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Fitch cuts ratings on Panasonic, Sony to junk
by Staff Writers
Tokyo (AFP) Nov 22, 2012


China manufacturing grows in November: HSBC
Beijing (AFP) Nov 22, 2012 - China's manufacturing activity grew in November for the first time in 13 months, HSBC said Thursday, in a further sign of strength in the world's second-largest economy after a marked slowdown.

The preliminary purchasing managers' index (PMI) released by the British banking giant hit 50.4 this month, up from a final 49.5 in October, after 12 consecutive months in negative territory.

A reading above 50 indicates growth in the key sector, while one below signals contraction.

The index, compiled by information services provider Markit and released by HSBC, tracks manufacturing activity and is a closely watched barometer of the health of the economy.

November's figure was the first time since October 2011 that the indicator showed expansion and suggested a revving up in China's economy, where growth has slowed for seven straight quarters.

It comes after China's official purchasing managers' index rose, announced earlier this month, rose to 50.2 in October from 49.8 in September for the first expansion in three months.

"This confirms that the economic recovery continues to gain momentum towards the year end," Qu Hongbin, HSBC's chief economist for China, said in the bank's release announcing the figure.

"However, it is still the early stage of recovery and global economic growth remains fragile. This calls for a continuation of policy easing to strengthen the recovery."

China's economic growth hit a more than three-year low of 7.4 percent in the three months to September, but recent data has fuelled optimism that the worst is over.

Exports, industrial production, retail sales and fixed asset investment -- a key gauge of infrastructure spending -- have all shown improvement.

The rosier outlook comes as China concluded an overhaul of the Communist Party's top leadership last week.

Vice President Xi Jinping took the reigns of the party from President Hu Jintao, whom he is also scheduled to replace as state president in March.

Authorities have cut interest rates twice this year and have also reduced the amount of funds banks must keep in reserve three times since December to encourage lending.

J.P.Morgan economists Zhu Haibin and Grace Ng said that the result of the preliminary November PMI was due to positive effects from Beijing's efforts to prod growth.

They cautioned, however, that the external outlook is still a cause for concern.

"Global demand conditions going into early next year remain uncertain," they wrote in a research note.

The possibility of automatic spending cuts and tax increases in the United States -- the so-called fiscal cliff -- and the euro zone's ongoing debt problems "remain a key risk factor in China's road of economic recovery going into next year," they said.

HSBC said it would release its final November PMI data on December 3. China's official PMI for November comes out on December 1.

Japan's embattled electronics sector suffered another blow on Thursday as ratings agency Fitch downgraded industry titans Sony and Panasonic to junk status for the first time.

The agency slapped a speculative rating on each firm, pointing to their weak balance sheets and declining position in the global electronics sector as they come up against stiff competition from overseas.

In the wake of huge losses, Panasonic, Sony and rival Sharp have announced massive corporate overhauls that include selling off divisions and tens of thousands of job cuts as their shares plunged.

Japan's electronics sector has suffered from myriad problems including a high yen, slowing demand in key export markets, fierce overseas competition and strategic mistakes that left their finances in ruins.

Panasonic has warned it is on track for a $9.6 billion annual loss, while Sony expects to eke out a small profit, after four years in the red.

On Thursday, Fitch said it cut Panasonic by two notches to BB, while it slashed Sony's rating by three notches to BB-, with both firms given a negative outlook.

The downgrades mean their debt was no longer considered a safe investment.

Panasonic and Sony have suffered downgrades by other global ratings agencies, but Thursday was the first time either saw their credit rating slashed to speculative grade.

Earlier this month Fitch cut Sharp's rating to junk, which followed a similar decision by Standard & Poor's.

Fitch said Thursday its downgrade of Panasonic was due to its "weakened competitiveness in its core businesses, particularly in TVs and panels, as well as weak cash generation from operations".

"It also reflects the agency's view that the company's financial profile is not likely to show a material improvement in the short to medium term," it added in a statement.

Panasonic's huge restructuring "will help gradually improve operating margins", Fitch said, but warned over the pace of any recovery.

It cast doubt on Sony's prospects, saying a "meaningful recovery will be slow, given the company's loss of technology leadership in key products, high competition, weak economic conditions in developed markets and the strong yen".

The downgrades were released after markets closed with Tokyo's benchmark Nikkei 225 index surging to its highest close in over six months Thursday on the back of a weaker yen.

"The (rating) action might impact the affected companies themselves, but I expect the overall market will not be brought down by that," said Kenji Shiotani, strategist at Daiwa Securities.

On Thursday, a senior executive at Sharp said a planned deal for Taiwan's Hon Hai Precision to buy about 10 percent of the Japanese firm was on hold amid Sharp's volatile share swings, as the firms haggle over a new purchase price.

The stock "needs to stabilise" before a deal can be clinched, the executive told reporters in Tokyo on condition of anonymity.

The agreement was announced before Sharp shares plunged earlier this year and trading has been volatile ever since, throwing a wrench into plans for the more than $800 million capital injection by Hon Hai, which makes Apple gadgets in China.

Japan's electronics giants have seen big losses in their television businesses owing to falling prices as they try to compete with lower-cost South Korean and Taiwanese rivals.

The high yen -- which hit record levels around 75 against the dollar last year and remains historically strong -- makes Japanese firms' products less competitive overseas. High labour costs at home have made it tough for the nation's electronics companies to compete globally.

They were also hit badly by a consumer boycott in China over a territorial row with Beijing, and a slump in manufacturing caused by last year's earthquake-tsunami as well as floods in Thailand where a number of factories are based.

Sony closed 1.83 percent higher at 834 yen in Tokyo trade on Thursday, tracking the market's rally, while Panasonic ended 0.74 percent higher at 407 yen.

In June, Sony shares tumbled below 1,000 yen for the first time since 1980 and the era of the Walkman.

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