Directly elected legislators want more seats Politics Page 3
Friday, May 20 2016 Year V Nr. 1047 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Canidrome
Qatar Airways refuses to transport greyhounds bound for Macau Page 2
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State firms
Beijing demands public owned firms improve performance Page 8
M&A
Chinese tycoon to buy English football club Aston Villa Page 10
Shopping A Major Activity Visitor expenditure
Visitor spending for Q1, excluding gaming, amounted to MOP11.54 bln. A 13.6 pct y-o-y drop. Overall spending by visitors in the first three months was weighted towards shopping – which accounted for 43.7 pct of total outlay. Page 2
iGAMING Page 7
Evolving experience IR The shift in integrated resorts has gone through various stages. From early origins to when exhibitions first joined the product mix. To a gradual shift to entertainment and experience. Leading further away from the large-scale integrated resort model. Page 6
Counselling caution Moody’s report Authorities anxious to keep growth figures in good shape could ignite risk. This, according to Moody’s Investor Services. The rating agency says growth is still sustained by increasing debt, which could lead to more problems. Page 8
23° 27° 24° 28° 24° 28° 25° 28° 25° 28° Today
sun
19,694.33 -132.08 (0.67%)
BOC Hong Kong Holdings
+1.60%
Power Assets Holdings Ltd
+0.96%
Sands China Ltd
HSBC Holdings PLC
+1.55%
Hang Lung Properties Ltd
+0.73%
Belle International Holdings
MTR Corp Ltd
+1.16%
Hengan International Group
+0.61%
China Unicom Hong Kong
Tencent Holdings Ltd
-2.42%
-1.72%
Want Want China Holdings
-2.53%
-1.88%
Tingyi Cayman Islands
-3.61%
+0.55%
Source: Bloomberg
HK Hang Seng Index May 19, 2016
sat
I SSN 2226-8294
mon
tue
Source: AccuWeather
Potential goldmine Online gaming in Asia is perceived as a huge untapped market. But better regulations are needed for the sector to function properly and make a profit.
2 Business Daily Friday, May 20 2016
Macau
Tourism
Visitors spend 43.7 per cent of total on shopping in Q1 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
V
isitor spending for the first quarter of the year, excluding gaming, amounted to a total of MOP11.54 billion, a 13.6 per cent year-on-year drop compared to the MOP13.36 billion registered in the previous year, according to data from the Statistics and Census Service (DSEC). Tourists spent MOP8.86 billion of the total, a 14.8 per cent year-on-year drop, while tourist groups accounted for MOP2.68 billion – a 9.6 per cent drop. Overall spending by visitors was weighted towards shopping – which accounted
for 43.7 per cent of the overall, as compared to the 27.8 per cent spent on accommodation, while food amounted to 20.4 per cent of spending.
Per capita
Overall per capita spend amounted to MOP1,547 in the first quarter of the year, a 14.1 per cent year-on-year drop. Participants in MICE (Meetings, Incentives, Conventions and Exhibitions) spent larger amounts per capita, at MOP3,132 a 9.9 per cent year-on-year rise. Visitors who came to the SAR to spend their holidays spent 19.1 per cent less, falling to MOP2,177 per capita, while those who came for shopping spent 10.4 per cent less at MOP2,074.
Per capita spending by visitors from Mainland China saw an 18.1 per cent drop yearon-year overall, at MOP1,762, with visitors from Guangdong Province and Fujian Province seeing 7.5 per cent and 4.8 per cent drops in visitor spending, at MOP1,437 and MOP1,415, respectively. Visitors on individual visas spent 10.4 per cent less than in the first quarter of last year.
Japan spends most per capita
Visitors from Hong Kong and Japan both saw increases in their per capita spending in the first quarter, with a 12.5 per cent and 11.8 per cent increase, amounting to MOP1,692 and MOP950, respectively.
Visitors from Singapore, Malaysia and Taiwan all saw drops in visitor spending of 8.3 per cent, 1.3 per cent and 2.3 per cent, respectively, amounting to MOP1,635, MOP1,619 and MOP1,579. Australian visitors spent 15.1 per cent more, at MOP1,412, while those from the United Kingdom and the United States spent less, at MOP1,329 and MOP1,249, respectively. By country, individual tourists from Mainland China (at MOP2,897), Malaysia (at MOP2,507), Singapore (at MOP2,491) and Taiwan (MOP2,973) fell, while per capita spending of tourists from Japan (MOP2,672) and Hong Kong (MOP1,550) increased.
Per capita spending by tour group participants from Mainland China, at MOP813, fell 5.5 per cent compared to the same quarter last year, while those from Singapore, at MOP556, increased 12.1 per cent.
Satisfied
In terms of the number of tourist attractions in the city, 41.1 per cent of visitors commented that they were sufficient, whilst 15.9 per cent considered them to be insufficient. Some 88.9 per cent of visitors said they were satisfied with their accommodation, while 89.8 per cent declared themselves satisfied with their travel agency, an 11.3 per cent increase for the quarter, year-on-year. Some 71.3 per cent said that they were content with public installations and equipment, with the same percentage represented regarding satisfaction with public transportation.
Greyhounds
Qatar Airways refuses to transport greyhounds bound for Macau Canidrome ‘To date, Qatar Airways has never transported a shipment of greyhounds to China. Due to animal welfare concerns, Qatar Airways also has no intention of doing so in the future,’ said the airline in response to several comments published on its official Facebook page. ‘As a committed member of IATA [International Air Transport Association] we comply with the Live Animal Regulations which set out strict requirements regarding the welfare of
animals during transportation. We continually review our policies in order to maintain high standards of animal welfare during transportation,’ the airline added. Qatar Airways joins Emirates and British Airways, which have ensured that they will not transport greyhounds to China. According to an SCMP report earlier this week, in December of last year Qantas announced it was to cease its racing greyhound freight services
to Asia, and Cathay Pacific said they did not transport the animals. The concession for greyhound racetrack operator Macau (Yat Yuen) Canidrome Co. was set to expire by the end of last year but was extended until December 31, 2016 per an executive order. The government argued then that ‘it would not be fair to close the space from one day to the other’. Now facing a new deadline, local animal concern group Anima (Society for
the Protection of Animals) has adopted a new strategy of blocking the supply of dogs to Macau, with one victory claimed; blocking one of the main suppliers in Australia from exporting dogs to the SAR started last December. The campaign focused next on Ireland, initially a minority supplier, but now essential for the Canidrome’s dog supply. Ireland prohibited the export of dogs to China in 2011 but the rule does not cover Macau.
Davis Fong Ka Chio. Director, Institute for the Study of Commercial Gaming,. University of Macau, said that the study commission by the government on the Canidrome has been completed, in statements made on Wednesday during a Chinese channel programme of Radio Macau. He pointed out, however, that the government needs time to ponder and decide its next step, although it is expected that the ‘problem’ will be resolved by the deadline.
Business Daily Friday, May 20 2016 3
Macau Legislative Assembly Law revision open to public consultation until June 5
Directly elected legislators want more seats Deputies of Macau elected by the population criticised the document on the revision of the electoral law by the Legislative Assembly for lacking references to a reform of the political system, requesting an increase in the number of those elected by universal suffrage. “The government should give the population the right of choice in its representatives, with the objective of developing our democratic system,” said deputy Ng Kuok Cheong, at the presentation of the document in the Legislative Assembly, which was attended by Secretary for Administration and Justice Sonia Chan. The pro-democrat Au Kam San said that “the increase in direct election seats (occurring in 2012) didn’t affect the stability of society; it also didn’t affect the administrative predominance, nor the development of the economy,” in requesting that the government increase the number of directly elected seats. A total of 33 legislators currently make up the Legislative Assembly, following the political reform which had added four seats to the body, fixing the number at 14 directly elected legislators and 12 indirectly elected – elected via associations. The number of legislators nominated by the Chief Executive was unaltered in the reform, fixed at seven seats. Following the political reform – which also included an increase of 100 seats in the electoral college, which elects the head of the government, fixing the number at 400 individuals - the deputies from the democratic wing have tried to reintroduce the theme on the political
agenda, without success. In Wednesday’s session, legislator José Pereira Coutinho considered that “the revision of the electoral law is not only related to aspects of electoral corruption,” and laments that the current law proposal does not contemplate the increase in the number of legislators elected by universal suffrage. “In the last elections, a higher participation of the population was registered, therefore I believe that the respective seats of legislators elected by direct vote should be increased,” said the legislator. Legislator Angela Leong also requested an increase in representation but of legislators elected by indirect vote (through associations). “Taking into account the development of Macau, there are more sectors emerging, and according to the current law in Macau only four sectors are taken into account, and I believe that is insufficient, therefore we should increase
these sectors,” said the legislator. Notwithstanding, other legislators rejected the idea of an increase in the number of legislators. “It’s not adequate to go forward with reform too quickly in our political development. Each country has different needs,” said Sio Chi Wai, following echoing opinions voiced by Gabriel Tong and Vong Hin Fai. The monitoring of acts of corruption, including illicit acts committed outside of Macau was another of the concerns expressed by some of the legislators including Mak Soi Kun and Chui Sai Peng. The mandatory declaration of elector activities that the government wants to introduce with the law revision was also the subject of legislators’ questions. Directly elected legislator Leong Veng Chai questioned whether the criteria for considering the payment of meals or gifts to voters only applied to the campaigns of candidates
directly elected. The Assistant Commissioner of the Commission Against Corruption, Lam Chi Lon, said that: “it’s not possible to prohibit all of the activities because it is the right of the association (to conduct the activities)”. Also under discussion were the limitations on introducing the dual-fidelity of the legislators, a question brought up last year by the candidacy to the Assembly of the Republic of Portugal by local legislator José Pereira Coutinho. “I lament this immensely because in the Basic Law this incompatibility is not anticipated and I don’t understand why this time this limitation is being introduced,” said Coutinho. The document revising the electoral law of the Legislative Assembly will be open to public consultation until 5th June, with the government’s objective to conclude the process before the next elections of the body in 2017.
4 Business Daily Friday, May 20 2016
Macau Opinion
Pedro Cortés
Look ahead This week we have G2E Asia, one of the biggest events of the gaming industry together with Macau Gaming Show. People understand that the industry players are eager to understand what the future holds. Would there be extensions of a maximum of 5 years for all operators until 2027? Will we have a new bid? Well, whatever the decision may be, the current law undoubtedly needs to be changed. Macau needs a new gaming law to prepare for the future, which is 4 years from now. I am sure that the Secretary for Economy and Finance is already preparing such changes and preparing for the future. If he is not, then he must do it, as we say in business cicles, ASAP. I do, however, hope that such changes are not based on the mid-term review report, which as far as I could read does not touch upon the important points of the gaming industry. With all due respect to the academics that prepared it, it seems that they’re a little bit removed from reality. Maybe the fresh air of the University of Macau Hengqin Campus caused them to take a view of the accessories instead of focusing on the real problems and what we want for Macau. Do we want a licensing system? Do we want a sustainable gaming industry well supported by the sister MICE industry, which represents a side of the diversification speech we have heard since the early opening stages of liberalized gaming back in 2002? In my view, we need competent people advising the decision makers. The Secretary for Economy and Finance already has a few and therefore we should not be worried. But what about the Chief Executive? Is he going to make decisions or just let things go until the end of his term? Macau cannot wait for tomorrow. Decisions need to be taken and the sooner the better. Bureaucracy won’t prevent the politicians from executing their ideas. The status quo of not acting cannot be the norm. There are problems outside greater than a couple of millions sent to a far-off University. Well, I’m not saying that this is not a problem, but it should not be the priority. Priority should be given to young people’s needs. Young people who must think about Macau as the place to work and have a good life! Pedro Cortés is a lawyer and frequent contributor to this newspaper.
Retail Local revenues drop 47.4 per cent, eight stores closed in Macau and HK
Shoe manufacturer Le Saunda down at heel for fiscal year Kelsey Wilhelm kelsey.wilhelm@macaubusienssdaily.com
L
e Saunda Holdings Limited - a company primarily engaged in the manufacture and retail of Le Saunda ladies and men’s shoes, CNE footwear (an O2O brand) and Linea Rosa high-fashion footwear brand - announced a consolidated profit of RMB122.1 million (MOP149.42 million) for the fiscal year ending February 2016, in a filing on the Hong Kong Stock Exchange. This represents a 35.5 per cent year-on-year drop for the fiscal year compared to 2014/2015’s RMB189.3 million. The group has a total of 896 stores, located mostly in Mainland China, with 12 operating in Hong Kong and Macau. Sales in Hong Kong and Macau plunged 29.2 per cent year-on-year, at RMB110.7 million as compared to the RMB156.4 million seen in the previous fiscal year, causing a change in the Hong Kong and Macau business units ‘from profitable to making loss’ – a loss of RMB10.596 million - notes the filing. Over the fiscal year eight stores in the two SARs were phased out, noting that ‘after the shop rental in Hong Kong adjusts back to a normal level, the
opportunities of opening new stores would appear again.’ The group note opines that it is ‘the pattern of consumers’ behaviour that has been changing,’ despite the fact that ‘urban disposable income is actually on the rise […] ongoing weakness is noted in consumer spending.’ For the fiscal year in question the group’s total revenue decreased by 3.7 per cent year-on-year to RMB1.621 billion. For the Macau segment total revenue amounted to MOP16.52 million, a 47.4 per cent drop compared to the MOP31.41 million registered in the previous fiscal year.
16.52 Million RMB Local revenue for the group
A total drop of 0.9 per cent was seen in the group’s retail sales in Mainland China, amounting to RMB1.51 billion, which was noted as ‘better than the overall decline in the Group’s revenue,’ in the filing, attributable to a ‘stable loyal customer base brought by the Group’s reputation of products with “sophisticated
styles with top quality”,’ as well as ‘consistent moves to close underperforming stores and open new ones to drive sales,’ complimented by the ‘launch of popular casual designs with elements favoured by young people to meet the market demands . . . [and] . . . a higher ratio of repeat purchases benefiting from innovative marketing approaches on both online and offline channels to facilitate close interaction with VIP customers.’ Future predictions note that ‘the Group anticipates the lacklustre sentiments prevailing in the retail market will last for one to two years’ and that ‘retailers will still face enormous challenges ahead.’ To conquer this, the group will focus on: ‘formal footwear for the medium to high-end market’ as well as focusing on the product mix to ‘explore the young-line products with unique functional and fashionable items’. La Saunda also seeks to transform itself from a vertically integrated offline retailer to ‘an omni-channel operator which is highly data-oriented,’ as well as to ‘introduce a new retail model with swift O2O deployment,’ notes the filing. The group employs 5,286 people, of whom 150 are based in Hong Kong and Macau.
Food
Tang Palace seeks clean food via share stake Tang Palace Holdings Limited announced yesterday that it had entered into an agreement with Classic Lines Holdings Limited to purchase a 15 per cent stake in the group’s share capital in order to work more closely with C.Y. Food Trading Company Limited, a subsidiary of Classic Lines, according to a filing with the Hong Kong Stock Exchange yesterday. Tang Palace is a ‘food and beverage restaurant chain’ which ‘has operated 10 brands’, notes the company’s
website, and is the holding company for Tang’s Cuisine, located in The Venetian, which specialises in pigeon. The agreement was arrived at ‘after arm’s length negotiations among the parties’, resulting in a HK$11.86 million investment from Tang Palace in the food supply group. ‘With its extensive experience in the catering business, the Group [Tang Palace] considers reliable and traceable food ingredient supply is vital
to our Group’s operation’,’ notes the filing. The investment seeks to strengthen the relationship between the companies as well as ‘provide the Group with a reliable source of high-quality, stable and traceable food ingredient supply […], strengthen the Group’s control on the costs of food procurement,’ and: ‘provide potential benefits and profits that the Target Company will accrue to the Group,’ notes the filing.
Business Daily Friday, May 20 2016 5
Macau
Retail
Burberry to focus on bags and basics to reverse decline
B
ritish luxury brand Burberry said it would shrink its product range and focus more on handbags, seeking to overhaul its business after its annual profit dropped in a tough market that shows no sign of improving this year. Burberry, which has lost more than a third of its market value over the past 12 months, said it aimed to make at least 100 million pounds (US$144 million) in annual savings by 2019. As part of that drive, the 160-yearold brand - famous for its trench coats lined with checks - said it would axe 15-20 per cent of it individual products over the coming year across multiple lines. It said its designers would focus more on handbags, a higher-margin and faster-growing area than clothing, and one where it lags rivals like Louis Vuitton and Prada. Christopher Bailey, who combines the roles of chief executive and chief designer, said he was “committed to making the changes needed” at Burberry. But he added: I am mindful we are embarking on this plan at a time when our industry is facing significant challenges.” Like its luxury competitors, Burberry has been hit by a sales slowdown in Hong Kong and mainland China, while flagship stores in European capitals have been deserted by many Chinese tourists after last year’s attacks in Paris. The British brand is also not as good as its rivals at retailing basics, Bailey said. Its sales per square foot of about 1,600 euros per year are around a third of market leader Louis Vuitton’s and also significantly below Prada and Moncler, according to UBS analysts. Burberry said on Wednesday it would make its stores more
productive by tailoring ranges for local customers, improving customer service, training staff to a higher level and changing layouts to highlight a simpler range of goods.
Global brand
The company is a brand famous across the world whose designs have been modelled by Kate Moss, Cara Delevingne and Eddie Redmayne. It unveiled its overhaul plan after reporting a 10 per cent drop in adjusted pretax profit to 421 million pounds for the year to end-March - broadly in line with analyst forecasts. It increased its full-year dividend by 5 per cent to 37 pence, and said it would buy back up to 150 million pounds of shares, starting this year. Burberry also gave a bleak outlook for the current financial year, saying it expected profit to come in towards the bottom of market forecasts, which it said ranged from 375-449 million pounds, and be more weighted to the second half than last year. Shares in the company, which have fallen 37 per cent in the last 12 months, were down 2.8 per cent at 1,111 pence at 0817 GMT. Chief Financial Officer Carol Drinkwater said trading in Hong Kong which along with Macau analysts say accounts for about 8 per cent of
Key Points Full-year pretax profit falls 10 pct in tough luxury market See profit this year falling again, towards bottom of forecasts Seeks 100 mln stg annual savings, to axe 15-20 pct of products Shares down 2.8 pct
Retail
Daohe Global Group announces profit warning Daohe Global Group Ltd., the parent company of the Linmark Group Ltd. – a global sourcing and logistics company linked to retail chain operators and apparel and home furnishings that operates throughout Asia and in Macau – has posted a profit warning anticipating a profit loss of ‘more than 80 per cent as compared to the net profit recorded for the financial year ended 30 April 2015,’ the group announced yesterday in a filing with
the Hong Kong Stock Exchange. The drop in profit was attributed to ‘a decline in turnover of the Group due to the challenging global business environment’ as well as ‘an additional tax provision’ from the Hong Kong tax case the group is involved in. The profit loss announcement is ‘based on preliminary estimates’, notes the filing, with full final results for the company’s financial year to be published ‘in July 2016’.
sales - was tough, but the group’s stores there were still profitable, and all luxury brands were being hit. “Conditions remain extremely challenging,” she said. The United States, which accounts for about 22 per cent, also remained subdued. “In the U.S. we do see opportunities long term but clearly current trading is challenging,” the CFO said.
The company said it would also make costs savings - towards the 100 million pound annual goal - by improving efficiency throughout the business, without going into detail. It said the drive would cut the group’s operating costs by about 10 per cent excluding fixed rent and depreciation. Only around 20 million pounds of savings will come through in the current year, however. Reuters
6 Business Daily Friday, May 20 2016
Macau Integrated Resorts Local push for non-gaming in line with Las Vegas evolution
Stuck on MICE The shift in integrated resorts has gone through stages, from early origins when exhibitions first joined the product mix to a gradual shift to entertainment and experience, leading further away from the large-scale integrated resort model. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
T
he integrated resort model is changing and adapting to shifting global gaming environment, with models such as the local MICE (Meetings, Incentives, Conferences and Exhibitions) oriented and large-scale integrated resort as only one of the current global offerings, as evidenced by the success of Imperial Pacific’s Saipan operation – which holds no hotel rooms or MICE facilities yet still made an alleged US$3.2 billion in April. Local operations are growing into the model previously seen in Las Vegas and Atlantic City - when convention and exhibition spaces were first coupled with casino properties. “You could fill up casinos on weekends 100 per cent but what do you do on weekdays?” questions Steve Rittvo, Chairman and CEO of The Innovation Group, describing how the integrated resort model first came about.
“It was the next generation,” notes Rittvo. “They focused on two market segments – they focused on the players – rated and unrated - and they focused on conventions and they had elements that served both those market segments but allowed them to be integrated,” explains Rittvo on the evolution of the integrated resort model.
MICE-centric
This model was expanded and brought to Macau – evidenced by the facilities seen at The Venetian and lauded by the Director of the Gaming Inspection and
The Innovation Group
Co-ordination Bureau, Paulo Martins Chan, given the need for “establishing closer links between gaming and other industries to achieve synergetic effects.” However, this model is not the end-all and is restricted in many ways. “We’re looking to grow the market segments that come in. We’re not happy that we lost the intensity of the VIP segment,” notes Rittvo speaking of the city’s gradual shift to non-gaming activities. The growth in non-gaming seen locally was confined, given that it, like many integrated resorts, was “located in urban centers”, notes Rittzo. Locations like Macau thus benefited from the fact that they: “were surrounded by intense population activities that had really great air access.” But this meant that, naturally and in regard to MICE “there’s a finite number of conventions and convention centres that can
The Innovation Group selected and negotiated with Imperial Pacific for the Saipan contract – having been hired by the Commonwealth of Northern Mariana Islands (CNMI) for the ‘examination and evaluation of integrated resort development proposals to recommend a preferred developer to negotiate for a Casino Development Agreement,’ according to the group’s site. The group also operates on projects in Spain, the Philippines, Korea and the U.S. among others.
occur,” given the restrictions on space. This caused the further splintering of the integrated resort model, whose attendees Steve describes as “they weren’t convention attendees, they weren’t this hardcore gambler.” These were individuals who gravitated towards “the second tier cities” such as Manila, says Rittvo.
Bigger isn’t better
A further continuance of this evolution broke free from the urban centre model, shifting away from even second tier cities and more towards “integrated resorts that are really resorts,” notes Rittvo, referencing resort-goers gaming from the poolside via a tablet or iPhone. “They are integrated entertainment facilities; they’re inclusive of golf courses,” he says. These resorts, such as the “proposed casino in Cannes Australia, the Ho Tram facility [in
Vietnam] . . . will not substitute for Macau or Singapore . . . they will be complimentary. The guy who comes to Macau or Singapore will now come one or two less [times a year].” These facilities cost less “instead of US$5 billion facilities, these will be US$1 billion to US$2 billion,” says Rittvo. “I don’t perceive they’ll be as large or intense,” he notes, “but I think they’ll be successful.” This change, notes the consultant, brings the concept of integrated resort full-circle, saying “It’s fascinating we’ve turned the loop and gone back to where we started,” noting the Las Vegas example. “People are much more experiential, gaming is less a part of this operation,” he opines. “I don’t necessarily see the growth in urban centres, I see it in desirable locations for recreation – the focus has been on beach resorts”.
Business Daily Friday, May 20 2016 7
Macau Online gaming
An untapped market for Asia Gaming experts at the G2E gaming conference see Asia as a tremendous untapped market for online gaming and sports betting but regulations have failed to keep up. Nelson Moura nelson.moura@macaubusinessdaily.com
O
nline gaming experts see Macau and China as huge potential markets for online betting but like many other Asian countries the two markets have failed to further regulate the sector. The third and last day of the 10th edition of the G2E Asia Global Gaming Expo saw panellists at the iGaming State of Play - Asia session give their assessment on the Russia, Vietnam, India, China and Macau online betting scene. However, a dire future for operators looking to break into online betting was predicted in Macau and China if more regulations are not put in place. “In China, nothing really has changed in the last year, in fact, there was a ban on all online lottery servers, for alleged rampant irregularities in the way they are operated, with a lot of fraud happening with huge profit margins. While in Macau proxy betting was first introduced at Sands the government has recently banned it so I can’t really see it happening any soon in the future. I believe the government already have their hands full with the land
casinos,” said Rosalind Wade from Asia Gaming Brief.
Philippines points the way
In his presentation, Chris Tio, Executive Vice President of business development for DFNN, Inc. - a Philippine publicly listed I.T. company with multiple iGaming licences - tried to show how the regulation of online gaming has helped the Philippines gaming scene grow exponentially with gross gaming revenue exceeding US2.3 billion (MOP18.39 billion) in 2015. As the only place in Asia where online betting is licensed, the Philippines permits legal online sports bookmakers, online casinos and bingo, with domestic websites licensed by the government-owned
Philippine Amusement and Gaming Corporation (PAGCOR), and Special Economic Zone Cagayan where licensed online betting operators can target other Asian markets. “The Philippines demographics provide a strong platform for gaming expansion, with a population of 98 million people and 54 per cent under the age of 25, while in the country very creative offers are provided like hybrid converted online cafes to receive iGaming. Online betting cafes were designed for people who couldn’t afford to go to casinos, but now they look like Starbucks cafes with online betting,” Tio revealed in the presentation. The business developer also believes recently elected new President Rodrigo Duterte won’t restrict the current gaming market and will continue current flexible online gaming policies.
Vietnam and India hard to break into but worthwhile
In a presentation focused on the potential of Vietnam and India online betting Albert Climent, a gaming consultant based in Asia with a background in European and Asian on-line gambling and a specialist in pre and post regulated markets, sees Vietnam and India as hard markets to crack but of great interest. “Gaming is still prohibited in Vietnam with only one lottery gaming company authorised and five casinos licensed while 5-star hotels are prohibited from having slot machines. In terms of sport betting two regulations are being discussed for horse races, dog races, and other sports. However, there is a lot of expectation that after the government change after the Vietnamese Communist Party conference regulations will be implemented,” Climent stated. The consultant stated possible sport betting taxation is being discussed, with special income taxes of 35 per cent for casinos and 30 per cent for online betting; however, the Vietnam Government is still planning test licences before issuing any official licences. Nevertheless, he believes Vietnam is a “very exciting market with huge potential” since online gaming isn’t treated as a separate gambling entity, and therefore any casino licence holder would be able to operate online gaming. He also advises that any interested operator wanting to move into the market would have to have a long term view, high level of patience and start establishing local partnerships. “I believe Vietnam will be the next Asian country to regulate online betting, so operators should start positioning themselves,” he said. When it comes to India, Climent considered its online betting market potential the “last gold rush”, evaluated at US60 billion due to the massive Internet and mobile penetration,
extremely liquid market and a “huge middle class growing”. However, very much like Vietnam, it is still a complicated market to enter due to the absence of regulations. “Pretty much all gambling activities in India are illegal and the central government is not very keen on forwarding regulation, but since India is a federal state each county has a lot of legislative power so in some jurisdictions gambling on skill-based activities is allowed and there are no specific laws preventing a player betting online. So, in Goa and Daman there are some casinos, and Nagaland allows online gaming on skill-based activities,” Climent said.
Politics in Russia force creativity
Christian Meli, Head of research and development at UK licensed bookmaker Panbet Ltd., assessed Russia as a tough market due to lack of political will to regulate the gaming and online betting market, but recent developments suggest a light at the end of the tunnel.
Key Points Macau and China need to reconsider online betting regulations The Philippines have shown online betting licensing is extremely profitable Vietnam considered the most likely next Asian country to legalise online betting India considered a hugely promising market but still awaiting legislation Russian politics make online betting a hard sell “There used to be a lot of landbased casinos until President Putin decided to close everything down. My company had almost 500 betting sites and we decided to go online, which at the time wasn’t very popular. In fact, last year the government tried to block online payments but we built a system of parallel sites in case the main one was blocked. Marketing is also very hard in Russia because it is not allowed in Google or Facebook, so we invest more on forum sites,” Melin stated. Melin also mentioned the Russian Government is discussing a centralised payment processing system named TSUPIS to handle all online gambling transactions, deposits and withdrawals at nationally licensed online gaming sites. However, “online gaming fees are still very high and the government can change its mind about the changes at anytime.” Still, Melin believes the Russian market is worth the effort and Panbet Ltd. has plans to expand to different regions in the country in 2017 and increase its mobile betting to 20 per cent.
8 Business Daily Friday, May 20 2016
Greater China Supervision bill
Incoming Taiwan Government likely to infuriate Beijing from the word go
Tsai Ing-wen (C) in an event during presidential campaign.
The bill requires government officials to get legislative consent before, during and after any talks with Beijing.
T
aiwan’s new ruling party is set for an early clash with China over the first major item on its legislative agenda - a bill that could paralyse trade between the two rivals and which Beijing has already condemned. The proposed “supervision law” has not only angered China but sent shivers through the island’s business
community which thinks the government should put the economy before politics. Incoming president Tsai Ing-wen has made the bill, spurred by anti-China student protests in 2014, a priority for her government. The bill requires government officials to get legislative consent before, during and after any talks with Beijing. They
cannot sign any agreements with China before all three stages of legislative approval are completed. “We are very worried,” said Liao Wan-lung, head of Taiwan’s Council for Industrial and Commercial Development. “It will be a major blow to the growth of Taiwan’s fragile economy.” Tsai’s Democratic Progressive Party (DPP) won parliamentary and presidential elections by a landslide in January in a voter backlash against a trade pact with China that the previous
Moody’s analysis
Government desire for headline growth may hide longer-term risks Policymakers have said they will be able to ward off systemic financial risks, but concerns at top government levels about the dangers of excessive leverage appear to be growing. China’s desire to hold up headline growth figures may increase longerterm risks for the world’s second-largest economy, ratings agency Moody’s Investor Services said yesterday. Even though the ratings agency has kept its growth forecast for China unchanged at 6.3 percent for this year, it said headline growth continues to be supported by increasing amounts of debt which could lead to more problems down the road. “Delivering target headline growth rates as the primary objective could come at a cost to the quality of growth due to further misallocation of resources, and limit the government’s ability to address imbalances in the economy through implementation of reforms,” authors Madhavi Bokil and Dima Cvetkova wrote.
China has set an economic growth target of 6.5 percent to 7 percent this year, after growth cooled to a 25-year low of 6.9 percent in 2015. But some economists reckon real growth rates are already much lower than official data suggest. Policymakers have said they will be able to ward off systemic financial risks, but concerns at top government levels about the dangers of excessive leverage appear to be growing. China may suffer from a financial crisis and economic recession if the government relies too much on debtfuelled stimulus, the official People’s Daily quoted an “authoritative person” as saying last week. Rising leverage in China and emerging markets in general is an even greater concern now that the possibility
of another U.S. interest rate hike this summer is back on the table. Higher rates will sap the ability of borrowers, especially commodity exporters, to make repayments at a time when global prices have crashed. Emerging market corporate balance sheets are therefore likely to come under further pressure from debt payments and further currency volatility if the U.S. dollar continues to strengthen, Moody’s said. Leverage has particularly jumped in China, with corporate debt to GDP at 170 percent, and has risen notably in Turkey, Brazil and Russia, too. Bank of International Settlements data showed total emerging market non-financial corporate debt has ballooned to nearly US$25 trillion dollar mark from around US$9 trillion before the crisis. Even in India, one of the few bright spots in the emerging market landscape as a net-commodity importer which makes it a beneficiary of lower prices, a worrying lack of capital utilization rates and falling investment as a share of GDP is a matter of concern, the authors noted. Reuters
Nationalist government had sought to push through. The independence-leaning DPP is distrustful of growing economic dependence on China and Chinese cultural influence. Supporters of the bill say it will add transparency to negotiations. Economic ties warmed considerably when Ma Ying-jeou of the Nationalists was elected president in 2008, ushering in regular high-level exchanges and overseeing landmark economic deals. Critics of bill say it will stall, rather than ease, the relationship with the
Business Daily Friday, May 20 2016 9
Greater China Public enterprises
world’s second-largest economy. A spokesman for China’s top agency in charge of handling Taiwan affairs said in March that anything that “puts up man-made blocks” on ties with Taiwan would be absolutely opposed. Liao and other business leaders fear the DPP is prioritising sovereignty at the expense of trade.
Authorities tell bloated state firms to improve competitiveness
China deeply distrustful of DPP
Chinese government is trying to promote more sustainable economic growth by calling for increased support for private investment.
The bill governs all matters related to China, Taiwan’s biggest export market. Taiwan’s trade-reliant economy is struggling to shake off last year’s recession as prolonged weakness in global demand weighs on Asian exporters. Communist Party leaders in Beijing have not ruled out using force to bring democratic Taiwan under their control. They are deeply distrustful of the DPP, whose charter includes a clause promoting “a sovereign and independent Republic of Taiwan”. Tsai however has stressed she intends to “maintain the status quo” with China. The DPP considers the supervision bill a purely domestic matter. “We cannot draft this law according to the way China wants things to be,” said Wu Ping-jui, a legislative leader of the DPP. “... President Tsai has said she will maintain the status quo. What that means for the DPP is that Taiwan has independent sovereignty and is not to be controlled by China.” “The law will cripple relations with China,” said MP Lai Shyh-bao. “We will not endorse it.” The bill describes Taiwan-China ties as “cross-strait”, referring to the stretch of water between the two sides, rather than “country to country”, which some point to as a goodwill gesture to China. “But it will never be enough for China no matter how many good gestures Tsai makes,” said Lin Ting-hui, vice president of the Taiwan Brain Trust, a pro-independence think tank in Taipei. “Taiwan must strengthen its own hand until it has enough chips to negotiate with China.” Reuters
Chinese state firms should cut excessive management, reduce costs and adopt market-based operations to improve their competitiveness, the country’s cabinet on Wednesday. State firms directly controlled by the central government should reduce layers of management from the existing 5-9 levels to 3-4 levels in the next three years, the cabinet said in a statement late on Wednesday. A Xinhua report on the cabinet meeting said firms would have to cut around 20 percent of redundant management. State companies should also cut costs by 100 billion yuan (US$15.28 billion) by the end of 2017, the cabinet statement said. Hiring and compensation at stateowned companies should be based on market needs, and firms should also consolidate operations around their core business, lower debt levels and cut accounts receivables and inventory levels, while also strictly controlling expenses, the cabinet added. Steel and coal companies were instructed to cut production capacity by 10 percent over 2016 and 2017, and accelerate mergers while cutting losses. Workers laid off due to capacity cuts should receive support to start their
Steel and coal companies were instructed to cut production capacity by 10 percent over 2016 and 2017, and accelerate mergers while cutting losses.
own businesses in the form of tax cuts and loans, the cabinet said after the meeting on Wednesday. Central state firms are overstaffed, have bloated management levels, an abundance of subsidiaries and poor-performing core businesses,
‘China has 112 central stateowned firms and thousands of firms are owned by local governments’
among other issues, the statement said. China has 112 central state-owned firms, or those directly managed by the central government, and thousands of firms are owned by local governments. The Chinese government is trying to promote more sustainable economic growth by calling for increased support for private investment while also looking to reduce overcapacity in some sectors and improve the efficiency of state-owned companies. Private-sector investment for January to April grew just 5.2 percent, its weakest pace since the National Bureau of Statistics (NBS) started recording the data in 2012. Investment by stateowned firms rose 23.7 percent over the same period. Reuters
10 Business Daily Friday, May 20 2016
Greater China M&A
Hong Kong regulator says Alibaba broke takeover rules Hong Kong’s Takeovers and Mergers Panel ruled that Alibaba’s purchase of Hebei Huiyan “constituted a special deal with favourable conditions”. Elzio Barreto
H
ong Kong’s securities regulator said that Chinese e-commerce giant Alibaba Group Holding Ltd breached takeover rules in the purchase of a healthcare firm in 2014 because it also bought a company owned by the brother of the healthcare firm’s vice chairman on “favourable terms.” Alibaba agreed to buy a stake in
CITIC 21CN, now known as Alibaba Health Information Technology Ltd, for US$170 million two years ago. During the acquisition process, Alibaba also agreed to buy Hebei Huiyan Medical Technology Co from Chen Wen Xin, who was also a shareholder of CITIC 21CN and is the younger brother of the company’s vice chairman, Chen Xiao Ying. Hong Kong’s Takeovers and Mergers Panel, part of the Securities and Futures Commission (SFC), ruled that
Alibaba’s purchase of Hebei Huiyan “constituted a special deal with favourable conditions which were not extended to all shareholders and was a clear breach of the Takeovers Code,” according to the decision published on Wednesday. Alibaba has already said it may appeal the panel’s decision, which was announced last month without the full details. The company said on Wednesday it is reviewing the panel’s ruling and that it believes it has complied with the takeover code.
“We believe that no Alibaba Health shareholder has been unfairly affected” Alibaba’s statement
In calling the purchase of Hebei Huiyan a “special deal” the SFC invoked a rule aimed at preventing unequal treatment of shareholders. Alibaba said a 533 percent surge in Alibaba Health shares since its takeover benefited shareholders of the health unit. “Therefore, we believe that no Alibaba Health shareholder has been unfairly affected,” Alibaba said in an emailed statement. The SFC ruled that the breach of code in the 2014 investment meant an original waiver to a requirement to launch a general offer to all investors was invalidated, Alibaba said last month. But the e-commerce firm added the regulator issued a new waiver in view of the sharp rise in Alibaba Health stock since 2014, meaning Alibaba is not currently required to launch a full buyout. Alibaba owns 38 percent of Alibaba Health, but last year injected an online pharmacy business into Alibaba Health. Once that transaction is approved, it will own a 53 percent stake. Reuters
M&A
Mainland magnate to buy English soccer team Aston Villa Crosstown arch‑rivals Birmingham City are also run from Asia, following the 2009 takeover by Hong Kong businessman Carson Yeung. Neil Robinson and Adam Jourdan
A Chinese magnate has agreed to buy historic English football club Aston Villa, the latest in a series of investments from China into football worldwide as President Xi Jinping looks to make the country a global powerhouse in the sport. The deal, reportedly worth 60 million pounds (US$88 million), will see the chairman of little-known Recon Group, Xia Jiantong, become the first mainland Chinese to fully own an English team. Under the leadership of Xi, an avid fan, China has made it a goal to one day win the World Cup, and has ploughed huge amounts of investment into grassroots academies, television rights, transfer deals for overseas players and investment in clubs abroad.
More broadly, Beijing is aiming to grow the domestic sports market to 5 trillion yuan (US$782 billion) by 2025, about five times its current scale. China’s biggest overseas investment in football so far occurred in December last year, when a consortium led by state-backed China Media Capital took a US$400 million stake in the owner of Villa’s far larger and wealthier rival, Manchester City. The Villa deal, however, with 100 percent ownership, is not just an investment.
“The Chinese ownership now get to decide how to run the club,” said Mark Dreyer, Beijing-based founder of sports information website China Sports Insider. Crosstown arch-rivals Birmingham City are also run from Asia, following the 2009 takeover by Hong Kong businessman Carson Yeung. Villa’s American owner Randy Lerner, who put the club on the market in 2014, struck the deal after former English champions Villa suffered a miserable season that left them relegated from the
country’s top football league. Recon Group, Xia’s privately owned holding company, owns a controlling interest in five publicly listed companies on the Hong Kong and Chinese stock exchanges. The deal with American-educated Xia, 39, ends an unhappy tenure for Lerner, who bought the midlands club for 62.2 million pounds in 2006. Fans have openly demonstrated against his continued involvement with Villa, who were European champions in 1982 and have won the English top-flight title seven times.
The club ended the recent season bottom of the English Premier League table, with only half the number of points of the next worst team. “Aston Villa’s relegation really played in their favour,” said Fredrik van Huynh, Shanghai-based director of HHC Sports Group. “It will have pushed down the price quite significantly.” Xia, who studied at Harvard University and has a doctorate, took to his official microblog late on Wednesday to wish the club’s fans “health and happiness”. Earlier this month he posted: “Go, Villa, Go! We will be back.” The club said Xia’s immediate objective was “to return Aston Villa to the Premier League and then to have the club finish in the top six, bringing European football back to Villa Park”. It added the deal would also help make Villa the most famous football club in China. Dreyer at China Sports Insider dismissed that as “simply ludicrous”, given the appeal of much bigger rivals such as Spain’s Barcelona and England’s Manchester United and Arsenal. “I think fans of the club will remain sceptical until it becomes clear what his true motivations are,” he added. Reuters
Business Daily Friday, May 20 2016 11
Asia GDP
Philippine economy posts fastest annual growth in three years Household consumption rose at a faster annual pace of 7.0 percent. Enrico Dela Cruz
T
he Philippine economy posted its fastest annual growth in nearly three years in the first quarter, as strong domestic demand and investments offset sluggish exports, allowing the central bank to keep its policy unchanged going forward. The above-forecast 6.9 percent increase from a year earlier will give a boost to President-elect Rodrigo Duterte’s plans to accelerate infrastructure spending and reach an annual growth-rate of at least 7-8 percent. Strong growth and low inflation have allowed Bangko Sentral ng Pilipinas (BSP) to hold fire since October 2014. “As domestic demand still provides the buffer to sluggish external demand, I still see growth supported,” said Christopher Wong, Senior FX Strategist at Maybank in Singapore. “We continue to expect BSP to keep the policy rate status quo.” First-quarter growth beat a 6.6 percent forecast in a Reuters poll, picking up speed from an upwardly revised 6.5 percent in the last three months of 2015. The economy was on track to grow 6.8-7.8 percent this year, Economic Planning Secretary Emmanuel Esguerra told a media briefing. However, in a sign that sputtering global demand did not leave the Philippines unscathed, growth halved to 1.1 percent in the first quarter from the previous three-month period. Household consumption rose at a faster annual pace of 7.0 percent. But exports dropped by the most in six months in March, marking the 12th straight month that exports have fallen as demand from major trading partners - United States, Japan and China - have remained tepid. Public investments were rolled out ahead of an election ban on infrastructure projects in February, to
The GDP increase from a year earlier will give a boost to President-elect Rodrigo Duterte’s plans to accelerate infrastructure spending.
help offset risks from a protracted El Niño dry weather pattern and sluggish exports. Fixed capital climbed 25.6 percent in the first quarter from last year, while construction grew at faster annual rate of 12 percent, compared with 7.6 percent in the December quarter and 4.5 percent in the first quarter of 2015. Public construction grew a hefty 39.9 percent in the first three months
of the year, reversing its 23 percent drop in the same period last year, while private construction picked up 7.1 percent. “All these investments give us confidence that the economy will continue to perform well in the succeeding quarters of the year and beyond,” Esguerra said. Duterte’s economic agenda mirrors the policies of his predecessor Benigno Aquino, which focused on
infrastructure spending and fiscal efficiency. Under Aquino, average annual economic growth has topped 6 percent, but critics say the improvement has not translated into jobs or better livelihoods for millions of poor. “The business sector has largely accepted the agenda but it is still in very general terms. How the agenda will be fleshed out will determine how markets and investors will react,” Esguerra said. Reuters
The outcome was in line with the Reserve Bank of Australia’s (RBA) own expectations. It sees the unemployment rate remaining around the current rate until mid 2017, before declining gradually as economic activity strengthens. The April employment result also means the central bank will keep its focus on how inflation develops before deciding on whether to ease policy again. Earlier this month, the RBA reduced its cash rate to a record low 1.75 percent, citing surprisingly low inflation as its main concern. “April’s labour market data are unlikely to prompt the RBA to follow May’s rate cut with another reduction at the next meeting in June - we still think the next cut will come at the August meeting,” said Paul Dales, Australia & New Zealand economist at Capital Economics. “That said, we are becoming more concerned about the quality of the jobs being created.” Indeed, while a total of 10,800 net new jobs were created in April - slightly undershooting forecasts of 12,500 - the breakdown was disappointing. Full-time employment fell 9,300, while part-time rose 20,200. The Australian dollar, already under pressure against a resurgent greenback, dipped to a two-and-a-half month low of US$0.7209. It has since recovered to be just a touch softer on
the day at US$0.7223. Annual jobs growth was still a healthy 2.1 percent, though it has slowed from the strong average pace of around 2.5 percent in the past two quarters.
Underpinning labour demand has been slow wage growth, which reduces cost pressures for businesses. Government figures on Wednesday showed wages grew at their slowest pace on record last quarter with a mere 0.4 percent increase. That took the annual rate down to 2.1 percent, a record low as well. Some leading indicators of employment have also been encouraging. A closely watched survey by the National Australia Bank earlier this month showed businesses’ hiring intentions stayed above their long-run averages in April, suggesting on-going resilience in the labour market. Reuters
Employment
Australia’s labour market resilient Annual jobs growth was still a healthy 2.1 percent, though it has slowed from the strong average pace of around 2.5 percent in the past two quarters. Ian Chua
Australia’s unemployment rate stayed at its lowest in nearly three years for a second month in April, a testament to the resilience of the labour market though a slight miss in monthly job gains prompted a brief selloff of the local dollar. Yesterday’s report from the Australian Bureau of Statistics showed the jobless rate was unchanged at 5.7 percent in April, when the median forecast had been for a rise to 5.8 percent. The unemployment rate has been around 5.75 percent in recent months, having been as high as 6.25 percent last year.
Key Points April employment rises 10,800 vs increase of 12,500 forecast Increase in part-time jobs drive overall gains, full-time falls Outcome still in line with RBA expectations
12 Business Daily Friday, May 20 2016
Asia Islamic bonds
US$170 billion in Malaysia pensions cry out for more sukuk Businesses involved in alcohol, pork and some entertainment establishments are deemed as unacceptable for Islamic bonds. Elffie Chew
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alaysia’s biggest pension fund is calling o n t h e g o vernment to increase the supply of ringgit Islamic bonds as the manager of US$170 billion starts a Shariah-compliant option for savers. The Employees Provident Fund (EPF), the largest buyer
of the country’s debt and stocks, said ideally half of sovereign bond sales should be sukuk as it prepares to launch the Islamic plan with an initial 100 billion ringgit (US$25 billion) in January. Currently the Shariah-compliant share of issuance is 42 percent. “The government is actively looking at it now,” Shahril Ridza Ridzuan, EPF’s chief executive officer, said
in an interview in Kuala Lumpur. “If the government can push up sukuk issuance to 50 percent, that would be great.” Boosting sales would help expand the range of maturities of the securities and their investor base, making them more popular with institutions. Overseas investors owned 19 billion ringgit of the government’s Islamic bonds in April, 8.2 percent of their total note holdings in the nation, central bank data show. That’s up from 6.7 percent in March. “With EPF’s plan to set up an Islamic retirement
scheme, it’s crucial for the government to step up Islamic bond sales to meet demand from the big players,” said Badlisyah Abdul Ghani, president of the Chartered Institute of Islamic Finance Professionals in Kuala Lumpur. “There’s no reason why all Malaysian government debt can’t be Shariah-compliant.”
Reduce arbitrage
Malaysia should consider just offering sukuk to remove the arbitrage opportunities that exist, said Badlisyah, the former CEO of the nation’s biggest arranger of debt that prohibits paying interest. Ten-year Islamic notes currently pay 3.99 percent, compared with a yield of 3.84 percent on similar conventional securities. Finance Ministry officials couldn’t immediately be
“There’s no reason why all Malaysian government debt can’t be Shariahcompliant.” Badlisyah Abdul Ghani, President of the Chartered Institute of Islamic Finance Professionals in Kuala Lumpur
reached by phone or e-mail to comment on whether they have any plans to boost supply of Shariah-compliant securities. There are limitations to increasing issuance of the government sukuk given you need to have sufficient assets, said Hasif Murad, an investment manager at Kuala Lumpur-based Aberdeen Islamic Asset Management Sdn., whose parent oversees the equivalent of US$2.9 billion. Islamic bonds pay returns from an underlying asset, such as property or income streams that have to conform to Shariah principles. Businesses involved in alcohol, pork and some entertainment establishments are deemed as unacceptable.
Bonds dominate
Bonds account for the biggest proportion of EPF’s portfolio. As of the end of last year, about 51 percent of its 684.5 billion ringgit was in fixed income, 43.8 percent in equities, 3.2 percent in real estate and infrastructure and the remainder in money markets, according to its annual report. Overseas investments are equivalent to 25 percent of the total funds, CEO Shahril said. About 40 percent of EPF’s investments comply with religious principles, according to a January 21 statement. “As an investor, you would always want to have as liquid and as deep a market as possible because you then have more choices,” Shahril said. Bloomberg News
Wages protection
Australia to stiffen underpayment fines Fines for underpaying workers are currently A$10,800 for an individual and A$54,000 for a company. Byron Kaye
Australia unveiled plans yesterday for a ten-fold hike in fines for employers who underpay staff after 7-Eleven convenience store franchisees were accused of ripping off migrant workers, in what some experts believe is a widespread practice. The government also said it would boost funding for the Fair Work Ombudsman by A$20 million (US$14.4 million), bolster the regulator’s evidence-gathering powers and set up a taskforce to help migrant workers. The hike in proposed penalties is a measure of the outrage sparked by a 2015 Australian Broadcasting Corp report which accused Australia’s 7-Eleven Stores Pty Ltd of letting franchisees threaten workers with deportation if they complained of being paid as little as half the minimum wage. It also suggests an attempt by the conservative government of Prime Minister Malcolm Turnbull to appeal to voters concerned by his Liberal Party’s tough stance on asylum seekers ahead of July 2 elections. A day earlier, Immigration Minister Peter Dutton sparked criticism by warning that “illiterate and innumerate” refugees would steal Australian jobs. Fines for underpaying workers are currently A$10,800 for an individual and A$54,000 for a company,
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The measure suggests an attempt by the conservative government of Prime Minister Malcolm Turnbull to appeal to voters concerned by his Liberal Party’s tough stance on asylum seekers.
amounts “seen as an acceptable cost of doing business”, a policy document released by the government said. 7-Eleven was not immediately available for comment. Allan Fels, the former competition regulator, was the preferred choice to lead the new migrant worker taskforce, the policy document said. Fels was hired by 7-Eleven to run an independent inquiry into underpayment but earlier this month said he had been fired after resisting what he called a threat to his independence. “Underpayment is rampant, and the government measures are a significant step in addressing it,” Fels told Reuters by telephone. Fels said most of the 20,000 7-Eleven franchise employees over the past decade were underpaid by about 50 percent. He added that before being fired, he recovered an average of A$40,000 per person for 400 7-Eleven employees, from 2,000 who came forward with complaints. He estimated that the number of cases where workers of other Australian franchises have been underpaid in similar circumstances was “at least in the tens of thousands”. The Australian 7-Eleven franchisor is owned by Japan’s Seven & i Holdings Co and licensed by U.S.-based 7-Eleven Inc, which is facing accusations of unfair treatment of its franchisees in North America. Reuters
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Business Daily Friday, May 20 2016 13
Asia In Brief Banking
Vietnam’s BIDV accredited to work in Russia Russia’s central bank said yesterday it had accredited Bank for Investment and Development of Vietnam (BIDV), the first bank from the Asian country to be represented on the Russian market. BIDV is taking part with Russia’s VTB Bank in a pilot project aimed at arranging payments between Russia and Vietnam in the their national currencies. BIDV is also a co-founder of Vietnam-Russia Joint Venture Bank, the only bank with Russian capital working on Vietnam’s market.
India’s banking system had an overall ratio of 5.1 percent as of September, according to the latest data available from the Reserve Bank of India.
Prices
Non-performing lending
Indian state banks post US$2.3 bln in losses on bad loans Government-controlled banks account for more than 70 percent of loans in India’s banking system.
D
elinquent loans at Indian state banks are rising unabated. Surging bad debt and higher provisions to cover for them caused 10 Indian stateowned lenders to report combined losses of 153 billion rupees (US$2.3 billion) for the March quarter. The latest was Punjab National Bank, which reported a wider-than-estimated loss of 53.7 billion rupees on Wednesday. State Bank of India, the nation’s largest lender, will report earnings on May 27. While some investors had anticipated a central-bank audit of lenders’ loan books to result in higher nonperforming-asset disclosures, the scale of losses and statements from bank executives highlighting the uncertain outlook for bad debt have surprised analysts. “The numbers show the extent of the NPA rot in the state-run banks,” said Chokkalingam G., managing director at Equinomics Research & Advisory Pvt. in Mumbai. “We are not recommending our clients to buy any state-run banks. We simply don’t know what the book is, so how do
you value the bank?” The loss reported by Punjab National Bank, the worst-performing stock in the S&P BSE Bankex index this year, exceeded the 857 million-rupee loss forecast by analysts in a Bloomberg survey and compares with a year-earlier profit of 3 billion rupees. The lender said it won’t pay a dividend, the first time since at least 2006 that it has skipped a pay-out, data compiled by Bloomberg show. Punjab National’s gross bad-debt ratio widened to 12.9 percent from 8.47 percent in the preceding quarter, while Bank of Baroda, India’s second-largest state-run bank, reported a ratio of 9.99 percent. UCO Bank last week said its level had surged to 15.43 percent. India’s banking system had an overall ratio of 5.1 percent as of September, according to the latest data available from the Reserve Bank of India. Bank of Baroda reported a surprise quarterly loss last Friday as it tripled its bad-debt provisions in the March
“The numbers show the extent of the NPA rot in the state-run banks” Chokkalingam G., Managing director at Equinomics Research & Advisory Pvt. in Mumbai
quarter from a year earlier. The lender expects to add 50 billion rupees of bad loans in the year to March 31, Chief Executive Officer P.S. Jayakumar said, though he added that profits at the lender may grow at a faster pace from the December quarter onward.
Better disclosure
Some investors are betting a revival in global growth will help cut bad loans and revive credit growth. “Bank are now more proactive in recognizing bad loans,” said Gopal Agrawal, chief investment officer at Mirae Asset Global Investments (India) Pvt., which has US$468 million in assets. “More or less, the provisioning is over. If in the future global growth picks up and projects revive, we can even see some write backs.” Central bank Governor Raghuram Rajan has continually warned about lenders’ hidden bad debt, and started the audit of banks’ nonperforming loans on October 1 in a bid to improve disclosures of soured credit and force banks to set aside more cash to cover potential write-offs. The end of that audit in March was supposed to have marked a turning point for bad-debt disclosures, though those expectations have since been pushed back. Fitch Ratings, which in a November 3 note predicted stressed-asset ratios in Indian banks would peak by the end of the first quarter, now sees a possible “inflection point” in March of next year. Bloomberg News
Capital expenditure
Japan machinery orders points to spending slowdown Gross domestic product data for the first quarter this week showed household spending lacked strength. Stanley White
Japan’s core machinery orders rose more than expected in March but companies expect orders to decline in the current quarter as firms become increasingly cautious due to a rising yen and weakness in overseas economies. The 5.5 percent rise in core orders was more than the median estimate for a 0.5 percent increase in a Reuters
poll of analysts. In February, core orders fell 9.2 percent. Companies surveyed by the Cabinet Office forecast core orders, which exclude those of ships and electric power utilities, would fall 3.5 percent in the April-June quarter. The data suggests companies are starting to delay their investment plans due to uncertainty about the overseas economy and signs that domestic consumer spending is struggling to gain momentum. “Capital expenditure has entered a period of stagnation,” said Hiroaki Muto, economist at Tokai Tokyo Research Centre. “The government needs to focus on supply-side measures. The global economy is losing momentum and the yen is stronger than most companies would like it to be right now.” Japan’s companies have strong capital expenditure needs because capital stock is old and industries need to upgrade facilities to make up for a shortage of workers. Despite this, spending has been weak.
Gross domestic product data for the first quarter this week showed household spending lacked strength and capital expenditure fell, a worrying sign that domestic demand could falter. In January-March, core orders rose 6.7 percent from the prior three months. Compared with a year earlier, core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 3.2 percent in March, more than a median estimate for a 0.8 percent increase. Policymakers are counting on an increase in capital expenditure to fuel gains in productivity, create new jobs and increase wages. A weekend gathering of Group of Seven finance leaders may expose a rift on issues ranging from currency and fiscal policies within the closeknit group of advanced economies, dashing Japan’s hopes of mustering a coordinated policy response to spur global growth. Reuters
S.Korea April producer price decline slows South Korea’s producer prices fell at their slowest annual pace in almost 1-1/2 years in April, a potentially welcome sign of easing deflationary pressures. The producer price index for April fell 3.1 percent from a year earlier, the Bank of Korea data showed yesterday. This was the slowest annual pace of decline since December 2014. In monthly terms, the producer price index in April edged up by 0.2 percent, marking its fastest monthly gain since January 2014, the data showed. M&A
AMP Capital JV to acquire U.S. parking system Australian wealth manager AMP Capital yesterday said it has reached a deal to acquire the largest U.S. underground parking system for US$370 million in a joint venture with private equity firm Northleaf Capital Partners. The acquisition gives the joint venture exclusive concessionaire rights and responsibilities to operate, manage, maintain and collect parking fees and other revenue in connection with Chicago Downtown Public Parking System, AMP Capital said in a statement. AMP Capital, the investment arm of Australia’s top wealth manager AMP Ltd, has US$117 billion in funds under management as of end-December. Borrowing approval
Myanmar parliament approves seeking loans Myanmar’s Union Parliament has approved to borrow a total of US$200 million loans from the World Bank for use by three ministries, parliament sources said yesterday. Of the US$200 million loans, US$115 million will be used by the Ministry of Construction to build disaster-resistant transport infrastructure and project management, while US$70 million will be used by the Ministry of Agriculture, Livestock for renovation work on rural transport infrastructure. Another US$15 million will be spent by the Ministry of Planning and Finance as fund for disaster relief and support, the sources said.
14 Business Daily Friday, May 20 2016
International In Brief Reform
IMF backs Saudi economic plan The International Monetary Fund backed Saudi Arabia’s sweeping economic reform plan yesterday and said the kingdom was cutting spending at the right speed to cope with a huge state budget deficit caused by low oil prices. Late last month, Deputy Crown Prince Mohammed bin Salman announced steps to reduce the kingdom’s dependence on oil exports over the next 15 years, including subsidy cuts, tax rises, sales of state assets, a government efficiency drive and efforts to spur private sector investment. The IMF had for years been urging Saudi Arabia to adopt many of those measures. Rig lawsuit
Five banks sued in U.S. Five major banks and four traders were sued on Wednesday in a private U.S. lawsuit claiming they conspired to rig prices worldwide in a more than US$9 trillion market for bonds issued by government-linked organizations and agencies. Bank of America Corp, Credit Agricole SA, Credit Suisse Group AG, Deutsche Bank AG and Nomura Holdings Inc were accused of secretly agreeing to widen the “bid-ask” spreads they quoted customers of supranational, sub-sovereign and agency (SSA) bonds. The lawsuit said the collusion dates to at least 2005 and caused investors to overpay for bonds they bought or accept low prices for bonds they sold. Recession
Brazil’s primary deficit could reach 150 billion reais Brazil’s fiscal deficit prior to debt interest payments could reach 150 billion reais (US$42.10 billion) this year as revenues collapse amid a crippling recession economy, Finance Minister Henrique Meirelles said on Wednesday. Earlier on Wednesday, a government source told Reuters the primary budget deficit could hit 160 billion reais (US$45 billion) to include eventual losses from state electricity holding Eletrobras. Meirelles said that the government will have the final estimate of the primary deficit today. Austerity laws
Greek government submits reform bill The Greek government tabled a bill in parliament on Wednesday that raises taxes, frees up the sale of banks’ non-performing loans and sets up a new privatisation fund with its foreign creditors in exchange for more bailout funds. Legislation submitted to the Greek parliament late on Wednesday increases the upper band of value-added tax (VAT) to 24 percent from 23 percent, adds tax on fuel and tobacco, and defines the process by which banks can sell non-performing loans, a bane for Greek banks.
M&A
Bayer makes move for Monsanto Any deal between Bayer and Monsanto could raise U.S. antitrust concerns because of the overlap in the seeds business. Greg Roumeliotis and Mike Stone
G
erman drug and chemicals giant Bayer AG has made an unsolicited takeover offer for Monsanto Co, the world’s biggest seed company, as high inventories and low commodity prices spur consolidation in the global agrichemicals industry. Monsanto disclosed the approach on Wednesday before Bayer confirmed its move, though neither released proposed deal terms. With Monsanto worth US$42 billion by market capitalization, an acquisition would likely be bigger than ChemChina’s February deal to buy Swiss agrichemicals firm Syngenta AG for US$43 billion - a target Monsanto itself pursued last year - and could face U.S. antitrust hurdles. Monsanto said in a statement its board is reviewing the proposal, which is subject to due diligence, regulatory approvals and other conditions. There is no assurance that any transaction will take place, it said. Bayer, which has a market value of US$90 billion, said in a brief statement that its executives recently met executives of Monsanto to privately discuss a negotiated acquisition. A further statement will be made as appropriate, it said.
The proposal comes as Chinese state-backed ChemChina’s deal for Syngenta faces intensive regulatory review in the United States over concerns about the security of U.S. food supply. The deal is the largest foreign acquisition ever by a Chinese company, as Beijing seeks to secure the country’s own food supply. Any deal between Bayer and Monsanto, meanwhile, could raise U.S. antitrust concerns because of the overlap in the seeds business, particularly in soybeans, cotton and canola, antitrust experts have said. However, spurning a deal with Bayer over concerns a tie-up might not receive antitrust clearance could also pose challenges for Monsanto - its own bid for Syngenta last year would have meant significant expansion in seeds. Bayer, the inventor of aspirin and maker of Yasmin birth control pills, is a much more diversified company than Syngenta or Monsanto, with a major life sciences business. Bayer’s crop science division has businesses in seeds, crop protection and non-agricultural pest control, potentially complementing Monsanto’s seeds assets.
Bayer, BASF ambitions
Both Bayer and its German rival BASF SE have been looking to build scale in agrichemicals in order to remain competitive. But the role
of Monsanto in any deal has been a sticking point. Monsanto approached Bayer earlier this year to express interest in the latter’s crop science unit, in the form of an acquisition or joint venture, sources told Reuters in March. In a sign of how quickly Bayer turned the tables on Monsanto, the latter’s President and Chief Operating Officer, Brett Begemann, dismissed speculation of the company being a takeover target for Bayer or BASF at an investor conference in New York earlier on Wednesday. “It’s all wild speculation because there’s nothing there,” he said. Both Bayer and BASF had been exploring tie-ups with Monsanto for several months, but valuation concerns have made a deal elusive, people familiar had previously told Reuters. Bayer is ranked No. 2 in crop chemicals, with an 18 percent market share, according to industry data. The largest, Syngenta, has a 19 percent share. Monsanto is the leader in seeds, with a 26 percent market share, followed by DuPont, with 21 percent. DuPont agreed last year to merge with Dow Chemical. Morgan Stanley & Co and Ducera Partners are acting as financial advisors to Monsanto, the company said in its statement, while Wachtell, Lipton, Rosen & Katz is acting as legal advisor. Reuters
Key Points Monsanto says received unsolicited acquisition approach Bayer says execs met to discuss negotiated acquisition No details disclosed, Monsanto board reviewing proposal Deal could top ChemChina’s US$43 bln Syngenta takeover Tie-up could raise US antitrust concerns - experts Bayer facilities in Leverkusen.
Fiscal evasion
EU to compile common blacklist of tax havens An EU “code of conduct group” will be charged with setting common criteria based on standards developed by the OECD. Francesco Guarascio
European Union finance ministers will agree next week to draw up a common list of tax havens and sanctions against them, according to a draft EU document, part of a crackdown on tax evasion by companies and wealthy individuals. The EU’s 28 member states currently have their own blacklists of tax havens, or ‘non-cooperative jurisdictions’, but these differ and the countries are free to decide which restrictive measures to impose, if any. The EU’s move to coordinate and harmonise the lists follows the Panama Papers leaks in April, which revealed details of corporate and individual tax evasion involving tax
havens. At a meeting next Wednesday, EU ministers are expected to agree to start drafting a common “blacklist” of non-cooperative jurisdictions by September and to finalise it next year. The draft plan envisages EU countries also imposing joint sanctions against the tax havens. “Defensive measures (sanctions) could be considered to be implemented in the tax as well as in the non-tax area,” the draft conclusions for next week’s meeting said, without elaborating. EU finance ministers had said in April they wanted to finalise a common blacklist in September.
‘A draft plan envisages EU countries also imposing joint sanctions against the tax havens’
But the ministers cannot yet agree on how to define a tax haven and several EU countries currently do not have any jurisdictions on their national blacklists. An EU “code of conduct group” will be charged with setting common criteria based on standards developed by the Organisation for Economic Cooperation and Development (OECD). But the OECD, a club of mostly rich nations to which 21 EU states belong, does not have any jurisdictions named on its own list of tax havens either. The ministers will propose that the EU list should be drafted using “additional criteria” that may go beyond those set at the OECD level, according to the draft conclusions. The document has already been agreed by the EU’s national envoys in Brussels but the ministers must formally adopt it. Sweden has raised a reservation which may slow down the work, the document said. But a Swedish parliamentary committee will discuss this issue on Friday and is likely to lift the objection. Reuters
Business Daily Friday, May 20 2016 15
Opinion Business Wires
Philstar The government borrowed more funds than it paid in February, separate data from the Bureau of the Treasury showed. Debt payments amounted to P25.22 billion in February, while gross borrowings reached P26.91 billion. Settlements however grew faster than borrowings. The former was up 3.43 percent, while the latter went down 1.3 percent from the same period a year ago. Nicholas Antonio Mapa, economist at Bank of the Philippine Islands, said higher settlements could indicate more funds were used to settle debts than finance budgetary requirements.
Taipei Times China Unification Promotion Party (CUPP) Chairman Chang An-le, also known as “White Wolf,” led hundreds of people to the Democratic Progressive Party (DPP) headquarters in Taipei, calling on president-elect Tsai Ing-wen (pictured) to accept the so-called “1992 consensus.” A majority of the crowd wore black vests with red collars and imprinted with the names of the CUPP’s so-called “party branches”... They rallied outside the DPP headquarters in the afternoon. Chang called on Tsai to accept the “1992 consensus” in order to protect “Taiwan’s happiness,” and added that the Chinese market would be open to Taiwan only if the “1992 consensus” is accepted.
Vietnam News Ministries and sectors, along with local authorities, must promote their roles and coordination to help improve the domestic business environment and enhance national competitiveness, in accordance with a Government resolution. Nguyễn Đình Cung, Director of the Central Institute for Economic Management, made the announcement during a conference in Hà Nội yesterday as he discussed the implementation of resolution signed by Prime Minister Nguyễn Xuân Phúc late last month. For the third year in a row, the Government asked ministers and chairpersons of provincial and municipal people’s committees to build action plans to improve the country’s business environment.
New Zealand Herald John Key’s promise of NZ$3 billion in tax cuts some time in the next few years threatens to make next week’s budget “obsolete”, Westpac chief economist Dominick Stephens warns. Finance Minister Bill English (pictured) is expected to take a conservative approach to the Government finances with an eye on paying down debt and heading back to surplus when he delivers the Budget next Thursday. But if there are no tax cuts announced “but the plan is to deliver them further down the track then the fiscal accounts laid out next week are not actually relevant,” Stephens says.
Fighting the next global financial crisis
W
hat do people mean when they criticize generals for “fighting the last war”? It’s not that generals ever think they will face the same weapon systems and the same battlefields. They certainly know better. The error, to the extent that the generals make it, must operate at a more subtle level. Generals are sometimes slow to get around to developing plans and ordnance for those new weapon systems and battlefields. And just as important, they sometimes assume that the public psychology, and the narratives that influence the morale that is so important in achieving victory, is the same as in the last war. That is also true for regulators whose job is to prevent financial crises. For the same reasons, they may be slow to change in response to new situations. They tend to be slow to adapt to changing public psychology. The need for regulation depends on public perceptions of the last crisis, and, as George Akerlof and I argued in Animal Spirits, these perceptions depend heavily on changing popular narratives. The latest progress reports from the Financial Stability Board (FSB) in Basel outline definite improvements in stability-enhancing financial regulations in 24 of the world’s largest economies. Their “Dashboard” tabulates progress in 14 different regulatory areas. For example, the FSB gives high marks for all 24 countries in implementing the Basel III risk-based capital requirements. But the situation is not altogether reassuring. These riskbased capital requirements may not be high enough, as Anat Admati and Martin Hellwig argued in their influential book The Bankers New Clothes. And there has been much less progress in a dozen other regulatory areas that the FSB tabulates. Consider, for example, regulations regarding money market funds, which, according to the FSB, only a few countries have developed since 2008. Money market funds are an alternative to banks for storing one’s money, offering somewhat higher interest rates, but without the insurance that protects bank deposits in many countries. As with bank deposits, investors can take their money out at any time. And, like bank deposits, the funds are potentially subject to a run if a large number of people try to withdraw their money at the same time. On September 16, 2008, a few days after the run on the US bank Washington Mutual began and the day after the Lehman Brothers bankruptcy was announced, a major United States money market fund, Reserve Primary Fund, which had invested in Lehman debt, was in serious trouble. With assets totalling less than it owed to investors, the fund seemed to be on the verge of a run. As panic rose among the public, the federal government, fearing a major run on other money market funds, guaranteed all such funds for one year, starting September 19, 2008. The reason why this run was so alarming as to require unprecedented government support stems from the narratives underlying it. In fact, the
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Robert J. Shiller 2013 Nobel laureate in economics and Professor of Economics at Yale University.
Reserve Primary Fund did not lose everything. It merely “broke the buck,” meaning that it couldn’t pay one dollar for a dollar on the books; but it could still pay US$0.97. So why a crisis? After all, bank depositors regularly lose more when unexpected inflation erodes their savings’ real purchasing power (only the nominal value of those deposits is insured). But the narratives don’t focus on that. The loss of real value due to inflation hasn’t been a prominent theme of the public narrative in the US for decades, because sustained price stability has caused people to forget about it. But they hadn’t forgotten about the Great Depression of the 1930s, even though most people alive today weren’t alive then. In 2008, the Great Depression narrative was being recycled everywhere, with all its colourful stories of financial panic and angry crowds forming around closed banks. Moreover, trusted authorities had seemed to say again and again that such events were historically remote and could not happen again. In the 2008 angry zeitgeist, the public reaction to a relatively minor event took on stunning proportions. It took almost six years after the crisis for the US Securities and Exchange Commission to reduce money market funds’ vulnerability, by requiring in 2014 a “floating NAV” (net asset value), which means that prime money market funds no longer promise to pay out a dollar for a dollar’s nominal value. They will pay out whatever the depositor’s share in the accounts is. This does not insure the funds’ investors against losses. Yet this plausibly will help prevent runs because it means sudden withdrawals by some won’t damage the accounts of others who did not withdraw. The international regulatory framework has changed for the better since 2008, but no such changes can anticipate all the kinds of change in narratives that underlie public animal spirits. Regulators could have imposed a floating NAV decades ago; they didn’t because they didn’t foresee a narrative that would make money market funds unstable. Regulatory authorities could not have been expected to predict the sudden public attention to the newly discovered risk of runs on nonbank financial companies. As long as we have an economic system that produces growth by rewarding inspired actors and investors, we will face the risk that adverse talk and stories can suddenly and temporarily overwhelm the inspiration. Regulators must counter the risks implied by structures that are intrinsically destabilizing, as the money market funds were. But the most urgent regulations will always be time- and context-specific, because narratives change. And how these narratives resonate with the public may once again reveal chinks in our financial armour. Project Syndicate
The international regulatory framework has changed for the better since 2008, but no such changes can anticipate all the kinds of change in narratives that underlie public animal spirits
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16 Business Daily Friday, May 20 2016
Closing HKEx
Hong Kong to launch HK$10 billion inflation-linked bond
Hong Kong. The minimum rate will be 1 percent. Hong Kong’s headline and underlying CPI The Hong Kong government said it would launch were 3 percent and 2.5 percent, respectively, its sixth inflation-linked bond worth up to HK$10 in 2015. The government expected headline and underlying CPI to fall to 2.3 percent and 2 billion (US$1.29 billion), in a move to further percent this year. boost the development of the city’s retail bond The bond will be issued on June 20 and listed on market. the Hong Kong Stock Exchange on June 21. The so-called iBond will have a tenor or three years and bond holders will be paid interest once Bank of China Hong Kong and HSBC are lead arrangers of the deal. Reuters every six months at a rate linked to inflation in
Stock markets
MSCI fields sceptics and enthusiasts as China “A” share decision looms If China is added to the MSCI index, the change would take effect in June 2017. Michelle Price
T
he world’s biggest investors are divided over whether MSCI will decide next month to include China-listed shares in a key global benchmark, with many harbouring concerns over the country’s handling of last summer’s rout and lack of full-market access. New York-based index provider MSCI will announce on June 14 whether it will add yuan-denominated Chinese shares to its widely used Emerging Markets Index, which could draw US$400 billion into China stocks over the next decade. Foreign investors have been wary of entering Chinese markets following heavy handed intervention by authorities last year as they moved to prevent a rapid 40 percent slide in stocks from turning into a full-blown financial crisis. Last June, MSCI decided against including China’s so-called “A” shares in the index, a benchmark for some US$1.5 trillion of assets, due to investment restrictions. Since then, China has addressed many of MSCI’s concerns by relaxing its US$81 billion Qualified Foreign
Institutional Investor (QFII) scheme, a quota-based foreign investment scheme, and clarifying foreign ownership rights, prompting MSCI to reconsider inclusion of the “A” shares. But investors are still concerned about some Chinese market rules that could leave foreign investors trapped in the market as they were during last year’s slump when more than 50 percent of companies listed in China halted trading. When and how long a stock can be suspended had to be clearer and stricter, said several investment managers including State Street Global Advisors, BNP Paribas Investment Partners, and Legg Mason. “The most important issue is stock suspensions,” said Paul Danes, Asia chief executive at Martin Currie, a Legg Mason subsidiary. “Stock suspensions can happen on any exchange, but it was the number and the length of suspensions that caused a lot
of problems around liquidity and valuations last summer. We have emphasised to MSCI that this is a reasonably big issue.” The Shenzhen and Shanghai exchanges plan to introduce new suspension rules imminently, the China Securities Journal reported on Monday, but it did not provide details. Since last year, China has simplified its rigid QFII
application process. But major investors said it remains unclear how Beijing measures assets under management and how long the new approval process takes. China imposes a threemonth lock-up period on QFII investments and only allows 20 percent of net asset values to be repatriated per month. These restrictions have left investors nervous about their ability to get money out of China. The repatriation cap is a problem, said Kevin Hardy, a managing director at asset manager BlackRock in Singapore, adding though that the company was “very encouraged” by recent QFII reforms. MSCI declined to comment.
Under its industry consultation, MSCI has proposed adding 5 percent of the free float market capitalisation of 421 eligible stocks to the benchmark. The shares would account for just 1.1 percent of the index. If China is added to the MSCI index, the change would take effect in June 2017. “Global investors’ exposure to China is at an almost ridiculously low level relative to the size of China’s economy,” said Anthony Cragg, managing director and senior portfolio manager at Wells Fargo Asset Management. “I think the time for inclusion has come, but it needs to come incrementally and be ramped-up over time.” Reuters
Key Points MSCI decision due on June 14 MSCI Emerging Markets Index tracked by $1.5 trillion in funds Investors divided over which way decision will go Some investors concerned about market access, regulation
Consumption
Monetary policy
Regulator
British retail sales rebound
Malaysia keeps benchmark rate steady
In meeting with Apple’s Cook, China stresses security
Central bank held interest rates steady at Governor Muhammad Ibrahim’s first policy meeting as chief, refraining from immediately adding stimulus to an economy that could need it in coming quarters. Bank Negara Malaysia kept the overnight policy rate at 3.25 percent for an 11th meeting, it said in a statement in Kuala Lumpur yesterday. The decision was predicted by all but one of 21 economists surveyed by Bloomberg News. With an economy that’s forecast to expand at the slowest pace in seven years, and loan growth rates easing to levels not seen since at least 2008, the case is starting to build in Malaysia for an easing in policy. The collapse in oil prices has hurt government finances over the past two years, exports and private investment have faltered, while consumers and businesses are still contending with rising costs. “Domestic fundamentals are gradually tipping towards the need for a more accommodative monetary policy,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said before the decision. “They have the room to cut, if they want” and there’s still time for them to assess the situation, he said. Bloomberg News
The head of China’s industry and technology regulator stressed Chinese users’ security in a meeting with Apple Inc’s chief executive in Beijing, as the U.S. tech titan stumbles in its biggest offshore market. Apple’s Tim Cook began a charm offensive in Beijing earlier this week after his company hit a flurry of problems in China, from weakening smartphone sales to the loss of an iPhone trademark dispute and the suspension of some of its online entertainment services. China’s ruling Communist Party has also embarked on a campaign to promote domestic technology, which it sees as more secure, and reduce the country’s reliance on foreign tech products, especially in critical industries such as finance. “I hope Apple can expand its business in China, deepen its cooperation in research and development and industrial supply chains, and provide a convenient and secure user experience for Chinese consumers,” said Miao Wei, the head of China’s Ministry of Industry and Information Technology (MIIT). Miao’s comments from the Tuesday meeting were posted on the regulator’s website yesterday. Reuters
British retail sales jumped by 1.3 percent in April from a month earlier, official figures showed yesterday, handing a boost to the economy following a string of weak data. Sales by volume shot higher last month compared with a drop of 0.5 percent in March, the Office for National Statistics said in a statement. March’s data was sharply revised higher after an initial estimate of minus 1.3 percent. “Retail sales were appreciably better than expected in April, thereby providing some welcome relief from a recent stream of largely disappointing news on the UK economy,” said Howard Archer, chief UK economist at research group IHS Global Insight. “While it still looks highly probable that the economy will suffer a further slowdown in growth in the second quarter as heightened uncertainty ahead of June’s referendum on EU membership fuels business caution in particular, April’s retail sales data lifts hopes that the consumer will provide some support to growth,” he added. Britain votes on June 23 to decide on whether the country should remain part of the European Union. The Bank of England last week warned that uncertainty over the outcome of next month’s EU referendum was already weighing on British growth. AFP