Boomer Rollovers Not Expected to Hurt 401(k)s
As the 77 million Baby Boomers begin to retire and cash out of their stock and mutual fund holdings, the market will not spiral into a bear market, according to a new study from the National Bureau of Economic Research called "New Estimates of the Future Path of 401(k) Assets."
Although 401(k) assets currently represent only a small fraction of people's retirement portfolios, they will grow markedly in the coming years, the authors of the study maintain. That's because 401(k)s have only existed since the early 1980s, and younger investors have many more years to contribute to their 401(k)s than current retirees had.
The percentage of eligible workers investing in 401(k)s has also increased, from 56% in 1984 to 81% in 2003.
Revised Proposal Exempts Funds From B/D Vote Rule
The mutual fund industry is cheering as the New York Stock Exchange proposal to ban brokers from voting on behalf of some shareholders has been modified to exclude mutual funds, according to The Wall Street Journal.
The revised plan, submitted to the Securities and Exchange Commission, states that the mutual fund industry is exempt from an NYSE proposal to eliminate broker voting on behalf of shareholders who don't vote shares themselves.
The current NYSE rules allow members' brokers to vote shares on routine matters, including uncontested elections, if the owners whose shares they hold don't submit their own votes within 10 days of the shareholders' meeting.
The original proposal was never released, but garnered opposition from the Investment Company Institute, which believed the proposal would make it more difficult and costly to elect directors while adding little benefit to fund investors.
Paul Schott Stevens, president of the ICI, said the fund group is pleased to support the amended proposal.
As a general matter, "the election of directors is not routine," said Catherine Kinney, NYSE Euronext president and co-chief operating officer, at an SEC meeting.
However, smaller public companies, which also raised similar arguments as the mutual fund industry, are not exempt under the revised proposal.
The NYSE said its decision to shield only fund companies came even though its advisory group had "considerable concern and discussion about the potential problems facing smaller issuers as a result of the potential rule change, as well as discussion about the similarities and differences between smaller operating companies and investment companies."
Democratic A.G.s Won't Focus on Wall Street
In line with the priorities that Democrats in Congress have set, the 31 Democratic state attorney generals are most likely to shift their focus away from abuses on Wall Street to populist concerns of consumer protection, health and safety, Forbes.com reports.
During Eliot Spitzer's tenure as New York's attorney general from 1998 to 2006, other state attorney generals followed his lead to concentrate on financial abuses at mutual fund companies and other investment firms. But now, they are likely to shift their attention to the issues of lower-income constituents, such as student loans and property insurance. Already, Spitzer's successor, Andrew Cuomo, has proven this to be the case-noteworthy since New York is a state where the financial sector is one of the biggest industries.
And in California, former Attorney General Bill Lockyer, who brought numerous cases against mutual fund and other asset management firms, has been replaced by consensus-builder Jerry Brown. Strengthening environmental laws is among his chief concerns.
MFS CEO Expects Slower Asset Growth Ahead
MFS Investments chief executive officer said he doesn't expect assets to grow as much as the 20% they climbed in the past 12 months, due to "more normal" market conditions of about 8% a year, Reuters reports. As the firm's assets hit the $200 billion market in April, the company celebrated by giving each of its employees either $200 or a windbreaker inscribed with the figure.
"The $200 billion did come faster, but it was because of a big market rally that we had," said MFS CEO and Chief Investment Officer Robert Manning. "We just don't expect that going forward." In fact, the company hopes to reach $250 billion or $300 billion in the next three years.
To reach that level, Manning's main goal is to return to positive net flows in MFS' retail mutual funds, which have been losing money since 2000, first due to the bear market and then the trading scandal; in the first quarter of this year, the funds lost $600 million.
To counter the outflows, MFS is about to launch a multi-million dollar branding campaign and is currently hiring additional wholesalers and internal salespeople. In the past year, MFS has hired 12 wholesalers and could possibly hire 12 more, Manning said.
"It's really not a redemption problem. It's really a sales issue, which is why we are spending money on advertising and trying to get our gross sales up," Manning said.
Meanwhile, MFS is expanding its global institutional and retail footprint, currently opening up an investment office in Sydney, Australia, and considering opening up an investment and distribution office in Geneva, Switzerland.
"We are clearly pushing outside the U.S., both in retail and institutionally," Manning added. "That's the area where we've been in substantially positive flows and where we think we have the best opportunities for growth in the future."
China to Punish Firms Over Backdoor' Stock Listing
The Chinese government will punish firms involved in the so-called "backdoor" listing of GF Securites, as it continues to crack down on insider trading and other market irregularities that analysts say are rampant throughout the nation, Reuters reports.
It will punish Yan Bian Highway Construction, which GF Securities used as a reverse takeover target to obtain the listing, along with key shareholder Jilin Aodong, Medicine Industry Group and other firms that failed to properly disclose holdings.
The government also said that it suspected a number of people who had obtained details about the deal engaged in insider trading.
The China Securities Regulatory Commission said it had obtained evidence related to the listing, which it has turned over to police.
GF Securities was the first brokerage in China to obtain a stock market listing through a reverse takeover, and as it made the announcement, market participants began buying up other companies rumored to be targets of similar takeovers.
The crackdown comes at a time when the government is trying to put a lid on speculation. "The government is sending out a clear message to the market," said a top fund manager. "It wants to clamp down on stock speculation and insider trading."
Economists Don't Expect Dramatic' China Selloff
Economists said that even if former Federal Reserve Chairman Alan Greenspan is correct that China's stock market is headed for a "dramatic correction," it won't upset China's economy or spread to other markets and economies around the globe, Bloomberg reports.
They said that China's economy isn't tremendously correlated with its stock market and note that while the number of brokerage accounts has climbed to 100 million, less than 10% of the population holds investments and stock holdings account for only 25% of domestic wealth.
"This is a relatively small casino," said Edwin Truman, a former director of the international finance division at the Federal Reserve. "Even the implications for the Chinese economy should be minor."
Harvard University professor Kenneth Rogoff expressed similar views, saying: "The Chinese stock market has only a tenuous connection with the underlying real economy."
Similarly, the government has put a cap on the amount that foreign investors can hold in yuan-denominated shares at $10 billion. "The world economy is not particularly exposed to share ownership in China," explained Juan Jessop, chief international economist at Capital Economics. Further, economists said, if China's economy remains strong, a falloff in its stock market won't affect the rest of the world.
Greenspan said the doubling of the Shanghai composite index so far this year is "clearly unsustainable," joining a chorus of voices that include Li Ka-shing, the richest man in Asia, and People's Bank of China Governor Zhou Xiaochuan.
Although a sharp decline in stock prices typically puts the brakes on a nation's economy, that hasn't proven to be the case in China; between 2001 and the end of 2005, the Shanghai Composite Index fell by half-but China's GDP grew 46%.
China Selloff Leaves Fund Managers Unfazed
Although the Shanghai composite index tumbled 6.5% on Wednesday following the news that the China Ministry of Finance had tripled the stock trading tax, or stamp tax, to 0.3%, fund managers said they don't expect the move will entirely stall the country's exceptional, 1-1/2-year bull run, Reuters reports.
Investors will continue to turn to stocks and mutual funds due to negative real interest rates on the $2 trillion held in bank savings accounts, managers said. In addition, there are still plenty of blue-chip companies in China with strong earnings outlooks.
"The market is unlikely to change its direction just because of the stamp duty thing," said Li Sheng, chief equity investment officer at Galaxy Asset Management. "This is only aimed at increasing the transaction cost for speculators. The government just doesn't want to see too much speculation. I don't think the tax will change funds' long-term view."
The chief investment officer at a major Chinese fund management company agreed: "This is not going to be the end of the bull run, as you've got negative real interest rates, and inflation is picking up again because of rising pork and egg prices. There is way too much money looking for yield."
The government resorted to a higher stock trading tax since interest rate hikes failed to curb the market mania prevailing throughout the country, analysts said. Currently, there are 100 million securities accounts in China, and retail investors account for 80% of daily transactions.
Quant Tools, Research Emerging in India
Quantitative tools are gaining popularity with fund shops in India as the market demands improved standards of research, according to Reuters. Quantitative research has been useful to Sanjay Sinha of the SBI mutual fund company and a few other analysts who are using the research, as it senses the market undercurrents across sectors and capitalization earlier than other methods might. "With the markets now becoming fairly deep, with over 2,000 stocks traded on any given day, you need to keep an eye on activity throughout the market," Sinha said.
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