Archive for November, 2011

Paramount Financial Group Special Report

Macedonia – Reasons to Be Cheerful

Written by Henry Martin

Standard and Poor’s maybe dirty words in some circles, but not in Macedonia. In its latest report, S&P’s foreign currency rating remains stable, which indicates that Macedonia’s capability to maintain its obligations towards foreign countries hasn’t changed.

It was just the sort of news Zoran Stavreski, Macedonia’s Vice PM and Minister of Finance was hoping for. Sprinting straight out of the blocks at a government economic council meeting.

“Referring to Government’s priorities – the focal point is construction of technological and industrial development zones and acceleration of certain activities in terms of these zones, because evidently an increasing number of investors are interested in investing in Macedonia,” Stavreski said

“What is most important is that the Government focuses on economy, economic growth, investments, jobs and what we believe that the Government and Macedonia are capable of realising in years to come.”

Rousing words indeed and the polar opposite of the foot dragging, hand-sitting, and growth inertia that’s taking place right now in some parts of Western Europe. In fact, while economies across the former big economic hitters are flat-lining, Stravesk stressed that the amount of foreign investments had been doubled compared to 2010:

“The total amount of foreign investments are over 150 million euros and has doubled more than the same period last year, which means real headway has been made in attracting more investments.” This year of all years, Stravreski’s news couldn’t come at a better time.

S&P back up Stravreski’s comments and agree that the outlook is stable and cite Macedonia’s creditworthiness as one of the best emerging economies for investors.

Macedonia’s Agency for Investment Promotion has pre-empted this, taking them on a rolling global charm offensive. Promoting themselves and strengthening relationships across the world, this government agency have been paying particularly close attention to places like the United States, Great Britain, Turkey, Belgium, Canada, France, and of course, China for the recently held International Fair for Trade and Investment in Xiamen.

Just like sailors, investors will seek out a safe haven during a storm – a truism that Vice PM Stavreski is all too aware of:

“Macedonia’s Government is reform-oriented and has been working on improving the business climate and the working conditions of companies. Our main objective is to obtain a sustainable economic growth by developing the private sector, attracting investments and opening new jobs. Macedonia is a candidate for EU membership and hence its top priority is to fully meet the necessary criteria to that end,” he explains.

Of course, introducing a flat tax of 10% and range of generous incentives to attract investors has worked wonders in assisting Macedonia’s government to nurture and feed the entrepreneurial spirit and position for Macedonia as the new dynamic location for investment. We’re talking low land prices for investors and a policy of no capital gains tax and no personal income tax. And if that wasn’t enough, the government offers investors an ‘investment premium’ to meet a large chunk of the cost once a production facility is completed.

The focal point of much of this inward investment is Bunardzik – a free economic zone outside Macedonia’s capital, Skopje. The US firm Johnson Controls is investing around USD$20 million in the new plant during the first wave of inflows before the 2008 financial meltdown. Johnson prides itself on its corporate objective of social commitment, and the company didn’t renege when the going got tough. The plant is part of Johnson Controls’ long-term strategic objective to position itself in the growth markets of Eastern Europe, and gradually their presence is instilling confidence and prompting investors to return.

In fact, rather than letting the grass grow beneath their feet, Johnson Controls are forging ahead with a second phase of investment in Macedonia with a EUR 20 million plant located south of the capital in the Stip Technological and Industrial Zone. Construction is scheduled to begin in mid-October.

“The development of the free economic zones, particularly in Skopje, Tetovo and Bitola, is a goal through which we are trying to attract investments from other countries, but also from domestic companies,” says Economy Minister Valon Sarachini.

The Russian company Prodis, part of the Protek holding group, recently announced that it is investing 5 million euros in a pharmaceutical production facility in Bunardzik which is expected to create around 300 jobs.

German manufacturers Kromberg & Schubert have also invested in Bitola, while another – as yet unnamed producer of auto electronics is expected to go public soon with a scheme that will create up to 5,000 new jobs. Meanwhile, Turkey’s glass giant Sisedzam, is undergoing a feasibility study into a EUR 60m investment which help create more opportunities in the region.

Meanwhile, the first wave of investors from India – Samvardhana Motherson Group (SMG) – have just laid a cornerstone for the construction of two plants at Skopje’s Technological and Industrial Development Zone. To illustrate how much of a big deal this is to Macedonia, the PM Nikola Gruevski turned up to meet SMG’s chairman Vivek Chaand Sehgal along with Viktor Mizo – director of the Macedonian Investment Agency for the cornerstone laying ceremony.

Just like sailors, investors will seek out a safe haven during a storm – a truism that Vice PM Stavreski is all too aware of

The development represents EUR 12 million of investment in the plants, which will manufacture parts for rear view mirrors, aimed for the European market, as well as open 140 new jobs. The SMG facility is expected to be completed sometime in 2012.

Other foreign companies located in Bunardzik free zone include the US hi-tech outfit Kemet Electronics, Johnson Metty from the UK, and Italy’s Teknohose – who form part of Vitillo Group.

“As the global economic crisis is lessening, the interest for building production plants, including in Macedonia, is mounting. This is the fourth company to announce the start of construction activities in Macedonia since June,” said PM Gruevski.

“These investments are a serious contribution to the Macedonian economy. The plant, will boost Macedonia’s exports and improve the living standards of local residents.”

“It is particularly significant that Multinationals like Johnson Controls, have decided to invest in Macedonia for the second time. Other international investors seeking places to invest will take note. When a company decides to launch a second investment in the same country it means that it is satisfied with the conditions, communication with authorities as well as with other factors necessary for a good business climate.”

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Turmoil on European bond markets weighs on Wall Street

New York – Stocks dropped on Wall Street Wednesday as fears about European debt took on new urgency.

Fears that the 17-member eurozone faced a recession in the coming months grew amid renewed bond market turmoil and the release of a key survey pointing to a contraction in growth and data showing a plunge in factory orders.

The European Central Bank stepped in to the market to buy government bonds after the yield on ten-year bonds in Italy and Spain inched up back towards the key 7-per-cent mark. This is the point where economists believe borrowing costs are no longer sustainable.

Meanwhile, sales for a German 10-year bund also fell short by about 35 per cent, raising the prospects of further turmoil on the bond market of the eurozone’s cash-strapped states as the debt crisis now risks spreading to Germany.

The blue-chip Dow Jones Industrial Average lost 236.17 points, or 2.05 per cent, to 11,257.55. The broader Standard & Poor’s 500 Index shed 26.25 points, or 2.21 per cent, to 1,161.79. The technology-heavy Nasdaq Composite Index slipped 61.2 points, or 2.43 per cent, to 2,460.08.

The US currency was up against the euro at 74.93 cents from 74.01 euro cents on Tuesday. The dollar edged up against the Japanese currency to 77.28 yen from 76.99 yen.

Proof that Gold ETFs Are a Fraud

Over the course of the last eight years — since the creation of the precious metals ETFs — I have maintained and repeatedly stated my opinion that these gold and silver financial products were dangerous and a FRAUD.

I have also stated that those who hold these precious metals ETFs or certificate programs would sooner or later find out just how fraudulent these products are, and not reap the full benefits of rising gold or silver prices.

Several years ago, during the 2008 meltdown, the Perth Mint certificate program was exposed for not holding the gold they told their customers was backed by the Western Australian government.

And now, once again, precious metals fraud is in the media — this time with the ETFs and the MF Global situation.

One of the victims of this scandal, popular trends forecaster Gerald Celente, joined Alex Jones on “Infowars Nightly News” to detail how a six-figure sum was looted from his gold futures account, which, unbeknownst to Celente, was being held under the auspices of an MF Global subsidy.

As the Financial Times reported, the hundreds of millions in looted funds from customers’ accounts later “turned up at JPMorgan Chase, the failed broker-dealer’s custody bank.”

What a surprise (NOT) that the name JP Morgan Chase would be at the epicenter of this latest criminal behavior!

Despite Mr. Celente’s account being fully funded, Celente was hit by a margin call as Chapter 11 trustees stepped in to take control of his funds, leaving his account empty… and thereby closing his positions and preventing him from taking physical delivery of his gold which was due in December.

When Celente rejected demands to transfer more money into the account, it was hastily closed.

Those words above in bold tell the real story, because they owed gold they didn’t have. So they resorted to theft of customers accounts. In my opinion, this is criminal behavior, pure and simple.

It’s horrifying.

Ann Barnhardt, a commercial hedge broker specializing in cattle and agriculture futures, eloquently explains the MF Global situation (she’s also getting a ton of publicity for closing down her operations):

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global.

What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1…

Read that last sentence very closely.

If it’s true that MFG was leveraged 100:1, that’s suicide. It also means this crisis isn’t over by a long shot.

Back to Celente…

Speaking with Alex Jones, Celente expressed his fury at the move, labeling it an example of “economic martial law,” and speculating that the real reason for the looting was because the broker never had the gold and silver to deliver in the first place.

Celente encouraged Americans to cash out of all gold ETFs and withdraw their funds from the bank because “they are going to steal all our money.”

The trends forecaster savaged MF Global CEO Jon Corzine, labeling him a “cheap S.O.B.” who was responsible for the collapse because of his using customer funds to bet on losing European bonds.

“How come he’s not in jail, because he’s one of the white shoe boys from the Goldman Sachs crowd,” Celente fumed, going so far as to say Corzine “should have died” in his recent car accident.

Celente said that he had sufficient funds stored in a safe place that could not be looted, and that if anyone did try to steal them and threaten his life, he wouldn’t hesitate to “blow their brains out.”

Celente reiterated his plea to Americans to withdraw all their money from the banks and leave only operating capital in their accounts, warning that “the merger of state and corporate powers” has brought “fascism” to America.

You must take physical possession of your gold and silver if you want to have your assets protected from collapsing government fiat currencies and government sanctioned corporate theft like the MF Global example.

Time is running out, folks. Make your necessary arrangements while you still can.

Gold and Silver Price Rally Imminent

Gold prices are on the verge of a significant breakout.

But it’s not because the U.S. national debt just passed $15 trillion, Europe’s about to announce its next doomed-to-fail bailout plan, negative real interest rates, or anything that will keep gold headed much higher in the long run…

It’s much simpler: There’s too much money and not enough gold.

This has happened a few times before. Each time, gold prices surged and silver prices exploded.

And now, it’s about to happen all over again.

Four Months Away from $2,200 Gold

The gold bull has had new life breathed into it this week.

Even though gold prices have ticked down a bit, a number of large banks have upped their gold price targets.

Goldman Sachs advised in a report on Monday, “Given our U.S. economists’ cautious economic outlook and the significant downside risks associated with the European turmoil, additional Fed easing might well be needed.”

As a result, Goldman increased its 12-month gold forecast to $1,930 an ounce. Credit Suisse jumped in, too, upping its near-term gold price target to more than $1,800 an ounce. Standard Bank in London has targeted gold to hit $2,200 per ounce within the next four months.

These increased forecasts will have a significant impact on the near-term gold price.

Here’s why — and the bigger opportunity they’re failing to tell their clients about…

Follow the Money

The gold bull market has self-reinforced its way to steadily newer highs throughout the last decade.

As with most financial assets in pre-bubble stages, the higher gold prices get, the more investors want it.

You know, coin and bullion dealers sell a lot more gold at $1,000 an ounce than they did at $300 an ounce… and they’ll sell even more at $2,000 an ounce, $3,000 an ounce, and beyond.

The same has held true in the financial markets.

As gold prices were setting record highs this summer, investors were putting more and more money into ETFs, funds, and everything related to gold and precious metals.

ETF Securities Inc. — a world leader in exchange-traded commodity products — tracks inflow and outflows of exchange-traded securities. It found inflows to precious metals funds climbed by $7.2 billion in the third quarter, the largest quarterly increase in over a year.

That’s a big inflow.

But it’s massive compared to the size of the gold market.

Too Much Money, Not Enough Gold

One of the key tenants of the gold-boom-bubble is that the gold market is an extremely tiny one.

The total value of all gold produced since the beginning of time is only about $9 trillion. Sounds like a lot, sure… but it’s not.

The worldwide action of central banks to print money hasn’t done much for the economy, but it has kept asset prices up.

The table below shows that despite gold’s record run, it’s still just a tiny sliver of total investment around the world:

 Gold Holdings Percent of Assets

As the gold bull market grows stronger, gold prices rise, and investor demand accelerates, the percentage of total assets gold will eventually make up will be 5% to 10% or more.

After all, all of the major banks that manage and advise trillions of dollars’ worth of assets cannot keep recommending gold without it becoming a more significant part of their clients’ portfolios. It’s just not going to happen. Gold prices must go up with demand.

To be clear, while the big banks may be waving the “buy gold” flag once again, gold isn’t even the best place to ride out the gold bull.

Right now, silver is offering much better value, less downside risk, and much more upside potential.

Silver and Gold : The Great Divide

Sure, gold prices are going higher. But the gains won’t be too big.

After all, even a run up to $2,200 is only a 25% — not bad, but not overwhelmingly great either.

That’s why silver is in a much better position.

Consider this: Gold and silver prices have been closely linked for decades. One runs, the other follows. One falls, the other follows.

They’ve been leap-frogging consistently over the past three decades without either asset falling too far behind or getting to far ahead.

Now, though, silver has fallen way behind. Since April, gold is up 15% and silver is down more than 30%.

The divergence cannot and will not last. And a continued rise in gold prices — driven largely by the big banks encouraging investors to plow millions more dollars into a small gold market — will get silver moving up again.

And when silver snaps back, it’s going to come back extremely fast.

Silver: Four Times More Upside than Gold

The primary driver for a near-term leap in silver prices is the gold/silver ratio.

Based on the number of ounces of silver an ounce of gold is worth, this ratio has stayed within a moderate range over the past 30 years.

For example: In 1980, an ounce of gold was worth 14 ounces of silver. In 1990, an ounce of gold was worth just over 100 ounces of silver.

 Gold Silver Ratio Nov 11

The real value of the ratio is it can guide investors to buy gold and silver at far better prices than they would by following each metal individually.

Right now is the perfect example: With gold at $1,700 and silver at $32, the ratio is 53.

The current ratio is at the higher end of the scale. It’s simply saying silver is cheap relative to gold in historical terms. And silver currently has much more upside potential than gold.

If the ratio were to fall back to 14 as it was in 1980, silver would have to rise four times if gold did not go up at all.

Of course, history is just a guide.

There are many more reasons to expect silver to outperform gold in the months and years ahead…

A New Low Gold/Silver Ratio = Soaring Highs for Silver

Over the long run, the gold/silver ratio is going much, much lower. As a result, any rise in gold prices will be magnified even more so than the 4-to-1 example above.

Again, the reason is simple: In time, there won’t be enough gold to go around… but there’s even less silver.

On the supply side, silver is not keeping up.

  • Gold and silver mines are running at much different paces. For every ounce of gold produced, there are only nine ounces of silver. (ratio: 9-to-1)
  • The U.S. Geological Survey reports there are only six ounces of known in-the-ground silver resources for every one ounce of gold in the ground. (ratio: 6-to-1)
  • The CPM Group reports the total silver available in the world only is only five times larger than the number of ounces of gold. (ratio: 5-to-1)

Meanwhile, demand is far outpacing those supplies…

Investment demand for silver has been making up an ever-increasing part of the precious metals investment pie.

We noted ETF Securities reported $7.2 billion of investment went into gold last quarter earlier. They also found $1.4 billion of that was into silver. (ratio: 3-to-1)

Like Gold, Love Silver

There are so many reasons to like gold right now.

Gold’s safe-haven value is only becoming more in demand as the euro collapses, fear grows more dominant, and — as Christian DeHaemer pointed out — negative real interest rates keep gold’s uptrend going for years to come.

Gold looks great, but silver looks exponentially better.

The current gold/silver ratio is at the higher end of its long-term range at 53. That’s enough to give silver four times the upside potential of gold.

The supply/demand fundamentals, however, show the gold/silver ratio could go even lower.

When the ratio reaches the point where silver fundamental supply and demand are matched, it will reach a low well below 10. That gives silver even more upside potential than gold.

The big banks are betting large sums on gold. Eventually they will be proven right, as the gold market is so small that it will be swamped by this surge in investment dollars…

But the biggest gains will be had in silver.

Buy silver. And buy it consistently.

The current dip cannot and will not last forever.

Italy gets new Cabinet as Greek lawmakers endorse new leader

Greek Prime Minister Lucas Papademos, right, speaks with Finance Minister Evangelos Venizelos in Parliament in Athens. Technocrat Papademos won a vote of confidence from 255 lawmakers in the 300-seat body.

Italy’s Mario Monti and Greece’s Lucas Papademos are unelected technocrats tasked with bringing down staggering levels of government debt and restoring investor confidence in their battered economies.

Italy swore in a new Cabinet and Greece’s recently anointed prime minister won an important vote of confidence as both countries scrambled Wednesday to avoid an economic disaster that could torpedo the Eurozone.

The two nations are pinning their hopes on unelected, technocratic leaders tasked with bringing down staggering levels of government debt and restoring investor confidence in their badly battered economies. Failure by either country could spell doom for the euro, the currency they share with 15 other European nations.

In a solemn ceremony in Rome, former European Union official Mario Monti, a trained economist, took the oath of office as prime minister, alongside the team he has assembled to help him rescue the Eurozone’s third-largest economy. Italy’s new Cabinet includes financiers, diplomats and business leaders, but not a single elected politician.

The government takes over from that of former Prime Minister Silvio Berlusconi, the flamboyant, scandal- and gaffe-prone leader who resigned last weekend after losing credibility with the financial markets that have pushed Italy’s borrowing costs to punitive levels.

Monti, 68, is expected to set out his government’s agenda Thursday before the Italian Senate, which will hold a vote of confidence. The lower house is to follow suit soon thereafter.

Monti said his action plan would emphasize economic growth. But it also probably will encompass difficult austerity measures apt to arouse popular ire, along with other controversial reforms to make Italy more competitive, such as wresting open professions run by guilds that make entry for newcomers difficult.

Although critics have called Italy’s new political arrangement undemocratic, backers hope that a technocratic, nonpartisan government can help rally Italy’s fractious political establishment around the common good.

“I hope that, governing well, we can make a contribution to the calming and the cohesion of the political forces,” said Monti, whom some have dubbed “Super Mario.”

But markets remain skeptical, keeping the interest rate on Italian bonds hovering around 7% on Wednesday, the tipping point for the three nations — Greece, Portugal and Ireland — that have had to seek international bailouts.

In Athens, another unelected leader, Prime Minister Lucas Papademos, won a ringing endorsement from Parliament on Wednesday after being picked last week to head a government of national unity to tide over Greece for at least a few months.

At the center of Europe’s raging debt crisis, Greece is struggling to stay afloat by accepting emergency loans from the European Union and the International Monetary Fund in exchange for implementing austerity measures that have set off a wave of public resistance and shrunk the economy drastically.

Papademos, 64, a former central bank governor who guided Greece’s entry into the Eurozone, has committed himself to enacting a complex bailout plan crafted by European leaders last month that calls for yet more spending cuts as well as a 50% write-down of the value of privately held Greek debt.

“The task that this government assumes is titanic,” Papademos told lawmakers moments before the confidence vote. “Every single vote cast in favor is an act of responsibility, one that will not endanger the country’s future in the Eurozone.”

He warned that there would be “no magical solutions” to Greece’s financial crisis and that “the road to fiscal recovery will be rough.”

Still, he won the support of 255 lawmakers in Greece’s 300-seat Parliament. Papademos succeeds George Papandreou, who quit the prime minister’s post amid intense political turmoil sparked by his since-revoked decision to put the unpopular European bailout plan to a referendum.

Papademos’ power-sharing government is composed of leaders from the Socialist party, the conservative New Democracy party and a small far-right group. But cracks in the coalition have already emerged.

Eurozone leaders want written assurances from the three coalition partners that they will do whatever is necessary to make the new bailout plan work. Without that, they warn, they will block disbursement of $11 billion in rescue funds that Greece needs to avoid bankruptcy by mid-December.

On Wednesday, New Democracy leader Antonis Samaras reiterated his refusal to provide a written assurance, saying details of the European loan agreement had yet to be worked out and that further austerity measures would kill any prospects of growth.

“Is there any other country in Europe heading into a fifth year of recession?” he said. “We don’t disagree with the goals of this fiscal adjustment plan, but the policy mix prescribed must change.”

As for ordinary Greeks, the first sign of whether they accept their new government could come Thursday, when thousands of people are expected to take to Athens’ streets for a protest march commemorating Greece’s military-ruled past. Authorities have mobilized more than 5,000 police officers from across the country to head off violence.

FTSE rebound stalls as Italy debt jitters flare again

Other stock indices in Europe also pull back, after markets send Spain, France and Austria’s borrowing costs higher.

A tentative rally in Britain’s FTSE 100 stalled on Monday after Italy was forced to pay a high price to sell five-year bonds, amid mounting uncertainty over the ability of the country’s new government to resolve its debt woes.

The UK index of blue-chip shares eased 0.47%, or 26 points, to 5,519 and the All Share index gave up 0.44%, or 13 points, to 2,844.

Markets had earlier welcomed the resignation of former prime minister Silvio Berlusconi, and were also cheered by news that former EU commissioner Mario Monti had been given the task of forming an emergency government in Italy.

But Angus Campbell at Capital Spreads said that despite political changes in both Italy and Greece, investors remained sceptical that the eurozone debt crisis ‘could actually be resolved’.

‘The sombre mood was caused primarily by uncertainty that a new Italian administration would find itself with enough support in order to push through badly needed reforms,’ he said. Gains for equities would remain ‘hard to come by’ until there is more detail on how Monti would manage to achieve that, Campbell added.

Italy paid 6.29% in its €3 billion (£2.6 billion) auction, a euro-era high, up from 5.32%. However, the sale was covered 1.47 times, reflecting slightly better demand than at the earlier sale.

The yield, or interest rate, on benchmark Italian 10-year government bonds subsequently climbed 20 basis points to 6.72% – close to levels seen as ruinous in the long-term – after earlier retreating as low as 6.34%.

‘The unelected Mr Monti may well regret taking on this job and I don’t expect him to last terribly long (like most Italian governments),’ warned Louise Cooper, markets analyst at BGC Partners. ‘I will be cutting and pasting scary Italian bond yield charts in the months, if not years, to come.’

Other stock indices in Europe also pulled back, as markets sent Spain, France and Austria’s borrowing costs higher in a sign that the crisis is continuing to spread. Germany’s DAX index fell 1.2% to 5,985, France’s CAC 40 index slipped 1.28% to 3,109, and the FTSEurofirst 300 index of top European shares was 0.86% lower at 976.

Resources stocks were among the biggest fallers, amid the concerns over global demand and as commodities prices dropped. Vedanta Resources (VED.L) dropped 42p to £11.20 and Glencore International (GLEN.L) slid 12p to 429p.

Financials also suffered: Standard Chartered (STAN.L) weakened 46p to £13.56, Barclays (BARC.L) was off 5p at 174p and Royal Bank of Scotland (RBS.L) slipped 0.5p to 21.9p.

ITV (ITV.L) topped the leader board on the FTSE 100, taking on 2p to 67p, after a bullish third-quarter trading update from the broadcaster. Burberry (BRBY.L) claimed second place, taking on 44p to £14.21, ahead of interim results from the luxury goods maker.

Wall Street halted a two-session rally, tracking losses in Europe. The Dow Jones Industrial Average eased 0.17% to 12,133, the Standard & Poor’s 500 index lost 0.58% to 1,257, and the Nasdaq Composite index shed 0.19% to 2,674.

Elsewhere, sterling sank 1.13% versus the dollar to $1.59 ahead of UK inflation data on Tuesday, and strengthened 0.14% against the euro to €1.166.

China’s Economy Threatened by Water

Companies in China that use water efficiently will be better positioned to profit in an economy increasingly at risk from water stress and new water regulations, according to analysis by HSBC.

Nine of China’s 31 provinces suffer from extreme water scarcity and 11 are very water inefficient, the bank says in its China’s rising climate risk report. The economies of 14 provinces could be at risk from water stress, because they rely heavily on manufacturing industries, it said.

Government has recognised this and has responded with a target in its 12th five-year plan (2011-15) to cut by 30% the water consumption per unit of value-added industrial output, HSBC notes. Officials have also announced plans to invest about RMB400 billion ($63 billion) per year up to 2020 in water projects, raise the efficiency of rural crop irrigation and cap annual water consumption at 670 billion cubic metres in 2020 (compared with close to 600 billion cubic metres used in 2009).

Late last month, China’s State Council also approved a national plan on groundwater pollution control to 2020, and will spend RMB34.66 billon to improve water quality.

“We expect more policies to be released in order to clean up not only groundwater, but all water sources,” said Wai-Shin Chan, HSBC’s Hong Kong-based director for climate change strategy in the Asia-Pacific region, in a note last week.

“China-exposed companies which are actively investing into making their operations more water-efficient are better placed as provinces strive to meet nationwide targets and the inevitably approaching tariff increases,” he added.

However, Chan told Environmental Finance that assessing corporate water risk is not easy. “In my experience, many companies are not willing to disclose the level of detail needed to adequately assess the risks relating to water.”

Chan has developed a list of 20 questions to ask China-exposed companies about climate change and “trying to garner answers to the questions relating to water [is] a good start”. Companies should monitor water usage, set reduction targets, develop water-efficient products and communicate their understanding of the need for water efficiency to investors, he added.

A non-profit organisation highlighting the issue – China Water Risk – was launched last month. It is sponsored by ADM Capital Foundation, a foundation established by investment advisor ADM Capital to fund innovative approaches to promoting equity and environmental conservation in Asia.

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