Comment, analysis and other offerings from Thursday’s FT,
John Gapper: How to reinvent China’s growth
Qingdao, where the FT Chinese website this week held its annual forum, is a good place from which to see the changes taking place in China because it is, although prettier than many, a typical export-oriented Chinese city. The problem with the Chinese economic system is that municipalities such as Qingdao encourage local companies to expand by directing capital towards them. Bureaucrats have incentives to fund growth rather than to ensure companies achieve high margins and pay workers well. For the longer term, China cannot keep going this fast along its current road, with so little protection against an economic collision.
Insight: Richard Bernstein – Lessons of investing are being ignored
The recent rally in financial markets is giving many investors a false sense of security, writes Bernstein, chief executive of Richard Bernstein Capital Management. Their asset allocation choices – driven by the quest for high-beta returns – are once again being unduly influenced by short-term momentum. Evidently, even the debacle of the past several years has not taught investors the age-old asset allocation lesson that diversification, and not short-term momentum, leads to higher long-term returns.
Analysis: Goldman Sachs – The lost glister
In some ways, Goldman is a victim of its own rapid rebound from a crisis that had threatened its very existence. As it moves towards paying out bumper bonuses after a successful year, the bank is drawing sharp public criticism in America – a backlash which could potentially damage its brand, if not its earnings, write the FT’s Francesco Guerrera and Tom Braithwaite.
Editorial comment: US fiscal fightback
The signals are mixed, but the US recovery is looking sluggish. The White House and its allies in Congress would rather not talk of another fiscal stimulus. Instead, a “jobs bill” is being discussed. Tax breaks, new public works programmes and job-sharing initiatives are all under consideration. New fiscal and monetary initiatives could make sense, but the administration must avoid a trap. To stimulate demand, the jobs measures must be allowed to increase the short-term budget deficit. Nervousness over “fiscal stimulus” must not tempt the White House to deny this implication. Rather, it must emphasise its determination to bring the deficit back under control once the economy has recovered.
View of the Day: India and IMF gold
India’s decision to buy IMF gold could herald a new bull market in bullion, says Dylan Grice, strategist at Société Générale. He notes that the gold bull market of the 1970s was ushered in by central banks converting dollars into gold – starting with France in 1965. Gold feels frothy today, but with estimates that central banks will be net gold buyers for the first time since 1988, have the Indians just sounded the same starting gun the French did in 1965?
Lex on Japan Airlines
US airlines must be suckers for punishment. Why else would Delta and American Airlines be jostling to throw money at the perennial problem that is Japan Airlines? The Japanese carrier, Asia’s largest by revenues, has yet to shed legacy costs built up over decades. It is unclear that the political will to push through change exists. However, with international mergers still mostly illegal, joint ventures are the likely route to future co-operation — an approach that is helping to cut costs for Delta, Northwest and Air France-KLM over the Atlantic. Anti-trust objections to Delta/JAL co-operation may be surmountable. Yet the US carriers are living on borrowed time. Global tie-ups are the future, but should not distract from self-preservation.
The Short View: The US housing market
Measures to extend unemployment benefits and tax credits for US homebuyers were signed this month by US president Barack Obama. It is now clear that both were, indeed, needed. Even as the Fed’s buying of US Treasury debt has come to a halt, its purchases of mortgage debt continues until the end of March. There is still some time for economic recovery to take off before then. But the signals coming from housing starts underline the uncomfortable reality that a lasting improvement in the US housing market is far from assured.
News analysis: Equities cheer eludes Japan
Around the globe investors are smiling as equity markets rally. Yet in Japan, cheer has remained elusive, writes the FT’s Lindsay Whipp. The benchmark Nikkei 225 Average has risen 9.2 per cent since the start of the year, far less than the 20 per cent gain for the Dow Jones Industrial Average in the US, the 25 per cent for European stocks or the 22 per cent for the FTSE 100 in the UK. But even the Nikkei has done well compared with the broader and more representative Topix index. On Wednesday, the Topix closed at a six-month low of 850.06, leaving it 1.1 per cent down for the year and the only developed market index to have fallen this year. And some analysts say the market looks better than it actually is.