Trump victory shocks global firms reliant on open trade

HONG KONG/SHANGHAI - Donald Trump's victory in the U.S. election sent shockwaves through industries that rely on open trade, from airlines to cars and IT outsourcing, although shares of some companies rebounded in afternoon trading.

Throughout his presidential campaign, Trump has vowed to revive the U.S. economy by slashing taxes, preventing companies from making products overseas, renegotiating trade accords and imposing tariffs on imports from countries like China.

"This is part of a much broader problem that we've seen in the world, in which countries are turning inwards and reacting against globalization and open borders," said aerospace analyst Richard Aboulafia, vice president of Virginia-based Teal Group.

In Asia, shares in airlines with significant exposure to global trade, such as cargo giant Korean Airlines (003490.KS), fell as much as 5 percent as Trump closed in on the White House. Air China's (0753.HK) Hong Kong-listed shares tumbled to their lowest level since June, and automakers like Toyota (7203.T), for whom the United States is a top market, fell 6.5 percent.

Many executives remain unsure what Trump's protectionist rhetoric will mean in practice.

Shares of the three largest U.S. airlines - American (AAL.O), Delta (DAL.N) and United (UAL.N) - rose more than 1 percent in afternoon trade.

"We would think they would be down today, but I’m thinking that it’s a play on more economic growth" from new policies, said Jim Corridore, analyst at CFRA Research. Protectionism "would be a longer term (outcome) that would hang over the industry but it's going to take a long time to get to that point."

Investors at a major Airline Economics finance gathering in Hong Kong last week expressed alarm at a surge in unconventional politics from Britain to Washington and the Philippines - a trend that many expect will leave its mark regardless of how it translates into real policies.

That comes as an industry that depends entirely on the flow of goods and people faces doubts over its own economic cycle.

POPULIST POLITICIANS
"We have seen a large section of the population that has not benefited in the past decade and we are seeing support for populist politicians with simple answers," Brian Pearce, chief economist of the International Air Transport Association told Reuters ahead of the election.

"Unfortunately, a lot of those answers are for protectionist policy solutions and air transport flourishes with open borders, so that is quite a dangerous development."

International trips make up 64 percent of global air traffic, according to IATA.

Executives at U.S. auto companies said they were concerned about Trump’s stance on free trade, especially his tough talk on the North American Free Trade Agreement. They all have production sites in Mexico.

But industry executives and analysts said aviation had a history of riding out economic and political shocks. On average, plane makers insist, air traffic doubles every 15 years.

"If there are brakes on trade, there could be some impact on international travel. But you have seen more or less 5 percent annual growth in traffic for decades," said veteran U.S. aerospace consultant Jerrold Lundquist, managing director of The Lundquist Group.

And the defense industry could benefit, as a Trump administration spends more on the military and encourages even allies to shoulder more of the security cost. Defence stocks, including listed land mine manufacturer Ishikawa Seisaku (6208.T), jumped.

REALITY BITES?

After a bitter election campaign, trade experts said it remained unclear how Trump's statements in favor of protectionist trade measures and tough immigration controls would translate into policy.

"The honest answer is that no one knows; even Trump himself doesn't know," said Bertrand Grabowski, a managing director at Germany's DVB Bank which specializes in financing trade.

"He campaigned not on ideas but on anger and frustration."

Tighter rules could impact Indian IT services firms supporting companies in the United States. Shares in companies like Infosys (INFY.NS) and Tata Consultancy Services (TCS.NS) were sharply down as Trump closed in on the White House.

ALSO IN AEROSPACE & DEFENSE

But Narayana Murthy, co-founder of Infosys and a key figure in India's outsourcing industry, said realism would prevail.

"They may fine tune it here and there, but let’s remember that he is the president of 300 million U.S. people and I’m sure he’ll do what is in the best interest of America. And what is in the best interest of America is for its corporations to succeed, for its corporations to create more jobs," he said.

For now, acquisitions at least will cool off, especially Chinese purchases of U.S. companies, as a Trump presidency pushes up regulatory scrutiny.

"If he now requires a certain percentage of manufacturing parts to be made in America, it's going to be protectionist... and that increases the risk and cost of doing business," said Stephanie Yuen, an M&A lawyer in Singapore.

"He's not just building a Mexican wall, he builds an economic wall around America."

And for key sectors, competition will heat up. Europe's Airbus and U.S. rival Boeing (BA.N) in the $100 billion annual jet market could become even fiercer with more government lobbying support, adding stridency to efforts to compete for jobs.

Trump's victory may also raise questions over plans to sell over 200 Western airplanes to Iran under a deal to lift sanctions that the president-elect has severely criticized.

Airbus (AIR.PA) is seen close to finalizing a tranche of 17 jets, but needs U.S. approval to complete plans for another 80 or so because the jets are built with many U.S. parts.

Boeing has U.S. approval to finalize a deal for some 100 jets but Middle East sources say progress has been slow so far.

"It further reduces the prospect of the deals going ahead," Aboulafia said.

(Additional reporting by Adam Jourdan in SHANGHAI, Norihiko Shirouzu in TOKYO, Euan Rocha in MUMBAI, Anshuman Daga in SINGAPORE, and Jeffrey Dastin in NEW YORK; Editing by Bill Tarrant and Bill Trott)

source: www.abs-cbnnews.com

'Top US CEOs reaped billions from stock gains in recent years'

BOSTON - CEOs at large U.S. companies collectively realized at least $6 billion more in compensation than initially estimated in annual disclosures in the five years after the financial crisis first hit, according to a Reuters analysis. The reason for the windfall: the soaring value of their stock awards.

About 300 CEOs who served throughout the 2009-2013 period at S&P 500 companies together realized about $22 billion in compensation in the form of pay, bonuses and share and option grants, or an average of $73 million each, figures provided by executive compensation data firm Equilar show.

That compares to about $16 billion initially reported in annual company summary compensation tables, which include estimates for the value of stock grants based on the price of shares at the time of awards.

The comparison does not include pensions and perks such as country club memberships and use of corporate jets for private use. The study also excludes rewards reaped by other top executives, such as chief financial officers and chief operating officers, and compensation for CEOs who did not serve the full five years.

Further gains in share prices in 2014 and so far this year will only have increased the gap between the annual disclosures and the amount actually derived from the awards, with the full picture for last year only becoming clear over the next couple of months. The S&P 500's total return, including dividends, was 166 percent from the end of 2008 through Monday of this week, according to S&P Dow Jones Indices.

The impact of the stock market gains on executive pay illustrated in the study will strengthen concerns about how much of an impact the U.S. Federal Reserve's easy money policies have had on income inequality. Critics say that by raising the value of assets, such as stocks, the Fed's stimulus has helped those who are already wealthy even as median household income declined 4 percent between 2009-2013.

The bull market also has some investors re-evaluating how they judge compensation plans. In some cases, they say CEOs may be benefiting greatly from a rising tide even when their performance might be weak.

"You're seeing overpayment, or outsized payments, for what is market performance or mediocre performance," said Aeisha Mastagni, an investment officer for the $191 billion California State Teachers' Retirement System, who helps oversee its votes on executive pay proposals at company annual meetings. "Directors can't ignore the issue of pay inequality or rising executive pay."

However, more companies are disclosing their realized pay figures and some are eager to defend the supercharged rewards if shareholders have also benefited. Some of the highest paid executives also often appear in top CEO lists compiled by investors and others because they have run companies so successfully that their share prices have gone through the roof.

A $600 MLN QUESTION

An example is John Martin, the CEO of drug maker Gilead Sciences Inc, who has become the best compensated executive of a major U.S. company since the crisis, when factoring in stock and options.

He realized $400.6 million in total compensation from 2009 to 2013, according to the Reuters analysis of the nearly 300 CEOs tracked by Equilar. That is poised to top $600 million by this summer, mostly because of additional exercises of stock options. Their value has surged well beyond the estimates in annual disclosures.

Gilead had estimated Martin's compensation totaled only $75 million over the five years from 2009 to 2013. But Gilead's shares have climbed nearly 300 percent since the end of 2008 while net income almost quadrupled to $12.1 billion in 2014, fueled by sales of its hepatitis C drug Sovaldi. The company declined to comment for this story.

The second highest-paid CEO over the period was Starbucks Corp's Howard Schultz who realized $366 million, or more than three times the $97 million reported in summary compensation tables. That upside is largely the result of the cafe chain's shares climbing 931 percent since the end of 2008 as earnings surged.

"When the company performs well and the stock price increases, our executives, partners (employees) and shareholders are all rewarded," a Starbucks spokeswoman said.

The equity-oriented pay structure is good for CEOs of high-growth companies, but also bites those who don't show big growth.

Larry Ellison, CEO of Oracle Corp, realized $282 million during the five-year period analyzed by Reuters. That was $100 million below the value reported in Oracle's summary compensation tables.

The software giant's total stock return since 2008 has been several percentage points better than the S&P 500 Index, according to FactSet. But off a large base, profit growth has been relatively slow. Operating income has increased by 8 percent to $14.8 billion over its past three fiscal years. Oracle declined comment.

GE CEO LAGS

Another CEO who realized less pay than originally estimated was Jeff Immelt of General Electric Co. His $52 million in realized pay was less than the $69.2 million reported in summary compensation tables for 2009-2013. With a total return of about 96 percent since the end of 2008, GE shares badly lag the S&P 500 index. GE declined to comment.

Companies began introducing bigger stock and options awards in executive pay packages in the 1990s as a means of reducing tax liability on cash bonuses and as part of a push to encourage CEOs to act in the interests of shareholders. But with stock markets breaking records, some worry the awards will only underscore the widening gulf between the compensation of top executives and average workers.

"The numbers can be obscene, particularly when you look at the general challenges we face as an economy and society," said Matthew Benkendorf, a portfolio manager at Vontobel Asset Management, which oversees about $50 billion.

In 2013, CEOs made 331 times the average worker's income, the largest such gulf in American history and a gap that is set to rise further, according to a study by the AFL-CIO, the largest U.S. federation of unions. "The executive has received a windfall based on the bull market, which isn't always attributable to their own performance, and that's wrong," said Brandon Rees, deputy director of the AFL-CIO's Office of Investment, which advises union-sponsored pension plans managing $560 billion.

Big investors can influence the size of company pay plans but have mostly backed management, largely because the value of their shares has also been climbing. In each year since 2011 when most Russell 3000 companies began holding advisory votes on executive compensation, more than 90 percent of companies have gotten more than 70 percent approval for their executive compensation plans, according to pay consultant firm Semler Brossy.

For example, Michael Cuggino, president and portfolio manager of the $5.3 billion Permanent Portfolio Family of Funds in San Francisco, supported the pay of Gilead CEO Martin. His funds own Gilead shares and Cuggino said Martin deserves credit for managing the company in a risky industry, where failed drug trials are common and can wreck a company's share price.

"As long as we're happy with the company, and it's making investors money, we don't begrudge the executives getting their money," he said

source: www.abs-cbnnews.com

1 million BPO employees seen by end of 2014 - DTI

MANILA, Philippines - The business process outsourcing industry is expected to add 100,000 new jobs this year, the Department of Trade and Industry (DTI) said on Wednesday.

Trade Secretary Gregory Domingo said BPO employment is expected to reach 1 million by end of 2014. As of December 2013, there are 900,000 employed in the BPO sector.

Domingo isn't too worried about US President Barrack Obama's State of the Union address, where he urged US companies to bring back jobs from abroad.

In his address, Obama once again urged US Congress to pass amendments to the Tax Code that provide incentives to companies that outsource jobs overseas.

"Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here and reward companies that keep profits abroad. Let's flip that equation. Let's work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs right here at home," Obama said.

However, Domingo noted that outsourcing is still a cheaper and more attractive alternative for US companies.

The challenge for the Philippines now is to maintain its competitiveness in the BPO industry, by providing the right training for Filipino workers.

Manila and Cebu are among the top 10 outsourcing destinations in the world, according to services globalization and investment advisory firm Tholons. Metro Manila ranked second only to Bangalore, which remained the top outsourcing city.

Also, Domingo emphasized the need to encourage students to study sciences courses such as chemistry and physics, as well as engineering, as more manufacturers require these specializations for product research and development.

He said the DTI is coordinating with Commission on Higher Education (CHED) on this. - With report from Zen Hernandez, ABS-CBN News

source: www.abs-cbnnews.com

US stocks flirt with new records, 5 years after crash

NEW YORK - US markets pushed tantalizingly close to new records this week, a stunning rebound after the steep crash of 2008 wiped trillions of dollars of wealth from Americans' pocketbooks and retirement accounts.

The thrust past 14,000 by the Dow Jones Industrial Average Friday, the first time that level has been seen since October 17, 2007, underscored the spectacular recovery US stocks have made despite the economy's slow growth.

Helped by interest rates still at all-time lows, and US companies still building earnings steadily, analysts said the Dow and the S&P 500 could easily find their way past their all-time highs in the coming month, if not sooner.

Both set fresh post-2007 records Friday, rising more than 1.0 percent for the day on data that, on one hand showed that the US jobs market remains firm, but on the other hand was not strong enough to push the Federal Reserve to tighten monetary policy anytime soon.

The Dow closed the day at 14,009.79, still shy of the October 9, 2007 record of 14,164.53.

The S&P 500 reached 1,513.17, its best close since December 10, 2007 and just 3.4 percent shy of the October 9, 2007 all-time closing high of 1,565.15.

The Nasdaq Composite, at 3,179.10, was still far below its record, hit in March 2000 before the dot-com crash.

Even so, and despite sagging Apple shares, the tech-weighted index was just a few points shy of its post-2000 high reached last October.

All three benchmarks have now more than doubled since hitting their post-crash bottoms in 2009, rewarding the patient investors who hung on in the middle of the economic crisis.

Analysts said that the reentry to the market of those who sat out, both domestic and foreign investors, is supporting the current surge.

"Since the 2007 levels, it has been a tremendous rally," said Mace Blicksilver of Marblehead Asset Management.

"We have this real re-investment by people who sold all their stocks three, four, five years ago and went into safer instruments and are now wanting to get back in."

"A lot of the money that is flowing into the US stock market actually comes from abroad. The US appears to be a safer place than, for example, Europe or the emerging markets," said Greg Peterson of Ballentine Partners.

Also driving the gains have been quarterly reports: most companies reporting in the past two weeks have shown firm profit growth, if not as fast as a year earlier.

"They have cut their debts, they have high levels of profit, and importantly they have liquidity," said Evariste Lefeuvre of Natixis.

The macro-economic picture also looks encouraging. The government's estimate this week that the economy shrank at an 0.1 percent pace in the fourth quarter was brushed off as an anomaly, including by the Federal Reserve itself which blamed it on "transitory factors."

The economy would return to modest growth, the Fed said -- though not by enough for it to raise interest rates.

The jobs data released Friday both confirmed the economy's modest strength -- 2012 monthly job creation numbers were revised upward by 18 percent -- and the still slow pace of growth -- January's jobs were 13 percent down from last year's pace.

Economists remain uncertain on whether growth will pick up pace this year from last year's 2.2 percent.

Some were worried that consumer spending might weaken, and that business investment would slip.

Another factor is the political battle over the deficit.

This week Democrats and Republicans appeared still far apart on a compromise that would avoid sharp budget cuts, known as sequestration, programmed for the end of March.

The cuts, $110 billion for 2013 alone, could pull down overall growth.

"The political situation still remains high risk. The government could really destabilize the economy by failing to address sequestration." Peterson told AFP.

John Praveen, chief investment strategist at Prudential International Investment Advisors, said Friday he expects the markets to keep climbing on the same factors: steady earnings growth, low interest rates, and economic growth picking up with little inflationary pressures.

"These positives are expected to lift S&P 500 index to 1600 by 2013 year-end," he said in a research note.

Even so, he added, US stocks will probably grow slower than other global markets.

"The US is likely to underperform with less safe-haven appeal and valuations expensive relative to other equity markets."

source: abs-cbnnews.com

Obama readies rewards to keep US firms from outsourcing jobs

WASHINGTON - President Barack Obama, under pressure in an election year to boost the economy and reduce high unemployment, will unveil tax proposals aimed at encouraging U.S. firms to keep jobs at home, the White House said on Wednesday.

"In the coming weeks, the president will put forward new tax proposals to reward companies that choose to invest or bring back jobs to the United States, and to eliminate tax advantages for companies moving jobs overseas," the White House said in a statement.

Obama was hosting a forum with executives on Wednesday on "Insourcing American Jobs" at which he will call on companies to invest and hire in the United States instead of moving jobs abroad.

The emphasis on keeping U.S. jobs at home is in line with a populist economic message championed by Obama that could play well with unionized workers, whose support the Democratic president will need to win re-election in November.

The practice of U.S. companies moving jobs to foreign countries such as India and China, where labor is cheaper, is a source of concern to many U.S. workers and resonates strongly in Midwest industrial states such as Ohio and Michigan that are expected to be battlegrounds in this year's election.

At the business forum, Obama will urge companies investing overseas "to take this opportunity to get the American people back to work," the White House said.

"That's how we'll rebuild an economy where hard work pays off and responsibility is rewarded - and a nation where those values live on," Obama will say, according to an excerpt from his prepared remarks.

For the past several years, Obama has proposed closing what he calls tax loopholes used by multinational firms, including those restricting the use of foreign tax credits, and preventing companies from deferring taxes on income earned abroad.

Although these ideas have the support of some Democrats, they generally landed with a thump in Congress, where most lawmakers want to tackle reforms to the voluminous U.S. tax code in one fell swoop.

The Obama administration had been drafting revisions to just the corporate side of the tax code but largely abandoned the effort over the past year after complaints that the tax code needs a massive overhaul and that many businesses file as individuals. — Reuters

source:gmanetwork.com