UK MARKET TALK ROUNDUP: BROKERS COMMENTS -2-

10th Jun 2010 16:49

0722 GMT [Dow Jones] While many of China's local governments did substantial amount of off-the-books borrowing last year, problem is not same everywhere in country. This kind of debt appears to have grown particularly fast in Tianjin. So why explosion of off-budget borrowing in Tianjin? It is not particularly poor city: Its fiscal revenue more than doubled in 2009, average incomes 18% above national average. Tianjin's economy expanded 16.5% in 2009, making it the second-fastest-growing of all of China's provinces, Tianjin's economic growth was almost freakishly dependent on government investment projects. Much of that is associated with Binhai New Area, massive development zone. High level of loans to local-government vehicles helps explain how that investment boom was financed. Still, central bank's report highlights some problems: heavy lending to limited number of local-government entities made bank lending overall more concentrated; lending to government financing platforms looks increasingly less secure; banks appear to have lost some of their bargaining power by relying for loan growth on such small group of big customers. See: =WSJ BLOG/China Real Time Report:A Window Onto Local Government Debt In Tianjin ([email protected]) 0721 GMT [Dow Jones] Italy's 12-month Treasury bill is likely to yield at 1.44% at its auction Thursday, says UniCredit, in line with the level at the previous tender in May, while the 3-month T-bill yield is seen to be sold at 0.87%. Strategist Chiara Cremonesi says the 3/12-month spread on the Italian curve has steepened sharply over the last few days and at around 60 basis points is one of the highest levels seen since 2001. "This spread looks attractive, especially in the case of an abating risk aversion, which would lead to a flattening of the [Italian Treasury bill (BOT)] curve," Cremonesi says. ([email protected]) 0719 GMT [Dow Jones] UBS Wealth Management says any move by gold below $1,200/oz represents a buy opportunity with the yellow metal likely to trade around $1,500/oz in 12 months time. "Of course, any sharp intensification of the sovereign debt crisis in Europe could propel the gold price even higher, but downside risks should not be discarded lightly either," says report. UBS says prefers "unhedged, physically-backed positions over equities and paper investments in gold." Spot gold at $1226.90/oz, down $6.20 since NY close. ([email protected]) 0745 GMT [Dow Jones] BP (BP) -5.9% at 368p, continuing to be pressured by the circumstances surrounding the Macondo spill. The uncertainty surrounding the dividend is also weighing, says Morgan Stanley and the share price reaction is telling BP's board to show its hand quickly, rather than waiting for the 2Q results on July 27, both on the payout policy and to provide a clearer line on the payment of future liabilities. Morgan Stanley says investors also want to see the board reiterate confidence in the management team. It says clarity on these issues should support a significant bounce away from its 320p-365p/share bear case range. Overweight rating, 600p target. 5-yr CDS widen to 552 bps, from a close in NY of 386 bps, but Morgan Stanley points to $15B of short-term cash lines. ([email protected]) 0716 GMT [Dow Jones] Results for Argos in Home Retail Group's (HOME.LN) 1Q trading statement are disappointing and a lot worse than expected says Seymour Pierce. The figures are impacted by weak game and TV sales. Seymour says the Argos results are worrying given that competition is intensifying, particularly from the food retailers. In contrast, Homebase figures are a little better-than-expected. Still, the brokerage says there are more compelling investment opportunities in the sector. It reiterates a sell rating because of the potential for downgrades to earnings forecasts although it maintains there is now limited downside to the shares. Shares -4.7% at 227p.([email protected]) 0653 GMT [Dow Jones] The acquisition by Centrica's (CNA.LN)North American subsidiary Direct Energy of Clockwork Home Services should be positive for the Centrica share price, says an analyst. Says the deal shows that Centrica is following the same successful strategy it has displayed in the UK. Says the acquisition of Clockwork will make Direct Energy a market leader in the North American home energy services market. Centrica shares closed Wednesday at 277.9p. ([email protected]) 0652 GMT [Dow Jones] Royal Bank of Scotland initiates coverage of Paragon Group (PAG.LN) at buy with a 200p price target. RBS says the 1H '10 results underline the quality of the loan portfolio. It thinks the group looks in a strong position financially and the loan portfolio continues to perform well, with arrears rates well below the market average. A return to lending in any material way looks to be much closer to becoming a reality, says RBS, adding that management has given the strongest message yet that it is close to accessing a warehouse facility, which would in turn allow Paragon to tap the securitization markets. Shares closed Wednesday at 130.8p.([email protected]) Contact us in London. +44-20-7842-9288 [email protected] (END) Dow Jones Newswires June 10, 2010 11:49 ET (15:49 GMT)