Macau Business Daily, October 18, 2013 by Business Daily

MOP 6.00 Vitor Quintã

Page 6

Swiss Re takes stake in Richard Li insurer

Year II

Number 395 Friday October 18, 2013

Editor-in-chief Tiago Azevedo

Deputy editor-in-chief

Govt supports delta’s free trade zone

Youth start-ups 1 do get support: official

April 19, 2013

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Brought to you by Zung Fu Motors (Macau) Limited

Hang Seng Index 23352.0

23300.4

Macau supports plans for a regional free trade zone shared with Hong Kong and Guangdong province, said Secretary for Economy and Finance Francis Tam Pak Yuen yesterday. But Mr Tam – speaking on the sidelines of the

Macau International Trade and Investment Fair’s opening ceremony – admitted the city’s role was not yet defined. It was first official confirmation of the plan, first made public last month. The secretary said that he

had been in touch with his counterparts from Hong Kong and Guangdong over the zone. The proposed regional free trade zone includes the two special administrative regions as well as three Guangdong

trade zones – Qianhai near Shenzhen, Hengqin Island and Guangzhou’s Nansha district. The scheme will need approval from the central government. More on page 5

23197.2

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23094.0

October 17

HSI - Movers

Legal reform needed to tackle new crimes www.macaubusinessdaily.com

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Macau needs legal reforms to tackle a growth in new types of financial crime, drug trafficking and even traffic accidents, Prosecutor General Ho Chio Meng suggested yesterday. “Following the progress of information technology, we have seen the emergence of various financial transaction tools,” said Mr Ho, “and it is now common to commit crimes using these tools.”The prosecutor did not elaborate on the type of financial crimes.

%Day

CHINA SHENHUA-H

4.72

CHINA COAL ENE-H

4.25

TINGYI HLDG CO

2.38

HENGAN INTL

1.54

CHEUNG KONG

1.07

BANK OF COMMUN-H

-1.39

IND & COMM BK-H

-1.63

BELLE INTERNATIO

-3.07

WANT WANT CHINA

-3.29

CHINA MERCHANT

-3.47

Source: Bloomberg

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Brought to you by

Q3 casino revenue up 20 pct y-o-y

Record million package tourists in August

Casino gambling gross revenue grew 19.6 percent year-on-year in Macau in the third quarter according to data from the regulator, the Gaming Inspection and Coordination Bureau. Total gross revenue was approximately 89.19 billion patacas (US$11.2 billion) in the three months to September 30. The numbers were released on the eve of third quarter reporting season for the casino operators, with Las Vegas Sands Corp reporting overnight Macau time.

Almost a million visitors arrived in Macau as part of package tours in August, a new record, official data show. But the boom might slow as new rules on the mainland banning cut-price tours with compulsory shopping came into effect from October 1. Visitors arriving via package tours increased by 6.6 percent year-on-year to 973,766 in August, the Statistics and Census Service announced yesterday. Meanwhile hotel occupancy rate also hit a new record despite soaring prices and a growing supply of rooms

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October 18, 2013

Macau

Legal reform needed Open-market mirage to tackle new crimes opinion

Current legislation lacks bite against new types of financial crime, says prosecutor-general Stephanie Lai

sw.lai@macaubusinessdaily.com

José I. Duarte Economist

eolian Public Transport Co Ltd was the third bus operator to enter the fray. It filed for bankruptcy at the beginning of the month, after little more than two years of operation, during which the company was never far from the headlines. In the slipstream of the not-so-long-ago bankruptcies of low-cost airline Viva Macau and two ferry companies, North West Express Ltd and Macau Dragon Co Ltd, the latest failure has brought to the fore some uncomfortable questions. In the media and in conversations around the city, questions have been asked about the business environment faced by newcomers – particularly when they enter markets where there are well-established and well-connected companies. In the case of Reolian’s failure, it is hard to see how the problem could lie in the company’s youth or inexperience. The lead partner in Reolian is a joint-venture between two French companies, Veolia Transdev RATP. Both of the companies have lengthy resumes in the transportation business, including Groupe RATP’s management of the Paris Metro system. The companies also provide road and rail services in dozens of cities and about 30 different countries around the world. Setting up and operating a handful of bus services would seem to be a line of business that Reolian was well equipped to handle. Just as with the transportation bankruptcies that went before it, the company has repeatedly pointed the finger at the government. I will not go into the finer detail the points of friction here, but they include a shortage of qualified workers, especially drivers; restrictions on hiring qualified drivers from elsewhere; the legally questionable reduction from three to two concessions following the tender imbroglio; and delays in the payment of government subsidies. At various times in the recent past, Reolian has identified the government as a source of uncertainty and of unfulfilled expectations – even promises.

Token words Given the opaque nature of most of the processes and negotiations behind the deal that gave Reolian its concession, a proper examination of the merits of the various claims is almost impossible. A fair judgement would require knowledge of details that are only possessed by the parties that took part in the negotiation. Unfortunately, most of the time, these types of events are often left at the point where each party puts the blame on the other. There cannot be a careful assessment of the facts or the responsibilities of those concerned. For its part, the government seldom does more than deny any accusations. That seems to be the reflex reaction, no matter if the accusation or suspicion involves malpractice, discrimination, corruption or simple negligence. The media and academia seem either poorly equipped or are not tempted to carry on with an analysis or deeper research. The issue usually dies out with fatalism of the “this is Macau” variety and will almost certainly be forgotten. It could surface again, if and when a court session is set or a related decision is announced. But few facts will be determined with any real certainty and fewer still will lead to a careful analysis of the implications, consequences or anyone’s responsibilities. Inevitably, there will be a growing perception among business and organisations from outside Macau that openness is not the name of the game, and that respect for fair play is nothing more than a token effort with tenuous links to reality. Whether such perceptions are totally deserved or not is besides the point. Anyone who might be interested in operating here and that might bring with them skills, competencies and networks that are not available locally, may think twice before venturing in – or not even try. The quality of services supporting the city’s leading industries will continue to be insufficient. Desertification of non-gambling related economic activities will proceed apace. And, last but not least, diversification. This is the mythical holy grail, announced at the end of every official statement about the economy, that will continue to be a mirage. While it seems real, you run towards its direction at your own risk.

acau needs legal reforms to tackle a growth in new types of financial crime, drug trafficking and even traffic accidents, Prosecutor General Ho Chio Meng suggested yesterday. “Following the progress of information technology, we have seen the emergence of various financial transaction tools,” said Mr Ho, “and it is now common to commit crimes using these tools.” He said financial crimes are becoming more “serious” and “complex” thanks to the “huge transactions in gaming capital,” he said in a speech at the opening ceremony of the new judicial year. The prosecutor did not elaborate on what type of financial crimes he was referring to. Macau’s legislation has penalties against fraudulent securities, warranties and credit cards but it “cannot cover these new types of financial payments being used to commit crimes,” Mr Ho told. “There is still disagreement within the judicial sector on whether we can tackle these new financial tools” using current laws, the prosecutor added. Failure to update the law could “weaken the punishment against financial crimes and be a disadvantage to keep a healthy gaming development,” Mr Ho said. Current laws also lack bite to inhibit drug trafficking and traffic accidents, the prosecutor said. He called for harsher punishment to be introduced. “It’s time to put the Penal Code revision in our agenda,” Mr Ho urged. Sam Hou Fai, president of the

Increasing number of court disputes involve the government says Ho Chio Meng

Court of Final Appeal, confirmed that the city has seen a rise in serious criminal cases, even though most other cases are falling. The number of crimes revolving around gaming activities is still high, namely those involving drug trafficking, theft or fake credit cards and currency, Judge Sam explained. There is an apparent rise in crossborder crimes or criminal cases that involve foreigners,” the court president said. More cooperation with other jurisdictions is needed, he added. The prosecutor Mr Ho expressed concerns over the greater number of administrative disputes that the

government has lost in court. The Public Prosecutions Office has taken up 142 administrative disputes and property lawsuits related to the government in the past judicial year, said Mr Ho. He mentioned the disputes involving the solid waste management contract, the bankruptcies of ferry operator Macao Dragon and low-cost carrier Viva Macau, the disputes over Macau Cable TV Co Ltd, the Light Rapid Transit route and the subsidy row over troubled public bus operator Reolian Public Transport Co Ltd. The government has had to bear more administrative responsibilities and civil compensation, Mr Ho added.

Cross-border park not in Hengqin’s sights The park is about logistics while Hengqin will be finance, service centre, says Zhuhai govt Tony Lai

tony.lai@macaubusinessdaily.com

he Zhuhai-Macau Crossborder Industrial Park is not facing competition for Macau investments from Hengqin Island, which may have to copy some of the park’s policies. Jack Chan Wai Chi, president of the chamber of commerce for the cross-border zone, said there have been more enquiries from Macau firms seeking to invest in the park after more government promotion. “Right now there are 200 enterprises in the Zhuhai side of the park and the presence of Macau firms has undergone a significant growth, now accounting for 60-70 percent of

the total firms,” he said yesterday at the Macau International Trade and Investment Fair. The industries in the zone have changed from manufacturing to logistics and trade, said Mr Chan. The Zhuhai government also sees no conflict of interests. Hengqin is targetting trade and finance. Zhao Weiyuan, member of the Zhuhai administrative committee, said in a business seminar yesterday that the cross-border zone serves as “a logistics services [hub] to Macau” while Hengqin acts as a finance and tourism centre. Mr Chan added: “The crossborder park has been running [in full

swing] for six years and all conditions have matured whereas Hengqin is only at the beginning stage.” The zone can serve as an example for Hengqin to implement custom policies and incentives for Macau firms, said the chamber president. For instance, the zone now offers subsidies of 1 million yuan (1.3 million patacas) during the first year of a company setting up a base of about 1,000 square metres there, said Ms Zhao. Mr Chan encouraged Macau firms to try to run a business in the park first before further expanding to other parts of mainland China such as Hengqin.

October 2013 April 19,18, 2013

Macau Philippines DoJ holds first Okada hearings Executive director of AGA resigns The Philippines Department of Justice is to hold a second day of preliminary hearings today into claims Japanese gaming entrepreneur Kazuo Okada (pictured) violated rules limiting foreign investment. It involves land for Mr Okada’s US$2 billion (15.97 billion patacas) Manila Bay casino project. He is not expected to appear in person. An earlier inquiry by the DoJ and the country’s National Bureau of Investigation suggested his Universal Entertainment Corp. used three local firms: Eagle I Landholdings Inc; Eagle II Holdco Inc; and Tiger Resort Inc; to avoid the constitution’s 40-percent limit on foreign ownership of businesses.

Lawyer Judy Patterson (pictured) – the second most senior executive at the American Gaming Association and a founder of the body – has resigned and will move to a consultancy role. It comes fewer than four months after the retirement of the Washington D.C. lobby group’s founding president Frank J. Fahrenkopf. The AGA is a coorganiser of casino trade show Global Gaming Expo Asia held annually in Macau. Geoff Freeman, who took over as AGA president on July 1, described her as “a key player” in the growth of G2E Asia and its sister event Global Gaming Expo in Las Vegas.

Q3 casino revenue up 20 pct y-o-y Mass-market table games growth continues to outpace VIP segment Michael Grimes michael.grimes@macaubusinessdaily.com

ANNUAL CASINO GAMING REVENUE MOP Billions 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0

2008

2009

2010

2011

2012 VIP

asino gambling gross revenue grew 19.6 percent year-onyear in Macau in the third quarter according to data from the regulator, the Gaming Inspection and Coordination Bureau. Total gross revenue was approximately 89.19 billion patacas (US$11.2 billion) in the three months to September 30, compared to around 74.58 billion patacas in the equivalent period a year earlier. The numbers were released on the eve of third quarter reporting season for the casino operators, with Las Vegas Sands Corp reporting overnight Macau time. Investment bank J. P. Morgan said in a note from its Hong Kong office that October revenues are tracking at 31 percent expansion, with the market wide gross reaching 20 billion patacas up to October 14 inclusive. For the fifth consecutive quarter, VIP baccarat revenue accounted for under 70 percent of total market gross revenue in the third quarter, according to the gaming inspection bureau’s data. High roller baccarat revenue

Through 2014 and beyond, the revenue mix shift towards mass market should continue Grant Govertsen, Union Gaming Research Macau analyst

totalled 57.79 billion patacas, a growth rate of around 13 percent year-on-year and 64.8 percent of all quarterly revenue. Mass-market table games revenue expanded almost three times as quickly, to nearly 27.84 billion patacas, an appreciation of

37 percent year-on-year, and 31.2 percent of total revenue. “As the combined high-margin business of mass market tables and slots continues to grow well into the double digits (34 percent growth this quarter), which we think should be sustained through 2014 and beyond, the revenue mix shift towards mass market should continue,” said Grant Govertsen of Union Gaming Research Macau in a note. Slot machine revenue for the quarter totalled 3.56 billion patacas, a 13 percent year-on-year growth and a two percent expansion quarteron-quarter. That was despite the fact the number of slot machines in use actually fell 3.5 percent sequentially as operators cleared floor space to make room for either traditional live dealer tables or electronic table games with live dealers . There were 14,775 slot machines in the market in the third quarter, compared to 15,310 in the second quarter. The third quarter inventory was down 13.2 percent year-on-year on the 17,029 slot machines in the market in the third quarter of 2012. The regulator told Business Daily

2013Q3 Mass

KEY POINTS 20 pct y-o-y growth in Q3 gross revenue VIP under 70 pct of total for 5 consecutive quarters Mass table rev up 37 pct y-o-y Slot rev up 13 pct y-o-y while slot machines down 13 pct

earlier this year that gross gaming revenue from ETGs with a live dealer is classified as table revenue, while revenue from ETGs with “no human dealer” – i.e. with card or number generation fully automated – is counted as slot revenue.

October 18, 2013

Macau Brought to you by

HOSPITALITY Visiting costs more The annual rate of tourist price inflation in the third quarter of this year was 6.9 percent. This indicates that upward pressure on the prices of goods and services used by tourists is building up again. In the third quarter of last year the annual rate of tourist price inflation was only 3.4 percent. The latest tourist price inflation figure is also above the average of 6.3 percent in each of the four quarters ended September. The prices of the various goods and services used by tourists are following separate trends. The chart shows the annual rates of inflation in some components of the tourist price index (TPI) in the third quarter of each of the past three years.

Package tourists near 1 mln mark in August The hotel occupancy rate sets a record despite the greater stock of rooms and higher prices Vítor Quintã

vitorquinta@macaubusinessdaily.com

August was the busiest month for three years for package tour operators

The main driver of tourist price inflation in the third quarter of this year was accommodation. The cost of accommodation rose much faster than tourist prices in general. It was 3.5 percent lower in the third quarter of last year than a year earlier, but 10 percent higher in the third quarter of this year than a year earlier. Accommodation has been the most volatile component of the TPI. In 2011 the tourist price inflation rate of about 17 percent was due principally to the cost of accommodation. The next-biggest drivers of tourist price inflation in the third quarter of this year were the cost of clothes and shoes, which rose by 9.7 percent, and the cost of food, alcoholic drink and tobacco, which rose by 9 percent. Unusually, these rates of inflation were above the average. Usually, the second-biggest driver of tourist price inflation is the cost of eating in restaurants. Between the third quarter of 2010 and the third quarter of this year restaurant price inflation was almost 35 percent, slower only than accommodation price inflation, which was 56 percent.

28.9 %

rise in tourist prices since 2010 Q3

lmost 1 million visitors arrived in Macau on package tours in August – the most ever, official data show. But the mainland’s effort to curb free package tours may end the boom. Macau had 973,766 package tourists in August, 6.6 percent more than a year earlier, the Statistics and Census Service announced yesterday. It was the busiest month for tour operators since the Statistics and Census Service began collecting data on package tours in 2011. August had been expected to be a record month because the summer holidays make it a peak season for package tourism. The previous record for package tourists, 913,613, was set in August last year. Since March the number of package tourists has been higher every month than a year earlier. In the first eight months of this year Macau had 6.5 million package tourists, 11.1 percent more than in the equivalent period of last year. August’s record may last for a while, as fewer package tourists are expected this year in the other peak months, November and December. Since October 1 the mainland has banned tour operators from compelling package tourists to shop in shops of the operator’s choosing. This has curbed free or excessively cheap package tours run by operators that rely on commissions to recoup their costs, and has thus made package tours more expensive.

The state-run People’s Daily reported that one particular five-day tour from Beijing to Macau and Hong Kong would cost 6,760 yuan per person from October 4, 70 percent more than it cost before. The president of the Macau Travel Industry Council, Andy Wu Keng Kuong, said last month that the industry expected the number of package tourists to fall by at least 10 percent between this month and the end of the year. The mainland is by far the biggest source of tourists that come to Macau. In August 770,365 package tourists, over 79.1 percent of the total, came from the mainland. Of the package tourists from the mainland, 62 percent came from places other than the neighbouring province of Guangdong. As transport between Macau and the mainland improves, package tourists from places further afield are helping to limit the city’s dependence on visitors from Guangdong. Almost half of visitors from the mainland in August came from Guangdong, and most travelled on individual visas, unlike package tourists, who travel on collective visas.

Overnight sensation August was also a record month for Macau’s accommodation business, 989,400 people having stayed overnight in hotels or guesthouses, 12.2 percent more than a year earlier. August had been expected to be a record month because hotels had

973,766 visitor on in package tours in August

added almost 3,500 new rooms and suites to their stock in the preceding 12 months, most of them in the Sands Cotai Central casino-resort. August’s figures also indicate huge demand for accommodation. The average rate of hotel occupancy was 90.3 percent, 2.3 percentage points more than a year earlier. August was the busiest month for hotels since the Statistics and Census Service began collecting data on hotel occupancy in 1997. The number of visitors staying overnight rose despite their having to pay more for hotel rooms. Macau Hotel Association data show that the average hotel room rate was 1,491 patacas (US$187) in August, 6.4 percent more than a year earlier. The association’s data do not cover two-star hotels and guesthouses. Accommodation is the biggest single expense for most visitors, accounting for 23 percent of the average tourist’s spending here.

October 18, 2013

Macau

Hengqin Island could be part of the free trade zone proposed for the Pearl River Delta

Macau vows support for free trade zone But the plans for the zone are still up in the air, and so is the city’s role in it Tony Lai

tony.lai@macaubusinessdaily.com

Macau has pledged its support for a free trade zone with Hong Kong and Guangdong, Secretary for the Economy and Finance Francis Tam Pak Yuen says. But Mr Tam says Macau’s role in the zone has yet to be defined. Mr Tam was speaking yesterday on the sidelines of the opening ceremony of the Macau International Trade and Investment Fair. His remarks were the first confirmation by a Macau official of the city’s involvement in the free trade zone, the idea of which was floated last month. He said he had been in touch with his counterparts in Hong Kong and Guangdong about the zone. “Hong Kong and Guangdong reached a consensus on setting up a Guangdong-Hong Kong-

Macau free trade zone and we, the Macau side, surely support this development,” Mr Tam said. “We will also do our best to contribute.” The proposal is for the zone to include the special administrative regions of Macau and Hong Kong and three parts of the province of Guangdong: Qianhai near Shenzhen, Hengqin Island and Nansha in Guangzhou. Guangdong Governor Zhu Xiaodan said at the Canton Fair this week that the province was “striving” to get central government approval for the zone.

Too early Beijing approved last month China’s first free trade zone, which will be in Shanghai. Mr Zhu said last month

that the zone would “involve trade services, easier investment and innovation in management to boost cooperation with Hong Kong banks”. Macau cannot compete with Hong Kong in trade and finance, and Macau’s role in the zone is so far unclear. “The next step is the planning stage,” Mr Tam said. “If we have a chance to give our opinions, we will surely do so,” he said. “When the time comes to set the details of this plan, we will then reflect on what Macau can do, based on our current conditions.” He said more work was needed on the plan and that it was “too early” to say when the plan could be set. Mr Tam stressed the importance of Hengqin Island to Macau, expressing support for Macau enterprises

that mean to operate there. The director of the administrative committee of the Hengqin New Area, Niu Jing, said yesterday that the incentives for Macau enterprises to operate on the island were under discussion.

Saturation point Mr Niu said the committee was considering reserving commercial space for Macau businesses in the Chimelong Ocean Kingdom Park and the Hengqin New Home housing development. “There will be good news very soon,” he said. Chimelong Group said in a written statement that the first phase of its Hengqin resort would open this year. The group expects over 20 million visitors a year and more than 50 billion

yuan (65.4 billion patacas) in economic benefits. Mr Tam said that last year Macau had about 28 million visitors, and that the city was “quite saturated” with tourists. “In the future we hope there will still be about 30 million visitors in Macau while 10 to 20 million visitors stay in Hengqin,” he said. Chief Executive Fernando Chui Sai On said in August that the results of a study commissioned by the Macau Government Tourist Office showed that Macau’s capacity was 81,000 tourists a day. That implies a capacity of 29.6 million a year. “If there are 20 million visitors in Hengqin and some 5 million come to here as well,” said Mr Tam, “this is additional travel spending, and the pie gets bigger.”

Creative industry fund gets MOP200 mln

he government will set aside 200 million patacas (US$25 million) for a fund to support the development of the cultural and creative industries and diversify the city’s economy. Secretary for Social Affairs and Culture Cheong U said yesterday the Executive Council had already finished discussing the bylaw creating up a fund for this sector. The bylaw will be published in the Official Gazette “in the coming one or two weeks and [details] will then be announced to the public,” the secretary told media at a trade fair. Chief Executive Fernando Chui Sai On has decided to inject 200 million patacas into the fund, Mr

Cheong said. The fund “can further promote the economic diversification in Macau and encourage the development of the cultural and creative industries with better conditions offered,” the secretary added. The government had originally promised to launch this fund last year. Mr Cheong stressed the Cultural Affairs Bureau, which is under his supervision, had done “loads of works” in recent years to help establish the “basic conditions” for the industry’s development. The government has more measures in store for the industry in the future, he added. T.L.

October 18, 2013 April 19, 2013

Macau

Youth start-ups getting support: official Since August, 11 million patacas in loans, plus follow up advice says Macau Economic Services boss Tony Lai

tony.lai@macaubusinessdaily.com

nterest-free loans aren’t the only support available for young entrepreneurs, says the government. “For the moment I think we have offered all-round support” for any interested party, said Sou Tim Peng, director of Macau Economic Services, speaking yesterday on the sidelines of the opening ceremony for Macau International Trade and Investment Fair. Since the launch in August of a loan scheme for first-time Macau entrepreneurs aged 21 to 44, a total of 11 million patacas (US$1.4 million) have been disbursed to 41 young businesspeople, stated Mr Sou. But recently Stanley Au Chong Kit, chairman of Macau Small and Medium Enterprises Association, said too many start-ups were being left to fend for themselves. Yesterday Mr Sou defended his department’s efforts. “We already have such support as we have been working with the Macau Productivity and Technology Transfer Centre, which has courses particularly on business management,” he stated.

Young entrepreneurs encouraged to study business management

“We have been offering information on these courses to the candidates when they submit their applications,” added the director, stressing his department would continue to canvass public opinion on the issue. Most of the start-up loan applicants have launched companies linked to retail or design, said Mr Sou. The government loan scheme

offers up to 300,000 patacas for any Macau resident of qualifying age seeking to start a business. Some businesspeople have claimed the government needs to do more, such as providing mentoring via established business professionals. Without such support, inexperienced entrepreneurs would in likelihood fail in their ventures, they argued.

“The government should do more to teach [them] about business risks and how to manage enterprises,” said Mr Au. Separately, the Economic Services bureau is also considering help for the city’s exhibition and convention industry to explore the Hengqin market. A convention centre is planned for Hengqin’s Guangdong-Macau Traditional Chinese Medicine Technology Industrial Park. There is “room” for cooperation between industries on the island and here, Mr Sou added, but “there are also the commercial decision factors.” The government “is gradually working” with its mainland counterparts to offer easier customs clearance for cross-border exhibitors, he said. Mr Sou hopes to have some feedback from the mainland side “by year-end”. “But honestly we cannot exempt [exhibition products from] the inspection part (…) as we still have to abide by the [mainland] regulations,” he said.

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Summit Ascent backs Russian casino Firm confirms hiring bank to raise equity for US$130 mln gaming and hotel project Michael Grimes

michael.grimes@macaubusinessdaily.com

Lawrence Ho – controlling stake in Summit Ascent

ummit Ascent Holdings Ltd – a Hong Konglisted entity involved in a Russian casino investment planned by Lawrence Ho Yau Lung – confirmed it has appointed an investment bank in connection with

possible equity financing. It will take the form of “a placing and top-up subscription transaction” the company said in a filing, without specifying the timing of the placement. In July Business Daily

reported analysts saying Mr Ho was likely to seek to inject his portion of the venture – a project located in the Primorye region of the Russian Far East near Vladivostok – into an equityraising vehicle to help cover capital costs. Macau gaming entrepreneur Mr Ho holds a controlling 36.81 percent share of Summit Ascent according to a filing yesterday, which added a special general meeting of the firm had formally approved the Russian casino investment. The estimated total investment for the first phase of the casino resort complex to be constructed at an ‘Integrated Entertainment

Zone’ in Primorye – next door to China’s northeastern Heilongjiang province – is about US$130 million according to earlier filings. It will have a 119-room hotel, approximately 800 slot machines, 25 VIP gaming tables and 40 mass-market gaming tables, according to the earlier filings. In a complex arrange ment to achieve that goal, Summit Ascent will pay US$9.02 million for 46 percent of an entity called Oriental Regent Ltd. Mr Ho’s primary investment vehicle Melco International Development Ltd – which also holds a stake in Macau casino developer Melco Crown Entertainment Ltd

– will pay US$980,392 for a five percent stake in Oriental Regent. The latter is a holding company that currently owns 50 percent of First Gambling Company of the Far East LLC. First Gambling in turn has a gaming licence in Primorye. In the past Summit Ascent has listed its activities as tile-making and engineering, but now appears to be fulfilling a role as shelf company. Melco International – nowadays with holdings in gaming, leisure, entertainment, technology, and property in Macau, Hong Kong and the Philippines – started life as the Macao Electric Lighting Company Ltd in 1927.

October 2013 April 19,18, 2013

Macau Swiss Re taking stake in Richard Li’s insurer The world’s second-biggest re-insurer buys into Macau’s FWD Life Insurance

wiss Re Ltd, the world’s second-biggest re-insurer, will invest up to US$425 million (3.4 billion patacas) in Richard Li Tzar Kai’s FWD Group as it pushes for growth in Asia. The deal will give Swiss Re an indirect stake in FWD Life Insurance Co (Macau) Ltd, the city’s fifthlargest life insurer. The Zurich re-insurer said in a written statement issued yesterday that it would buy 12.3 percent of FWD from Pacific Century Group, also owned by Mr Li, a son of Asia’s richest man, and invest in the insurer’s expansion in the continent. Swiss Re said the transaction, expected to be closed in the first quarter of next year, reflected its “commitment to high growth markets” in Asia and elsewhere. The company is seeking to bolster its primary insurance business with acquisitions in countries such as China, India and Brazil. Pacific Century Group bought ING Groep NV’s life insurance assets in Hong Kong, Macau and Thailand, and its general insurance and pensions businesses in Hong Kong last year and renamed them FWD. A Vontobel analyst in Zurich, Stefan Schuermann, said in a note to investors: “The transaction is a financial investment and proof of a sound capital base at the group holding level being invested into

the promising Asian life and health growth market.”

Protection gaps Mr Schuermann has a “buy” recommendation for Swiss Re stock. “We expect Swiss Re to report a solid third quarter 2013, further enhancing cash generation and prospects in regard to the dividend,” he said. Swiss Re said the amount of FWD it would end up owning would depend

Richard Li is seeking to expand his insurance business in Asia

Corporate Louis XIII makes 3 senior appointments Louis XIII Holdings Ltd – which plans to develop a boutique casino on land on the Cotai-Coloane border – has announced several senior executive appointments two years ahead of the anticipated opening. Rudy Oretti (pictured) joins as senior vice president, resort operations, from Banyan Tree Macau, one of the hotel brands at Galaxy Macau, where he was general manager. Grant Baird is to be vice president of food and beverage. He arrives from Hong Kong-based Lan Kwai Fong Group, chaired by former Wynn Macau Ltd director Allan Zeman. There Mr Baird was group F&B managing director. The third appointment is Richard Liao who joins as chief financial officer from Canadabased Brookfield Asset Management, a global investment firm with more than US$175 billion (1.40 trillion patacas) under management. According to filings and guidance to analysts, Casino Louis XIII will include 66 gaming tables (50 premium mass, 16 VIP) and 236 hotel rooms and open in late 2015 or early 2016.

Business Awards of the Year – nominations building The organisers of the Business Awards of the Year say they have already confirmed close to 140 nominations for the event. “This significant number of candidates is evidence of the strong interest the event has generated in just its first edition,” they said in a statement. The organisers are looking for nominees among “individuals and organisations who, through their actions and examples, are contributing to promoting the local entrepreneurial spirit, and advancing and increasing awareness of best industry practices and standards”. The event’s management says the judging panel – including leading representatives from different sectors of business and the community – will soon name the shortlist of finalists for the awards event and gala dinner to be held in the Grand Ballroom of SJM Holdings Ltd’s Hotel Grand Lisboa on November 27. There the winners will receive their trophies in the presence of some of the most influential people in Macau´s business and public sectors.

on the amount of capital it put in. “FWD is an exciting new regional player which will bring attractive insurance products to help address the rapidly growing needs of consumers and significant protection gaps across Asia,” the Swiss Re statement quoted its chief executive, Michel Lies, as saying. ING said last year that the price Pacific Century paid for what is now FWD valued the life insurance businesses at 24.3 times their estimated earnings last year

and 1.9 times their estimated book value of 865 million euros (9.4 million patacas). “As we look to build FWD for the long term, Swiss Re’s commitment to Asia is entirely consistent with our aspirations to create a leading life insurer across the region,” Mr Li said in a written statement. “I am excited at the prospects for FWD to pursue opportunities that the insurance industry has not yet been able to realise,” he said. With Bloomberg News

October 18, 2013 April 19, 2013

Greater China

Graft watchdog slams Chinese firms’ lack of transparency Multinationals from China performed badly, India on top Stephen Brown

he anti-corruption watchdog Transparency International has admonished Chinese companies for their opaque business practices while praising Indian firms’ relatively high standards, in a survey of emerging market multinationals released yesterday. China got the lowest rating of the BRICS economies (Brazil, Russia, India, China and South Africa), whose companies made up three quarters of the total sample in the survey of 100 of the fastest-growing multinationals in 16 emerging economies. Marked on how transparently they present measures to combat corruption, how they report on their organisations and how they disclose data like revenue, expenditure and taxes, three quarters of the companies scored less than five out of 10. “As emerging market companies expand their influence they should seize the opportunity to play a bigger role stopping corruption internationally,” said Huguette Labelle, head of the Berlin-based independent pressure group. Widespread shortcomings included the failure of about 60 percent of all the companies surveyed to disclose information about their political contributions. “Results show that companies from China lag behind in every dimension with an overall score of 20 percent,” Transparency said in the report. “Considering their growing influence in markets around the world, this poor performance is of concern.” Eight of the 10 worst-performing companies were Chinese, such as state-owned Chery Automobile Co Ltd, which along with Mexico’s privately-owned consumer goods group Mabe scored zero points. Wang Wei, a spokesman for Chery, said that he had never heard of Transparency International and was never contacted by the organisation. “Chery is not publicly traded, so

naturally it is not as transparent as those listed companies,” Mr Wang said, noting that the automaker does publish quarterly and annual results to its bond investors.

India praise “In contrast, Indian firms perform best in the BRICS with a result of 54 percent and several occupy the top positions in the overall index,” said Transparency, attributing this to laws in India about how multinationals must report on subsidiaries. Top of the class overall came India’s Tata Communications Ltd, which also topped the anticorruption programmes category with 92 percent, followed by three more Tata companies. Transparency International said public disclosure of anti-bribery measures “confirms a company’s commitment to ethical conduct” and made it easier for the public to monitor them. Emirates Airline, which is stateowned, came first in the category for organisational transparency, followed by Johnson Electric Holdings Ltd of China and Malaysian state energy company Petronas. This category marked firms on their disclosure of data like majority and minority holdings, percentages owned by the parent company and the country of incorporation and operation – all of which is often made “deliberately opaque for the purpose of hiding the proceeds of corruption”, Transparency said. Eleven companies scored zero in this category, nine of them incorporated in China. In a sub-index ranking just the BRICS nations, which the watchdog said account for 20 percent of global economic output and 15 percent of world trade, the companies from first-placed India were followed by South Africa, Russia, Brazil, then China.

Yuan rises toward 20-year high Amid US shutdown exit and signs that China’s economy is rebounding Fion Li

he yuan advanced for a fourth day, approaching a 20-year high, on optimism China’s economy is improving and after United States lawmakers agreed on a budget deal to avoid a default. The currency headed for the longest winning streak in two months as the United States Congress voted 285-144 to halt the 16-day government shutdown and raise the nation’s debt limit. China’s gross domestic product probably rose 7.8 percent in the third quarter from a year earlier, after a 7.5 percent gain in the previous three months, according to the median estimate in a Bloomberg News survey before official data due today. “Investors are definitely relieved as the US finally worked to avoid a default,” said Stella Lee, president of Success Wealth Management Ltd. in Hong Kong. “China’s solid economic

fundamentals will keep attracting funds into yuan assets, supporting a relatively strong exchange rate.” The yuan gained 0.06 percent to 6.0990 per dollar as of 10.05am in Shanghai, China Foreign Exchange Trade System prices show. It touched 6.0965 Wednesday, the strongest level since the government unified the official and market exchange rates at the end of 1993. The People’s Bank of China lowered the currency’s fixing 0.04 percent to 6.1431 per dollar yesterday. The spot rate is allowed to trade as much a 1 percent on either side of the daily fixing. In Hong Kong’s offshore market, the yuan was little changed at 6.0986 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards reached 6.1430 Wednesday, the strongest level since Bloomberg began compiling the data in 1998. Bloomberg News

Reuters

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October 2013 April 19,18, 2013

Greater China

No end in sight as HK peg turns 30 Analysts expect peg to the US dollar to last for another decade Fion Li

anny Lam recalls how, in the first nine months of 1983, he helped his family stockpile rice as a drop of more than 30 percent in Hong Kong’s dollar led to panicbuying of goods. “Sometimes the shelves would be empty,” said Mr Lam, the 41-year-old co-head of research at Agricultural Bank of China International Securities Co in Hong Kong. “At that time, we just didn’t know what would happen tomorrow with the currency.” Calm was restored when the city pegged its currency to the US dollar 30 years ago yesterday at a rate of about HK$7.80, providing stability as China and the United Kingdom negotiated Hong Kong’s return to mainland rule. During the 1997-98 Asian financial crisis, Hong Kong used US$15 billion of reserves to defend the peg from a speculative attack. Financial secretary John Tsang says the link remains the “most appropriate” system for the city. Memories linger of bare supermarket shelves before the peg, and seven of 13 analysts polled by Bloomberg News this month predicted the fixed exchange rate would last for another decade. John Greenwood, the system’s architect, said there’s a “strong case” for a permanent peg in Hong Kong, which is a small and open economy with large capital flows, and therefore vulnerable to market volatility. “Many people criticised me, because at that time other economies

were still switching from pegged rates under Bretton Woods to more flexible exchange rates, whereas Hong Kong was going in the opposite direction,” Mr Greenwood, the London-based chief economist at Invesco Asset Management, said. “Hong Kong’s economy was very flexible, I was confident that I would be proved correct.” The Bretton Woods agreement of 1944 was a response to World War II and aimed to stabilise exchange rates by tying them to the US dollar. Hong Kong’s currency peg means its monetary policy is dictated by the Federal Reserve’s, and calls to review the system have mounted since 2008 as near-zero United States interest rates fueled a surge in property prices and living costs. If there is a change to the peg, it should be to a basket of currencies or China’s yuan, according to eight of the 13 analysts surveyed by Bloomberg. The Hong Kong dollar’s trading band could also be widened, four of the analysts said.

Adjusted peg Policy makers committed to limiting the Hong Kong dollar’s decline to HK$7.85 versus the US currency and capping gains at HK$7.75 in an adjustment to the monetary system in 2005. In 1982, China rejected thenUnited Kingdom prime minister Margaret Thatcher’s request for Britain to continue administering the city, saying it would resume sovereignty over the whole of Hong

US dollar peg has helped Hong Kong during tough times

Kong in 1997. The Hang Seng Index of shares slid 31 percent to 758.3 by the end of September 1983 amid tensions sparked by the handover talks, from its high for that year of 1,102.6 in July, according to data compiled by Bloomberg.

‘Empty shelves’ There’s no need to change the currency link, said Hong Kong Monetary Authority chief executive Norman Chan, who remembers the panic-buying of food in the early 1980s. “On my way home from work I saw a long queue of people outside a large supermarket, waiting to snatch whatever goods they could for fear of further devaluation,” he wrote on the monetary authority’s website on Monday. Mr Tsang, the finance chief in Hong Kong’s government, wrote in a report released yesterday that the currency policy “has been the cornerstone” of the city’s stability and banished the “anxiety in the community” caused by the local dollar’s decline in the 1980s. While “some in the younger generation” may be less aware of the peg’s benefits, the government “sees no need and has no intention” of changing it, he wrote.

China’s yuan In June 2012, Joseph Yam, a former monetary authority chief who helped introduce the peg and

defended it against speculators during the Asian crisis of the 1990s, called for a review of the currency policy. Many of the city’s problems such as inflation and lower living standards can be attributed to the exchange-rate policy, and ultimately the local currency should be tied to the yuan, Bank of East Asia Ltd chairman David Li was quoted as saying in the Hong Kong Economic Journal on Tuesday. “In five years, with the transaction volume of the renminbi in the region and the status of a reserve currency continuing to improve, the Chinese yuan can be a viable competition to the U.S. dollar,” Hao Hong, the Hong Kong-based chief China strategist at Bocom International Holdings Co, a subsidiary of China’s fifth-largest bank by market value, said. Mr Greenwood, who formulated the peg 30 years ago, predicts it will be “many years” before China fully liberalises domestic capital and credit markets and abolishes capital controls, changes necessary for switching to a link with the yuan. Mr Chan of the monetary authority said it’s too early to consider a yuan link because “the pre-conditions don’t exist.” The monetary authority has more than US$300 billion of foreignexchange assets, mostly in the U.S. currency, he said. Switching the peg to the yuan would force the HKMA to hold almost 2 trillion yuan (US$328 billion) of assets, bigger than the entire offshore yuan market, according to Chan. Bloomberg News

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October 18, 2013 April 19, 2013

Greater China

Chinese companies to ramp up overseas M&A As China overtakes U.S. as top crude importer Florence Tan and Chen Aizhu

Cnooc closed the US$15.1 bln acquisition of Canada’s Nexen in February

hina is set to ramp up acquisitions of overseas oil and gas companies to feed its soaring growth in energy demand as the country overtakes the United States as the world’s top net oil importer. Decades of breakneck economic growth pushed China to the top ranking in September, the U.S. Energy Information Administration (EIA) said in a report this week, a position it is set to keep through 2014. China, already the world’s top importer of a number of commodities, has led worldwide oil demand growth for a good part of the past decade, keeping oil prices elevated even as weak Western economies and rising shale output in the United States reduce global consumption. The long-expected shift may

Amazon in talks with HTC on prime handset plans A

mazon.com Inc, the world’s biggest e-commerce company, and HTC Corp have been in talks since at least June to develop handsets for sale to users of the Amazon Prime service, according to two people familiar with the talks. A final decision hasn’t been made on whether to proceed with

further strengthen China’s position in oil markets as East Asia exerts an increasing influence in global trade. “Growing imports is going to be a driver for acquisitions,” said Alex

KEY POINTS China to become world’s top net oil importer Country’s oil consumption outstripped its output Companies spent US$100 bln on oil and gas assets

a product or when it would be delivered, the people said, asking not to be identified because the talks are private. Amazon wants to increase the number of devices that can access its Amazon Instant Video service and seeks to sell phones through subscriptions with carriers, one of the people said. Amazon Prime, introduced in 2005 as a fast-shipping service, has developed into a platform for streaming and downloading media, including movies and television shows. Amazon started working with Foxconn Technology Group last year on a smartphone that would enable customers to view its content, Bloomberg News reported in July 2012. Three devices are being discussed by Amazon and HTC, the Financial Times reported earlier, citing people familiar with the

Yap, an energy consultant at FGE in Singapore. “From a nation’s point of view, they have a supply security agenda, but from the view of Chinese companies, they are interested to grow themselves into empires.” Difficulties in boosting domestic output have led Chinese companies, including China National Offshore Oil Corp (Cnooc) and China Petroleum & Chemical Corp, also known as Sinopec, to spend more than US$100 billion since 2009 on oil and gas assets to boost imports, Thomson Reuters data show. Cnooc aims to double its annual oil and gas output to 120 million tonnes of oil equivalent from 60 million tonnes, or 2.6 million barrels per day, by 2020 and to 180 million tonnes by 2030. Beijing has also spent billions via subsidised lending and aid to

project it didn’t name. “HTC doesn’t comment on rumours and speculation,” the Taoyuan, Taiwan-based company said in an e-mailed response. Apart from its own Kindle Fire tablets, Amazon Instant Video is compatible with Apple Inc’s iPad, iPhone and iPod as well as a range of televisions, media players and computers, according to its website. HTC, which worked with Facebook Inc to develop the HTC First handset featuring the social-network company’s Home software, is also helping Amazon broaden its hardware beyond the Kindle devices. Drew Herdener, a spokesman for Amazon, said last month the company has no plans to introduce a phone this year, and if it were to offer a handset it wouldn’t be free. Bloomberg News

secure oil and gas in Africa and South America. While China does not bring all the oil from its overseas assets back home, access to the fields gives Beijing security of supplies and allows it to better plan its import targets. “State traders Unipec and Chinaoil are trading more in the global market than the amount they purchase for domestic refining needs,” said a trading official familiar with China’s crude oil procurement strategies. “When making overseas acquisitions, they sometimes build refineries as a back-up to secure oil and gas blocks, allowing them flexibility to take either crude oil or refined fuel, or engage in a series of swap deals.” The EIA figures show that China’s oil consumption outstripped its output by 6.3 million barrels per day (bpd) in September, implying the difference is import demand. The equivalent U.S. gap was 6.13 million bpd. The drop in U.S. dependence on foreign oil has come from several fronts. New technologies such as hydraulic fracturing, or fracking, have led to a boom in oil production that has reversed a decades-long slide in U.S. output. U.S. output has jumped by 2.8 million bpd since 2008, recently topping 7.8 million bpd, a level not seen since 1989, according to EIA data. Imports of foreign crude have correspondingly dropped off. So far in 2013, they are averaging the lowest level in 16 years. U.S. fuel exports have hit record levels over the past two years, and while the EIA noted the level of overseas shipments could fluctuate in the coming months, the overall trend suggests China will soon open up a significant gap as the world’s biggest net crude importer. “The centre of gravity of the oil market is shifting east as China’s importance in global oil trade continues to increase,” said a London-based oil trader who sells to China. “Chinese trading houses are setting up offices all over and they aren’t willing to be a regional player but want to have a global footprint. They are very ambitious, very aggressive.” Reuters

From the view of Chinese companies, they are interested to grow themselves into empires Alex Yap, energy consultant at FGE

11 11

October 2013 April 19,18, 2013

Asia

Sales of super-yachts are growing faster in Asia, a study shows

Luxury yachts find rich Asian buyers Shipyards and brokers expecting big things from Asia, particularly from China

ingapore businessman Adrian Lee Chye Cheng, 33, is the super-yacht industry’s dream come true. Young, wealthy and passionate about boats, he embodies an emerging market that shipyards and brokers see looming large on the horizon. “The new market is in Asia,” Mr Lee said in an interview on one of the panoramic decks of the Ocean Paradise, a 55-meter luxury yacht he and his brother Lionel acquired two months ago. Wealth among Asia-Pacific millionaires may top North America’s as soon as next year, according to a report published last month by Cap Gemini SA and Royal Bank of Canada. Asians with at least US$1 million in investable assets are set to see their combined riches climb to US$15.9 trillion by 2015 from US$12 trillion last year, the 2013 Asia-Pacific Wealth Report says. North American high net-worth individuals held US$12.7 trillion in 2012. With rising riches has come an appetite for expensive toys. Take Mr Lee’s yacht. With a charter price of $300,000 a week, the Ocean Paradise was custombuilt by Benetti for 34 million euros (US$46 million). It was being promoted at last week’s Monaco Yacht Show – one of the most important in the world for the biggest luxury boats – as a “world of cool.” It has a jacuzzi, a Zen garden, floor-to-ceiling windows, mood lighting, a carbon-fiber dining table and a vintage Space Invaders video game. Mr Lee’s purchase is seen as a harbinger of future sales for an industry more associated with billionaires from the United States, Europe – especially Russia – and the Middle East. The biggest regional growth in terms of the number of superyachts delivered last year was in

Asia, according to the latest available figures from brokerage Camper & Nicholsons.

Acquired taste “The yacht industry is very peculiar; it’s something you have to learn, understand and feel,” Mr Lee said. “You wouldn’t go out and buy a yacht if you don’t know enough. I’ve seen people buy a Ferrari on impulse or go to an air show and like a plane and just buy it. A yacht takes more time.” Shipbuilders and brokers in Monaco concurred.

169

super-yachts delivered in 2012

Mr Lee’s previous boat, the 37-meter Ocean Dream, which he sold in 2010. An executive director of Loyz Energy Limited, a Singapore-based oil and natural gas explorer, Mr Lee is also on the board of restaurantoperator and caterer Select Group Limited, where he represents closelyheld Jit Sun Investments, according to the company’s websites. His brother Lionel helps run oilservices company Ezra Holdings that provides vessels and installs deep-sea equipment for the offshore industry. The brothers are also directors of Raimon Land Pcl, a Thai builder of luxury condominiums and resorts in Bangkok and Phuket. Giving the Ocean Paradise a contemporary look – with a blackand-white theme, a blob-shaped sofa and a river-stone setting for the bathtub in the master cabin – was inspired by the brothers’ boutique hotel, restaurant and condo holdings, Adrian said. He hopes the yacht will gain “icon” status.

“It’s in its infancy. There is an enormous amount of money but the guys who made it are very careful with it.” He cited an example of a Macau casino owner in his eighties who is “hesitating about buying a boat.” “I think if he was American he would just go for it,” Thompson said. Among issues facing Asian yacht owners is a shortage of mooring space at the region’s marinas, and in the case of China, an absence of “legal status for the yachts along the coastline,” he said. Mr Lee says he hasn’t decided yet whether the Ocean Paradise will remain in the Mediterranean Sea and the Caribbean on charter or go to Asia. If the price is right, he says he may even sell the boat in spite of the three years of work with Benetti overseeing construction and design. Bloomberg News

Asia rising The Asian market for superyachts, loosely defined as boats stretching more than 24 meters, is one that, although slow to cultivate, will have huge potential amid a boom in high-net-worth individuals. The biggest prize will be China, they said. “Southeast Asia and China are becoming more and more important, although China isn’t developing as fast as everyone was hoping,” Fabio Ermetto, chairman of brokerage Fraser Yachts, said in an interview. “There’s a feeling that in the next couple of years we’ll get more and more clients who’ve never owned any kind of boat before and will invest in a new super-yacht.”

Lee’s background This wasn’t the case for Mr Lee. Ocean Paradise is an upgrade from

Out of the 169 super-yachts delivered in 2012, the regions of 141 owners were identified, according to the widely-tracked Camper & Nicholsons’ study. About a third came from Europe. The biggest growth was in Asia, where 11 percent were delivered last year compared with 3 percent in 2011, it said. Of the 125 owners’ nationalities identified, 14 percent were Americans, followed closely by Russians. Those from Hong Kong and mainland China came in seventh and eighth with a total of about 9 percent of deliveries. “We’re on the cusp of the Chinese infiltrating the market,” said Peter Thompson, a partner at brokerage Worth Avenue Yachts, who was showing yachts to clients at the Monaco show.

Southeast Asia and China are becoming more and more important, although China isn’t developing as fast as everyone was hoping Fabio Ermetto, chairman of brokerage Fraser Yachts

12 12

October 18, 2013 April 19, 2013

Asia

Climate change to cost East Asia dearly: study Inaction on climate change could wipe off 5.3 percent of region’s wealth

In China, “measures to reduce emissions of greenhouse gases should lead to significant improvements in local air quality, thus reducing the damage to the health of urban populations,” it said. Current projections suggest that regional mean temperatures in 2090 will be 3.8 to 5.2 degrees Celsius higher than the 1961-1990 average, according to the report. The region is already vulnerable to once-everyhundred-years floods that could affect 12 million people in 23 cities, threatening US$864 billion in assets, the report said.

Adaptation costs

Climate change will means more flooding and tropical storms in coastal areas

limate change will lead to more flooding and drought in East Asia and could chop 5.3 percent off annual gross domestic product by the year 2100 if measures aren’t adopted to tackle it, according to the Asian Development Bank (ADB). Rising temperatures in China, Japan, Mongolia and South Korea will spur more flooding and tropical

storms in coastal areas and make northern agricultural regions more prone to drought, the ADB said yesterday in its “Economics of Climate Change in East Asia” report. The study underscores the risks of inaction on climate change faced by a region that was responsible for 30 percent of the world’s carbon emissions in 2010. China’s model of

economic growth at all costs has made it the world’s biggest carbon emitter and has blanketed cities in smog that can surpass World Health Organization recommendations by almost 40 times. “East Asia needs to shift toward a model of economic growth focused on low carbon emissions and more efficient use of resources,” the ADB said in the report.

The ADB said that under a mid-range scenario, adapting infrastructure to climate change would cost the region US$22.9 billion a year in 2005 dollars. Coastal protection would cost US$4.2 billion a year and adapting agriculture would require US$9.5 billion a year. The costs of mitigating climate change are much lower than the damage that would be caused by doing nothing, Gordon Hughes, a professor at the University of Edinburgh and one of the authors of the report, said at a briefing yesterday in Beijing. Roads are one of the most expensive sectors for adaptation as they are particularly susceptible

to higher temperatures, he said. “The question is, do we spend money today to reduce the damage done by climate change in 40 years time, or do we wait a bit and adapt in a slightly different way but in 20 or 30 years,” Mr Hughes said. “That’s a very difficult trade off, but it’s a very important trade off that needs to be made.” For China, adjustments to transport infrastructure could have “very large benefits” in reducing air pollution and improving people’s health, he said.

China’s glaciers Climate-related natural disasters since 1970 have already cost US$259 billion to China, US$64 billion to Japan, US$15 billion to South Korea and US$2 billion to Mongolia. That amounts to less than 0.2 percent of gross domestic product over the period, the ADB said in its report. China’s glaciers are “retreating markedly” due to global warming and the country has seen an increase in floods and droughts, Chen Wenying, a professor at Tsinghua University, said yesterday at the briefing. The Asian Development Bank said its study area didn’t include Hong Kong or Macau. Maps in the report also didn’t show data for Taiwan. Bloomberg News

Lao Airlines says 49 killed after Mekong plane crash L

ao Airlines, the Southeast Asian country’s national carrier, said 49 people were feared dead after a plane on a domestic flight from the capital Vientiane crashed into the Mekong River while attempting to land. The plane experienced “bad weather conditions” while preparing to land at Pakse Airport in the south of the country at about 4pm local time, the carrier said in a statement. The model was an ATR 72-600 turboprop made by the Avions de Transport Regional, a venture owned by Airbus SAS parent European

Lao Airlines was due to being charter flights to Macau in August

Aeronautic, Space and Defense Co and Italy’s Finmeccanica SpA, ATR said in a statement. Lao Airlines was sending emergency crews to the site of the crash, the world’s biggest this year in terms of fatalities, and is expected to release initial findings of its investigation into

the cause yesterday. Lao Airlines flies to six international and six domestic destinations. The Laotian flag carrier was due to begin scheduled charter services between Savannakhet and Macau in August but decided at the last minute to cancel the launch.

There has been “no news of survivors,” the airline said in the statement, adding that the plane was carrying 44 passengers and five crew. The accident is the worst this year in terms of fatalities, according to the Bureau of Aircraft Accidents Archives website. With Bloomberg News

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.

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October 2013 April 19,18, 2013

Asia over the next three months – a sign the economic recovery is broadening. “Appetite for capital spending at our client firms seems to be recovering, but (expenditures) remain at low levels compared with before (the collapse of) Lehman” Brothers in 2008, said one maker of electric machinery.

Growth rebound

Japan manufacturers’ mood steady, rising Index seen up in three months as economy on track for recovery

onfidence among Japanese manufacturers remained steady in October from the previous month, a Reuters monthly poll showed yesterday, a sign the feel-good mood generated by prime minister Shinzo Abe’s reflationary policies is persisting. But the service sector’s mood fell for a second straight month in October, underlining the view that private spending, which has led a recovery in the world’s third-largest

economy this year, is losing some momentum, according to the poll. Still, the mood of both manufacturers and nonmanufacturers is expected to improve over the next three months, with optimism far outweighing pessimism in both sectors, the poll showed. A total of 278 businesses responded to the poll of 400 big and midsize firms taken September 30 to October 11. The poll is closely correlated with the Bank of Japan’s

tankan survey. The index of sentiment among manufacturers, derived by subtracting the percentage of pessimistic responses from optimistic ones, was unchanged at plus 12 in October. It is seen rebounding to plus 16 in January. Sentiment has worsened at four out of nine manufacturing industries, including food and precision machinery, but it is seen either rising or flat among all industries

Some other manufacturers complained about sluggish demand in China and other parts of Asia – a sign that a slowdown in emerging market economies is affecting Japanese exporters. The service-sector sentiment gauge fell to plus 18 in October from plus 20 in the previous month, down for the second straight month. Its August reading was the highest in more than six years, and is seen rising to plus 27 in January. Retailers, real estate/construction industries and “other services” industries dragged down the overall sentiment in October. Confidence is seen rising at all but one non-manufacturing sector; information and telecommunications. Its sentiment index is up eight points to plus 50 this month but is then seen falling back to five points to plus 45 in January. Japan’s growth has outpaced its Group of 7 rich-country peers so far this year, but whether that growth can be sustained remains to be seen as capital spending – a weak spot in the economy – has only recently started to show tentative signs of recovery. Reuters

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October 18, 2013 April 19, 2013

Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange) 58.20 58.00 57.80 57.60

Max 58.15

average 57.683

Max 54.35

Min 57.45

average 53.679

Last 57.45

Min 53.10

57.40

average 89.706

PRICE

89.52

28.2

89.36

28.1

89.20

Max 28.50

average 28.258

Min 28.05

Last 28.35

28.0

25.06

30.86

53.88

24.92

30.72

53.62

24.78

30.58

53.36

24.64

30.44

Max 25.15

average 24.939

DAY %

YTD %

(H) 52W

Min 24.55

Last 25.00

(L) 52W

-0.488806335

8.889602054

111.3399963

85.79000092

BRENT CRUDE FUTR Dec13

110.13

-0.415950809

5.075851541

114.4399948

95.95999908

GASOLINE RBOB FUT Nov13

269.23

-0.362680878

4.848508451

293.6000109

243.3699846

GAS OIL FUT (ICE) Dec13

936.75

-0.372241425

3.91014975

973

837

3.787

0.47758026

1.121495327

4.59400034

3.281000137

303.32

-0.200704109

1.512717537

322.3500013

276.8100023

Gold Spot $/Oz

1308.81

1.9886

-21.3673

1754.46

1180.57

Silver Spot $/Oz

21.7885

2.2262

-27.637

34.3838

18.2208

Platinum Spot $/Oz

1413.3

1.509

-6.8819

1742.8

1294.18

Palladium Spot $/Oz

NATURAL GAS FUTR Nov13 NY Harb ULSD Fut Nov13

719.08

1.4675

2.7756

786.5

587.4

LME ALUMINUM 3MO ($)

1856

0.107874865

-10.46792089

2184

1758

LME COPPER 3MO ($)

7260

0.276243094

-8.460471567

8346

6602

1927.5

-0.077760498

-7.331730769

2230

1811.75

14120

0.857142857

-17.23329426

18770

13205

15.42

-0.161864681

0.032435939

16.65000153

14.68999958

3MO ($)

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

24.50

Dec13

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

Max 31.0

average 30.810

Min 30.3

Last 30.3

30.30

0.621118012

-25.7190496

647

432

687.75

0.917094644

-16.20469083

913

635.5

SOYBEAN FUTURE Nov13

1279.75

0.254602429

-1.765496066

1409.5

1162.5

COFFEE 'C' FUTURE Dec13

116.15

0.258955546

-25.75902844

181.5500031

113.1999969

SUGAR #11 (WORLD) Mar14

18.97

-0.210415571

-7.823129252

20.85000038

16.69999886

ARISTOCRAT LEISU

COTTON NO.2 FUTR Dec13

83.37

0.252525253

5.88011176

93.72000122

74.34999847

CROWN LTD

NAME

PRICE

COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

DOW JONES INDUS. AVG

15373.83

1.356935

17.32041

15709.58

12471.49

NASDAQ COMPOSITE INDEX

3839.431

1.197177

27.15395

3840.476

2810.8

FTSE 100 INDEX

6550.09

-0.3271659

11.05969

6875.62

5605.589844

DAX INDEX

8786.56

-0.6719421

15.42445

8861.28

6950.53

NIKKEI 225

14586.51

0.8251113

40.31994

15942.6

8619.45

HANG SENG INDEX

23094.88

-0.574514

1.933012

23944.74

19426.35938

CSI 300 INDEX

2413.33

-0.3320846

-4.344983

2791.303

2023.171

TAIWAN TAIEX INDEX

8374.68

0.5100706

8.769136

8439.15

7050.05

KOSPI INDEX

2040.61

0.2948968

2.181214

2052.44

S&P/ASX 200 INDEX

(L) 52W

0.9598 1.609 0.9043 1.3627 97.91 7.9867 7.7543 6.0971 61.3675 31.03 1.2413 29.365 43.065 11125 93.973 1.23231 0.84697 8.307 10.8851 133.42 1.03

0.6818 0.3618 0.7851 0.6128 0.429 0.0025 0.0013 0.0508 0.7781 0.7734 0.2417 0.2384 0.2903 0.6292 -0.2458 0.1761 -0.2503 -0.5887 -0.6192 -0.1799 0

-7.5159 -0.5317 1.2275 3.3131 -12.0621 -0.0438 -0.0477 2.1896 -10.3842 -1.4502 -1.6032 -1.1306 -4.7835 -11.973 -4.944 -2.0149 -3.725 -1.0774 -3.2586 -14.8778 -0.0097

1.0599 1.6381 0.9839 1.3711 103.74 8.0111 7.7664 6.2586 68.845 32.48 1.2862 30.228 44.82 11730 105.433 1.265 0.88151 8.4957 10.9254 134.95 1.032

0.8848 1.4814 0.8968 1.2662 78.62 7.9818 7.7498 6.0942 52.89 28.56 1.2152 28.913 40.54 9588 81.283 1.20302 0.79607 7.8281 10.1113 100.33 1.0289

DAY %

YTD %

(H) 52W

(L) 52W

4.82

16.52

-1.077844

VOLUME CRNCY

53.01587

5.02

2.56

1615959

54.82662

16.87

9.3

2962069

1.680672

-13.57143

1.72

0.75

792750

-0.3984064

3.734438

22.85

5852605 702000

0.4

2.564103

50.9434

0.56

0.232

CHEUK NANG HLDGS

7.21

1.692525

20.36728

7.24

100198

CHINA OVERSEAS

24.3

-0.4098361

5.194803

25.6

17.7

10973775

CHINESE ESTATES

21.1

0.9569378

87.6298

21.5

9.543

241560

CHOW TAI FOOK JE

12.38

2.995008

-0.4823118

13.4

7.44

11069360

EMPEROR ENTERTAI

4.19

-0.9456265

121.6931

4.66

1.43

2710670

FUTURE BRIGHT

2.63

5.62249

116.992

2.76

1.103

3312000

GALAXY ENTERTAIN

57.45

0.2617801

89.2916

58.8

24.2

7575894

HANG SENG BK

127.6

-0.5455963

7.497897

132.8

110.6

921573

HOPEWELL HLDGS

26.2

-0.56926

-21.20301

35.3

23.2

859500

HSBC HLDGS PLC

84.05

-1.001178

3.38253

90.7

73.55

10963318

HUTCHISON TELE H

3.57

0.2808989

0.2809005

4.66

3.09

6004000

LUK FOOK HLDGS I

26.65

3.696498

9.221313

30.05

16.88

5603010

MELCO INTL DEVEL

23.7

2.37581

163.0411

23.95

6.98

4258000

MGM CHINA HOLDIN

28.35

1.069519

113.5066

28.5

12.236

5045900

1770.53

MIDLAND HOLDINGS

3.15

-0.3164557

-14.86487

4.66

2.68

508000

NEPTUNE GROUP

0.222

9.359606

46.05264

0.23

0.131

224330000

NEW WORLD DEV

10.96

-0.1821494

-8.818639

15.12

9.98

11985886

SANDS CHINA LTD

53.1

-0.5617978

56.40648

54.6

28.15

10607852

SHUN HO RESOURCE

1.65

17.85714

1.92

1.19

80000

4.56

-1.298701

8.830547

4.68

2.99

3316766 15152947

5283.102

0.3837042

13.64075

5314.3

4334.3

4518.93

0.5936654

4.685148

5251.296

3837.735

FTSE Bursa Malaysia KLCI

1797.42

0.3377303

6.422339

1826.22

1590.67

NZX ALL INDEX

1004.294

0.3615556

13.85869

1005.921

851.971

SHUN TAK HOLDING

PHILIPPINES ALL SHARE IX

3957.2

0.8584129

6.980843

4571.4

3440.12

SJM HOLDINGS LTD

618.29

0.3

-0.45

STOCK EXCH OF THAI INDEX

1470.34

0.4069982

5.633179

1649.77

1260.08

HO CHI MINH STOCK INDEX

499.59

0.1262626

20.75266

533.15

372.39

Laos Composite Index

1308.36

0.625274

7.704336

1455.82

1039.81

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

(H) 52W

1.21

Euromoney Dragon 300 Index Sin

YTD %

AMAX HOLDINGS LT

JAKARTA COMPOSITE INDEX

DAY %

BOC HONG KONG HO CENTURY LEGEND

World Stock Markets - Indices

PRICE

Macau Related Stocks

445.5

WHEAT FUTURE(CBT) Dec13

NAME

28.3

54.14

101.79

CORN FUTURE

89.68

31.00

WTI CRUDE FUTURE Nov13

LME ZINC

28.4

Currency Exchange Rates

NAME

METALS

Last 89.65

89.84

25.20

Commodities ENERGY

Min 89.25

28.5

54.40

53.10

Last 53.10

Max 89.95

90.00

SMARTONE TELECOM WYNN MACAU LTD

2.459016

40.86366

25.2

16.091

10.58

-0.5639098

-24.85795

16.22

9.97

1256270

30.3

0.4975124

44.63007

5500572

ASIA ENTERTAINME

3.96

#N/A N/A

69409

BALLY TECHNOLOGI

69.5

0.303074

55.44621

76.3

43.16

456983

BOC HONG KONG HO

3.31

2.795031

7.817592

3.6

2.99

2765

GALAXY ENTERTAIN

7.54

-0.3963012

89.92443

7.59

3.13

19680 1690011

INTL GAME TECH

18.71

1.35428

32.03952

21.2

12.37

JONES LANG LASAL

85.23

1.452208

1.536809

101.46

72.56

333427

LAS VEGAS SANDS

69.53

0.6077268

50.62825

70.62

37.8353

4435181

MELCO CROWN-ADR

34.63

1.375878

105.6413

35.03

13.43

2774432

MGM CHINA HOLDIN

3.69

2.5

110.822

3.69

1.6651

3800

MGM RESORTS INTE

20.69

0.6322957

77.74914

20.9

9.15

9206814

SHFL ENTERTAINME

23.169

0.2553007

59.78621

23.21

12.35

226331

SJM HOLDINGS LTD

3.2

2.893891

40.49778

3.24

2.0804

50202

168.58

0.8253589

49.86221

170.79

103.34

1001163

WYNN RESORTS LTD

AUD HKD

USD

Hang Seng Index NAME

PRICE

DAY %

VOLUME

38.35

0.3926702

25137404

ALUMINUM CORP-H

2.79

-0.3571429

8444000

BANK OF CHINA-H

3.59

-0.8287293

240986357

BANK OF COMMUN-H

5.69

-1.386482

17473484

0.1517451

1810010

11.36

-3.071672

18316000

BOC HONG KONG HO

-0.3984064

5852605

HANG LUNG PROPER

CATHAY PAC AIR

2053676

HANG SENG BK

123.2

1.066448

3746125

HENDERSON LAND D

CHINA COAL ENE-H

4.91

4.246285

122896329

HENGAN INTL

CHINA CONST BA-H

-0.990099

134031932

HONG KG CHINA GS

CHINA LIFE INS-H

20.4

-1.210654

19118042

CHINA MERCHANT

27.8

-3.472222

7314221

AIA GROUP LTD

BANK EAST ASIA BELLE INTERNATIO

CHEUNG KONG

CHINA MOBILE

NAME

PRICE

DAY %

VOLUME

CHINA UNICOM HON

12.74

-0.46875

12898695

CITIC PACIFIC

10.86

-0.3669725

7650569

CLP HLDGS LTD

62.15

-0.1606426

2751436

CNOOC LTD

15.98

-0.125

41178696

COSCO PAC LTD

11.34

0.1766784

ESPRIT HLDGS

12.92

POWER ASSETS HOL SANDS CHINA LTD

PRICE

DAY %

66.65

-1.039347

VOLUME 2877250

53.1

-0.5617978

10607852

SINO LAND CO

11.04

-0.1808318

4799722

SUN HUNG KAI PRO

102.1

-0.9699321

3461858

2930770

SWIRE PACIFIC-A

90.75

-0.7111597

1195051

-0.4622496

3368119

TENCENT HOLDINGS

420.2

-0.2847651

1619667

TINGYI HLDG CO

20.25

2.376138

10136355

WANT WANT CHINA

11.16

-3.292894

16412316

WHARF HLDG

68.15

-0.8727273

2417181

25.5

0.591716

10094748

127.6

-0.5455963

921573

-0.6479482

3392689

92.4

1.538462

1643775

18.12

-0.8752735

11566228

HONG KONG EXCHNG

125.9

-0.5529226

2007631

HSBC HLDGS PLC

84.05

-1.001178

10963318

96.05

-1.030397

3457941

5.44

-1.627486

194083944

83.85

-0.4747774

14044868

HUTCHISON WHAMPO

CHINA OVERSEAS

24.3

-0.4098361

10973775

IND & COMM BK-H

CHINA PETROLEU-H

6.16

-0.6451613

66987540

LI & FUNG LTD

10.82

-0.5514706

12951201

CHINA RES ENTERP

26.25

-0.1901141

1802000

MTR CORP

30.15

-0.3305785

1480265

CHINA RES LAND

NAME

22.9

-0.2178649

3300525

NEW WORLD DEV

10.96

-0.1821494

11985886

CHINA RES POWER

19.36

-1.123596

4175491

PETROCHINA CO-H

8.98

-1.101322

60861849

CHINA SHENHUA-H

24.4

4.72103

45963391

PING AN INSURA-H

58.2

-0.8517888

7130889

MOVERS

23400

INDEX 23094.88 HIGH

23399.79

LOW

23094.88

52W (H) 23944.74 (L) 19426.35938

23095

15-October

17-October

15 15

October 2013 April 19,18, 2013

Opinion

Nobel Prize shows wisdom wires and madness of crowds Business

Leading reports from Asia’s best business newspapers

China Daily China and Vietnam will achieve bilateral annual trade volume of US$100 billion by 2017, Premier Li Keqiang said during a luncheon with business leaders in Hanoi. China has been Vietnam’s largest trading partner for nine years. Trade volume between the two countries exceeded US$40 billion in the first eight months of this year, putting the annual target of US$60 billion for 2015 within reach. “China and Vietnam have the ability and wisdom to overcome difficulties in bilateral relations, deal with differences and expand common interests,” Mr Li said.

Jakarta Globe A strengthening rupiah coupled with a narrowing current-account deficit and slowing inflation will put Indonesia in better shape to face the impact of a potential U.S. debt default, economists and government officials said in Jakarta. “The U.S. debt default, as unlikely as it is, will affect mainly our financial markets,” Destry Damayanti, the chief economist at Bank Mandiri, said. “We could see an increase in volatility in the short term. But even if investors flee from Indonesia, they will come back because our fundamentals remain robust.”

Inquirer Business Philippine government borrowings posted doubledigit decline in the first eight months of 2013 from a year ago, as fiscal reforms implemented over the years helped the country become less dependent on credit, officials said. Data from the Department of Finance showed that the government borrowed 446.28 billion pesos (US$10.3 billion) in January to August, down year-on-year by 12.5 percent. Of the total borrowings as of August, 196.21 billion pesos were used to pay debts.

Asahi Shimbun Japan’s Prime Minister Shinzo Abe emphasised his economic growth strategy as the main topic of the extraordinary Diet session that began this week. Mr Abe said providing government support to companies would lead to more jobs and higher incomes for young people and women. He said his administration would work closely with business and labour to create a positive economic spiral in which more jobs and higher pay will lead to increased consumption and investment. However, he stopped short of offering specific policy measures.

Richard Holden

Professor of economics at the University of New South Wales, Australian School of Business

Justin Wolfers

Fellow of the Brookings Institution, a professor of public policy and economics at the University of Michigan

inancial markets provide a useful reminder of just how humble we economists should be about our understanding of the world. The three winners of the 2013 Nobel Memorial Prize in Economic Sciences neatly capture this tension. Eugene Fama is the intellectual godfather of the view that financial markets are efficient, while no one has done more than Robert Shiller to highlight their inefficiencies. Lars Peter Hansen developed statistical techniques that both sides have used to help resolve their differences. The central issue is whether the prices of stocks, bonds and other financial assets reflect the workings of a wellfunctioning market. That is, do financial prices reflect the wisdom of crowds, or do they mirror popular delusions? The answer determines whether you should try to beat the stock market, whether the United States Federal Reserve should respond to rising housing prices, and how the U.S. should regulate financial markets. Tests of market efficiency revolve around the question of whether future movements in stock, bond and housing prices are predictable. The basic logic is that prices in an efficient market already reflect all available information, so there shouldn’t be any existing information that can predict how they will change in the future. Well, mostly. All economists believe that investors should demand higher returns for taking on more risk, and so the question is whether riskadjusted price changes are predictable.

Consistent evidence Stock-pickers around the world can attest that predicting price changes is difficult. Equally, with enough persistence, one can usually ferret out a few accurate predictions. Indeed, all three laureates have accumulated evidence consistent with the idea that stock-price movements are somewhat predictable. The real debate, then, is how to interpret this predictability. In Fama’s telling, a stock price reflects the wisdom of crowds. Yes, there is evidence that sometimes share-price movements are predictable, but they are small and largely reflect compensation for greater risk. Fama’s systematic studies of the performance of different stocks over time have revealed clear evidence that price changes are predictable. In

particular, he and collaborator Kenneth French have shown that stocks of small companies and of those with high book-tomarket values have historically yielded higher returns. Fama argues that this predictability isn’t evidence against market efficiency, rather that these are proxies for a stock’s riskiness. To him, these higher returns are simply a rational response to greater risk. This perspective has had an important effect on the stockpicking community, where analysts are evaluated on the performance of their picks relative to the benchmarks that account for these risk factors. Fama was also an early architect of financial “event studies,” compiling an impressive body of evidence showing that markets respond rapidly to new information. Even so, the observation that markets react quickly doesn’t mean that they are responding fully, or even rationally. An important implication of the Fama view is that stock picking is a futile exercise. Investors who want to own stocks should instead buy low-cost index funds. This observation has led to an entire industry of such funds being created. While Fama tended to focus on short-term changes in individual prices, Shiller focused on the bigger picture of asset prices – and over a longer term. And while Fama’s account of stock-price predictability emphasises risk, Shiller puts human psychology at centre stage.

Volatility’s role Shiller has shown that stock prices are far too volatile to be consistent with market efficiency. The logic is simple: Because a stock is an entitlement to a company’s future dividends, a stock

price should only fluctuate as the value of future dividends rises and falls. However, as any marketwatcher knows, stock prices are incredibly volatile, even as dividends tend to be stable. The juxtaposition of these facts suggests that something beyond fundamentals drives stock fluctuations. In Shiller’s telling, markets can be subject to extraordinary popular delusions and the madness of crowds, in which stock prices become unmoored from future earnings. Shiller has shown that when stock prices rise too far ahead of corporate earnings, then a correction is likely. In 1996, he issued a prescient early warning of the dot-com bust and, in an influential briefing at the Fed, persuaded then-chairman Alan Greenspan to warn of “irrational exuberance” before the bubble burst. Similar forces are at play in the housing market, where

We are still learning how and when financial markets generate wealth and provide economic stability and when they are a casino destabilising the economy

the ratio of house prices to rents can predict changes in home prices, much as the ratio of share prices to earnings predicts stock prices. This style of analysis led Shiller to call the housing bubble well before its implosion. If the Fed were as capable as Shiller of spotting financial bubbles, it would surely be more active in trying to prick them. That it remains largely on the sidelines suggests that the Fed is modest about its ability to replicate Shiller’s uncanny accuracy. Perhaps, then, the broader lesson is that Shiller teaches us to be on the lookout for when we’re gripped by a mass delusion. Numerous studies in behavioural finance, as well as the lessons of the 2008 financial crisis, have shown that providing people with accurate information may be the best remedy for mass delusion. The insights of the third laureate, Lars Peter Hansen, are less well known beyond academia yet potentially more far-reaching. Hansen developed a widely used statistical technique called the generalised method of moments. The broader context is that a statistician must always make assumptions to transform raw data into useful insight. Hansen’s method broadened the assumptions that empirical researchers could rely on, thus allowing them to choose weaker assumptions. Or as he said, “I think of it as showing how you can do something without having to do everything.” There are also deeper lessons. Social science progresses slowly. Most important, we are still learning how and when financial markets generate wealth and provide economic stability and when they are a casino destabilising the economy. Bloomberg View

16 16

October 18, 2013 April 19, 2013

Closing Telefonica could exit Telecom Italia

Goldman Sachs profit, revenue falls

Directors representing Telecom Italia SpA’s biggest owner have interests that may conflict with the foundering carrier’s recovery strategy and should be removed, according to the thirdbiggest shareholder. Assets that Telefonica SA – the biggest investor in a holding company with 22.45 percent of the Milan-based carrier – has in Latin America could influence its representatives on the board when debating what to do with Telecom Italia’s assets in the region, Findim Group SA said in a statement. Franco Bernabe stepped down as chief executive officer of Italy’s largest phone company this month.

Goldman Sachs Group Inc’s thirdquarter profit fell 2 percent as weak bond-trading volumes hit revenue in its biggest business, pushing down the bank’s shares in premarket trade. Revenue from Goldman’s fixed income, currency and commodities (FICC) business, which undertakes trading for clients, fell 44 percent to US$1.25 billion in the quarter ended September 30. The fifth-largest United States bank by assets reported a profit of US$1.43 billion, or beating analysts’ estimates. “The third quarter’s results reflected a period of slow client activity,” chairman and chief executive Lloyd Blankfein said in a statement.

Jamie Dimon gives up role at JPMorgan unit

US government reopens for business Country could be back on the brink of shutdown in January Michael Mathes

he United States government reopened for business yesterday after a two-week shutdown and a dangerous flirt with running out of cash to pay its bills and avert a calamitous, unprecedented default. The return to normality came after Congress passed and president Barack Obama quickly signed a Senate-crafted compromise bill that followed weeks of tumultuous debate. Asian stocks rose amid the global sigh of relief, although European shares dipped in early trading. The deal left conservative Republicans who were blamed for the shutdown heaped in scorn and with virtually no concessions to show for their effort, much less their original goal of derailing Mr Obama’s signature domestic achievement, the health care reform known widely as “Obamacare”. Hundreds of thousands of furloughed federal workers who had gone unpaid had orders to report back to the office.

National parks prepared to reopen their gates as did and monuments and museums, like the popular Smithsonian ones along vast green expanse called the Mall, not far from the White House. The measure passed late Wednesday with less than two hours to go until the day the Treasury had warned it no longer had authority to incur more debt. The last-gasp plan extended the borrowing authority but only until February 7. Lawmakers also reached agreement on funding the government, through January 15. Mr Obama signed the bill in the early hours yesterday, shortly after the Congressional green light. So amid the global exhale of relief, there was also a patent sense that bitterly divided Washington – which has endured several nail-biting spats of budget and debt brinkmanship in recent years – had simply kicked the can down the road, yet again. “The Senate-made compromise buys only a short interval of peace,”

The Washington Post said in an editorial. The deals calls for a SenateHouse of Republicans conference to come up with a more permanent fiscal fix. Recommendations are due December 13. “Given recent history, though, it is all too possible that Congress will fail to agree and will deliver the country to the brink of another shutdown or default,” the paper said. The New York Times said: “The Republican Party slunk away on Wednesday from its failed, ruinous strategy to get its way through the use of havoc.” Even before the acrimonious battle reached its climax with the definitive House of Representatives vote after that of the Senate, Mr Obama warned that Washington must stop governing by crisis. United States leaders needed to earn back the trust of the American people in the aftermath of the crisis, Mr Obama said.

PMorgan Chase & Co chief executive officer Jamie Dimon (pictured) stepped down as chairman of the bank’s main operating subsidiary in July because of a recommendation by the Office of the Comptroller of the Currency, according to two people with knowledge of the matter. The agency asked for the change as part of an effort to improve corporate governance at the company, said one of the people, who asked not to be identified because discussions were confidential. The move wasn’t punitive, that person said. Mr Dimon stepped down as chairman of the subsidiary July 1, a person with direct knowledge of the move said on October 3. When asked about the situation during a conference call with reporters last week, the chief executive officer referred to talks with government supervisors without specifying whether any request was made. “We are in constant dialogue with our regulators regarding how to strengthen our governance and controls,” he said on the October 11 call to discuss the bank’s earnings. “We thought this board change we made was consistent with our regulators’ views and governance for a banking subsidiary.” The move didn’t affect Mr Dimon’s titles as chairman and chief executive officer of the parent company. Shareholders backed him in a May vote against splitting those roles after United Kingdom traders in the firm’s chief investment office lost as least US$6.2 billion on botched derivatives bets last year. The New York-based lender has said it boosted spending on internal controls by about US$1 billion, reassigned at least 5,000 workers to compliance and overhauled corporate governance, adding new members to its board.

AFP

Bloomberg News