MOP 6.00 Closing editor: Sara Farr Year III
Number 584 Thursday July 17, 2014
Publisher: Paulo A. Azevedo
Land deal agreed H
e came, he saw, he concurred. Guangdong Governor Zhu Xiao Dan was in Macau yesterday. After meeting with the MSAR Government he announced that Macau could have another 10 square kilometres. It will be reclaimed land, per local practice, but this time it will be in Hengqin territory
www.macaubusinessdaily.com
Page
3
Pearl of the Orient
Luk Fook sales plummet in Macau, Hong Kong Page 6
SLOT doubles profits in two years Page 7
Property prices will maintain their inexorable rise in the second half. But the size of residential apartments is shrinking. Never mind: real estate jargon is rising to the occasion. Welcome a new phenomenon called the ‘pearl unit’. Or more for less Page
Year-long investigation finds radiation levels normal Page 7
HSI - Movers July 16
2
Name
%Day
CITIC Pacific Ltd
3.37
Season to taste
Want Want China Ho
2.07
Wharf Holdings Ltd
1.60
Henderson Land Deve
1.31
AIA Group Ltd
1.02
Analysts are spooked. Some say operators are underestimating current gaming headwinds. Why not judge for yourself. Business Daily critically sums up ‘Big Six’ prospects as the 2Q earning season kicks off today
China Unicom Hong K
-0.77
Ping An Insurance Gr
-0.84
Sands China Ltd
-1.40
China Shenhua Energ
-1.86
China Life Insurance
-1.19
Pages
Source: Bloomberg
4&5 I SSN 2226-8294
Smoke and mirrors
Jackpot Milanese
Positive data on the Chinese economy. It came pouring in yesterday, suggesting a recovery. GDP, average income, and industrial output all eclipsed forecasts. But analysts see all the data as an illusion of the real situation
Two Italian families, owners of GTECH firm, have acquired International Game Technology. One of the main slot machine makers. This sets the company up nicely in the U.S. casino market
Pages 8 & 9
Page 14
Brought to you by
2014-7-17
27˚ 33˚
2014-7-18
27˚ 32˚
2014-7-19
26˚ 30˚
2
July 17, 2014
Macau
Higher prices, smaller flats Housing prices are expected to continue rising, while at the same time new flats tend to be smaller. Maybe it is the time of the second-hand buildings as an estate agency says the prices of second-hand apartments may decrease in the second half of the year Kam Leong
newsdesk@macaubusinessdaily.com
Current medium-sized flats occupy around 600 to 900 square feet and include two or three bedrooms. Such ‘pearl units’, having only one or two rooms, are usually invested in to rent out to non-citizens working in the city Noel Cheung Lai Wah, Centaline (Macau) Property Agency
A
lthough Macau’s real estate market is still on track to rise in the second half of the year, low to medium-priced second-hand residential units will return to their appropriate market price. In addition, Centaline (Macau) Property Agency Ltd. predicts that the tendency will be for new apartments to be ‘pearl units’. Noel Cheung Lai Wah, senior regional sales director of the agency, says that many proprietors have been encouraged by the aggressive price of
new high-end houses to increase the price of their second-hand property threefold, which is “above the average level that can be accepted by the market”. Recently, some owners have started to lower their prices. In addition, price boundaries between high, medium and low cost buildings will become obvious, according to Mr. Cheung. Although prices of second-hand flats are decreasing, overall housing prices will keep rising steadily as the demand for flats cannot be met by
supply, according to the agency’s director, Jacky Shek Po Tak “After all, Macau’s economic development is still going well . . . In addition, the low tax environment is lasting and the demand for residential houses is increasing; hence, the prices of residential homes still have room to rise,” he said. He thinks that there are no signs indicating that the prices of homes will significantly increase or decrease as the market stabilised when the
government introduced several policies to control price hikes.
‘Pearl units’ trend New homes up for sale in the first half of the year are primarily socalled ‘pearl units’, which refers to their high cost but small floor area, such as The Carat and The Grand Residencia Macau, Mr. Cheung said. Asked if new homes will follow the ‘pearl units’ trend, he said that there were signs of such a tendency. “Before, a medium-sized flat referred to those covering an area of more than 1,000 square feet with two bedrooms; however, current mediumsized flats occupy around 600 to 900 square feet and include two to three bedrooms. Such ‘pearl units’, having only one or two rooms, are usually invested in to rent out to non-citizens working in the city,” he said. Another senior regional sales director of the agency, Roy Ho Siu Hang, predicts that although the transactions in both shops and commercial buildings will keep decreasing it is not likely that rents will go down. He said that “the latest tourism measures, such as tightening the number of days transit tourists can stay in the territory and the clampdown on UnionPay transactions in casinos, are still in the beginning stage. We cannot conclude what influence these policies will have. But for the long term, we believe there will be no negative effects.” He also believes that Macau’s image as a tourism city is solid, hence such policies will not stop foreign brands from coming to Macau. Demands for shops will keep increasing and therefore shop prices and rents are expected to increase as well. Meanwhile, the prices of commercial and industrial buildings will keep rising in the second half of the year. Commercial building rents are expected to jump significantly to 30 patacas (US$3.75) per square foot. “Rumours in the market say The Fortune Business Centre will open its space for rent, which will make the price and rent of commercial buildings increase even more,” Mr. Ho said. Regarding industrial buildings, realtors believe they will keep on rising between 5 and 10 percent in the second half of the year.
Commercial real estate loans drop 20pct in May The value of new loans by banks for commercial real estate in May was 5.6 billion patacas, the majority of which, at 98 percent, were taken out by Macau residents Sara Farr
sarafarr@macaubusinessdaily.com
N
ew commercial real estate loans dropped 19.7 percent to 5.6 billion patacas in May over those of the previous month. According to the latest data released by the Monetary Authority of Macau, the majority of these loans, at 98.1 percent, were granted to Macau residents. There were also fewer commercial real estate loans granted to nonresidents, a 16.1 percent drop in May over April. However, when compared with the value of newly approved commercial real estate loans granted in May 2013, this year witnessed a whopping 111.7 percent increase. In addition, new residential
mortgage loans approved by banks here rose by 72.9 percent to 6 billion patacas in May month-on-month. Of these, 98.4 percent were granted to Macau residents. In terms of value, bank-granted residential mortgage loans to residents increased 75.3 percent in May, while those to nonresidents decreased by 7.1 percent. Overall and compared to the same period 12 months prior, the number of newly approved residential mortgage loans increased by 46.2 percent. New residential mortgage loans collateralised by uncompleted units increased a staggering 135.8 percent month-on-month to 869.2 million
patacas. The equitable mortgage extended to residents, which accounted for 96.5 percent of the total, increased by 132.1 percent. Compared with the same period last year, these loans expanded 128.4 percent. Meanwhile, the outstanding value of residential mortgage loans increased by 3 percent to 130.6 billion patacas at the end of May over that of a month earlier. Residents made up 95.3 percent of total outstanding residential mortgage loans. Compared to the end of April, outstanding residential mortgage loans to residents grew 3.1 percent, while those to nonresidents increased by 0.7 percent.
In addition, the outstanding value of commercial real estate loans was up 33 percent from the end of May to 102.3 billion patacas. Similarly, for loans for residential mortgages the majority of outstanding balances were accounted for by residents at 92 percent. Compared to the end of April, outstanding commercial real estate loans to residents increased 2.7 percent, while those to non-residents grew 0.4 percent. Meanwhile, the delinquency ratio for residential mortgage loans remained unchanged at 0.07 percent, as did the ratio for commercial real estate loans, which stood at 0.07 percent at the end of May.
3
July 17, 2014
Macau HK’s Financial Secretary visiting Macau, Zhuhai Hong Kong’s Financial Secretary John Tsang Chun-wah is visiting Zhuhai and Macau today and tomorrow for the seventh Hong Kong Macau Co-operation High Level Meeting. Besides meeting with senior officials of both cities, Mr. Tsang will inspect the construction progress of the Hong Kong-Zhuhai-Macau Bridge. The high level meeting is a platform for the two regions to review their cooperation work and achievements chalked up for last year as well as an opportunity to discuss cooperative undertakings for the coming twelve months.
More reclaimed land for Macau firms The Governor of Guangdong has confirmed that mainland China will offer an additional 10 square kilometres of land in Hengqin island for the use of MSAR businesses Stephanie Lai
sw.lai@macaubusinessdaily.com
T
he Governor of Guangdong province, Zhu Xiao Dan, confirmed yesterday that Macau is to have an additional 10 square kilometres of land from Hengqin via reclamation to cater to local investments, although the land acquisition format and the types of businesses settling there are still under planning, with negotiation ongoing between the government of Macau and the mainland. The news was announced yesterday when Mr. Zhu, who led a delegation of Guangdong officials to attend a conference with the local government here yesterday morning, told a press briefing afterwards that both the Macau and provincial governments had “reached a new plan” to reserve 10 square kilometres of land from the city’s neighbouring Hengqin island for local firms to settle in. “If you’re asking how we’re assisting the local firms, especially the small and medium businesses to invest in Guangdong, we mainly provide them with space,” Mr. Zhu said. “For instance, in Hengqin, we’ve already built the GuangdongMacau Cooperation Industrial Park and Chinese Traditional Medicine
Seven Macau firms to officially settle in Hengqin The Hengqin authorities yesterday inked contracts with seven Macau firms that are settling in the ‘Guangdong-Macau Cooperation Industrial Park’ on the island. These seven accepted projects, which involve an investment of 7.19 billion yuan (US$1.16 billion) and occupy an area of 293,300 square metres, include restaurant operator Future Bright Group’s food plaza project, and other projects engaged in logistics and food processing as well as information technology services. The seven firms were among the 33 local investment projects that the Macau Government recommended to Hengqin authorities in April. Hengqin Administrative Committee director Niu Jing said yesterday that his government would be negotiating with the rest of the recommended enterprises to settle in Hengqin soon.
Park,” he added. “With the MSAR Government we’ve reached a new plan to reserve an additional 10 square kilometres of space to build a park for Macau businesses to settle in.” However, the format for cooperation between both the mainland and Macau governments on how to develop this 10 square kilometers of land will be decided “after these areas are reclaimed” off Hengqin Island, the Guangdong Governor announced when meeting the China Chamber of Commerce yesterday afternoon. The Hengqin administration has already reserved 4.5 square kilometres of land - land parcels that are scattered throughout the island – for local firms in the tourism and leisure businesses, for cultural and creative projects, and for information technology and other trade services. The mainland administration has termed this 4.5 square kilometres of land as the “Guangdong-Macau Cooperation Park”. Another 0.5 square kilometres of land on the island has been reserved for the Chinese Traditional Medicine Park, a joint project initiated by both the Guangdong and Macau Government with the remit to be an “international Chinese medicine technology hub” for quality control and certification, as noted by Hengqin Administrative Committee director Niu Jing before. Speaking at a Hengqin policies explanation session yesterday, Mr.
Niu admitted that currently Hengqin is running out of land that can be reserved exclusively for Macau firms to settle in. “As mentioned in the master plan for Hengqin, our total area is 106 square kilometres. But the developable area [of the island] is only 28 square kilometres,” said Mr Niu. “In the past four to five years of development, the reserved areas for the cooperation parks have already occupied quite a big proportion, and on the island we cannot offer the space for the 10 square kilometres of land plot.” Mr. Niu noted that the aim of offering more space to Macau’s investors is to aid its industry diversification per the city’s cooperation with Guangdong province. Currently, Macau investment projects occupy some 2.75 million square metres of land on Hengqin, which is about 63 percent of its 4.33 million square metres of land occupied by various investment projects from the mainland and outside the island, according to Mr. Niu.
‘Demonstration zone’ The closed-door joint conference between the Guangdong and Macau administrations yesterday morning concluded with the inking of a framework agreement on developing Cuiheng New District of Zhongshan City in the province. According to the agreement,
Macau and Zhongshan will jointly develop a “demonstration zone”, a project that will serve to “break the limitations of the Industrial Park cooperation model” and would “cater to the needs of small and medium companies” as well as serving the “demand for medical services, leisure and housing for Macau.” The first phase of the special zone, which would occupy 5 square kilometres, will be built by a joint venture investment company from both the Macau and Zhongshan governments. However, Chief Executive Fernando Chui Sai On, who also attended the joint conference yesterday, did not give away too many details during a press briefing about the differentiation and urgency for its development project in Cuiheng when compared with Hengqin. Neither did the delegations from the Guangdong and Macau Government reveal the specifics of investing in the “demonstration zone”. The agreement mentions that the “demonstration zone” will be further divided into several subzones, specialising in trade services, education and training, as well as tourism cooperation, the official press release noted. “When Guangdong announced it would like to develop Cuiheng district, many local businesses were very interested”, Mr. Chui informed media yesterday, “The MSAR Government is also optimistic about this district’s development.”
4
July 17, 2014
Macau
Crash, Boom, Bang! The earning season for the 2nd quarter kicks off today with Las Vegas Sands. Investors are expecting disappointing results from Macau and a new turbulence in stocks in the coming weeks. Profit growth has slowed by two-thirds here with Melco Crown and SJM recording drops. Revenues have increased a mere 4 percent, while the VIP take has plunged 6 percent Alex Lee
Alex.lee@macaubusinessdaily.com
I
t was the quarter where everything happened in the gaming industry. Crackdowns on illegal money transfers using Union Pay terminals in casinos, junket personnel arrests, mainlander visa restrictions, a full smoking ban law, China’s economic and credit slowdown, tables shifting from VIP to mass - and even the massive exodus of gamblers to watch and bet on the World Cup. And, of course, the first revenue drop in five years in June. The list of events could go on, but these half dozen were enough to put the once quiet gaming shares on a rollercoaster ride from April to June, and revenues on a downward trend. Some events had a real impact on gaming performance (World Cup ‘stealing’ gamblers) with others bestowing a more psychological effect. Take gaming shares, for instance. One year record losses in a single session, followed by huge gains the next day became the norm for investors as the negative headlines unfolded, fuelling a volatility that the gaming industry hasn’t seen in years. If gaming shares and revenue growth here suffered a blow during the second quarter, now is the time to see it reflected in the operator’s balance sheets. The earning season for Macau’s ‘Big Six’ - Galaxy, MGM China, Sands China, Melco Crown, SJM and Wynn Macau - starts today with Las Vegas Sands, Sands China’s parent company, publishing its second quarter results. Investors have already been warned: expect disappointment and new turbulence in gaming stocks hereafter.
Skyfall Profits for the six big gaming operators in Macau grew only 10 percent in the second quarter year-
on-year, three times less than in the first quarter (28 percent). According to Morgan Stanley, Melco Crown and SJM are expected to post drops in profits, followed by a marginal profit increase of 3 percent by MGM China. In the first quarter, Melco Crown and MGM’s profits grew by more than 30 percent. Morgan Stanley and Telsey point out that the huge decline in VIP revenues and the mass market slowdown were the main drivers for this deceleration. VIP revenues continue to be pressured by the table-shifting to the mass and mass premium floors. The World Cup, which kicked off in mid-June, distracted mass gamblers from casinos, pushing the downturn even further. An additional negative factor for the financial performance of gaming operators was rising staff costs with casinos increasing wages to retain employees in Macau. Revenues for the ‘Big Six’ in Macau are expected to have increased
The market is probably underestimating the current headwinds Macau’s gaming operators are facing Morgan Stanley
4 percent between April and June against a 22 percent jump recorded in the first quarter, six times less. VIP revenues have been on a downward spiral. In the second quarter, gains coming from high rollers dropped 6 percent compared to a 14 percent hike in the previous quarter. The mass market slowdown was also one of the quarter’s highlights and a worrying trend for Morgan Stanley. Even with a solid 30 percent growth estimated for the second quarter, it’s still below the 40 percent jump of the previous three months. Mass market performance has been the mainstay of the gaming industry in Macau throughout the year, compensating the VIP fall, as the latter is much more sensitive to economic and political shifts.
Lower expectations The market is already expecting bad news. Especially after all analysts have downwardly revised their growth expectations for Macau in the last few weeks. Revenue growth is set to grow around 8 percent this year (against an original 15 percent predicted six months ago). July could also be the second straight month in the red for gaming revenues (expectations range from flat to a 5 percent drop). In a report published yesterday, Morgan Stanley says ‘the market is probably underestimating the current headwinds Macau’s gaming operators are facing . . . We think consensus will be disappointed with the upcoming second quarter earning season’. Telsey says investors’ expectations are at their lowest level for more than a year. “We believe that choppiness in Macau revenues will persist in the coming months and will continue to produce choppy equity performance well into the second half of the year”, added the brokerage in a note to clients this week. The impact of the next earning season is here to last for
the coming months. As in every race, there are winners and losers. Sands China is well positioned to take the crown this quarter as it did in the first. The owner of The Venetian and Cotai Central is expected to show an increase in profits of 35 percent percent, three times above the market’s average. Mass revenues could top 15 percent more than a year ago. Wynn Macau is also another company with reasons to smile. It’s the only one of the ‘Big Six’ to maintain profit growth (16 percent) and to record the highest jump in mass market revenues (47 percent), outperforming the market by a large margin. With moderate near-term expectations and the recent equity underperformance of gaming shares, the second quarter earning season will “have little discussion” as investors have already discounted the market slowdown in stocks. Telsey expects management to talk more about July’s performance than the second quarter. The brokerage advises operators to focus on the outlook and not on the earnings. “Even modest wavering and we would expect a whole new level of downside”, says Telsey.
The 5 biggest near-term risks Morgan Stanley has listed the biggest risks for the gaming industry in Macau in the coming months. The main one is decelerating mass market revenue growth, a trend that could threaten the year’s overall performance. If in the second quarter, the World Cup was a decisive factor, the limited movement of tables from VIP to mass in the second half could slow revenues from this segment. The second risk emanates from the first data from July. In the first two weeks, daily revenues were lagging 30 percent behind the first-half average. Morgan Stanley expects a drop of 5 percent (year-on-year) in revenues this month in Macau, an event likely to impact investor sentiment. The VIP segment could also continue to turn softer as the junket market consolidates. The smaller junkets are facing liquidity constraints and the recent crackdowns and media attention could weigh on the segment. The US bank also believes that the market consensus has not bottomed and the earnings outlook could go lower in the near term, as predictions for the year have gone from a 15 percent revenue increase for 2014 to less than 10 percent. The diminishing operating leverage afforded by less VIP revenues and increasing staff costs is creating less space for gaming companies to manoeuvre in their balance sheets.
5
July 17, 2014
Macau
Sands China
Galaxy
MGM China
Outperformer of the second quarter
Solid VIP operation with revenues climbing 14 percent
High growth in mass market (revenues up 42 percent)
Less exposure to VIP slowdown was a trump
Best revenue performance of the Big Six in 2Q
Poor VIP performance
Profits to increase 35 percent
20 new tables in junket areas
New premium mass in Cotai boosting results
Better junket operation than competition
Investors waiting for dividend and buyback news
Higher exposure to VIP is a risk
Wynn Macau Sustained profit growth in a turbulent quarter Best performer in mass (47 percent jump) Successful premium mass position High investments for Phase 2 and 3 of Cotai are a concern
SJM
Negative operating leverage Strong mass premium strategy Exposed to rising competition
Melco Crown
Profit to drop 4 percent
Profit to stay flat
Better sequential performance than competition
City of Dreams performance disrupted by renovation works
Positive growth in VIP segment
Premium slot area still ramping up
Premium mass was the driver of 2Q results
Poor performance in Altira put VIP revenues on the downside Exposed to small junkets
y-o-y growth (%)
6
July 17, 2014
Macau Brands
Trends
High-tech beauty Raquel Dias newsdesk@macaubusinessdaily.com
Y
ou might still remember those tragic teenage days plagued by the fear of acne. That is if you are lucky; some of us still dwell on the problem of what is called “adult acne”, not nice. But fear not, there’s a glimmer of hope. Tranda, the innovative beauty brand that has been introducing gadgets into the cosmetic world, one that used to be the monopoly of creams and lotions, has launched its new Zap Power. The little battery-powered device works with three main technologies to clear the skin in just 24 hours, harnessing a non-UV blue LED light that helps destroy acnecausing bacteria, with sonic vibration to help it penetrate and gentle warming to open the pores. All you have to do is hold the device steady over your blemish for two minutes. Repeat the action three times a day and before you know it your skin will be blemish free. It’s rechargeable, portable and suitable for all skin types, even sensitive skin. Although the main target audience is young women, there’s nothing stopping men from using it. The high-tech formula to clear the skin sure sounds like something that men would not mind trying. After all, it does seem cooler than just rubbing on a cream. Right?
Luk Fook sales plummet in Macau, HK Sara Farr
sarafarr@macaubusinessdaily.com
L
uk Fook Holdings (International) Ltd saw its same store sales growth drop by 54 percent in Macau and Hong Kong in the first quarter of 2015 over that of the same period a year earlier. The group’s 2015 first quarter covers a period between April 1 and June 30, 2014, according to a filing with the Hong Kong Stock Exchange. These drops, the group said in the filing, were mainly due to the gold rush in the first quarter of the year. The filing shows that same store sales of gold products dropped 65 percent, gold by weight dropped 63 percent, and gem-set jewellery dropped 20 percent. These drops were just in the group’s stores in Macau
and Hong Kong alone. Overall, same store sales growth decreased 54 percent, dropping 52 percent in mainland China. Similarly to that of Macau and Hong Kong, sales of gold products dropped 65 percent overall, and 59 percent in mainland China alone. At the same time, the sale of gold by weight products dropped 62 percent for the group’s overall stores, dropping 54 percent in mainland China. Gem-set jewellery products sold 19 percent less overall between April 1 and June 30 over the same period a year earlier. In mainland China, however, this type of jewellery sale increased by 5 percent. In April, the jeweller also reported
declining same-store sales of 12 percent here and in Hong Kong for the first quarter. At the time, the jeweller explained the negative sales in both cities was due to “the relatively high base effect” compared with last year, when Macau and Hong Kong saw jewellery stores packed with customers after gold prices plummeted. The international gold price plunged the most for three decades in April last year. At the end of June, the group had 1,290 licensed stores around the world, of which 83 were in mainland China, 44 in Hong Kong and 10 in Macau. This is an increase of 22 stores compared to the same period last year.
AIA posts profit of MOP387.4 mln for 2013 A merican International Assurance Co (Bermuda) Ltd’s Macau branch has posted a profit of 387.4 million patacas for 2013. According to the group’s final year results published in yesterday’s Official Gazette, AIA Macau launched ‘The Real Life Company’, marking a new position. The company will also
continue with its ‘premium agency’ strategy and investing in the training of a growing number of financial consultants who will, in turn, become members of the ‘Million Dollar Round Table’ (MDRT) according to the report out yesterday. ‘Our strategy is to expand our reach to the community through a strong and professional team of
financial advisors. Our aim is to build a “best in class” agency within the industry,’ the report reads. AIA Macau – the market leader since the Monetary Authority began publishing records in 2003 – had a life insurance premium income of 1.83 billion patacas last year, taking 36.9 percent of the market. S.F.
7
July 17, 2014
Macau
SLOT doubles profits in two years Sports betting operator SLOT reported a profit of 102.9 million patacas last year, 27 percent more than in 2012 and two times 2010’s performance. If history repeats itself, bets on the World Cup this year could boost earnings to MOP200 million Alex Lee alex.lee@macaubusinessdaily.com
I
t was another record year for the Macau sports betting operator SLOT - Sociedade de Lotarias e Apostas Mútuas de Macau. The company announced yesterday that it made a profit of 102.9 million patacas in 2013, as more gamblers bet on football and basketball matches, fuelling the operator’s revenues and profits. The 102.9 million-pataca profit represents an increase of 27.2 percent compared to 2012’s exercise, when SLOT amassed 80.8 million patacas. In the last two years, the betting operator has been able to duplicate its earnings from 54.9 million patacas in 2010 to more than 100 million patacas last year.
SLOT is benefiting from the flow of gamblers and visitors arriving in Macau and the increasing success of betting among mainlanders, especially on football matches. SLOT’s annual report was published yesterday in the Official Gazette. President Ng Chi Sing says in the report that the popularity of the company is growing among its clients and he expects to continue to attract new ones. For the future, growing the portfolio of the company with new products and better technology is the main goal. ‘For future prospects, we are looking for ways to ensure that our customers have the best experience possible in sports betting. For example, exploring products with more diversified sports lotteries and improving information technology to provide the best resources to our clients’, wrote Mr. Sing. SLOT has the monopoly of nonracing sports betting in Macau with football and basketball matches as its most famous products. Its threeyear concession lasts until mid-2015.
World Cup momentum This year’s performance could also be another record one for the company, with the World Cup in
Brazil attracting thousands of clients to bet on the tournament matches. Even without official figures, the huge drop in revenues in the casino industry in Macau during the football tournament in Brazil, held between mid-June and mid-July, was a clear sign that gamblers had been diverted from the gaming tables to bet on
matches involving the likes of Brazil, Germany and Argentina. In 2010, when the previous World Cup was held in South Africa, SLOT profits doubled to 64 million patacas from 34million patacas in 2009. The World Cup effect this year could boost the sports betting operator’s profits to 200 million patacas.
One-year investigation reveals environmental radiation levels normal The first one-year study on environmental radiation conducted by the Macau Meteorological and Geophysical Bureau has revealed that radiation levels are very similar to neighbouring regions Alex Lee
alex.lee@macaubusinessdaily.com
T
he Macau Meteorological and Geophysical Bureau yesterday presented the results of the environmental radiation monitoring conducted over the course of last year. This was the first time that an investigation had been undertaken measuring environmental radiation for one entire year, ranging from January to December. “The one-year monitoring of the environmental radiation in Macau revealed that all the parameters analysed are normal”, said Nishi Ying, deputy chief engineer of the Radiation Monitoring Technical Centre of the Ministry of Environmental Protection, from the Chinese province of Zhejiang. The purpose of the study was to collect data that can be compared to
that of next year. In 2015, a nuclear power station in Taishan (70km away from Macau) will begin working in mainland China. “The data collection permitted us to compare the results to the ones from neighbouring provinces in China and they are similar”, Mr. Ying stated. Environmental radiation monitoring collects data from the air, soil, seawater and rain using such parameters as gamma radiation, ionizing radiation, alpha and beta particles, and tritium levels. The data was gathered from seven different points throughout Macau: Sun Yat Sen Park, Guia Hill Municipal Park, Outer Harbour Ferry Terminal, Colegio de Santa Rosa de Lima, Macau Meteorological and Geophysical Bureau
headquarters, the meteorological and geophysical monitoring unit in Ka-Ho and the Typhoon Committee Secretariat in Coloane. Once the data was collected it was analyzed in the Radiation Monitoring Technical Centre of Ministry of Environmental Protection in Zhejiang. “From now on, the environmental radiation will be analyzed to assess the impact of the nuclear power station on Macau”, Florence Leong, vice director of Macau Meteorological and Geophysical Bureau, said. “The data collected will, from now, be on a monthly basis and will be published on our website. However, there will also be an annual report on environmental radiation”, she added.
Typhoon Rammasun approaching “T
here is a fifty percent possibility that Typhoon Rammasun will reach the number three typhoon signal”, Benson Wong, meteorologist at the Macau Meteorological and Geophysical Bureau, said yesterday. “The effects of the typhoon will mostly be felt on Friday”, he added. Wong said that for today the public should expect the weather to be windy with periods of sunshine. During the day, typhoon Rammasun is not expected to reach a typhoon signal higher than level one. After hitting the Philippines capital of Manila, Rammasun is expected by Macau Meteorological and Geophysical Bureau to come no closer than 400km to the territory. The typhoon is moving at a speed of around 28 km/h.
8
July 17, 2014
Greater China Oil rig leaves disputed waters A Chinese oil rig has finished drilling near the disputed Paracel islands in the South China Sea after finding signs of oil and gas, a top Chinese energy firm said yesterday, more than two months after its deployment hurt ties with Vietnam. Vietnam’s coastguard said the US$1 billion deep-water rig was being moved towards China’s southernmost island province of Hainan. China’s official Xinhua news agency said it would be relocated to an area off Hainan but gave no details or a date.
Labour market stable in H1 China’s labour market and consumer prices were generally stable in the firsthalf of the year, the statistics bureau said yesterday. Sheng Laiyun, spokesman at the National Bureau of Statistics, also said domestic consumption continued to be an important driver of the world’s second-largest economy in the first six months of the year.
June crude runs up China’s refinery crude throughput in June rose 5.8 percent from a year earlier to 41.8 million tonnes, or 10.17 million barrels per day (bpd), data from the National Bureau of Statistics showed yesterday. June daily crude runs were up 7 percent from 9.5 million bpd in May, as refineries emerged from the April-May peak maintenance season.
Taiwan’s yuan deposits inch up Taiwan had 292.738 billion yuan in yuan deposits as of late June, versus 290.097 billion yuan in May, the central bank said late on Tuesday. Taiwan’s yuan deposits have grown rapidly since a yuan clearing agreement was signed with China last year, but the rate of increase has slowed of late because of the yuan’s recent volatility.
HK restaurant complaints on the rise Complaints about restaurant bills are on the rise in Hong Kong, said the Consumer Council of Hong Kong Special Administrative Region (HKSAR) yesterday. The council registered 423 complaints for the first half of this year, compared to 373 for the same period of 2013. In the majority of cases, the money involved was minimal, which reflected strong consumer dissatisfaction over unfair trade practices, said Michael Hui, chairman of the council’s Publicity and Community Relations Committee. But he said it was hard to judge whether restaurants were falling foul of the Trade Descriptions Ordinance by failing to put on display clear and accurate pricing and charging information.
Who needs more vitamins for China’s growth surprises analysts with a higher than expected increment. They still bet on more stimuli. Kevin Yao and Xiaoyi Shao
C
hina’s economy grew slightly faster than expected in the second quarter as a burst of government stimulus paid dividends, but analysts said Beijing will likely need to offer further support to meet its growth target for 2014. Analysts remain cautious about China’s economic outlook, noting that the pick-up in growth was driven more by government support than a genuine recovery in momentum, as evidenced by a surprising surge in lending by state-controlled banks in June. The world’s second-largest economy grew 7.5 percent in AprilJune from a year earlier, the statistics bureau said yesterday, just ahead of a median forecast of 7.4 percent in a Reuters poll. A raft of stimulus measures helped lift the pace from an 18-month low of 7.4 percent in the first quarter, offsetting the drag from weak exports and a cooling property market. “The recovery is quite dependent on government support. So I think the government can choose either to tolerate lower growth, or do more stimulus to achieve their growth target,” said analyst Chang Jian at Barclays Capital in Hong Kong. The unexpectedly hefty increase
Credit-driven Indeed, many economists believe the slowing property sector poses the biggest risk to the economy in the
President Xi is in Brazil attending BRICS Summit
second half of the year, and thus could dictate whether Beijing sticks to a steady rollout of modest stimulus measures or considers more aggressive measures such as interest rate cuts. Barclays’ Chang expected the central bank to cut rates in the third
Property investment slows The data echoes anecdotal evidence that suggests home sales slumped in the first half of this year Xiaoyi Shao and Koh Gui Qing
G
rowth in China’s real estate investment slowed in the first half of 2014 as sales and new construction slipped, highlighting the growing risk that the cooling housing market poses to the broader economy. Real estate investment, which affects more than 40 other sectors from cement to furniture, rose 14.1 percent in the first half of 2014 from the same period a year ago, down
Venezuela’s Maduro bets on BRICS Venezuelan President Nicolas Maduro said here Tuesday that the decisions taken at a BRICS summit will change the course of the 21st century. “The BRICS have made very important decisions to change the political and economic world order,” said Maduro in his weekly TV program. The bloc has “decided to create a development bank with 100 billion dollars as starting capital, and a commercial and financial system among its members to use its local currencies instead of U.S. dollars,” said Maduro.
in bank loans in June was taken as a signal of Beijing’s alarm at the slowdown, and how far it is prepared to go to get growth back on track to meet its target of 7.5 percent this year. Chinese banks, which Beijing uses as a policy tool, lent 1.08 trillion yuan (US$174 billion) in June, nearly 20 percent more than market expectations. On a quarterly basis, economic growth picked up to 2.0 percent from a revised 1.5 percent in the first quarter, better than market expectations. “We cannot be blindly optimistic, because the current situation is quite complicated,” statistics bureau spokesman Sheng Laiyunfor the statistics bureau, told a briefing. “The traditional industries are in the middle of adjustments and such pains could continue for some time, so the economy still faces some downward pressures,” he said. Part of that pressure stemmed from the housing market “adjustments”, he added.
Apartments in Suzhou
from an annual rise of 14.7 percent in the first five months, official data showed yesterday. New property construction fell 16.4 percent in the first six months from a year earlier, the fifth consecutive period of decline. Meanwhile, property sales measured in terms of floor space dropped 6 percent in January-June from a year earlier, moderating
slightly from an annual drop of 7.8 percent in the first five months. “The biggest risk (to the economy) for the second half is a property correction and related financial risks,” said Chang Jian, an analyst at Barclays Capital in Hong Kong. The data echoes anecdotal evidence that suggests home sales slumped in the first half of this year after a strong performance in 2013.
9
July 17, 2014
Greater China
growing?
KEY POINTS Q2 GDP growth 7.5 pct y/y, up from 7.4 pct in Q1 Government stimulus measures shored up activity June activity data may pick up but property weighs More policy help seen needed to keep growth on track
and fourth quarters, while some other analysts believe it will stick to milder measures unless the property market sharply deteriorates. Other data released yesterday showed growth in real estate investment slowed in the first half
It also shows the housing market is slowing despite generous financing. A senior central bank official was quoted as saying this week that Chinese banks increased their lending to the property sector by 18 percent in the first six months of 2014 compared with the year-ago period, in what he said is a “forceful” show of support. To counter the housing slowdown, China’s government has cut taxes and loosened monetary policy to bolster activity in the sector, which accounts for over 15 percent of the country’s annual gross domestic product. Some local governments have also started to ease restrictions on property purchases that were put in place in recent years at Beijing’s behest to deter speculators and curb red-hot housing prices. Beijing has announced a slew of other stimulus measures in recent months to shore up growth, mostly targeted at more vulnerable sectors of the economy.
while sales and new construction fell, despite generous financing offered by banks. The sector accounts for over 15 percent of the country’s annual gross domestic product. Chinese policymakers have to walk a fine line between stepping up credit support for the economy, especially cash-starved smaller firms that are vital for job creation, while avoiding creating new local debt and fuelling property risks. Consumption contributed to 4 percentage points to the first half GDP growth of 7.4 percent, ahead of 3.6 percentage points from investment, the bureau said, in line with Beijing’s pledge to reduce dependence on investment and exports in favour of consumption. But analysts pointed to the fact that investment is still heavily funded by the government, rather than private businesses, despite Beijing’s pledge to allow market forces to play a vital role in the economy. “The investment share of GDP is increasingly supported by credit rather
than businesses’ retained earnings or the savings of entrepreneurs,” said Bill Adams, senior international economist for PNC Financial Services Group. Chinese banks are likely to make 9.5 trillion yuan (US$1.5 trillion) worth of new yuan loans this year, their strongest lending surge since the 2009 financial crisis, a central bank official was quoted as saying on Tuesday. Sheng Songcheng, the head of the statistics department at the central bank, was quoted by the Chinese financial news service Great Wisdom as saying that banks have increased lending to China’s cooling property market this year in a show of “forceful” support.
Industrial production recovers
C
In recent months the government has rolled out a series of stimulus measures, including steps to reduce the amount of cash that some banks have to hold as reserves, instructing regional governments to quicken their spending, and hastening the construction of railways and public housing. Though officials continue to describe such measures as “finetuning”, Beijing has been steadily broadening the scope and depth of its assistance, as indicated by the lending upsurge and reported moves by local governments to ease home buying restrictions. Top leaders have ruled out any massive stimulus as China struggles to deal with piles of local government debt, the hangover from a 4 trillion yuan (US$644 billion) spending package implemented in 2008-09 to help cushion the country from the global financial crisis.
hina’s industrial production growth quickened in the first half of 2014, showing signs that the world’s largest “workshop” is warming up. The National Bureau of Statistics (NBS) said yesterday that value-added industrial output in the country expanded 8.8 percent year on year in the January-June period, accelerating from an 8.7-percent increase in the first quarter. In June, output rose 9.2 percent, marking the fastest growth in the year. Value-added industrial output in the manufacturing sector rose 9.9 percent in the first half following continuous improvement in the PMI reading in the last four months. NBS data also showed that the value-added industrial output of state-owned and state-controlled enterprises saw a 5.5-percent growth year on year in the six-month period, while that of joint stock companies expanded by 10.2 percent. The bureau said output grew by 8.4, 8.8 and 10.8 percent in east, central and west China respectively. China uses value-added industrial output to measure business activities of designated large enterprises each with an annual turnover of at least 20 million yuan (US$3.26 million). From January to May, total profits of such enterprises grew 9.8 percent year on year to 2.28 trillion yuan, speeding up from a 9.4-percent increase in the January-February period.
Reuters
Xinhua
Stuck on the stimulus train?
Home incomes continue to rise
KEY POINTS
About 174.18 million rural migrant workers were working outside their hometown by the end of June
Property cool-down now seen as biggest risk to economy H1 property investment +14.1 pct y/y vs 14.7 pct growth in Jan-May H1 new property construction -16.4 pct y/y H1 property sales in terms of floor space -6 pct y/y
The steps helped economic growth to quicken slightly in the second quarter to 7.5 percent, from 7.4 percent in the first three months, data showed yesterday, though analysts say more policy measures may be needed to ensure a sustained recovery. Average home prices in China fell for the first time in May. The government is scheduled to release housing prices data for June on Friday. Some analysts say large inventories of unsold homes and recent sluggish sales are likely to trigger wider and deeper price cuts in coming months, as developers try to protect their cash flows. But other experts also believe China’s housing market is unlikely to suffer a sharp correction due to government support, high down payment levels and low household debt. They say that should put to rest, at least for now, fears of a hard landing in the wider economy. Reuters
A
verage incomes of China’s urban and rural residents continued to rise steadily in the first half of 2014, official data showed yesterday. The average disposable income rose 10.8 percent year on year to 10,025 yuan (US$1,629) in the first six months, according to the National Bureau of Statistics (NBS). With inflation deducted, the growth rate stood at 8.3 percent. The income gap between urban and rural residents narrowed, with actual income growth in rural China 2.7 percentage points higher than that in urban areas in the JanuaryJune period. Urban residents pocketed an average disposable income of 14,959 yuan in the first half, up 7.1 percent year on year with inflation deducted. The average rural resident’s cash income was 5,396 yuan, with yearon-year growth of 9.8 percent after inflation adjustment.
10,025 yuan 1H 2014 average disposable income
Seagate Wuxi China Factory
About 174.18 million rural migrant workers were working outside their hometown by the end of June, up 1.8 percent from a year earlier. Their average income was 2,733 yuan per month, up 10.3 percent year on year, according to the NBS. In November 2012, the Chinese government included per capita income in the country’s blueprint for a moderately prosperous society, vowing to double its 2010 GDP and per capita income for both urban and rural residents by 2020. Xinhua
10
July 17, 2014
Greater China
BRICS and American mortar Brazilian President Dilma Rousseff will host her BRICS counterparts and her allies in South America for a day of talks in the capital
Russian President Vladimir Putin (L), Indian Prime Minister Narendra Modi (2-L), Brazil’s President Dilma Rousseff (C), Chinese President Xi Jinping (2-R) and South African President Jacob Zuma (R) pose for a picture during the 6th BRICS summit in the city of Fortaleza
L
eaders of the BRICS group of emerging powers hold a summit yesterday with South American presidents, bringing together nations seeking alternatives to US influence in the region. The leaders of Brazil, Russia, India, China and South Africa will hold talks in the Brazilian capital with counterparts from Argentina, Chile, Colombia, Ecuador, Venezuela and other Latin American nations. The gathering follows a BRICS-only summit Monday in the north-eastern seaside city of Fortaleza, where the five nations agreed to create a development bank and a crisis reserve fund seen as rivals to Western-dominated
financial institutions. Now Brazilian President Dilma Rousseff will host her BRICS counterparts and her allies in South America for a day of talks in the capital. “It’s an opportunity for Brazil to show that it’s not just interested in the BRICS but that it is betting on integration and what benefits the region,” said Oliver Stuenkel, foreign relations professor at the Getulio Vargas Foundation. For Chinese President Xi Jinping, the meetings represent a new push by Beijing to gain clout in a region traditionally seen as a US backyard. After yesterday’s talks, Xi will spend one more day in Brazil to launch a ChinaLatin America forum with
leftist leaders including Cuban President Raul Castro.
China-Latam trade rising China’s massive purchases of commodities and exports of manufactured goods to the resource-rich region have boosted its two-way trade with Latin America to a total of US$261.6 billion last year. The meetings are also another opportunity for India’s new Hindu nationalist Prime Minister Narendra Modi to present himself to the world. For Russian President Vladimir Putin, the talks give him a platform following his country’s exclusion from the G8 group of industrialized nations over Moscow’s annexation of Crimea from Ukraine.
It’s an opportunity for Brazil to show that it’s not just interested in the BRICS but that it is betting on integration and what benefits the region Oliver Stuenkel, foreign relations professor, Getulio Vargas Foundation
The BRICS leaders will be joined in Brasilia by leftist firebrands including Venezuelan President Nicolas Maduro, Argentine President Cristina Kirchner and Ecuadoran President Rafael Correa. The new financial mechanisms created by the BRICS could benefit Argentina, which is at risk of defaulting on US$1.3 billion in debts after losing a US Supreme Court battle with hedge funds seen as “vultures” by Buenos Aires. The New Development Bank, to be based in Shanghai, will have capital of US$50 billion that could rise to US$100 billion to fund infrastructure projects, while the fund will have US$100 billion at its disposal to weather economic storms. But it could take two years, however, for the institutions to be operational because they have to ratified by the legislatures of each BRICS nation. Rousseff left open the possibility of using the fund to help non-BRICS nations, saying the group would be willing to “examine” any request from Argentina. “We are open to see what relationship (the fund) could have with countries outside the BRICS group but it hasn’t been decided yet because we just formed this institution,” she said after Tuesday’s summit. “If Argentina will benefit or not is something that we will have to examine ... (but) first Argentina must make a request,” she said. “Our view is that we would be generous to developing countries.” AFP
Shanghai celebrates Development Bank choice The city is seeking to become an international financial centre but lack of free convertibility of China’s yuan currency is a major obstacle
C
hinese media yesterday hailed the creation of the BRICS development bank, to be based in Shanghai, blaming Western countries and multilateral agencies for flaws in the global financial system. At a summit in Brazil, the BRICS group of emerging economic powers on Tuesday created the New Development Bank to finance infrastructure projects. China’s official news agency Xinhua cited Western dominance of the international financial system as the motivation. An opinion piece in the Global Times newspaper, known for its nationalistic editorial stance, said competition from the BRICS bank could prompt the World Bank and the International Monetary Fund (IMF) to carry out much-needed internal reforms. “BRICS countries have to blaze a new trail to reduce losses as well
China’s President Xi Jingping during BRICS Summit
as safeguard interests,” wrote Liu Zongyi, a research fellow at the government-linked Shanghai Institute for International Studies. “Loans from the World Bank
are not able to meet the demands of the developing nations... The IMF also failed to play an active role in stabilising the turbulent emerging financial markets during the global
financial crisis,” he said. Developing countries were at the mercy of the United States during the recent economic crisis, he said, given the dominance of the dollar and Washington’s timing of its quantitative easing policy. Hong Kong’s pro-China Wen Wei Po newspaper said BRICS members selection of China’s commercial hub for the headquarters symbolised the rise of the country, now the world’s second largest economy. “Setting up the headquarters of the BRICS development bank in Shanghai shows the image of China becoming a great power on the international stage,” the newspaper said. “Shanghai has the best conditions as the first choice location for the BRICS bank headquarters,” it added. Last year, Shanghai established China’s first free trade zone to pilot financial reforms. AFP
11
July 17, 2014
Greater China A PetroChina petrol station. Analysts think car users’ demand has dragged down consumption
Oil demand pumping up China consumed the highest level in 17 months
O
il demand rose in June to its highest level since January 2013 as crude runs hit a record high, although there were still doubts that the numbers reflected a healthy economy. China consumed roughly 10.2 million barrels per day (bpd) of oil last month, according to Reuters calculations based on preliminary government data, the highest level in 17 months and up 8.4 percent from May. The strong demand for gasoline compares with weak demand for diesel, which is used in everything from power generators and factories to trains and usually has a stronger correlation to economic growth. Even with the driving boom, implied oil demand in the first half of the year inched up only 0.5 percent to 9.87 million bpd from a year ago,
according to Reuters calculations. June oil consumption was up 2.6 percent from a year earlier, the calculations showed.
IEA lowers forecast The International Energy Agency (IEA) revised down this month its forecast for China’s oil demand for 2014 on lower estimates of industrial fuel use, predicting implied oil demand would rise just 3.3 percent for the year. The IEA also lowered its estimate for consumption growth in diesel and heavy gas oils by 55,000 bpd. Reuters calculates implied oil demand using official refinery throughput data plus net imports of the main refined products, excluding changes in fuel stocks, which China rarely reports.
China’s daily crude throughput in June rose 7 percent from the previous month to a record-high 41.83 million tonnes, or 10.18 million bpd, as refineries emerged from the peak maintenance season in April and May, data from the National Bureau of Statistics (NBS) showed. Crude throughput was up 5.8 percent from a year ago, the statistics bureau data also showed. Analysts cite an increase in refining capacity as one reason for the growing crude runs. China has begun exporting more refined fuels, but became a net fuel importer again in June. Net fuel imports in June were 110,000 tonnes, or 25,667 bpd, compared to net exports of 410,000 tonnes in May and 1.29 million tonnes a year earlier, customs data showed earlier.
KEY POINTS June implied demand 10.2 mln bpd, highest since January 2013 June crude runs hit record high of 10.18 mln bpd First-half demand 9.87 mln bpd, up 0.5 pct on yr China imported 5.66 million bpd of crude oil in June, down 7.8 percent from May. Crude imports for the first half of the year rose 10.2 percent to 6.13 million bpd compared with the same period last year. Reuters
Steel output helps the economic revival On an annualised basis, output amounted to 828.6 million tonnes
C
hina’s daily crude steel output rose 1.8 percent in June to hit a record 2.31 million tonnes, defying any seasonal downturn in demand, data from the statistics bureau showed yesterday. Total output over the month reached 69.3 million tonnes, up 4.5 percent from the same month last year but dipping 1.6 percent from May’s record high. On an annualised basis, output amounted to 828.6 million tonnes, according to Reuters calculations, which would represent a 6.3 increase on last year. Despite soaring environmental costs, persistent overcapacity and widespread cash shortages throughout the Chinese steel sector, output
has remained strong, with little indication that mills are adjusting production rates in anticipation of a summer slowdown in demand over summer. However, the consultancy warned that there were no obvious signs that the increase in steel demand was being reflected by price increases, and more policy support would be needed to keep the momentum going over the next few months. Steel product inventories fell over the course of June, according to the SteelHome consultancy, with rebar stocks dropping more than 11 percent to end the month at 5.98 million tonnes. Rebar stocks had surged to as high as 9.4 million
tonnes in February. With domestic demand still relatively weak, the sector has benefited from an improvement in exports. In the first half of the year, China sold 41 million tonnes of steel products overseas, up 33.6 percent compared to the same period of 2013. The China Iron and Steel Association (CISA) warned in a research report earlier this month that apparent steel consumption in China was rising far more slowly than production, and by May had actually declined for four consecutive months. It said 97.2 percent of additional output over the first five months of the year was diverted into exports. Reuters
12
July 17, 2014
Asia Japan’s output gap returns to positive Output gap turned positive in JanuaryMarch for the first time in about six years, the Bank of Japan said in its monthly economic report yesterday, in a positive sign that inflation is moving toward the central bank’s price target. The output gap was plus 0.6 percent in January-March, turning positive for the first time since April-June 2008, when the output gap was plus 0.7 percent. The output gap -or the difference between actual and potential gross domestic product- has been showing Japanese growth falling short of its potential since 2008.
Myanmar removing locally-manufactured vehicles The Myanmar regional transport authorities are taking measures to remove vehicles manufactured by local companies in industrial zones in the country, setting to hand them in to the authorities starting this week, official media reported yesterday. These locally-produced vehicles are blamed for having low quality which pose danger to road safety. These vehicles include cars produced from Mandalay Industrial Zone, jeeps from Taunggyi Aye Thaya, Monywa, Yenangyoung and Yangon Industrial Zones, according to Mandalay Region Directorate of Road Transport. It is estimated that 12,000 vehicles are used across the nation.
Rio Tinto Q2 iron ore output rises World no. 2 iron ore miner Rio Tinto said expansion work at its mines and productivity gains led to a sharp rise in iron ore output as it steps up shipments to Chinese steel mills. The company said it was on track to produce 295 million tonnes of the steel-making material in 2014, up from 266 million last year. Shipments for the year should reach 300 million tonnes. Second-quarter iron ore shipments climbed 23 percent on the same period a year ago to 75.7 million tonnes, while production of the steelmaking ingredient rose 11 percent to 73.1 million, the company said.
JGBs dip on BOJ’s long-term rates Japanese government bond prices edged lower yesterday, weighed by Bank of Japan Governor Haruhiko Kuroda’s remarks the previous day that the current level of long-term rates was low. Kuroda, speaking to the press on Tuesday after a two-day monetary policy meeting, said longterm rates at around 0.5 percent was rather low even when considering that inflation expectations held by market participants were more conservative than the central bank’s. The BOJ unveiled aggressive monetary policy steps in April 2013 to combat deflation and shore up the economy.
Korean needs growth: market Bank of Korea Governor Lee Ju-yeol said interest rates should rise if
S
outh Korea’s new finance minister and its central bank governor both highlighted weakness in Asia’s fourth-largest economy on Wednesday, adding to market expectations that an interest rate cut could be in the offing. While Finance Minister Choi Kyung-hwan did not mention interest rates in his inauguration speech and shut the door on the prospect for a supplementary budget, he promised a bigger budget next year, citing weakened demand and sluggish output. Also yesterday morning, Bank of Korea Governor Lee Ju-yeol said his assessment of the economy in April, when he said interest rates should rise if the economy kept to its projected growth path, had been too optimistic. “You can signal a move 23 months prior, but if something unexpected happens in even a month’s time that could change policy,” Lee told reporters on the side-lines of an event. “Right now the market sees a rate cut happening no matter what even if the current growth rate doesn’t warrant a cut, and if the central bank doesn’t lower interest rates that could hurt markets and sentiment,” said Park Sang-hyun, chief economist at HI Investment & Securities in Seoul. “Choi has been around for a long time and judging by his experience
he will have more propelling power in terms of policy,” Park said of the veteran lawmaker. However, all but two economists in a Reuters poll last week predicted that the Bank of Korea’s next move would be a rate increase. The central bank has left rates unchanged for 14 months. The last time it moved rates was when it cut them in May 2013, under apparent government pressure.
South Korean President Park Geun-hye presides over a weekly meeting of senior presidential secretaries at the Cheong Wa Dae presidential office in Seoul
Unemployed Moreover, job growth in South Korea last month hit the lowest in 11 months, bolstering worries about the sluggish recovery of Asia’s No.4 economy after the deadly ferry sinking disaster, a government report showed yesterday. The number of those employed reached 25,875,000 in June, up 398, 000 from a year earlier, according to Statistics Korea. It was the lowest increase since July 2013 when 367,000 jobs were created. The country’s job growth continued to fall after jobs added peaking at 835,000 in February. Bank of Korea lowered its 2014 growth outlook for the economy to 3.8 percent last week from the 4 percent forecast three months earlier. Finance Minister Choi Kyung-hwan
New Zealand inflation to shake rate Economists said yesterday‘s figures were unlikely to steer the RBNZ away from raising rates again next week
B
enign inflation pressures and a deepening fall in global dairy prices may prompt the Reserve Bank of New Zealand to ease off its monetary tightening cycle after it delivers a widely expected interest rate rise next week. The RBNZ has been raising rates since March as inflation crept up, but the strapping New Zealand dollar and an on-going fall in global prices for milk -the country’s primary exportcould rein in the outperforming economy, slowing the pace of future tightening. Figures out yesterday showed the annualised domestic consumer price index rising less than the RBNZ forecast in the second quarter, while dairy prices tumbled at the latest fortnightly auction. The New Zealand dollar tumbled roughly a full U.S. cent to a oneweek low in the aftermath of the CPI data and dairy auction results as investors pared back their rate rise expectations. Economists said yesterday‘s figures were unlikely to steer the RBNZ away
KEY POINTS RBNZ seen raising rates next week, but may flag pause NZ CPI +0.3 pct qtr/qtr, +1.6 pct yr/yr Global dairy prices -8.9 pct - GDT auction from raising rates again next week, but some noted the data presented the possibility of a July tightening being the last for the year. A Reuters poll shows that 13 out of 16 economists expect the RBNZ to raise rates this month, while 11 see one more hike by the end of the year. Markets are pricing in an 80 percent chance the RBNZ will raise rates by 25 basis points to a 5 1/2-year high of 3.5 percent. That probability has fallen from 91 percent on Tuesday, and markets are now expecting 74
basis points of tightening in the next year, from 84 basis points. Official data showed higher prices for housing utilities, new houses, and food lifted quarterly prices 0.3 percent in the three months to June, putting annual inflation at 1.6 percent. While the quarterly reading was in line with the RBNZ’s forecast, the annual figure came short of the central bank’s expectations for a 1.7 percent rise. Economists said that a subdued rise in tradable prices suggested that consumer demand needed to expand faster for overall inflation to close in on the RBNZ’s 2 percent target. At the same time, a quarterly fall in the prices of vehicles, all of which are shipped in, and package holidays suggested that the strong New Zealand dollar is quelling imported inflation. The RBNZ could be facing a more serious challenge than inflation from a bigger-than-expected fall in dairy prices, which have tumbled in recent months after soaring to record highs last year. Reuters
editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk Alex Lee, Luciana Leitão, Michael Armstrong, Sara Farr, Stephanie Lai International editor Óscar Guijarro GROUP SENIOR ANALYST José I. Duarte Brands & Trends Raquel Dias Creative Director José Manuel Cardoso Designer Francisco Cordeiro WEB & IT Janne Louhikari interns Aries Un, Kam Leong Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.
Business Daily is a product of De Ficção – Multimedia Projects Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 editor editor@macaubusinessdaily.com newsroom newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com
13
July 17, 2014
Asia
Line to go public in Tokyo
eyes rate cut
the economy kept to its projected growth path Line has hired Nomura Holdings Inc and Morgan Stanley to manage the IPO
KEY POINTS Finance minister shuts door on supplementary budget plans No mention of rates, although market sees possible cut soon The number of those employed reached 25,875,000 in June The service sector added 304,000 jobs in June said in his inaugural speech that it will be inevitable to downgrade this year’s economic growth outlook, vowing to use various measures of fiscal support to enhance the economy. He said the 2015 budget plan will be more “expansionary” than initially planned. The service industry, which led the past job growth, showed sluggishness due to weaker domestic demand after the ferry disaster. The service sector added 304,000 jobs in June after employing more than 500,000 people for the first four months of this year. The job growth in the sector began falling from May. Reuters and Xinhua
S
outh Korea’s Naver Corp said yesterday its Japanbased messaging application subsidiary Line Corp has applied for an IPO in Tokyo - an offering that could value the company at more than US$10 billion. Naver, in a regulatory filing, stressed that its plans were preliminary. It said it is considering a dual listing in Japan and the United States. It is also possible that it may only list in the United States, it added. “It has not been decided whether LINE will eventually go public, which exchange it will be listed on and when it will be listed,” Naver said in its filing. A person with knowledge of the matter told Reuters on Tuesday that Line applied for an IPO that would value the company at more than 1 trillion yen (US$10 billion). Line has hired Nomura Holdings Inc and Morgan Stanley to manage the IPO, the person said. The messaging app space has seen a spate of dealmaking. Facebook Inc recently paid US$19 billion for Whatsapp, while online retailer Rakuten Inc paid US$900 million for Viber. The Line messaging app, developed to overcome downed communications
KEY POINTS Line may list in Tokyo and the United States Possible that Line may proceed with U.S. listing only IPO likely to value the company at US$10 bln -source
after Japan’s 2011 earthquake and tsunami, has expanded rapidly overseas in Asia and the Americas, claiming popularity with its games and oversized emoticons, called stickers. Global downloads have surpassed 480 million, Line said. The company recorded 14.6 billion yen (US$145 million) in revenue in January-March, a more than threefold increase on the year. With full-year sales hitting 51.8 billion yen last year, Line was the highest-grossing non-game app of 2013, according to analytics firm App Annie. Reuters
Green light for return of Japanese nuclear power The NRA, an independent watchdog set up in 2012, has been vetting restart applications for plants for over a year
A
nuclear plant in southern Japan cleared an initial safety hurdle yesterday that could see it become the first nuclear facility to restart after the industry was idled by the 2011 Fukushima disaster. With Japan in its first summer without nuclear power in four decades, Prime Minister Shinzo Abe is pushing to restart the country’s 48 nuclear reactors, as a prolonged shutdown forces the nation to rely on expensive fossil fuel imports.
US$3 billion
COST OF UPGRADING NUCLEAR PLANTS IN SOUTHERN JAPAN The Nuclear Regulation Authority gave preliminary safety approval for Kyushu Electric Co’s Sendai plant, accepting its upgraded design and safety features. The new safety standards involve safeguards against natural
Tsuruga Nuclear Power Plant in Japan
disasters, like earthquakes and tsunami, and severe nuclear accidents. This is expected to lead to the nuclear station’s restart by this autumn, SeptemberNovember. Japan’s reactors were gradually taken offline, with the last one shutting down last year, after a massive earthquake and tsunami
crashed into the Fukushima Daiichi plant in March 2011, triggering the worst nuclear disaster since Chernobyl in 1986. Sendai’s approval comes as a relief for Kyushu Electric, which has posted three years of losses and asked for a bailout by a state-backed bank. It expects to spend more than US$3 billion to
upgrade its two nuclear plants in southern Japan. The NRA decision will also help the broader nuclear industry. The approval process for the five other plants with similar pressurised-water reactors will likely go more quickly, said NRA director Tomoya Ichimura. Nine of Japan’s electric utilities have applied to restart 19 reactors.
A restart of the Sendai plant would also be a boost for Abe. The blackout of Japan’s nuclear industry, which supplied about one-third of Japan’s electricity before Fukushima, has led to rising electricity rates for residents and businesses and has contributed to a record string of 23 months of trade deficits. Reuters
14
July 17, 2014
International British unemployed rate decrease Britain’s unemployment rate fell to 6.5 percent in the quarter to the end of May, hitting the lowest level for more than five years, official data showed yesterday. The rate for the March-May period compares with 6.6 percent for the three months to the end of April, the Office for National Statistics (ONS) said in a statement. At 6.5 percent, the rate was at its lowest level since late 2008. The ONS added that the number of unemployed has meanwhile dropped by 121,000 to 2.12 million people
Espirito Santo exposure cuts PT value Portugal Telecom has agreed to revise terms of a merger with Brazil’s Oi to reflect a lower valuation of the Portuguese company after a holding company of the troubled Espirito Santo family failed to repay a US$1 billion loan. Portugal Telecom said the holding company, Rioforte, had not honoured the shortterm debt of 847 million euros that came due on Tuesday. To reflect the loss of the investment, Portugal Telecom will end up with a smaller stake in the new company of 25.6 percent.
Primark: Next stop USA Discount fashion chain Primark has made its mark in Europe by offering fast-changing fashion at rock-bottom prices. The secret of its success: placing huge orders for top-selling items like socks, tops and jeans and passing on the savings to shoppers. That is the formula it hopes will help it crack the US$200 billion market next year. With an initial capital investment of under 200 million pounds (US$340 million) Primark plans to open a store in downtown Boston towards the end of 2015, have 10 stores in the north east of the country by Easter 2016 and build out from there.
FX trading platform EBS starts fightback with new products Currency trading business EBS aims to launch a clutch of new products by next April. The planned transformation of EBS, owned by the world’s largest interdealer broker ICAP, comes as the sector faces greater regulatory scrutiny after alleged manipulation of foreign exchange benchmarks used to price trillions of dollars of investments and company deals. Recommendations by the Financial Stability Board (FSB) global watchdog on Tuesday should have minimal impact on EBS, given that it is an electronic trading platform and has made a pre-emptive switch to a more transparent system.
EU financially assists Africa’s security The European Union adopted an action program that will provide up to 750 million euros to support peace and security in Africa, the EU delegation in Ghana said on Tuesday. The funding will be channelled through the African Peace Facility (APF) during the period of 20142016 to support the African Union and African sub-regional organizations in their peace and security efforts, the EU delegation in Ghana said in a statement. An initial amount of 325 million euros will be committed to supporting on-going peace operations in 2014.
GTECH hits Jackpot with IGT acquisition With the purchase of IGT, GTECH would derive more than half of its around US$4.1 billion revenues from foreign operations
I
taly’s GTECH will buy U.S. slot machine maker International Game Technology for US$6.4 billion including debt, shifting the lottery operator’s centre of gravity away from its struggling domestic market. The acquisition of Las Vegas-based IGT is the largest foreign acquisition by an Italian company this year and defies a trend of firms in Italy falling prey to overseas suitors as the local economy stagnates. IGT makes popular slot machines bearing brands such as that of TV show “Wheel of Fortune” and science fiction film “Avatar”. By buying the firm, GTECH - the world’s No.1 lottery operator - will become a major global player in the casino business and strengthen its foothold in the growing U.S. gaming market. The comparison between the Italian and U.S. sectors is stark: Total net spending for gaming in Italy fell 6.6 percent last year, while it rose 6.7 percent in the United States - above the average global growth rate of 4.2 percent. GTECH will pay US$4.7 billion in cash and shares for IGT and will also take on US$1.7 billion of the U.S. firm’s net debt. The total US$6.4 billion deal value is above GTECH’s own market
capitalisation of US$4.4 billion. The price surpasses carmaker Fiat’s US$4.35 billion all-cash January purchase of the stake in Chrysler it did not already own. The offer comprises US$13.69 in cash per IGT share plus 0.1819 shares of a new company to be formed after the acquisition, and represents a 18 percent premium on IGT’s closing share price on Tuesday. It currently makes 60 percent of sales in Italy, which is struggling to emerge from its longest recession in 70 years. “With limited overlap in products and customers, the combined company will enjoy leading positions across all segments of the gaming landscape,” GTECH Chief Executive Officer Marco Sala, who will become the CEO of the new company.
Stock market shift GTECH has national lottery concessions in Italy and several state lottery concession in the United States. It also sells gaming scratch cards, as well as providing lottery services to third parties in other nations. The company, controlled by two wealthy Italian families with interests
ranging from publishing to insurance, is not new to aggressive expansion deals. In 2006, under the name of Lottomatica, the Italian company bought U.S.-listed GTECH in a deal worth at the time around 4 billion euros. GTECH said yesterday that it plans to move its stock market listing to the New York Stock Exchange from Milan, depriving the Italian stock market of one of its 40 blue chips. IGT and GTECH will combine under a newly formed holding company, which will be based in the United Kingdom. GTECH, which had said last month it was in talks with IGT, said the deal is expected to generate US$280 million in annual cost savings by the third year after the closing of the acquisition. GTECH said it expects to finance the cash portion of the deal through a combination of cash it has currently available and new financing. The company has already received binding commitments of $10.7 billion from Credit Suisse, Barclays and Citigroup to finance the deal. Credit Suisse, Barclays and Citigroup were financial advisers to GTECH on the deal. Morgan Stanley advised IGT. Reuters
30 pct energy saving target to cost EU How ambitious an energy efficiency goal the European Union should set has taken on increased urgency in the context of the Ukraine crisis
T
he European Commission is considering an energy saving goal for 2030 of less than 30 percent, according to a document seen by Reuters, setting it at odds with designated Commission President Jean-Claude Juncker. Juncker said at the European Parliament on Tuesday: “A binding 30 percent energy efficiency target is for me the minimum.” The new goal would also mark a retreat from a previous draft, setting out a target of 30 percent or more. But because energy savings measures - such as better insulation for buildings - cost money, they have divided the European Union and the EU’s executive Commission, hence the wrangling over percentage points. The draft document seen by Reuters says the aim is to maintain existing momentum and to achieve
KEY POINTS EU almost on track to meet current 20 percent goal Higher efficiency cuts dependence on Russian gas Efficiency would dent oil, gas prices
that, the Commission will propose “an ambitious energy efficiency target of 2X percent”. It does not give a precise number, but EU sources said the 2X implied a figure in the 20s and that the
Commission had asked for extra modelling to show the impact of 27 percent and 29 percent goals on the economies of the 28 EU member states. Juncker is expected to be in office for legislative debate on the energy savings goal, which is part of a wider 2030 energy and climate package. For every additional 1 percent in energy savings, gas prices will be about 0.4 percent lower and oil prices about 0.1 percent lower by 2030, the document says. But bigger energy savings goals have a price. The Commission says 25 percent energy savings would cost an extra 2 billion euros (US$2.7 billion) per year. The level of 40 percent savings by 2030, it said, would add costs of roughly 112 billion euros per year. Reuters
15
July 17, 2014
Opinion Business
wires
Leading reports from Asia’s best business newspapers
Booming until it hurts? Robert J. Shiller
2013 Nobel laureate in economics Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices
THE JAKARTA POST Long-haul budget airline AirAsia X has inked a deal to buy 50 Airbus A330neo planes as part of its regional expansion. The deal, signed at the Farnborough Airshow in London, is worth US$13.8 billion at the catalog price but airlines usually get a discount for bulk purchases. Malaysian-based AirAsia X said in a statement late Tuesday that deliveries will take place between 2018 and 2024. It is the first customer for the newly launched neo, a new version of the widebody A330, that offers lower fuel consumption and extended long range capability.
The International Monetary Fund announced in June a new Global Housing Watch website that tracks global home prices and ratios. The site shows a global index for house prices that is rising, on a GDP-weighted basis, as fast as during the boom that preceded the 2008 crisis, though not yet reaching the 2006 record level
THE TIMES OF INDIA Aditya Birla Group has mandated Standard Chartered Bank to divest 25% stake in a new retail company to be formed through the merger of Madura Fashion & Lifestyle , Pantaloons and More Supermarkets, two people directly involved with the matter said. Birla is seeking a valuation of US$2.5-3 billion to raise US$500 million in the proposed retail unit. The diversified Indian conglomerate has started management briefing sessions with large private equity investors who have evinced interest in buying into the retail entity.
CHINA DAILY Japan’s direct investment in China declined significantly in the first half of this year as ties between Asia’s top two economies remained under stress. Rising costs in China also played a part in the dramatic drop of Japanese investment, experts said. Between January and June, FDI from Japan slumped 48.8 percent yearon-year to US$2.4 billion, the Ministry of Commerce said in Beijing on Tuesday. Bilateral relations deteriorated after Japan announced a decision to “nationalize” China’s Diaoyu Islands in the East China Sea in September 2012.
THE AGE Reform of capital gains tax and negative gearing should be a priority in the forthcoming tax white paper, according to the Murray Financial System Inquiry. Differing tax rates on savings, changes to franking and the imposition of the GST on financial services were among other issues listed by the inquiry as worthy of white paper discussion. All of them “distorted funding and risk” in the economy or produced other adverse outcomes, it said. The fully tax-deductible nature of negative gearing and the concessional tax rate applied to capital gains “encourages leveraged and speculative investment”.
N
EW HAVEN – In recent months, concern has intensified among the world’s financial experts and news media that overheated asset markets – real estate, equities, and long-term bonds – could lead to a major correction and another economic crisis. The general public seems unbothered: Google Trends shows some pickup in the search term “stock market bubble,” but it is not at its peak 2007 levels, and “housing bubble” searches are relatively infrequent. But the experts’ concern is notable and healthy, because the belief that markets are always efficient can survive only when some people do not completely believe it and think that they can profit by timing the markets. At the same time, this heightened concern carries dangers, too, because we do not know whether it will lead to a public overreaction on the downside. International agencies recently issued warnings about speculative excesses in asset markets, suggesting that we should be worried about a possible crisis. In a speech in June, International Monetary Fund Deputy Managing Director Min Zhu argued that housing markets in several countries, including in Europe, Asia, and the Americas, “show signs of overheating.” The same month, the Bank for International Settlements said in its Annual Report that such “signs are worrying.”
Newspapers are sounding alarms as well. On July 8, the New York Times led its front page with a somewhat hyperbolic headline: “From Stocks to Farmland, All’s Booming, or Bubbling: Prices for Nearly All Assets around World Are High, Bringing Economic Risks.” The words “nearly all” are too strong, though the headline evinces the newfound concern. It is not entirely clear why the alarms are sounding just now, after five years of general expansion in markets since they hit bottom in early 2009. Why aren’t people blithely expecting more years of expansion? It seems that this thinking is heavily influenced by recent record highs in stock markets, even if these levels are practically meaningless, given inflation. Notably, just a month ago the Morgan Stanley Capital International All Country World Index broke the record that it reached on October 31, 2007. The International Monetary Fund announced in June a new Global Housing Watch website that tracks global home prices and ratios. The site shows a global index for house prices that is rising, on a GDP-weighted basis, as fast as during the boom that preceded the 2008 crisis, though not yet reaching the 2006 record level. There is also the US Federal Reserve’s announcement that, if the economy progresses as expected, the last bond purchase from the round of
quantitative easing that it began in September 2012 will be in the month after the Federal Open Market Committee’s October 2014 meeting. That kind of news story seems also to affect observers’ thinking, though it is not really much in the way of news, given that everyone has known that the Fed would end the program before long. The problem is that there is no certain way to explain how people will react to such a policy change, to any signs of price overheating or decline, or to other news stories that might be spun as somehow important. We simply do not have much well-documented history of big financial crises to examine, leaving econometricians vulnerable to serious error, despite studying time series that are typically no more than a few decades long. Until the recent crisis, economists were talking up the “great moderation”: economic fluctuations were supposedly becoming milder, and many concluded that economic stabilization policy had reached new heights of effectiveness. As of 2005, just before the onset of the financial crisis, the Harvard econometricians James Stock (now a member of President Barack Obama’s Council of Economic Advisers) and Mark Watson concluded that the advanced economies had become both less volatile and less correlated with each other over the course of the preceding 40 years.
That conclusion would have to be significantly modified in light of the data recorded since the financial crisis. The economic slowdown in 2009, the worst year of the crisis, was nothing short of catastrophic. In fact, we have had only three salient global crises in the last century: 1929-33, 198082, and 2007-9. These events appear to be more than just larger versions of the more frequent small fluctuations that we often see, and that Stock and Watson analysed. But, with only three observations, it is hard to understand these events. All seemed to have something to do with speculative price movements that surprised most observers and were never really explained, even years after the fact. They also had something to do with government policymakers’ mistakes. For example, the 1980-82 crisis was triggered by an oil price spike caused by the Iran-Iraq war. But all of them were related to assetprice bubbles that burst, leading to financial collapse. Those who warn of grave dangers if speculative price increases are allowed to continue unimpeded are right to do so, even if they cannot prove that there is any cause for concern. The warnings might help prevent the booms that we are now seeing from continuing much longer and becoming more dangerous. The Project Syndicate 2014
16
July 17, 2014
Closing Euro lost ground as reserve currency last year
Banks have US$3.2 billion exposure in Qingdao
The euro’s share in global foreign exchange reserves fell further last year as central banks appeared to diversify their holdings but foreign investment into the euro zone rose, the European Central Bank said yesterday. In a report on “The International Role of the Euro”, the ECB said the euro’s share in global foreign exchange reserves was 24.4 percent at the end of 2013, down 0.9 percentage points from the end of 2012, after adjustment for exchange rate effects. The euro remained the second most important reserve currency after the dollar, which accounted for 61.2 percent of reserves.
Chinese banks have about 20 billion yuan of exposure to companies at the centre of a loan fraud probe in the eastern city of Qingdao, two government officials said today. Bank of Communications Co., China’s fifth-biggest lender, has also filed a lawsuit against the companies, Dezheng Resources and Decheng Mining, said the officials, who asked not to be identified because they aren’t authorized to speak publicly. Decheng Mining pledged the same metals stockpile three times over to obtain more than 2.7 billion yuan of loans, a person briefed on the matter said earlier this month.
HK peg policy doesn’t reach targets A rare spell of tightness in Hong Kong money markets in the past three weeks could persist until the end of July despite heavy intervention by authorities
T
he confluence of flows has led, ironically, to the pegged Hong Kong dollar bumping against the strong end of its band against the U.S. dollar at the same time that local short-term lending rates have moved up. Over the last two weeks,
the Hong Kong Monetary Authority (HKMA), the city’s de-facto central bank, has sold HK$43.7 billion (US$5.64 billion) to contain the local currency’s appreciation. Yet Hong Kong dollars remain in short supply as capital inflows have either
been locked up for large corporate acquisitions and equity issues, or been diverted towards dividend payments and foreign currency assets. “The situation is quite unusual as the HKMA’s intervention should lead to easier money market
conditions” but instead interbank rates for Hong Kong dollars have risen, said an executive director at a currency hedge fund in Hong Kong. Analysts believe the completion of corporate deals and fund-raising, along with the HKMA intervention, should help restore cash levels to normal by the end of this month. They believe the gentle rise in rates will not develop into a prolonged spike. The cash squeeze has come at a time when the city has seen a spike in capital inflows seeking to profit from a revival in the local property market and a spate of Chinese equity listings on the local stock exchange.
Annual factors, and more A squeeze in Hong Kong dollar cash markets began in late June, and was rooted in annual factors: precautionary demand from banks because of their half-yearly reporting needs, plus funds owed for corporate dividend payments. Traders say the squeeze was exacerbated by banks in Hong Kong hoarding funds ahead of a pro-democracy march on July 1, seen as a significant challenges to Chinese Communist Party rule. The crunch continued, related to deals and a
revival of initial public offerings (IPOs). June was Hong Kong’s second-highest month for IPOs this year at US$3.2 billion, according to Thomson Reuters data. Singapore’s OverseaChinese Banking Corp has been seeking to complete a proposed US$4.95 billion takeover of Hong Kong’s Wing Hang Bank Ltd, and the money appears to be locked up already. “Typically when a deal gets close to finishing, the banks have to lock up funding, so the supply of funds in the interbank market drops,” said the hedge fund trader. Other factors adding pressure on the Hong Kong dollar and the cash crunch include a longer-term trend of cheap local currency funds being converted into foreign currency assets. Hong Kong dollar loans for use outside the territory as a percentage of total loans have grown nearly seven fold to 13.2 percent from 10 years ago, said Frances Cheung, a senior strategist at Credit Agricole. Standard Chartered strategists estimate there were capital inflows of HK$151 billion in the three months to May compared to 107 billion Hong Kong dollars of outflows in January-February, and they say inflows continued in June and early July
Indonesia wants less private foreign debt
Pirates attack Malaysian tanker in South China Sea
Largest chipmaker profit rises
F
P
T
inancial authorities are looking at ways to limit a surge in foreign debt among private firms and want to enlist the help of banks, worried that runaway lending could spark instability in Southeast Asia’s largest economy. The central bank has expressed concern over a rise in the debt service ratio (DSR), which climbed to 46.3 percent in the first quarter from 36.8 percent in the same period last year due to a surge in private external debt. Bank Indonesia prefers the DSR, which is the ratio for repayments on external debt principal plus interest compared to a country’s total export earnings, to be below 35 percent. “If the economy slows down and exports don’t pick up, the private sector has to be prudent offshore,” Mirza Adityaswara, senior deputy governor of Bank Indonesia, told Reuters in an interview yesterday. “The point is there should be regulation to make sure offshore borrowing is done prudently.” Reuters
irates have attacked a Malaysian tanker and stolen the gas oil cargo before releasing it in the latest attack in Southeast Asian waters, officials said yesterday. The MT Oriental Glory was hijacked late Tuesday in the South China Sea off southeast Malaysia, the navy said in a statement. Pirates stole its gas oil cargo before setting it adrift with damaged communication equipment and engine, the statement said. Noel Choong, head of the International Maritime Bureau’s Kuala Lumpur-based Piracy Reporting Centre, warned of the increasing number of incidents in the area. The ship, whose crew was unhurt, was travelling from Singapore to Sandakan in the Malaysian part of Borneo island. “This is the ninth attack in these waters recently... It’s a big concern,” he told AFP, urging ships to be vigilant so that pirates could not surprise them. Earlier this month pirates hijacked a Singapore-managed tanker in the South China Sea, stealing part of its cargo and damaging its communication equipment. AFP
Reuters
aiwan Semiconductor Manufacturing Co Ltd (TSMC) reported a 15.3 percent rise in quarterly profit yesterday, thanks to increased demand from smartphone makers such as Apple Inc. The world’s largest contract chip manufacturer is benefiting from Apple and other handset makers packing phones with increasingly chip-hungry features such as fingerprint sensors and Long-Term Evolution (LTE) wireless technology. TSMC in particular is poised for a burst in sales of chips for the widely expected successor to the iPhone 5 from Apple - a company KGI Securities analyst Michael Liu said accounts for a “high-single digit” percentage of TSMC’s total revenue. Net profit was T$59.7 billion (US$1.99 billion) in April-June, compared with the T$56.5 billion mean estimate of 21 analysts polled by Reuters. In January-March, profit reached T$47.9 billion. TSMC previously reported record quarterly revenue for April-June of T$183 billion. Shares of TSMC fell 1.9 percent ahead of the earnings release, versus a 0.9 percent fall in the broader TAIEX index. Reuters