Macau Business Daily, September 3, 2013 by Business Daily

MOP 6.00 Vitor Quintã Deputy editor-in-chief Number 362 Tuesday September 3, 2013

Editor-in-chief Tiago Azevedo

Local brands eye Nansha as retail hub

April 19, 2013

Airport relies on mainland for growth Page 4

One Penha Hill presales return in Q4: developer Page 6

Omega watch sales up after shop renovation Page 7

Year II

More on page 3

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Hang Seng Index 22190

22140

22090

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21990

Shine comes off gold sales The gold and jewellery industry expects its retail sales to “stabilise” in the rest of the year after the rush caused by the international gold price plunge earlier this year. “Sales have normalised now after the frenzy in April and May,” Lei Chi Fong, president of Macau Goldsmith’s Guild president told Business Daily. “The frenetic grabbing of gold lasted for about a month-and-a-half and now the business has been [gone] back to normal,” said Mr Lei, who is also managing director of Seng Fung Jewellery Co Ltd, which has eight branches in Macau. The international gold price experienced the biggest decline in 30 years in April. But it has recovered in recent weeks and closed at US$1,396 an ounce by Friday in New York. Page 4

21940

September 2

HSI - Movers Name

%Day

CHINA SHENHUA-H

4.98

SANDS CHINA LTD

4.26

GALAXY ENTERTAIN

4.13

TENCENT HOLDINGS

3.52

BANK OF COMMUN-H

3.52

CLP HLDGS LTD

1.02

BELLE INTERNATIO

LI & FUNG LTD

-0.53

KUNLUN ENERGY CO

-0.71

CHINA RES POWER

-2.92

Source: Bloomberg

August revenue second highest ever

New firm bets on financial leasing

Macau’s monthly gaming revenue reached nearly 30.74 billion patacas (US$3.85 billion) in August. It was the second strongest figure this year and the second highest monthly tally ever recorded, according to government data. Gambling revenue rose 17.6 percent year-on-year in August, up from nearly 26.14 billion patacas in the equivalent period in 2012. Accumulated revenue for the eight months to August 31 now stands at 231.67 billion patacas. Page 2

The city’s first financial leasing firm has received government approval, almost 20 years after establishment of rules allowing the practice. A banking executive told Business Daily that Macau’s low tax burden explains previous lack of interest in the technique. It’s used in other jurisdictions to reduce tax payments. Cross border financial leasing between Macau and the mainland is envisaged under the Closer Economic Partnership Arrangement. Page 5

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September 3, 2013

Macau

Transcity acquired by Suzo-Happ Target firm has gaming industry support business in Macau, buyer has components maker in mainland China

Scratching the surface – many mainlanders yet to visit Macau

August revenue second highest ever Eight-month casino tally now MOP231.67 billion, says regulator

acau’s monthly gaming revenue reached nearly 30.74 billion patacas (US$3.85 billion) in August. It was the second strongest figure this year and therefore the second highest monthly tally ever recorded, according to government data released yesterday. Gambling revenue in Macau rose 17.6 percent year-on-year in August, up from nearly 26.14 billion patacas in the equivalent period in 2012. Accumulated revenue for the eight months to August 31 inclusive now stands at 231.67 billion patacas, says the Gaming Inspection and Coordination Bureau. Analysts appear mostly to be bullish on Macau, citing low market penetration by the city’s gambling operators among China’s 1.3 billion citizens and strong sentiment on the consumer side despite a slowing in the growth of the world’s secondlargest economy. Melco Crown Entertainment Ltd, listed in New York and Hong Kong,

16.2 %

Y-o-y increase in gaming revenue in first 8 mths

was the target of unusually large options trading activity on one day last week. Traders bought 7,906 call options on the stock, representing an increase of approximately 126 percent compared to the typical daily volume of 3,494 call options. Last Thursday Nasdaq-listed Wynn Resorts Ltd, the parent of Wynn Macau Ltd, was also the target of exceptional options activity. Investors purchased 10,298 call options on the stock, an increase of 110 percent compared to the typical daily volume of 4,895 call options. A call option is an agreement that gives an investor the right (but not the contractual obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period. “There is further upside potential for the persistently growing Macau gaming sector with gaming stocks having diverse performance in the next six months,” Credit Suisse Group AG analysts led by Kenny Lau in Hong Kong wrote in a report dated August 30. In Hong Kong trading yesterday Galaxy Entertainment Group Ltd jumped 4.13 percent to HK$49.15. Melco Crown – co-chaired by Lawrence Ho Yau Lung and only lightly traded in Hong Kong – was up 0.49 percent to HK$71.30. MGM China Holdings Ltd – 51 percent owned by Las Vegas market leader MGM Resorts International – gained 3.46 percent to end the session at

HK$23.95. Sands China Ltd – a unit of billionaire Sheldon Adelson’s Las Vegas Sands Corp – was the biggest winner on the day, gaining 4.26 percent to HK$46.50. SJM Holdings Ltd, founded by Stanley Ho Hung Sun was the only loser, slipping 0.60 percent to HK$19.76, while Wynn Macau, chaired by Steve Wynn, put on 2.56 percent to end the day at HK$24.05. “We believe Macau fundamentals remain strong across all relevant segments (VIP, premium mass, ‘mass mass’) and we have strong conviction that these trends are likely to continue through the balance of the year and into early next year,” said Grant Govertsen of Union Gaming Research in a note following the August revenue data. He added: “We are therefore maintaining our full year GGR [gross gaming revenue] growth estimate of approximately 16 percent that we first established in January – although with a slight bias to the upside.” The research house added it expected 20 percent revenue growth year-on-year in September, to 28.60 billion patacas.

ranscity Group Pty Ltd – a firm with a strong presence in Macau providing technical support to the gaming industry – has been acquired by United States-based Suzo-Happ Group. The precise terms of the deal have not been announced. Suzo-Happ is owned by Acon Investments LLC, a Washington D.C.-based private equity firm with more than US$2.5 billion (19.97 billion patacas) of capital under management. In 2007 Suzo-Happ announced it had acquired Dynamics Chinatec Industries (HK) Ltd, a Zhuhaibased manufacturer of parts and components used in the gaming, amusement and transportation markets. Suzo-Happ has supplied components for well-known gaming industry brands including the cash handling equipment specialist MEI and FutureLogic, a maker of slot machine ticket printers. “The ability to offer Suzo-Happ’s products throughout the region and add their global supply chain infrastructure will only increase our ability to serve our customers,” said Geoff McDowell, managing director of Transcity. Transcity was founded in 1996 in Melbourne, Australia. It also has offices in Sydney, Macau, the Philippines and Cambodia. The firm is a specialist electronics company providing design, manufacturing and repair of hardware and software and replacement parts for the gaming and wagering industries. Suzo-Happ was itself formed from a merger in 2005 between Suzo International, founded in Rotterdam, the Netherlands in 1955, and U.S.based Happ Controls. “We are excited to join the Suzo-Happ organisation and be an integral part of a global company that provides such a great platform for expanding our relationships with key customers throughout the region,” added Transcity’s Mr McDowell. M.G.

Market Share Per Operator (2012-2013) Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug SJM

26% 27% 27% 28% 26% 26% 26% 27% 26% 23% 25% 24% 24%

Sands China 19% 18% 21% 21% 21% 20% 21% 21% 22% 21% 21% 23% 23% Galaxy

21% 18% 19% 16% 18% 19% 19% 18% 18% 19% 19% 20% 17%

Wynn

12% 13% 10% 12% 10% 11% 12% 11% *

12% 10% 10% 12%

MPEL

13% 14% 14% 14% 14% 14% 13% 14% *

14% 15% 13% 14%

MGM

10% 10% 9% 10% 11% 9% 10% 9% *

11% 11% 10% 10%

Total

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%*

Figures are rounded to the nearest unit, therefore they may not add exactly to the rounded total

* Not available

Deal ‘… will only increase our ability to serve our customers’ Geoff McDowell, managing director, Transcity Group

September 3, 2013 April 19, 2013

Macau Hengqin eyes HK bonds, listing Hengqin will soon issue 1.5 billion yuan (1.96 billion patacas) of yuan-denominated bonds in Hong Kong, the director of the Hengqin New Area Administrative Committee, Niu Jing, told South China Morning Post. The special zone is also planning to list a batch of property and infrastructure projects in the Hong Kong Stock Exchange next year, Mr Niu added. Hengqin wants to attract 500 billian yuan worth of projects in the next few years, the official said. The island’s Chime Long International Ocean Resort could ready by the end of this year, the report added.

SMEs eying Nansha for retailing centre The Macau SME Association gives up on Hengqin and looks elsewhere for growth Tony Lai

tony.lai@macaubusinessdaily.com

acau small and medium enterprises are pondering setting up a mainland retailing centre for Macau brands in Guangzhou’s Nansha New Area, after struggling to get a foothold on Hengqin Island. Macau SME Association administrator Kenneth Lei Chi Leong said of Nansha: “The authorities have expressed interest in developing the commercial sector, and we think Macau SMEs can take this chance to set up a small trade street or commercial centre there.” A Macau SME Association delegation led by Mr Lei discussed the idea of a trade street during a visit to Nansha last month. “We have not confirmed it or laid out any details. We just put forward this idea during our meeting with officials,” he told Business Daily. The delegation had a meeting with the Bureau of Economy and Trade in Nansha. “We will now test the water to see how SMEs here react to the possibility of investment in Nansha,” Mr Lei said. “We will follow up on the matter with Nansha by end of the year, or early next year at the latest.” The Macau SME Association says the idea is to bring several smaller businesses together to form a joint venture to gain a foothold in Nansha. The state-run China News Service reported that the Nansha authorities

approved last week the plan for the development of the area up to 2025. They envisage Nansha as a hub for cooperation between Macau, Hong Kong and Guangdong.

Preference voiced The Nansha New Area is the first state-level development zone in the south of the mainland. The zone covers 570 square km, making it 19 times the size of Macau. The authorities there aim to develop wholesaling, retailing, tourism, logistics, and high technology and data processing industries. Mr Lei said the Macau SME Association delegation’s visit to Nansha had been spurred by the sluggishness of progress in making Hengqin Island a place for Macau enterprises to do business in the mainland. “Hengqin has been talked about for some years, but so far there have been no detailed measures and the investment floor is so high,” he said. The Hengqin authorities said in July that they would require investors to have minimum registered capital of 100 million yuan (130 million patacas). “We want to look for other possible areas for Macau SME development,” Mr Lei said. The chairman of the Macau SME Association, Stanley Au Chong Kit, has been vocal about his preference for Nansha, saying in July that Hengqin

The Macau SME Association says the road to Hengqin Island is blocked

Hengqin has been talked about for some years, but so far there have been no detailed measures and the investment floor is so high Kenneth Lei Chi Leong, Macau SME Association administrator

had less business potential. Mr Lei said: “From what we learned on our trip, Nansha does not have any investment floor like Hengqin.”

Rosier view He added: “The area for development in Nansha is much bigger than the cooperation zone in Hengqin.”

In 2009 the Hengqin authorities reserved 5 square km of the island for cooperation between Macau and Guangdong. The Nansha authorities said last month that total investment in the development of the area would exceed 400 billion yuan in the next four years. The Federal General Commercial Association of Macau SMEs has a rosier view of Hengqin’s potential than the Macau SME Association. The chairman of the Federal General Commercial Association is David Chow Kam Fai, the boss of Macau Fisherman’s Wharf and the Landmark casino hotel. Mr Chow made the winning bid for a plot of land on the island last year. He aims to build a 1.6 billion yuan commercial centre with a Portuguese theme on the land. The president of the Federal General Commercial Association, Fong Kin Fu, said last month that the commercial centre could accommodate about 200 small businesses. Chief Executive Fernando Chui Sai On told the Legislative Assembly last month that the government would support small Macau enterprises seeking to tap into the markets on Hengqin or in Nansha, no matter which. Mr Lei said a Macau SME Association delegation would visit South Korea next month, hoping to learn from businesses there.

September 3, 2013

Macau “We have also finally cleared all the orders accumulated since April as we have oversold during the period,” said Mr Lei, meaning some customers have had to wait to collect their goods after placing an order. “The manufacturers had to work overtime in those months to keep up the supply with the demand,” he added.

Imports up

Glittering prizes – visitors still buying jewellery

Shine comes off gold Retail sales fall back to more normal levels after rush seen during springtime Tony Lai

tony.lai@macaubusinessdaily.com

he gold and jewellery industry expects its retail sales to “stabilise” in the rest of the year after the rush caused by the international gold price plunge earlier this year. “Sales have normalised now after the frenzy in April and May,” said Lei Chi Fong, president of Macau

Goldsmith’s Guild president. “The frenetic grabbing of gold lasted for about a month-and-a-half and now the business has been back to normal,” said Mr Lei, who is also managing director of Seng Fung Jewellery Co Ltd, which has eight branches in Macau. The international gold

price experienced the biggest decline in 30 years in April and the price was seen as low as US$1,180 (9,440 patacas) an ounce in June on New York’s commodity exchange, Comex. But the price has recovered in the recent weeks and was closed at US$1,396 an ounce by Friday New York time.

Latest government data show the city imported gold jewellery worth 5.31 billion patacas in the first seven months of this year, rising by 30 percent from a year earlier. “During those months, gold sales accounted for over 90 percent of our business,” said Mr Lei. “But now the gold presence [proportion of jewellery sales] dropped back to the level before [the rush] of about 70 percent, while the rest is made up of jewellery.” Chow Tai Fook Jewellery Group Ltd, the world’s largest listed jewellery chain with outlets in Hong Kong and here, also reported “normalisation” of gold sales after the craze. Hong Kong newspaper Apple Daily reported Henry Cheng Kar Shun, chairman of the Hong Kong-listed chain, saying yesterday after a shareholders’ meeting that its gross margin has also improved with a smaller proportion of total sales coming from gold. He declined to reveal the

second quarter sales figures ahead of the required stock market announcement, but reportedly said he expects “growth” in the rest of the year as the consumption from mainland Chinese remains strong. Mr Lei echoed Mr Cheng’s view that a “stable rise” in gold and jewellery prices can be maintained for the rest of the year, despite the products becoming “a more popular investment vehicle among Chinese”. Macau government data show that in the first six months retail sales of jewellery and watches surged by 24 percent from a year earlier to more than 10.1 billion patacas.

The frenetic grabbing of gold lasted for about a month-and-ahalf and now the business has been back to normal Lei Chi Fong, president of Macau Goldsmith’s Guild

Mainland flights fuel passenger growth Two new mainland routes launched from the Macau airport this month Tony Lai

tony.lai@macaubusinessdaily.com

he number of passengers going through the Macau International Airport grew by 9.5 percent last month from a year earlier, thanks to more passengers taking flights to and from mainland China. The Macau International Airport Company Ltd (CAM) announced yesterday the passenger volume exceeded 496,000 in August. The number of landings and takeoffs last month also expanded at a similar rate of 9.5 percent to 4,300 aircraft movements. The rise in passenger numbers was fuelled by a faster growth, of 18 percent, in the Chinese market.

18%

Year-on-year growth in mainland China passenger volume in August

The number of people taking flights to and from the mainland topped 160,000 last month. Nonetheless, Southeast Asia remains the airport’s biggest market. Passengers taking flights overseas totalled more than 186,000 last month, up by 7.5 percent year-on-year. Howev er , wi th s ev er a l n ew mainland routes launched last year, the Chinese market could soon overtake Southeast Asia. The Macau airport now has regular flights to 20 airports in 19 mainland cities operated by different carriers. And this number is set to rise this month with the launch of two new routes, to Zhengzhou, capital of Henan province, and Kunming, capital of Yunnan province, according to a CAM press statement. The airport operator did not identify the carriers running the new flights. Air Macau Co Ltd and Xiamen Airlines Co Ltd have expressed interest in flying to Zhengzhou. Last month the Civil Aviation Authority confirmed to Business Daily that Xiamen Airlines had applied to fly three times a week to Zhengzhou via Fuzhou.

Almost half-million people went through the Macau airport last month

At the time Air Macau said it was still drafting a feasibility report on this route. More routes to the mainland means a better foundation for the city’s target to become “a world centre of tourism and leisure,” the airport operator said. In addition it will also “provide a wider range of choice” for tourists

from Southeast Asia seeking to use Macau as a stopover for other destinations, said CAM. The number of passengers rose by 12.5 percent year-on-year to over 3.3 million in the January-August period, while the number of aircraft landings and take-offs was up by 18.5 percent to more than 32,000, CAM said.

September 3, 2013

Macau LRT could reach Seac Pai Van, Cotai hospital Engineering consultants Ove Arup & Partners Hong Kong Ltd will carry out a twoyear feasibility study on a possible extension of the Light Rapid Transit (LRT) railway to the second public hospital in Cotai and to Coloane’s public housing complex. Ove Arup will get 10.85 million patacas (US$1.4 million), according to yesterday’s Official Gazette. It scored highest among four firms with “the relevant expertise and experience” invited by the government, the Transportation Infrastructure Office told Business Daily. The possibility of an elevated railway station in Seac Pai Van was first mentioned in February 2012, as part of the system’s second phase.

New firm takes plunge into financial leasing

had looked into it. The only Macau bank to mention financial leasing on its website is Sociedade Financeira ICBC (Macau) Capital SA, the subsidiary here of Industrial and Commercial Bank of China Ltd, the mainland’s biggest bank. The bank executive said Land Tai Fung might “be seeking to somehow explore a market opportunity” to provide a financial service that had so far been unexploited. Business Daily tried to contact Tai Fung Bank Ltd to ask it about its hopes for Land Tai Fung, but we had received no reply by the time we went to press. One business open to Macau financial institutions is financial leasing to mainland companies. A supplement added in 2006 to the Closer Economic Partnership Arrangement between Macau and the mainland permits this. The Monetary Authority declined to disclose whether any more companies are interested in financial leasing here. The law says a financial leasing company must have registered capital of at least 30 million patacas (US$3.8 million).

Few benefits have meant little interest in financial leasing so far Vítor Quintã

vitorquinta@macaubusinessdaily.com

acau may soon have its first financial leasing company, 20 years after financial leasing regulations came into force. But a bank executive says there may be little interest in what the company has to offer. Yesterday’s Official Gazette says Land Tai Fung (Macao) International Financial Leasing Co Ltd has been authorised to engage in financial leasing. The Monetary Authority of Macau told Business Daily that Land Tai Fung would be the first company here to engage exclusively in financial leasing, even though rules on financial leasing had been in place since 1994. A bank executive said of the rules: “It is an old law that has never been really tested.” The executive, who asked not to be identified, told Business Daily that the rules had never been tested because of lack of interest in financial leasing. In the West, financial leasing is commonly used to save on tax, as the rent paid for the asset leased – be it capital equipment, software, a car or

Tai Fung Bank is setting up Macau’s first financial leasing company (Photo: Manuel Cardoso)

whatever – is tax-deductible. The bank executive said financial leasing had no similar big advantage in Macau, where taxes were generally low and value added tax non-existent. What is more, the executive said, “there are many restrictions” on financial leases. In a leasing deal, the finance company remains the legal owner of the asset unless the lessee decides

to buy it. “In most cases, it is simply easier to ask for a normal loan,” the bank executive said. A lessee could pay a lot of interest, eventually spending what the asset is worth, without ending up the owner. The Monetary Authority said the law allowed banks to offer financial leasing. But the bank executive said few

January 1, 1994 Date the financial leasing rules came into force

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September 3, 2013 April 19, 2013

Macau

One Penha Hill presales return in Q4 Tomson Group completed frame of three blocks in first half of this year Michael Grimes

michael.grimes@macaubusinessdaily.com

ong Kong-based developer Tomson Group Ltd reported a first half profit of nearly HK$45.81 million (US$5.91 million) compared to a loss of nearly HK$16.77 million a year earlier. The firm has a 70 percent interest in One Penha Hill, a luxury lowdensity housing development in Macau due to be completed early next year. According to its results filing in Hong Kong, the scheme will have four tower blocks, a club house, roof garden and car parks with a gross floor area of 22,842 square metres (245,869 sq. feet). “Construction of the superstructure of three blocks of residential towers was completed in the first half of 2013 and the construction works of the whole project are tentatively scheduled to be completed in the first quarter of 2014,” said the company. It added: “Pre-sale of the project was kicked off in May 2013 and received a warm welcome. In the light of implementation of new laws in Macau in June 2013, the marketing campaign was put on hold pending application for pre-sale consent and is expected to be re-launched in the

fourth quarter of 2013.” One Penha Hill will have fewer than 100 units and “less than 50 percent” will be available for early purchase, Jeff Wong Chi Wai, head of residential property at Jones Lang LaSalle (Macau) Ltd told Business Daily in April. The buildings will be seven- to 12-storeys high, said Mr Wong. The gross floor area permitted is “owing to a change in design and in response to comments from the local authorities,” Tomson Group told the Hong Kong Stock Exchange in September last year. The project is located in the middle of Penha Hill, with a view to Sai Van Lake, and a few minutes’ walk from the Penha Monastery, an element of the city’s UNESCO World Heritage sites.

Q1 2014

Planned completion for One Penha Hill

View from Penha Hill

Second-hand rose Pre-owned handbag retailer Milan Station sees Macau revenue up one third in first half Michael Grimes

michael.grimes@macaubusinessdaily.com

Milan Station outlet near Senado Square (Photo: Manuel Cardoso)

ilan Station Holdings Ltd’s Macau operation saw revenues rise by nearly a third year-on-year in the first half, even as the firm’s main business in Hong Kong experienced a 14 percent revenue contraction. The group has 16 shops selling used handbags under the Milan Station and France Station brands in Hong Kong, mainland China and Macau and one discount outlet in Hong Kong. According to the firm’s 2012 annual report it has only one outlet in Macau – Milan Station in Rua de São Domingos. But that single site provided nearly 11 percent of the group’s HK$328.50 million (US$42.36 million) revenue in the first half. Macau revenue for the half year was up 32 percent, to around HK$34.86 million, from approximately HK$26.48 million a year earlier. In Hong Kong, revenue fell to HK$261.64 million from HK$304.63 million. “Stimulated by the continuous increase in visitor arrivals to Macau, the retail sector blossomed,” said the firm in commentary on the first half results. The company told the Hong Kong Stock Exchange in April it would “study the feasibility of further

expanding its business in Macau”. Total group revenue for the six months ended June 30 was down approximately 12 percent to HK$328.50 million from nearly HK$374.34 million a year earlier. It mentioned in the latest report that rocketing shop rents in Hong Kong had put pressure on its margins, adding it was expanding its online shopping operations. “The group…actively expanded its diversified and cost-effective sales channels to mitigate the overall rental pressure to maintain profitability,” it stated. Milan Station added that its online shopping operation – started with a partner in July 2011 and then developed into milanstation. net which launched in October 2012 – saw sales grow by 190.5 percent to HK$6.10 million in the first half compared to the same period in 2012. On June 27 this year the firm said in a filing it had signed a deal with M C Holdings Pte Ltd for the latter to run a franchise retail operation in Singapore.

HK$34.86 mln Macau revenue for the first six months of 2013

September 3, 2013 April 19, 2013

Macau

Revamp gives Omega shop’s sales a boost Watch retailer Hengdeli’s sales climb but its profit tumbles in the first half Vítor Quintã

vitorquinta@macaubusinessdaily.com

usiness at watch retailer Hengdeli Holdings Ltd’s Omega shop in Macau rebounded in the first half of this year after the premises were renovated. In reporting its first-half results, Hengdeli said the Macau outlet “achieved positive sales” owing “the increasing number of tourists” here. The city had over 14.1 million visitors in the first half, 4.2 percent more than a year earlier, official data show. In the second quarter each visitor spent an average of 184 patacas (US$23) on jewellery and watches, 22 percent more than a year earlier. Hengdeli chairman Zhang Yuping told the Hong Kong Stock Exchange: “Customers and sales increased as the shop image escalated after renovation last year.” The Hong Kong company is confident that the rebound will last. “The business in Macau is recuperating in order to go full steam ahead,” the company said. “The changing economic

Hengdeli expects business at its sole Macau store to keep improving

conditions and improving economic status of Macau will definitely bring synergy to the group’s businesses in Hong Kong and Macau, which will further consolidate the group’s leading position in the region,” it said. Hengdeli has 452 outlets in

Greater China. They sell Omega, Cartier and Rolex watches. The company is the Chinese partner of Swatch Group AG. Hengdeli’s first-half sales were 6.29 billion yuan (8.22 billion patacas), 9.5 percent more than

a year earlier. But its net profit fell by 50.8 percent to 302.2 million yuan. Mr Zhang attributed the slump in profit to “an increase in expenses arising from higher labour costs and rental expenses” and the narrowing of the company’s gross profit margin on sales, which shrank by 0.1 percentage point to 26.6 percent despite growth in sales of mid-range watches. Hengdeli said that in the “subdued economic environment” it had been more flexible in giving discounts on high-end brands. The company said selling prices had been stable as suppliers had refrained from raising prices so far this year. It said it intended to grow its retailing network in southwestern, central and southern China, and to expand “prudently” into Europe and the United States. Hengdeli’s first-half report made no mention of any plans for more shops in Macau.

Customers and sales increased as the shop image escalated after renovation last year Zhang Yuping, chairman, Hengdeli Holdings

September 3, 2013 April 19, 2013

Greater China

Factory activity up for first time in 4 m Economic rebound signalled in rising manufacturing gauges

hina’s factory activity expanded for the first time in four months in August as domestic demand rebounded, a private survey showed yesterday, the latest sign that the world’s secondlargest economy may have avoided a sharp slowdown. The final HSBC Holdings Plc and Markit Economics Purchasing Managers’ Index (PMI) climbed to 50.1 in August, up sharply from July’s 47.7 and in line with last week’s flash preliminary reading. The survey came a day after China’s official manufacturing PMI showed factory activity expanded at the fastest pace in more than a year in August with a jump in new orders. Economists cheered the upbeat data as a sign that China’s economy, which has cooled in 12 of the last 14 quarters, is finally steadying. “We are definitely stabilising, but it’s going to be a pretty weak to flat recovery,” said Stephen Green, an economist at Standard Chartered Plc. Asian shares climbed to a twoweek high and the Australian dollar and copper gained after the report.

We are definitely stabilising, but it’s going to be a pretty weak to flat recovery Stephen Green, Standard Chartered

Modest growth in China’s factories should still comfort financial markets, however, offering hope that a run of encouraging data in July was not a fluke. The official PMI, which came in at 51.0 versus expectations for 50.6, is more weighted towards bigger and state-owned firms, which have easier access to credit and the scale to cope better with downturns than the smaller private firms that form the backbone of the private survey. As recently as a month ago, investors had worried that China’s economy was slipping into a deeperthan-expected downturn, especially after its money market was hit by an unprecedented cash crunch in June. But policy makers have stepped in with a series of measures aimed at stabilising the economy, including quickening railway investment and public housing construction and introducing policies to help smaller companies with financing needs.

Weak exports Senior officials have also been talking up the economy, saying there are clear signs of stabilisation emerging and that the government’s annual GDP target of 7.5 percent is achievable. Data for July had showed a pickup in trade and industrial output, while foreign investment into China also quickened, adding to confidence in the economy. “We expect some upside surprises to China’s growth in the coming months,” said Qu Hongbin, HSBC’s chief China economist, noting that factory activity had picked up on firms rebuilding their stocks and on recent steps taken by authorities to boost activity. However, any expectations for a strong rebound may be misplaced. As a PMI reading above 50

China’s manufacturing sector has been a key driver of its economic growth

indicates growth while one below 50 demarcates contraction, the latest Markit/HSBC data suggests August’s expansion was only modest. Indeed, the survey showed new export orders dipping from July to stay well below the 50-point threshold. New orders, which include domestic orders, showed marginal growth by rising to 50.8, albeit a four-month high. “The recovery is being driven primarily by domestic demand but international demand is picking up too as we can see from the jump in new export orders,” said Lu Ting,

head of Greater China economics at Bank of America Corp in Hong Kong, referring to a sub-index of the official PMI. “This will surely boost markets’ confidence in China’s recovery amid the turmoil in some emerging markets.” HSBC said lethargic export sales remained an Achilles’ heel for China, with factories citing weak U.S. and European demand behind last month’s fall in overseas orders. Other downside factors linger, too. For example, most Chinese firms still face relatively high financing costs, in part due to Beijing’s campaign

Retailers don’t buy signs of recovery Consumer sentiment not improving, retailers say Anne Marie Roantree and Donny Kwok

f things are really starting to look up for China’s economy, as a recent spate of better-thanexpected government data seems to suggest, nobody appears to have told its biggest retailers. A Reuters review of first-half earnings showed that more than 20 Chinese companies selling everything from footwear to food were not convinced the economic slowdown had bottomed out, and neither were their traditionally thrifty customers. “The reality behind the numbers is gloomier,” said leading footwear retailer Belle International Holdings Ltd as a raft of data, supported by government statements, indicated the world’s second largest economy may be stabilising after two years of slumping growth. “There are uncertainties in future prospects as the economy is struggling with a difficult transition

involving structural rebalancing and revamping the growth model,” said Belle, which has a market value of US$11.6 billion and manages more than 18,000 retail outlets across 360 Chinese cities. “As a defensive reaction, consumers are becoming more inclined to save and less willing to spend,” it added. Economists have long doubted the accuracy of official economic data and this scepticism has increased as China plots a course towards consumption-led growth. The official retail sales measure, for example, counts a sale from when an item is shipped, rather than when it is actually sold. The latest data, however, supports retailers’ complaints. Retail sales grew 13.2 percent in July year-on-year, a slowdown from 14.3 percent annual growth in 2012,

and 17.1 percent growth in 2011. “Consumer sentiment showed no sign of significant recovery, affecting many businesses,” said menswear retailer China Lilang Ltd, which has nearly 3,500 stores across China. This uncertainty about the future underscores the difficulty both the government and retailers have to persuade consumers to throw open their wallets in a nation with one of the highest household savings rates in the world. “The traditional retail industry has reached an inflection point due to the combination of a variety of factors, including slower economic growth, changing consumer habits and rapid growth of e-commerce,” said Lianhua Supermarket Holdings Co Ltd, which operates more than 4,500 outlets across China. “The increase in the overall savings rate indicates that China still

has a long way to go to transform into a consumption-driven economy,” it said in its earnings statement. Some firms are reporting upbeat sales and Chinese governmentbacked retailers are also more

Consumers more inclined to save

September 3, 2013 April 19, 2013

Greater China

months

China to withstand emerging stocks rout

AMP, China Life set up new fund

BofA’s economist says economy ‘could gain’ from Fed tapering

to curb shadow banking. A strong yuan currency is also dampening the trade picture. Also a concern is that average input costs rose in August for the first time since February on the back of higher raw material prices, HSBC said. At the same time, slowing growth has put pressure on China’s heavily indebted companies and provincial governments, raising concerns that the country’s explosion in credit since 2008 could be on the verge of a meltdown. Reuters

positive about the future than some of their private-sector counterparts. Caution, however, still abounds. Consultancy China Market Research Group recently polled 1,000 middle-class consumers who earn US$6,000-US$15,000 a year and found that most people were worried about the future. “Their sentiment and confidence is very negative from what we found and so that is going to hurt some of the mid-tier consumer retail brands,” senior analyst James Roy said. Reuters

KEY POINTS Retailers doubt that economy is stabilising Cautious view contrasts with official line Data doesn’t reflect true picture – Belle July retail sales slowed to 13.2 percent y-o-y

hina, the best-performing A s i a n s to ck m a r k et l a s t month, will weather the tapering of U.S. stimulus that has triggered routs in other emergingmarket equities, according to a Bank of America Corp report. The world’s second-largest economy has low foreign debt, “huge” foreign exchange reserves, a “sustained” current account surplus and high savings that shield it from capital outflows, wrote Lu Ting, a Hong Kong-based economist at Bank of America, ranked first for Asia research in 2011 by Institutional Investor magazine. The government may postpone widening a trading band for the yuan and slow the pace of removing capital controls to ensure economic and financial stability, said Mr Lu. Foreign investors sold a net US$2.2 billion of Thai, Indonesian and Philippine shares last month amid signs of slowing regional economic growth and speculation that the Federal Reserve will soon cut stimulus. Minutes of the Fed’s July meeting released on August 21 showed policy

Chinese importers may cut LME deliveries Premiums seen falling further as supplies rise

hinese buyers may cut previously booked London Metal Exchange (LME) refined copper stocks over coming months as arrivals into the world’s top consumer of the metal have built up inventories and weighed on spot premiums, traders said. Fewer shipments into China would mean more supply on the international markets, which could blunt a rebound in prices. London copper is still down nearly 10 percent on the year, but is up more than US$500 from a low hit in June. Chinese importers have queued up to take LME stocks of copper bought in June, when price differentials between Shanghai and London were favourable for imports. They mostly

makers were “broadly comfortable” with chairman Ben S. Bernanke’s plan to taper purchases this year if the economy strengthens, with a few saying a reduction may be needed soon. China’s stocks have rallied over the past month on signs economic growth is stabilising. Growth in industrial output and money supply accelerated in July, while an official purchasing mangers’ index released on Sunday and a private survey yesterday showed manufacturing rose in August. The Shanghai Composite Index jumped 5.3 percent in August, compared with losses ranging from 8.5 percent to 9.1 percent for benchmark indexes in Indonesia, Thailand and the Philippines. “The weakness in some emerging markets could convince perpetual China bears to revisit the case of China by focusing on some important factors” such as the current account and savings rates, Mr Lu wrote in yesterday’s report. “China could even gain to some extent from the U.S. QE tapering.” Bloomberg

paid premiums of about US$150US$160 a tonne over cash LME prices. The importers had planned to cash in as premiums later rose to four-year highs of above US$200. But spot premiums have since fallen back to about US$150 a tonne and are expected to fall to US$100US$130 in the coming two months, traders said. “People are expecting premiums to fall and have been unwilling to buy mostly in the past two weeks,” a trader at a large Chinese trading house said, referring to copper stocks in bonded warehouses in Shanghai. He said the arbitrage window had been mostly closed this month, prompting some importers to store copper arrivals in bonded warehouses, instead of paying the value-added tax and reselling into the domestic market as previously planned. The bulk of the earlier orders were scheduled to arrive in China between July and October, leading to the rising inventory. China’s arrivals of refined copper were estimated at 300,000 tonnes to 350,000 tonnes for August, with imports likely to increase to about 400,000 tonnes in September, traders said. Arrivals included both spot and term shipments delivered from LME warehouses and global producers. Traders said banks in China also remained cautious about lending to small importers using bonded stocks as collateral after forex authorities tightened controls over such business in May, helping to cut demand. Lending on physical imports to the domestic market stayed normal, they said. The higher supply, poor arbitrage and restricted lending on bonded stocks point to lower premiums. “If premiums fall further, some importers may choose to leave the metal in the LME warehouses,” a trader at a large Shanghai-based Chinese copper trading firm said. Reuters

China Life Insurance Co Ltd, the nation’s largest insurer, and a unit of Australia’s AMP Ltd formed a funds management joint venture targeting Chinese retail and institutional investors. AMP Capital, which managed A$130 billion (US$116 billion) as at March 31, will invest A$15 million for a 15 percent stake in China Life AMP Asset Management Co, Anthony Fasso, international head of AMP Capital’s global clients division, said in a telephone interview yesterday. The value of assets managed by Chinese mutual funds is expected to reach A$800 billion in 2013 and touch A$1.5 trillion by 2017, AMP said in a statement through the stock exchange yesterday. The joint venture takes advantage of regulations that came into effect June 21 that allow insurance companies in China to start mutual funds for retail and institutional investors, AMP said. “A funds management joint venture in China is a strategically significant move for AMP, giving us direct access to the world’s secondlargest and fastest-growing major economy,” AMP chief executive Craig Dunn said in yesterday’s statement. The joint venture, which has received approval from the China Insurance Regulatory Commission, will be China Life’s first in mainland China with a foreign partner in funds management, AMP said. It expects to introduce the first product in China in about six months after it gains the approval of China Securities Regulatory Commission, Mr Fasso said.

ICBC plans bond sale Industrial & Commercial Bank of China (Asia) Ltd is planning a dollar-denominated bond sale as borrowing costs drop to a two-week low and credit risk in the region eases. The unit of world’s most profitable lender hired banks to arrange investor meetings in Singapore, Hong Kong and London from tomorrow, according to a person familiar with the matter. Bond risk declined after China said manufacturing rose to a 16-month high in August, tempering concern that followed two quarters of slowdown in the world’s No. 2 economy. U.S. President Barack Obama has delayed military strikes against Syria’s government by seeking congressional authorisation. “Sentiment’s better than last week because action on Syria is delayed,” said Ajay Manglunia, the head of fixed-income markets in Mumbai at Edelweiss Financial Services Ltd. However there are still growth concerns and other fears, even though China’s economy is stabilising, he said.

Moutai plunges most in 7 years Shares in Chinese premium liquor maker Kweichow Moutai Co Ltd fell by the daily limit of 10 percent yesterday as a crackdown on corruption in China crimped profit growth in the first half of the year. Moutai produces the popular fiery alcohol baijiu, a spirit that outsells vodka worldwide. The company saw its shares fall 10 percent after it released its weakest first-half profit growth since at least 2009. It closed down 9.99 percent at 151.92 yuan. Baijiu has rocketed in price over the last five years, boosted by its traditional use by officials and executives as a gift to help smooth business ties. However, this has brought it under the spotlight of China’s new government as it looks to clean up corruption. “It’s clear that President Xi Jinping’s crackdown on corruption has been longer and deeper than many analysts had expected. He’s really trying to cut to the bone to ensure the legitimacy of the party,” said Shaun Rein, Shanghai-based managing director of China Market Research Group. The company’s first-half net income rose 3.6 percent to 7.25 billion yuan (US$1.2 billion), according to a company statement after markets shut on Friday.

10 10

September 3, 2013 April 19, 2013

Greater China

Beijing sets tax on low-grade coal imports Government imposes 3 pct tax on lignite imports Fayen Wong

FTA and Beijing has promised zero import tariffs for all ASEAN member countries. I don’t think they can arbitrarily change that,” said a Shanghai-based coal trader. The customs office could not immediately be reached for comment. “The customs office may require importers to provide a certificate of origin for all lignite shipments and those that can provide the documents will be exempt from the tax,” said Cao Zhongfang, an analyst with industry portal SXCOAL.com. “But the smaller Indonesian miners and traders may have trouble providing those certificates at such a short notice, so lot of shipments could be held at up the ports.” Indonesian miners contacted by Reuters said they are still seeking clarity on the matter. Non-ASEAN countries that export lignite to China include Australia, North Korea, Russia and Mongolia. They account for about 4 percent of China’s lignite imports. Beijing’s move to tax imports comes after the domestic coal association lobbied the government in May to ban imports of all lowgrade coal, citing the impact on local miners. China imported 187 million tonnes of coal, including lignite, in the first seven months of 2013. Total lignite shipments stood at 35.97 million tonnes during the period, up about 12 percent from year ago. Reuters

Domestic coal miners want a bigger share of the market

hina has announced a 3 percent tax on imports of steam coal with low calorific value but is yet to spell out details of its applicability, leading to uncertainty whether shipments from top low-grade supplier Indonesia will be subjected to the tariffs. Indonesia is the biggest seller to China of lignite, a form of low-grade coal, with its shipments accounting for 97 percent of China’s total lignite imports in 2013 up to end of July. Moves by China, the world’s top coal buyer, to slap an import tariff on lignite may dent sales of Indonesian

miners and could spark defaults of existing contracts. China’s State Council, the country’s cabinet, last week approved a plan to implement a 3 percent tariff on lignite imported from countries under the most-favoured nation trade status, according to a statement from the finance ministry. The new tax rule came into effect on August 30, according to the statement. Lignite currently enjoys zero import tariff. The statement did not specify what grades of lignite, in terms of heating value per kilogram, would

be affected, although industry s o u r ces s a i d C h i n es e c u s t o m s statistics classify coal with a calorific value of between 3,8004,200 kcal/kg as lignite. However, trade sources questioned if China would be able to impose import tariffs on Indonesian coal, since a free trade agreement between China and the Association of Southeast Asian Nations (ASEAN) has brought import tariffs for lignite to zero since the start of 2012. The import tax on other coal has been scrapped since 2008. “China is a signatory of the

Home prices up amid land sales

Move may dent sales of Indonesian miners Indonesia accounted for 97 pct of China’s lignite imports Lignite exempted from import tariffs under FTA

12%

Prices rose in the 10 major cities in August from a year earlier

Some cities starting to ease property policies, SouFun says hina’s new home prices jumped in August by the most since December amid a recovery in land sales and some easing of policies by local governments, SouFun Holdings Ltd said. Prices surged 8.6 percent last month from a year earlier, to 10,442 yuan (US$1,706) per square metre (10.76 square feet), SouFun said in an e-mailed statement after a survey of 100 cities. Year-on-year prices began rising in December, when they climbed 0.03 percent after a 0.46 percent drop in November. China will seek stable and healthy development of the real estate market, the government said after a meeting led by President Xi Jinping in July, prompting speculation that it may relax property curbs. Former

KEY POINTS

Beijing home prices jumped 22 percent in August

Premier Wen Jiabao in March stepped up a three-year campaign to cool home prices, ordering the central bank to raise down-payment requirements for second mortgages in cities with excessive cost gains. “Buyers are expecting home prices to rise further after seeing a series of land sold at record prices, while the government didn’t take much action on this,” Alan Jin, a Hong Kongbased property analyst at Mizuho Securities Asia Ltd, said. Home prices may rise more in September and October, the

traditional peak property sales season, Mr Jin said. Beijing sold a 75,360-squaremetre luxury residential land parcel on July 23 for a record price of 2.36 billion yuan, according to realtor Bacic & 5i5j Group. Shanghai on July 3 sold the most expensive plot in the city this year, a 79,500-square-metre site, for 4.9 billion yuan to developers including China Vanke Co. Some buyers, who had waited expecting prices to fall, entered the market recently because some cities started easing property

policies, SouFun, the nation’s biggest real estate website owner, said in the statement. China is facing “relatively large” pressure for property prices to rebound, the official People’s Daily newspaper reported on its microblog on August 28, citing the National Development and Reform Commission’s Chairman Xu Shaoshi. Prices in the country’s 10 major cities rose 12 percent in August from last year, SouFun said. Home values in the southern business hub of Guangzhou soared 24 percent from last year, while in the capital Beijing they jumped 22 percent, it said. China’s home prices rose 0.92 percent in August from July, compared with a 0.87 monthly gain last month, SouFun said. Bloomberg News

11 11

September 3, 2013 April 19, 2013

Asia S. Korea inflation slows in August South Korea’s inflation slowed slightly to 1.3 percent in August helped by stable or falling prices of education services, fuel and household items, state data showed yesterday. The consumer price index (CPI) rose 1.3 percent in August after gaining 1.4 percent in July, Statistics Korea said. The inflation rate has remained between 1.0 and 2.0 percent for 10 straight months. The central bank said earlier it expected inflation to accelerate to 2.1 percent in the second half of this year from an estimated 1.3 percent in the first half, projecting 1.7 percent for the entire year.

Indonesia’s trade deficit casts clouds on economy Trade deficit spikes to US$2.31 billion in July Nilufar Rizki and Rieka Rahadiana

ndonesia’s trade deficit widened to a record in July, showing the difficult road policy makers face in shrinking a big current account gap, which has battered the currency and confidence in Southeast Asia’s largest economy. Also yesterday, Indonesia reported that annual inflation in August was the highest since January 2009, at 8.79 percent, and a survey showed that manufacturing activity contracted sharply last month. Indonesia has been one of the

worst hit in the recent sell-off in emerging markets due to its rising current account deficit, which was a near-record US$9.8 billion in the second quarter. The current account is the sum of a country’s trade balance and investment income. In July, the trade deficit widened a larger-than-expected US$2.31 billion from a revised US$880 million the previous month due to a rise in oil imports, the statistics bureau said yesterday. A Reuters poll had projected July’s trade deficit at

US$400 million. Exports fell a worse-than-expected 6.1 percent from a year earlier while imports topped expectations by rising 6.5 percent. “Just as it looked as though Indonesia’s trade deficit may finally be stabilising, today’s [yesterday’s] data provided a nasty and badly timed surprise,” said Robert PriorWandesforde, economist at Credit Suisse in Singapore. “The combination of slowing real income growth, the lagged effects of

Manufacturing activity contracted sharply in last month

Twist in Billabong saga Coastal Capital wants board shakeup

.S. hedge fund Coastal Capital International Ltd joined debt specialists circling Billabong International Ltd yesterday, seeking a board spill, as rival investors eye the proceeds from a potential debt restructure rather than equity from a long-term turnaround. It’s a change from a lonely couple of years for the Australian surfwear

retailer, during which it opened its books to several private equity investors only to have them walk away. “Private equity firms are looking at ways they can exploit the vulnerability without risking too much skin,” said City Index analyst Peter Esho. “It’s moved from a survival valuation to a play for debt.” Billabong’s shares jumped 14

the monetary tightening and knockon effects from the sharp downturn in investment spending bodes badly for consumer spending, which we expect to be the next shoe to drop in the country’s rapidly faltering growth story,” he added.

More selling Markets sold off on yesterday’s data. The benchmark share index was down more than 3 percent at one point. In the spot currency market, the rupiah was down 0.2 percent at 10,930 per dollar, but dealers said some trades were made at weaker levels. Traders said the central bank was continuing to defend the psychological 11,000 mark by supplying dollar liquidity. Bank Indonesia often discourages dealers from posting weak price levels during times of high market volatility. “The data will surely weaken the rupiah as investors will speculate that imports will be hard to tame,” said Jemmy Paul, fund manager at Sucorinvest Asset Management in Jakarta. The rupiah has tumbled nearly 12 percent this year as worries about Indonesia’s fiscal health, especially its trade and current account deficits, prompt foreign investors to sell Indonesian bonds, stocks and other assets. The rupiah is the second worst-performing Asian currency in 2013, after the Indian rupee. The central bank last week said it expected the current account deficit to narrow to 3.4 percent of gross domestic product from 4.4 percent in the second quarter. The statistics bureau also reported annual inflation at 8.79 percent in August, up from 8.61 percent in July. A Reuters poll had projected 8.95 percent for August. Core inflation, which excludes volatile food prices and administered prices, climbed to 4.48 percent in August from 4.44 percent in July. Bank Indonesia has estimated that at yearend, inflation will be 9.0-9.8 percent. Manufacturing activity contracted sharply in Indonesia in August and the workforce declined, according to HSBC Markit purchasing managers’ index (PMI), which fell to a 15-month low. Reuters

percent to A$0.48 (US$0.43) after shareholder Coastal said it wanted to ditch and replace the majority of the board as well as amend the company’s constitution for member approval of future debt and equity financing arrangements. The stock has improved from a record low of A$0.12 in June but remains a far cry from the A$14 reached in the company’s heyday in 2007. Still, analysts say an equity valuation of around A$0.40 to A$0.60 is fair for a company that recently wrote down the value of its namesake brand to zero. Billabong was crippled by an ill-timed global expansion amid the global economic downturn and the

loss of favour with young shoppers for its brands, leading to an annual net loss of A$859.5 million last financial year. Coastal Capital, with a 5 percent stake in the business, wants to appoint its own directors and have all other board members removed except founder Gordon Merchant and his long-time friend Colette Paull. The proposal is a challenge to Altamont Capital Partners, a fund which has two representatives on Billabong’s seven-person board and leads a group which has provided the Gold Coast, Australia-based company with a US$294 million bridging loan as part of a refinancing plan. Reuters

12 12

September 3, 2013 April 19, 2013

Asia Indian stocks rise to 2-week high Indian stocks climbed to a two-week high as a decline in oil prices countered the nation’s slowest economic growth in four years. Lenders and consumer companies led the increase. The S&P BSE Sensex surged 1.4 percent to 18,870.19, according to preliminary closing prices in Mumbai. ICICI Bank Ltd, the nation’s second-largest lender, rose the most in two months. Reliance Industries Ltd, owner of the world’s largest refining complex, rose to a five-week high.

Koreas begin Kaesong committee talks North Korean negotiators will renew talks with South Korea to reopen the jointly operated Kaeseong industrial park. The two sides yesterday began their first meeting of a joint committee to oversee the reopening of the site, which was shuttered in April when Kim Jong-un withdrew the North’s 53,000 workers at a time of heightened tensions between the countries. The committee was established after an August 14 agreement to open the site, which signalled a thawing in relations.

Timor moves on stalled gas project East Timor is offering to invest US$800 million to build a pipeline to take gas from the Timor Sea to the tiny nation, as it makes a new pitch to resolve a dispute with Australia’s Woodside Petroleum over how to develop huge fields in the area. East Timor has insisted for a decade that a liquefied natural gas plant to process gas from the Greater Sunrise fields should be built on its shores, bringing with it muchneeded development. Woodside says the plan is uneconomical and wants to use a floating LNG plant.

S.Korea manufacturing shrinks in August South Korea’s manufacturing sector activity contracted for the third consecutive month in August albeit at a slower pace than July, a private survey showed yesterday, showing that growth momentum in Asia’s fourth-largest economy remains elusive. The HSBC Holdings Plc and Markit Economics purchasing managers’ index (PMI) edged up to a seasonally adjusted 47.5 in August from a 10-month low of 47.2 in July, Markit Economics said in a statement. The index has remained below the 50-point mark separating expansion from contraction in manufacturing activity since June.

Singapore – worst performance among the world’s developed equity markets

Singapore stocks slump most As investors pulled cash from Southeast Asia

ingapore stocks tumbled by the most among developed markets last month on concern about the future of global stimulus. Singapore’s Straits Times Index, the benchmark gauge for the region’s biggest market, dropped 7.5 percent in the 10 days through August 28, its longest losing streak since 2002. The gauge slumped 6 percent in August, the worst performance among the world’s developed equity markets. Jardine Cycle & Carriage Ltd, the largest shareholder of Indonesia’s PT Astra International, and commodities trader Olam International Ltd led declines. Stocks in Southeast Asia sank faster than global equities on signs regional economic growth is slowing and as Federal Reserve policy makers prepare to reduce U.S. bond buying that had prompted investors to buy riskier assets. Investors pulled US$2.2 billion from Thailand, Indonesia and the Philippines in August, after ploughing US$6.8 billion into the markets in 2012, data compiled by Bloomberg show. “Singapore is a barometer for Southeast Asia,” Wellian Wiranto, Singapore-based Asian investment strategist at Barclays Plc’s wealthmanagement unit, said in an interview. “Choppiness elsewhere brings ripples here. Investors are probably concerned about the risk of contagion amid capital outflows from neighbouring markets like Indonesia and the Philippines.”

The Straits Times Index has slumped 12 percent since Fed chairman Ben Bernanke said on May 22 the central bank may start tapering US$85 billion in monthly U.S. bond purchases if the world’s biggest economy improves. The city’s stock market benefited from loose monetary policy in the past few years as shares offered investors attractive dividend yields, said Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management Ltd, which manages about US$57 billion.

Stimulus tapering Policy makers were “broadly comfortable” with Mr Bernanke’s plan, minutes of their last meeting showed. The Fed will probably begin paring bond purchases when it next meets September 17-18, according to 65 percent of economists surveyed by Bloomberg last month. Singapore is the only developed market among countries in the Association of Southeast Asian Nations (ASEAN), which also includes Laos, Brunei, Cambodia, Indonesia, Malaysia, Myanmar and Vietnam. Shares listed in Singapore are worth US$558.4 billion, compared with US$455.4 billion for Malaysia, the second-biggest equities market in the region, according to data compiled by Bloomberg. “Singapore has been affected by

Japan PM pledges speedy Fukushima moves

apanese Prime Minister Shinzo Abe said yesterday the government will take prompt, comprehensive steps to clean up the wrecked Fukushima nuclear plant amid growing concerns about the plant operator’s ability to handle it. Embattled Tokyo Electric Power Co Inc, or Tepco, said at the weekend that radiation near a tank holding highly contaminated water at the plant had spiked 18-fold, to a level that could kill an exposed person in four hours. No new leak had been detected at the tank, but another leak was found from a pipe connecting two other tanks.

Mr Abe reiterated that the government will step forward to take all necessary steps to handle the legacy of the world’s worst nuclear disaster in a quarter century, adding it will draw up a fundamental plan to do so “quickly”. Mr Abe’s cabinet is likely to discuss this week funding for the Fukushima clean-up after a series of revelations about leaks of radioactive water at the coastal plant, said Tadamori Oshima, who heads the ruling Liberal Democratic Party’s taskforce on postdisaster reconstruction. Public concern over Fukushima, revived by the news of leaks of

redemptions from ASEAN since it’s the biggest market,” Baring’s Mr Do said. “It’s being lumped together with Indonesia, Thailand and the Philippines where capital outflows have accelerated.” While Singapore’s assets are more attractive than those in neighbouring Indonesia, investors may be choosing to sell their holdings in Singapore because the city-state’s currency is more stable, he said. “Singapore is getting hit from two sides,” Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd, said. “Firstly, it’s being lumped together with other Southeast Asian markets like Indonesia and the Philippines. Secondly, investors are selling high-yield Singapore REITs as bond yields are rising.” Regional currencies have also slumped as capital markets began to price in reduced inflows when the Fed starts tapering stimulus, Kelvin Tay, Singapore-based chief investment officer for southern Asia-Pacific at UBS AG’s wealth management unit, wrote in a note last week. UBS said Singapore was its preferred market in Southeast Asia, upgrading its rating from neutral. “Singapore is likely to outperform,” Mr Tay said. “Singapore’s strong currency, resilient domestic economy, good earningsgrowth potential and exposure to developed markets’ recovery make it appealing to foreign investors.” Bloomberg News

radiated water at the plant, have threatened to further delay the restart of other off-line reactors – a key part of Mr Abe’s plan for economic revival and a pillar of the turnaround plan Tepco has given its creditor banks. Japan’s nuclear industry, which once provided a third of the nation’s power, has nearly come to a halt since a massive earthquake and tsunami struck the Fukushima plant in March 2011, causing reactor meltdowns. Tepco has been pumping water over the reactors to keep them cool, and storing the radioactive waste water as well as contaminated ground water in ever-growing numbers of aboveground tanks. Japanese officials also fear that international attention to the Fukushima crisis could threaten Tokyo’s bid to host the 2020 Olympic Games, a decision set to be made by the International Olympics Committee on Saturday in Buenos Aires. Reuters

13 13

September 3, 2013 April 19, 2013

Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange)

Max 49.45

average 49.133

Min 47.95

Last 49.15

49.5

71.4

24.0

49.1

71.2

23.8

48.7

71.0

23.6

48.3

70.8

23.4

47.9

Max 71.3

average 71.133

Min 70.6

70.6

Last 71.3

Max 24

average 23.660

Min 23.3

Last 23.95

19.9

46.5 46.2

24.2 24.0

19.8

45.9

23.8 19.7

45.6

Max 46.5

average 45.929

Min 45.3

Last 46.5

45.3

Max 19.9

average 19.744

Commodities PRICE

DAY %

YTD %

(H) 52W

Last 19.76

(L) 52W

WTI CRUDE FUTURE Oct13

106.79

-0.798885276

14.09188034

112.2399979

BRENT CRUDE FUTR Oct13

113.49

-0.456100342

7.339449541

117.3399963

96.37999725

GASOLINE RBOB FUT Oct13

286.74

-0.78543995

10.20408163

298.210001

246.6799974

GAS OIL FUT (ICE) Oct13

955.75

-1.392829507

5.462068966

985.5

835.5

3.649

1.898910919

0.523415978

4.525000095

3.154000044

312.62

-0.331569215

4.523721957

322.8999853

276.1999846

Gold Spot $/Oz

1393.38

-0.1355

-16.2864

1796.08

1180.57

Silver Spot $/Oz

24.1356

2.6064

-19.8419

35.365

18.2208

Platinum Spot $/Oz

1526.61

0.2673

0.5838

1742.8

1294.18

Palladium Spot $/Oz

726.85

0.6327

3.8862

786.5

587.4

LME ALUMINUM 3MO ($)

1813.5

-1.171662125

-12.51808973

2200.199951

1758

NATURAL GAS FUTR Oct13 NY Harb ULSD Fut Oct13 METALS

Min 19.6

86.04000092

COUNTRY MAJOR

ASIA PACIFIC

CROSSES

AUD GBP CHF EUR JPY MOP HKD CNY INR THB SGD TWD PHP IDR AUDJPY EURCHF EURGBP EURCNY EURMOP EURJPY HKDMOP

LME COPPER 3MO ($)

7100

-0.740947854

-10.47787164

8422

6602

LME ZINC

1905

-1.550387597

-8.413461538

2230

1811.75

13800

-1.953818828

-19.10902696

18920

13205

15.75

0.127145582

2.173207914

16.65000153

14.77000046

482

0.10384216

-19.63318049

665

445.75

654

-0.038211693

-20.31678343

913

635.5

SOYBEAN FUTURE Nov13

1357.5

-0.803799781

4.202648244

1409.75

1162.5

COFFEE 'C' FUTURE Dec13

116.3

-1.147471313

-25.66315117

200

116.0999985

NAME

15.92999935

ARISTOCRAT LEISU

74.34999847

CROWN LTD

3MO ($)

LME NICKEL 3MO ($) AGRICULTURE ROUGH RICE (CBOT) Nov13 CORN FUTURE

Dec13

WHEAT FUTURE(CBT) Dec13

SUGAR #11 (WORLD) Oct13

16.34

COTTON NO.2 FUTR Dec13

-0.183262065

83.49

0.300336377

-18.5443669

21.82999992

6.032512065

93.72000122

World Stock Markets - Indices NAME

19.6

23.6 Max 24.2

average 23.933

Min 23.45

Last 24.05

23.4

Currency Exchange Rates

NAME ENERGY

23.2

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

0.8971 1.5581 0.9329 1.3209 99.37 7.9868 7.7543 6.12 66.22 32.104 1.2736 29.805 44.42 11364 89.144 1.23228 0.84776 8.0857 10.55 131.26 1.03

0.7864 0.4966 -0.3323 -0.0983 -1.2076 0.0038 0.009 0.0049 -0.7777 0.1433 0.1021 0.416 0.3602 -1.5839 -1.9844 -0.2297 0.6028 0.235 0.237 -1.1123 0

-13.5575 -3.6783 -1.8759 0.144 -13.3541 -0.0451 -0.0477 1.8072 -16.9511 -4.7471 -4.0986 -2.5902 -7.688 -13.8244 0.2053 -2.0125 -3.8148 1.63 -0.1858 -13.4771 -0.0097

1.0625 1.6381 0.9839 1.3711 103.74 8.0111 7.7664 6.3544 68.845 32.31 1.2862 30.228 44.82 11433 105.433 1.265 0.88151 8.4957 10.9254 133.8 1.032

0.8848 1.4814 0.9022 1.2502 77.13 7.9818 7.7498 6.1064 51.3863 28.56 1.2152 28.913 40.54 9448 79.408 1.20071 0.78875 7.8281 9.9897 97.99 1.0289

Macau Related Stocks PRICE

DAY %

YTD %

(H) 52W

(L) 52W

4.61

1.99115

46.3492

4.63

2.545

VOLUME CRNCY 1068752

15.05

3.011636

41.04967

15.13

8.9

2080816

AMAX HOLDINGS LT

1.06

7.070707

-24.28571

1.72

0.75

1633100

BOC HONG KONG HO

24.65

0.8179959

2.282156

22.85

9030915

CENTURY LEGEND

0.345

-9.210526

30.18869

0.42

0.22

30000

6.37

0.1572327

6.343911

6.74

3.1

191615 17742744

CHEUK NANG HLDGS CHINA OVERSEAS

23.6

2.164502

2.1645

25.6

17.34

CHINESE ESTATES

17.08

-1.385681

51.88232

17.5

8.004

19500

CHOW TAI FOOK JE

10.7

-13.98714

13.4

7.44

5924800

EMPEROR ENTERTAI

3.11

9.507042

64.55027

3.12

1.38

6271300

FUTURE BRIGHT

2.36

3.508772

94.71528

2.76

1.053

1772000

GALAXY ENTERTAIN

49.15

4.131356

61.94398

49.6

20.45

22063693

HANG SENG BK

1355485

COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

DOW JONES INDUS. AVG

14810.31

-0.2064558

13.02008

15658.42969

12471.49

NASDAQ COMPOSITE INDEX

3589.868

-0.8406755

18.88894

3694.188

2810.8

FTSE 100 INDEX

6491.07

1.218476

10.05898

6875.62

5605.589844

122.5

1.659751

3.201351

132.8

109

DAX INDEX

8224.58

1.498553

8.042021

8557.86

6889.79

HOPEWELL HLDGS

24.5

-0.4065041

-26.31579

35.3

23.2

912369

HSBC HLDGS PLC

83.1

1.341463

2.214018

90.7

65.85

14686518

HUTCHISON TELE H

3.33

-0.8928571

-6.460673

4.66

2.98

4957000

LUK FOOK HLDGS I

25.5

-3.773585

4.508198

30.05

16.88

1396000

MELCO INTL DEVEL

18.1

2.375566

100.8879

18.46

5.91

5644010

NIKKEI 225

13572.92

1.374725

30.56936

15942.6

8488.14

HANG SENG INDEX

22175.34

2.042991

-2.125532

23944.74

19076.78906

CSI 300 INDEX

2320.344

0.2780575

-8.03059

2791.303

2023.171

TAIWAN TAIEX INDEX

8038.86

0.2115462

4.407557

8439.15

7050.05

MGM CHINA HOLDIN

23.95

3.455724

80.36976

11.346

4548824

KOSPI INDEX

1924.81

-0.08046263

-3.617335

2042.48

1770.53

MIDLAND HOLDINGS

2.99

1.70068

-19.18919

2.68

1641000

S&P/ASX 200 INDEX

5188.276

1.038353

11.60102

5249.6

4261.2

NEPTUNE GROUP

0.167

-0.5952381

9.868425

0.23

0.131

7285000

NEW WORLD DEV

11.22

3.125

-6.655578

15.12

9.38

19602420

SANDS CHINA LTD

46.5

4.26009

36.96612

46.55

26.05

12556729

SHUN HO RESOURCE

1.76

-2.222222

25.71429

1.92

1.13

70000

0.4975124

-3.579954

4.65

2.78

3793252 10316393

JAKARTA COMPOSITE INDEX

4091.895

-2.459876

-5.207512

5251.296

3837.735

FTSE Bursa Malaysia KLCI

1717.04

-0.610102

1.663169

1826.22

1590.67

NZX ALL INDEX

977.65

1.093713

10.83802

998.487

804.506

SHUN TAK HOLDING

4.04

PHILIPPINES ALL SHARE IX

3712.03

0.2606432

0.3528013

4571.4

3411.69

SJM HOLDINGS LTD

19.76

0.4065041

11.33864

22.382

15.401

SMARTONE TELECOM

11.16

-0.5347594

-20.73864

16.92

10.6

995500

WYNN MACAU LTD

24.05

2.558635

14.79713

26.5

16.92

7562086

HSBC Dragon 300 Index Singapor

575.28

-0.26

-7.38

STOCK EXCH OF THAI INDEX

1314.24

1.540601

-5.581463

1649.77

1211.38

HO CHI MINH STOCK INDEX

472.7

0.8857112

14.25326

533.15

372.39

Laos Composite Index

1340.94

-0.07600823

10.38632

1455.82

1003.17

Shanghai Shenzhen Composite index is listing the biggest companies by market capitalisation. All data supplied by Bloomberg unless otherwise indicated.

ASIA ENTERTAINME

4.02

0.5

42.82248

4.7647

2.4835

65599

BALLY TECHNOLOGI

72.13

-0.7294247

61.32857

75.61

43.16

301612 8353

BOC HONG KONG HO

3.15

-1.5625

2.605865

3.6

2.99

GALAXY ENTERTAIN

5.99

0.6722689

50.88161

2.735

6633

INTL GAME TECH

18.89

-0.6834911

33.30981

20.25

12.01

980632

JONES LANG LASAL

82.24

-1.931791

-2.025259

101.46

70.9

280566

LAS VEGAS SANDS

56.35

-0.6698396

22.07539

60.54

37.8353

2793409

MELCO CROWN-ADR

27.19

-0.4758419

61.46081

27.75

11.46

1902154

MGM CHINA HOLDIN

2.88

64.54403

2.98

1.5327

4000

MGM RESORTS INTE

17.69

-0.5061867

51.97594

18.54

9.15

6668002

SHFL ENTERTAINME

22.77

57.03448

23.08

12.35

746191

SJM HOLDINGS LTD

2.53

11.08106

2.9481

2.0015

3200

141.04

-0.5850426

25.38004

146.04

93.1279

705189

WYNN RESORTS LTD

AUD HKD

USD

Hang Seng Index NAME AIA GROUP LTD

PRICE

DAY %

VOLUME

NAME

34.55

1.468429

23232140

CHINA UNICOM HON

ALUMINUM CORP-H

2.65

1.923077

12133336

CITIC PACIFIC

BANK OF CHINA-H

3.34

2.453988

313963075

5.3

3.515625

27351644

30.35

1.166667

1293627

BANK OF COMMUN-H BANK EAST ASIA BELLE INTERNATIO

10.72

23918230

BOC HONG KONG HO

24.65

0.8179959

9030915

CLP HLDGS LTD

PRICE

DAY %

VOLUME

NAME

12.04

2.380952

23111871

0.3344482

5562040

SANDS CHINA LTD SINO LAND CO SUN HUNG KAI PRO

91.55

POWER ASSETS HOL

PRICE

DAY %

VOLUME

67.85

1.495886

1893907

46.5

4.26009

12556729

10.56

1.34357

5045192

101.7

1.093439

3662536

2.980877

2278488

62.1

1.02489

2172194

CNOOC LTD

15.88

3.116883

82783903

COSCO PAC LTD

11.52

1.052632

4480343

SWIRE PACIFIC-A

12.9

-2.567976

3832753

TENCENT HOLDINGS

376.4

3.520352

4015869

24.75

2.061856

4874522

TINGYI HLDG CO

19.48

1.458333

4198153

ESPRIT HLDGS HANG LUNG PROPER

CATHAY PAC AIR

13.54

1.804511

2583261

HANG SENG BK

122.5

1.659751

1355485

WANT WANT CHINA

11.56

0.5217391

15309289

CHEUNG KONG

113.1

2.168022

3670017

HENDERSON LAND D

47.05

3.406593

3513191

WHARF HLDG

64.65

1.411765

3936542

4.67

2.188184

41247513

85.9

1.118305

2490463

HONG KG CHINA GS

18.26

1.897321

11150444

HONG KONG EXCHNG

121.6

2.184874

2490367

HSBC HLDGS PLC

83.1

1.341463

14686518

CHINA COAL ENE-H CHINA CONST BA-H

5.82

2.464789

285029248

CHINA LIFE INS-H

19.54

2.62605

28873552

CHINA MERCHANT

26.65

1.717557

5399723

CHINA MOBILE

HENGAN INTL

85.15

2.159568

22662723

HUTCHISON WHAMPO

91.4

1.668521

5556895

CHINA OVERSEAS

23.6

2.164502

17742744

IND & COMM BK-H

5.22

2.554028

348906087

CHINA PETROLEU-H

5.75

2.862254

115137768

11.34

-0.5263158

24142991

LI & FUNG LTD

CHINA RES ENTERP

22.45

1.58371

3857107

MTR CORP

CHINA RES LAND

21.45

1.179245

9124281

NEW WORLD DEV

CHINA RES POWER

17.28

-2.921348

10166530

CHINA SHENHUA-H

25.3

4.979253

18967830

29.7

1.538462

4056476

11.22

3.125

19602420

PETROCHINA CO-H

8.54

1.184834

100762616

PING AN INSURA-H

56.15

3.311868

24178968

MOVERS

1 22190

INDEX 22175.34 HIGH

22180.98

LOW

21581.56

52W (H) 23944.74 (L) 19076.78906

21570

29-August

2-September

14 14

September 3, 2013 April 19, 2013

Classifieds Mountain Villa For Sale in Koh-Samui Price: HK$ 16 million

3 x King Bed en-Suites, 1 x King Bed basement Suite, 2 x 2 Single Bed, Spacious Living area and fully furnished kitchen, Swimming pool - children / adult, 2 levels Maid’s quarter, Fully Furnished, Balcony, Terrace / Patio, 2 x Outside Salas, Barbecue, 2 x Parking Spaces, 7-seater SUV included. Contact Ms Chan - Sarah@clever-cloggs.com.hk Tel: 2861-3317

Unique opportunity The Fountainside

Apt. on Top Floor Approx. 180 square meters HKD 19.9 million

LIKE NEW 4 APARTMENTS BUILDING IN LISBON Price: HK$ 17,000,000

2 Apartments T3 (1st and 2 floor), 1 Apartment T2 (3rd floor), 1 Apartment T0 (top floor), garage for 4 cars + laundry and storage area. Location: Close to RPC embassy classifieds@macaubusinessdaily.com Mobile: +351910836655

Year: 2007 30,000 Km Very good condition Price: MOP88,000

classifieds@macaubusinessdaily.com

FOR SALE - ONE GRANTAI Tower 3; Flat 10K.

Luxury hilltop flat, fully air conditioned, 3 bedrooms, 2 full bathrooms, maid’s room, fully equipped kitchen , living room, dining area, and 2 balconies with stunning Cotai Strip and sea views. Facilities include: health club, swimming pool, tennis, play area, and much more. 2320 sq. ft. selling price: HK$ 7,950/sq. ft. Contact: Steven Kahn (852) 2541 7775 Monday - Friday 11am - 6pm

Great opportunity Loft in Downtown 2 + 1 bedrooms, 2 living rooms and garden 140 sq metres with Mezzanine

Translations

Price: HKD 12 million

Inês Dias

classifieds@macaubusinessdaily.com

Languages English, Portuguese and French

Contact now for a quote: inezfernandesdias@gmail.com

editorial council Paulo A. Azevedo, Tiago Azevedo, José I. Duarte, Emanuel Graça, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Editor-in-Chief Tiago Azevedo DEputy Editor-in-Chief Vitor Quintã Associate editor Michael Grimes GROUP SENIOR ANALYST José I. Duarte Newsdesk Luciana Leitão, Stephanie Lai, Tony Lai EDITOR AT LARGE Alex Lee Creative Director José Manuel Cardoso WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

Business Daily is a product of De Ficção – Multimedia Projects Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 Email newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com

15 15

September 3, 2013 April 19, 2013

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Wall Street Journal While some luxury companies are seeing signs that China’s austerity campaign may be losing momentum, restaurants are still taking a hit. Restaurant sales in China are still increasing, but growth rates are slowing, resulting in the industry’s slowest growth since 1991, according to the Ministry of Commerce. Revenue for China’s dining industry reached 2.3 trillion yuan (US$375.8 billion) in 2012, up 14 percent from a year earlier, but representing a 3.3 percent drop in the growth rate, according to the Ministry of Commerce.

Inquirer Business President Benigno Aquino expects some big infrastructure projects, including the rehabilitation of the Ninoy Aquino International Airport terminals and some toll roads, to be completed before he steps down from office in 2016. Mr Aquino acknowledged that more infrastructure building was needed. “We’ve been criticised for lack of substantial infrastructure projects. Unfortunately we have been inheritors of certain laws [whose] purpose is not to serve the general good,” he said.

Economic Times With all efforts to arrest the rupee’s slide coming to a naught, policymakers now plan to knock on the doors of temples seeking a boon to feed Indians’ fetish for gold without importing it. The Reserve Bank of India, which has been making gold imports more difficult through a series of restrictions, is discussing with banks on how to convince temple trusts to deposit their hoard of idle jewellery that could be converted into bullion, said two bankers familiar with the matter.

The Age Manufacturing activity in Australia fell for the 26th consecutive month in August but the good news is that the rate of decline is slowing. The Australian Industry Group’s (Ai Group) Performance of Manufacturing Index (PMI) rose 4.4 points to 46.4 in August. The below-50 reading shows activity in the sector is in contraction, but the higher number shows the contraction is slowing. Ai Group chief executive Innes Willox said manufacturers are getting a mixed reaction to the falling Australian dollar.

Autumn’s known unknowns Nouriel Roubini

Chairman of Roubini Global Economics and Professor of Economics at New York University’s Stern School of Business

uring the height of the Iraq war, thenU.S. Secretary of Defence Donald Rumsfeld spoke of “known unknowns” – foreseeable risks whose realisation is uncertain. Today, the global economy is facing many known unknowns, most of which stem from policy uncertainty. In the United States, three sources of policy uncertainty will come to a head this autumn. For starters, it remains unclear whether the Federal Reserve will begin to “taper” its open-ended quantitative easing (QE) in September or later, how fast it will reduce its purchases of long-term assets, and when and how fast it will start to raise interest rates from their current zero level. There is also the question of who will succeed Ben Bernanke as Fed chairman. Finally, yet another partisan struggle over America’s debt ceiling could increase the risk of a government shutdown if the Republican-controlled House of Representatives and President Barack Obama and his Democratic allies cannot agree on a budget. The first two sources of uncertainty have already affected markets. The rise in U.S. longterm interest rates – from a low of 1.6 percent in May to recent peaks above 2.9 percent – has been driven by market fears that the Fed will taper QE too soon and too fast, and by the uncertainty surrounding Bernanke’s successor. So far, investors have been complacent about the risks posed by the looming budget fight. They believe that – as in the past – the fiscal showdown will end with a midnight compromise that avoids both default and a government shutdown. But investors seem to underestimate how dysfunctional U.S. national politics has become. With a majority of the Republican Party on a jihad against government spending, fiscal explosions this autumn cannot be ruled out.

Policy uncertainty Uncertainties abound in other advanced economies as well. Germany’s general election appears likely to produce a repeat of the current government coalition of Chancellor Angela Merkel’s Christian Democratic Union and the Free Democrats, with opinion polls suggesting that a grand coalition between the CDU and the Social Democrats is less likely. In the former case, current German policies toward the euro zone crisis will not change, despite austerity fatigue in the euro zone’s periphery and bailout fatigue in its core. Political risks in the euro

The global economy is facing many known unknowns, most of which stem from policy uncertainty

zone’s periphery include the collapse of Italy’s government and a fresh election as a result of former Prime Minister Silvio Berlusconi’s criminal conviction. Greece’s ruling coalition could collapse as well, and political tensions may rise even higher in Spain and Portugal. On monetary policy, the European Central Bank’s forward guidance – the commitment to keep interest rates at a low level for a long time – is too little too late and has not prevented a rise in short- and long-term borrowing costs, which could stifle the euro zone’s already-anaemic economic recovery. Whether the ECB will ease policy more aggressively is also uncertain. Outside of the euro zone, the strength of the United Kingdom’s recovery and the Bank of England’s soft forward guidance have led to similar “unwarranted” increases in interest rates, which the BoE, like the ECB, seems unable to prevent in the absence of more muscular action. In Japan, the policy uncertainty concerns whether the third arrow of Abenomics – structural reforms and trade liberalisation to boost potential growth – will be implemented, and whether the expected rise in the consumption tax in 2014 will choke economic recovery. In China, November’s Third Plenum of the Communist Party Central Committee will show whether China is

serious about reforms aimed at shifting from investment-led to consumption-led growth.

Commodity hangover Meanwhile, China’s slowdown has contributed to the end of the commodity super-cycle, which, together with the sharp rise in long-term interest rates (owing to the scare of an early Fed exit from QE), has led to economic and financial stresses in many emergingmarket economies. These economies – the BRICS (Brazil, Russia, India, China, and South Africa) and others – were overhyped for too long. Favourable external conditions – the effect of China’s strong growth on higher commodity prices and easy money from yield-hungry advancedeconomy investors – led to a partly artificial boom. Now that the party is over, the hangover is setting in. This is especially true in India, Brazil, Turkey, South Africa, and Indonesia, all of which suffer from multiple macroeconomic and policy weaknesses – large currentaccount deficits, wide fiscal deficits, slowing growth, and above-target inflation – as well as growing social protest and political uncertainty ahead of elections in the next 12-18 months. There are no easy choices: defending the currency by hiking interest rates would kill growth and harm banks and corporate firms; loosening monetary policy

to boost growth might push their currencies into free-fall, causing a spike in inflation and jeopardising their ability to attract capital to finance their external deficits. There are two major geopolitical uncertainties as well. First, will the looming military strikes by the U.S. and its allies against Syria be limited in scope and time, or will they trigger a wider military confrontation? The last thing that a fragile global economy needs now is another round of peak oil prices. Second, a year ago the U.S. convinced Israel to give its non-military approach to Iran’s nuclear-weapons ambitions time to bear fruit. But, after a year of economic sanctions and negotiations with no result, Israel’s patience on what it regards as an existential issue is wearing thin. Even short of an actual military conflict – which could double oil prices overnight – the resumption of sabrerattling by Israel and the war of words between the two sides could lead to a sharp rise in energy costs. The looming known unknowns are plentiful. Some outcomes may be more positive, or at least less damaging, than expected. But the realisation this autumn of even some of the risks described here could derail the global economy’s still-wobbly recovery. And the meta-risk of policy mistakes and accidents remains very high. © Project Syndicate

September 3, 2013

Closing Malaysia to cut fuel subsidies from today Banks to boost collateral on swaps trades Malaysia will cut fuel subsidies to shore up public finances and hand out more to poor families, Prime Minister Najib Razak said yesterday, in a move to boost confidence in his economic leadership. The new measures are aimed at reducing Malaysia’s fiscal shortfall, among the largest in Asia, and to offset weaknesses in the current account. Mr Najib said pump prices for the widely used RON 95 grade will rise by 20 Malaysian sen to 2.10 ringgit (US$0.64) per litre, the first time since December 2010. The subsidy cut, effective from today, will save the government an estimated 1.1 billion ringgit this year.

Banks must back trades in the US$633 trillion market for swaps and other overthe-counter derivatives with additional collateral as global regulators seek to choke off opportunities for excessive risk taking. The plans jointly issued by two groups of international standard setters target swaps traded outside of clearinghouses and would ensure lenders have safeguards in place when a trading partner defaults. The regulators said they scaled back some of the proposals to address bank concerns that the rules would restrict lending. The rules will be phased in over a four-year period beginning in December 2015, they said.

Euro-area manufacturing expands in August

Indofood offers to buy Minzhong

Factory orders up on surge in Italy, Spain output

uro-area factory output expanded at a faster pace than initially estimated in August, driven by a resurgence in Italy and Spain, as the 17-nation currency bloc’s recovery began to build momentum. An index based on a survey of purchasing managers in the manufacturing industry increased to a 26-month high of 51.4 from 50.3 in July, London-based Markit Economics said yesterday. That’s above an estimate of 51.3 published on August 22. A reading above 50 indicates growth. Encouraging indicators have begun to accumulate since the euro area returned to growth in the second quarter, ending a recordlong recession. Economic confidence soared to a two-year high in August. The Stoxx Europe 600 Index has risen 5 percent in the last two months, and the euro has gained 1.8 percent against the dollar. “What’s especially encouraging is that the upturn is broad-based, with PMIs rising in all countries with the exception of France,” Chris Williamson, chief economist at Markit, said in yesterday’s report. “Germany, the Netherlands, Austria, Spain and Italy are now all seeing manufacturing grow at the fastest rates for at least two years, and even Greece saw a marked easing in the rate of manufacturing decline.”

In Italy, factory output accelerated in August at the fastest pace in 28 months, boosted by an increase in new orders that partly reflected a substantial growth in export sales, Markit said in a separate report. Spanish manufacturing expanded in August for the first time in more than two years, strengthening Prime Minister Mariano Rajoy’s prediction that exports will help the economy emerge from recession this year. “Looking ahead, the hope for manufacturers is that currently improving confidence in most euro-zone countries will encourage businesses to invest more, and also encourage consumers to spend more, particularly on durable goods,” said Howard Archer, chief European economist at IHS Global Insight in London. Daimler AG’s Mercedes-Benz brand, the world’s third-biggest luxury carmaker, produced more vehicles than ever before in the first half to cover demand for its new compact models and sport-utility vehicles. “We are planning for further growth,” Andreas Renschler, head of manufacturing, said on August 16. The European car market, which is heading into the sixth straight year of decline, is stabilising, Germany’s VDA automobile industry association said last month. New car registrations in the region rose 4.8 percent in July to 1.02 million vehicles, the Berlin-

Italy’s factory output accelerated in August

based industry group said. Yet Europe continues to struggle with the legacy of a debt crisis now in its fourth year, including a jobless rate that held at a record 12.1 percent in July. The rate among young people increased to 24 percent. Unemployment is proving resistant to Europe’s improving fortunes, and may help to explain why economists in a Bloomberg News survey see growth slowing to 0.1 percent in the third quarter after a 0.3 percent expansion in the three months through June. Analysts forecast the jobless rate won’t drop below 12 percent through 2015.

complicated, [and] negotiations are difficult,” he said, adding that he hopes that some decisions will be made soon. The group has struggled to take coordinated action after an exodus of capital from Brazil, Russia, India, China and South Africa prompted by an expected scaling back in U.S. monetary stimulus raised fears about the health of their economies. On Friday, India said it was seeking support from other emerging economies for coordinated intervention in offshore foreign exchange. India’s currency has shed a fifth of its value against the dollar in the past three months. Reuters

Reuters

Bloomberg News

Development bank to have US$50 bln capital

prolonged disagreement over funding and management of the institution. “We must assume that the bank will not start functioning as fast as one could imagine,” Mr Storchak said. “It will take months, maybe a year.” At the summit of the Group of 20 developed and developing nations this week in Russia’s St. Petersburg, BRICS leaders will meet in an unofficial format, Mr Storchak said, to discuss the progress on setting up the bank and a joint reserve fund. The issues of division of the capital, payment of the capital, the location of the bank and the bank’s management still need to be decided, he added. “These are systemic themes,

Everbright tumbles as executives resign Chinese brokerage Everbright Securities Co Ltd has been hit by falling shares, record fines and executive resignations following a massive trading scandal, but investors are hopeful the incident will herald better risk controls. Shares of Everbright Securities slumped 10 percent in Shanghai yesterday, their daily limit. However, shares in other mainland brokerages including CITIC Securities, Haitong Securities and Huatai Securities rose as investors shrugged off concerns the Everbright scandal would have knock-on effects. On August 16, an apparent combination of software and human error at Everbright caused an unintended placement of buy orders worth 68.6 billion yuan (US$11.2 billion) to the Shanghai stock exchange, setting off a shortlived 6 percent jump in the Shanghai Composite Index and an ensuing “flash crash”. When Everbright knew of its errant trades, it reacted by quietly building up huge short positions in index futures and exchange-traded funds before disclosing details of the glitch - the revelation of which caused indexes to collapse back into negative territory. The strategy helped Everbright hedge its losses, but investors who followed Everbright’s lead into banking shares lost heavily in the aftermath. It also happened to be illegal, according to regulators. With an eye on this collateral damage, the securities regulator said last week that it will levy an unprecedented 523 million yuan (US$85.46 million) fine on Everbright Securities. Multiple executives at the brokerage have resigned or have been pushed out. Four have been banned from the industry for life.

BRICS agree on bank’s structure he BRICS bloc of large, emerging economies has agreed on the structure of a proposed development bank with US$50 billion in capital, but ironing out “difficult” details may take months, Russian Deputy Finance Minister Sergei Storchak said. Officials from Brazil, China, India, Russia and South Africa agreed in early August that the bank’s capital should come from three payment categories, including subscriptions, Mr Storchak told journalists in remarks for publication yesterday. The establishment of the development bank aimed at providing funds for infrastructure projects has been slow in coming, with

PT Indofood Sukses Makmur, controlled by Indonesian billionaire Anthoni Salim’s investment company, offered S$488 million (US$383 million) cash for the rest of China Minzhong Food Corp, the vegetable processor that slumped after a short-seller’s allegations. Indofood bid S$1.12 apiece for Minzhong, the Jakarta-based company said yesterday in a statement, giving the stock its biggest gain since its debut in 2010. The price is more than double the 53 Singapore cents that Minzhong fell to on August 26 before the stock was suspended from trading. Buying Minzhong will give Indonesia’s largest noodle maker control of a company that grows and exports vegetables from China to 26 nations whose market value plunged to S$347 million last week. Minzhong on Sunday rebutted Glaucus Research Group’s questioning of its accounts, saying the allegations were calculated to cause panic and drive down its shares. “Minzhong shareholders should sell their shares to Indofood because at S$1.12 most of the investors are in the money,” said Wei Bin, an analyst at Maybank Kim Eng Holdings Ltd in Singapore. “If you look at the announcements from Indofood and Glaucus, both of them give quite strong evidence. At this point in time, it’s very hard to judge who’s right and who’s wrong.” Minzhong jumped to S$1.12 at the close in Singapore, as it resumed trading for the first time since August 26. The bid is priced at 6.9 percent more than Minzhong’s weighted average price for the previous three months, according to the statement. Indofood said yesterday it agreed to buy 25.6 million shares, bringing its stake in Minzhong to 33.5 percent, triggering an offer for the balance, according to the statement.