Chris Loew, our Japan correspondent, writes on the contradictions of current Japanese economic policy:

I actually see the effect of Abenomics on inflation and taxes in my bankbook. I agree with a recent report by the OECD which cut its projections for 2014 Japanese economic growth, writing: “While the recent pick-up in inflation is encouraging, it could undermine recovery unless accompanied by a matching rise in wages.” Consumer prices are rising while wages are not. And sales tax applied to services, contract worker wages, and B2B sales are taking a bite out of everyone's pocketbook.

Japanese companies with substantial foreign earnings make more yen, so they look good. But most Japanese companies rely on imported foreign inputs and are hurting because of the weak yen. Sales are up on increased exports, but profits are flat since higher material costs cannot wholly be passed on to consumers.

PM Abe's structural reforms like special economic zones which would create a patchwork of tax-free enclaves, are not a panacea. Such SEZs would hurt the rest of Japan while favoring certain areas. Reducing corporate taxation, meanwhile, is at cross purposes with the official goal of a balanced budget. Moreover Japanese multinational corporations already minimize their taxes using transfer pricing.

I am negative about Abenomics and the current Japanese economy.

More follows from Japan, of course, and also Canada, India, Russia, Britain, Hong Kong, Denmark, Japan, Israel, Brazil, Jordan, Australia, and South Africa, including three quarterly reports, all good for a change.

*Tencent Holdings in Hong Kong (whose mascot is a penguin) reported today on Q1 from Hong Kong and there penguins are victorious despite what happened to the US Penguin ice hockey team yesterday. Thanks to its dominance of on-line gaming with popular offerings like Blade & Soul and Candy Crush, TCTZF (or HK:700) has won a larger share of China's 600 mn+ players. Meanwhile TCTZF has also pushed hard into ads and messaging with WeChat (Weixin in Chinese) and QQ messaging in direct competition with Alibaba and Baidu.

QQ, with 850 mn monthly users, is aimed at people looking for entertainment, usually in smaller cities. WeChat, with 400 mn users, is for middle-class consumers.

Net income at Tencent rose 60% y/y to RMB 6.46 bn (over $1 bn), boosted by one-time gains and messaging, although the total came in about 20% below Bloomberg analyst estimates. Sales were up 36% to RMB 18.4 bn with mobile phone games the biggest winner, accounting for 10% of total sales, triple prior year Q1. On-line ads accounted for 8% of sales and were up 38% y/y. The new games were roughly even for Google's Android and Apple's iOS phones.

Tencent also had extraordinary gains from transferring its e-commerce business to take a stake in JD.com and its sale of stock in China Vision Media Group. Both are challenging Alibaba which is planning a huge US ipo. Both firms are buying Chinese internet companies. Our beaten down Japanese gaming site, DeNA (DNACF) may be a target as the two Messrs Ma hit the M&A trail (Ma means horse in Chinese.)

According to The Financial Times yesterday, Jack Ma, the real challenger to Alibaba is the penguin from Pony Ma (no relation.) Jack told his minions:

“There has been a change in the climate. The penguins have left Antarctica. They are trying to make the entire world their habitat. Instead of waiting to be slaughtered by the penguins, we need to invade the South Pole. We will smash what we must, and wreck with force.”

In Hong Kong trading today, 700 rose 1.3% to HK$514 and the share is up 4% YTD vs a 3%+ drop in the Hang Seng Index. Analysts are speculating that in addition to a possible share split to increase liquitidy of the HK share, Tencent may also spin off WeChat-Weixin. Trading at HK514 today (US$66.32), Tencent needs a split because the Hong Kong market requires that trading be in round lots of 100 shares.

*Naspers which owns nearly 40% of TCTZF is up $10/sh. NPSNY is S. African

*Denmark's Bavarian Nordic reported Q1 revenues were up 40% to DKK 286 mn (~$53 mn) y/y and resulted in a profit of DKK 1 mn vs a DKK loss of 34 mn in Q1 2013. It reiterated its forecast for the rest of the year, of revenues of DKK1.2 bn and break-even results.

It has enrolling bladder cancer patients for its phase 3 'Prospect' clinical trials in the last two countries (Germany and Holland) and is proceeding with EU phase 2 trials of freeze-drived Imvamune jabs against smallpox which will add . It is spending money from its vaccines in developing its cancer drug pipeline which also includes beginning US phase 2 trials of Prosvac against prostate cancer and CV-301 against colorectal cancer in pre-trial.

Financed by the US Dept of Defense, BVNKF's inoculation portfolio includes an MVA-BN-based vaccine against Burkholderia and larger US-approved facilities for freeze-dried Imvamune. The stock also is traded as BAVA in Denmark.

*Also reporting was Raven Rus, on the 2014 period to May 12. This UK listed firm run from Guernsey (Channel Islands), reporting in US$, invests in Russian warehouse facilities mostly leased to multinationals. In the period, net operating income hit $192.7 mn, thanks to a 97% occupancy rate, and if pre-lets at its development at Noginsk near Moscow is included, the total is $202 mn.

Noginsk, being developed “on time and on budget” will add 39 thousand square meters (sq m) of potential leases this year. It also has 67 thousand sq m of new facilities coming on in Padikovo by year end to add to its current 1.4 mn sq m in Moscow, St. Peterburg, and Rostov-on-Don.
RUS has $202 mn in cash which it is proposing to use to buy back 1 share for every 28 outstanding, as well as to expand its business. The buyback offer will close May 19 with the money coming May 30. It has helped the share price but I have received no paperwork for tendering my shares from brokerage E-trade. RUS has no near term credit maturities and banks are actually offering it more loans to further leverage its holdings.

The main reason for the share buyback is perception. Raven Rus in its report wrote that “the current political situation in Ukraine has yet to have any tangible effect on the operation of our business other than on the market value of our listed instruments.” CEO Glyn Hirsch added: “Raven Rus is a profitable cash-generative business with a broad range of strong counterparties. WE operate in a market we believe remains structurally under-supplied.”

*China's Ministry of Public Safety charged that GlaxoSmithKline engaged in “massive and systemic bribery” and blamed the Briton who headed the Chinese marketing arm and two Chinese colleagues for ordering RMB 3 bn in bribes to gain billions of RMB in profits by corrupting doctors and hospitals to over-prescribe its drugs. GSK drugs also were overpriced as much as 7-fold to finance the bribes, delivered via travel agencies, the MPS charged. China seeks life imprisonment sentences for the trio of execs. The China head, Mark Reilly, voluntarily returned to China to help with the inquiries and now faces prosecution.

GSK risks losing its blood-thinner franchise with venerable warfarin (which may have killed my friend Kathryn Daniel at age 65) as the FDA said that Boehringer Ingelheim's Pradaxa may be safer for breaking up clots. After Kathryn died I have taken to warning anyone at risk of stroke or heart disease from clots to watch out for warfarin.

GSK sold the US rights and supplies of migraine treatment Treximet to Pemix Therapeutics for $250 mn as of Aug. 1 but will continue to produce the drug. If Pemix gets US FDA approval for a using the treatment for children GSK will collect a further $17 mn. The drug was developed with Pozen and GSK is shifting its Pozen development and sales contracts to Pemix. The big question is who will bribe the doctors.

*Microsoft is launching a new Lumia 630 feature-rich smartphone from Nokia in India, a dual-SIM Lumia 630 costing 11,500 rupees, aimed at emerging market users. It will be cheaper than Moto Gphones. The Indian plant remains in limbo because of a tax claim preventing its transfer from NOK to MSFT.

*Following on its good report yesterday, Pure Tech announced that its Prexy, Jack Elliott, is now CEO and its former CEO, Peter Paulson has moved to the board while remaining CTO of PPEHF. Jamie Paulson (a relation) is Chairman of the Board. This is a small cap. Separately PUR-Toronto reported that it had mis-stated its Q1 EBITDA (a measure of cash-flow) as C$99,000 yesterday when the real number was $575,000. The Q1 2013 and 14 numbers were reversed Your editor, who wrote up the reported results yesterday, asked for a clarification from the Calgary company because the earnings before interest, taxes, depreciation, and amortization figures did not jibe with sales or net profits reported. No answer came in time so I left it out of my note.

Today it also reported that an existing Brisbane (Australia) customer had added C$2.6 mn in new work on water and wastewater concrete pipelines Down Under.

*Delek Group is proceeding with spinning off its energy unit and designated Goldman Sachs and Citigroup to handle the listing of the unit, probably in London, Bloomberg reports, quoting a DGRLY spokesman. Delek is an Israeli Berkshire Hathaway, investing insurance premium revenues into various industries, and got into offshore gas drilling early. Its stock is up over 50% in the last half year, the best in the TASE, at least in shekalim, according to Bloomberg, putting Yitzchak Tshuva ahead of Warren Buffett short-term.

*The Brazilian drought may cut Cosan's sugarcane harvest by 10%, the CEO of the sugar-ethanol producer warned today. The share is up on the news. CZZ is up 4.25% in Brazil.

*Agrium was recommended as a “spotlight stock” by Cabot Dividend Investor to 'fertilize your portfolio'. AGU yields 3.2% in loonies. We bought AGU because it produces nitrogen and phosphate plant food as well as potash which is in oversupply. CDI says it is trading at an industry-low p/e of 13. The newsletter is now run by Chloe Lutts Jensen who used to edit Dick Davis Dividend Digest where she quoted me on Agrium's charms.

*Banco Santander which is about to sell the rest of its securities custody business for ~$1.4 bn, is $10.12 today, and euros 7.34 in Madrid, a new 12-mo high. The likely buyer is Warburg Pincus.

*Chris Loew's latest stock pick, Kubota, is up 3.8% today. KUBTY.

*CAE is the Canadian maker of simulators to hone pilot skills and save lives before they operate the controls of a real airplane. It also saves money because they train without using high-priced jet fuel. In FY 2013-4 (to Mar. 31) CAE sold 48 full-flight simulators, a record. In the following weeks it sold another 5. Each costs ~C$75 mn.

CAE is a Canadian multinational whose largest customers are Southwest Airlines, Lufthansa, and other customers from Europe, North America, and Asia. It has training sites in over 30 countries. Moreover it is diversifying into simulators for surgery and mining. That's why Patti, our biotech maven, who is the mother of a pilot, got enthusiastic about CAE.

The company is styled by The Investment Reporter (of Canada) as a dividend aristrocrat, having upped its divvie each year since 2007 (in loonies of course, but not always in Greenbacks) from 4 cents to a current level of 24 cents. And it is a growth stock as airlines rebuilt their fleets and buy fuel efficient new planes.

*Rio Tinto is telling the Guinean govt in Conakry that it is prepared to invest $20 bn to mine iron ore at Simandou despite its lawsuit against Vale. The suit is over damages and not a claim for mining title, RIO claims. Guinea has reopened the concession after an investigation showed that the title of Beny Steinmetz Group, of which VALE bought half, had been acquired by bribery of the former government.

*It may be the focus on ice hockey these days or the prospect of Darth Vader goalie helmets, but CRT Capital has initiated Bauer Performance Sports as a buy. BRRPF stock is down marginally today.

*Caesarstone is down perhaps on fear of new sanctions on Russia. Frida, our counter espionage correspondent responded to her sobriquet by “cracking up like a bad kitchen counter.”

*I still have no information on how to trade my shares of DeNA, DNACF here and 2432 in Tokyo. All my attempts to exit the Tokyo shares have been turned back with no real explanation by E-trade. Given the latest rumor from HK, I'll just hold on. The US shares are up marginally today at $12.78 bid $13.06 ask, a wide spread. Japanese is Y1314 bid, 1316 ask. I can input a 300 sh Tokyo buy, but not a sale.

*Meanwhile the strike at Hadassah hospitals in Jerusalem continues and there is no trading of Hadassit Bio-Holdings, the hospitals' biotech incubator. The latest news is that its doctors will cease offering paid private services at Hadassah medical centers. While private healthcare added to Hadassah revenues, it also caused management issue and costs. HADSY.

*We are doing better with Hikma Pharmaceuticals plc, listed in London with an ADR as HKMPY, about which I tend to feel guilty as it is a Jordanian company with a listing also in Dubai. It is at a new 52-wk high in London, up 3.8%, and has doubled since I bought and imagined my father rolling over in his grave at that stock idea. The main reason is that big pharma is focusing on M&A.

*Dr Reddy's (sold) is down another 5%.

Fund notes:

*Eaton Vance Tax-Managed Global Diversified Equity Income Fund, aka EXG, declared a 0.0813 monthly dividend.

*We got a $0.02515/sh dividend payout from Deutsche Bank Mexico for Fibra Uno. FBASF promptly fell 1.6% to $3.2. The yield is ~4.3%.