US auto bailout sparks Asian stocks - Views on News from Equitymaster

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US auto bailout sparks Asian stocks

Dec 22, 2008

Asian stocks advance
After ending last week with gains that were the best in a week since August 2008, the Asian markets have opened today on a mixed note. While stocks in Japan and Singapore are trading in the positive, losses are seen in China and Hong Kong.

Gains in stocks in the region are seemingly a result of the US government’s pledge of US$ 13.4 bn rescue plan for the Big-Three automakers - GM, Ford, and Chrysler. While this shall see these companies survive in the immediate future, will it be enough? Not at all!

In fact, as CNN reports, "This lifeline won't solve the immediate problems dogging the entire U.S. auto industry. Tight credit and a weakening U.S. economy have left industry-wide auto sales at their weakest point in 26 years."

Bad accounting gains prominence...yet again
Global accounting firms are back in action, and once again for bad reasons. In the US, these firms are being questioned for participating in the Ponzi scheme of Bernard Madoff, which is being touted as the worst the capitalist world has ever seen. The New York Times reports that the big accounting firms (like PricewaterhouseCoopers and KPMG) oversaw many of the feeder funds that funneled billions of dollars into this scam that has led to losses of US$ 50 bn to investors, large and small.

Some of these firms are facing troubled times in India as well. One of these - Ernst & Young (E&Y) - is facing the heat from investors for the generous valuations that it calculated for Maytas Properties, an infrastructure company promoted by a son of the Chairman of Satyam Computers. E&Y is incidentally the chief auditor of Satyam as well.

As reported in The Economic Times, the valuation for the US$ 1.3 bn deal was calculated as Rs 10 m per acre of land that Maytas held. This is when the price of land in Hyderabad (where Maytas has its interests) is quoting at not more than Rs 1 m per acre.

It’s time these accountants clean up the mess they have helped create with their unethical practices and overlooking of bad corporate decisions. If they do this, i.e., clean up, it will do a world of good to get investor confidence back to the market.

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