FREE EXCLUSIVE ACCESS

Get your personal China Global Profits Alert newsletter delivered to your inbox FREE each morning
Name
   
Email

AS SEEN ON

    
    
Category: Telecommunications
Dividend stock IBM to boost dividend and buyback plan
Dividend stock IBM to boost dividend and buyback plan

IBM Boosts Dividend And Buyback Plan

IBM Boosts Dividend And Buyback Plan

About: Dow, International Business Machines (NYSE: IBM), IBM, Johnson & Johnson (NYSE: JNJ), Procter & Gamble (NYSE: PG), International Business Machines, quarterly dividend, dividend increase, Dividend Genius, dividend stock, stock dividend, dividend stocks, stock dividends
Bookmark and Share

Dow component International Business Machines (NYSE: IBM), the world's biggest provider of computer services, raised its quarterly dividend by 10 cents, or 18%, to 65 cents a share. That is more than double last year's dividend hike. The new dividend is payable on June 10th to shareholders of record on May 10th.

While expected by shareholders, the dividend increase is still good news following IBM's disappointing first-quarter earnings release last week. The company said its services business, IBM's most important business line, remains sluggish and that led to a sell-off in the shares. In addition to the new dividend, IBM did shareholders another good turn by adding $8 billion to a share buyback plan that had $2 billion remaining on it.

IBM is the third Dow constituent in a week to raise its payout. Johnson & Johnson (NYSE: JNJ) and Procter & Gamble (NYSE: PG) announced dividend increases last week. This is the 15th consecutive year in which IBM has boosted its dividend.

 
The War of the Yuan: What Investors Should Expect
The War of the Yuan: What Investors Should Expect

War of the Yuan: How It Will Affect Your Investments

War of the Yuan: How It Will Affect Your Investments

About: Nobel Laureate, New York Times, Paul Krugman, Chinese Prime Minister Wen Jiabao, Peterson Institute for International Economics, China’s economy, Aluminum Corporation of China (ACH), China Stock Digest, Baidu (BIDU), Chinese Yuan
Bookmark and Share

The political temperature is rising sharply in Beijing and Washington in a war of words over the value of the yuan. This is a battle that has been brewing since 2003, with U.S. lawmakers arguing that China has gained an unfair trade advantage by artificially depressing the value of the yuan. The war of words escalated sharply over the weekend and it continues to grow hotter.

Nobel Laureate and New York Times columnist Paul Krugman took off the gloves on Sunday, writing: “we’ve been reasoning with China for years, as its surplus ballooned, and gotten nowhere: Wen Jiabao, the Chinese prime minister, declares — absurdly — that his nation’s currency is not undervalued. (The Peterson Institute for International Economics estimates that the renminbi is undervalued by between 20 and 40 percent.)”

Krugman’s cure? Slap a 25% tariff on imports from China. Harsh medicine indeed.

The rhetoric became even hotter on Monday as 130 members of the U.S. House of Representatives called on the Obama administration to impose harsh tariffs on Chinese imports if other measures fail. They suggest that Obama wage a “multi-front fight” against China's currency policy (effectively suggesting that European and some Asian allies be persuaded to join in a battle against Beijing’s currency value).

War of the Yuan: How It Will Affect Your Investments

The lawmakers pleaded in their letter, “The economic impact of undervaluation on American businesses and workers is too great for the administration not to pursue a comprehensive [multi-front] effort.”

Worried investors have contacted us wondering what would happen if Beijing suddenly devalued the yuan in response to American, or global pressure. As I replied, there is no likelihood that Beijing will sharply devalue the yuan, or allow it to float freely, because the result that would cause a huge jump in the price of Chinese exports and severely dislocate sectors of China’s economy.

Beijing does not respond obediently to threats and it will not dance to Washington’s tune. Beijing is more likely to respond to international pressure a year from now by adjusting the value of the yuan upward in very small amounts, gradually, as China monitors the economic repercussions. Beijing is in no hurry to do this and it likely won’t happen this year.

War of the Yuan: How It Will Affect Your Investments

The effects of any upward valuation of the yuan will depend on individual Chinese companies and the industry in question. An international resource-buying company like Aluminum Corporation of China (ACH) will have more purchasing power and should have lower import costs due to the higher purchasing power of the yuan, for example.

Exporting companies, which we have never recommended at the China Stock Digest, will suffer as their prices on world markets rise in concert with their currency. Many operate on very low margins and survivors of the global financial crisis are just now recovering. A sharp upward valuation could be a death blow, something that Beijing is very unlikely to contemplate.

Companies which do business strictly internally, like Baidu (BIDU), will be unaffected in the short term by a rise in the value of the yuan. But the uncertainty generated by political and economic turmoil is likely to cause ongoing volatility in Chinese equities.

There is no likelihood that Beijing will allow even a token revaluation of the yuan in the near future, considering the concerted pushback in the Chinese media. China’s news media, all of them effectively operating under official approval, point out that a vast number of Chinese exporters are American companies or contractors who use mainland firms to generate products more cheaply than they could be made in the United States.

An article from Xinhua effectively argues: “The University of California conducted a study of Apple's iPod to examine which countries captured the most economic value from iPod production. The conclusion showed that only four dollars was retained in China, with the bulk going to the designers, retailers and component suppliers. It seems unfair therefore that the full price of an iPod, roughly $300, instead of four dollars, was counted as part of China's exports to US.”

War of the Yuan: How It Will Affect Your Investments

The rhetoric is getting hotter. I assure readers China will not bow to bullying, whatever the merits of the underlying arguments. But Beijing is very pragmatic and will consider careful steps that do not involve a loss of face internationally.

Read carefully this excerpt from the Reuters report about Premier Wen Jiabao’s controversial weekend speech. “Mr. Wen recommitted to pushing ahead with reform of the yuan's exchange rate mechanism, leaving the door open to reintroducing exchange rate flexibility if it suits Beijing. Wen said, “We will keep our economic and trade policies, including exchange rate policies and export tax rebates, stable this year.”

In other words, we should expect gradual adjustment, not sharp dislocations. We probably will continue to hear hot rhetoric, signifying very little, until next year. That means market uncertainty and volatility, most of it caused by gusts of hot air.

 
Chinese Economy: The Trend is Your Friend (or Enemy?)
Chinese Economy: The Trend is Your Friend (or Enemy?)

The Trend is Your Friend (or Enemy?)

The Trend is Your Friend (or Enemy?)

About: China Mobile (CHL), ADRs (American Depositary Receipts), Shanghai stock market, Chinas economic stimulus, Shanghai Composite Index, Chinas economy, Shenzhen Stock Exchange, China investing, Premier Wen Jiabao, China economy, China Stock Digest, Chinese economy, China stock market
Bookmark and Share

We’re sticking with the old saying “the trend is your friend” as we wait for Chinese investors to get over a bad case of nerves. Shanghai's stock market has now dropped to a five-week low, breaching below the 3,000-point mark. Sources in China and the U.S. agree about the reasons. There are nagging ongoing concerns that China’s economic stimulus measures will be tightened up in the near future to curb inflation risks.

In Monday’s trading, the key Shanghai Composite Index lost 1.21 percent, or 36.47 points, to close at 2,976.94. Turnover was $11 billion.

At the China Stock Digest we deal mainly with ADRs (American Depositary Receipts) which act as proxies for stocks in Chinese companies. ADRs can be pushed and pulled in several ways. Large cap ADRs such as China Mobile (CHL) tend to move in rough tandem with major trends on America’s leading market indexes like the S&P 500. But internal developments can also affect the stock price.

Movements of the Shanghai and Shenzhen exchanges are also influential. That’s especially true since the U.S. economic implosion and China’s relatively rapid recovery. This has enhanced a tendency for Chinese ADRs to move less synchronously with U.S. indexes.

The five-week wobble on the Shanghai Stock Exchange has created a downtrend which has not yet found a clear bottom. To borrow another catchphrase, now is not the time to catch a falling knife.

As long as the trend in Shanghai is on a downward slope, we won’t fight it. Even the best Chinese stocks are coming under pressure as a result of the Shanghai trend and weak leadership from New York markets.

That means we continue to take a very conservative view towards any new stock purchases. Until the trend becomes the investor’s friend again, we’ll maintain our cautious stance.

Premier Wen Jiabao said on Sunday that the government would strike a balance of economic growth, adjust economic development model and manage inflation expectations this year.