Feb 19, 2009|
Buffett has found new moats
Berkshire shifts allocation
After teaming up with Charlie Munger, Warren Buffett often talked about the importance of an economic moat for companies that he would consider investing in. Just as a moat around a medieval castle kept the castle safe from intruders, an economic moat around a company keeps it safe from competitors and other profit-draining forces.
During the credit boom, some said Warren Buffett had lost his search for economic moats. However, after the promoter of Berkshire Hathaway clinched a sizeable investment in Goldman Sachs in 2008, Wall Street's strongest name then, investors knew what the master had been waiting for. Having clinched several successful deals last year in the financial sector in the midst of a subprime catastrophe that saw the demise of Lehman Brothers Inc., Buffett's Berkshire now seems to be keen to shift its asset allocation to more sustainable businesses.
Although Berkshire Hathaway, which disclosed its December 2008 holdings this week, is not worried about its portfolio size shrinking by 25% in the fourth quarter of 2008, it certainly is adapting to changes. Little wonder then that the firm has reduced its exposure to ratings agency Moody's by 25% and instead bought shares in a diversified electric generation company NRG Energy and a water treatment company Nalco Holding. While the former is a Fortune 500 company with approximately 24,000 megawatts (MW) of power generation capacity, the latter is a global integrated water treatment solution provider. It is certainly not difficult to figure out what kind of 'moats' the legendry investor is looking for in such uncertain times.
Difficult to 'rely' on...
Anil Ambani's Reliance Infrastructure took forex for a ride. On the bourses that is! As per the Wall Street Journal, the RBI has referred foreign exchange violations by Reliance Infrastructure (formerly Reliance Energy) to the Enforcement Directorate. Reliance Infrastructure had raised funds to the tune of US$ 510 m through overseas commercial borrowings 2006. It, however, brought back these funds before actual requirement and invested some of it in mutual funds in India, violating the overseas borrowing norms in place.
On the other hand, big brother Mukesh Ambani's Reliance Petroleum chose to dabble in derivatives rather than polymer. As per a leading business daily, the acting Finance Minister Mr. Pranab Mukherjee told the Lok Sabha yesterday that SEBI has received complaints of insider trading by Reliance Petroleum and 18 others over the last three years. On SEBI's enquiry, the NSE-Nifty had reportedly disclosed that parent Reliance Industries had been creating illegal short positions for the stock in the derivative market with the help of its brokers in 2007.
It seems like the revelation of Satyam's fraudulent accounts has opened a can of worms for other Indian companies as well.
Unemployment to surge in India
As per the International Labour Organisation (ILO), Asia is likely to have 7.2 m more jobless people in 2009 than last year due to the fallout of the global economic crisis. Asia, which has been the world economy's star performer in recent years, but where a third of the population still lives on a little over US$ 1 a day, will see the jobless rate in the region rising to 5.1% from 4.8% last year. The ILO has further stated that an estimated 51 m new jobs will be needed in 2009 and 2010 to absorb Asia's growing labour force, with most jobs needed in the region's giant economies - 20.3 m in India, 10.9 m in China and 3.6 m in Indonesia.
As Asia intends to spend about 3.9% of its gross domestic product (GDP) on stimulus packages, the organisation emphasised that the upcoming stimulus packages should concentrate on promoting employment and supporting household purchasing power which can be critical for driving domestic consumption and bolstering economic growth.
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