MSCI opted against index entry by PRC A shares. This translates to saying that the developer of performance stock indexes for stock picking, Morgan Stanley Capital International, decided it was premature to allow locally-traded Chinese shares to become part of its main widely-tracked index. This means exchange-traded funds will not have to add Chinese stocks to their pile and boost Shanghai and Shenzhen stock prices beyond the current bubble. While limitations on foreign investment apply in Chinese markets the benchmark would only have put Chinese stocks at 5% of the MSCI index.

To soften the blow, MSCI stated that “it expects to include China A‐shares in its global benchmarks after a few important remaining issues related to market accessibility have been resolved." The means that if foreign investment ceilings are raised, China could eventually account for 40%+ of the MSCI emerging markets index. (EEM)

My account is slowly wending its way out of E-trade and over to Interactive Brokers. I am banned for talking about it to other E-trade customers according to a communique I just received which reads:

Dear E*TRADE Customer:

The E*TRADE Community ID below has been restricted per the Terms and Conditions of Use of the E*TRADE Community you agreed to as a member. As a result, you will no longer be able to post content to the E*TRADE Community, though you can still view content posted by others.

Community ID: globalinvesting

Of course this is censorship to stop complaints on-line against the brokerage's decision to halt its global trading system which I have used for a dozen years and recommended to readers.

Developed Countries

*Teva (TEVA) is in deep doo. First a PA judge ruled that its law firm, Kirkland & Ellis, should not be assisting it with its unfriendly bid for Mylan because it had earlier worked for MYL, which is bitterly fighting the takeover and seeking to spend its cash hoard to block this.

Worse still, Teva is being sued by a group of US states in the NYC Federal Court for allegedly paying US doctors illegal fees for prescribing its multiple sclerosis drug Copaxone and its Parkinson's one Azilect from 2011-2013. The payments were disguised as fees for lectures or consultation and apparently were as much as $1500-$2700 per prescription. The lectures often had no audience except for Teva employees.

We all know that drug companies are in business to find cures for diseases to help mankind, right?

*Belgium's Galapagos NV, now listed as GLPGF-Q, will release results of its 24-week phase 2B trials of JAK inhibitor filgotizib against rheumatoid arthritis now that they have been completed. The two trials are called Darwin 1 and 2, which is cute. Phase 2 trials aim to set dosage levels and GLPG has already reported that the dose-linked results are statistically significant. It will give details from Darwin 1 in late July and Darwin 2 late in August. Crédit Suisse in Wednesday upgraded the share to outperform from market perform with a $61 target price, joining analysts at Cowen & Co, Crédit Agricole, and Morgan Stanley on the GLPG bandwagon since its move to Q. Thanks to our former biotech maven we told you first.

*Morgan Stanley downed Novo Nordisk to equal weight from overweight. NVO makes various forms of insulin which often reduce overweight, so I find the analyst terminology misleading.

*Allianz plans to digitize its insurance operations in its German homeland to cull its overhead by up to euros 100 mn. AZSEY will also cut is sales costs by euros 40 mn next year, without any staffing cuts.

Emerging Markets

*Vale rose in early morning trading in London and Brazil and now is likely to rise even more than the 6% added then on China stimulus optimism and reports that China has virtually emptied out its iron ore stockpiles. Now VALE announced a drastic cut in capital spending levels over this year and the following 3 years. It will bring down capex from last year's $12 bn level to $9 bn this year and continue slashing by $2 bn in each of 2017 and 2018. In 2019 capex will fall to $4 bn. In addition, Vale plans to exit non-core businesses by selling them for cash, a program already started for ports and logistic facilities, huge iron-ore carriers, and hydro dams in Brazil.

*Old Mutual is formally British but its main business is running banks and insurance companies in sub-Saharan Africa. It plans a secondary issue of its US “multi-boutique” asset mgm shares after the initial sale flopped at $14 last Oct. because the stock is now just under $19. The proceeds from the further sale will go the ODMTY parent, not to the sub which has $224 bn of assets under management.

*Two days ago Lex in The Financial Times discussed the Vedanta Resources listed in London, the parent of India's Vedanta Ltd (VEDL) whose ADRs we own. Apart from VEDL the London entity owns more than 10 unlisted subsidiaries, which scares potential investors in Anil Adjani's industrial empire. Lex writes:

“Simplifying the structure would help. Vedanta announced on Tuesday that it had considered merging two of its India-listed subsidiaries — VEDL and Cairn India (CI). To do so requires buying out minority investors in CI. The group would then control the nearly $3bn in net cash on CI’s balance sheet.

“Vedanta could use the dosh: it has $5.7 bn in debt due by the end of 2017 and not enough cash flow to repay it. The share price of Vedanta Resources jumped 5% on the announcement. Although the group’s accounts consolidate the 59% holding of CI, using that cash just brings a new problem — tax.

“One way to move the cash from CI to where it is needed is to pay a dividend to another subsidiary, such as VEDL, which holds much of the debt. However, that would incur a dividend distribution tax and some of the dividends would go to minority investors.

“If VEDL used cash to buy out the minorities, which could cost more than $2 bn, it could trip debt covenants. Vedanta would be paying to control cash it already consolidates on to its balance sheet. Currently the group’s net debt to EBITDA ratio sits at a bearable 2.3 times, not far from Vedanta’s limit of 2.7 times, notes Deutsche Bank. Using shares to buy out the minorities would avoid a problem.”

My comment on Lex: EBITDA is earnings, before interest, depreciation, interest, amortization, and tax. Lex left off amortization. VEDL would have to persuade its Indian minority CI shareholders to accept a bid, because more than half of minority shareholders in a controlled company have to sign up under Indian rules. That means I think that the CI shareholders would get a great hunk of our VEDL stock in payment to accept a deal. Vedanta also has other subs it may want to buy out like VEDL itself. Note that advisor Deutsche Bank is depositary for our VEDL and it will soon lose its Indian co-CEO.

Note that CI, which trades on the pink sheets as CRNCY, was raised to a buy by Crédit Agricole with a target price of 250 British pence on Wednesday.

Abhimanyu Sisodia adds more Indian news:

*Tata Motors gained over 1% earlier this week in Bombay after auto data from the Society of Indian Auto Manufacturers (SIAM)‎, showed May domestic car sales rose 7.73% y-o-y to 160,067 units. This is confirms my logic for buying TTM stock. Cheaper credit and fuel and the upswing in economic activity under Modi's government will continue to drive new car sales.

TTM won the 'TU Automotive Detroit Award' for "Best Telematics Product for Emerging Market" for its Android platform in the Tata Magic Iris Electric zero-emission commercial passenger vehicle. Telematics covers connectivity systems like Navigation and Duress SMS (for police or ambulance help).

*Employees believe in Infosys CEO Vishal Sikka, according to Glassdoor's annual report on the 50 most popular CEOs of large US companies from its website where current and former employees anonymously review companies and their management. Sikka achieved rank 35 with a 91% rating, 2^nd only to Cognizant (ed: which is run out of New Jersey) INFY derives 60% of its revenues from North America and only 2% from India, why it was covered by Glassdoor. A third of its employees are outside India. 

*Analyst Ana Sepulveda del Vilas of Invex cut Mexichem stock to hold from buy and lopped 6 pesos off her target price for MXCHY, now NMP 55. Our source is Eduardo Garcia in Mexico City.

Fund Notes

From Dick Davis Dividend Digest:

“Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund's (MFD) investment objective is to seek a high level of current return consisting of dividends, interest and capital gains while preserving capital. It invests in companies involved in the management, 
ownership and/or operation of infrastructure and utility assets, including utilities (electricity, gas and water), toll roads, airports, railways, schools, hospitals and correctional facilities.

“The fund’s top 5 holdings as of 2/28/2015 were: National Grid plc (5.51% of assets); GDF Suez (5%); Centrica plc (3.95%); Hutchison Port Holdings Trust (3.86%),;and Veresen Inc (FCGYF) (3.83%). Currently about 43% of Macquarie’s holdings were issued by U.S. companies.
“This fund would be a good investment for medium to high-risk income investors. Buy at or below $17.50,” wrote Richard Lehmann, at Forbes/Lehmann Income Securities.

We own FCGYF directly as well and paid lots less than $17.50 for MFD.

*Aberdeen Global Income Fund will pay the usual 7 cents in dividends this month but FCO's payout will be 47% return of capital, and therefore untaxed, and 53% from capital gains and dividends.

*Stablemate Aberdeen Asia Pacific Income Fund, FAX, is paying the usual 3.5 cents but this month the money will be 60% from investment income and only 40% from return of capital, a switch.