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Broadgate: Weekly Briefing 22/6

22 June 2012

Spain – Spanish borrowing costs on 12 and 18-month bonds jumped to 5.1% at its first debt auction this week, since securing a EUR100bn ($126bn) bank bailout.

Madrid raised the intended EUR3.04bn but the interest rate payable rose from 3% at a similar debt sale on 14 May.

The government has denied that a more detailed independent audit of bank debts is to be delayed. The first audit, which will determine the size of bailout needed, is due to be published this week.

Japan – Japan’s exports have risen the most in 17 months easing concerns about the impact of a global slowdown on the Japanese economy.

Exports rose 10% in May from a year earlier, boosted by a 38% increase in deliveries to the U.S. Shipments to China, Japan’s biggest trading partner, also rose for the first time in eight months.

Japan’s export-dependent economy relies heavily on demand from markets such as the U.S., Europe and China for growth.

India – Ratings agency Fitch has cut its outlook for the Indian economy to negative, saying the country’s growth faces “heightened risks”.

Fitch warned India’s growth potential “will gradually deteriorate if further structural reforms are not hastened”. It also added that the government had made little progress on reducing its deficit.

The downgrade comes just days after Standard & Poor’s warned that India could lose its investment grade status. “India also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms,” Fitch said in a statement late on Monday.

Emerging Markets – Emerging economies may set up a joint ‘anti-crisis’ fund if they do not receive enough say in decision making at the International Monetary Fund (IMF) under proposed voting reforms, a senior Russian official said.

The leaders of BRIC nations (Brazil, Russia, India and China), pledged at the Group of 20 summit in Mexico to contribute $75bn to boost the IMF’s lending power but had sought to tie the loans to voting reforms.

“It is clear that BRIC countries have entered the stage when they can demand to be reckoned with (in the course of the IMF reform),” Deputy Finance Minister Sergei Storchak told reporters.

The five BRICS nations represent 43% of the world’s population and approximately 18% of global economic output.

China – China plans to lower the entry barrier for foreign institutional investors looking to buy publicly traded securities in mainland exchanges, as part of reforms to add depth to the country’s capital markets.

The government will cut the minimum requirement on assets under management to $500mn from $5bn for companies seeking a license under the Qualified Foreign Institutional Investor program, the China Securities Regulatory Commission said.

The changes are “very positive,” Mark McCombe, Asia- Pacific chairman of BlackRock Inc., the world’s largest asset manager, said in Hong Kong. “I think the underlying objective is to get more investment into China.”

Markets – Goldman Sachs Group Chief Executive Officer, Lloyd Blankfein, said the firm will rely on the biggest emerging markets for most of its growth even amid increasing concern economic expansion in Brazil, Russia, India and China may be slowing.

“80% of the growth of our business is going to come from high-growth areas identified as BRICs,” Blankfein said at the St. Petersburg International Economic Forum in Russia on Thursday. “Our footprint will correlate with the ring of growth in various places around the world, providing they have good open markets.”

Commodities – Oil tumbled below $80 per barrel for the first time in eight months this week as U.S. inventories surged amid concern that the European debt crisis will drag down the global economy, reducing fuel demand.

Futures dropped as much as 1.9% to $79.92 per barrel, the lowest intraday level since Oct. 6. Prices have slumped 27% from this year’s settlement high as U.S. stockpiles rose to the most in almost 22 years and growth slowed in the U.S., Europe and China.

Spotlight on: the power of wealth shifting East

The number of millionaires in Asia has overtaken North America for the first time, in a sign of wealth shifting across the globe due to the economic downturn, according to a new report.

In the Asia-Pacific region there are now 3.37 million men and women with more than $1m in the bank, compared with 3.35 million in North America, Capgemini and RBC Wealth Management’s latest world wealth report has revealed.

But the overall level of wealth in North America is still the highest in the world, with its millionaires, such as Warren Buffett and Bill Gates, controlling $11.4tn, while Asian businessmen control $10.7tn, although wealth levels declined twice as fast in North America as in Asia in 2011.

Millionaires in the U.S., Japan and Germany still make up more than half the world’s richest, but total world wealth levels fell for the first time since the worst of the economic downturn in 2008.

In the U.K., which has the fifth highest number of millionaires, membership of the elite club dropped 2.9% from 454,300 to 441,300, while both Germany and France saw increases.

The world’s wealthiest have $42tn at their disposal, down 1.7% on 2010, with all regions seeing a fall, except the oil-rich Middle East.

Jean Lassignardie, corporate vice president of Capgemini, said: “Europe will be top of mind for investors, as repeated flare-ups [in the eurozone] are likely to keep markets on edge. Additional drivers such as the economic performance in China, mature market headwinds, global political leadership changes and policy decisions will all play key roles in determining whether 2012 drives increases.”

Several emerging markets saw wealth levels drop, in particular India and Hong Kong, which saw their number of millionaires fall by a fifth.

Researchers calculated millionaires as individuals who have the funds to invest at least $1m, and revealed that 9.9 million have between $1m and $5m.

This group grew slightly, 1.1%, but the richest section, with more than $30m at their disposal, dropped 2.5% to 100,000 people, with the value of their wealth also down nearly 5%.

The drop is linked to some of their holdings in higher-risk investments such as hedge funds, private equity and real estate.

India was worst hit due to “a slump in its equity-market capitalisation and its currency in 2011 as a lack of faith in the political process and the slow pace of domestic reformed disappointed investors,” according to the report.

It added: “Also hard hit in 2011 were the millionaire populations of Singapore and Poland, which both suffered the direct effects of the eurozone crisis. Singapore saw a drop in exports, and Poland in foreign investment.”

George Lewis, group head of RBC wealth management, explained: “The aggregate wealth of high net worth individuals declined overall, as market volatility took its toll.

“It is significant that for the first time this year there are now more high net worth individuals in Asia-Pacific than in any other region. However, losses in key markets such as Hong Kong and India meant that wealth contracted in Asia-Pacific overall.”

The information set out herein has been obtained from various public sources and is by way of information only. Broadgate Financial can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

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