The government announced the first arrests over alleged short-seller plots, nabbing one Wang Chuanhua of Yanggu Chua Huatai (whoever he may be) plus 4 other corporate biggies from even smaller companies. This was not enough to stop the rout.

While supposedly triggered by weak profit figures for manufacturing plants, the real reason is politics. Chinese stock punters fear that the government is opting to cut back on its stock buying to support the markets, probably because it is unsustainable and expensive. Beijing is rumored to have spent trillions of the People's Currency (what renminbi means) to support stock prices via the mysterious China Securities Financial Corp., officially set up to merely support margin lending by brokers. Administrative measures, including investigating “plotters” like Mr. Wang, can continue: delayed initial public offerings; no legal sales by insiders and board members; assaults on alternative investments like gold or real estate; manipulation of lending by state sector banks are all being brought into play. But the outright purchase of shares to boost the market appears to have ended. Unless Beijing chooses to resume it of course.

The euro so far rose from $1.1 to $1.1115 and, of all things, gold is up.

Ferrari applied to get a US listing apart from its parent, Fiat Chrysler (FCAU). You may not be able to afford the car, but the stock could be a good idea, assuming that the pall cast by China will not hit high-living elsewhere.

Having failed to even come close to buying The Financial Times, Bloomberg is seeking comfort by becoming a dealer in credit default and interest rate swaps for which it won a UK license. McGraw Hill is buying SNL Financial to get deeper into financial information.

A major Portuguese oligarchic family chieftain, Ricardo Espirito Santo Salgado, was placed under house arrest accused of “forgery, fraud, breach of trust, tax fraud, corruption, and money laundering” as part of a laundry-list of new crimes added to the earlier one of tax evasion. We are concerned because the Lisbon-listed Banco Espirito Santo which Ricardo headed diverted the cash cache of our Portugal Telecom to a Luxembourg black hole. The ancient Moorish water-wheels of Portuguese justice grind exceedingly slowly, but they do eventually work.

Drug Wars

*I have lamented that Teva (TEVA) is headed by a former Israeli army officer, Erez Vigodman, as he apparently continued his hopeless crusade to take control of Mylan (MYL) last week. What I forgot is that in the outmanned Israeli Defense Forces you learn how to feint, misleading your opponents about what your real target is. I said Friday I would not be unhappy if Teva did not snatch MYL over the fierce defenders of its independence, led by CEO Robert Coury.

Over the weekend, CEO Vigodman proved to be an IDF man after all, dropping the MYL bid to snatch the generics operations of Allergan plc (AGN),  the Irish drug giant formed by its takeover by Actavis earlier this year. The $40.5 bn takeover of AGN's generics operations will boost Teva's global ambitions in copy-cat drugs with less stress than MYL.

Teva is paying $33.75 bn in cash and $6.75 bn with its shares (less than 10% of those outstanding.) The deal was unanimously approved by both boards and requires no shareholder vote. The Israeli firm will buy outright AGN's generics production and R&D arms, its OTC commercial unit, and some established copycat drugs (like AGN Oxycontin and Concerta against ADHA, an Irish specialty), plus Medis, AGN's supplier of precursor formulations to 3^rd parties.)

Teva now is firmly among the top-10 in drugs and will have generics sales in about 100 markets after the takeover, expected early next year. It will sell over $11 bn in generics outside the USA. It expects its earnings to rise ~10% in its first year post-merger and as much as 20% in 2017-8. It expects its earnings before interest, taxes, depreciation, and amortization to hit $9.5 bn in 2016, of which AGN assets acquired will account for $2.7 bn. The deal will be accretive to earnings from the get-go

Teva will leave to AGN all its patented pharma and medical aesthetics business lines like Botox, its bio-similars development arm, and its Anda distribution network. Teva is acquiring only half of lenalidomide (revlimid) treatment for blood cancers (lymphona and myeloma) and will pay milestones to Allergen for its growth. Teva tried to buy Anda but was apparently turned down.

Allergan, which has sales of about $15.5 mn, immediately announced that it will buy Naurex, maker of a depression treatment drug, for $560 mn.

Teva also reported on Q2 results which barely mentioned its troubled multiple sclerosis drug, Copaxone, whole ex-patent future motivated all those efforts in The Netherlands and Ireland. In Q2 non-GAAP earnings rose 15% year/yr to $1.43 bn on revenues down 2% to $4.9 bn, nipped mainly because of the currency impact and its sale of US over-the-counter drug-making facilities in late 2014. Non-GAAP operating income corrected for these factors rose 16% to $1.6 bn. Cash flow from operations hit $1.3 bn, or $1.56 bn in constant currencies.

Looking ahead, TEVA raised its 2015 forecast eps to $5.15 to $5.4 and cash flow estimates to $1.3 bn. There was no word about what Teva will do with its 4.6% stake in Mylan but its CEO says he is still pursuing Perrigo. MYL stock is off 12.5% which will mean a loss for Teva on its stake, but lots of Schadenfreude. CEO Robert Coury issued a gracious (for him) congratulatory note (Mazel Tov) to Teva for its deal. TEVA share trading was halted in Tel Aviv, not because of the H2 forecast I suspect.

Attention in the hot pharma sector now switches to AbbVie (ABBV), Amgen (AMGN), Pfizer (PFE), GlaxoSmithKline (GSK), Novartis (NVS), Novo-Nordisk (NVO), and Biogen (BIIB) plus small cap biotechs.

*Reckitt Benckiser (RBGLY) also reported on its H1. Its revenues rose 1% in the half year to £4.56 bn from £4.323 bn in H1 2014. Operating profits came in up 10% to £959 mn from £856 mn, or 12% in constant currencies. Adjusted profit (omiting spun-off Invidior, INVVY) was up 9% to £953 mn) or 11% in constant currencies. Net income rose 8% in GAAP and 10% in a fixed-exchange-rate world) to £709 mn or £720 mn. Earnings per share at RBGLY came to 97.5 pence under GAAP and 99 p adjusted, up 8% and 7% respectively. Apart from INVYY, the adjusted excludes exceptional items of £14 mn this H1 and £22 mn last year.

RBGLY will pay a dividend of 50.3 pence this year vs 60 pence last year (which included INVYY) under its policy of paying out half its EPS.

CEO Rakesh Kapoor cited a “good flu season” (meaning good for medicaments not for people) and “input cost tailwinds” meaning cheaper precursors and packaging. The breakdown saw US growth the weakest once currency effects were taken out, up 3% vs a 4% rise in European sales. Emerging markets sales rose 7-8% y/y. Latin America, mostly Brazil, was problematic, however. By product line, OTC medicaments, condoms, and foot-goods (Scholl and its new Amope lines) grew nicely, as did some household lines. RBGLY is boosting its line of household scent products and dishwasher and disinfectant lines. With a diversified product range, there is plenty of room to refocus production and sales to where they pay off.

CEO Kapoor predicted full year revenues (like for like) to rise 4.5% and predicted “nice” adjusted operating margins in Q2, both of which sounded a bit more optimistic than his prior remarks. RB stock rose 2.8% in London.

Developed Countries

*CAE Inc. is divesting its Datamine sub which makes training and simulation systems for mining companies to Constellation Software, CSU, another Canadian. CAE retains its major businesses, simulation machines for civil and military aviation and for training surgeons and medical personnel. Its most recent foray into M&A was buying Bombardier's simulation systems earlier this year.

*The Chinese contagion to Hong Kong was measured, with Tencent (TCEHY) down 3.9% and AIA (AIA) down 3.1%. European markets are still open.

*Vodafone (VOD) was raised to outperform by JPMorgan Cazenove and to buy by Citigroup and Beaufort Securities VOD after good sales in Q1. VOD.

Emerging Markets

*Infosys (INFY) was upgraded to outperform from equal weight by Macquarie analysts. 

*With Ferrari on the NYSE there may be a chance that Tata Motors (TTM) will partly spin-off its Jaguar-Land Rover sub. This would enable us to focus on the Indian side of the firm.

*Restructuring its shares should also appeal to our other Indian listed firm, Vedanta Ltd., a raw materials conglomerate. With no visibility on either Indian mogul giving us a chance to buy less than the parent company, I have cut both VEDL and TTM to holds. They have under-performed Indian market averages in part because of the holding company curse and misdeeds in other Asian markets like South Korea and Japan by similarly constituted holding companies.

*The retirement of its 5-yr veteran CEO to be replaced by the founder-chairman's son Melvyn Pun is a good time to take stock of our experience in private-sector development finance under his predecessor, Andrew J. Rickards, an Australian accountant at Yoma Strategic Holdings. Our experience helping build up Myanmar (formerly Burma) has been wonderful, with revenues up for S$4.6 mn in 2010 to S$110.9 mn this year, a compound annual growth rate of 70%. On this gross profits went from S$a1.6 mn to S$45.6 mn. Net profits went from minus S$100,000 to positive S$28.1 mn, a CAGR of 156%.

Will Melvyn be able to keep it up? There are some strong points. While mostly in real estate development and a bit in autos (founder Serge Pun's business in his exile from Myanmar in Singapore), YMAIF (or Z59 in Singapore) is increasing diversified into new businesses like tourism, tractors, water treatment, school, universities, and hospitals, and running hotels and golf courses. Diversification spreads risks if backed by good management and scalable operations, which YMAIF has. It is a leader in the new sectors in Myanmar and well as in building projects, first to launch, and backed by top global partners like Case New Holland or Mitsubishi, Hylux or Dulwich Academies. It has won access to finance thanks to the partners and its Singaporean domicile.

I have not yet visited Myanmar but the idea staying in a posh hotel in Yangon (formerly Rangoon) before taking a balloon flight over the great gold-covered Buddhist temples of Bagan (also called Pagan) run by a Yoma sub appeals to me greatly. So too would an expat existence in one of the landmark property developments Yoma has funded, complete with international school and global car rental option, golf courses, and a world-class hospital.