So what is behind the rapid rise of ‘China’s Apple’ Xiaomi?

Xiaomi is likely to be the biggest smartphone maker you've never heard of.

The company – often dubbed "China's Apple" by analysts - has had a rapid rise in 2014, coming out of nowhere to knock Samsung off the smartphone top spot in China and propelling itself to number three smartphone vendor globally, according to IDC.

Investors are flocking to put money into Xiaomi, a company that was only founded in 2010. It raised more than $1 billion in the latest round of funding, according to the Wall Street Journal, giving the Chinese company a $45 billion valuation – bigger than Uber, Netflix and Twitter.

But how has Xiaomi risen so far so fast?

Razor-thin margins

Xiaomi's success has been driven by the Chinese market where it sells over 90 percent of its smartphones and is the number one player.

The company is known for its high-spec smartphones, which can take on its premium rivals such as Apple and Samsung, but sells at less than half the cost. This comes at a price for Xiaomi which has an approximately 3 percent margins on its phones, analysts said.

"Xiaomi has changed the game because it has such a strong image of affordability but with equally strong functionality for the phone," Can Huang, senior research analyst at Mintel, told CNBC by phone.

But Xiaomi is not worried about margins. Shipping their flagship Mi4 smartphones are a way to give users a platform to use the company's software.

"Sometimes we call Xiaomi the Chinese Apple and that gives you a hint about how it is perceived. They have a long term strategy on building an ecosystem and pathway through the hardware to get the software to closely interact with people's lives," Huang said.

Online-only selling

Xiaomi has run a forum since its inception where consumers and developers can post and chat. This allows Xiaomi to quickly act on feedback and has led to them releasing updates for their software every couple of weeks to keep their offering up-to-date.

In addition, the company also sells their phones in China and India, its second-biggest market, through online-only channels, keeping the cost base down and appealing to a tech-savvy audience.

Xiaomi also operates its own app store – like Google Play or Apple's App Store – keeping users in its ecosystem.

Earlier this year, Xiaomi announced it was entering 10 new markets including Brazil and Russia. But analysts said that as the Chinese smartphone maker looks to expand aggressively into new countries, the strategies that helped it succeed in its home market might not work elsewhere.

Rising costs

Xiaomi sold 26.1 million smartphones in the first half of 2014, soundly beating the 18.7 million full-year 2013 figure, and this was largely due to its online sales channel in China.

In India, Xiaomi's devices are sold through ecommerce website Flipkart, despite a brief ban earlier this month. But the strategy of web-only sales might not translate across other markets, and trying to work out the right sales strategy could increase the company's cost base, analysts said.

Xiaomi sales: Too fast, too soon?

China's Xiaomi Technology rung in the New Year with a triple-digit percent revenue increase, but analysts advise investors not to pop champagne corks yet.

Xiaomi recorded $11.97 billion in 2014 pre-tax sales, an annual increase of 135 percent, CEO Lei Jun announced in a Weibo post over the weekend. The privately-owned firm also sold 61 million smartphones last year, a 227 percent jump from 2013. In comparison, sales ofSamsung's smartphones declined in the third quarter of 2014 while iPhone sales rose 26 percent on year, according to Gartner data.

"I don't think Xiaomi can repeat this astounding growth of 135 percent, it's a case of too big, too soon," said Cyrus Daruwala, managing director at IDC Financial Insights. "We're definitely in wait-and-see mode; investors are not looking to raise their profile on Xiaomi yet. The results are too dramatic and can only go downhill from here."

Vital components of the firm's business model remain missing, Daruwala added: "We are unclear as to their research and development (R&D) plans. What is their sourcing strategy in terms of commodities and raw materials? In manufacturing, will they embrace a high-end or low-end focus? We also need more clarity with regards to regional and global expansion plans."

Other analysts are also cautious, questioning the company's sustainability amid its massive hype in the tech world. With a market valuation of $45 billion, Xiaomi has been called tech's most valuable start-up and is currently the third-largest smartphone maker.

Lei's weekend blog post lacked profit figures, but a regulatory filing released in December indicated worrisome profitability levels. The tech firm logged an operating margin of 1.8 percent in 2013, far behind Samsung's 18.7 and Apple's 28.7 percent. Many experts attributed the poor performance to the firm's low-cost, large volume strategy in phone manufacturing.

Intensifying domestic competition also remains a key headwind for Xiaomi as Lenovo, Coolpad and Huawei all have plans to copycat its low-cost smartphone model, said Tom Kang, director at Counterpoint Research.

Content vs hardware

Worries over the firm's long-term growth are also in focus as it tries to present itself as an Internet firm rather than a handset maker: "Developing hardware is just a part of Xiaomi's businesses, and the driving forces behind those devices are its software and Internet content,'' said CEO Lei last month, according to media reports.

Xiaomi is heavily focused on content, said Ryan Huang, market strategist at IG. By acquiring content providers in its ecosystem like digital game maker Gameloft, e-book retailer Beijing Doukan as well as video sites Youku Tudou and iQiyi, it's providing value-added services to lock in users from leaving the brand, like Apple did with iTunes, Huang added.

However, confidential data leaked in November proves the company still has a long way to go before calling itself an Internet play. 94 percent of 2013 revenue came from handset sales, The Wall Street Journal reported in November.

Xiaomi's hopes for diversification aren't just limited to the Internet. Last month, it unveiled a new air purifier that can be controlled via mobile phone, Counterpoint Research's Kang pointed out, adding that its high customer loyalty will enable it to grow beyond consumer electronics.

"I do believe Xiaomi's overall revenue will continue to expand, it just may not come entirely from phones," he said.

Meanwhile, CIMB believes the firm is headed for another stellar performance in 2015, but strictly based on smartphone sales: "We believe that Xiaomi's growth momentum will persist into 2015, driven by the improvement in its supply chain and overseas expansion. Xiaomi now targets to ship 100 million smartphones in 2015, a jump of 67 percent on-year."

http://www.cnbc.com/id/102308335?trknav=homestack:topnews:9

Surveys on Africa

http://www.voicesafrica.com/index.php?option=com_comprofiler&task=registers&referrer=CIVA-FRANCIS%20NATANGA

World locked into 'alarming' global warming: World Bank

The world is locked into 1.5°C global warming, posing severe risks to lives and livelihoods around the world, according to a new climate report commissioned by the World Bank.

The report, which called on a large body of scientific evidence, found that global warming of close to 1.5°C above pre-industrial times – up from 0.8°C today – is already locked into Earth's atmospheric system by past and predicted greenhouse gas emissions.

Such an increase could have potentially catastrophic consequences for mankind, causing the global sea level to rise more than 30 centimeters by 2100, droughts to become more severe and placing almost 90 percent of coral reefs at risk of extinction.

The World Bank called on scientists at the Potsdam Institute for Climate Impact Research and Climate Analytics and asked them to look at the likely impacts of present day (0.8°C), 2°C and 4°C warming on agricultural production, water resources, cities and ecosystems across the world.

Their findings, collated in the Bank's third report on climate change published on Monday, specifically looked at the risks climate change poses to lives and livelihoods across Latin America and the Caribbean, Eastern Europe and Central Asia, and the Middle East and North Africa.

In the report entitled "Turndown the heat – Confronting the new climate normal," scientists warned that even a seemingly slight rise in global warming could have dramatic effects on us all.

"A world even 1.5°C [warmer] will mean more severe droughts and global sea level rise, increasing the risk of damage from storm surges and crop loss and raising the cost of adaptation for millions of people," the report with multiple authors said. "These changes are already underway, with global temperatures 0.8 degrees Celsius above pre-industrial times, and the impact on food security, water supplies and livelihoods is just beginning."

As temperatures rise, heat extremes on a par with the heat waves in the U.S. in 2012 and Russia in 2010 will also become more common, scientists believed. "Everyone will feel the impact, particularly the poor, as weather extremes become more common and risks to food, water, and energy security increase."

Without concerted action to reduce emissions, the report warns that the planet is on pace for 2°C warming by mid-century and 4°C or more by the time today's teenagers are in their 80s.

A temperature rise of this magnitude would create "a frightening world of increased risks and global instability," the World Bank Group's President Jim Yong Kim said, calling the scientists' findings "alarming."

"Today's report confirms what scientists have been saying – past emissions have set an unavoidable course of warming over the next two decades, which will affect the world's poorest and most vulnerable people the most," Kim said. "Climate change impacts such as extreme heat events may now be unavoidable," he added.

The effects of climate change are already starting to impact on mankind, the president noted, with record-breaking temperatures occurring more frequently, rainfall increasing in intensity in some places, while drought-prone regions like the Mediterranean are getting dryer. A significant increase in tropical North Atlantic cyclone activity is affecting the Caribbean and Central America.

The new report comes on the heels of strong new warnings from the Intergovernmental Panel on Climate Change (IPCC) about the pace of climate change and the energy transformations necessary to stay within 2°C warming.

Earlier in November, China and the U.S. signed a landmark agreement to reduce greenhouse gas emissions by 2020 but there are fears those curbs don't go far enough to slow the onslaught of global warming. There are still many prominent and influential climate change skeptics to convince too.

Global governments are gathering in Lima, Peru at the start of December for the next round of climate negotiations. The World Bank said its latest report provides "direction and evidence of the risks and the need for ambitious goals to decarbonize economies now."

http://www.cnbc.com/id/102211556?trknav=homestack:topnews:4

Japan's yen is about to get pummeled—even more

The Bank of Japan just lit a fire under the already-hot dollar-yen trade.

A surprise move Friday to supercharge the central bank's quantitative easing program sent the yen tumbling as much as 2.5 percent to a six-year low of 111.89 against the dollar.

That's on top of an 11 percent fall in the last year, driven by easy policy in Japan implemented to fight deflation and a sluggish economy, setback even further by a planned increase in the nation's consumption tax.

"There is a risk that conversion of deflationary mindset, which has so far been progressing steadily, might be delayed," according to BOJ Gov. Haruhiko Kuroda at Friday's press conference.

Pros say the currency move is far from over.

The latest salvo in the currency war: The BOJ upped its expansion of the monetary base to $720 billion annually from $534 billion to $623 billion before, two days after the Federal Reserve ended its quantitative easing program.

In other words it added more fire power to its bazooka, at the exact moment the Fed is putting its away. For currency traders, who trade on monetary policy divergences and interest rate differentials, it's an opportunity of a lifetime.

"The scale of buying was already unprecedented and the faster pace now means that by the end of 2015 ... the total size of assets on the balance sheet of the BOJ could increase to about JPY 380 trillion," wrote Derek Halpenny, European head of global markets research at Bank of Tokyo Mitsubishi.

"The figure as it stands now is already over 50 percent of Japan's nominal GDP and this is now expected to move up to around 75 percent. That is extraordinary and unprecedented."

It's also a powerful signal that Kuroda is prepared to do "whatever it takes," as fellow central banker Mario Draghi famously promised in reference to the European debt crisis.

The market takeaway couldn't be clearer:

"The yen's status as the best funding currency has been further secured," Alan Ruskin, chief FX strategist at Deutsche Bank, wrote.

The dollar, on the other hand, is moving the opposite direction, and not just against the yen.

The dollar index, which includes the U.S. currency's value against the euro and other major trading partners, has run up to a four-year high.

Bullish dollar wagers in the futures market currently stand at $44 billion, a record high, according to weekly CFTC data. Traders are holding long positions on the dollar versus the euro, yen, Australian dollar, Swiss franc, Canadian dollar, Mexican peso, British pound and New Zealand dollar. 

It's all about the strength in the U.S. economy and the relatively faster track to tightening policy of the Fed, compared with other central banks around the globe. 

"While the BOJ had been conducting an accommodative monetary policy, the timing of this announcement was a surprise and is another big step in that same direction, joining the ECB and Sweden most recently, and is another contrast with the direction the Fed is taking, which will likely keep downward pressure on the yen," wrote Carl Forcheski, Societe Generale director, corporate FX sales America. 

So how high could dollar-yen run?

"As far as the USD/JPY is concerned, this definitely brings the 115 level onto the radar screen. We are also watching the psychologically important 1.2500 level in EUR/USD, which if or when breaks is likely to result in another big leg down in the single currency," wrote Forcheski.

After Friday's announcement, Jens Nordvig, a managing director and head of fixed income and currency strategy at Nomura, revised his trading target for dollar-yen in the near term from 112 to 115 by the fourth quarter of this year.

Another reason strategists say there's more scope for yen weakness against the dollar—positioning isn't extreme. In other words, while weekly futures data show expectations for the dollar to strengthen against the yen, it's not as overwhelmingly popular of a bet as it was in the past, partly because the Japanese authorities have been talking about negative consequences of the weaker yen.

"The BOJ did a remarkable job of not letting on their intentions ... successfully talking the yen stronger in the weeks before the meeting. ... The result is positioning was remarkably light," Ruskin wrote.

In fact, leading up to this meeting, bearish yen positions had been cut to $7.8 billion, after declining for four weeks straight.

"The changes in sentiment underscore the extent to which the subsequent BOJ policy announcement was unanticipated by market participants," Scotiabank strategist Camilla Sutton wrote in a report.

"To the extent there were long dollar-yen positions, many had barriers to cheapen up dollar-calls on a view that the move would be slow," Ruskin wrote. "That creates more scope for dollar-yen upside, on the hedging of barriers. It also fits with ideas from Tokyo that Japanese investors and corporates did not buy the recent dip significantly and are likely to chase the market now."

Beyond a weaker yen, the Bank of Japan's move could force other central banks to act in order to weaken their currencies, in this low-growth environment.

"No doubt this caught the attention of the ECB, who will not likely be happy with the euro's big move higher vs the yen today in the cross, as too strong a euro-yen cross has such a negative impact on German and eurozone exports," wrote Forcheski.

So what does all the currency action mean for stocks?

The stimulus jolt certainly propelled global stocks higher Friday on the announcement, with the S&P 500 and Dow Jones industrial average closing the week at record highs. In Japan overnight, it fuelled a 4.8 percent rally for Nikkei 225 to a seven-year high. 

Many are wondering, can Japan's central bank do the heavy lifting that the Fed has done in the past for global markets?

"In general we would answer no, but actions today have multi-week run. ... This all works with the risk melt-up story into year-end led by the S&P and now the Nikkei," according to Ruskin.

"The announcement by the Bank of Japan that it was adding to its purchase programs is a clear positive for the stock market that had been largely unexpected," said Tobias Levkovich, chief U.S. equity strategist at Citigroup.

"Additionally the decision by the Japanese pension fund to bump its holdings of foreign stocks to 25 percent of its monetary base establishes a new incremental buyer of shares and the U.S. should be a significant beneficiary. These new developments were not part of the Street's mindset a day ago and thus cannot be discounted as a flash in the pan since it provides some downside support to the broad market."

The ultimate question market watchers are contemplating: If Japan does manage to boost equity prices and weaken the yen successfully, as predicted, does that mean it will help Japan end its deflationary malaise and help boost its economy?

The jury is out on that.

Most economists, traders and strategists are far less certain about whether it will cure Japan's economic ills, than they are about how to trade the policy:

Don't fight the Bank of Japan!

Japan's economy contracts in third quarter

Japan's economy is in technical recession after gross domestic product (GDP) shrank in the third quarter, defying expectations for growth and paving the way for Prime Minister Shinzo Abe to delay a second sales tax hike.

The world's third-largest economy contracted an annualized 1.6 percent in the July-September quarter, data showed on Monday, compared with a Reuters forecast for a 2.1 percent gain. The economy contracted a revised 7.3 percent in the second quarter.

On a quarter-on-quarter basis, the economy shrank 0.4 percent in the third quarter, worse than the consensus for a 0.5 percent growth.

Private consumption, which accounts for about 60 percent of the economy, rose a smaller than expected 0.4 percent from the previous quarter, a sign that an increase in Japan's sales tax to 8 percent from 5 percent in April continued to take a toll.

Dollar-yen jumped to new seven-year highs on the news, hitting 117.04, levels not seen since October 2007. Japan's Nikkei 225 fell more than one percent in early trading.

"The first estimate of the GDP is usually very off the reality, especially we're lacking the import component from the corporate statistics to see the capex, and today's number in the capex was a big drag. So, we have to wait to see what the second estimate is but first impression of the result today is shockingly weak for the economy," Yoshito Sakakibara, executive director of investment research at JP Morgan.

The third-quarter GDP print has been highly anticipated after Abe said he will look would look at the data when deciding whether to press ahead with a second increase in the sales tax to 10 percent in October next year, as part of a plan to curb Japan's huge public debt, the worst among advanced nations.

April's hike sent the economy into a tailspin as consumers shut their wallets, and rendered the Bank of Japan's (BOJ) goal of 2 percent inflation by next year ever more remote.

The BOJ last month shocked markets by expanding its already massive stimulus in an effort to re-energize a fragile recovery and stoke inflation.

"This is absolutely not a situation in which we should be debating an increase in the consumption tax," said Etsuro Honda, a college professor and economic adviser to Abe, told Reuters on Monday. "Debate needs to focus on how to support the Japanese economy."

JPMorgan's Sakakibara does not see a deep recession for Japan, but he notes that the rebound remains vulnerable.

"I think the industrial activity is showing signs of recovery and we have very bad weather and natural disasters during summer - that probably had significant impact on the activity. so I guess the recession we seem to have now is likely to be shallow. That said, the momentum of the recovery is still fragile," he said.

Political gamble

Markets are also grappling with the prospect of snap elections, which several media outlets say could happen as soon as next month.

Abe's Liberal Democratic Party (LDP) looks virtually certain to keep its majority in the lower house, since the opposition is divided and weak, but it could well lose seats.

Postponing the sales tax hike could buy Abe goodwill with voters, although some analysts have cautioned risks to his reform mandate.

"A decision not to go ahead with the 2015 tax hike would probably be seen as a watering down of a key element of Abenomics and could weaken momentum for further reform," analysts from Capital Economics said in a recent report.

"While markets now seem to regard the tax hike as a negative, questions would soon be raised about the future for monetary policy if the government's commitment to fiscal consolidation was seen to have been abandoned," they added.

INTERNATIONAL ENERGY AGENCY: LOW OIL PRICES TO BITE INTO 2015 US SHALE GROWTH

Falling oil prices may cut investment in U.S. shale oil by 10 percent next year, the International Energy Agency (IEA) said on Wednesday, slowing growth in a sector that has turned the U.S. into a major global producer.

"A well-supplied oil market in the short-term should not disguise the challenges that lie ahead, as the world is set to rely more heavily on a relatively small number of producing countries," Fatih Birol, the IEA's chief economist, stated in the agency's 2014 "World Energy Outlook" published on Wednesday. 

Benchmark oil prices have dropped by about 30 percent over the past four months on the back of a mounting oil glut from the Middle East and North America, which is putting pressure on oil-producing nations and oil companies.

On Wednesday, Brent crude slipped near $81 a barrel, close to a four-year low.

"If prices remain at these lows, this may result in a decline in U.S. upstream capital expenditures by 10 percent in 2015, which will have implication for future production growth," Birol told Reuters at the launch of the report.

U.S. oil production has risen by 1 million barrels per day (bpd) per year over the past year as strong oil prices led to a boom in shale oil production through fracking, a technique that uses high pressure to capture gas and oil trapped in deep rock.

Production is set to grow by an additional 963,000 bpd in 2015, according to the U.S. Energy Information Administration.

Analysts told CNBC the current decline in oil prices could start to deter investment in U.S. shale oil production immediately.

Gareth Lewis-Davies, senior oil strategist at BNP Paribas, told CNBC on Wednesday that the growth in non-OPEC supply would "stall at these low prices."

"We think current production will not be affected because the operating costs are covered but a more difficult question is the extent to which investment will be cancelled or delayed as a consequence of low oil prices," he told CNBC's "Worldwide Exchange."

"At the current levels, we still see a fair amount of [U.S.] shale oil production on a full cycle -- but not all of that which is currently planned. So on that basis, the growth in non-OPEC supply will start to stall at these prices, if these low prices are sustained," he said.

Last month, the IEA's executive director Maria van der Hoeven told Reuters that "some 98 percent of crude oil and [natural gas] condensates from the United States have a break even price of below $80 and 82 percent had a break even price of $60 or lower," meaning that the U.S. shale oil producers could well cope with current lower oil prices.

The chief executive of Sweden-based petroleum company Lundin Petroleum, told CNBC that he wasn't reassured.

"When I look [at the U.S. shale industry] I see the fact that it hasn't delivered any free cash flow and it continues to eat capital. I look at the availability of capital over the last two years and I must admit, I think 'Can this continue?'," Ashley Heppenstall said, speaking to CNBC at UBS' European conference in London on Wednesday.

"We hear lots of talk of break-even prices for U.S. shale [and] at what price it's going to start to have an impact -- and I think on the margin it will already start to have an impact -- the question is how quickly and how much we will see U.S. production growth slowing."

Despite those concerns, the IEA's chief executive believed oil prices could well rise as weak prices stimulated demand.

"Given the negative impact of $80 on investments, and given the $80 positive impact on demand and oil demand growth there will be upward pressure on oil prices within a couple of years if not earlier," Birol told Reuters.

The IEA forecast global oil demand to rise from 90 million bpd in 2013 to 104 million bpd in 2040, when the energy supply mix divides into four almost-equal parts between oil, gas, coal and low-carbon sources.

Strife in the Middle East, mostly in Iraq, poses a threat to future supplies - hampering investments necessary to sustain production growth there, Birol said.

http://www.cnbc.com/id/102175914

How to invest like a billionaire

Imagine you're at a poker table, surrounded by some of the world's greatest professional players. They've read every poker book, played thousands of games, and seen virtually every hand: The odds are clearly in their favor. You must decide whether to play, knowing the competition is fierce, or walk away.

Investing in the stock market is not entirely different. Your competition includes the brightest investment minds in the world. You can play your own hand and make decisions on whether to trade shares of say Apple or Coca-Cola, or you can simply purchase an inexpensive index fund that tracks the market.

Fortunately for investors, there is a third alternative: to track what world class investors are buying. Regulators require all investors with over $100 million in U.S. listed stocks to reveal their hand on a quarterly basis in a filing called Form 13F. These filings offer a window into some of the market's best minds, such as Warren Buffett and David Einhorn. 

Some observers have been quick to dismiss investment strategies that use 13F information. This is because 13Fs are filed with a 45-day delay and only show long stock positions of hedge fund managers, leaving out shorts, options, and swaps. Ignoring either of these limitations would be a grave error. 

But when used correctly, the information is extremely valuable. With thousands of 13Fs filed each quarter and dozens of stocks listed on each form, the key question becomes, '"How can this information be used most effectively?" The devil is in the details, but the high level concepts are surprisingly straight forward.

It's critical to pinpoint funds with lower turnover ratios, thereby limiting the impact of the 45-day delay. Analyzing these forms doesn't require a lot of guesswork. They clearly identify the manager and their long stock portfolios throughout consecutive quarters, which reveals how often the holdings are changed. Some of the best investors, such as Buffett's Berkshire Hathaway, turn their portfolio over a lot less than people assume, and publicly available information clearly identifies who they are.

Two additional crucial factors to account for in 13F tracking are the overall size of the portfolio, and size of the position. 

In a co-authored paper by professors at York, Seoul National and Rutgers universities, researchers found that there is a statistically significant positive relationship for securities held by large hedge funds but not for those held by small hedge funds. The authors rationalized that "the return forecasting power of hedge funds is stronger when they possess more resources and hence have better access to expertise and talent." In other words, tracking the largest funds creates a more accurate picture of true alpha generators. 

In a separate paper from Harvard Business School, London School of Economics and Goldman Sachs, researchers attempted to quantify the outperformance of a manager's "highest conviction picks," or stocks with the highest overweighting in a portfolio. After controlling for many factors, including market premium, momentum, size, growth, riskiness and short-term price reversion, the authors found that the "best ideas" portfolio generated excess returns of 0.82 percent per month. When they narrowed the index to include only the top 5 percent highest conviction picks, the alpha increased to 1.01 percent per month. The highest conviction picks among fund managers had proved to also be the best performing.

Utilizing 13F filings as a wellspring for alpha-like returns is no easy feat, and missteps are easy to make. At the same time, it would be a mistake to throw the baby out with the bathwater. A discerning investor looking for alpha will find that publicly available information can help construct a successful portfolio. In fact, it may be the closest way to long-only equity hedge fund returns without the fees. 

http://www.cnbc.com/id/102179002?trknav=homestack:mostpopular:6

Gold struggles to find buyers in third quarter

Sagging gold prices have not been enough to lure buyers back into the bullion market, with global demand continuing to fall in the third quarter, according to the World Gold Council.

Demand for gold slipped 2 percent on year to 929 tons in the July to September period, the WGC's latest Gold Demand Trends report showed, the lowest level since the fourth quarter of 2009. This compares with 964 tons in the April to June quarter, which marked a 16 percent on year decline.

"Q3 was a subdued quarter for the gold market…the lack of a clear price signal caused investors to hold back from buying gold," WGG, an industry body, wrote in the report published on Thursday.

Spot gold stood at $1,325 at the start of the third quarter, but fell almost 9 percent over the three-month period to end at $1,208. It last traded at $1,160. 

Appetite for gold has been lackluster in recent months, as the up trend in global equities detracts interest from the precious metal.

On the consumer front, global jewellery demand softened 4 percent on year to 534 tons as Chinese consumers held off buying. Jewellery remains the biggest component of gold demand, representing more than half of all demand.

Mainland jewelry demand fell 39 percent to 147 tons as "the jewellery market caught its breath after an exceptional year for demand last year," WGC said.

However, India was a bright spot, with demand there jumping 60 percent on year to 183 tons in the quarter.

The large rise partly reflects weakness in the same period last year, when the government introduced import curbs and raised import duties, WGC said. But it also demonstrates improved consumer confidence under the new government led by Prime Minister Narendra Modi and strong levels of buying in the lead up to the festival season, it said.

Investment demand stabilizes

After sharp selling in the third quarter of 2013, investment demand – which includes bars and coins and exchange traded funds (ETFs) - rose 6 percent in the three months to September, to 204 tons.

ETF outflows slowed to 41 tons in the quarter, compared with 120 tons in the same period last year.

"This lends weight to our analysis that more tactical investors have largely exited and the remaining base of ETF positions are held as strategic investments," WGC said. "There was, however, little during the quarter to encourage fresh investment in ETFs."

Buying by central banks, meanwhile, stood at 93 tons – 9 percent lower than the year-ago period. However, it was the 15^th consecutive quarter of net buying.

"With many economic and geopolitical wounds still open, central banks once again sought the protection and diversification of gold," WGC said.

Supply dips

Total supply fell by 7 percent on year to 1,048 tons as the volume of recycled gold flowing into the market continued to shrink.

Recycled gold is sourced from old fabricated products which have been recovered and refined back into bars.

"The contraction was global: a feature of both developing and industrial markets. This was partly a consequence of gold prices being relatively low and stable, and partly due to ready supplies of old gold being exhausted," WGC said.

http://www.cnbc.com/id/102180317

India data builds case for rate cut before Christmas

Rapidly cooling inflation is building the case for the Reserve Bank of India (RBI) to cut interest rates as soon as its next monetary policy meeting on December 2, say economists. 

Consumer prices rose a slower-than-expected 5.5 percent on year in October, following a 6.5 percent increase in the previous month, led by a fall in local food prices. This was the slowest pace since the index was launched in January 2012.

Inflation is now well below the central bank's target of 8 percent for January 2015 and even dropped below the 6 percent target for January 2016.

The data indicates "interest rate cuts are likely to come onto the agenda sooner than most currently seem to expect, perhaps even as early as the RBI's next meeting in December," Shilan Shah, India economist at research firm Capital Economics wrote in a note.

Consensus expectations are for the first rate cut to come in the second quarter of next year, according to Capital Economics.

India's benchmark repo rate has been unchanged since January, when the central bank increased it by a quarter percent point to 8 percent.

Shah is not alone in his rate outlook.

"The data is in line with our view that the RBI will cut rates in December," Dariusz Kowalczyk, senior economist and strategist, Asia ex. Japan, Crédit Agricole said in a note published after the inflation figures were released.

Not so fast

However, not all economists were convinced the recent let up in price pressures would be enough to make the central bank budge.

"The recent moderation in CPI inflation and our expectation of continued disinflation in 2015 does not change our view on monetary policy," said Sonal Varma, chief India economist at Nomura.

"In our view, the RBI is focused on ensuring that inflation remains low even as the growth cycle starts to pick up in 2015-16. This requires continued vigilance from the RBI given elevated inflation expectations in India," she said. "It also requires not overreacting to any short-term undershooting on inflation for cyclical reasons."

Tushar Poddar, managing director, Global Macro Research at Goldman Sachs, has a similar stance, noting that while easing inflation increases the probability that the "RBI may start giving a larger weight to growth concerns rather than a single-minded focus on inflation", December is too soon for a rate cut.

"Given the helpful base effects in the October and November readings, still elevated inflation expectations, as well as uncertainty regarding the sustainability of weak commodity prices, we expect the RBI to remain on hold in the December meeting," he said.

http://www.cnbc.com/id/102179924?trknav=homestack:topnews:1

Iron ore to suffer another double-digit dive in 2015

Iron ore prices have dived an eye-watering 44 percent this year and there's no respite ahead for the metal, according to Citi, which forecasts double-digit declines in 2015.

The bank on Tuesday slashed its price forecasts for the metal to average $74 dollars per ton in the first quarter of next year, before moving down to $60 in the third quarter. It previously forecast $82 and $78, respectively.

"We expect renewed supply growth to once again drive the market lower in 2015, combined with further demand weakness," Ivan Szpakowski, analyst at Citi wrote in a report, noting that prices could briefly dip into the $50 range in the third quarter.

The price of spot iron ore fell $75.50 this week, its lowest level since 2009, according to Reuters.

Price declines in the first half of this year were driven by rapid growth in export supply, which has slowed in the second half of the year. In recent months, deteriorating Chinese steel demand and deleveraging by traders and Chinese steel mills has dragged the metal. Iron ore is an important raw material for steel production.

However, iron ore supply growth will return in the first half of next year, Citi said, as industry heavyweights Rio Tinto, BHP Billiton and Vale rev up expansions and Anglo American's Minas-Rio iron ore project in Brazil ramps up.

Meanwhile, demand out of China – the world's biggest buyer of iron ore – will remain under pressure due subdued steel demand. Demand for steel is being compressed due to tighter credit conditions and an uncertain export outlook. 

"Chinese manufacturing exports have improved in recent months, helping to boost steel demand for machinery, metal products, etc. However, with European growth having slowed such positive momentum is unlikely to continue," Szpakowski said.

'The party is over'

ANZ also substantially downgraded its 2015 price forecast for iron ore this week. However, it was not quite as bearish as Citi.

The bank, in a report published on Monday, said the metal will not breach $100 a ton again, forecasting prices to average $78 next year, 22 percent lower than its previous estimate.

"Recent trip to China highlights that demand conditions are more challenging than we thought," ANZ said.

"That said, we don't expect prices to fall below $70/ton – a level that would shut as much as 20 percent or 300 million tonnes of global iron ore supply, positioning the market into substantial deficit," it said.

But the bank notes that super high profits enjoyed by the iron ore sector over the past three to four years appear to be over.

"Big low-cost producers now seem keener on bedding-down dominant market share in an increasingly challenging environment," the bank said.

This explains the heavy declines in shares of Australia-listed mid-cap iron ore producers, which were up to 10 percent lower on Tuesday. Mt Gibson and Atlas Iron fell around 9.5 percent on Tuesday, while BC Iron declined 6 percent.

"What's set it off? Finally, the more bullish analysts are cracking and downgrading their outlooks," said Evan Lucas, strategist at IG.

"We're in a production war; it's all about economies of scale and who can get the lowest costs possible. Mid-cap miners like BC Iron or Atlas Iron are barely keeping their heads above water. Bigger producers like Rio and BHP have a lot more room to move," he said.

http://www.cnbc.com/id/102171854?trknav=homestack:topnews:5

China to become largest economy by 2024

China is set to overtake the U.S. as the world's largest economy in U.S. dollar terms over the next decade, according to a new report by IHS Economics.

IHS measured the size of China's economy in U.S. dollar terms, rather than using purchasing power parity - a technique used to determine the relative value of different currencies - which other research houses have used in the past.

Last month, the International Comparison Program - backed by the World Bank and the United Nations - forecast China could overtake the U.S. as soon as this year, based on the PPP measure. The research puts China's gross domestic product (GDP) at 87 percent of the U.S. in 2011, compared to 43 percent in 2005.

Those who use the PPP measure argue that it is a more accurate measure of the cost of living. IHS told CNBC it chose to evaluate the size of China's economy in dollar terms because it was a more definitive measure.

"Over the next 10 years, China's economy is expected to re-balance towards more rapid growth in consumption, which will help the structure of the domestic economy as well as growth for the Asia Pacific (APAC)as a region," said Rajiv Biswas, chief Asia economist for IHS Economics.

This surge in consumer spending will see China's nominal gross domestic product hit $28.25 trillion by 2024 from its current $10 trillion, larger than the $27.31 trillion projected for the U.S., the research firm said.U.S. nominal GDP currently stands at $17.4 trillion.

"In 2025, if we were to take a global economic snapshot,China's economy will play an even bigger role as a key driver of global trade and investment flows," Biswas said, adding that China's share of world GDP is forecast to rise from around 12 percent in 2013 to 20 percent by 2025.

Rapid consumer growth will likely see the Chinese consumer market grow to $10.5 trillion by 2023, around three times larger than Japan, which will sit at $3.7 trillion, IHS said.

While many other research houses agree that China will eventually overtake the U.S. economy they do differ on the timing. London-headquartered news publication The Economist forecasts China will become the largest economy in 2021, while London based consultancy Center for Economic and Business Research forecasts a later date of 2028.

The impact of China's rapidly expanding consumption is being felt across Asia Pacific. One key sector is tourism; Chinese tourism spending rose 26 percent in 2013 on the previous year to $129 billion, making China the largest source of tourism in spending globally, according to United Nations data.

Thailand, in particular, has benefited, with Chinese tourism visits up 68.8 percent in 2013 compared to 2012 to 4.7 million visitors.

http://www.cnbc.com/id/101978601

‘Perfect storm’ to hit China economy in 2016

Recent positive data from China may have allayed some doubts about the state of the economy, but PNC Financial Services Group is staying cautious, warning of a "perfect storm" that could surface in two years' time.

"Several problems long on China's back burner are likely to come to a head by 2016," Stuart Hoffman, chief economist at Financial Services Group wrote in a report this week, citing challenges including a weakening credit market, a slowdown in corporate reinvestment of earnings and a correction in the all-important housing market.

These headwinds could slow Chinese real GDP (gross domestic product) growth to around 6.0 percent in 2016, the slowest since 1990, the firm noted.

China's economy expanded 7.5 percent in the second quarter, a touch above expectations of and rising from 7.4 percent in the first three months of the year, as the government's targeted stimulus measures began to pay off.

The so-called perfect storm could unfold with a dramatic slowdown in the flow of credit for investment, especially from non-traditional lenders like trust companies, as corporate credit quality deteriorates, the report said.

"If trust credit does indeed dry up, Chinese borrowers will struggle to roll over their loans and could be pushed into default, throwing even more sand into the gears of financial intermediation," Hoffman said.

Reduced credit would then reinforce a sharp slowdown in capital expenditures, PNC said, noting that spending in labor-intensive manufacturing sector has already slowed amid rising labor costs and an appreciating currency.

"And Chinese private businesses with idle funds are unable to invest in more attractive opportunities in the domestically-oriented service sector [because] regulatory barriers protect state-owned business from private competition," he added.

Housing sector on shaky ground

Any major correction in the country's housing market, an important pillar of the economy which affects more than 40 other sectors, could exacerbate events, PNC adds.

Already, the signs are pointing to a softening sector. In June, average new home prices in China's 70 major cities fell 0.5 percent on a month-to-month basis, marking their second consecutive monthly drop after May's 0.2 percent decline, according to Reuters calculations based on data issued by the National Bureau of Statistics.

"China's real estate and construction sectors are sagging as falling prices discourage housing construction and purchases," said Hoffman. "The real estate correction will likely continue and reinforce a slowdown in general business investment."

Citigroup has warned that average selling prices in the physical market could fall around 20 percent in tier one and two cities and 30 percent in tier three and four from their levels at the end of 2013.

Slowdown will be managed

To be sure, no everyone's equally bearish. John Zhu, China economist at HSBC doesn't foresee a dramatic deceleration to 6-percent growth levels.

"A lot of economic analysis tries to extrapolate micro-level analysis to the macro-level. There are so many other variables and policy levers that could be pulled," said Zhu, who expects growth will hover above 7 percent over the next couple of years.

Infrastructure investment by the government or private sector will likely offset the drag from a slowdown in housing construction, he said.

"There's a lot of useful infrastructure that is still needed in China, from railroads to elderly care facilities," he said.

In addition, as the recovery in U.S. and Europe gains traction, demand for China's exports will continue to strengthen, he said. China's exports have been gaining steam in the past few months, rising 7.2 percent in June after 7 percent rise in May.

http://www.cnbc.com/id/101866127

China export, import growth slows, reinforcing signs of fragility

Annual growth in China's exports and imports slowed in October, data showed on Saturday, reinforcing signs of fragility in the world's second-largest economy that could prompt policy makers to roll out more stimulus measures.

Exports have been the lone bright spot in the last few months, perhaps helping to offset soft domestic demand, but there are doubts about the accuracy of the official numbers amid signs of a resurgence of speculative currency flows through inflated trade receipts.

Exports rose 11.6 percent in October from a year earlier, slowing from a 15.3 percent jump in September, the General Administration of Customs said. The figure was slightly above market expectations in a Reuters poll of a 10.6 percent rise.

A decline in China's leading index on exports in October pointed to weaker export growth in the next two to three months, the administration said.

"The economy still faces relatively big downward pressure as exports face uncertainties while weak imports indicate sluggish domestic demand," said Nie Wen, an economist at Hwabao Trust in Shanghai.

"The central bank may continue to ease policy in a targeted way."

Imports rose an annual 4.6 percent in October, pulling back from a 7 percent rise in September, and were weaker than expected. That left the country with a trade surplus of $45.4 billion for the month, which was near record highs.

Annual growth slowed to 7.3 percent in the third quarter - the weakest since the height of the global financial crisis - as a cooling property sector weighs on domestic demand.

Recent purchasing managers' surveys on factory and services showed the economy lost further momentum heading into the fourth quarter as the property market weighed and export demand softened, putting Beijing's official growth target for the year at even greater risk.

Suspicious trade deals

September's surprisingly strong export growth led some analysts to question the accuracy of the official data amid signs of hot money inflows as firms tried to evade capital controls by over-invoicing precious metal sales.

The latest trade data indicated a cooldown in such speculative activity amid fears of an official crackdown.

"It's impossible to control hot money flows. Hot money may distort trade data but it won't affect the trend," said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai.

Customs data showed China's exports of precious metals and jewellery rose 187 percent in October from a year earlier. The pace eased from a 678 percent jump in September.

China's exports to Hong Kong, where over-invoicing is typically most pronounced, rose 24 percent in October from a year earlier, slowing from September's 34 percent increase.

Exports to the United States, China's top export destination, rose 10.9 percent in October from a year earlier, largely matching September's rise, while exports to the European Union, the second-biggest market, grew 4.1 percent, slowing sharply from a 14.9 percent jump in September.

On track to miss trade target

China's external trade environment may slightly improve in 2015 but still faced uncertainties, the Ministry of Commerce said in a report published on Saturday.

"It's difficult for external demand to show a significant rebound," the ministry said.

China's combined exports and imports rose 3.8 percent in the first ten months from a year earlier, the administration said. That suggests China will miss its trade growth target for a third consecutive year.

The government missed its targets of 8 percent in 2013 and 10 percent in 2012 and aims for 7.5 percent growth this year.

A deluge of China data over the coming week, including factory output and investment, is likely to show a persistent cooling in the economy, reinforcing views that authorities may need to do more to fight slackening growth.

China's reform-minded leaders have refrained from acting forcefully, such as by cutting interest rates. That has caused concerns among some analysts that the modest policy measures may not be enough to prevent a sharper slowdown.

A Reuters poll published last month forecast the economy could grow an annual 7.3 percent in the fourth quarter, leaving the full-year pace at 7.4 percent - the weakest in 24 years.

China's cabinet unveiled detailed measures on Thursday to support imports of high-tech equipment, resource products and consumer goods, in its latest efforts to support the economy and rebalance trade.

That followed recent government steps to offer cheaper loans, tax breaks and currency hedging tools to exporters.

The government has unveiled a burst of "targeted" policy stimulus since April, including cutting reserve requirements for some banks, hastening construction of railways and public housing and allowing local governments to loosen property curbs.

China's central bank pledged on Thursday to maintain modest policy support to help the economy weather increasing headwinds in the near term but stressed that it would not flood markets with cash.

http://www.cnbc.com/id/102166324

Record-breaking listing sets value at £100bn for Alibaba

Chinese technology giant Alibaba could break records when it floats on the New York Stock Exchange today.

Alibaba has been described as China’s answer to eBay, but it actually handles more packages annually than eBay and Amazon combined. Investors hope a stake in the firm will give them exposure to China’s rapid-growth internet sector.

Alibaba was formed by eccentric Chinese entrepreneur Jack Ma whose stake in the business will be valued at £10 billion.

Alibaba has come to power four-fifths of all on-line commerce conducted in China and has also branched out into areas such as  e-payments and financial investment.

We see this as a major breakthrough in this decade.

The dollar trend work in reverse

During last week some encouraging data about US economy was revealed, helping to reverse the downward dollar trend of the last fifteen days. On Wednesday the Department of Labor reported that 280.000 jobs were created, 80.000 more than expected. According to statistics published on Thursday, the unemployment rate fell to 6.1%, below expectations for a decrease of 6.3%.

As a consequence, the dollar appreciated against several currencies and some of the main stock market indices reached historical highs.

Elsewhere in the United Kingdom, given the suggestion that the Bank of England could raise its interest rates sooner than expected, the pound strongly appreciated again. As a result, the pair GBP/USD reached its highest value since 2009, to settle over 1.71.

The EUR/USD pair fell from levels near 1,37 at the beginning of the week, to less than 1,358 this Monday, reversing last week’s trend. The latest encouraging data about the US economy helped to create expectations regarding sooner-than-expected changes in the Fed’s monetary policy

After touching a three-month high during last week, the gold slipped from $1.330 dollars per ounce, to less than $1,315. The reasons of this decrease are connected to the recent performance of the dollar other than to problems in Iraq and conflicts in Ukraine, that could trigger a new increase of the precious metal in the mid term depending on the importance.

Several important announcements are expected for the rest of the week and Money Executive will be delighted to bring them to your attention.