Six Investment Topics for the Week Ahead

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Includes: BAC, FXI, IBM, PGJ
by: The Aft Deck

US Economy: Housing Starts in the USA run to Seven Month High

Housing starts in the USA rose in June as construction of single-family dwellings jumped by the most since 2004, signaling the market is stabilizing and getting better. The 3.6% increase brought starts to an annual rate of 582,000, the highest level since November and followed a 562,000 pace in May that was higher than previously estimated, the Commerce Department said today in Washington. A report from the Labor Department showed Georgia and Alabama became the latest states where joblessness topped 10%. The construction figures are the latest evidence that the meltdown is nearing an end. Builder shares climbed for a fifth consecutive day. Economists forecast starts would fall to a 530,000 pace, from a previously reported 532,000 in May, according to the median of 73 forecasts in a Bloomberg News survey. Last month’s reading exceeded the highest estimate, with projections ranging from 479,000 to 564,000.

Chinese shares hit 13-month closing high

Chinese shares rose last week on strong momentum to hit a new high with the Shanghai Composite Index closing at 3,188.55 last Wednesday, setting the highest close since June 2008, as coal, nonferrous metal and auto shares bolstered the rise. The benchmark Shanghai Composite Index gained 1.38% or 43.39 pts, to close at 3,188.55. The Shenzhen Component Index advanced 0.68%, or 88.19 pts, to close at 13,079.26. Total turnover jumped to 333.4 billion Yuan (US$48.81B) from 280.53 billion Yuan on the previous trading day. Winners outnumbered losers by 537 to 302 in Shanghai and 427 to 304 in Shenzhen.

China GDP growth surges to 7.9%

China’s economy grew significantly in the Q-2, with gross domestic product expanding by 7.9%, ahead of analysts’ estimates. Li Xiaochao, a spokesman for the National Bureau of Statistics, said the economy “had stabilized with increasing positive changes,” as the new data were announced today. The surge in growth was driven by the government’s aggressively loose fiscal and monetary policies, introduced late last year, with most of the funding coming from record lending by state banks. Investors reacted positively to the news, sending the Shanghai Composite up 0.7% to 3,211.29, while the Hang Seng index in Hong Kong added 2.1 % to 18,643.34 so far. The economy grew by 6.1% in the Q-1, leading many China economists to believe that the government would not be able to meet its year-long growth target of 8%. But the government’s pump-priming has turned the economy around, prompting rapid revisions by many investment bank economists, and the World Bank, to upgrade China’s outlook. Mr Li said that fixed asset investment rose strongly, up 33.5% in the first half of the year compared to the same period in 2008.

Bank of America beats expectations with US$2.4B Q-2 profit

Bank of America (NYSE:BAC) joined the crowd of financial institutions reporting good earnings last week. The Charlotte, N.C., bank beat the expectations of analysts by saying today that it had a US$2.42B Q-2 profit after the payment of preferred dividends. Bank of America has struggled through the acquisitions of lender Countrywide Financial Corp. and investment bank Merrill Lynch & Co., and looks like it is getting its financial house in order. After rising in early trading, Bank of America shares fell 35 cents to $12.82 in mid-day trading. The second-quarter profit amounted to 33c per share and compared with a profit US$3.22B, or 72c, a year earlier. Although the numbers were below last year's, the earnings still beat the forecasts of analysts surveyed by Thomson Reuters, who predicted the bank would come in at 28c per share.

IBM hikes full-year outlook, shares jump

IBM reported a 13% slide in revenue as corporate spending fell, but cost cuts and a shift to more profitable businesses helped it trump earnings expectations, and the company raised its profit outlook for the full year. International Business Machines Corp said it now expects 2009 earnings of at least US$9.70 per share, up from its previous outlook of US$9.20, helping its shares rise as much as 3% in after-hours trading last Thursday. Analysts said the higher outlook took the disappointment out of lower-than-expected second-quarter revenue, which fell to US$23.3B from US$26.8B a year earlier. Analysts' average forecast had been for US$23.5B. Net profit for the quarter rose to US$3.1B from US$2.8B in the Q-2 Y 2008. Profit per share rose to US$2.32 from US$1.97, much higher than the average Wall Street forecast of US$2.01/share, according to Reuters Estimates.

Crude Oil prices rise with Wall Street

US Crude Oil prices rose last Thursday, tracking a late-in-the-session on Wall Street, + bolstered by a report showing strong economic growth in China, the world's second biggest consumer of energy. US Crude Oil rose 48 cents to settle at US$62.02 bbl, and London Brent eased 34 cents to US$62.75bbl ahead of the August contract's expiry. The gains, which added to Wednesday's rally of US$2 + bbl triggered by a US report showing sliding domestic crude inventories, coincided with an afternoon bounce on Wall Street driven by technology shares. Crude Oil prices have tracked equities closely in recent months as dealers look to stock markets for signs of optimism about the economy that could eventually spell a rebound in energy consumption. The Crude Oil market had gotten some support from news that China experienced surprisingly strong economic growth of 7.9% in the Q-2, fueled by state spending and bank lending.