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On Friday 2 July the Australian government announced that it had agreed in principle, with the mining industry, to amend its proposed resources tax.  As things stand, the tax burden appears to be less onerous than previously feared and, as such, addresses many of the market's related concerns.

Formerly called the “Resources Super Profits Tax”, the new tax proposal has been renamed the “Minerals Resource Rent Tax” (MRRT) and will now only apply to iron ore and coal operations in Australia.

The headline MRRT rate has dropped from 40% to 30%, and the hurdle rate at which the tax will be applied has increased from the long-term bond rate (c.6%) to the long-term bond rate plus 7% - a more-acceptable reflection of the true cost of capital for the mining industry.

The retrospective nature of the previously proposed tax has been removed - this is a clear positive for Rio Tinto and BHP Billiton, as it no longer penalises these companies for having invested over time in high-quality, long-life assets.

In addition, a 25% extraction allowance has been introduced, which reduces taxable profits, and companies with a profit of less than A$50m will be exempt.

The corporate tax rate will only be reduced to 29% rather than 28%, though the moderation of the MRRT more than offsets this.

The government will establish a Policy Transition Group, led by the Resources Minister and Don Argus, the former chairman of BHP Billiton. The tax is due to be implemented in July 2012.

The mining sector, particularly those companies with exposure to Australia, has faced significant headwinds in recent weeks. Negative market sentiment has been weighing heavily on mining company valuations, but this new tax proposal should allay some of that market anxiety.


The BlackRock Natural Resources Team

 

 

Source: DataStream. This material is for internal use only and should not be relied upon by any other persons. Past performance is not a guide to future performance.  The value of investments and the income from them can fall as well as rise and is not guaranteed.  You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to fluctuate. Any research in this document has been procured and may have been acted on by BlackRock for its own purpose.  The results of such research are being made available only incidentally.  Reference to the names of each company mentioned in this communications is merely for explaining the investment strategy, and should not be construed as investment advice or investment recommendation of those companies. The views expressed do not constitute investment or any other advice and are subject to change.  They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Services Authority).  Registered office: 33 King William Street, London, EC4R 9AS. Registered in England No. 2020394.  Tel:  020 7743 3000.  For your protection, telephone calls are usually recorded.  BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Issued in Switzerland by the representative office, BlackRock Investment Management (UK) Limited (London), Zurich Branch, Claridenstrasse 25, Postfach 2118 CH-8022 Zürich from where the Company's Prospectus, Simplified Prospectus, Articles of Association, Annual Report and Interim Report are available free of charge.  Paying Agent in Switzerland is JPMorgan Chase Bank, National Association, Columbus, Zurich Branch Switzerland, Dreikönigstrasse 21, CH-8002 Zurich. Issued in Hong Kong by BlackRock (Hong Kong) Limited. BGF has been registered on the official list of the Financial Supervision Commission (Komisja Nadzoru Finansowego) for distribution in Poland.  Issued in Poland by the representative office BlackRock Investment Management (UK) Limited, Oddzial w Polsce.  Paying agent in Poland is Bank Handlowy w Warszawie SA, ul. Senatorska 16, 00-950 Warsaw, Poland.In Singapore, this information is issued by BlackRock Investment Management (Singapore) Limited.  The offer which is the subject of this information memorandum is not allowed to be made to the retail public. This information memorandum is not a prospectus as defined in the Securities and Futures Act.  Accordingly statutory liability under that Act in relation to the content of prospectuses would not apply. You should consider carefully whether the investment is suitable for you.

Comments from Ewen Cameron Watt, Head of Strategy on BlackRock's Multi Asset Client Strategies (BMACS) team

China announced over the weekend a move to a more flexible policy in managing the RMB exchange rate.

What Does This Mean?

China will move from a semi fixed peg to an exchange rate managed on a flexible basis against a basket of currencies. This move returns policy in broad terms to that adopted between 2004 and the onset of the financial crisis in 2008. During that period the RMB appreciated by 21% against the US dollar.

How Will This Be Done?

The press release is deliberately vague. However, we know that it will have some resemblence to the Singapore managed basket-and some crucial differences. In the Singapore case the MAS ( Monetary Authority of Singapore) manages the Singapore dollar against a fixed weight basket that closely matches Singapore's trade weighted balance. In China's case trade weighted is likely to form the base but we suspect in the case of China that the PBOC will apply a judgemental overlay- ie it will adjust the policy mix up and down for economic reasons such as Euro concerns and relative currency valuation. In practice this means that straight line appreciation versus the dollar is an heroic assumption.

So What is the Market Impact?

This reinforces our preference for Asian currencies such as the Korean won where there has been some degree of RMB/USD shadowing. In BMACS we like the idea that Emerging Market currencies will rise against the Euro and Sterling and these events only strengthen the case for US dollar outperformance in a world where we like the USD as the major currency. The PBOC decision also suggests that they are relaxed about global growth prospects and supports cyclical assets such as equiites and commodiites.

Why Now?

Simple-the need to make a symbolic move before the G20 meeting next weekend and thus avoid the sense they are moving under US pressure.

What To Do?

Stay committed to EM equities also large cap US. Stay on the cautious side on US bonds and other expensive safe haven assets.

 

 

Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Services Authority). Registered office: 33 King William Street, London, EC4R 9AS. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Issued in Switzerland by the representative office, BlackRock Investment Management (UK) Limited (London), Zurich Branch, Claridenstrasse 25, PO Box 2118, CH-8022 Zurich, Switzerland, from where the Company’s Prospectus, Simplified Prospectus, Articles of Association, Annual Report and Interim Report are available free of charge. Paying Agent in Switzerland is JPMorgan Chase Bank, National Association, Columbus, Zurich Branch Switzerland, Dreikonigstrasse 21, CH-8002 Zurich. Issued in Hong Kong by BlackRock (Hong Kong) Limited. Issued in Singapore by BlackRock Investment Management (Singapore) Limited. This material may only be distributed to institutional investors (as defined in section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the ‘SFA’) and accredited investors (as defined in section 4A of the SFA) and not to the retail public in Singapore. This material is for information purposes only and does not constitute an offer of shares in any of the BlackRock Global Funds. You should consider carefully whether the investment is suitable for you. BGF has been registered on the official list of the Financial Supervision Commission (Komisja Nadzoru Finansowego) for distribution in Poland. Issued in Poland by the representative office BlackRock Investment Management (UK) Limited, Oddział w Polsce. Paying agent in Poland is Bank Handlowy w Warszawie SA, ul. Senatorska 16, 00-950 Warsaw, Poland.

When the authorities start panicking, markets can stop panicking

  • The weekend's announcement from the ECB has had an immediate positive response, with European equity markets rising strongly, led by the heavily oversold peripheral countries and financials.
  • However, the ECB's huge stabilisation and liquidity support programme should not be seen as a panacea for the eurozone's problems. The progamme will buy the periphery countries time, but severe austerity measures will be needed in coming years. It is unclear at this stage whether there is the political will and/or the public acceptance necessary to achieve economic stability. In the future, the EU and the ECB will need to come up with a credible plan to replace the 'growth and stability' pact.

Europe is looking cheap

  • The FTSE World Europe ex-UK had fallen by 15.7% from its mid-April peak by last Friday and has significantly lagged other markets this year. In 2010, the S&P 500 has returned 14.0 % in £ terms and 4.7% in US$ terms versus the FTSE World Europe ex-UK's -2.8% in £ and -9.7% in US$.
  • Europe is trading on a  forward dividend yield of  4.1% and at only 10x 2011 P/E and is near relative lows versus the US.

 

 

  • Meanwhile, IBES consensus earnings estimates have continued to be upgraded and now indicate 41% earnings growth for 2010 and 22% for 2011.
  • Within our portfolios, we remain overweight exporters and growth stocks and underweight peripheral-exposed domestic stocks.

We retiterate our bullish view on the European equity market

  • Against this backdrop, we remain bullish on the outlook for European equities, which continue to enjoy attractive fundamentals and are now looking cheap.
  • Europe is underowned by global investors. Although European GDP is likely to recover only slowly, European corporate earnings are much more linked into global growth trends and will benefit further from the weaker €.
  • The troubled economic situation means that interest rates will now remain lower in Europe for longer and the steep yield curve is positive for equities.

 

This material is for distribution to Professional Clients and should not be relied upon by any other persons. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Any research in this document has been procured and may have been acted on by BlackRock Investment Management (UK) Limited for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Services Authority). Registered office: 33 King William Street, London, EC4R 9AS. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded.

Over the weekend the European Central Bank (ECB), European Union (EU) and International Monetary Fund (IMF) agreed to make a very significant and surprisingly large amount of financial support available to stabilise government finances in the eurozone and, thereby, the euro itself.
 
The key points are:
The amount of money contributed by EU governments and the IMF to the loan guarantee facility at around €750bn is around 8% of Euroland GDP - i.e. considerably larger than any forecast.
 
The bailout of Greece has been completed with €20bn, allowing Greece to finance itself without recourse to bond markets for the immediate future. Indeed the size of the package would match the borrowing requirements of Spain, Italy, Greece, Portugal and Ireland through to the end of 2012.
 
The ECB has newly taken powers to buy bonds directly, though unlike Anglo-Saxon markets' Quantitative Easing programmes, this intervention will be "sterilised" by issuing ECB paper - i.e. the ECB is acting as a lender of last resort, but not "printing money", putting its own credit status in place of the impaired sovereigns. As this is new, it will have to be watched carefully, though an immediate start has been made to buy bonds in a measure described as help with market liquidity.
 
This only works if the IMF mandated restructuring takes place in the real economies most at risk, as the loan guarantees are conditional. This, theoretically, limits the moral hazard element, but politically remains contentious - its announcement was too late to prevent German voters removing a slice of Ms Merkel's mandate - and voter unease seems unlikely to dissipate fast. The UK , for example, refused to contribute, and doubts are also being raised in some quarters about the "politicisation" of the ECB.
 
Equity and bond markets all responded very positively to different degrees yesterday, and the euro managed a brave recovery, but as this package ushers in a new structure at the heart of the Economic & Monetary Union (EMU), with a possibility now being more widely mooted of closer fiscal union, we remain circumspect, particularly as to how institutional investors will view investment in the weaker credits.
 
Very limited attention has been paid by markets so far to the UK political impasse, though sterling has begun to weaken again as coalition talks drag on into a fifth day.
 
Alex Popplewell, Managing Director and Head of Retail Product & Investment Communications

 

This material is for distribution to Professional Clients and should not be relied upon by any other persons. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Any research in this document has been procured and may have been acted on by BlackRock Investment Management (UK) Limited for its own purpose. The results of such research are being made available only incidentally.  The views expressed do not constitute investment or any other advice and are subject to change.  They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Services Authority).  Registered office: 33 King William Street, London, EC4R 9AS. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Issued in Switzerland by the representative office, BlackRock Investment Management (UK) Limited (London), Zurich Branch, Claridenstrasse 25, Postfach 2118 CH-8022 Zürich from where the Company's Prospectus, Simplified Prospectus, Articles of Association, Annual Report and Interim Report are available free of charge.  Paying Agent in Switzerland is JPMorgan Chase Bank, National Association, Columbus, Zurich Branch Switzerland, Dreikönigstrasse 21, CH-8002 Zurich. Issued in Hong Kong by BlackRock (Hong Kong) Limited. BGF has been registered on the official list of the Financial Supervision Commission (Komisja Nadzoru Finansowego) for distribution in Poland.  Issued in Poland by the representative office BlackRock Investment Management (UK) Limited Oddział w Polsce, Rondo ONZ 1, 00-124 Warszawa.  Paying agent in Poland is Bank Handlowy w Warszawie SA, ul. Senatorska 16, 00-950 Warsaw, Poland. Issued in Singapore by BlackRock Investment Management (Singapore) Limited. This material may only be distributed to institutional investors (as defined in section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA") and accredited investors (as defined in section 4A of the SFA) and not to the retail public in Singapore. This material is for information purposes only and does not constitute an offer of shares in any of the BlackRock Global Funds. You should consider carefully whether the investment is suitable for you.

  • Prime Minister Gordon Brown announced today that UK general elections will take place on Thursday 6 May. Opinion polls currently suggest that the elections may result in a hung parliament, in which no single party commands an overall majority in the House of Commons. Such expectations are exerting pressure on sterling and on Gilt yields amid fears that this kind of outcome would bring a new government without the political authority to get to grips with the UK’s record fiscal deficit.


Implications for equity investors

  • The increase in uncertainty and the potential for an indecisive post-election outcome are likely to affect the performance of the UK equity market. 
  • While history rarely repeats itself, it may give some indications of the likely pattern in the event of a hung parliament. The last hung parliament in the UK ran from February to October 1974 when the Labour party formed a government without an overall majority. In the 12 months following the 28 February election of 1974, the FTSE All-Share fell by 15.3%. A second election on 10 October 1974 produced a clearer outcome, with Labour winning a slim overall majority. This time, the stockmarket responded positively: between 10 October 1974 to year-end 1975, the FTSE All-Share rose by 107.6%. In hindsight, this pattern is not surprising: when companies and individuals are uncertain of what lies ahead, they tend to postpone investments and purchases. 
  • That said, there are significant differences when we compare today’s circumstances with those of 1974, when the UK economy was faced with the fallout from an oil price shock, which included rapidly increasing inflation and labour unrest. Moreover, the world today is much more integrated economically and the UK stockmarket in particular is highly international in nature, with many of its constituents generating the bulk of their revenues overseas. It seems notable that UK stocks moved higher today, supported by better-than-expected US economic data.
  • Against this backdrop, we would point to the benefits of exposure to a diversified UK equity portfolio, with appropriate exposure to international developed and emerging markets. Furthermore, any generalised market volatility resulting from an uncertain election outcome may create attractive buying opportunities in companies with strong fundamentals.

 

Implications for fixed income investors

  • Gilt yield volatility looks set to increase as both domestic and international investors fret about the election outcome and its consequent economic impact. This is likely to be particularly the case in the event of a hung parliament. Under this scenario, the period between the publication of the election results and the first sitting of parliament in particular might create attractive buying opportunities for Gilt investors.

 

Alex Popplewell

Head of Retail Product & Investment Communications

 

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Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. 

 

Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Services Authority). Registered office: 33 King William Street, London, EC4R 9AS. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Issued in Switzerland by the representative office, BlackRock Investment Management (UK) Limited (London), Zurich Branch, Claridenstrasse 25, PO Box 2118, CH-8022 Zurich, Switzerland, from where the Company’s Prospectus, Simplified Prospectus, Articles of Association, Annual Report and Interim Report are available free of charge. Paying Agent in Switzerland is JPMorgan Chase Bank, National Association, Columbus, Zurich Branch Switzerland, Dreikonigstrasse 21, CH-8002 Zurich. Issued in Hong Kong by BlackRock (Hong Kong) Limited. Issued in Singapore by BlackRock Investment Management (Singapore) Limited. This material may only be distributed to institutional investors (as defined in section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the ‘SFA’) and accredited investors (as defined in section 4A of the SFA) and not to the retail public in Singapore. This material is for information purposes only and does not constitute an offer of shares in any of the BlackRock Global Funds. You should consider carefully whether the investment is suitable for you. BGF has been registered on the official list of the Financial Supervision Commission (Komisja Nadzoru Finansowego) for distribution in Poland. Issued in Poland by the representative office BlackRock Investment Management (UK) Limited, Oddział w Polsce. Paying agent in Poland is Bank Handlowy w Warszawie SA, ul. Senatorska 16, 00-950 Warsaw, Poland.

In light of US President Obama signing into law the healthcare bill that recently passed through both chambers of US Congress, Bob Hodgson, Fund Manager of the BGF World Healthscience Fund, outlines his views on the likely implications for investors in the healthcare sector.

  • The contents of the bill were of little surprise to us. As we had anticipated for quite some time, the bill lacked the very negative scenarios many investors had initially feared when US healthcare reform first hit the headlines over a year ago. As a result, healthcare stocks responded positively following the announcement.
  • Initial projections from the Congressional Budget Office (CBO) put a price tag on the bill of US$940bn over the next 10 years. However, we believe the true costs could potentially be multiples of this figure.
  • As a result, our view is that the expansion of healthcare coverage to millions of previously uninsured Americans is likely to prove a net positive for the industry.
  • In picking winners and losers, a lot depends on the timeframe being considered. We believe hospitals will be helped somewhat by the reduction of bad debt over the next few years, but their near-term structural problems and the high cost of personnel will likely remain unchanged and could potentially get worse as many workforces unionise. We do not own hospitals in our portfolio at this time.
  • Other groups we prefer include pharmacy benefit managers, healthcare distributors and diagnostic labs, which should all be beneficiaries of higher utilisation rates.
  • As well, pharmaceutical companies should get a big boost from volume increases if indeed the 30m purported 'new' covered Americans come into the marketplace.
  • Biotech companies, whose patent exclusivity rights the bill claims to guarantee for 12 years, should be largely unaffected. We continue to be overweight the space due to industry-leading growth and undemanding valuations.
  • Lastly, while the spending cuts to the large Medicare Advantage plans operated by HMOs have been well telegraphed, they are not as draconian as outlined in previous plans. This is encouraging to us as portfolio positioning is overweight the managed care group, based on attractive valuations and improving fundamentals.
  • Going forward, healthcare fundamentals argue for purchasing across the board in our opinion, with good earnings at least for the next several years, historic low valuations and, in some cases, dividend yields which are attractive relative to most other asset classes.
  • We expect there to be headline noise around implementation details that will need to be defined. However, we do not expect them to lead to as much volatility in the sector as we have experienced over the past year.

Bob Hodgson

Fund Manager

BGF World Healthscience Fund

 

This material is for distribution to Professional Clients and should not be relied upon by any other persons. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. The Fund invests a large portion of assets which are denominated in other currencies; hence changes in the relevant exchange rate will affect the value of the investment. The Fund invests in a limited number of market sectors. Compared to investments which spread investment risk through investing in a variety of sectors, share price movements may have a greater affect on the overall value of this Fund. Reference to the names of each company mentioned in this communications is merely for explaining the investment strategy, and should not be construed as investment advice or investment recommendation of those companies. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. BlackRock Global Funds (BGF) is an open-ended investment company established in Luxembourg which is available for sale in certain jurisdictions only. BGF is not available for sale in the U.S. or to U.S. persons. Product information concerning BGF should not be published in the U.S. It is recognised under Section 264 of the Financial Services and Markets Act 2000. BlackRock Investment Management (UK) Limited is the UK distributor of BGF. Most of the protections provided by the UK regulatory system, and the compensation under the Financial Services Compensation Scheme, will not be available. A limited range of BGF sub-funds have a distributor status A sterling share class that seeks to comply with UK Distributor Status requirements. Subscriptions in BGF are valid only if made on the basis of the current Prospectus, the most recent financial reports and the Simplified Prospectus which are available on our website. Prospectuses, Simplified Prospectuses and application forms may not be available to investors in certain jurisdictions where the Fund in question has not been authorised. Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Services Authority). Registered office: 33 King William Street, London, EC4R 9AS. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Issued in Switzerland by the representative office, BlackRock Investment Management (UK) Limited (London), Zurich Branch, Claridenstrasse 25, PO Box 2118, CH-8022 Zurich, Switzerland, from where the Company’s Prospectus, Simplified Prospectus, Articles of Association, Annual Report and Interim Report are available free of charge. Paying Agent in Switzerland is JPMorgan Chase Bank, National Association, Columbus, Zurich Branch Switzerland, Dreikonigstrasse 21, CH-8002 Zurich. Issued in Hong Kong by BlackRock (Hong Kong) Limited. Issued in Singapore by BlackRock Investment Management (Singapore) Limited. This material may only be distributed to institutional investors (as defined in section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the ‘SFA’) and accredited investors (as defined in section 4A of the SFA) and not to the retail public in Singapore. This material is for information purposes only and does not constitute an offer of shares in any of the BlackRock Global Funds. You should consider carefully whether the investment is suitable for you. BGF has been registered on the official list of the Financial Supervision Commission (Komisja Nadzoru Finansowego) for distribution in Poland. Issued in Poland by the representative office BlackRock Investment Management (UK) Limited, Oddział w Polsce. Paying agent in Poland is Bank Handlowy w Warszawie SA, ul. Senatorska 16, 00-950 Warsaw, Poland.

  • Analysis of India's latest budget and implications for the economy
    India's latest budget provides, in our opinion, the necessary impetus for a GDP growth rate of well above 7% for fiscal year 2010 (which ends in March 2010) and a rate of possibly closer to 8% for fiscal year 2011 (ending in March 2011).
  • More importantly, we observe that growth appears fairly well balanced across the economy.The budget seems to support this trend with considerable social expenditure. There also is a provision to lower tax rates for some groups. Overall, we think this should help to increase many consumers' disposable incomes which should help maintain, and possibly even accelerate, consumption growth. Consumption-led growth has clearly been a key driver of the country's overall growth rate. Many investors favour the India story because the economy appears to be growing largely on the back of rising domestic demand - a theme we expect will remain important from here. 
  • At the same time, we think that investment-led demand is likely to prove a further growth catalyst over the next few years. We expect investment-led demand to grow as many companies begin to start implementing their capital expenditure plans. Moreover, the government is going to continue to step up the pace of infrastructure development - which should support investment-led growth, particularly in the infrastructure sector.
  • Against a backdrop of around 8% GDP growth, we would expect corporate earnings to grow quite satisfactorily, by around 15%-20%, which we believe should underpin stable to strong equity market performance from here.
  • Many observers worry about India's fiscal deficit. However, we would point out that many countries around the world are currently confronting high fiscal deficits and India has the benefit of doing so against a backdrop of strong economic growth. Moreover, the budget lays out a roadmap that aims to reduce this year's fiscal deficit of 6.8% to around 5.5% next year, eventually declining to 4.1% in fiscal year 2013. We regard this roadmap as a very positive move.
  • When it comes to risks to the growth scenario outlined above, we believe that these are largely external in nature. Notably, growth rates could be challenged in the event of slower recovery in the developed world than is currently being envisaged. In the near term, we would expect sovereign credit risk concerns in Europe to continue to take centre stage and these could trigger a sudden increase in investor risk aversion. If this were to happen, this could impact on equity markets around the world.
  • Nevertheless, we think that investment flows into fast-growing economies such as India will remain strong over the medium to long term. This trend should benefit both the country's economy and its stockmarket  - an environment that we believe should open up exciting investment opportunities for the BGF India Fund.

 

This material is for distribution to Professional Clients and should not be relied upon by any other persons. All financial investments involve an element of risk. Research in this document has been produced and may been acted on by BlackRock for its own purposes. The views expressed do not constitute investment advice and are subject to change. Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Services Authority).  Registered office: 33 King William Street, London, EC4R 9AS. Registered in England No. 2020394.  Tel:  020 7743 3000.  Tel:  020 7743 3000.  For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Issued in Switzerland by the representative office, BlackRock Investment Management (UK) Limited (London), Zurich Branch, Claridenstrasse 25, Postfach 2118 CH-8022 Zürich from where the Company's Prospectus, Simplified Prospectus, Articles of Association, Annual Report and Interim Report are available free of charge.  Paying Agent in Switzerland is JPMorgan Chase Bank, National Association, Columbus, Zurich Branch Switzerland, Dreikönigstrasse 21, CH-8002 Zurich. Issued in Hong Kong by BlackRock (Hong Kong) Limited. BGF has been registered on the official list of the Financial Supervision Commission (Komisja Nadzoru Finansowego) for distribution in Poland.  Issued in Poland by the representative office BlackRock Investment Management (UK) Limited Oddział w Polsce, Rondo ONZ 1, 00-124 Warszawa.  Paying agent in Poland is Bank Handlowy w Warszawie SA, ul. Senatorska 16, 00-950 Warsaw, Poland.Issued in Singapore by BlackRock Investment Management (Singapore) Limited. This material may only be distributed to institutional investors (as defined in section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA") and accredited investors (as defined in section 4A of the SFA) and not to the retail public in Singapore. This material is for information purposes only and does not constitute an offer of shares in any of the BlackRock Global Funds. You should consider carefully whether the investment is suitable for you.    

China central bank raises reserve requirement: background and implications

 

The Chinese market has been volatile today following the decision to increase the banking reserve requirement ratio (RRR) by 50 bps overnight. This has taken the market by surprise, especially so soon after the announcement of a nascent recovery in exports.

 

The reality is that it was always likely that good news for exports would lead to tightening measures. Although the export numbers might have been a nice surprise, the first RRR increase has also come sooner than expected.

 

The Chinese economy maintained strong growth in 2009 on the back of an emergency package of government investment and resilient domestic consumption. They have been unwilling to withdraw this life support until the economy showed some signs of normalisation and the turnaround in exports is precisely this. It gives the government the opportunity to start weaning the economy off stimulation and loose monetary policy. 

 

The good news is that it is indicative of a strengthening economy. The emergency package is no longer required as the crisis passes. However, going forward, the market can probably expect strengthening macroeconomic numbers to be accompanied by further tightening measures.

 

The market consensus view for China in 2010 is positive, given its continued economic growth. As a result, we can expect bouts of volatility as the government tightens, albeit incrementally. Our view is that China should enjoy a positive year for equities on the back of stronger corporate earnings, with an EPS growth forecast of 21.7% for 2010*.

 

Over the longer-term, we remain strong believers in the investment opportunities in China. While the export-based growth model remains challenged in the long run, there is huge potential to be found in the smaller consumer, healthcare and technology sectors, as well as amongst high-end industrial companies. We remain focussed on identifying the future champions in these areas and aligning ourselves with their impressive long-term growth potential.

 

Jing Ning, fund manager BGF China Fund 

 

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