth-quarter results, the SEC said.

Wednesday, March 2, 2011

21

THE WALL STREET JOURNAL.

MARKETS

Goldman’s possible hit: $3.4 billion BY LIZ MOYER AND BRETT PHILBIN Goldman Sachs Group Inc. could lose as much as $3.4 billion in damages and other litigation-related matters involving securities it underwrote in the last few years for which the purchasers are now suing to recover losses or to force the firm to buy them back. In a securities filing Tuesday, Goldman estimated that the figure, in the upper range of estimates, was “reasonably possible.” The Wall Street firm disclosed this worst-case scenario to comply with new rules from the Securities and Exchange Commission regarding contingent liabilities. The accounting standard demands that companies state what is less than likely, but has more than a slight chance of happening. These poten-

tial legal losses are on top of what companies have already set aside. Banks face a mountain of lawsuits related to the financial crisis, particularly from investors who bought mortgage-backed securities that later tumbled in value. J.P. Morgan Chase & Co. said Monday that it faces up to $4.5 billion in legal losses in its own worstcase scenario, the highest estimate of any of the banks reporting so far. Citigroup Inc. estimated potential losses of $4 billion last week, while Bank of America Corp. put its worst-case number at $1.5 billion and Wells Fargo & Co. estimated $1.2 billion above reserves. Goldman said in its annual report to the SEC that plaintiffs suing it over losses from mortgage-related securities had cumulative losses of approximately $457 million as of December. The plaintiffs, including

the Federal Home Loan Banks of Seattle, Chicago and Indianapolis, Charles Schwab Corp., Cambridge Place Investment Management Inc., Basis Yield Alpha Fund (Master) and Landesbank Baden-Wuerttemberg, have filed complaints in state and federal courts against Goldman, alleging that “offering documents for the securities that they purchased contained untrue statements of material facts and material omissions” and they are “generally seeking rescission and damages.” Goldman also said it expects to be the subject of “additional putative shareholder derivative actions, purported class actions, rescission and ‘put back’ claims and other litigation, additional investor and shareholder demands, and additional regulatory and other investigations and actions with respect to

THE PROPERTY REPORT

mortgage-related offerings, loan sales, CDOs, and servicing and foreclosure activities.” CDOs, or collateralized debt obligations, are debt instruments. Last year the firm paid $550 million, the largest SEC fine paid by a Wall Street firm, to settle charges it misled investors in one such CDO product it packaged with the help of hedge fund Paulson & Co. As a result of that settlement, Goldman revised its business practices, vowing to be more clear in its financial reporting. Meanwhile, Goldman disclosed it had 25 days in 2010 in which its traders either made no money or lost money. That compares with 235 days in which they were in the black, including 68 days in which they had trading gains of $100 million or more. Trading in the fourth quarter was the weakest of the year,

EU bans insurers from varying prices by sex BY CHARLES FORELLE

Bloomberg News

Shimao Property will use some of the proceeds to finance construction. Above, a Shimao project in Kunshan, China.

Shimao shrinks planned bond amid glut of similar offerings BY NATASHA BRERETON SINGAPORE—Shimao Property Holdings Ltd. priced $350 million in international dollar bonds at the wider end of guidance on Tuesday, after earlier reducing the size of the deal amid a slew of recent issuance from China’s real-estate sector. The property developer priced the bonds at par to yield 11%. It attracted more than $765 million in bids from more than 100 accounts, according to a term sheet for the deal seen by Dow Jones Newswires. The yield for the seven-year bond, which is callable after four years and matures March 8, 2018, was at the broader end of price guidance given in the late Asian afternoon, of 10.875% to 11%. The China-based company had initially hoped to raise up to $500 million, paying a yield of around 11%, people familiar with the deal said. Analysts said that the reduced size of the proposed bond deal reflected the limits of investors’ abil-

ity to digest the surge of issuance seen from Chinese property companies in recent months, as well as what some described as its relatively tight pricing. The Hong Kong-listed company plans to use proceeds to finance the redemption of maturing floatingrate notes, repay other debts, fund development projects and for general corporate purposes. Standard & Poor’s Ratings Services assigned a speculative BB- rating to Shimao’s proposed dollar bond on Tuesday, matching the rating on the developer’s outstanding notes. Even so, it is a notch lower than Shimao’s corporate credit rating, on the view that offshore note holders would be materially disadvantaged compared with onshore creditors if the company were to default. But S&P downgraded the outlook on the company’s BB rating to negative on concerns that the Chinabased developer’s credit ratios could deteriorate.

with 13 days in which Goldman’s traders had zero gains or posted losses. The second-worst quarter was the three months ended in June, when Goldman had 10 days at or below zero. Goldman said its value-at-risk limit was exceeded once last year to facilitate a client transaction and was resolved by a reduction in the risk position on the following day. Average daily value at risk last year was $134 million, down from $218 million in 2009. Goldman also said its Litton Loan Servicing subsidiary, which had suspended evictions, foreclosures and sales of foreclosed properties in a number of states due to concerns about improper procedures industrywide, had recently resumed some of those activities. —David Benoit and Liz Rappaport contributed to this article.

“In our view, Shimao’s key metrics and financial flexibility could weaken, given its aggressive debt issuance and expansion,” said Frank Lu, an S&P credit analyst. The property firm’s ratio of debt to earnings before interest, taxes, depreciation and amortization likely hovered around five at the end of 2010, S&P’s trigger for a ratings cut, and probably will be even higher by the end of this year, he said. Moody’s rates the proposed bond at B1, in line with the international dollar bonds the company sold in July, a term sheet for the planned deal showed. The agency rates the corporate at Ba3, the equivalent of a notch below S&P. Fitch assigned the planned notes an expected rating of BB+, the highest speculative-grade rating. It said that the proposed bonds wouldn’t change the company’s credit profile, and that the proceeds would enhance Shimao’s liquidity to meet its short-term debt obligations.

BRUSSELS—The European Union’s highest court declared illegal the widespread practice of charging men and women different rates for insurance, roiling the industry and setting in motion an overhaul of how life, auto and health policies are written across Europe. Two Belgian men had challenged the higher life-insurance premiums charged to members of their sex, arguing that it was discriminatory. In a ruling Tuesday, the Luxembourgbased European Court of Justice agreed. The judgment can’t be appealed. It will have vast implications: Insurers routinely charge women, who live longer, lower premiums for life insurance and smaller sums for annuities; male drivers, who statisti-

cally cause more accidents, pay higher premiums for auto policies. But the court ruled that the practice runs afoul of the EU’s overarching prohibitions on discrimination. The union’s Charter of Fundamental Rights enumerates 14 categories on which discrimination is prohibited; sex is the first. A separate provision states that “equality between men and women must be ensured in all areas.” The judges said insurers in the 27-member European Union have until Dec. 21, 2012, to change their practices. Malcolm Tarling, a spokesman for the Association of British Insurers, said the trade group was “disappointed” because “gender is an important risk-rating factor.” The CEA, a Brussels-based trade group for European insurers and reinsurers, said the ruling was “bad news for insurance customers.”

BUSINESS REAL ESTATE INVESTMENT PROPERTIES

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22

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

INTERNATIONAL INVESTOR

Economic data give dollar bit of bounce BY JAVIER E. DAVID

ing inflationary pressures. The euro was knocked to U.S. session lows just above $1.38 in the wake of the data, but recovered to near $1.3825 in uneven trading. “The overall tone [of Bernanke’s testimony] was more positive about the economic picture,” said Vassili Serebriakov, foreign-exchange strategist at Wells Fargo in New York. In noon trading, the euro was at $1.3808 compared with $1.3799 late Monday. The dollar bought 81.84 yen from 81.81 yen. The euro was at 113.04 yen from 112.30 yen. The pound fetched $1.6285 from $1.6256, and the dollar was at 0.9275 Swiss franc from 0.9290 franc.

NEW YORK—The dollar firmed modestly Tuesday, assisted by a combination of strong U.S. manufacturing data and a constructive outlook on the economy from Federal Reserve Chairman CURRENCY Ben Bernanke. MARKETS Traders took some comfort in Mr. Bernanke’s remarks that the Fed was prepared to respond to counter price pressures. Analysts also took note of a key gauge of manufacturing activity in the U.S., which turned in its best performance since May 2004 last month but reflected grow-

Treasurys fall on economic data BY MIN ZENG

“Bernanke helped the bond market recover some ground,” said Michael Franzese, head of Treasury trading at Wunderlich Securities in New York. “Bernanke said higher energy prices could undermine the economic recovery and his comments showed the Fed will stay on course” in continuing its $600 billion Treasury bond buying program begun in November to support the economy. In late-morning trading, the benchmark 10-year note was 12/32 lower to yield 3.461%. Bond prices move inversely to yields.

NEW YORK—Treasurys fell Tuesday as manufacturing reports out of the U.S., China and the euro zone raised some optimism on the global economic outlook. Losses were U.S. CREDIT tempered by comMARKETS ments from Federal Reserve Chairman Ben Bernanke, who continued to signal that the economy, while improving, isn’t strong enough for the central bank to consider a change in its accommodative monetary policy.

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Data as shown is for information purposes only. No offer is being made by Morningstar, Ltd. or this publication. Funds shown aren’t registered with the U.S. Securities and Exchange Commission and aren’t available for sale to United States citizens and/or residents except as noted. Prices are in local currencies. All performance figures are calculated using the most recent prices available.

FUND NAME

NAV GF AT LB DATE CR

NAV

—%RETURN— YTD 12-MO 2-YR

n AHW CAPITAL MANAGEMENT Tel (+49) 1805 - 23 82 82 www.ahw-capital.com AHW Top-Div.Int.

GL

EQ LUX 02/28 EUR

53.81

4.5

11.5

23.2

15.1 14.1 20.7 21.4 19.5 20.2 21.7 9.9 9.9 9.9 9.9 9.9 9.1 9.1 9.1 9.1 9.1 9.4 9.4 10.5 9.7 9.8 9.8 8.7 8.7 8.7 9.3 9.3 10.3 18.1 17.0 17.6 19.1 8.5 8.5 8.7 8.7 8.7

32.2 30.9 34.0 34.8 32.7 33.4 35.1 19.2 19.2 19.2 19.2 19.2 18.3 18.4 18.4 18.4 18.4 18.6 18.7 19.9 27.1 27.2 27.2 25.9 25.9 25.9 26.5 26.6 27.7 46.7 45.3 46.0 47.9 26.9 26.9 27.1 27.1 27.2

n ALLIANCE BERNSTEIN www.alliancebernstein.com/investments Tel. +800 2263 8637 Am Eq Blend A Am Eq Blend B Am Growth A Am Growth AX Am Growth B Am Growth C Am Growth I Am Income A Am Income A2 Am Income A2 Am Income AT Am Income AT Am Income B Am Income B2 Am Income B2 Am Income BT Am Income BT Am Income C Am Income C2 Am Income I Emg Mkts Debt A Emg Mkts Debt A2 Emg Mkts Debt AT Emg Mkts Debt B Emg Mkts Debt B2 Emg Mkts Debt BT Emg Mkts Debt C Emg Mkts Debt C2 Emg Mkts Debt I Emg Mkts Growth A Emg Mkts Growth B Emg Mkts Growth C Emg Mkts Growth I Eur Income A Eur Income A Eur Income A2 Eur Income A2 Eur Income AT

US US US US US US US OT OT OT OT OT OT OT OT OT OT OT OT OT GL GL GL GL GL GL GL GL GL GL GL GL GL OT OT OT OT OT

EQ EQ EQ EQ EQ EQ EQ OT OT OT OT OT OT OT OT OT OT OT OT OT BD BD BD BD BD BD BD BD BD EQ EQ EQ EQ OT OT OT OT OT

LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX

Europe Equity

BY JENNY STRASBURG

Leading 10 Performers

02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 HKD 02/28 USD 02/28 HKD 02/28 USD 02/28 USD 02/28 HKD 02/28 USD 02/28 HKD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 EUR 02/28 USD 02/28 EUR 02/28 USD 02/28 EUR

11.77 10.94 36.48 39.64 30.32 32.83 40.81 8.83 165.67 21.27 68.62 8.81 8.83 141.60 18.18 69.01 8.86 8.83 27.12 8.83 16.15 22.41 16.20 16.15 21.34 16.17 16.15 21.91 16.15 38.30 32.09 33.03 42.86 6.88 9.50 14.34 19.80 6.88

3.4 3.3 8.3 8.5 8.2 8.2 8.5 1.2 1.1 1.1 1.2 1.2 1.1 1.0 1.0 1.0 1.0 1.1 1.0 1.3 -0.6 -0.6 -0.6 -0.8 -0.8 -0.8 -0.7 -0.7 -0.5 -3.2 -3.3 -3.3 -3.1 1.9 1.9 2.0 2.0 2.0

NAV GF AT LB DATE CR

Eur Income B Eur Income B Eur Income B2 Eur Income B2 Eur Income BT Eur Income C Eur Income C Eur Income C2 Eur Income C2 Eur Income I Eur Income I Eur Strat Value A Eur Strat Value A Eur Strat Value I Eur Strat Value I Eur Value A Eur Value A Eur Value B Eur Value B Eur Value C Eur Value C Eur Value I Eur Value I EuroZone Strat Val AX EuroZone Strat Val AX EuroZone Strat Val BX EuroZone Strat Val BX EuroZone Strat Val CX EuroZone Strat Val IX EuroZone Strat Val IX Gl Balanced (Euro) A Gl Balanced (Euro) B Gl Balanced (Euro) C Gl Balanced (Euro) I

OT OT OT OT OT OT OT OT OT OT OT EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU

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FUND NAME

OT OT OT OT OT OT OT OT OT OT OT EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ BA BA BA BA

LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX

02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28

NAV

EUR USD EUR USD EUR EUR USD EUR USD EUR USD EUR USD EUR USD EUR USD USD EUR EUR USD USD EUR USD EUR EUR USD EUR USD EUR USD USD USD USD

6.88 9.50 13.23 18.27 6.87 6.88 9.50 14.22 19.63 6.88 9.50 9.41 12.99 9.72 13.42 10.23 14.12 12.84 9.30 9.84 13.59 16.46 11.92 11.64 8.43 7.49 10.34 6.35 12.81 9.28 17.38 16.75 17.19 17.85

—%RETURN— YTD 12-MO 2-YR 1.8 1.8 1.9 1.9 1.8 1.8 1.8 1.9 1.9 2.0 2.0 4.8 4.8 5.0 5.0 4.7 4.7 4.5 4.5 4.7 4.7 4.8 4.8 7.3 7.3 7.0 7.0 7.1 7.4 7.4 NS NS NS NS

7.8 7.8 7.9 7.9 7.8 8.1 8.1 8.2 8.2 9.1 9.1 15.0 15.0 16.0 16.0 16.1 16.1 15.0 15.0 15.6 15.6 17.1 17.1 23.1 23.1 21.8 21.8 22.4 24.1 24.1 NS NS NS NS

NS NS NS NS NS NS NS NS NS NS

FUND MGM'T CO.

NAV GF AT LB DATE CR

NAV

26.1 26.1 26.2 26.2 26.1 26.4 26.4 26.5 26.5 27.5 27.5 27.2 27.2 28.1 28.1 29.4 29.4 28.1 28.1 28.8 28.8 30.4 30.4 28.6 28.6 27.3 27.3 27.9 29.7 29.7 NS NS NS NS

—%RETURN— YTD 12-MO 2-YR

2352.40

1.7

32.3

54.4

101.43

-17.2

-0.9

11.0

n CREDIT PACIFIC ASSET MANAGMENT www.creditpacific.com GL OT WSM 02/28 USD

NOTE: Changes in currency rates will affect performance and rankings. KEY: ** 2YR and 5YR performance is annualized NA-not available due to incomplete data; NS-fund not in existence for entire period

people said. Todd Builione, Highbridge’s chief operating officer, has also been in Hong Kong and plans to remain there until the end of this week, said one person familiar with the matter. Highbridge sold about $1.4 billion in holdings in recent days, as it sought to get the best price for those assets before telling investors

FUND NAME

NAV GF AT LB DATE CR

Gl Balanced A Gl Balanced B Gl Balanced C Gl Balanced C Gl Balanced I Gl Bond A Gl Bond A2 Gl Bond A2 Gl Bond AT Gl Bond AT Gl Bond B Gl Bond B2 Gl Bond B2 Gl Bond BT Gl Bond BT Gl Bond C Gl Bond C2 Gl Bond I Gl Conservative A Gl Conservative A2 Gl Conservative B Gl Conservative B2 Gl Conservative C Gl Conservative C2 Gl Conservative I Gl Eq Blend A Gl Eq Blend B Gl Eq Blend C Gl Eq Blend I Gl Growth A Gl Growth B Gl Growth C Gl Growth I Gl High Yield A

US US US US US OT OT OT OT OT OT OT OT OT OT OT OT OT US US US US US US US GL GL GL GL GL GL GL GL OT

BA BA BA BA BA OT OT OT OT OT OT OT OT OT OT OT OT OT BA BA BA BA BA BA BA EQ EQ EQ EQ EQ EQ EQ EQ OT

LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX

02/28 USD 02/28 USD 02/28 USD 02/28 EUR 02/28 USD 02/28 USD 02/28 HKD 02/28 USD 02/28 HKD 02/28 USD 02/28 USD 02/28 HKD 02/28 USD 02/28 HKD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD

FUND NAME

NAV GF AT LB DATE CR

Platinm-Gbl Dividend Platinm-Nordic Platinm-Premier Platinm-Turnberry

GL OT OT OT

NAV 18.08 16.99 17.75 12.86 18.90 9.44 133.43 17.13 73.37 9.42 9.44 115.43 14.82 73.68 9.46 9.44 14.78 9.44 15.56 18.14 15.57 17.04 15.59 17.65 15.64 12.93 12.00 12.64 13.77 46.67 38.51 44.55 52.30 4.69

—%RETURN— YTD 12-MO 2-YR 3.2 3.0 3.1 3.1 3.3 0.1 0.2 0.2 0.1 0.1 0.0 -0.1 -0.1 0.0 0.0 0.1 0.1 0.2 1.7 1.6 1.5 1.5 1.6 1.6 1.7 5.3 5.2 5.2 5.4 4.0 3.8 3.9 4.1 2.3

12.2 11.0 11.8 11.8 12.9 4.7 4.7 4.7 4.7 4.7 3.7 3.6 3.6 3.7 3.7 4.2 4.2 5.2 8.0 7.5 6.8 6.5 7.5 7.0 8.5 16.8 15.7 16.3 17.8 16.5 15.3 16.0 17.4 16.1

24.4 23.2 24.0 24.0 25.2 11.0 11.0 11.0 10.9 10.9 9.9 9.9 9.9 9.9 9.9 10.5 10.5 11.6 15.6 15.3 14.4 14.2 15.1 14.8 16.4 33.3 32.0 32.7 34.3 30.7 29.4 30.1 31.8 37.6

CYM USA USA USA USA

01/31 10/31 01/31 01/31 05/29

USD USD USD USD USD

102.26 129.92 115.19 113.15 35.02

CYM CYM CYM USA

01/31 01/31 08/29 01/31

USD SEK USD USD

78.75 637.61 28.37 60.53

—%RETURN— YTD 12-MO 2-YR 2.0 -4.7 NS -0.6

26.1 1.6 NS -0.4

33.5 7.9 NS NS

GL GL GL GL GL

OT OT OT OT OT

CYM LUX CYM CYM AUT

02/22 02/22 02/22 02/22 02/22

USD USD USD USD EUR

52.89 2490.00 1257.12 1217.36 7298.00

-3.3 -3.2 -4.1 -5.2 -2.4

56.4 32.0 41.5 49.4 19.0

-22.3 -18.7 -1.7 -10.8 -9.4

11.2 11.4 11.3 0.1 14.4 0.1 0.1

8.1 8.3 8.3 17.5 14.4 17.4 17.7

NS NS 3.5 3.9 4.8 3.2 4.0

n WINTON CAPITAL MANAGEMENT LTD Tel: +44 (0)20 7610 5350 Fax: +44 (0)20 7610 5301

n PLATINUM CAPITAL MANAGEMENT Tel: +44 207 024 9840, www.platinumfunds.net OT OT OT OT OT

EQ OT OT OT

NAV

n SUPERFUND ASSET MANAGEMENT GMBH For info about open funds, contact [email protected] and www.superfund.com *Closed for New Investments Superfund Cayman* Superfund GCT USD* Superfund Green Gold A (SPC) Superfund Green Gold B (SPC) Superfund Q-AG*

OT OT OT OT OT

0.3 NS -0.9 2.0 -18.2

4.4 NS 5.0 19.5 -63.7

LEGAL CURR. BASE

YTD

Fidelity FIL Investments JPYJPN Europe Smaller Co A (Japan) Limited Fidelity FIL Investments JPYJPN European S Comp B (Japan) Limited JP JF Europe JPMorgan Asset JPYJPN Dotcom Open Management (Japan) Ltd. Nomura Nomura Asset JPYJPN Europe Open A Management Co., Ltd. Baring Baring Asset JPYJPN Mizuho Pan-Europe Stk Management (Japan) Limited DaiwaSB/SMBC Daiwa Sb JPYJPN Europe Stock Investments Ltd. Nomura Nomura Asset JPYJPN Europe Open B Management Co., Ltd. Pictet Pictet Asset JPYJPN European A Management (Japan) Ltd. DKA SWIP Mizuho Asset JPYJPN Euro Stock SMA Management Co., Ltd. Deutsche Deutsche Asset JPYJPN Euro Star Open Management Japan Ltd.

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AlexandraConvertibleBondFundI,Ltd.(ClassA) OT OT VGB 01/31 USD

Platinm-All Star Platinm-All Weather Platinm-Dynasty Platinm-Emancipation Platinm-Equity Plus

FUND FUND RATING * NAME

% Return in $US ** 1-YR 2-YR 5-YR

1.26 45.28 59.02 11.39 6.33 40.44 54.68

6.53

2.52 32.22 40.58 -4.91 3.02 29.59 46.65

6.60

6.34 27.66 37.87

NS

5.18 25.59 37.98

NS

8.02

25.41 42.48

2.88

1.83 25.10 40.54

4.08

7.39

24.21 30.17

NS

4.83 23.98 35.90 -0.13

Source: Morningstar, Ltd 1 Oliver’s Yard, 55-71 City Road London EC1Y 1HQ United Kingdom www.morningstar.co.uk; Email: [email protected] Phone: +44 (0)203 107 0038; Fax: +44 (0)203 107 0001

of Mr. Huttenlocher’s departure, said people familiar with the matter. Executives were planning Tuesday to send clients a letter with the news. Mr. Huttenlocher’s exit has surprised people both inside and outside of Highbridge, in part because he and his team raised several hundred million dollars from Highbridge clients since 2009.

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n ALEXANDRA INVESTMENT MANAGEMENT Tel: +1 212 301 1800 Fax: +1 212 301 1810

CPS-Master Priv Fund

Funds investing primarily into European headquartered companies. At least 75% of equity assets in companies traded on European stock exchanges. Ranked on % total return (dividends reinvested) in Euros for one year ending March 01, 2011

The head of Highbridge Capital Management’s Asia investments is leaving the multibillion-dollar hedge-fund firm owned by J.P. Morgan Chase & Co., people familiar with the matter said. Carl Huttenlocher, a senior manager who joined Highbridge in 2002 and serves on its investment committee, has told colleagues that he plans to start his own hedge fund, the people said. He oversees about $2 billion in assets, including the Highbridge Asia Opportunities Fund, which is run out of Hong Kong, as well as roughly 8% of Highbridge’s main multistrategy hedge fund based in New York, the people said. That fund has around $7 billion in assets. Highbridge started winding down the Asia equities portfolio overseen by Mr. Huttenlocher late last week, after he told executives in New York of his decision to leave, said people familiar with the matter. The winddown of the Asia Opportunities Fund represents the closure of one of Asia’s largest hedge funds. Mr. Huttenlocher referred questions to a Highbridge spokeswoman, who declined to comment. His departure was earlier reported by the website Dealbreaker. Highbridge founder and Chief Executive Glenn Dubin is in Hong Kong this week to meet with employees as the selloff of assets continued, the

INTERNATIONAL INVESTMENT FUNDS FUND NAME

FUND SCORECARD

Asian chief of Highbridge is leaving firm

9.8 NS 11.6 24.1 -45.6

Winton Evolution EUR Cls H Winton Evolution GBP Cls G Winton Evolution USD Cls F Winton Futures EUR Cls C Winton Futures GBP Cls D Winton Futures JPY Cls E Winton Futures USD Cls B

GL GL GL GL GL GL GL

OT OT OT OT OT OT OT

CYM CYM CYM VGB VGB VGB VGB

09/30 09/30 09/30 01/31 11/30 01/31 01/31

EUR 1049.82 GBP 1056.92 USD 1332.74 EUR 224.87 GBP 234.75 JPY 15874.03 USD 801.13

FUND NAME

NAV GF AT LB DATE CR

NAV

—%RETURN— YTD 12-MO 2-YR

Gl High Yield A2 Gl High Yield A2 Gl High Yield AT Gl High Yield AT Gl High Yield B Gl High Yield B2 Gl High Yield B2 Gl High Yield BT Gl High Yield BT Gl High Yield C Gl High Yield C2 Gl High Yield I Gl Thematic Res. A Gl Thematic Res. B Gl Thematic Res. I Gl Value A Gl Value B Gl Value C Gl Value I Greater China A Greater China B Greater China C India Growth A India Growth AX India Growth B India Growth BX India Growth I Int'l Health Care A Int'l Health Care B Int'l Health Care C Int'l Health Care I Int'l Technology A Int'l Technology B Int'l Technology C Int'l Technology I Japan Eq Blend A Japan Eq Blend B Japan Eq Blend C Japan Growth A Japan Growth B Japan Growth C Japan Strat Value A Japan Strat Value B Japan Strat Value C Real Estate Sec. A Real Estate Sec. B Real Estate Sec. I Short Mat Dollar A Short Mat Dollar A2 Short Mat Dollar AT Short Mat Dollar B Short Mat Dollar B2 Short Mat Dollar BT Short Mat Dollar C Short Mat Dollar C2 Short Mat Dollar I US Thematic Portfolio A EUR H US Thematic Portfolio B EUR H US Thematic Portfolio C EUR H US Thematic Portfolio I EUR H US Thematic Research A US Thematic Research B US Thematic Research I

OT OT OT OT OT OT OT OT OT OT OT OT GL GL GL GL GL GL GL AS AS AS EA EA EA EA EA OT OT OT OT OT OT OT OT JP JP JP JP JP JP JP JP JP OT OT OT US US US US US US US US US US US US US US US US

85.37 10.96 4.64 36.14 4.69 135.61 17.41 36.84 4.73 4.69 16.16 4.69 17.88 15.46 20.12 12.36 11.22 11.95 13.27 42.97 37.58 42.20 131.64 115.46 136.30 97.55 120.35 139.75 116.52 133.25 154.11 139.83 119.76 134.42 158.24 6099.88 5822.20 5973.14 5713.54 5454.58 5595.92 6795.00 6493.00 6645.00 17.34 15.66 18.81 7.45 10.34 7.44 7.45 10.24 7.45 7.45 14.48 7.45 20.10 19.98 20.04 20.20 11.21 10.20 12.17

2.3 2.3 2.3 2.3 2.1 2.1 2.1 2.3 2.3 2.2 2.2 2.4 2.9 2.8 3.1 6.7 6.5 6.6 6.8 -3.0 -3.2 -3.1 -13.8 -13.8 -14.0 -13.9 -13.7 2.0 1.8 1.9 2.1 7.6 7.5 7.6 7.8 2.1 2.0 2.1 1.7 1.6 1.6 7.4 7.2 7.3 4.1 4.0 4.3 0.8 0.8 0.8 0.7 0.7 0.7 0.7 0.7 0.9 7.1 7.0 7.0 7.2 7.2 7.0 7.3

For information about listing your funds, please contact: Carson Wong tel: +852 2831-6481; email: [email protected]

OT OT OT OT OT OT OT OT OT OT OT OT EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ BD BD BD BD BD BD BD BD BD EQ EQ EQ EQ EQ EQ EQ

LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX

02/28 HKD 02/28 USD 02/28 USD 02/28 HKD 02/28 USD 02/28 HKD 02/28 USD 02/28 HKD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 JPY 02/28 JPY 02/28 JPY 02/28 JPY 02/28 JPY 02/28 JPY 02/28 JPY 02/28 JPY 02/28 JPY 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 USD 02/28 EUR 02/28 EUR 02/28 EUR 02/28 EUR 02/28 USD 02/28 USD 02/28 USD

16.1 16.1 15.9 15.9 15.0 14.9 14.9 15.1 15.1 15.6 15.6 16.8 26.4 25.1 27.4 17.6 16.4 17.2 18.6 15.3 14.2 14.8 7.0 7.3 5.9 6.3 7.9 0.8 -0.2 0.3 1.6 33.0 31.7 32.4 34.1 4.2 3.2 3.7 2.6 1.7 2.2 11.2 10.2 10.7 24.6 23.3 25.6 5.0 5.0 5.0 4.5 4.5 4.5 4.5 4.5 5.5 NS NS NS NS 31.4 30.1 32.4

37.7 37.7 37.6 37.6 36.1 36.3 36.3 36.4 36.4 37.0 37.1 38.4 49.4 48.0 50.6 36.2 34.9 35.7 37.3 36.0 34.6 35.4 NS 47.8 NS 46.3 48.5 16.5 15.3 15.9 17.4 46.2 44.7 45.5 47.4 16.2 15.1 15.7 9.6 8.5 9.1 26.0 24.8 25.4 48.7 47.2 49.9 9.7 9.7 9.8 9.2 9.2 NS 9.2 9.3 10.3 NS NS NS NS 36.1 34.7 37.1

Wednesday, March 2, 2011

23

THE WALL STREET JOURNAL.

INTERNATIONAL INVESTOR

U.S., Europe stocks fall as Nymex oil nears $99 BY DONNA KARDOS YESALAVICH AND BRENDAN CONWAY

ter the regional bank said the U.S. Securities and Exchange Commission has subpoenaed information from it regarding commercial-loan matters. Las Vegas Sands slid 6.6% after the casino operator disclosed that it is being investigated by the SEC and the U.S. Justice Department regarding its compliance with the Foreign Corrupt Practices Act. Lorillard gained 2.6% after a Food and Drug Administration panel said there was insufficient evidence that smoking menthol cigarettes is riskier than nonmenthol.

NEW YORK—U.S. stocks declined as crude-oil futures resumed their upward trend while investors found comments from Federal Reserve Chairman Ben Bernanke uninspiring. The Dow Jones Industrial Average fell 74.85 points, or 0.5%, to 12151.49 in midday ABREAST OF trading, erasing THE MARKET early gains. Alcoa was among the biggest decliners, losing 2.5%. The Nasdaq Composite shed 0.9% to 2756.86. The Standard & Poor’s 500-stock index dropped 0.8% to 1317.02, led lower by the materials and industrial sectors. The declines came as crude-oil futures neared $99 a barrel on the New York Mercantile Exchange. “With the unrest in the Middle East which is spreading, oil is going to indubitably affect the economy going forward,” said Gerald Buetow, chief investment officer at Innealta Capital, a division of Al Frank Asset Management. In the U.S., investors read the latest comments from Mr. Bernanke as a sign that the Fed’s second and current round of quantitative easing “is going to be it,” Mr. Buetow said. “If that’s the case ... there’s going to be no more support for a lot of these risky plays” that have driven the stock market’s gains since late August, he added. Fifth Third Bancorp fell 3.8% af-

European stocks Shares gave up early gains to end in the red, as unrest in the Middle East continued to act as a brake on broadly solid economic expectations. The Stoxx Europe 600 index lost 0.6% to settle at 284.63. In the Middle East, Saudi Arabia’s Tadawul All Share Index plunged 6.8%, extending losses for the year to more than 16%. Oil producers Total dropped 2.1% in Paris and Eni shed 1.1% in Milan as worries about production continued to weigh on the sector. HSBC Holdings sank 2.9% as investors continued to react to Monday’s disappointing earnings and analysts cut their ratings. Luxottica rallied 3.3% in Milan after the luxury-goods firm said its fourth-quarter profit nearly doubled and it raised its dividend.

BY KAZUHIRO SHIMAMURA

BY COLIN NG AND WEI-ZHE TAN

TOKYO—Japanese governmentbond yields rose again as an auction of 10-year debt failed to impress investors. The benchmark 10-year yield rose 0.015 percentage point to 1.27%. Some investors reduced their bond-market exposure ahead of the two trillion yen BOND ($24.45 billion) sale MARKETS of 10-year bonds, but the auction result wasn’t strong enough to lure their money back into the market. Bids totaled 5.833 trillion yen, for a bid-to-cover ratio of 2.91, topping 2.69 at the last sale. A higher bid-to-cover ratio is an indication of stronger demand. The auction’s tail, which looks at the difference between the average price and the lowest accepted price, slightly lengthened to 0.09 from the previous tender’s 0.06, in an indication that demand was weaker. Analysts say the new issue’s 1.3% coupon, compared with 1.2% in the previous 10-year sale a month ago, is attractive, but investors have mixed views on the outlook for the market. Analysts agree that the market will benefit from the unusually high level of redemptions this month, as holders of maturing bonds don’t have a lot of alternatives in which to park their cash.

Indian stocks soared, with auto companies leading after Monday’s federal budget didn’t raise excise duties and on data showing that vehicle sales increased in February. Most other regional markets also advanced. Tokyo was helped by a weaker yen, while ASIAN-PACIFIC Shanghai and STOCKS Hong Kong advanced after two separate surveys showed that China’s manufacturing activity continued to expand in February but at a slower pace, which some analysts said could make Beijing less aggressive on monetary tightening. India’s Sensex leapt 3.5% to 18446.50, the third consecutive rise. Japan’s Nikkei Stock Average rose 1.2% to 10754.03. China’s Shanghai Composite advanced 0.5% to 2918.92, and Hong Kong’s Hang Seng Index rose 0.3% to 23396.42. Australia’s S&P/ASX 200 slipped 0.1% to 4826.40. In Mumbai, the robust vehicle sales reports boosted auto stocks that already were buoyant after a much-feared increased in excise taxes wasn’t included in the national budget released Monday. Tractor and utility-vehicle maker Mahindra & Mahindra jumped 8.4%, Tata Motors rose 5.4% and Maruti Suzuki climbed 7.1%. Mahindra’s February sales excluding those of tractors rose 20% in number of

[ Search by company, category or country at asia.WSJ.com/funds ] FUND NAME

NAV GF AT LB DATE CR

NAV

—%RETURN— YTD 12-MO 2-YR

n ALLIANZ GLOBAL INVESTORS KAPITALANLAGEGESELLSCHAFT Concentra AE Industria AE InternRent AE

EU EQ DEU 03/01 EUR EU EQ DEU 03/01 EUR EU BD DEU 03/01 EUR

64.60 77.00 39.06

2.3 0.0 -3.1

30.2 9.5 5.7

41.5 24.8 5.6

n CHARTERED ASSET MANAGEMENT PTE LTD - TEL NO: 65-6835-8866 Fax No: 65-6835 8865, Website: www.cam.com.sg, Email: [email protected] CAM-GTF Limited

OT

OT MUS 02/18 USD 396377.48

-4.5

35.3

72.7

FUND NAME

NAV GF AT LB DATE CR

NAV

GAMStarPharoEmerMktDebt&FXUSDAcc GAMStar-AsEqUSD Ord Ac GAMStar-AsPacEqEUR Acc GAMStar-ContEurEqEUR Ac GAMStar-EurpEqEUR Acc GAMStar-EurpEqUSD Acc GAMStar-JpnEq EUR Acc GAMStar-JpnEq JPY Acc GAMStar-JpnEq USD Acc GAMStar-World Eq EUR Acc

GL BD IRL 02/22 USD OT OT IRL 02/28 USD AS EQ IRL 02/28 EUR EU EQ IRL 02/28 EUR EU EQ IRL 02/28 EUR EU EQ IRL 02/28 USD JP EQ IRL 02/28 EUR JP EQ IRL 02/28 JPY JP EQ IRL 02/28 USD GL EQ IRL 02/25 EUR

10.74 14.06 117.50 12.78 202.26 17.04 102.65 1001.44 12.55 11.92

—%RETURN— YTD 12-MO 2-YR -3.0 -5.6 0.7 0.5 0.6 3.3 4.7 6.0 5.8 4.1

5.3 13.0 13.1 20.4 14.1 16.0 10.8 7.9 10.1 18.6

NS 37.7 22.6 27.5 23.4 28.4 20.0 18.3 21.7 26.3

n HSBC Trinkaus Investment Managers SA E-Mail: [email protected] Telephone: 352 - 47 18471 n GAM FUND MANAGEMENT LIMITED George's Court, 54-62 Townsend Street, Dublin 2, Ireland Tel +353 1 609 3927 Fax +353 1 611 7941, Internet: www.gam.com GAM Asia Equity Hedge US GAM Asia Equity USD GAM Asia-Pacific Eq USD GAM Com Glb Bal EUR Op GAM Com Glb Bal USD Op GAM Comp Glb Eq EUR Op GAM Comp Glb Eq USD Op GAM Comp Glb Gr EUR Op GAM Comp Glb Gr USD Op GAM CompAbsRT EUR Op GAM CompAbsRT SGD Op GAM CompAbsRT USD Op GAM Cptal Apprec Eq Inc GAM Diversity EUR Op GAM Diversity USD 2.5XL GAM Diversity USD Op GAM Dvrsty II USD Op GAM Euro Eq Hdg EUR Op GAM Euro Eq Hdg USD Op GAM GAMCO Eq GAM Gbl Divers USD Inc. GAM Grtr China Eq Hdg Op GAM Intrst Trend Inc GAM Japan Eq Hdg USD Op GAM Japan Eq Hdg YEN Open GAM Japan Eq USD GAM Japan Eq YEN GAM Money Mkt EuroOp GAM Money Mkt USD GAM Multi-Arb EUR Op GAM Multi-Emer Mkts USD GAM Multi-Eur EUR Op GAM Multi-Eur II EUR Op GAM Multi-Eur II USD Op GAM Multi-Eur USD Op GAM Selection Hdg GAM Sing/Malaysia Eq GAM Sterling Spe Bd Inc GAM Trading EUR Inc GAM Trading USD Inc GAM Trdg II IncUSD Op GAM USDSpecBondInc GAM Worldwide GAMut Investments GAMut Investments - T class

GL OT AS US US GL GL US US OT OT OT US OT OT OT OT EU EU US GL GL OT AS AS JP JP EU US OT OT OT OT OT OT US EA OT OT OT OT OT GL OT GL

EQ OT EQ BA BA EQ EQ BA BA OT OT OT EQ OT OT OT OT EQ EQ EQ EQ EQ OT EQ EQ EQ EQ MM MM OT OT OT OT OT OT EQ EQ OT OT OT OT OT EQ OT OT

VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB VGB

02/21 02/28 02/28 02/21 02/21 02/21 02/21 02/21 02/21 02/21 02/21 02/21 02/25 02/21 02/21 02/21 02/21 02/25 02/25 02/22 02/28 02/21 02/21 02/21 02/21 02/28 02/28 02/28 02/25 02/21 02/21 02/21 02/21 02/21 02/21 02/18 02/28 02/21 02/07 02/21 02/21 02/21 02/25 02/23 11/30

USD USD USD EUR USD EUR USD EUR USD EUR SGD USD USD EUR USD USD USD EUR USD USD USD USD USD USD JPY USD JPY EUR USD EUR USD EUR EUR USD USD USD USD GBP EUR USD USD USD USD USD USD

276.70 684.56 1428.89 107.02 142.29 117.27 150.79 100.10 143.88 151.38 109.35 908.21 315.43 639.50 73.80 676.11 206.38 236.65 219.33 1075.20 292.65 246.94 324.45 134.11 9262.49 1263.55 9679.95 51.06 100.07 90.19 674.78 290.54 149.52 122.60 507.48 3408.32 2757.32 251.84 341.84 1031.32 334.99 649.55 2483.36 8139.31 116.46

2.3 -5.3 3.1 2.7 2.7 4.5 4.5 3.5 3.5 1.2 1.6 1.6 8.1 1.8 4.2 1.9 1.7 -3.6 -2.9 4.0 7.1 2.4 4.9 5.2 5.3 7.0 7.3 -0.1 0.0 -2.1 -1.0 3.5 3.5 3.6 3.6 3.4 -5.8 2.4 -0.3 0.1 0.1 3.3 6.8 0.1 2.5

6.7 12.7 13.2 13.3 13.3 23.5 23.5 16.9 16.9 6.6 7.3 7.7 29.0 -1.0 -4.6 -0.4 -1.4 7.9 7.8 34.8 22.3 -3.2 17.9 8.1 8.4 12.3 9.5 0.2 0.3 -19.8 5.8 10.0 10.1 10.3 10.4 28.6 15.1 13.1 5.7 6.8 6.8 17.1 20.3 6.5 10.3

30.2 39.3 27.7 15.3 15.3 24.5 24.5 17.6 17.6 8.0 8.5 8.9 39.3 1.4 1.0 1.8 0.9 10.9 11.4 44.0 27.3 33.5 47.5 13.0 16.4 22.6 18.6 0.5 0.1 -10.0 14.0 6.9 6.9 7.0 6.8 45.9 37.8 29.3 4.6 5.5 5.5 48.4 31.1 3.5 NS

AS OT OT OT

EQ OT OT OT

IRL IRL IRL IRL

02/25 02/24 02/22 02/25

USD USD USD USD

19.58 10.64 11.06 10.41

-3.2 -2.8 1.9 -1.3

13.5 NS 8.9 NS

58.5 NS NS NS

n GAM Star Fund Plc GAMStar China EqUSD (SCHUA) GAMStar Emer Mkt Rates USD Acc GAMStar Global Rates USD Acc GAMStar Keynes Quant Strategy USD Acc

Prosperity Return Fund A Prosperity Return Fund B Prosperity Return Fund C Prosperity Return Fund D Renaissance Hgh Grade Bd A Renaissance Hgh Grade Bd B Renaissance Hgh Grade Bd C Renaissance Hgh Grade Bd D

JP OT OT OT JP JP JP JP

BD OT OT OT BD BD BD BD

LUX LUX LUX LUX LUX LUX LUX LUX

02/28 02/28 02/28 02/28 02/28 02/28 02/28 02/28

JPY JPY USD EUR JPY JPY USD EUR

9969.50 8968.45 98.72 113.33 10244.11 9174.35 100.20 106.64

1.6 4.1 5.5 1.8 2.3 4.7 5.9 1.2

LIST YOUR FUNDS

-0.2 -3.7 5.3 13.5 3.3 -0.5 8.6 7.4

NS NS NS NS NS NS NS NS

n J.P. MORGAN ASSET MANAGEMENT For additional fund prices, please visit www.jpmorganam.com.sg Tel: +65 6882 1328 JF ASEAN Eq (SGD)A(acc) JF ASEAN Eq (USD)A(acc) JF Asia Pac ex-Jap Eq(SGD)A(acc) JF Asia Pac ex-Jp (USD)A(acc) JF China (SGD)A(acc) JF China (USD)A(dist) JF Greater China (SGD)A(acc) JF Greater China (USD)A(dist) JF India (SGD)A(acc) JF India (USD)A(acc) JF Korea Equity (USD) A (acc) JF Pacific Tech (USD) A (acc) JF Singapore (SGD)A(acc) JF Singapore (USD)A(dist) JPM Africa (USD) A (acc) JPM Asia Pac Bond (USD)A(acc) JPM Brazil Alpha+ (USD)A(acc) JPM Brazil Alpha+(SGD)A(acc) JPM East Eur (EUR)A(dist)(JF) JPM Emerg EMEA (SGD)A(acc) JPM Emerg EMEA (USD)A(dist) JPM Emerg Mid East Eq(SGD)A(acc) JPM Emerg Mid East(USD)A(dist) JPM Emerg Mkt Eq (SGD)A(acc) JPM Emerg Mkt Eq (USD)A(dist) JPM Emerg Mkt Infra(USD)A(acc) JPM Emerg Mkt LC Debt(USD)A(mth) JPM Glb Dyn (SGD)A(acc) JPM Glb Dyn (USD)A(dist)(JF) JPM Glb Nat Res (EUR)A(dist) JPM Glb Nat Res (SGD)A(acc) JPM Glb Nat Res (USD)A(acc) JPM Latin Amer Eq(SGD)A(acc) JPM Latin Amer Eq(USD)A(dist)JF JPM Russia (USD) A (dist)

AS EQ LUX 02/28 SGD AS EQ LUX 02/28 USD AS EQ LUX 02/28 SGD AS EQ LUX 02/28 USD AS EQ LUX 02/28 SGD AS EQ LUX 02/28 USD AS EQ LUX 02/28 SGD AS EQ LUX 02/28 USD EA EQ LUX 02/28 SGD EA EQ LUX 02/28 USD AS EQ LUX 02/28 USD OT EQ LUX 02/28 USD AS EQ LUX 02/28 SGD AS EQ LUX 02/28 USD OT OT LUX 02/28 USD AS BD LUX 02/28 USD OT OT LUX 02/28 USD OT OT LUX 02/28 SGD EU EQ LUX 02/28 EUR GL EQ LUX 02/28 SGD GL EQ LUX 02/28 USD OT OT LUX 02/28 SGD OT OT LUX 02/28 USD GL EQ LUX 02/28 SGD GL EQ LUX 02/28 USD OT OT LUX 02/28 USD OT OT LUX 02/28 USD GL EQ LUX 02/28 SGD GL EQ LUX 02/28 USD GL EQ LUX 02/28 EUR GL EQ LUX 02/28 SGD GL EQ LUX 02/28 USD GL EQ LUX 02/28 SGD GL EQ LUX 02/28 USD EE EQ LUX 02/28 USD

India sets Asian pace as car sales lift stocks

Japan yields rise as auction underwhelms

14.65 15.13 14.22 19.82 12.75 48.60 14.18 27.92 14.10 25.07 10.74 17.03 15.18 31.89 11.01 10.70 11.18 13.62 33.87 14.54 61.99 12.49 21.76 14.35 31.62 8.58 15.86 15.22 14.10 22.04 26.73 21.69 14.19 44.31 16.82

-7.1 -5.8 -5.5 -4.8 -3.4 -2.7 -5.4 -4.7 -14.5 -13.9 -5.5 -0.1 -6.6 -5.9 -7.5 -1.2 -6.9 -8.1 -2.8 -5.1 -4.4 -15.1 -13.9 -6.4 -5.8 -4.9 -0.4 4.5 5.1 -3.0 -0.6 0.1 -7.6 -6.3 4.0

In print & online. Contact:

NS 36.4 NS 15.4 -0.3 10.2 7.9 19.2 1.1 11.7 32.3 17.3 10.3 22.0 25.1 NS 12.8 NS 23.9 NS 25.0 NS 12.5 7.0 18.2 22.4 13.8 11.7 23.5 44.6 33.3 47.3 NS 18.5 29.6

NS NS NS 47.3 NS 37.1 NS 42.3 NS 49.2 60.3 38.6 NS 58.1 58.4 NS 56.8 NS 75.4 NS 63.5 NS 27.5 NS 47.4 53.7 NS NS 36.0 64.4 NS 72.1 NS 62.1 100.4

vehicles from a year earlier, while Tata Motors’ sales excluding Jaguar and Land Rover models rose 12%. Maruti’s sales climbed 16%. Banks rose on hopes the lowerthan-expected borrowing program announced by the government Monday will push down short-term borrowing rates for banks. ICICI Bank jumped 5.7%. HDFC Bank leapt 4.2%. State Bank of India rose 2.9%. In Tokyo, stocks were cheered by the weaker yen and expectations for solid numbers for the U.S. Institute for Supply Management manufacturing data released later in the U.S. Dentsu rose 4.9% on a business tieup with Facebook. Shinsei Bank rose 7.7% on a Credit Suisse Group rating upgrade to “outperform” after it unveiled a capital-raising plan. Sumitomo Mitsui Financial Group rose 3.2% on plans to buy back 210 billion yen ($2.57 billion) of preferred shares for retirement. In China, the official manufacturing purchasing managers’ index slowed to 52.2 in February from 52.9 in January, while the HSBC PMI for February fell to 51.7 from 54.5. Both sets of data also highlighted rising input-cost pressures. Some analysts thought the data could lessen Beijing’s aggressiveness on monetary tightening. Others thought there would be no change in policy. Aluminum Corp. of China rose 2.1% in Shanghai but shed 4% in Hong Kong. The company swung to a profit in 2010, though the figure fell short of expectations.

INTERNATIONAL INVESTMENT FUNDS

FUND NAME

NAV GF AT LB DATE CR

NAV

—%RETURN— YTD 12-MO 2-YR

Advertisement

FUND NAME

NAV GF AT LB DATE CR

Eq. MENA EURO A Eq. MENA USD A Eq. US Rel Val A Money Market EURO A Money Market USD A

OT OT LUX OT OT LUX US EQ LUX EU MM LUX US MM LUX

02/28 02/28 02/25 02/25 02/25

EUR USD USD EUR USD

NAV 36.37 50.26 25.22 27.56 15.89

—%RETURN— YTD 12-MO 2-YR -13.0 -13.0 6.8 0.1 0.0

-1.1 -1.1 24.1 0.6 0.3

21.8 21.8 38.3 0.6 0.3

-7.0 -4.8 -5.1 -2.6

-16.3 0.1 NS -2.7

-5.6 6.6 NS 8.6

n MANULIFE ASSET MANAGEMENT TEL:(852)2108 1110 Internet:http://www.manulife.com.hk 47/F Manulife Plaza, Causeway Bay, Hong Kong American Growth American Growth AA Asian Equity Asian Equity AA Asian Sm Cap Equity AA China Value A China Value AA Dragon Growth Dragon Growth AA Emg Eastrn Europe A Emg Eastrn Europe AA European Growth European Growth AA Global Contrarain AA Global Property AA Global Resources AA Healthcare AA India Equity AA International Growth International Growth AA Japanese Growth Japanese Growth AA Latin America Equity AA Manulife GF Strategic Income Fund AA MGF Asia Value Dividend Equity Fund Russia Equity AA Taiwan Equity AA Turkey Equity AA U.S. Bond AA U.S. Sm Cap Equity AA U.S. Special Opportunities U.S. Tsy Inf-ProtSec AA

US EQ LUX 03/01 USD US EQ LUX 03/01 USD OT OT LUX 03/01 USD OT OT LUX 03/01 USD OT OT LUX 03/01 USD AS EQ LUX 03/01 USD AS EQ LUX 03/01 USD AS EQ LUX 03/01 USD AS EQ LUX 03/01 HKD EU EQ LUX 03/01 USD EU EQ LUX 03/01 USD EU EQ LUX 03/01 USD EU EQ LUX 03/01 USD GL EQ LUX 03/01 USD OT EQ LUX 03/01 USD GL EQ LUX 03/01 USD OT EQ LUX 03/01 USD EA EQ LUX 03/01 USD GL EQ LUX 03/01 USD GL EQ LUX 03/01 USD JP EQ LUX 03/01 USD JP EQ LUX 03/01 USD GL EQ LUX 03/01 USD OT OT LUX 03/01 USD OT OT LUX 03/01 USD EE EQ LUX 03/01 USD AS EQ LUX 03/01 USD OT OT LUX 03/01 USD US BD LUX 03/01 USD US EQ LUX 03/01 USD US BD LUX 03/01 USD OT OT LUX 03/01 USD

18.33 1.05 2.83 0.91 1.54 8.11 2.54 1.76 8.59 5.52 2.36 10.38 0.74 1.17 0.83 1.35 1.05 1.18 3.42 0.79 3.21 0.83 1.40 1.12 1.35 0.87 1.26 0.88 1.19 1.10 1.03 1.20

5.8 5.7 -2.3 -2.4 -3.7 -3.5 -3.6 -2.1 -2.0 2.4 2.3 6.7 6.6 -1.1 3.7 3.0 3.7 -14.4 5.3 5.3 5.3 5.5 -4.6 1.9 -3.2 5.5 -5.0 -10.6 1.4 3.5 2.4 1.3

21.9 21.6 22.4 22.1 34.9 21.6 21.3 13.4 13.5 25.7 25.6 23.0 22.7 27.6 25.8 30.1 11.2 9.0 15.2 14.9 15.2 13.0 16.3 12.4 20.5 34.6 27.3 25.6 8.4 27.4 22.3 6.3

32.2 31.8 45.6 45.1 65.7 40.6 40.3 36.4 36.4 67.3 67.1 41.2 40.9 67.1 52.9 40.3 19.5 43.6 26.6 26.3 23.5 22.6 54.3 NS NS 82.4 50.4 72.5 13.9 56.7 58.6 8.1

n PT CIPTADANA ASSET MANAGEMENT Tel: +62 21 25574 883 Fax: +62 21 25574 893 Website: www.ciptadana.com Indonesian Grth Fund

GL

EQ BMU 02/23 USD

168.58

-7.4

29.0

75.3

n THE NATIONAL INVESTOR TNI Tower | Zayed 1st Street Khalidia| Web:www.tni.ae TNI Mena Real Estate Fund TNI MENA Special Sits Fund TNI MENA UCITS Fund TNI UAE Blue Chip Fund

OT OT OT OT

EQ BMU OT BMU OT IRL OT ARE

02/24 01/31 02/24 02/24

USD USD USD AED

760.22 1092.55 1010.59 4.62

n WEBSITE: WWW.VALUEPARTNERS.COM.HK, TEL: (852) 2880 9263, FAX: (852) 2564 8487 *formerly known as China ABH Shares Fund Intel-Chin Mainlnd Foc Intel-China Converg* VP Classic - A VP CLassic - B VP High Dividend Stk

AS AS AS AS OT

EQ EQ EQ EQ OT

CYM CYM CYM CYM CYM

01/31 02/15 02/28 02/28 02/14

USD USD USD USD USD

36.07 134.40 217.41 100.74 57.33

-2.5 -2.9 -3.0 -3.1 0.3

28.2 23.7 21.0 20.4 32.3

52.4 50.8 48.6 47.8 51.4

JP

EQ IRL 03/01 JPY

10232.00

8.6

13.8

18.3

JP JP

EQ IRL 03/01 JPY EQ IRL 04/27 JPY

6300.00 5230.34

5.6 -7.3

6.8 -5.4

10.1 -27.3

EQ IRL 03/01 JPY EQ IRL 03/01 JPY

7229.00 8721.00

4.4 7.0

7.2 12.0

14.2 13.7

4696.00 5380.00 5242.00

8.8 6.7 5.3

4.3 4.5 10.9

9.6 10.4 14.6

4415.00 4713.00 6961.00 9363.00 6760.00 7993.00 5316.00 12631.00 7825.00 7768.00 6042.00 2710.00

8.7 5.1 5.4 5.9 4.5 4.0 7.2 6.2 3.7 6.4 8.2 5.5

6.4 5.3 3.4 11.8 9.0 5.4 6.8 7.6 3.0 14.6 9.9 0.1

10.5 10.7 13.7 16.0 12.6 6.9 12.4 15.7 8.8 19.8 15.1 11.2

n YUKI MANAGEMENT & RESEARCH n YMR-N Series YMR-N Growth Fund

n Yuki 77 Series Yuki 77 General Yuki 77 Growth

n Yuki Chugoku Series

[email protected]

Yuki Chugoku Jpn Gen Yuki Chugoku JpnLowP

n Yuki Hokuyo Japan Series

n SENSIBLE ASSET MANAGEMENT LIMITED www.samfund.com.hk Tel: (852) 2868 6848 Fax: (852) 2810 9948 Asia Value Formula Fd-B

OT

OT CYM 02/28 USD

10.14

-4.1

30.2

62.3

n SGAM FUND AMUNDI HONG KONG LIMITED Hotline in Hong Kong (852) 2521 4231 Bonds US OppsCoreplus A Bonds World A Eq. AsiaPac Dual Strategies A Eq. China A Eq. Global Energy A Eq. Global Resources A Eq. Gold Mines A Eq. India A Eq. Luxury & Lifestyle EURO A Eq. Luxury & Lifestyle USD A

US BD LUX 02/25 USD OT OT LUX 02/25 USD AS EQ LUX 02/28 USD AS EQ LUX 02/28 USD OT EQ LUX 02/25 USD GL EQ LUX 02/25 USD OT EQ LUX 02/25 USD EA EQ LUX 02/28 USD OT EQ LUX 02/25 EUR OT EQ LUX 02/25 USD

JP JP

Yuki Hokuyo Jpn Gen Yuki Hokuyo Jpn Inc Yuki Hokuyo Jpn Sm Cap

JP JP JP

EQ IRL 03/01 JPY EQ IRL 03/01 JPY EQ IRL 02/25 JPY

JP JP JP JP JP JP JP JP JP JP AS AS

EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ

n Yuki Mizuho Series 40.59 43.82 11.27 23.37 21.33 136.29 38.67 134.19 91.49 125.77

1.0 -0.2 -4.8 -3.6 10.4 2.7 -4.9 -14.3 -1.0 -1.0

8.6 5.3 15.9 7.1 26.0 33.6 38.2 9.0 41.0 41.0

12.2 8.6 43.1 32.9 29.4 44.2 37.5 43.1 57.9 57.9

Yuki Mizuho Gen Jpn III Yuki Mizuho Jpn Dyn Gro Yuki Mizuho Jpn Exc 100 Yuki Mizuho Jpn Gen Yuki Mizuho Jpn Gro Yuki Mizuho Jpn Inc Yuki Mizuho Jpn Lg Cap Yuki Mizuho Jpn LowP Yuki Mizuho Jpn PGth Yuki Mizuho Jpn SmCp Yuki Mizuho Jpn Val Sel Yuki Mizuho Jpn YoungCo

For information about listing your funds, please contact: Carson Wong tel: +852 2831-6481; email: [email protected]

IRL IRL IRL IRL IRL IRL IRL IRL IRL IRL IRL IRL

03/01 03/01 03/01 03/01 03/01 03/01 03/01 03/01 03/01 03/01 03/01 03/01

JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY

24

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

BLUE CHIPS BONDS Dow Jones Asia Titans: Tuesday's best and worst...

Major players benchmarks

Market value, in billions of US$

Company

Country

Industry

Hon Hai Precision Ind

Taiwan

Electrical Cmpnts Eqpmnt $37.3

Previous close, in local currency

STOCK PERFORMANCE Previous session

114.00

52-week

Three-year

-2.2%

4.59%

-32.1%

At right, a look at the Asia Titans, the biggest and best known companies in Asia. Below, some of the Dow Jones Titans indexes of biggest and most liquid stocks in individual countries and regions

Cheung Kong

Hong Kong

Real Estate Hldg Dev

37.5

126.00

Mitsubishi UFJ Finl

Japan

Banks

79.3

468.00

Giants around the world

Japan Tobacco

Japan

Tobacco

40.7

348,000

3.26

7.2

-34.5

Sumitomo Mitsui Finl

Japan

Banks

54.2

3,185

3.24

10.3

-99.6

Westfield Grp

Australia

Retail

$22.6

9.64

-1.13%

1.9

-29.5

In U.S.-dollar terms.

Dow Jones Country Titans INDEX PERFORMANCE Previous session

Italy

Australia

Banks

70.8

23.27

-1.10

-12.3

-0.2

National Australia Bk

Banks

55.1

25.57

-0.89

10.0

Australia

-0.2

-11.4

5.9

QBE Insurance Group

Australia

Reinsurance

19.2

17.98

-0.88

-16.1

-20.3

Aus NZ Bk

Australia

Banks

62.5

24.02

1.8

9.2

-0.13 -0.26

7.7

7.1

Japan

1.39

7.4

5.9

7.3

32.9

Russia

-0.45

Canada

0.46

6.1

17.8

Netherlands

0.26

5.6

12.6

Germany

0.01

4.9

21.9

Switzerland

0.05

4.4

1.5

China 88

0.56

3.7

-7.6

Australia

-0.24

2.1

0.9

1.38

1.6

13.9

U.K.

-0.40

1.5

7.2

Brazil

-0.03

-1.4%

9.7

Sweden

-0.27

-2.3

18.1

1.92

-3.1

14.2

-0.96

-3.4

13.2

South Africa South Korea Turkey

-4.7

Closed -2.77

Nissan Motor 43.7 Japan (Automobiles) Mizuho Financial Grp 40.4 Japan (Banks) China Mobile (HK) 190.8 Hong Kong (Mobile Telecommunications) East Japan Railway 28.1 Japan (Travel Tourism) Reliance Industries 71.2 India (Exploration Production) Seven I Hldgs 25.1 Japan (Broadline Retailers) Nippon T&T 65.6 Japan (Fixed Line Telecommunications) NTT DoCoMo 79.6 Japan (Mobile Telecommunications) Honda Motor 80.4 Japan (Automobiles) Sun Hung Kai Prop 42.2 Hong Kong (Real Estate Holding Development) CNOOC 103.2 Hong Kong (Exploration Production) Mitsubishi 46.1 Japan (Industrial Suppliers) Indl Comm Bk China 67.6 Hong Kong (Banks) Mitsui 33.3 Japan (Industrial Suppliers) Tokio Marine Hldgs 26.1 Japan (Property Casualty Insurance) Taiwan Smcndtr Mfg 62.5 Taiwan (Semiconductors) China Construction Bank 212.4 Hong Kong (Banks) Nintendo 37.7 Japan (Toys) Toyota Motor 148.0 Japan (Automobiles) Woolworths 33.4 Australia (Food Retailers Wholesalers)

14.1

Insurance

12.8%

0.44%

25.1%

11.4

14.9

10.4

29.8

unch.

Media

-0.18

Banks

-0.46

8.3

7.9

Ind Gds Svcs

0.27

7.7

26.9

Chemicals

0.48

7.1

35.2

Global 50

0.15

Asian 50

1.01

Tiger 50*

0.67

Arab 50

-0.25

6.0 3.2

12.4 12.5

1.0

18.9

-8.1%

Market value, in billions (U.S)

Company/Country (Industry)

21.9

-10.8

-0.46

...And the rest of Asia's blue chips

Dow Jones Regional Sector Titans Oil Gas

1.8

*Asia excluding Japan

Latest, in local currency

STOCK PERFORMANCE Latest 52-week Three-year

857.00

2.63%

21.6%

172.00

2.38

-2.8

Company/Country (Industry)

-11.1%

Tokyo Elec Power Japan (Electricity) KDDI Japan (Mobile Telecommunications) PetroChina Hong Kong (Integrated Oil Gas) Kansai Elec Power Japan (Electricity) Nippon Steel Japan (Steel) Shin-Etsu Chml Japan (Specialty Chemicals) Sony Japan (Consumer Electronics) BHP Billiton Australia (General Mining) Canon Japan (Electronic Office Equipment) Takeda Pharm Japan (Pharmaceuticals) Panasonic Japan (Consumer Electronics) Rio Tinto Ltd. Australia (General Mining) Bank of China Hong Kong (Banks) Shinhan Financial Grp South Korea (Banks) China Life Insurance Hong Kong (Life Insurance) Samsung Electronics South Korea (Semiconductors) POSCO South Korea (Steel) Woodside Petroleum Australia (Exploration Production) Commonwlth Bk of Aus Australia (Banks) JFE Hldgs Japan (Steel)

-100.0

74.75

2.33

-3.3

-37.7

5,820

2.28

-5.1

-99.3

43.55

2.25

0.4

-28.4

2,328

2.24

16.9

-11.5

4,070

2.01

4.4

-99.1

156,400

1.89

13.3

0.3

3,610

1.83

17.2

10.7

128.10

1.83

16.9

-7.8

18.00

1.81

46.6

34.1

2,299

1.68

2.6

-29.7

6.07

1.51

7.2

11.7

1,507

1.41

7.0

-35.3

2,715

1.34

7.3

-30.7

71.40

1.28

19.8

15.9

6.88

1.03

16.1

17.2

24,190

0.92

-2.5

-54.7

3,855

0.92

17.0

-33.0

27.10

0.82

-1.6

-6.5

Market value, in billions (U.S)

2,130

28.8

534,000

28.9 23.8

All statistics published in The Wall Street Journal Asia from markets outside the Asian-Pacific region reflect preliminary data.

STOCK PERFORMANCE Latest 52-week Three-year

0.76%

-13.3%

-21.0%

0.75

9.9

-16.6

10.68

0.75

20.7

-9.8

2,161

0.70

1.9

-15.6

22.9

298.00

0.68

-10.8

-46.8

24.4

4,725

0.64

-1.0

-17.7

36.6

3,010

0.57

-1.5

-39.7

158.3

46.37

0.56

13.2

17.2

59.6

3,960

0.51

5.9

-17.8

39.3

4,085

0.49

1.7

-30.3

27.9

1,106

0.45

-11.9

-50.5

37.8

85.31

0.45

19.5

-37.7

44.2

4.12

0.24

9.6

28.6

19.9

47,100

...

13.6

-8.5

28.3

29.65

...

-15.5

-5.7

106.7

923,000

...

24.1

64.8

31.6

460,000

...

-13.2

-13.2

33.7

42.57

-0.02

-2.1

-25.3

82.8

53.04

-0.13

-2.6

25.9

16.6

2,571

-0.16

-23.1

-45.8

Sources: Dow Jones Indexes; WSJ Market Data Group

Credit derivatives

Credit-default swaps: Asian companies

Spreads on credit derivatives are one way the market rates creditworthiness. Regions that are treading in rough waters can see spreads swing toward the maximum—and vice versa. Indexes below are for five-year swaps.

At its most basic, the pricing of credit-default swaps measures how much a buyer has to pay to purchase-and how much a seller demands to sell-protection from default on an issuer's debt. The snapshot below gives a sense which way the market was moving yesterday.

Markit iTraxx Indexes Index: series/version

Europe: 14/1 Eur. High Volatility: 14/1 Europe Crossover: 14/1 Asia ex-Japan IG: 14/1 Japan: 14/1

Mid-spread, in pct. pts. Mid-price

SPREAD RANGE, in pct. pts. since most recent roll Maximum Minimum Average

Coupon

Spreads Spreads on fiveyear swaps for corporate debt; based on Markit iTraxx indexes.

Showing the biggest improvement...

And the most deterioration

CHANGE, in basis points

0.97

100.11%

0.01%

1.20

0.94

1.03

1.35

98.47

0.01

1.84

1.29

1.52

SK Energy

124

–4

3

–7

3.88

104.43

0.05

5.37

3.83

4.47

ORIX

156

–2

–5

–31

1.10

99.56

0.01

1.25

0.93

1.08

OBAYASHI

109

...

2

5

1.03

99.84

0.01

1.16

0.90

1.02

Sumitomo Metal

70

...

...

–16

Malayan Bkg

87

1

1

Note: Data as of February 28

— NOTICE TO READERS —

Latest, in local currency

41.6

Source: Dow Jones Indexes

Tracking credit markets dealmakers

-50.5

Westpac Bking

France

Singapore

5.9

2.6

5.0%

52-week

Spain

Hong Kong

30.0

10.1%

Year-to-date

-0.43%

3.96 3.31

In percentage points

Index roll

6.00 Europe Crossover t

4.50 3.00

Europe

1.50

t

0 Sept. Oct. Nov. Dec. Jan. Feb. 2010 2011 Source: Markit Group

WSJ.com Follow the markets throughout the day, with updated stock quotes, news and commentary at WSJ.com. Also, receive emails that summarize the day’s trading in Europe and Asia. To sign up, go to WSJ.com/Email.

CHANGE, in basis points

Yesterday Yesterday Five-day 28-day

Yesterday Yesterday Five-day 28-day Korea Dev

120

3

4

–1

Expt Import

119

3

5

–1

Kajima

218

3

–1

9

Korea Elec

96

3

5

...

–3

Indl Bk Korea

121

3

4

–5

Woori

144

1

4

–5

GS Caltex Oil

120

3

5

–2

Mizuho Corporate

102

2

8

9

Kookmin

130

4

4

–2 –2

SK Telecom

90

2

3

...

Samsung Electrs

74

5

6

Lg Electrs

108

2

4

–2

KT

97

6

4

1

HYUNDAI

115

2

2

–3

ACOM

338

9

8

–90

Source: Markit Group

Europe: Bank revenues from equity capital markets Behind every IPO, follow-on or convertible equity offering is one or more investment banks. At right, investment banks historical and yearto-date revenues from global equitycapital-market (ECM) deals

n Equity capital markets n Debt capital markets (both in billions, left axis) 9

60%

ECM as a percentage of total (right axis) t

6

40

3

20

0 2005

2006

2007

2008

2009

2010

0 2011 Source: Dealogic

Wednesday, March 2, 2011

25

THE WALL STREET JOURNAL.

GLOBAL MARKETS LINEUP Commodities

Currencies

Prices of futures contracts with the most open interest

EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; NYBOT: New York Board of Trade; MDEX: Bursa Malaysia Derivatives Berhad; LIFFE: London International Financial Futures Exchange; LME: London Mercantile Exchange; NYMEX: New York Mercantile Exchange; ICE: IntercontinentalExchange Contract ONE-DAY CHANGE Commodity Exchange Last price Net Percentage high CBOT

Corn (cents/bu.) Soybeans (cents/bu.) Wheat (cents/bu.) Live cattle (cents/lb.) Cocoa ($/ton) Coffee (cents/lb.) Sugar (cents/lb.) Cotton (cents/lb.) Crude palm oil (ringgit/ton) Cocoa (pounds/ton) Robusta coffee ($/ton)

CBOT CBOT CME ICE-US ICE-US ICE-US ICE-US MDEX LIFFE LIFFE COMEX

Copper (cents/lb.) Gold ($/troy oz.) Silver (cents/troy oz.) Aluminum ($/ton) Tin ($/ton) Copper ($/ton) Lead ($/ton) Zinc ($/ton) Nickel ($/ton)

COMEX COMEX LME LME LME LME LME LME NYMEX

Crude oil ($/bbl.) Heating oil ($/gal.) RBOB gasoline ($/gal.) Natural gas ($/mmBtu) Brent crude ($/bbl.) Gas oil ($/ton)

NYMEX NYMEX NYMEX ICE-EU ICE-EU

728.50 1364.50 808.50 112.900 3,623 272.35 28.86 198.23 3,546.00 2,322 2,369

-2.50 -0.25 -8.50 -1.200 -72 0.65 -0.59 7.00 74 -59 -15

450.00 1422.90 3429.00 2,612.00 32,375.00 9,919.00 2,559.00 2,518.00 28,850

0.35 13.00 47.00 53.00 175.00 79.00 33.00 14.50 95

0.08 0.92 1.39 2.07 0.54 0.80 1.31 0.58 0.33

98.24 2.9772 2.9360 3.987 113.63 943.50

1.27 0.0383 0.0433 -0.123 1.83 7.75

1.31 1.30 1.50

744.25 1,467.50 925.50 116.600 3,712 278.40 33.11 208.93 3,930 2,389 2,417

-0.34% -0.02 -1.04 -1.05 -1.95 0.24% -2.00 3.66 2.13 -2.48 -0.63

Contract low

366.50 909.25 521.75 89.975 2,650 133.75 11.84 68.05 2,095 1,818 1,493

465.75 280.00 1,434.10 1,005.00 3,448.50 18.50 2,612.00 1,857.00 32,590.00 15,925.00 10,123.00 6,120.00 2,676.00 1,580.00 2,584.00 1,617.00 29,050 18,005 136.90 3.0767 3.0354 10.050 133.58 977.00

-2.99 1.64 0.83

67.95 1.7225 1.9900 3.882 68.02 634.25

Source: Thomson Reuters; WSJ Market Data Group

WSJ.com

Price-to-

earnings ratio* 16

Region/Country Index

PREVIOUS SESSION

Net change

Percentage change

PERFORMANCE Yr.-to-date 52-wk.

3.8

0.6

20

...

China

CBN 600

27719.20

136.70

0.50

14

Hong Kong

Hang Seng

23396.42

58.40

0.25

17

India

Sensex

18446.50

623.10

...

Indonesia

Jakarta Composite

3512.617

42.269

1.22

...

Japan

Nikkei Stock Average

10754.03

129.94

1.22

963.70

12.43

1.31

1502.24

10.99

0.74

-1.1

16.6

...

New Zealand

NZSX-50

3384.392

13.869

8

Pakistan

KSE 100

11608.43

319.21

12

Philippines

Manila Composite

3784.23

17.50

...

Singapore

Straits Times

3067.60

57.09

11

South Korea

Kospi

1939.30 8727.56

127.91

994.48

6.57

1.23% -0.11%

3.50

0.41 2.83 0.46 1.90 Closed

4.3% 6.1 6.0 0.6 -2.8 6.9 -3.4 3.2 -0.2 3.8 0.6 4.7

18.9% 15.2 12.4 17.1 18.1 17.2 16.5 12.5 14.4 0.6 9.3 0.4

-1.5% -4.1 -4.7 -1.5 -0.8 -6.2 -2.1 -3.0 -2.4 -9.4 -3.5 -8.8

1.017 1.631 1.027 0.1522 1.383 0.128 0.0223 0.0001 0.012 0.751 0.0009 0.330 0.023 0.787 1.074 0.034 0.033

1.604 1.010 0.150 1.360 0.126 0.0219 0.0001 0.012 0.738 0.0009 0.324 0.023 0.774 1.056 0.033 0.032

0.630 0.093 0.848 0.079 0.0137 0.0001 0.007 0.460 0.0005 0.202 0.014 0.483 0.659 0.021 0.020

0.148 1.346 0.125 0.0217 0.0001 0.012 0.731 0.0009 0.321 0.022 0.766 1.046 0.033 0.032

9.086 0.844 0.1464 0.0007 0.080 4.934 0.0059 2.165 0.151 5.171 7.059 0.222 0.215

0.093 0.0161 0.0001 0.009 0.543 0.0006 0.238 0.017 0.569 0.777 0.024 0.024

0.1735 0.0009 0.095 5.849 0.0069 2.567 0.179 6.130 8.367 0.263 0.255

RUPEE 44.880 45.641 73.202 46.114 6.831 62.062 5.762 0.0051 0.547 33.705 0.0400 14.790 1.033 35.322 48.217 1.516 1.469

RUPIAH 8812.13 8961.49 14373.02 9054.33 1341.22 12185.85 1131.44 196.35 107.41 6617.91 7.85 2903.98 202.81 6935.40 9467.26 297.62 288.50

YEN 82.045 83.436 133.820 84.300 12.487 113.456 10.534 1.8281 0.0093 61.616 0.0731 27.037 1.888 64.572 88.145 2.771 2.686

27.8

-2.3

10.1 6.7

-0.67

4.5

25.0

5.1

5.2

12

Italy

FTSE MIB

22227.23

-239.34

-1.07

7.2

6.8

13

Netherlands

AEX

367.95

-1.18

...

Russia

RTSI

1962.66

Spain

IBEX 35

10761.9

Switzerland

SMI

6619.36

8.92

58709.33

-2574.54

5935.76

-58.25

358.79

0.10

10.2

3.7

3.8

12.1

-7.25

-0.37

10.9

35.8

-88.9

-0.82

9.2

2.3

2.8

-2.9

-11.1

14.1

2.3

6.3

-3.4

21.6

10

-9.9

23.6

...

Turkey

ISE National 100

-3.8

10.7

13

U.K.

FTSE 100

-5.4

20.1

18

AMERICAS

DJ Americas

-2.7

14.9

...

Brazil

Bovespa

67041.88

-341.34

-3.7

35.6

...

Argentina

Merval

3462.75

7.10

16

Mexico

IPC

36868.20

-151.50

0.0012 0.439 0.031 1.048 1.431 0.045 0.044

WON 1122.85 1141.88 1831.43 1153.71 170.90 1552.73 144.17 25.02 0.13 13.69 843.26 370.03 25.84 883.72 1206.33 37.92 36.76

0.13 -4.20 -0.97 0.03 -0.51 0.21 -0.41

0.6

8.2

5.3

19.8

-3.3

-1.5

-1.7

50.6

-4.4

15.0

Thomson Reuters is the primary data provider for several statistical tables in The Wall Street Journal, including foreign stock quotations, futures and futures options prices, and foreign exchange tables. Reuters real-time data feeds are used to calculate various Dow Jones Indexes.

Last

Net change

Shenzhen -c 448.82 1.19 U.S. TSM 13862.74 -4.71 Global Select Div -d 225.49 -0.04 Asia/Pacific Select Div -d 299.46 1.77 Hong Kong Select Div -d 217.68 2.40 U.S. Select Dividend -d 368.64 1.13 Islamic Market 2322.03 9.19 Islamic Market 100 2350.98 9.07 Islamic China/HK Titans 30 1684.02 21.44 Sustainability Korea 1451.63 9.20 Brookfield Infrastructure 2378.22 6.51 DJ-UBS Commodity -p 166.14 0.80

NZ$ 1.332 1.354 2.172 1.368 0.203 1.841 0.171 0.0297 0.0002 0.016

0.23%

-0.32

9

PERFORMANCE YearThree-yr., to-date 52-wk. annualized

Daily

0.27% -0.03 -0.02 0.59 1.12 0.31 0.40 0.39 1.29 0.64 0.27 0.49

2.9% 9.5% 5.6 20.4 4.1 17.2 0.6 13.4 -1.1 15.2 2.8 15.1 4.2 19.1 4.8 13.5 0.9 13.5 -2.6 25.3 5.0 18.9 2.3 25.0

-2.7% 1.1 -4.6 -7.6 4.4 -3.6 1.0 -0.7 -4.0 1.7 0.7 -8.4

Source: DowJones Indexes

U.S.-dollar and euro foreign-exchange rates in global trading HK$ 7.788 7.920 12.703 8.002 1.185 10.770

2.3

-49.02

*Fundamentals are based on data in U.S. dollar. Footnotes: c-in local currency. d-dividends reinvested. p-previous day. Note: All data as of 11:30 a.m. ET.

EURO 0.723 0.735 1.179 0.743 0.110

6.7

-0.65

7223.30

Price-toDividend earnings yield* ratio* Dows Jones Index

2.29% 13 1.67 20 5.25 14 6.17 11 3.73 7 3.96 15 1.54 20 1.89 15 2.30 14 1.34 18 3.20 22

6.8

-2.86

DAX

Sources: Thomson Reuters; WSJ Market Data Group

0.29% 0.30 0.15 1.24 1.30 0.07 0.70 1.01 1.19 0.50 1.15 0.59

-1.01

436.95

Germany

7.2

Daily

-30.48

13

13.7

PERFORMANCE YearThree-yr., to-date 52-wk. annualized

OMX Copenhagen

-0.71%

2982.61

36.3

4.1

Dow Jones Indexes

Denmark

Percentage change

PERFORMANCE Yr.-to-date 52-wk. 5.6% 10.0%

Net change -2.08

-5.2

3.3

*P/E ratios use trailing 12-months, as-reported earnings European and Americas index data are as of 12:00 p.m. ET.

Euro Stoxx 50

PREVIOUS SESSION

Close 289.75

6.9

-0.57

1.49

Region/Country Index Euro Zone Euro Stoxx

-1.05

-0.75

U.S. Australia Britain Canada China Euro Hong Kong India Indonesia Japan New Zealand South Korea Malaysia Philippines Singapore Switzerland Taiwan Thailand

1.5729

17.49

-1.64

YUAN 6.570 6.682 10.716 6.751

0.6358

-43.20

-20.32

C$ 0.973 0.990 1.587

1.1374

4067.15

284.83

£ 0.613 0.623

0.8792

7488.94

2693.16

A$ 0.983

SDR -f

0.3770 2.6523 5.8925 0.1697 3.6330 0.2753 0.7078 1.4129 0.2781 3.5954 1500.50 0.0006665 3.7505 0.2666 6.9442 0.1440 3.6729 0.2723

OMX Helsinki

Stoxx Europe 50

US$

MIDDLE EAST/AFRICA Bahrain dinar 0.5214 1.9180 Egypt pound-a 8.1484 0.1227 Israel shekel 5.0239 0.1990 Jordan dinar 0.9787 1.0218 Kuwait dinar 0.3846 2.6000 Lebanon pound 2074.97 0.0004819 Saudi Arabia riyal 5.1863 0.1928 South Africa rand 9.6027 0.1041 United Arab dirham 5.0791 0.1969

CAC-40

Stoxx Europe 600

Cross rates

1.3829 1.3823 1.3812 1.3785 0.0568 0.1855 0.005073 0.1797 0.3482 0.03486 0.1587 1.0743 1.0746 1.0752 1.0760 0.6209 1.6311 1.6306 1.6294 1.6266

Finland

EUROPE

Last

0.7231 0.7234 0.7240 0.7254 17.608 5.3918 197.14 5.5640 2.8720 28.688 6.3000 0.9308 0.9305 0.9300 0.9293 1.6106 0.6131 0.6133 0.6137 0.6148

France

16

Global TSM 2721.34 7.74 Global DOW 2214.60 6.60 Global Titans 50 187.69 0.28 Asia/Pacific TSM 1419.66 17.32 Asia/Pacific ex-Japan TSM 3511.75 45.08 Europe TSM 2938.35 2.07 Emerging Markets TSM 4636.44 32.02 Asian Titans 50 150.38 1.50 BRIC 50 653.72 7.69 CBN China 600 -c 27719.20 136.70 China Offshore 50 4272.43 48.60 Shanghai -c 372.64 2.17

1 0.9996 0.9988 0.9968 0.0411 0.1341 0.003668 0.1300 0.2518 0.02521 0.1148 0.7769 0.7771 0.7775 0.7781 0.4490 1.1795 1.1792 1.1783 1.1763

13

SET

16 15 14 16 16 15 12 14 12 12 13 13

In U.S. dollars

14

Weighted

2.09% 1.90 2.18 2.30 2.56 2.64 2.12 2.60 2.56 2.56 2.29 2.29

Per U.S. dollar

11.9

Thailand

Net change

In euros

10.0

Taiwan

Price-toDividend earnings yield* ratio* Dows Jones Index

Per euro EUROPE Euro zone euro 1 1-mo. forward 1.0004 3-mos. forward 1.0012 6-mos. forward 1.0032 Czech Rep. koruna-b 24.349 Denmark krone 7.4561 Hungary forint 272.61 Norway krone 7.6942 Poland zloty 3.9715 Russia ruble-d 39.671 Sweden krona 8.7120 Switzerland franc 1.2872 1-mo. forward 1.2868 3-mos. forward 1.2861 6-mos. forward 1.2851 Turkey lira 2.2272 U.K. pound 0.8478 1-mo. forward 0.8480 3-mos. forward 0.8487 6-mos. forward 0.8501

1.6

15

14

In euros

-10.1

10

0.67

Price-to-

earnings ratio* 14 13

-5.26

Kuala Lumpur Composite

0.9833 1.0170 6.5703 0.1522 7.7884 0.1284 44.8800 0.0223 8813 0.0001135 82.05 0.012188 82.03 0.012191 81.99 0.012197 81.91 0.012209 3.0345 0.3295 1.3316 0.7510 85.550 0.0117 43.450 0.0230 1.2706 0.7870 1122.85 0.0008906 29.609 0.03377 30.545 0.03274

2.6

4826.40

Malaysia

1.3598 0.7354 9.0857 0.1101 10.7702 0.0928 62.0623 0.0161 12186 0.0000821 113.46 0.008814 113.43 0.008816 113.38 0.008820 113.26 0.008829 4.1963 0.2383 1.8413 0.5431 118.303 0.0085 60.085 0.0166 1.7570 0.5691 1552.73 0.0006440 40.944 0.02442 42.239 0.02367

17.2%

SPX/ASX 200

...

ASIA-PACIFIC Australia dollar China yuan Hong Kong dollar India rupee Indonesia rupiah Japan yen 1-mo. forward 3-mos. forward 6-mos. forward Malaysia ringgit-c New Zealand dollar Pakistan rupee Philippines peso Singapore dollar South Korea won Taiwan dollar Thailand baht

1.7

1.74

Australia

Topix

4.0313 0.2481 1.6608 0.6021 0.9733 1.0275 0.9739 1.0268 0.9752 1.0254 0.9778 1.0227 475.85 0.002102 1914.95 0.0005222 1 1 12.0765 0.0828 2.7760 0.3602 19.450 0.0514 1 1 4.29 0.232848

0.8%

143.64

...

...

In U.S. dollars

5.5746 0.1794 2.2966 0.4354 1.3459 0.7430 1.3468 0.7425 1.3486 0.7415 1.3521 0.7396 658.03 0.001520 2648.09 0.0003776 1.3829 0.7231 16.7000 0.0599 3.8388 0.2605 26.896 0.0372 1.3829 0.7231 5.94 0.168383

Per euro

Stock indexes from around the world, grouped by region. Shown in local-currency terms.

Close

ASIA-PACIFIC DJ Asia-Pacific

Per U.S. dollar

AMERICAS Argentina peso-a Brazil real Canada dollar 1-mo. forward 3-mos. forward 6-mos. forward Chile peso Colombia peso Ecuador US dollar-f Mexico peso-a Peru sol Uruguay peso-e U.S. dollar Venezuela bolivar

a-floating rate b-commercial rate c-government rate c-commercial rate d-Russian Central Bank rate f-Special Drawing Rights from the International Monetary Fund ; based on exchange rates for U.S., British and Japanese currencies. Note: Based on trading among banks in amounts of $1 million and more, as quoted by Thomson Reuters.

Follow the markets throughout the day with updated stock quotes, news and commentary at WSJ.com Also, receive email alerts that summarize the day’s trading in Europe and Asia. To sign up, go to WSJ.com/Email

Major stock market indexes

London close on March 1

RINGGIT PH. PESO 3.035 43.450 3.086 44.186 4.949 70.869 3.118 44.644 0.462 6.613 4.196 60.085 0.390 5.579 0.0676 0.9681 0.0003 0.0049 0.037 0.530 2.279 32.631 0.0027 0.0387 14.319 0.070 2.388 34.196 3.260 46.680 0.102 1.467 0.099 1.422

S$ S FRANC 1.271 0.931 1.292 0.947 2.072 1.518 1.306 0.956 0.193 0.142 1.757 1.287 0.163 0.120 0.0283 0.0207 0.0001 0.0001 0.015 0.011 0.954 0.699 0.0011 0.0008 0.419 0.307 0.029 0.021 0.733 1.365 0.043 0.031 0.042 0.030

TW$ 29.608 30.110 48.293 30.422 4.506 40.944 3.802 0.6597 0.0034 0.361 22.236 0.0264 9.757 0.681 23.303 31.810

BAHT 30.545 31.063 49.820 31.385 4.649 42.239 3.922 0.6806 0.0035 0.372 22.939 0.0272 10.066 0.703 24.040 32.816 1.032

0.969

Source: Thomson Reuters via WSJ Market Data Group

MSCI indexes Developed and emerging-market regional and country indexes from MSCI Barra as of March. 01, 2011 Price-toDividend earnings yield ratio Morgan Stanley Index

LOCAL-CURRENCY PERFORMANCE

Last

Daily

YTD

52-wk.

...%

...

ALL COUNTRY (AC) WORLD* 344.82 -0.76%

4.3%

19.1%

...

...

World (Developed Markets) 1,351.65

-0.77

5.6

19.3 30.7

...

...

World Small Cap

247.96

-0.66

4.9

...

...

Kokusai (World ex-Japan)

1,337.74

-0.78

5.7

19.7

...

...

EAFE

1,749.01

-1.00

5.5

16.8

...

...

Emerging Markets (EM)

1,107.77

-0.75

-3.8

18.4

...

...

AC ASIA PACIFIC EX-JAPAN 463.14

-0.31

-3.3

17.5

...

...

AC Far East ex-Japan

505.34

-0.36

-3.8

19.4

...

...

Japan

593.45

0.91

5.7

6.2

...

...

China

65.07

1.63

-2.1

7.4

...

...

China A (China Domestic)

3,187.67

1.30

3.2

1.3

...

...

Hong Kong

12,027.27

1.00

-1.5

21.7

...

...

India

700.89

0.56

-13.6

4.3

...

...

Korea

557.27

-0.99

-5.1

23.7 17.5

...

...

Malaysia

547.54

0.15

-2.3

...

...

Singapore

1,649.81

-0.97

-6.1

7.2

...

...

Taiwan

306.58

0.00

-4.0

14.7

...

...

Thailand

401.67

0.71

-2.4

36.0

...

...

Australia

987.30

-0.12

2.2

2.7

...

...

New Zealand

86.80

0.10

3.6

3.3

...

...

US BROAD MARKET

1,503.37

-0.47

5.6

22.2

...

...

EUROPE

99.17

0.81

4.0

16.2

*Twenty-three developed and 26 emerging markets

Source: MSCI Barra

26

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

SCANNING THE GLOBE Dow Jones Industrial Average

Nasdaq Composite Index

P/E: 15

t 20.85, or 0.17%

LAST: 12205.49 YEAR TO DATE: OVER 52 WEEKS

s 1,799.51, or 17.3%

High Close Low

t 12.08, or 0.43%

LAST: 2770.19 YEAR TO DATE: OVER 52 WEEKS

s 627.98, or 5.4%

S&P 500 Index

P/E: 13*

P/E: 18 t 3.96, or 0.30%

LAST: 1323.26 YEAR TO DATE: OVER 52 WEEKS

s 117.32, or 4.4% s 489.40, or 21.5%

s 65.62, or 5.2% s 204.95, or 18.3%

12500

2825

1375

12000

2700

1300

11500

2575

1225

11000

2450

1150

10500

2325

1075

t

50–day moving average

10000 3 Dec.

10

17 23

31

7

14

21

Jan.

28

4 Feb.

11

2200

18 25

3 Dec.

10

17 23

31

7

14

21

28

4 Feb.

Jan.

11

1000

18 25

3 Dec.

10

17 23

31

7

14

Symbol

Latest

AT&T Alcoa AmExpress BankAm Boeing Caterpillar Chevron CiscoSys CocaCola Disney DuPont ExxonMobil GenElec HewlettPk HomeDpt Intel IBM JPMorgChas JohnsJohns KftFoods McDonalds Merck Microsoft Pfizer ProctGamb 3M TravelersCos UnitedTech Verizon

T AA AXP BAC BA CAT CVX CSCO KO DIS DD XOM GE HPQ HD INTC IBM JPM JNJ KFT MCD MRK MSFT PFE PG MMM TRV UTX VZ

8.6 14.1 3.8 70.4 1.8 2.5 5.9 29.4 7.2 4.5 2.8 9.0 23.6 8.8 3.6 24.2 1.5 13.5 6.7 2.8 3.8 9.2 20.6 22.5 3.7 1.2 1.4 1.3 7.6

$28.27 16.43 43.50 14.11 70.81 101.14 103.31 18.57 65.04 43.24 53.77 85.09 20.47 43.22 37.21 21.52 161.21 45.99 61.00 31.59 75.36 32.60 26.44 19.39 63.04 91.31 59.54 82.77 36.12

–0.11 –0.42 –0.07 –0.18 –1.20 –1.79 –0.44 0.01 1.12 –0.50 –1.10 –0.44 –0.45 –0.41 –0.26 0.05 –0.67 –0.70 –0.44 –0.25 –0.32 0.03 –0.14 0.15 –0.01 –0.92 –0.39 –0.77 –0.80

–0.39% –2.49 –0.16 –1.26 –1.66 –1.74 –0.42 0.05 1.75 –1.14 –2.00 –0.51 –2.15 –0.94 –0.69 0.23 –0.41 –1.50 –0.72 –0.80 –0.42 0.09 –0.53 0.77 –0.02 –1.00 –0.65 –0.92 –2.17

WalMart

WMT

6.4

52.36

0.38

0.73

Stock

CHANGE Points Percentage

4 Feb.

11

18 25

Sources: WSJ Market Data Group; Birinyi Associates

U.S. stocks: most active...

Volume, in millions

28

Jan.

*Price-to-earnings ratio for the Nasdaq 100 Note: Price-to-earnings ratios are for trailing 12 months

DJIA component stocks

21

Stock

Volume, Symbol in millions

Citigroup SPDR S&P 500 BankAm SPDR FnclSelSct PwrShrs QQQ LasVegasSands CiscoSys FordMotor FfthThrd iShrRu2000 AlcatelLucent ADS iShrMSCIEmrgMkt SiriusXM Intel GenElec

C SPY BAC XLF QQQQ LVS CSCO F FITB IWM ALU EEM SIRI INTC GE

ADRs of Asian companies* Latest

CHANGE Points Percentage

197.3 87.5 70.4 44.0 33.3 30.2 29.4 28.3 27.4 27.3 26.9 26.3 25.8 24.2 23.6

$4.63 131.94 14.11 16.65 57.18 43.19 18.57 14.78 14.03 81.33 4.75 45.53 1.78 21.52 20.47

–0.05 –1.21 –0.18 –0.21 –0.59 –3.45 0.01 –0.27 –0.57 –0.94 –0.16 –0.26 –0.03 0.05 –0.45

–1.18% –0.91 –1.26 –1.22 –1.02 –7.40 0.05 –1.79 –3.90 –1.14 –3.16 –0.57 –1.66 0.23 –2.15

SONS 15,086.8 VTUS 57.5 PERF 8.9 BSET 238.4 CBR 1,202.8

$3.80 9.52 9.54 7.80 5.27

0.77 1.62 1.49 1.05 0.60

25.41% 20.51 18.51 15.56 12.85

$15.80 15.72 2.25 20.97 9.42

–7.05 –3.13 –0.43 –3.80 –1.63

–30.85% –16.63 –16.04 –15.34 –14.75

52-WEEK High Low

$13.85 15.55 131.63 58.22 96.23 5.68 53.16 37.65 3.94 7.69 12.55 7.27 6.66 27.48 17.60 77.92 54.70 3.56 48.70 19.24 22.81 2.02 17.32 8.94 30.93 75.00 9.90 40.45 9.21 93.90

Biggest gainers... SonusNtwks VentrusBiosci PerfumaniaHldg BassetFurn CIBER

...Biggest losers CntlEuroDistr TNS Inc YRC Worldwide HiSoftTechIntlADS ReneSola

CEDC TNS YRCW HSFT SOL

6,581.8 491.2 6,131.7 917.5 6,799.3

Volume, Symbol in OOOs

Stock

TaiwanSemi SuntechPwr Baidu ADS ICICI Bk ADS BHPBilton ADS MitsuUFJ ADS CtripInt ADS TataMtrs ADS UtdMicro ADS NmuraHldg AU Optrncs Slcnwr ADS AdSemEg ADS FocusMediaHldg ChinaUnicomHK Infosys ChinaMobile SifyTech ADS Netease.com SK Tele ADS KT Crp ADS Linktone KoreaElecPwr TeleNZ ADS ChunghwaTel ChinaLfIns ADS Rediff ADS SonyCp SilicnMotnTch ToyotaMtr ADS

$9.30 7.05 51.25 33.21 58.38 4.48 31.35 15.25 2.50 4.75 8.38 4.45 3.33 14.35 10.91 53.28 44.36 1.18 26.16 14.58 17.48 1.20 10.43 5.90 22.34 55.47 1.69 25.85 3.00 67.56

TSM STP BIDU IBN BHP MTU CTRP TTM UMC NMR AUO SPIL ASX FMCN CHU INFY CHL SIFY NTES SKM KT LTON KEP NZT CHT LFC REDF SNE SIMO TM

CHANGE Latest Points Percentage

7,484.3 $12.25 –0.04 4,069.4 9.86 0.36 2,929.5 118.09 –3.07 2,095.7 45.74 2.38 2,055.1 94.21 –0.39 2,043.1 5.64 0.11 1,947.0 38.14 –0.63 1,836.7 25.44 0.82 1,619.6 2.83 0.03 956.2 6.24 –0.07 875.2 9.01 0.03 854.6 6.76 –0.03 838.1 5.85 0.13 782.6 26.39 –0.13 745.1 16.98 0.29 642.4 67.16 0.46 605.0 47.54 0.27 527.7 2.76 0.08 410.6 45.50 –1.15 369.4 17.68 0.09 363.5 19.90 0.11 323.1 1.49 ... 322.7 12.20 ... 286.9 7.98 0.07 269.0 29.64 0.13 250.0 56.69 –0.55 245.4 6.10 0.17 239.2 36.45 –0.39 218.7 8.86 –0.22 206.9 92.82 –0.48

–0.33% 3.79 –2.53 5.49 –0.41 1.99 –1.62 3.33 1.06 –1.11 0.33 –0.44 2.27 –0.49 1.74 0.69 0.57 2.99 –2.46 0.51 0.53 ... ... 0.88 0.44 –0.96 2.87 –1.06 –2.42 –0.51

*Most active American depositary receipts tracked by Dow Jones Source: WSJ Market Data Group

U.S. Treasury yield curve

Global government bonds

The curve shows the yield to maturity of current bills, notes and bonds; all data as of 3 p.m. ET.

Coupon

Country/ Maturity, in years

4.965% 5.525 1.870 3.626 2.327 4.278 1.827 3.324 1.483 3.224 1.637 3.566 1.540 3.180 0.727 2.974 2.978 4.810 0.245 1.285 1.327 3.387 5.726 7.521 3.165 5.353 0.637 1.866 1.416 3.720 0.696 3.457

SPREAD OVER TREASURYS, in basis points Latest Previous Month ago Year ago

426.9 206.8 117.4 16.9 163.1 82.1 113.1 -13.3 78.7 -23.3 94.1 10.9 84.4 -27.7 3.1 -48.3 228.2 135.3 -45.1 -217.2 63.1 -7.0 503.0 406.4 246.9 189.6 -5.9 -159.1 72.0 26.3 ... ...

424.0 206.6 117.2 23.2 169.9 86.4 113.7 -10.7 77.9 -19.0 92.0 15.7 83.5 -24.1 2.7 -43.4 180.4 143.0 -45.0 -214.6 61.4 -2.3 504.9 412.6 249.9 197.4 -8.3 -151.7 69.0 27.1 ... ...

431.5 214.5 129.0 30.4 189.5 98.5 112.9 -8.3 91.9 -12.0 100.9 22.4 82.2 -15.4 0.9 -44.1 207.1 144.6 -36.0 -211.1 74.5 0.7 385.8 373.4 266.4 214.5 10.3 -144.2 72.0 33.1 ... ...

378.4 189.1 48.8 -5.3 29.0 8.7 54.8 -20.8 86.0 -20.1 14.2 -19.2 4.9 -49.8 -13.6 -82.2 58.3 35.8 -63.9 -229.3 9.6 -20.8 124.6 75.3 42.3 22.5 -48.5 -167.4 19.0 46.0 ... ...

Previous

YIELD Month ago

Year ago

4.940% 5.477 1.872 3.643 2.399 4.275 1.837 3.304 1.479 3.221 1.620 3.568 1.535 3.170 0.727 2.977 2.504 4.841 0.250 1.265 1.314 3.388 5.749 7.537 3.199 5.385 0.617 1.894 1.390 3.682 0.700 3.411

4.870% 5.474 1.845 3.633 2.450 4.314 1.684 3.246 1.474 3.209 1.564 3.553 1.377 3.175 0.564 2.888 2.626 4.775 0.195 1.218 1.300 3.336 4.413 7.063 3.219 5.474 0.658 1.887 1.275 3.660 0.555 3.329

4.593% 5.503 1.297 3.559 1.099 3.699 1.357 3.404 1.669 3.411 0.951 3.420 0.858 3.114 0.673 2.790 1.392 3.970 0.170 1.319 0.905 3.404 2.055 4.365 1.232 3.837 0.324 1.938 0.999 4.072 0.809 3.612

Source: Thomson Reuters

5% 4

One year ago

s

4.750% Australia 2 4.500 10 3.800 Austria 2 3.500 10 4.000 Belgium 2 4.250 10 1.750 Canada 2 3.500 10 4.000 Denmark 2 4.000 10 3.750 France 2 2.500 10 1.500 Germany 2 2.500 10 0.580 Hong Kong 2 2.440 10 2.000 Italy 2 3.750 10 0.200 Japan 2 1.200 10 5.000 Netherlands 2 3.500 10 5.450 Portugal 2 4.800 10 2.300 Spain 2 5.500 10 4.000 Switzerland 2 2.000 10 4.500 U.K. 2 3.750 10 0.625 U.S. 2 3.625 10

Yield

3 2 s

Latest, month-ago and year-ago yields and spreads over or under U.S. Treasurys on benchmark two-year and 10-year government bonds around the world. Data as of 11 a.m. ET

Monday 1 0

1

3

6

month(s)

1

2 3 5 710

years maturity

30

Month to-date

TOTAL RETURN

Ryan Index

Yield to maturity

Modified duration

Quarter to-date

30-year Treasury 10-year Treasury 7 Year Treasury Five-year Treasury Ryan Index 3 Year Treasury Two-year Treasury 1 Year Treasury Six-month Treasury Ryan Cash Index-a Three-month bill

4.492% 3.416 2.829 2.138 2.458 1.175 0.696 0.244 0.173 0.175 0.153

16.17 8.32 6.32 4.72 6.74 2.90 1.98 0.95 0.50 0.44 0.25

1.55 % 0.03 –0.33 –0.53 0.02 –0.43 –0.16 0.04 0.03 0.03 0.02

–1.92 % –0.38 –0.03 0.10 –0.39 –0.17 0.01 0.12 0.07 0.06 0.03

–1.92 % –0.38 –0.03 0.10 –0.39 –0.17 0.01 0.12 0.07 0.06 0.03

6.44 % 5.12 5.79 4.28 4.37 2.50 1.18 0.71 0.31 0.36 0.24

One-month bill

0.132

0.07

0.01

0.02

0.02

0.16

a-Performance of a cash investment

Year to-date 12-month

Source: Ryan ALM

Key money rates Latest

52 wks ago

Prime rates

Latest Euro Libor One month

52 wks ago

Offer Eurodollars One month

Bid

0.82188%

0.38125%

0.3500%

0.2500%

1.04938

0.59938

Three month

0.5500

0.4500

Six month

1.32813

0.91063

Six month

0.7500

0.6000

One year

1.69875

1.19625

One year

1.0500

0.8500

Latest

52 wks ago

U.S.

3.25%

3.25%

Canada

3.00

2.25

Japan

1.475

1.475

Britain

0.50

0.50

ECB

1.00

1.00

Switzerland

0.54

0.53

Hibor One month

0.15714

0.07964%

Australia

4.75

3.75

Three month

0.22929

0.13000

U.S. discount

0.75%

0.75%

Hong Kong

5.25

5.25

Six month

0.29000

0.23000

Fed-funds target

0.25

0.25

One year

0.63143

0.51000

Call money

2.00

2.00

Libor One month

Three month

Asian dollars One month

0.2720%

0.26100%

0.22813%

Three month

0.30950

0.25194

Three month

0.3150

0.2566

Six month

0.46250

0.38319

Six month

0.4735

0.3870

U.K. (BBA)

0.500

0.510

One year

0.78875

0.83625

One year

0.8015

0.8390

Euro zone

0.59

0.29

0.24%

Overnight repurchase rates U.S. 0.21%

0.14%

Sources: WSJ Market Data Group; Reuters

Wednesday, March 2, 2011

27

THE WALL STREET JOURNAL.

MARKETS LINEUP Asian index movers…

Moving the markets

At right, Japan’s benchmark stock index and the biggest movers among the larger Asian stocks indexes and stocks Tuesday. Below each index are its most actively traded stocks. The charts show the percentage change in each index’s or stock’s value, rather than the point change, for purposes of comparison. The index level or stock price is indicated on each axis. All indexes and stocks are shown in local currency terms.

Nikkei Stock Average

Sensex

Japan

India

s

10754.03 1.22% or 129.93

s

18446.50 3.50% or 623.10

China

s

3067.60 1.90% or 57.09

15000

30000

4500

45000

12500

25000

3750

37500

10000

20000

3000

30000

7500

15000

2250

22500

Stock

Volume in millions

Close

10000 M A M J J A S O N D J F 2010 2011

166.75

172

Mizuho Financial

Change Net

%

Rig builders such as Keppel Corp. and Sembcorp Marine gained amid news that the U.S. has approved its first deep-water drilling permit since the Gulf of Mexico oil spill.

s

27719.20 0.50% or 136.70

The benchmark recorded its biggest gains since May 2009. Banks rose on hopes a government borrowing program will push down short-term borrowing rates for banks.

M A M J J A S O N D J F 2010 2011

Follow the markets throughout the day, with updated stock quotes, news and commentary at WSJ.com. Also, receive emails that summarize the day’s trading in Europe and Asia. To sign up, go to WSJ.com/Email.

CBN 600

Singapore

Shares advanced as a weaker yen and renewed hopes for U.S. economic data lifted major exporters. Shinsei Bank rose in a rare positive reaction to its capital-raising plans.

5000

WSJ.com

Straits-Times

Stock

Volume in millions

Close

90.30

4

2.38

Reliance Com-A

5.70

1500 M A M J J A S O N D J F 2010 2011

Change Net

%

4.30

Stock

5.00

Golden Agri

Volume in millions

Close

Change Net

230.21

0.71

0.06

Property developers and banks led the market to its highest close since December on hopes for strong full-year earnings growth. Poly Real Estate and Bank of Ningbo rose.

15000 M A M J J A S O N D J F 2010 2011 Stock

%

8.46

CiticSecurities

Volume in millions

Close

Change Net

209.08

14.74

0.03

0.20

%

Shinsei Bank

80.72

112

8

7.69

Jaiprak Asso-A

3.84

83.00

5.50

7.10

Genting Spore

81.03

1.96

0.05

2.62

TCL

185.26

4.73

-0.09

–1.87

Mtshbsh Fin Grp

66.56

468

15

3.31

Itc-A

1.90

173.50

4.50

2.66

Noble Grp

50.75

2.19

0.14

6.83

GemdaleCorp

168.48

6.61

0.14

2.16

M'bishi Heavy

54.39

363

16

4.61

Tata Steel-A

1.48

634.30

28.35

4.68

Olam Inter

20.24

2.81

0.03

1.08

ChinaVankeCoA

153.27

8.30

0.14

1.72

Hitachi

50.34

499

4

0.81

Reliance Infr-A

1.47

618.80

9.25

1.52

CapitaLand

18.14

3.35

0.09

2.76

Everbright Bank

151.94

3.89

0.03

0.78

Asian stocks in the news Dentsu

Tata Motors

Japan

¥2,723 India

s 4.9% or ¥127

Noble Grp 1,140.40 rupee

s 5.4% or 58.60 rupee

Singapore

Maruti Suzuki S$2.19

s 6.8% or S$0.14

India

Golden Agri-Resources 1,292.90 rupee Singapore

S$0.71

s 7.1% or 86.20 rupee

s 8.5% or S$0.05

News of a business tie-up with Facebook lifted shares.

The country’s biggest auto maker by revenue posted strong sales in February.

The company reported late Monday that fourth-quarter net profit rose nearly threefold.

Investors had feared the government would raise excise duties on Monday. It didn’t.

The company said it will spend US$450 million in capital expenditure in 2011 following a strong fourth quarter.

In yen

In rupee

In Singapore dollars

In rupee

In Singapore dollars

4500

2000

3.00

2000

1.00

2700

1200

2.25

1500

0.75

1800

800

1.50

1000

0.50

400 M A M J J A S O N D J F 2010 2011

39 70.10 1.1

Price-to-earnings ratio Earnings per share, past four quarters Dividend yield

PERCENTAGE CHANGE Daily 1 wk. 52 wks

1.3% 4.9%

1.5% 5.9%

11.7% 27.3%

TABCorp Hldgs Australia

6 194.29 1.3

1.5% 5.4%

1.7% 0.3%

23.3% 43.1%

Kintetsu A$7.53

t 1.1% or A$0.08

Japan

¥255

t 1.2% or ¥3

In Australian dollars

In yen

500

Indus Gds & Svcs Noble Grp

1.5% 6.8%

1.7% 7.4%

23.3% 8.5%

Hong Kong

PERCENTAGE CHANGE Daily 1 wk. 52 wks

Automobiles & Parts Maruti Suzuki

1.4% 7.1%

1.8% 9.2%

31.5% -13.2%

Origin Energy HK$14.82

t 1.2% or HK$0.18

Australia

5 0.16 1.1

PERCENTAGE CHANGE Daily 1 wk. 52 wks

Food & Beverage Golden Agri-Resources

0.8% 0.8% 8.5% 10.2%

10.9% 31.8%

Aboitiz Equity A$16.13 Philippines

t 3.4% or A$0.57

The company’s shares had gained 5.3% in the previous two sessions.

The stock went ex-dividend.

In Hong Kong dollars

In Australian dollars

20

Price-to-earnings ratio Earnings per share, past four quarters Dividend yield

43.50 peso

t 7.4% or 3.50 peso

Shares pulled back after closing at a 52-week high on Monday.

30

in peso

50

24

40

9

300

12

18

30

6

200

8

12

20

100 M A M J J A S O N D J F 2010 2011

10 0.76 3.2 1.1% 0.7%

PERCENTAGE CHANGE Daily 1 wk. 52 wks

16 79.09 0.5

16

Price-to-earnings ratio Earnings per share, past four quarters Dividend yield

PERCENTAGE CHANGE Daily 1 wk. 52 wks

1.2% -1.1%

Price-to-earnings ratio Earnings per share, past four quarters Dividend yield

400

3

Travel & Leisure TABCorp Hldgs

23 0.10 2.3

0.25 M A M J J A S O N D J F 2010 2011

12

J A S O N D J F 2011

Price-to-earnings ratio Earnings per share, past four quarters Dividend yield

M A M J J A S O N D J F 2010 2011

Cosco Pacific

The company slipped to its lowest level in nearly a month.

15

Price-to-earnings ratio Earnings per share, past four quarters Dividend yield

PERCENTAGE CHANGE Daily 1 wk. 52 wks

Indus Gds & Svcs Tata Motors

500

0.75 M A M J J A S O N D J F 2010 2011

The entertainment and leisure firm retreated after three consecutive days of gains.

M A M J 2010

1.25

1600

900

Media Dentsu

2500

3600

M A M J J A S O N D J F 2010 2011 Price-to-earnings ratio Earnings per share, past four quarters Dividend yield

3.75

18.0% 10.9%

4 M A M J 2010

34 7.60 2.0

Price-to-earnings ratio Earnings per share, past four quarters Dividend yield

PERCENTAGE CHANGE Daily 1 wk. 52 wks

Travel & Leisure Kintetsu

1.2% 1.1% -1.2% -3.0%

18.0% -9.6%

J A S O N D J F 2011 17 0.86 1.6

1.5% -1.2%

1.7% 0.8%

23.3% 20.1%

J A S O N D J F 2011

Price-to-earnings ratio Earnings per share, past four quarters Dividend yield

PERCENTAGE CHANGE Daily 1 wk. 52 wks

Indus Gds & Svcs Cosco Pacific

10

6 M A M J 2010

M A M J 2010 134 0.12 1.5

Price-to-earnings ratio Earnings per share, past four quarters Dividend yield

PERCENTAGE CHANGE Daily 1 wk. 52 wks

Utilities Origin Energy

0.6% -3.4%

... -3.3%

2.2% -3.2%

J A S O N D J F 2011 12 3.49 1.2

PERCENTAGE CHANGE Daily 1 wk. 52 wks

Indus Gds & Svcs Aboitiz Equity

1.5% 1.7% 23.3% -7.4% 15.4% 295.5%

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

HEARD ON THE STREET FINA NCIA L A NA LYSIS & COMMENTARY

Email: [email protected]

WSJ.com/Heard

Beijing quietly diversifies from the dollar The worst-case scenario of China’s abandoning the dollar and leaving the U.S. to its fate hasn’t come to pass. But neither has it been business as usual for those in charge of China’s huge foreign-exchange reserves. Data published by the U.S. Treasury Monday showed China bought more U.S. government debt last year than was first revealed. The annual survey of foreign holdings of U.S. securities showed that China’s Treasury holdings reached $1.108 trillion at the end of June 2010, $260 billion more than the level suggested by the less sophisticated monthly data. In truth, this revision is no surprise. The monthly data attribute ownership to the country from which purchases are made, not to the country making the purchase. The State

Administration of Foreign Exchange—the organization that manages China’s reserves—appears to be taking advantage of that bias to disguise the pattern of its purchases, mainly by channeling them through the U.K. By making a thorough at-

China appears to have found a way to manage down the dollar share of its reserves without market chaos. tempt to trace actual ownership, the annual survey corrects for the bias in the monthly data. But the sizable upward revision masks a more important trend in the

management of China’s reserves. At the end of June 2010, China’s total holdings of dollar debt—including not just Treasurys but also debt issued by troubled agencies Fannie Mae and Freddie Mac, and more limited holdings of corporate debt and equities—came in at $1.611 trillion, up from $1.464 trillion in June 2009. But with China’s total reserves growing at an even faster rate, the share of reserves held in dollars is down to 65% in 2010 from 68% in 2009. The long-term trend is even clearer, with the dollar share of reserves down from 74% in 2005. Common sense and self-interest suggest that it was never particularly likely that China was dumping dollar assets. There is no other market where SAFE could park the tens of billions of dollars a month it has

to invest, and China was never likely to pull the plug on its largest trade partner, or risk throwing the world’s financial system further into crisis. But SAFE appears to have found a way to start managing down the dollar share of its reserves, and it has done so without introducing chaos into foreign-exchange markets, or scaring the horses in the market for Treasurys. The yield on 10-year Treasurys remains around 3.5%, the same level as in summer 2008, when the collapse of Lehman brothers suggested to China’s forex managers that they might not want all their eggs in the dollar basket. For the markets, the guessing game on the allocation of China’s reserves continues, but the direction toward diversification seems set. —Tom Orlik

A declining share China's U.S. dollar holdings and total foreign reserves U.S. dollars

Total reserves

Share of total in U.S. dollars 75%

$2.5 trillion 2.0

73

1.5

71

1.0

69

0.5

67

0

2005 ’06 ’07 ’08

’09 ’10

65

Note: Figures are as of end of June Sources: U.S. Treasury; People’s Bank of China; WSJ reporting

China’s rebalancing act must go beyond rehearsals Five-year plans’ GDP growth targets vs. actual growth, and contribution to growth from consumption, investment and exports

Source: National Bureau of Statistics, China

Consumption

Capital expenditure

Net exports

15%

Growth

t

China's GDP growth

10

5

t

The major set piece of China’s political calendar—the National People’s Congress—is just days away, and Beijing is talking up its reform agenda. But rhetorical commitment to reform is nothing new in China; the challenge will be turning that commitment into reality. On Sunday, Premier Wen Jiabao announced an annual economicgrowth target of 7% for China’s 12th five-year plan, to be approved during the annual NPC. That target is down from 7.5% in the 11th five-year plan, which ended last year. The figure itself is less important than the sentiment. The five-year plans normally aim low so the government can ensure success: In the past five years, growth averaged 11% annually, and the government likely expects its 7% target to translate into growth in the 8%-9% range.

Growth target

0

-5 2001 ’02

As he announced the lower target, Mr. Wen trumpeted the importance of shifting China’s economic

’03

’04

’05

’06

’07

’08

’09

’10

focus toward higher-quality growth, more widespread sharing of the benefits and a clampdown on envi-

ronmental costs. But in championing reforms, Beijing is also making a virtue of necessity. Slowing growth in the labor force and diminishing returns for further investment mean the scope for output growth is lower. China has a dwindling stock of foreign markets it can tap, and demand from domestic households isn’t growing fast enough to take up the slack. Still, recognition by the premier of the trade-off between the speed and quality of growth is an important symbolic step. The question now is whether the rhetoric of reform will be backed by action. The record so far is unimpressive. Just as the 12th five-year plan will do, the 11th plan—rolled out with much fanfare in 2006—called for rebalancing the growth model. Five years later, precisely the oppo-

site has occurred: The share of capital formation in gross domestic product is larger and the share of household consumption smaller. Commitments made in Beijing can only be delivered with the support of provincial leaders, but fiveyear plans from the provinces, some of which are available ahead of the NPC, show little sign of a move away from the investment-driven growth model. In fact, a recent review by Century Weekly magazine of 20 provinces that have announced growth targets for the next five years shows that five have targeted the same rate of growth as in the last plan, and seven are aiming even higher. Mr. Wen’s move is a step in the right direction, but turning commitments into reality will be as difficult as ever. —Tom Orlik

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28

Foreign Exchange

the journal report ASIA

Reign

WHY THE DOLLAR’S

IS NEAR

AN END

For decades the dollar has served as the world’s main reserve currency, but, argues Barry Eichengreen, it will soon have to share that role with the yuan and others. Here’s why—and what it will mean for markets and companies.

Wednesday, March 2, 2011 R1

T

he single most astonishing fact about foreign exchange is not the high volume of transactions, as incredible as that growth has been. Nor is it the volatility of currency rates, as wild as the markets are these days. Instead, it’s the extent to which the market remains dollar-centric. Consider this: When a South Korean wine wholesaler wants to import Chilean cabernet, the Korean importer buys U.S. dollars, not pesos, with which to pay the Chilean exporter. Indeed, the dollar is virtually the exclusive vehicle for foreign-exchange transactions between Chile and Korea, despite the fact that less than 20% of the merchandise

Dr. Eichengreen is the George C. Pardee and Helen N. Pardee professor of economics and political science at the University of California, Berkeley. His new book is “Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System.” He can be reached at reports@wsj. com.

trade of both countries is with the U.S. Chile and Korea are hardly an anomaly: Fully 85% of foreign-exchange transactions world-wide are trades of other currencies for dollars. What’s more, what is true of foreign-exchange transactions is true of other international business. The Organization of Petroleum Exporting Countries sets the price of oil in dollars. The dollar is the currency of denomination of half of all international debt securities. More than 60% of the foreign reserves of central banks and governments are in dollars. The greenback, in other words, is not just America’s currency. It’s the world’s. But as astonishing as that is, what may be even more astonishing is this: The dollar’s reign is coming to an end. I believe that over the next 10 years, we’re going to see a profound shift toward a world in which several currencies compete for dominance. The impact of such a shift will be equally profound, with implications for, among other things, the stability of exchange rates, the stability of financial markets, the ease with which the U.S. will be able to finance budget and current-account deficits, and whether the Fed can follow a policy of benign neglect toward the dollar.

The Three Pillars How could this be? How could the dollar’s long-running, most-favored-currency status be in jeopardy? To understand the dollar’s future, it’s important to understand the dollar’s past—why the dollar became so dominant in the first place. Let me offer three reasons. First, its allure reflects the singular depth of markets in dollardenominated debt securities. The sheer scale of those markets allows dealers to offer low bid-ask spreads. The availability of derivative instruments with which to hedge dollar exchange-rate risk is unsurpassed. This makes the dollar the most convenient currency in which to do business for corporations, central banks and governments alike. Second, there is the fact that the dollar is the world’s safe haven. In crises, investors instinctively flock to it, as they did following the 2008 failure of Lehman Brothers. This tendency reflects the exceptional liquidity of markets in dollar instruments, liquidity being the most precious of all Please turn to page R8

PHOTO-ILLUSTRATION BY JOHN KUCZALA

INSIDE Forex gone wild Why life has gotten a lot more complicated for currency traders By Tom Lauricella, R2

Emerging risks Currencies of developing countries have been strong. Will it continue? By Enda Curran, R3

Can yuan replace dollar? Why the Chinese currency may never kick the dollar off its pedestal By Shen Hong, R3

The battle of the titans Competition is now a lot tougher for banks that dominated forex trading By Katie Martin, R5

Good news on the euro Why the crisis appears to be easing and what the next test will be By Geoffrey T. Smith, R7

R2

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

THE JOURNAL REPORT: FOREIGN EXCHANGE

Foreign exchange gone wild

Randall Enos

Why life has gotten a lot more complicated—and potentially profitable—for currency traders

BY TOM LAURICELLA

S

o much for peace and quiet. For the past decade, the foreign-exchange markets have been positively placid. Some of the credit goes to the euro, which gave Europe a single currency, simplifying the equation for investors. At the same time, a slew of emerging nations did some serious fiscal housekeeping, putting an end to the major ups and downs of their economies and markets. Then came the financial collapse in 2008. The euro has been battered back and forth as investors wrestle with diverging fortunes among Europe’s economies and politically charged battles over how to potentially bail out struggling countries. Elsewhere, investors are contending with central banks that are undertaking massive efforts to slow the rise of their currencies. In the U.S., there remain worries that the Federal Reserve is on a mission to devalue the dollar. The increased risks have made life a lot more complicated for foreign-exchange traders, or indeed for anyone who needs to change one currency into another—whether it’s to buy foreign stocks or bonds, build a factory overseas or just plan a trip. It’s harder to set investment strategies, manage holdings and avoid big losses. So, currency players are scrambling to adapt, trying to reduce risk and protect against short, sharp losses. “Currencies are the ultimate sovereign or macro asset class,” says Eric Stein, a portfolio manager at Eaton Vance Global Macro Absolute Return Fund, which holds $7.7 billion in assets. “What had been a private-sector debt crisis in both mortgage and bank finance has now morphed into problems with publicsector debt…and that becomes a bigger issue for currencies.” But there’s another side to the volatility story: the potential for tremendous profits in the choppy markets. As exchange rates swing

wildly, currenvember, South Volume and volatility cies are making Korea said it Global average daily foreign-exchange trading has soared (left chart, in billions extreme moves, would impose a of U.S. dollars), in part because investors have seen opportunity in the market’s and many are tax on shortturbulence, including the dollar vs. euro pair (right chart, annualized volatility in flirting with allterm investments percent based on three-month futures) time or multiin the country. year highs, inAccording to 25% $5,000 cluding the J.P. Morgan $3,981 20 4,000 $3,324 Swiss franc Chase & Co.’s 3,000 15 Average against the euro, emerging-mar$1,934 and the Austrakets currency an2,000 10 $1,239 lian dollar and alysts, capital 1,000 5 Japanese yen controls consti0 0 against the U.S. tute a major risk 2001 2004 2007 2010 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 dollar. for investors in Sources: Bank for International Settlements; So, with curAsia. Note: Average is for 2003 to present Barclays Capital rency markets “While our more volatile base case is that Often, that means turning to the control measures in Asia will be than they’ve been in years, investors have been pouring in to get a piece emerging economies that have be- gradually implemented and modest, of the action. Daily market volume come increasingly important actors the risk is that policy makers may stands at $4 trillion, according to a on the global economic stage. The become increasingly emboldened survey of the industry by the Bank Singapore dollar and Thai baht, for and act more aggressively next for International Settlements—and instance, are both up 11% against year,” they wrote in their 2011 stratUBS recently forecast that the mar- the U.S. dollar over the past year. egy outlook. This is where the second big polket would reach $10 trillion a day by But as this year has unfolded, icy risk starts to brew. Many of building inflation pressures have 2020. these emerging countries don’t forced the hands of many central Look both ways want so much attention from inves- banks. Both South Korea and Brazil The big risks facing currency tors—and they’re taking steps to raised rates in January. traders these days come from two keep them out. Exports are central Jeff Feig, global head of G-10 fordirections: developed economies to these countries, and a stronger eign-exchange trading at Citigroup and emerging nations. currency makes their goods more Inc., says the environment has inMajor central banks have been expensive—especially compared vestors reassessing how they apgoing to extremes with monetary with China, which has kept the yuan proach the currency markets. Most policy to keep their economies closely pegged to the U.S. dollar. clearly, he says, more long-term inafloat. In the U.S., the Federal Re- Meanwhile, all the inflows of capital vestors are looking to shoulder the serve has undertaken a second heat up their economies and costs of hedging to protect against round of so-called quantitative eas- threaten inflation. short-term losses on unwanted curing, injecting dollars into the econThe situation poses a sharp pol- rency moves. omy by buying U.S. Treasury bonds. icy dilemma for these countries’ “If you’re running at 5% or 6% The Bank of Japan last fall joined central bankers: Raising interest volatility in the market, and you’re the Fed with a quantitative-easing rates, the conventional economic re- expecting to make 25% or 30%, you program. Speculation persisted sponse, just attracts more hot capi- may not worry about it and not about similar steps from the Euro- tal, further fueling potential asset- hedge,” he says. “But if you’ve got pean Central Bank and Bank of Eng- price bubbles. 15% or 20% volatility…your profits land—though now currency traders So, financial authorities first on an investment can be wiped out have been whipsawed in their think- tried turning to less-orthodox mea- just by the move in the currency.” ing, and the focus in Europe is on sures. In October, Brazil twice raised For example, with the euro, the higher rates. taxes on foreign investors and then longstanding assumption was that it Adding currency to an economy in January imposed more penalties would rise steadily against the U.S. helps get money in the hands of on short-term investments. Thai- dollar. “You saw a lot of complacash-strapped citizens. But it makes land, where capital controls im- cency…and then last year when the the money already in circulation posed back in 2006 caused wide- euro started to weaken, a lot of U.S.less valuable—so currency investors spread anger among foreign based investors and corporations reabandon it and seek out currencies investors, reinstated a withholding alized, ‘We’ve got a risk here,’ ” says that are less likely to fall in value. tax on outside bondholders. In No- Mr. Feig.

At Barclays PLC, Michael Bagguley, global head of foreign-exchange trading, says investors making outright bets on currencies have also been looking to minimize the risks of the more volatile markets. He says that’s shown up in greater interest in owning baskets of currencies aimed at capturing certain trends. “Instead of positioning in a single currency pair, owning the basket reduces your risks,” he says. One such popular trade in the past year has been to own a so-called BRIC basket—currencies from Brazil, Russia, India and China—while simultaneously betting that a basket of currencies from the big, developed countries will fall.

Playing carefully The more volatile environment also warrants a different tool set for the growing number of small investors trying their hands at currency trading, says Kathy Lien, director of currency research at Global Futures & Forex Ltd. For starters, it probably calls for using less leverage—borrowed money—when placing trades, she says. That’s because leverage, by its nature, magnifies the gains and losses that are possible for a trade. In addition, in markets that are tending to bounce wildly, it may make sense to be a little quicker to take profits when they present themselves. In this environment, profits “can reverse in the blink of an eye,” she says. Lastly, Ms. Lien says, it calls for greater use of stop-loss orders, which are designed to automatically buy or sell at a certain price to prevent outsize losses. “If you don’t use stop-loss orders, the currencies these days can be more likely to move farther against you than in a low-volatility environment,” Ms. Lien says. “These are unprecedented times.” Mr. Lauricella is a staff reporter in The Wall Street Journal’s New York bureau. He can be reached at [email protected].

Wednesday, March 2, 2011

R3

THE WALL STREET JOURNAL.

THE JOURNAL REPORT: FOREIGN EXCHANGE

Emerging risks

Hot spots Emerging-markets local-currency debt issues, in billions of dollar equivalents. Volume was ﬂat last year but remained much higher than before 2009, reﬂecting conﬁdence in the currencies.

Currencies of developing countries have been strong. Here’s what may come next.

2003 $91,772

BY ENDA CURRAN 2004

E

120,048 2005 149,164 2006 167,130 2007 204,152 2008 288,679 2009 452,696 2010 437,482

Robert Neubecker

merging-market currencies have paid off for many investors lately. But analysts warn that investors shouldn’t be lulled into thinking the good times will necessarily last. On the upside, rapid economic expansion in developing countries should continue to bolster their currencies—good news for investors in their stocks and bonds. Many countries, though, are fighting the appreciation of their currencies, mainly because it makes their exports less competitive and encourages imports that compete with domestic products. Some have imposed restrictions on capital flows, and others have sold their own currencies in the foreign-exchange markets. How serious developing countries are in those efforts will go a long way toward determining how their currencies fare over the long run. “Even with the capital controls, I don’t think you are going to be able to stem the overall appreciation trend,” says New York-based Joyce Chang, J.P. Morgan & Co.’s global head of credit and emerging-markets research. “But we’re not expecting the same kinds of returns that were achieved in 2010.” Ms. Chang expects gains of 5% to 8% in emerging-market fixed-income securities this year, compared with returns of 12% to 13% in 2010. In general, analysts look for gains in the Korean won, Singaporean dollar, Russian ruble, Mexican peso and Philippine peso as robust economic growth and higher interest rates spur capital inflows. Currencies under pressure include the Israeli shekel, given security concerns in the region. The long-term appeal of emerging-market currencies stems in part from imbalances in global investment flows, which suggest big shifts are still to come. For example, emerging-market economies make up 29% of the world economy, according to HSBC Holdings PLC, but U.S. pension funds have only about 6% of their assets in emerging-mar-

ket equities. Meanwhile, as confidence in emerging markets has grown, governments and corporate borrowers in those countries have increasingly issued debt in their own currencies. A total of $437.7 billion of such debt was issued last year, down slightly from 2009 but 52% more than in 2008 and nearly triple the amount issued in 2005, according to Dealogic. The improved liquidity should, over time, attract a growing number of foreign investors, further buttressing the local currencies. More immediately, demand for some emerging-market assets is likely to get a boost as the credit ratings of several countries are upgraded to reflect improved government finances, among other things. In January, the Moody’s Investors Service unit of Moody’s Corp. raised Indonesia’s local- and foreign-currency debt ratings one notch to Ba1, a single step below investment grade, citing the country’s resilient economy, improving debt and foreign-reserve levels, and favorable economic policy. Analysts cite the

Philippines and Sri Lanka as likely candidates for upgrades. And on a broader scale, current interest-rate trends favor emergingmarket investments, as the big industrial countries keep their rates low to encourage economic growth. “Very low rates in the developed world for an extended period of time” will push bond managers toward markets with higher interest rates and the potential for currency appreciation, says Ashish Agrawal, fixed-income strategist for non-Japan Asia at Credit Suisse Group. Central banks in many developing countries, where interest rates are higher, have tried to keep those rates from climbing further, to prevent their currencies from appreciating too much. But it will become clearer this year that those central banks need to allow interest rates to rise in order to control inflation as their economies surge ahead, says Richard Yetsenga, head of emergingmarkets currency strategy at HSBC. To be sure, there are potential pitfalls for any bet on emergingmarket currencies. One longstanding

concern is the possibility that instability in places like the Middle East or the Korean peninsula will drive funds toward safer currencies like the dollar or the yen. Another worry is the prospect of quicker-than-anticipated economic growth in the U.S. and Europe, which could draw funds back to the developed world. Given the risks, some investors might be tempted to cash out of their successful emerging-market holdings, says Olgay Buyukkayali, the London-based head of strategy for emerging Europe, Middle East and Africa at the Nomura Securities unit of Nomura Holdings Inc. If the spread shrinks between the yields of emerging-market debt securities and the lower yields of bonds from industrialized countries, says Mr. Buyukkayali, “I think we will see a degree of profit-taking” in emerging-market debt. Mr. Curran is a reporter for Dow Jones Newswires and The Wall Street Journal in Sydney. He can be reached at [email protected].

The top 10 nations in emergingmarkets local-currency debt issues, 2010, in millions of dollar equivalents China $171,783 South Korea 100,749 India 35,841 Russian Federation 26,077 Mexico 19,577 Malaysia 13,491 Singapore 12,255 Taiwan 10,799 Brazil 9,284 Thailand 8,127 TOTAL $437,482 Source: Dealogic

Can the Chinese yuan replace the dollar? By Shen Hong SHANGHAI—It’s practically a given that China will overtake the U.S. as the world’s largest economy, probably within the next two decades. The yuan, however, may never kick the dollar off its pedestal. It takes more than economic might for a country to establish its currency in marketplaces and treasuries around the globe. Indeed, the favored status of the dollar and the euro in international trade settlements—as safe-haven investments, and as the currency of choice for many nations’ foreign reserves—depends on something China currently lacks: the rule of law and long-term political stability. As corruption stays rampant and

the rich-poor gap keeps widening, social instability remains a real threat to a country without a democratic system in place. For central banks to hold yuan for the long term, they need to be convinced that Beijing will establish a political system that makes the nation’s future stable and easy to predict. As a result, questions about the yuan’s future depend largely on the even bigger question of when China will hold a free election. Still, it is clear that China is laying foundations for wider acceptance of the yuan. Since July 2009, Chinese exporters in 20 regions have begun settling trades in yuan. Chinese imports settled in yuan remain less than 1% of all goods brought into China, but that

share is expected to grow to 20% in 2015, according to a report by London-based Standard Chartered Bank. China is nurturing Hong Kong as an offshore center for trading and investing in yuan and yuan-based financial products. Key steps so far have been creating a market for exchanging yuan notes, and a so-called dim sum bond market, which features trading in yuan-denominated debt issued by foreign companies and Chinese bonds. Both markets have seen strong growth in recent months, reflecting long-term optimism in China’s economy as well as continuing bullishness about the yuan. Beijing also recently gave the Bank of China, one of the country’s biggest state-run banks, permission to open

yuan trading for customers in the U.S., a move seen as a symbolic government endorsement of foreign trading in the yuan. These are important steps. But experts say China must do more to persuade local and foreign businesses to settle trades in yuan, and to encourage central banks around the world to hold yuan-denominated assets as part of their reserves. Streamlining currency regulations and creating more ways to reinvest offshore yuan in China will be crucial. “An important step toward greater convertibility of the yuan would be further opening up China’s domestic bond market to foreign investors,” says Patrick Perret-Green, head of foreign exchange and local market

strategy for Asia at Citigroup Inc. in Singapore. Beijing granted a small group of foreign investors access to its vast and potentially lucrative onshore interbank bond market in August, though a rigid quota system is in place. In addition, China is considering allowing Hong Kong-based yuan funds to invest in the mainland stock market. And the Shanghai Stock Exchange has a plan to let foreign companies offer yuan-denominated shares. Mr. Shen is China bureau chief for Dow Jones Newswires, based in Shanghai. He can be reached at [email protected].

R4

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

THE JOURNAL REPORT: FOREIGN EXCHANGE

Exposed! As currency volatility rises, companies scramble to avoid being caught with their hedges down BY CHANA SCHOENBERGER

T

hese are wild times for corporate financial executives. Each day, Bob Woodward checks on the forward currency contracts he’s bought, locking in the Canadian dollar’s exchange rate against the U.S. dollar. “We have to be proactive because we are so exposed that we have to be here every morning looking at things,” says Mr. Woodward, the chief financial officer of Wmode, a Calgary, Alberta, mobile-software company that gets 95% of its revenue from abroad. To mitigate the risk that currency moves will wipe out its profits, Wmode buys between $10 million and $20 million of forward contracts annually. In 2010 these hedges saved the company 12% of revenue, money that otherwise would have vanished due to foreignexchange volatility, he says. Companies like Wmode have had to work overtime to protect their bottom lines in recent years amid a marked pickup in currency volatility. First it was the sharp slide in

emerging-market currencies during the financial crisis of 2008 and 2009, when the dollar and Japanese yen surged as safe havens. Then it was the gyrations in the euro, which moved within a range of 12 to 15 cents in each quarter of 2010 as the eurozone lurched from debt crisis to solution and back again. A Citigroup Inc. survey of large companies released in December revealed that one-quarter had changed their risk-management policies as a result of losing money to such currency movements since the financial crisis began. “A 2% swing that affects your bottom line could wipe out your profit,” says Brendan McGrath, senior foreign-exchange trader at Western Union Co.’s Western Union Business Solutions in Victoria, British Columbia, where Wmode does its hedging.

Seeking certainty Currency volatility is in the forefront of issues concerning companies around the world, and hedging has increased recently after a pullback during 2008 and 2009. U.S., European, and Japanese companies surveyed by J.P. Morgan Chase & Co.

in December said they had already hedged a record 40% of their currency exposure for 2011. Among those, U.S. companies had hedged 46% of their expected foreign cash flow for 2011. Previous surveys showed that companies around the world hedged nearly that much in December 2007 for 2008, but then sharply reduced their hedging during 2008 and 2009. J.P. Morgan’s December survey showed companies were most worried about the euro as the sovereign-debt crisis and the resulting banking turmoil continues to roil the common currency. Companies that hedge their cur-

Currency volatility is in the forefront of issues concerning companies around the world rency exposure by buying forward contracts and options through Western Union Business Solutions are generally trying to protect against exchange-rate fluctuations of about 8% over the life of a contract, Mr. McGrath says. But since the crisis of 2008-09, exchange rates can now change in double-digit increments over those periods, making hedging more difficult and costly, he says. Forwards are agreements to buy or sell a currency at a specified rate on a certain

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date. Options give the right, but not the obligation, for similar transactions. With companies more careful now about hedging costs, Mr. McGrath says he’s seen an increase in clients using a protective move known as a collar strategy to bet that the euro’s weakness will continue. Say a company has euros that it wants to exchange for dollars in three months and the euro currently is trading at $1.35. The company wants to lock in its exchange rate within a narrow range. To achieve this, it arranges two separate options. One option, which the company buys from a counterparty that’s more bullish on the euro, allows it to sell its euros in exchange for dollars if the euro reaches $1.37. The other option, which it buys from a euro-bearish seller lets it sell those euros at a rate of $1.33. That way, the company has guaranteed its rate will fall between $1.33 and $1.37; it won’t be hurt if its euros are suddenly worth far less, but it also won’t benefit if its euros become worth far more. “You can give yourself a very tight protection level,” Mr. McGrath says. “But you have to give up some upside,” he adds. “That’s one big thing if you’re talking about volatility.”

But, he says, “you never want to overhedge, because that’s just money you’re spending right off the bat.”

High costs Even when currencies are fluctuating dangerously, a prudent hedge policy can still be too pricey for many companies. Because the more volatile the market, the higher the price for an option.

Managing risk Percentage of surveyed large companies saying they hedge their currency exposure for these reasons Reduce risk to cash ﬂow over a discrete period

65% Protect the currency rate used in setting budget

36% Reduce risk to earnings over a discrete period

34% Minimize the period-on-period change in earnings

How much to hedge? How much a company uses hedging depends on the type of business and how predictable its foreign-exchange exposures are. Most sectors that do business abroad typically try to eliminate half of their exposure. Companies with narrows margins, like in agriculture, commodities and groceries, might hedge 80% of their known foreign-exchange requirements. Some companies don’t hedge at all, either because they can’t judge how much money will be coming in from abroad, or because they have a deliberate strategy of letting currencies balance each other out around the world. FM Global, a mutual commercialproperty insurer in Johnston, R.I., does business in about 100 currencies. When it needs to pay out a claim abroad, it builds up deposits in that currency by halting conversions of the annual premiums it collects in that currency. Otherwise, it regularly converts its foreign cash into dollars, except where national regulations require it to keep some money in a particular currency. “We’re not buyers of exotic or pricey FX instruments to manage our risk,” says Treasurer William Mekrut. Because FM Global is privately held, “we manage our company from a long-term structure, so we don’t have to do that.” Even the savviest treasurer avoids purely speculative trades on currencies just to boost profits; that’s an easy way to lose money with disastrous bets. “The evidence is pretty strongly against the fact that a corporate can forecast how exchange rates are likely to go and make hedging decisions to increase profitability by hedging,” says Gordon Bodnar, a finance professor at Johns Hopkins University’s School of Advanced International Studies who has researched corporate hedging. “Increasingly, I think, companies recognize that.” “One way to look at FX is that you’re just buying insurance,” says Brian Kalish, director, finance practice, at the Association for Financial Professionals, a trade group in Bethesda, Md., for treasurers and other financial executives.

20% Minimize the period-on-period change in cash ﬂow

16% Other

5% Note: Multiple responses allowed. Source: Citi Foreign Exchange, Citigroup

Treasurers on the message boards of the Association for Financial Professionals website recently debated how to hedge their exposure to Turkish lira. “You can’t,” Mr. Kalish says. “You’re not going to buy futures in highly volatile currencies because the cost is too great.” Hedging costs also vary greatly depending on a company’s creditworthiness, the currency being hedged, the type of hedging instrument used, and the length of time the company wants to maintain the hedge. According to one adviser to companies on foreign-currency hedging, recently a public U.S. company with a good credit rating that wanted to convert €100 million into dollars in three months could have used a three-month forward contract to sell euros for $1.3142, compared with a spot exchange rate of $1.3149. The cost for the transaction—the difference between the two rates—would have been about $70,000. At the other end of the spectrum, the adviser says, a privately held company with poor credit that wants to convert €100 million into dollars in five years will likely have to use a put, or sell option. The company’s bad credit would stop most banks from taking a risk on a five-year forward contract. And that deal could cost as much as $13 million, or close to 10% of the amount hedged. Ms. Schoenberger is a reporter for The Wall Street Journal and Dow Jones Newswires in New York. She can be reached at [email protected].

Wednesday, March 2, 2011

R5

THE WALL STREET JOURNAL.

THE JOURNAL REPORT: FOREIGN EXCHANGE

The battle of the titans For big banks that have long dominated foreign-exchange trading, new competition has them scrambling BY KATIE MARTIN

Taking another look For a long time, many banks saw foreign exchange as a boring business—safer, perhaps, than other trading activities but not nearly as profitable. The revenue available from individual transactions is tiny, maybe $70 on a deal as large as $1 million in the major currencies. Foreign exchange is also an expensive business to enter. To make serious money, banks have to handle serious volumes—and that means spending heavily on people and technology. The very fastest banks can pump out and update prices in less than a quarter of the time it takes a human to blink. The smartest can sync up with complex trading models and allow clients to slice giant trades into little chunks, complete them intelligently to minimize market impact, bundle the trades back up again and post them back into possibly dozens of accounts. When the financial crisis hit, a lot of banks that had avoided the foreign-exchange business gave it a second look. Currency-trading volume shot sky-high when Lehman Brothers collapsed in 2008 and investors scurried into the apparent safety of dollar-denominated U.S. government bonds, but the market itself worked smoothly. Trades flowed through the system exactly as they normally do, and many banks scooped up record currencyrelated revenue; the overall flows grew by some 20% between 2007

Shaking up the rankings Credit Suisse and BNP Paribas have been two notable movers among the biggest banks in foreign exchange, and more ﬂux is likely as competition heats up 2010 Rank

2007 Rank

Bank

Market Share

1

1

Deutsche Bank

2

2

UBS

18.07% 11.30

3

5

Barclays Capital

11.09

4

3

Citigroup

7.69

5

4

Royal Bank of Scotland

6.51

6

9

J.P. Morgan Chase

6.35

7

7

HSBC

4.55

8

17

Credit Suisse

4.44

9

8

Goldman Sachs

4.28

10

10

Morgan Stanley

2.92

11

15

BNP Paribas

12

6

Bank of America Merrill Lynch

2.27

13

20

Société Générale

2.06

14

47

Commerzbank2

1.46

15

22

Standard Chartered

1.25

16

16

State Street

1.11

17

14

Credit Agricole

0.81

18

73

Nomura3

0.80

19

21

Skandinaviska Enskilda Banken

0.74

20

19

RBC Capital Markets

0.71

2.89 1

1

2007 ranking is for Bank of America; Merrill Lynch ranked 13th.

2

2010 ranking reﬂects acquisition of Dresdner Kleinwort, which ranked 18th in 2007

3

2010 ranking reﬂects acquisition of European and Asian operations of Lehman Brothers, which ranked 11th in 2007.

Source: Euromoney

and 2010, according to the Bank for International Settlements. Foreign exchange, in fact, stands out as possibly the only core banking business to escape the crisis unscathed. Unlike self-destructive businesses like highly structured debt products, foreign exchange is in no danger of disappearing, as everyone from central-bank reserve managers to tourists needs to do currency deals. All of which makes foreign exchange a much more attractive prospect these days. Numerous large firms have made the business a new priority, including France’s BNP Paribas and Société Générale SA, and even Nomura—once a minnow in the currencies business with a market-share ranking in the 70s. Credit Suisse Group, already a sizable player, also has big ambitions. These banks are making investments in technology and personnel to grab market share, a necessity in a business where volume is everything. “If a bank is anywhere in the top 20, it wants to be in the top 10,” says Mr. Feig at Citigroup. “If it’s in the top 10, it wants to be in the top five. And the top five want to be top three.” Even at the top of the pile, banks are keen to grow. “[Our] ambition is to be the No. 1 bank in foreign exchange,” said Mike Bagguley, head of foreign-exchange trading at thirdplace Barclays Capital in London.

‘Continuous investment’ Because newcomers’ buildup plans are still relatively new, and as so few reveal currency revenue, it’s hard to tell whether they’re suc-

The financial crisis prompted currency also-rans like Credit Suisse to take a new look at the relative stability of the foreign-exchange business, putting greater pressure on UBS and other longtime market leaders

ceeding yet. But even established companies in the business know they will fall behind in this environment if they stand still. “It takes continuous investment,” says Zar Amrolia, global head of foreign exchange at Deutsche Bank AG, which has held the top slot in the business for the past six years. Over the past 12 months, he says, the bank has added salespeople and increased technology spending. Investments by the big banks generally focus on shaving microseconds off the time it takes to update prices and ensuring that systems can accommodate demanding high-volume clients, chiefly hedge funds. They spend heavily on their own trading systems, ensuring they offer clients sophisticated ways of executing trades, often in an effort to mimic the success that Barclays Capital has had in building market share with its high-end Barx trading system. Plus, they spend time and money ensuring their prices hit independent trading systems faster, and at more competitive rates, than other banks. Increasingly, banks are also focusing on making their own internal processes as efficient as possible, minimizing the flows they need to pump into the wider market. At UBS, which has the secondbiggest market share in the business, a series of technological upgrades and new initiatives is due for release over the course of this year. Christopher Purves, global head of electronic trading in currencies at the bank in London, is circumspect about exactly what the new features will involve. Still, he says, “we have a whole list of things coming out

Agence France-Presse/Getty Images (2)

I

n October, an executive from UBS AG made a startling comment during a conference call with analysts. The Swiss bank, he said, needed to “pull its socks up” to regain lost market share in foreign exchange. The admission of weakness—unusual in the tight-lipped industry—led to lots of gloating at other top-tier banks. But they had little cause to celebrate. Competition is a lot tougher than it used to be for all of the big names in the $4 trillion-aday currencies market. Until recently, the top banks in foreign exchange looked unassailable. Now other big banks—including BNP Paribas SA and Nomura Holdings Inc.—are taking aim at the leaders, using generous pay to poach staff from the established names, offering clients super-competitive prices and trying to mimic the big banks’ trading technology. As if that weren’t enough pressure, nimble nonbank market makers, like funds and proprietary trading firms, are becoming increasingly active in the most basic end of the market: spot currency trading. It’s tough to tell how much share these competitors are grabbing—but they’re doing well enough to make the industry leaders nervous, to pull their socks up. Many top names in foreign exchange are pushing to upgrade their trading technology, while a group of them are taking on nonbank rivals with a new banksonly electronic trading system. “There’s no question that we felt the pressure from new entrants to the market in late 2009 and early 2010, particularly through hiring,” says Jeff Feig, the New York-based head of foreign exchange at Citigroup Inc., the fourth-biggest bank in currency dealing.

that we think our clients will love,” particularly in trading technology. Likewise, HSBC Holdings PLC is refocusing on the business and modernizing its trading technology—a challenge, given its task of serving clients as diverse as “a hedge fund in New York, a [business] in Vietnam and an insurance company in Brazil,” says Frédéric Boillereau, head of currencies and metals at the bank in London. The No. 6 bank, J.P. Morgan Chase & Co., is also renewing its foreign-exchange efforts, with smarter trading technology at the core of the initiative. “We want to maintain our position as having one of the most profitable foreign-exchange businesses of any bank. But you can’t do that without being in the top five for volumes,” says Troy Rohrbaugh, currencies chief at the firm.

Where we’re headed The biggest banks believe the new competitors that have been grabbing their business and staff will soon start to find this battle too tough, particularly as they seek to excel in all areas. “Competing with the top six is like setting up a burger shop over the road from McDonald’s,” says one senior executive at a large firm. “You might make a better burger on that street, but you will not compete on a global basis.” Both Mr. Feig at Citigroup and Mr. Amrolia at Deutsche Bank believe that a shakeout is likely over the next year. The newcomers dismiss this idea as typical bluster by the heavy hitters and insist they’re in this project for as long as it

takes. “I am convinced ours is a credible, lasting expansion plan,” says Martin Wiedmann, head of foreign-exchange sales and distribution at Credit Suisse. “We know what it takes” to build scale, echoes Michael Burton, head of institutional sales at Société Générale. Still, the enormous volumes and comparatively wide spreads that made 2008 a hugely profitable year for all banks in foreign exchange are not likely to repeat themselves anytime soon, barring major macroeconomic shocks. Revenue in 2009 and 2010 was more modest, bankers agree. If that relative stability lasts, smaller banks may find it tough to justify the greater physical presence world-wide and huge technology bills needed to push into the business. They will certainly have to start showing results from their efforts over the next year or so, and if they fall flat, these banks may settle into niches, like structured products, regional specialization or a focus on particular types of clients. “Banks want to get into foreign exchange because it’s a flow business with a low usage of capital. Everybody is doing it,” says Mr. Boillereau at HSBC. “But it’s not as easy as people think, and building up takes time. I think the next two years are going to be difficult for the newcomers. Some will give up, but some will carry on.” This year will bring a key test of that theory. Mrs. Martin is a news editor for Dow Jones Newswires and The Wall Street Journal in London. She can be reached at [email protected].

R6

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

THE JOURNAL REPORT: FOREIGN EXCHANGE

You snooze, you lose For individual investors, trading currencies is high stakes, high leverage—and highly addictive BY CHARLES PASSY

On the night shift

A

s a onetime equity trader with a major bank, Ken McCadden is used to putting in long hours and tackling difficult assignments. But nothing quite compares to his routine of late. The Saddle River, N.J., resident usually starts his “day” in Asia at around 5 p.m. U.S. Eastern time. He then heads to Europe in the wee hours of the morning, before concluding his grind in the U.S. by sunrise. Mr. McCadden’s work doesn’t involve any actual travel, however. Rather, he trades foreign currencies online from home when most folks are fast asleep, fueled by a potent cup of Sumatra coffee, brewed extra thick and strong. “I make it so that your spoon stands up in it,” he says. Such is life on what might be dubbed “The Forex Late Show.” For a new breed of investor in search of diversification and a potentially higher-yielding alternative to stocks and bonds, it’s all about flipping schedules around or sacrificing a few hours of sleep to squeeze in some extra trading. The reason for the brutal hours is obvious enough: Currency trading is a 24-hour beast, with peak trading periods aligning with the times Asia, Europe and North America intersect with one another during their respective workdays. Foreignexchange investors think in terms of currency “pairs”—say, the euro and dollar—so they are particularly mindful of times when news and information is flowing out of two countries or regions—say Europe and the U.S.—simultaneously; otherwise, an investor is working with just one piece of a two-piece puzzle. In addition, currency trading is largely shaped by the global news cycle, from the latest employment report out of Asia to the latest sovereign-debt crisis in Europe. While such news can affect stocks, too, equity traders can sleep a little easier in that even significant overnight foreign news won’t necessarily have a profound impact on every U.S. company. In the case of foreign exchange, it’s all news, all the time. “It’s like trading a stock that has earnings reports five times a day,” says Mr. McCadden.

‘An addiction’ There isn’t one way to trade currencies—or one type of currency trader. Some, like Mr. McCadden, make a living out of it; others do it in their spare time. Traders typically find a pattern that suits them best, depending on the currency pairs that interest them and their need for sleep. But veteran traders and foreign-exchange brokers say that if there’s one constant, it’s that currency trading tends to attract type-A investors who live for the constant action, not unlike a Vegas poker player who stays at the table through the night. “Forex is an addiction,” says Leon Yohai, chief executive of ZuluTrade Inc., an online platform that connects traders to one another. Mr. Yohai says the significant degree of leverage in the foreign-exchange market—investors can borrow as much as 50 times the actual capital in their accounts to make trades (and that’s even with the new limits

What it’s like to play “The Forex Late Show”

KEN MCCADDEN

DANA EFREMOVSKA

WINSOR HOANG

AVERAGE HOURS OF SLEEP A NIGHT

AVERAGE HOURS OF SLEEP A NIGHT

AVERAGE HOURS OF SLEEP A NIGHT

4

4-5

5 before he went to automated trading, 8 since.

ALARM CLOCK

ALARM CLOCK

A vintage Panasonic digital model, simulated wood case and all.

Blackberry phone and digital alarm clock— sometimes she needs both to ﬁght the fatigue.

PREFERRED WAKE-UP POTION

Sumatra coffee and chewing tobacco.

PREFERRED WAKE-UP POTION

BIGGEST LATE-NIGHT MISTAKE

BIGGEST LATE-NIGHT MISTAKE

No major trading errors; broke an indoor pipe by turning it the wrong way, nearly causing a ﬂood in his house.

Adding an extra zero to a buy order. “It was the most nerve-racking experience,” she says; in the end, she broke even on the trade.

that went into effect last year)—is what particularly fuels the latenight culture. “When you have an open position and a high leverage, you have to stay awake at night,” he says. “Otherwise, you might wake up and have nothing.” Another factor behind the roundthe-clock foreign-exchange fanaticism: It allows investors with day jobs—from doctors to teachers—to play the markets at their height. That’s an opportunity simply not afforded them by the U.S. equity markets, which hew to regular working hours. “I was left watching on the sidelines,” says Dana Efremovska, an investment accountant in New York who turned to currency trading and now trades when the Asian and European markets overlap. Ms. Efremovska’s schedule? She comes home from work, goes to bed at 8 p.m. and then wakes up at midnight for a full nine hours of trading. “During my trading session, the adrenaline takes care of making sure I stay awake,” says Ms. Efremovska, who gets by on about four hours of sleep each weeknight. (She sleeps as late as 1 p.m. on the weekends to compensate, she says.) But she isn’t complaining. She says she has more than doubled her investment of

Plain old java.

$200,000 since entering the foreignexchange market two years ago. Other investors haven’t been as lucky. Paul Evans, a manufacturing supervisor who lives in Hopewell, N.J., says he’s down 90% on his currency investment of about $1,300 over the past four years. He admits he sometimes gets hooked on currency trading because of the thrill. “That is definitely a potential pitfall of this market,” Mr. Evans says. “My goal is to control the trades instead of the other way around.”

Serving night owls Meanwhile, with the midnightto-8 a.m. shift often accounting for more than a third of overall trading volume at brokerages large and small, a whole industry devoted to servicing those who invest in offhours has sprung up. “We field a lot of calls from clients overnight,” says Robert McKeon, senior vice president of FXDD, a New York-based online foreign-exchange broker Brokerages say they’ve beefed up staff to meet demand—in some cases adding employees in the actual countries where trading is taking place (daytime duty for those workers), but in other cases adding U.S.-based personnel who work true

ALARM CLOCK

Two standard digital models one on his nightstand, the other ﬁve feet away (if the ﬁrst fails to rouse him, the second will force him out of bed). PREFERRED WAKE-UP POTION

Tea, steeped extra long (for added strength). BIGGEST LATE-NIGHT MISTAKE

Placed a buy order on a currency that he wanted to sell.

“graveyard” hours. “When I go into the health club at 6 a.m. before I start my day, I’m seeing a guy who’s doing his workout after he’s finished his day,” says Eric Viloria, a senior currency strategist with New Yorkbased broker Forex.com, a unit of GAIN Capital Holdings Inc. Of course, just as with equity markets, there are ways to invest in currencies that don’t require live trading. Automated orders and stops, for example, can easily be put into place, though many traders say the movements in foreign-exchange markets are such that it can be difficult to make money without actively monitoring positions. Mark Mc Donnell, who owns ForexEarlyWarning.com, an online subscription-based trading-alert system, says there is an alternative: He trades in a key four-hour window, starting three hours before the U.S. stock market opens. He says that’s a time when the U.S. is beginning its workday and Europe is still going strong, so traders can get a good sense of how market conditions will affect the currencies of many countries. He also says he gets a full-night’s sleep and enjoys his morning coffee before rushing to the computer. “I’ve got my wits

about me,” says Mr. Mc Donnell. Therein lies the real danger in late-night trading, say many foreign-exchange veterans: While there may be opportunities to make money in those overnight hours, there’s also the potential to make mistakes if you’re groggy and not fully focused on the task at hand. It’s why Winsor Hoang, a full-time foreign-exchange trader who offers strategies to investors through Currensee.com, has gone fully automated. When he started trading currencies five years ago, he found he was up at all hours and “walking around like a zombie.” In short, he lacked discipline with his trading, he says. Mr. Hoang, based in Vancouver, British Columbia, switched to automated trading about three years ago and says he was up about 20% last year. His health and social life have improved, too, and he says he doesn’t miss the action that so many foreign-exchange night owls seek. “Trading should be monotonous,” he says. Mr. Passy is a staff writer for SmartMoney magazine in New York. He can be reached at [email protected].

Wednesday, March 2, 2011

R7

THE WALL STREET JOURNAL.

THE JOURNAL REPORT: FOREIGN EXCHANGE

The (relatively) good news on the euro Why the crisis appears to be easing—and what the next test will be BY GEOFFREY T. SMITH

Rising pressure

E

Approaching the summit Much now hinges on a March 24-25 summit in Hungary, at which the 17 euro-zone governments will discuss Germany and other core euro-zone nations funding a permanent and larger financial safety net for weaker partners in return for more say in the zone’s economic policy. It’s unlikely any deal that emerges will be comprehensive enough to end market concerns

The euro zone’s consumer price index has climbed above the European Central Bank’s target annual inﬂation rate, sparking talk about interestrate increases that could damp economic growth 3.0% 2.5

ECB target rate

2.0 1.5

Euro zone CPI

1.0 Associated Press

urope’s single currency has had a tumultuous 18 months, but the outlook is brighter now than it has been for some time. Indeed, some analysts are saying that if the region’s politicians can avoid disaster at a key summit later this month—admittedly by no means a certainty—the worst of the euro crisis may be over. The euro’s trade-weighted exchange rate has risen 3.5% over the past month, following a brief wobble in January, keeping the euro slightly above $1.35—the same level at which many analysts think it will end the year. “The financing challenge looks much less serious than it did a couple of months ago,” John Normand, head of foreign-exchange strategy at J.P. Morgan Chase & Co. in London, says of Europe’s sovereign-debt crisis. “The big change has come from euro-zone leaders realizing that they need a more comprehensive solution to the debt problem.”

0.5 0.0

Mar. 2010

Apr.

May

June

July

Aug.

Sep.

Oct.

Nov.

Dec.

Jan. 2011

Source: Eurostat

Jean-Claude Trichet, president of the European Central Bank about European sovereign debt. But Mr. Normand thinks an agreement that meets the core nations’ requirements might be enough to convince markets that the current state of sovereign financing is “manageable.” But something else has changed, too. Inflation in the euro zone, at 2.3% in January, is above the European Central Bank’s medium-term target for the first time since the 2008 financial crisis, and is putting pressure on the ECB to raise interest rates. ECB President Jean-Claude Trichet argues that inflation has risen largely due to energy and food prices, which are determined at a global level. But there are growing signs of concern among the ECB’s governing council. Board member Lorenzo Bini Smaghi said in a recent speech that

inflation “is likely to be of a different nature than in the past,” while Dutch central-bank chief Nout Wellink said recently, “The overall picture is not a picture I like very much.” Jacques Cailloux, chief euro-zone economist with Royal Bank of Scotland in London, says this kind of rhetoric “argues for a premium to be priced [into forward-rate euro contracts] already in the first half” of 2011. The implied forward curve for three-month money rates reflects expectations that the ECB will raise its main refinancing rate around the end of the third quarter. That rate, at 1% since May 2009, accounts for nearly a third of all ECB credit to the banking sector, and much of the rest is indexed to it. It is the single-biggest factor in determining the price of credit in

euros. There may, however, be more than meets the eye to some recent comments out of the ECB. The race to succeed Mr. Trichet in October is wide open after Deutsche Bundesbank President Axel Weber’s decision to step down in April. Possible candidates such as Mr. Wellink, Italy’s Mario Draghi and Luxembourg’s Yves Mersch have all aired scrupulously Germanic views on monetary policy in recent days.

Risk of confusion “It risks more confusion…creating expectations that aren’t warranted,” RBS’s Mr. Cailloux says of such posturing. He says he thinks the ECB won’t actually need to raise rates until the fourth quarter. “If it’s genuine, that’s fine,” he says of the tough talk about inflation. “But if it’s not, it’s a dangerous game.”

Any interest-rate increase is likely to widen the rate differential with the U.S., supporting the euro against the dollar, analysts say. Roberto Mialich, a foreign-exchange strategist with Unicredit in Milan, thinks the U.S. won’t need higher interest rates before 2012. Even the best-case scenario would leave the euro zone a highdebt, low-growth economy with an aging population and no convincing strategy for competing with emerging markets. But that’s better than the prophecies of doom and breakup that dominated last year and continue to circulate, especially in London and New York. Mr. Smith is a reporter for Dow Jones Newswires in London. He can be reached at [email protected].

U.S. Treasury considers tougher rules for swaps, forwards BY SARAH N. LYNCH AND BRADLEY DAVIS

A

s the U.S. Treasury Department nears a decision about how much the market for foreignexchange swaps and forward contracts should be regulated, the argument it is hearing from market players is a simple one: They are like the good kids who face punishment even though they sat quietly in class while other students tore up the room when the teacher was away. Market participants hope the Treasury buys that argument and exempts foreign-exchange swaps and forwards from the new rules the Commodity Futures Trading Commission is writing for derivatives markets. Treasury’s decision will determine how nearly $2 trillion a day in currency transactions get done—transactions that are crucial to corporations doing business across borders and to big international investors. A Treasury official, speaking on condition of anonymity, said the department would likely decide whether to exempt certain foreignexchange products from regulation before the CFTC issues the rules in July. Foreign-exchange swaps and for-

wards are used to protect companies and investors from losing money due to currency volatility. (They are not to be confused with so-called currency swaps, which are longer-term instruments that entail greater risk.) A U.S. company that needs to pay a supplier in Italy might enter the market ahead of the payment to lock in a price for euros, to guard against a decline in the dollar before the payment is due. Or a pension fund might lock in a price for yen to pay for a purchase of Japanese shares. The market is relatively informal and lightly regulated. Brokers—mostly big international banks—find parties whose needs match up and who can agree on a price, and those parties sign a contract. Terms of the transaction are kept private. Much of that would change under the new CFTC rules, which are designed to help prevent renewed financial and economic turmoil by increasing transparency and decreasing risk in derivatives markets. Among other things, the new rules would require swaps to take place on trading platforms, where the terms would be public, and to be completed through clearinghouses that would guarantee the trades, to eliminate the risk of default by ei-

ther party. Opponents of the rules say the foreign-exchange instruments aren’t that risky and didn’t contribute to the recent financial and economic crisis, so there’s no need for more regulation. “The things that blew up on us were mortgage-backed securities…and the credit-derivative swaps,” says Scott Pardee, an economics professor at Middlebury College in Vermont and former senior vice president at the New York Federal Reserve. “The foreign-exchange market functioned throughout, and so if it ain’t broke, don’t fix it.” Others point to the differences between the foreign-exchange instruments and other kinds of swaps. For one thing, the foreign-exchange contracts involve an actual exchange of goods—one currency for another—unlike swaps that are more like bets on the direction of interest rates or of some other market. That means they are less speculative by nature. They also are shorter-term contracts than other swaps, which leaves less time for the markets to move so sharply that either party would take a big loss on a transaction, and less time for either party to encounter troubles that would prevent it from completing the deal. “Forex swaps and forwards are not swaps in the traditional sense,” a

group of companies including 3M Co., Cargill Inc. and Caterpillar Inc. wrote in a recent letter to Treasury. One big concern of those fighting the rules is cost. The clearinghouses that would become part of the market would require each party to a transaction to post collateral, an expense that doesn’t exist in most private deals. Some opponents say this cost would discourage swaps. And fewer swaps, they say, would mean more exchange-rate volatility, because companies and investors would be more inclined to buy or sell currencies en masse at extreme highs and lows to try to control their costs. Banks have also argued that higher costs and closer scrutiny could drive much currency trading out of the U.S. U.S. Treasury Secretary Timothy Geithner appeared sympathetic to some of these arguments before the Dodd-Frank financial-regulation bill was passed last year. Foreign-exchange markets “have actually worked quite well” and “don’t present the same set of risks” as other markets, Mr. Geithner said in congressional testimony. “Our judgment is that…we’ll have to have a slightly different approach” with foreign-exchange instruments. But CFTC Chairman Gary Gensler said last year that he was concerned

about allowing any loopholes in the new rules for derivatives. And that argument has caught the attention of some lawmakers and public-interest groups who are urging Treasury not to make an exception for the foreign-exchange instruments. An exemption “would open the door to financially engineered foreign-exchange swaps and forwards that could be used to disguise other types of transactions and would be difficult to police,” Sen. Carl Levin, a Michigan Democrat, wrote in a recent letter to Treasury. Some also wonder if Treasury is willing to accept the risk of an exemption backfiring. Heather Slavkin, a policy adviser at the AFL-CIO labor federation, which favors the inclusion of foreign-exchange instruments in new swap rules as part of its support for more-transparent financial markets, says that “if this market collapses, people are going to be pointing to this Department of Treasury.” Ms. Lynch, a former reporter for Dow Jones Newswires and The Wall Street Journal in Washington, can be reached at [email protected]. Mr. Davis, a foreign-exchange reporter for Dow Jones Newswires and The Wall Street Journal in New York, can be reached at [email protected].

R8

THE WALL STREET JOURNAL.

Wednesday, March 2, 2011

THE JOURNAL REPORT: FOREIGN EXCHANGE

Why the dollar’s reign is near an end Continued from page R1 commodities in a crisis. It is a product of the fact that U.S. Treasury securities, the single most important asset bought and sold by international investors, have long had a reputation for stability. Finally, the dollar benefits from a dearth of alternatives. Other countries that have long enjoyed a reputation for stability, such as Switzerland, or that have recently acquired one, like Australia, are too small for their currencies to account for more than a tiny fraction of international financial transactions.

What’s changing But just because this has been true in the past doesn’t guarantee that it will be true in the future. In fact, all three pillars supporting the dollar’s international dominance are eroding. First, changes in technology are undermining the dollar’s monopoly. Not so long ago, there may have been room in the world for only one true international currency. Given the difficulty of comparing prices in different currencies, it made sense for exporters, importers and bond issuers all to quote their prices and invoice their transactions in dollars, if only to avoid confusing their customers. Now, however, nearly everyone carries hand-held devices that can be used to compare prices in different currencies in real time. Just as we have learned that in a world of open networks there is room for more than one operating system for personal computers, there is room in the global economic and financial system for more than one international currency. Second, the dollar is about to have real rivals in the international sphere for the first time in 50 years. There will soon be two viable alternatives, in the form of the euro and China’s yuan. Americans especially tend to discount the staying power of the euro, but it isn’t going anywhere. Contrary to some predictions, European governments have not abandoned it. Nor will they. They will proceed with long-term deficit reduction, something about which they have shown more resolve than the U.S. And they will issue “ebonds”—bonds backed by the full faith and credit of euro-area governments as a group—as a step in solving their crisis. This will lay the groundwork for the kind of integrated European bond market needed to create an alternative to U.S. Treasurys as a form in which to hold central-bank reserves. China, meanwhile, is moving rapidly to internationalize the yuan, also known as the renminbi. The last year has seen a quadrupling of the share of bank deposits in Hong Kong denominated in yuan. Seventy thousand Chinese companies are now doing their cross-border settlements in yuan. Dozens of foreign companies have issued yuan-denominated “dim sum” bonds in Hong Kong. In January the Bank of China began offering yuan-deposit accounts in New York insured by the Federal Deposit Insurance Corp. Allowing Chinese companies to do cross-border settlements in China’s own currency will free them from having to undertake costly foreign-exchange transactions. They will no longer have to bear the exchange-rate risk created by the fact that their revenues are in dollars but many of their costs are in yuan.

Allowing Chinese banks, for their part, to do international transactions in yuan will allow them to grab a bigger slice of the global financial pie. Admittedly, China has a long way to go in building liquid markets and making its financial instruments attractive to international investors.

All three pillars supporting the dollar’s international dominance are eroding But doing so is central to Beijing’s economic strategy. Chinese officials have set 2020 as the deadline for transforming Shanghai into a firstclass international financial center. We Westerners have underestimated China before. We should not make the same mistake again. Finally, there is the danger that the dollar’s safe-haven status will be lost. Foreign investors—private and official alike—hold dollars not simply because they are liquid but because they are secure. The U.S. government has a history of honoring its obligations, and it has always had the fiscal capacity to do so. But now, mainly as a result of the financial crisis, federal debt is approaching 75% of U.S. gross domestic product. Trillion-dollar deficits stretch as far as the eye can see. And as the burden of debt service grows heavier, questions will be

asked about whether the U.S. intends to maintain the value of its debts or might resort to inflating them away. Foreign investors will be reluctant to put all their eggs in the dollar basket. At a minimum, the dollar will have to share its safe-haven status with other currencies. How much difference will all this make—to markets, to companies, to households, to governments? One obvious change will be to the foreign-exchange markets. There will no longer be an automatic jump up in the value of the dollar, and corresponding decline in the value of other major currencies, when financial volatility surges. With the dollar, euro and yuan all trading in liquid markets and all seen as safe havens, there will be movement into all three of them in periods of financial distress. No one currency will rise as strongly as did the dollar following the failure of Lehman Bros. There will be no reason for the rates between them to move sharply, something that would potentially upend investors. But the impact will extend well beyond the markets. Clearly, the change will make life more complicated for U.S. companies. Until now they have had the convenience of using the same currency—dollars—whether they are paying their workers, importing parts and components, or selling their products to foreign customers. They don’t have to incur the cost of changing foreign-currency earnings into dollars. They don’t have to purchase forward contracts and options to protect against financial losses due to changes in the exchange rate. This

Money leaders Currencies’ shares of global foreign-exchange transactions, 2010 U.S. dollar 84.9% Euro

39.1% Yen

19.0% British pound 12.9% Australian dollar 7.6% Swiss franc 6.4% Canadian dollar 5.3% Hong Kong dollar 2.4% Swedish krona 2.2% New Zealand dollar 1.6% Other

18.6% Note: Because two currencies are involved in each transaction, currencies’ shares total 200% instead of 100%. Figures are based on average daily turnover in April. Source: Bank for International Settlements

will all change in the brave new world that is coming. American companies will have to cope with some of the same exchange-rate risks and exposures as their foreign competitors. Conversely, life will become eas-

ier for European and Chinese banks and companies, which will be able to do more of their international business in their own currencies. The same will be true of companies in other countries that do most of their business with China or Europe. It will be a considerable convenience—and competitive advantage—for them to be able to do that business in yuan or euros rather than having to go through the dollar.

Changes for the U.S. In this new monetary world, moreover, the U.S. government will not be able to finance its budget deficits so cheaply, since there will no longer be as big an appetite for U.S. Treasury securities on the part of foreign central banks. Nor will the U.S. be able to run such large trade and current-account deficits, since financing them will become more expensive. Narrowing the current-account deficit will require exporting more, which will mean making U.S. goods more competitive on foreign markets. That in turn means that the dollar will have to fall on foreign-exchange markets—helping U.S. exporters and hurting those companies that export to the U.S. My calculations suggest that the dollar will have to fall by roughly 20%. Because the prices of imported goods will rise in the U.S., living standards will be reduced by about 1.5% of GDP—$225 billion in today’s dollars. That is the equivalent to a half-year of normal economic growth. While this is not an economic disaster, Americans will definitely feel it in the pocketbook. On the other hand, the next time the U.S. has a real-estate bubble, we won’t have the Chinese helping us blow it.

The case for the dollar’s continued dominance By Michael R. Crittenden Can the dollar be dethroned as the world’s reserve currency of choice? The financial crisis—coupled with the U.S. government’s troubled longterm fiscal position—has raised that possibility. But to many economists, at least for now, the speculation seems largely talk. “There is, I submit, no plausible candidate” to replace the dollar, Princeton University Prof. Peter Kenen argued in a paper presented in January to the American Economic Association. That’s a prevailing view in the markets, too. “We try to think of the alternatives, and none exist of any consequence,” says Tony Crescenzi, a market strategist and portfolio manager at Allianz SE’s Pacific Investment Management Co. The dollar’s share of global foreign-exchange reserves stood at 61.3% as of the end of last year’s third quarter, according to the International Monetary Fund.

Dollar deconstruction But that has not stopped an increasing buzz among policy makers around the world that the dollar’s dominant position should be reconsidered. French President Nicolas Sarkozy is expected to make the issue a priority for France’s presidency of the Group of 20 meetings this year, and even U.S. officials have acknowledged that a rethink of the dollar-centric world is inevitable.

“There’s going to be an attempt, I think, in the next year or two…to say, ‘Yes, this is a problem, and we ought to consider reform in the broader sense in the international monetary system,’” former Federal Reserve Chairman Paul Volcker said in a December presentation in Washington. But there’s little consensus about who or what would replace or share power with the U.S. and the dollar. Proponents see a range of possibilities, including a multipolar world with a handful of dominant currencies, a supranational note issued by a global body, and a bigger role for China and the yuan. The biggest question involves China. Would Beijing bear the global economic responsibility that comes with having a favored reserve status? China so far has resisted international pressure to stop holding down the value of the yuan, also known as the renminbi, and still has a comparatively underdeveloped financial system. “How much of a financial center can they be if they insist on continuing to control the financial sector?” asks Menzie Chinn, an economics professor at the University of Wisconsin. Until Beijing frees up its financial markets, “who wants to have a lot of assets denominated in renminbi?” he says. Harvard economist Kenneth Rogoff says he thinks the yuan and the dollar could be on a course to be the two major world currencies, a status

the two could share possibly for as long as two decades, he says. But during such a period, he adds, the U.S. would likely see a gradual weakening in the extensive benefits it receives from having other countries peg their currencies to the dollar. Among these benefits: confidence in its markets, low interest rates, and less volatility in prices of imports and exports. Any transfer of reserve status from the dollar to the yuan would likely take most of this century, he says. Meanwhile, he says, the dollar “will remain the reserve currency for some time, but the benefits will diminish.”

Buying trouble Many currency experts reject the idea of a supranational or global currency. The IMF’s Special Drawing Rights and other international measures discussed as potential replacements for the dollar have historically not been embraced widely enough, suggesting a lack of confidence in the idea on the part of financial markets. Setting international monetary policy in a quick and unified manner could prove highly difficult, economists say. The current problems facing the European Union and its struggles to keep its own financial house in order highlight the problems with a supranational currency. The debt issues and economic-policy squabbles now plaguing Europe would likely be magnified in times of stress for any inter-

national monetary union. “There’s just not going to be a global currency that’s not identified with a national government,” Mr. Rogoff says. “Look at the problems they’re having in Europe; think of that on the international level.” Advocates for the dollar’s reserve status point to its history as a safe haven for central banks during the recent global economic crisis. The dollar’s supremacy during such a disruptive period demonstrates its resiliency. “If there was ever a vote for the dollar system, that would be it,” says Michael Dooley, an economist at the University of California, Santa Cruz, who has consulted for the Federal Reserve and the IMF. Other countries, he says, have found “that having a huge stack of dollars is not a bad thing. Look at China—they came through this without a recession.” Even those with competing interests acknowledge that the dollar, at least for now, will remain king. In a speech in Paris late last year, European Central Bank Vice President Vitor Constâncio said, “I do not see a major reform of the international monetary system on the horizon, as there is no real substitute for the U.S. dollar in the medium term.”

Mr. Crittenden is a reporter for The Wall Street Journal and Dow Jones Newswires in Washington. He can be reached at michael.crittenden@ dowjones.com.