emerging markets get tougher for drugmakers

LONDON (Reuters) – Emerging markets have lost their lustre for Big Pharma making drug firms ever more dependent on the United States for growth just as American anger over high medicine prices is building.

A few years ago, the developing world was seen as a saviour as patent after patent expired across the United States and Europe, but emerging market sales growth at the top drug firms slowed to less than two percent in the latest quarter.

Forecasts from independent experts IMS Health now suggest the United States will account for 55 percent of sales growth between 2016 and 2020, with emerging markets only contributing 30 percent.

The slowdown in China and other top emerging markets is being driven by a number of factors: government pressure on drug prices, slowing economies and in some cases significant currency devaluations.

But the end result is that prescriptions for Americans will fund an even greater slice of the $1 trillion-a-year pharmaceuticals industry.

Company executives insist markets from China to Colombia to Mexico to Myanmar are an important engine of long-term growth, given rising populations, increasing wealth, and the global march of diabetes, heart disease and cancer.

“We have seen some flattening of growth, notably in Brazil and Russia, but in the long run we still expect that emerging markets will outgrow mature markets by 2 to 3 percentage points,” Olivier Charmeil, who heads up emerging markets operations at French drugmaker Sanofi, told Reuters.

GlaxoSmithKline’s incoming chief executive Emma Walmsley, meanwhile, highlighted the potential of China, saying after being appointed to the top job this week that she was “very excited about what we can do with GSK there”.

NOT PRETTY

But the short-term picture is not pretty. Emerging market growth is the slowest since drug companies started breaking out such regional sales numbers about seven years ago, with GSK languishing at the bottom of the class.

GSK’s drug sales in China fell 14 percent in the three months to the end of June as the company continued to reshape its business following a damaging corruption scandal in 2013, leaving a question mark over whether it can return to growth this year as hoped.

Others are doing better in China, which is now the world’s second biggest drugs market behind the United States, but all are struggling with slowing sales growth, which slipped to its lowest rate since 2008 in July.

“Across the board, we are seeing emerging markets register lower growth in local currency and in many cases there have also been big currency devaluations,” said Murray Aitken, IMS Health senior vice president and executive director.

The pharmaceutical industry tends to measure its sales performance in local currencies but in dollar terms devaluations wiped an estimated 77 percent off emerging market growth between 2013 and 2015, IMS calculates.

“Some of our biggest emerging markets have seen huge currency devaluations,” said Christophe Weber, CEO of Takeda Pharmaceutical, which ramped up its exposure to new markets in 2011 by buying Swiss group Nycomed.

“But in the long term, when you have a world of more than seven billion people, I feel more comfortable if we are providing our medicines to a wide range of people.”

RICH PICKINGS

Succeeding in developing markets has never been plain sailing, with lower profit margins than developed markets due to competition from low-cost local suppliers and the need for investment.

By comparison, the United States offers rich pickings at the moment thanks to hugely profitable new drugs for diseases such as cancer and hepatitis C.

That disparity is an issue for investors trying to value growth outside the West, with some of the most highly rated drug stocks being those that have stepped back from emerging markets, such as Bristol-Myers Squibb.

Its trades at 21 times this year’s expected earnings whereas Sanofi is valued at just 12.5 times earnings.

The French firm takes top spot in emerging markets among multinationals, with 29 percent of its second-quarter sales generated there, followed by AstraZeneca on 26 percent, according to Bernstein analysts.

Many companies’ sales in developing economies come from so-called branded generics, or off-patent medicines that command a premium to those made by local suppliers because the Western drugmaker’s name is a proxy for quality.

That business is now under threat as governments promote cheaper unbranded products as a route to universal healthcare.

“There is a lot of emphasis on providing essential medicines, which is providing growth for cheap local generics but not necessarily for multinational companies,” said Aitken.

One sign of the tougher times is the relative dearth of acquisitions in emerging markets by international players after a slew of multibillion-dollar deals between 2008 and 2011.

Still, Sanofi’s Charmeil is scouting: “We are looking for opportunities and if we think it makes sense for our portfolio, we are ready to go for it.”

Iran supports any move to stabilise oil market – Rouhani

Image result for Iran supports any move to stabilise oil market - RouhaniDUBAI (Reuters) – Iran’s President Hassan Rouhani said Tehran supports any move to stabilise the global oil market and lift prices, the Iranian oil ministry news agency SHANA quoted him as saying on Sunday.

“Instability and falling oil prices are harmful to all countries, especially oil producers,” Rouhani was quoted as saying by SHANA.

“Tehran welcomes any move aimed at market stability and improvement of oil prices based on justice, fairness and fair quota of all the oil producers,” the president said, referring to a meeting between OPEC and non-OPEC producers in Algeria next week, SHANA said.

Rouhani was speaking to Ecuadorean President Rafael Correa on the sidelines of the Non-Aligned Movement (NAM) Summit in Venezuela on Saturday, SHANA reported.

Iran, OPEC’s third-largest producer, has been boosting its oil output after the lifting of Western sanctions in January. Tehran refused to join a previous attempt this year by OPEC and non-members such as Russia to stabilise production, and talks collapsed in April.

OPEC members will meet on the sidelines of the International Energy Forum (IEF), which groups producers and consumers, in Algeria on Sept. 26-28. Non-OPEC producer Russia is also attending the forum.

OPEC will probably revive talks on freezing oil production levels when it meets non-OPEC nations in Algeria, sources have told Reuters.

Saudi Arabia and Russia agreed this month to cooperate in oil markets, saying they could limit future output.

However, on Saturday, OPEC Secretary-General Mohammed Barkindo appeared to play down suggestions of a major agreement by saying the Algiers meeting would be an informal meeting for consultations and not for decision making, Algerian state news agency APS reported.

Stock market crash: Investor wealth dips by Rs 1.84 lakh cr

Investor wealth on Wednesdaydiminished by Rs 1.84 lakh crore amid massive sell-off in the equity market following weakness in global indices due to growth worries.

The benchmark BSE Sensex tumbled 417.80 points or 1.71 per cent to end at 24,062.04 points.

With this, the index has fallen to the weakest level since May 16, 2014, the day the new government won a landslide mandate in general elections.

Following weakness in stocks, the market capitalization of BSE-listed companies fell by Rs 1,84,086 crore to Rs 90,64,734 crore.

The NSE Nifty after cracking the crucial 7,300-mark, settled 125.80 points or 1.69 per cent down at 7,309.30.

“The market ended at fresh 20-month low with the Sensex closing down 417 points as worries on global economic growth continued to roil the Asian and European markets,” said Sanjeev Zarbade, vice president-private client group Research, Kotak Securities Limited.

Among the 30-Sensex components, 27 ended in the red led by Adani Ports and SEZ, State Bank of India and Reliance Industries Ltd.

Bajaj Auto, Hero MotoCorp and Wipro, however, ended with moderate gains.

Sectorwise, BSE realty index suffered the most, followed by metal, PSU, power, banking and oil & gas.

At the BSE, 2,105 stocks declined, while 511 advanced. 137 stocks remained unchanged.

Tracking the weak sentiment in the stock market, 194 stocks hit their 52-week lows on the BSE.

“Bears continue to hammer the bourses on global sell-off and crude hitting multi-year lows. Further, the International Monetary Fund (IMF) slashing its global growth forecasts also spooked the sentiment worldwide. Relentless selling by foreign portfolio investors and sharp depreciation in rupee raised concerns to the investors,” said Gaurav Jain, Director, Hem Securities.

The Chinese Gold Market Essentials Guide

Gold China

Everything there is to know about the Chinese gold market and the true size of Chinese private and official gold demand. Start here.

Topical data such as monthly Chinese gold import numbers will not be updated in the Chinese Gold Market Essentials, however, this data will be published in new blog posts appearing on my BullionStar Blogs homepage, accompanied with a link to this webpage to be complete.

Understanding The Chinese Gold Market Step By Step

The unique structure of the Chinese domestic gold market, the SGE system, and why the amount of physical gold withdrawn from the vaults of the SGE (published on a weekly basis) can be used as a measure for Chinese wholesale gold demand is explained in part one: The Mechanics Of The Chinese Domestic Gold Market. It also provides a basic understanding of contrasting metrics applied to measure Chinese gold demand, and the difference between SGE withdrawals and Chinese consumer gold demand as disclosed by the World Gold Council, which has aggregated to at least 2,500 tonnes from 2007 until 2015. For whatever reason, the World Gold Council and its affiliates continuously present feeble arguments that should explain the difference. The Chinese Gold Market Essentials debunk these arguments where necessary, back up by facts, and reveal genuine Chinese gold demand.

More detailed rules regarding cross-border gold trade in and out of the Chinese domestic gold market and Free Trade Zones in China are discussed in part two: Chinese Cross-Border Gold Trade Rules.

When fully comprehending the mechanics of the Chinese domestic gold market and Chinese cross-border gold trade rules you can continue reading Workings Of The Shanghai International Gold Exchange about the international subsidiary exchange of the SGE set up to become the major gold trading hub in Asia.

Related is SGE Withdrawals In Perspective that discusses how trading activity on the Shanghai International Gold Exchange (SGEI) can potentially blur our view on Chinese wholesale gold demand when measured by SGE withdrawals.

Congratz! At this point you have a thorough understanding of the Chinese gold market. To Study more about thedifference please continue with Chinese Commodity Financing Deals Explained, which is mainly about the Chinese gold lease market. The post also includes many links to additional posts about the Chinese gold lease market, among others, a paper written by the PBOC in 2011 exclusively translated by BullionStar.

For a detailed study on the difference, and thus genuine Chinese gold demand, please read Why SGE Withdrawals Equal Chinese Gold Demand And Why Not (The Argument List).

Finally, please read PBOC Gold Purchases: Separating Facts from Speculation for studying the amount of gold accumulated by China’s central bank in recent years in addition to private reserves. At the end of the post you can find an overview of the estimated amounts of above ground gold in China (privately owned gold and official holdings).

The Fed Hiked a Quarter Percent: Now What?

Interest Rates

So here we have it – the first rate hike in nearly a decade.

The Fed hiked rates a quarter point on the federal funds rate in a unanimous vote. This is the overnight rate member banks get when they need to borrow to meet reserve requirements. Dropping that little pebble in the pond ripples across the U.S. Treasury curve and really all other interest rates.

Since the market was expecting this increase, Treasury bonds, notes and bills had already priced it in, so there wasn’t much of a move after the announcement.

The statement

said any future increases will be gradual, and you know what that means: don’t look for another hike anytime soon. The stock market moved sharply higher on that news.

What is a bit interesting is that the Fed adjusted their projections for inflation down and don’t expect to hit their 2% target until 2018.

They’re confused why inflation hasn’t picked up more with their easy monetary policy over the last seven years, either because they don’t see the deflationary forces we do, or they know they can’t admit to them. So Fed Chair Janet Yellen says it’s been pulled lower by temporary influences like lower energy prices.

But before we go forward, I want to give you a little background about the Fed and why this particular meeting was so crucial, besides obvious reasons.

The Fed schedules eight Federal Open Market Committee (FOMC) meetings per year.

In them, they review economic and financial conditions…

Determine the appropriate stance of monetary (interest rate) policy…

And reassess the risks to their long-term goals of price stability (inflation) and sustainable economic growth.

The FOMC consists of twelve voting members. Seven members are the Board of Governors of the Federal Reserve, plus the president of the Federal Reserve Bank of New York. The other four are rotating seats with a one-year term, who are presidents from other regional banks.

Every other FOMC meeting, the Fed Chair gives a press conference and the Fed releases updated projections.

Today’s meeting was one of those occasions.

The projections are for short, medium and long-term periods for GDP growth, unemployment rates, and the price index for personal consumption (PCE) inflation, as well as projected federal funds rates.

It’s after these press conference meetings, like today’s, where there’s more chance of surprise.

The statement itself usually leaves little to misinterpret. But sometimes financial reporters will squeeze some information from the Fed chair that wasn’t meant to be said – which can sometimes point to future policy decisions.

Any insight there can move the markets. However, the current chair, Janet Yellen, is good about keeping her opinions to herself and just talks in generalities about what they have decided as a group. She never lets on as to whether there was some disagreement among the voting members.

So when a reporter asked if the Fed simply raised rates to sustain their credibility, Yellen kept her ground. And when another asked about the possibility of another recession, she responded with hypotheticals and vague generalities.

Going into today’s decision, the Fed was widely expected to raise rates. Keep in mind, though, there was a massive amount of positioning ahead of the meeting. Investors are not only positioning for what they expected at this meeting but for future meetings.

Of course, Yellen didn’t give any clue as to when to expect a future hike, which creates a lot of uncertainty among those betting investors, and will magnify volatility going forward. That’s especially the case if global headwinds heat up, or if future economic reports show a cooling economy.

The Fed Hikes Rates – What Next?

Federal Reserve

As expected, the Federal Reserve hiked interest rates this week, and there’s obvious nervousness out there regarding the impact this will have, if any.

In his recent Big Picture podcast, Jim Puplava, Founder of Financial Sense and Chief Investment Strategist at PFS Group, said the Fed should hike once and stay quiet, in reference to the highly active “Open Mouth Committee,” as he calls it.

In terms of risks to the market, Puplava cites two: one is procedural and the other coming from China.

“Can they really get this right? We have a saying here that they keep raising until something breaks. Number two is China’s devaluation…because China pegs its currency to the dollar, and the dollar has risen 20 percent against other major currencies.”

As the Fed tightens, ostensibly making the dollar more attractive, the Chinese Yuan will come under increasing pressure, he noted. This means China is more likely to devalue, which could cause further disruption, as we saw earlier this year (see our recent interview with Felix Zulauf).

Another aspect of the global economy that’s playing into concerns are energy prices, with companies in the United States cutting back on drilling, and with rig counts also falling.

These companies are responding to market pressures by cutting production and reducing supply, Puplava noted, and interestingly OPEC is unlikely to cut back on production in this scenario. OPEC countries are more dependent on oil revenue to pay government expenses, he said, and if they were to cut back on production, the response in the West would be to increase production.

“I think … OPEC has figured that out, so right now OPEC producers from Saudi Arabia on down are scrambling to maintain market share,” Puplava said. “In a world of oversupply and reduced demand, the tendency is for prices to remain weak.”

However, we’re beginning to see signs typical of a bottoming process, he added, where companies pull back on investment. This is typical of what we see in the final phases of a bear market, and it’s a bottoming process of the cycle, he said.

In addition to layoffs in the energy sector amounting to hundreds of thousands of jobs and declining production, companies are struggling to remain solvent. And this is spilling into the mining industry as well, Puplava noted, highlighting Anglo America’s plan to cut 85,000 jobs from its work force, sell major assets and suspend its dividend to remain solvent.

Ultimately, the company that will emerge will be more cost efficient, leaner and focusing on profitability, he noted. Other miners are taking similar, though perhaps less drastic measures and many are focusing on high-grade ore deposits to maximize production value.

“The result is what we are seeing now, where the inefficient companies go under,” he said. “Expect to see more of that next year, or they’re taken over by the big guys, the big guys deleverage and divest in order to survive, and the result is you’ll see supply contract to the point that it becomes less than the demand, setting up the stage for the next bull market.”

There are a lot of aspects in play, Puplava stated, and many companies are still producing oil and miners are still mining to keep their operations going and service debt. Many producers hedged their production, but that is coming off in 2016, Puplava noted. What needs to happen is supply needs to contract dramatically, and not just gradually, for the bottoming process to play out, he said.

“At some point, we’re going to see a balance,” he said. “I like the blue chip energy stocks. Most of the companies are cutting back on (capital expenditures).”

Even though energy companies’ earnings are down about 70 percent over a year ago when the price of oil was over $100 a barrel, so far the expense cuts in CAPEX expenditures have allowed these companies to cover their dividends, Puplava said.

“If (oil) prices stay down at $30 for another year or two, the big guys would have to think seriously about maintaining their dividends,” he added. “This is what you see in a bear market. It’s that washout … (we’ve seen these) Maalox Moments, and you want to see that.

You want to see an acceleration of this and you want to see it pick up pace.”

Grocery Store Defies Anti-Gun Movement, Welcomes Open-Carry Shoppers

gun Concealed Carry

While other major grocery chains in Texas are opposing the open carry law set to go into effect on January 1, Ohio-based Kroger has no intention to bar its customers from bringing guns into their stores.

Grocers like H-E-B, Whole Foods, Sprouts and Randall’s now display appropriate signage informing customers that they “may not enter this property with a handgun that is carried openly.”

Kroger, which has several stores in Dallas and Houston, however will not impose additional rules on gun owners.

Back in March, Kroger CFO Michael Schlotman revealed the store planned to abide by “local laws” whatever they may be.

Grocery Store Defies Anti-Gun Movement, Welcomes Open-carry Shoppers

“If the local gun laws are to allow open carry, we’ll certainly allow customers to do that based on what the local laws are,” Schlotman said appearing on CNBC’s Squawk Box. “We don’t believe it’s up to us to legislate what the local gun control laws should be. It’s up to the local legislators to decide to do that.”

“So we follow local laws [and] we ask our customers to be respectful to the other people they are shopping with. And we really haven’t had any issues inside of our stores as a result of that.”

Kroger’s refusal to bend to anti-gun fervor has made them the target of gun control groups such as the Michael Bloomberg-affiliated Moms Demand Action, which has targeted Kroger specifically for over a year and spent hundreds of thousands on failed campaigns like #groceriesnotguns.

Rather than capitulating to the pressure, the 2,400-plus store grocery chain has instead stated their commitment to trust their customers will do the right thing.

“The safety of our customers and associates is one of our most important company values. Millions of customers are present in our busy grocery stores every day and we don’t want to put our associates in a position of having to confront a customer who is legally carrying a gun. That is why our long-standing policy on this issue is to follow state and local laws and to ask customers to be respectful of others while shopping. We know that our customers are passionate on both sides of this issue and we trust them to be responsible in our stores.”

Meanwhile, others are pointing out the hypocrisy of some stores allowing concealed carry while refusing open carry.

“In the state of Texas, open carry is only legal if the carrier also carries a concealed carry license,” writes Nick Leghorn for TheTruthAboutGuns.com. “Realistically, by adopting a policy of permitting concealed carry and banning open carry, H-E-B is simply saying is ‘when you come in here, just throw your shirt over your gun please.’”

FPIs’ net inflow drops to $7.4 bn in debt markets in 2015

The capital poured in by the FPIs is often been called ’hot money’ because of its unpredictability.

Overseas investors poured in just about $7.4 billion in the Indian debt markets in 2015, after having pumped in a staggering $26 billion in the preceding year.

Foreign funds also stayed away from Indian equities in 2015 and invested just Rs. 17,806 crore ($3.2 billion) in stock markets last year.

In comparison, FPIs had been investing around Rs. 1 lakh crore each into equities in the preceeding three years.

The decline in inflows has been attributed to a slew of domestic and international factors including concerns of a global slowdown, Chinese equity meltdown and an imminent interest rate hike by the U.S. Federal Reserve.

Besides, delay in implementation of major economic reforms in India also dampened investors’ sentiments.

As per the data available with depositories, Foreign Portfolio Investors (FPIs) infused a net amount of Rs. 45,856 crore ($7.4 billion) in the debt markets in 2015 as compared to a record investment of Rs. 1.6 lakh crore ($26 billion) in the previous year.

In 2013, FPIs had pulled out around Rs. 51,000 crore ($8 billion). Prior to that, overseas investors had invested about Rs. 35,000 crore, Rs. 42,000 crore and Rs. 46,408 crore in 2012, 2011 and 2010 respectively.

The capital poured in by the FPIs is often been called ’hot money’ because of its unpredictability, but these overseas entities have still been among the most important drivers of Indian stock markets.

Interestingly, most of the inflows witnessed in 2015 into Indian debt market have gone into government securities.

Despite weaker inflows this year, FPIs’ cumulative net investments into the debt markets, since being allowed over two decades ago in November 1992, has now reached about Rs. 3 lakh crore.

Reliance Infra Reportedly in Talks for Cement Business Sale, Shares Rise

Reliance Infra Reportedly in Talks for Cement Business Sale, Shares RiseReliance Infrastructure shares rallied as much as 7.86 per cent to hit intraday high of Rs 493.85 in an otherwise subdued market on reports that the company is planning to sell its cement unit.

Citing sources, Reuters reported that Reliance Infrastructure is in advanced talks to sell its cement business for Rs 2,600 crore and a deal could be announced as soon as this week.

The report added that under the terms of the deal, the buyer would also take over the cement unit’s outstanding debt of Rs 2,400 crore, giving the business an enterprise value of Rs 5,000 crore.

Reliance Infrastructure’s cement unit has three plants with total installed capacity of 5.8 million tonne per annum (MTPA). Another 5 MTPA cement manufacturing plant is being developed in Maharashtra, according to its website.

Analysts say that if the proposed move goes through then it will lower the debt on company’s balance sheets.

Shares of Reliance Infrastructure ended 7.7 per cent higher at Rs 493.

MF Investment in Equities Hits Rs 70,000 Crore in 2015

MF Investment in Equities Hits Rs 70,000 Crore in 2015New Delhi: Mutual fund houses continued to be bullish on the equity markets in 2015 and purchased shares worth a staggering more than Rs 70,000 crore, primarily on account of strong participation from retail investors.

This is on top of Rs 23,843 crore already being infused in the entire 2014.

In comparison, foreign portfolio investors (FPIs) made a net investment of just Rs 16,674 crore during the period.

However, in the last three years, foreign funds have made an average investment of $20 billion (around Rs 1 lakh crore) each in the Indian stock markets.

Domestic mutual fund (MF) managers have invested a net Rs 70,173 crore in the equity markets in 2015.

The inflows could be much higher for this year as four trading sessions are still left.

“As domestic investors continued to invest in equities through MFs, 2015 turned out to be a stellar year for the industry with impressive inflow in the segment,” UTI Mutual Fund EVP and fund manager V Srivatsa said.

Equity MFs, including equity-linked saving schemes, have seen a net inflow of nearly Rs 87,000 crore till November this year.

The surge in inflows into equity schemes has prompted fund houses to pump money in the share markets.

In addition, robust inflows from retail investors in the equity segment have also helped.

According to industry body AMFI, 4-7 lakh retail folios are being added to the industry every month.

“Despite equities market not doing well throughout 2015, we have seen the inflows happening in the equity segment and through the retail segment”, Quantum AMC managing director and chief information officer I V Subramaniam said.

“Domestic mutual funds have been bullish on the stock market ever since the Narendra Modi-led BJP government came to power at the Centre,’ he added.

Till April last year, holdings were facing liquidation due to redemption from investors and the money started pouring in from May 2014 and the momentum continued till this month.

They have made intensive buying especially in August and September 2015, when the domestic market crashed due to rout in Chinese equities. During that time, overseas investors pulled out from the Indian stock markets.

The sell-off by overseas investors in the Indian equity markets has given an opportunity to mutual fund managers.

Mutual funds are investment vehicles that pool funds collected from investors to invest in securities such as stocks, bonds and money market instruments.