Approved Investment Residency applications down 11 pct in Q1 Residency Page 3
Wednesday, June 1 2016 Year V Nr. 1055 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Insurance
Corruption
Fitch gives China Taiping ‘A’ rating Pages 6
Macao Foundation to co-operate with CCAC on Jinan University case Page 2
www.macaubusinessdaily.com
Insurance sector
Retail figures
Foreign groups warn draft measures of new regulation are vague and discriminatory Page 8
Hong Kong sales maintain downward trend in April Page 16
Occupational hazard Labour affairs 7,517 victims suffered occupational injuries in 2015. Of which 25 were fatal, reveals the 2015 report of occupational injuries and illness conducted by DSAL. Most injured workers were employed by services-related associations, communities and individuals, accounting for 34.8 pct of the total. Page 3
B2C, the way to be SMEs It all helps. Local retail and wholesale SMEs can access a new subsidy. Covering expenses for promotion on B2C platforms. IPIM hopes to subsidise 100 companies via a MOP2 mln budget for an experimental period until December. Page 2
Increased opportunities
Imports & Exports Tumble
MSCI inclusion Goldman Sachs has increased the probability. That MSCI will include Mainland Chinese shares in its indexes to 70 pct. Citing recent steps taken by Beijing to remove obstacles for global money managers to invest in the country’s equity markets. Page 10
Trade The city’s total value of merchandise trade shrank by 18.9 pct y-o-y in April. Amounting to MOP6.33 bln (US$791 mln) in the month. Driven by the lower values recorded for both local exports and imports. Total exported merchandise plunged 20.9 pct y-o-y to MOP755 mln. Page 5
A smaller package Some 575,000 tourists visited the SAR on package tours last month. A dive of 31.7 pct y-o-y due to the 34.1 pct y-o-y decline in the number of Mainland Chinese tourists. Those from Guangdong Province shrank by 44.8 pct y-o-y for the month, at only 123,300.
28° 32° 28° 32° 28° 32° 27° 32° 25° 30° Today
THU
FRI
Sat
Sun
Source: Bloomberg
Source: AccuWeather
Tourism Page 4
HK Hang Seng Index May 31, 2016
20,815.09 +185.70 (0.90%)
Tingyi Cayman Islands
+3.37%
Hengan International Group
+2.94%
China Petroleum & Chemical
-0.93%
China Mengniu Dairy Co Ltd
+3.04%
Ping An Insurance Group Co
+2.36%
China Unicom Hong Kong
-0.47%
I SSN 2226-8294
2 Business Daily Wednesday, June 1 2016
Macau
SMEs
New MOP2 million e-commerce subsidy scheme for retail SMEs IPIM offers new subsidy for retail SMEs seeking to promote products on Business to Client (B2C) platforms
R
etail and wholesale Macau SMEs will be able to apply for a new subsidy to cover their expenses for promotion on B2C platforms, the Executive Director of the Macao Trade and Investment Promotion Institute (IPIM), Gloria Batalha Ung, stated in a press conference yesterday. The “E-Commerce Promotion (B2C) Incentives Scheme” will start accepting applications on June 6, and will be open until the end of the year for an experimental period, with the IPIM President hoping that the programme will “subsidise 100 companies with a MOP2 million (US$249,965) budget for an experimental period this year until December 31.” “We hope to see how successful it will be; if we receive more than 100 applications the budget could be reevaluated, but if we don’t see a lot of participation we will have to reevaluate the programme’s usefulness,” the IPIM Executive Director stated.
Straight to the client
The IPIM sees the incentive as a way of promoting the development of e-commerce in the city and encouraging local SMEs to use new online
promotional and distribution channels, such as Business to Client (B2C) platforms. “Businesses are utilising B2C e-commerce platforms as a channel for marketing and selling their products. This not only brings extra revenue on their retail sales, but also helps suppliers of quality products get exposure on such platforms,” Ms. Ung said. The new scheme will subsidise successful applicants for annual fees or value added service fees incurred during the use of a B2C platform, to a maximum of 70 per cent of the related expenses and an annual accumulated total of MOP20,000, the Senior Manager of the Macau Business Support Centre (MBSC), Antonio Lei Chi Wai, announced. Intended applicants, which can be individual entrepreneurs or companies, can only be awarded the incentive one time during a fiscal year apropos the manufacturing, trade, retail or wholesale products sectors. The scheme is also only eligible for businesses registered with the Macao Financial Services Bureau (DSF), with at least 50 per cent of shareholders being local residents, or wholly owned local enterprises, with possible exceptions made for companies producing products in the territory. “It’s a three-part relationship; it has to be a company from Macau, they come to IPIM to ask for the incentive so that they can put their products on a third party B2C company - and we
pay the incentive to place on these platforms to sell to China and the rest of the world,” the MBSC Senior Manager stated. The initiative follows the E-Commerce Promotion Incentive Measures established in 2009 which provided individual subsidies of up to MOP30,000 for local companies if they promoted their business on online platforms operated by ‘IPIM Eligible E-commerce operators or websites’, which include Alibaba Hong Kong, Ebay Hong Kong and four other operators, Business Daily previously reported. “The 2009 incentive was focused on B2B platforms, for selling to other companies. Today’s scheme focuses on platforms where the products are sold to consumers directly. Before, we wanted to boost trade and now we want to boost promotion to sell directly to clients,” Mr. Antonio stated.
Give me a platform
According to IPIM a definitive list of B2C platforms applicable to the scheme will only be revealed on the day the scheme takes effect, with “invitations being sent to platforms based in Macau and China” but with any international platform allowed after being approved by the IPIM. “We will consider their operation, knowledge and how the platform is relevant to the local business; it will then be considered by our IPIM recognising process. After that the SMEs can put the products there and receive our subsidy. We welcome
platforms from Macau, China and anywhere in the world, but the eligible SMEs have to be companies of local origin or organised by local Macau residents,” the MSBC representative told reporters. Once the application is accepted the companies will have to present expenses incurred after promoting their products on the B2C platforms to IPIM within a 90-day period, and can submit expenses from multiple platforms as long as the application is made until the end of the year, and for an annual amount not surpassing the established MOP20,000 limit. “First on B2B, and now to B2C. It’s the ideal platform for SMEs, and has become extremely popular in Asia, specially in China. “We have sent our invitation to the platforms based in Macau and China. After we process their eligibility we will consider if we will add them to the list. It will be a trial period until December 21 - we hope to help the SMEs make full use of this e-commerce incentive system. We hope to subsidise 100 companies with a MOP2 million [budget] this year,” the MSBC Senior Manager stated. The IPIM will also organise a Cross Border E-Commerce Forum and Matching Session at Macau Tower on July 8, with B2C platform representatives from Mainland China, while organising practical workshops and training for local SMEs on E-Commerce, the press conference announced. N.M.
Corruption
Macao Foundation to co-operate with CCAC on Jinan University case The Macao Foundation will ‘actively’ co-operate with any Commission Against Corruption (CCAC) investigation into the 100 million yuan (MOP123 million/US$15.4 million) Jinan University donation, the President of the Macao Foundation administrative council stated, as noted in a release by the group. When questioned on a possible CCAC investigation Wu Zhiliang stated that ‘the Macao Foundation evaluates all financial support requests according to the same procedure and criteria,’ calling the donation to the university ‘legal, rational and justified,’ the release announced.
With regard to requests on making the financial support requests public prior to approval the member of the Macao Foundation administrative council - which Chief Executive Fernando Chui Sai On also sits on - stated that according to the law making that information public isn’t within the scope of the functions of the Macao Foundation, adding that more effort had been made to regulate the requests with more ‘detail and evaluation,’ and to improve information dissemination in the process. Wu Zhiliang also stated he understands the public request for transparency in awarding public funds and that recently the Macao Foundation has met with various local associations, appealing for the ‘increase of transparency while using financial support.’ N.M.
Business Daily Wednesday, June 1 2016 3
Macau Labour affairs 25 fatal occupational injuries recorded for 2015
Occupational accidents injured 7,517 last year
A
total of 7,517 victims were recorded as suffering occupational injuries for the year of 2015, of which 25 were fatal, reveals the 2015 report of occupational injuries and illness conducted by the Labour Affairs Bureau (DSAL). The total number of injured, compared to 7,395 for the whole year of 2014, represents a slight increase of 2.37 per cent. Nevertheless, the ratio per 1,000 workers of those injured by occupational accidents is down by 0.1 percentage point year-on-year to 19 per cent. The Bureau added that the cases of the 25 fatal occupational injuries have been transferred to the city’s judiciary bodies in order to confirm whether the fatalities were directly due to workplace accidents. As at the end of last year, the city’s courts had confirmed 18 cases of fatalities involving occupational injuries, compared to only four cases in 2014. In addition, 16 of these cases have been confirmed as owing to occupational accidents. In terms of industry, most of the
workers suffering occupational injuries were employed by services-related associations, communities and individuals, which accounted for 34.8 per cent of the total. Meanwhile, those working in accommodation, restaurants and similar establishments totalled 24 per cent, followed by those in the civil construction field at 18.6 per cent of the total injured. In terms of occupation, workers engaged in the service and sales business suffered the highest amount of work-place accidents, at 26.4 per cent, followed by clerks and non-technical workers, amounting to 23.3 per cent and 20.6 per cent of the total, respectively. Workers were primarily injured due to being crushed, stabbed or cut last year, which amounted to 22.7 per cent of the total, whilst some 20.6 per cent were hurt due to falls. On the other hand, the DSAL said 34 individuals were punished by fines totalling MOP196,000 (US$24,500) for not providing a safe working environment for workers last year, which led to some 36 victims of injury. A further 251 individuals were fined a total of MOP800,000 for violating regulations regarding compensation for some 648 workers due to their occupational injuries, according to the labour bureau. K.L.
Parking
DSAT: No increase in parking fees Current parking fees won’t suffer any increase in the short term, the Transport Bureau (DSAT) department chief, Kuong Vai Cheok, stated in the last Traffic Advisory Board session, according to Portuguese language newspaper Hoje Macau. Parking fees will remain at the same level as the last increase in December 2015 (from MOP3 per hour during the daytime to MOP6
and MOP1 at night to MOP3), the DSAT head noted. “We don’t have plans for a new fee update. [This update] will be done in four phases since we haven’t updated fees for many years and we want to get closer to the amount charged by private parking lots,” Kuong stated, according to the publication. The DSAT head also noted that the current
increase has been experiencing “positive results” since drivers can now find, on average, two more empty parking spaces per parking lot than last year, HM reported. The DSAT also revealed that the new exclusive public bus lane between Barra and Lam Mau Dock will be operational today June 1 - with driving infractions subject to fine after June 3. N.M.
Investment
Illegal workers
Approved Investment Residency applications down 11 pct in Q1
CPSP arrest 40 illegal workers in April
The Macao Trade and Investment Promotion Institute (IPIM) received a total of 616 Investment Residency applications in the first quarter of 2016, a 37.82 per cent decrease year-on-year, while 489 applications and 73 people were approved in the first quarter, an 11 per cent and 3.94 per cent decrease, according to data released by the Institute. Additional information from IPIM noted that non-residents can apply for temporary residency in the city through a major investment project, if employed by local employers, with academic, professional qualifications and experience, and are also allowed
to apply for temporary residency extension for family members or a spouse. Management and/or Technical Personnel applications decreased 2.5 per cent - to 113 - but approved cases increased 50 per cent to 33, while Major Investment applications decreased 30 per cent to nine with one application approved. Also, 95.74 per cent of the received 470 applications for renewal were approved, while Extension Applications for Family Members saw a decrease year-on-year of 40 per cent to 24 cases with five being approved, IPIM data revealed. N.M.
Public Security Police (CPSP) arrested 40 illegal workers in the MSAR in April, according to data released by CPSP. In co-operation with the Labour Affairs Bureau (DSAL) and other services police authorities conducted joint search operations in 370 locations, including construction sites, residences and
commercial and industrial establishments, the release announced. A total of 106 illegal workers were found working in the city in the first quarter of 2016, representing a year-on-year decrease of 11.67 per cent compared to the first quarter of 2015 when 120 illegal workers were arrested. N.M.
4 Business Daily Wednesday, June 1 2016
Macau Opinion
José I. Duarte Duckisms The big duck has arrived in Macau. Many people have commented on the issue and several days have passed since the great arrival. Therefore, we might expect that all that could be said has already been said by now. Not a big deal, just an event meant to entertain children, both the authentic ones and those we are told hide inside each of us. Surprisingly, it seems that there are things that have not yet been said; and the more we know, the more questions seem to pop up. Several people keep questioning the cost. With a price tag of MOP6 million, of which the government is said to have footed one half, cheap it for sure was not - by most applicable standards. All uses of income, public or private, imply a cost in terms of the forfeited alternative uses. In the case of public money, the issue is doubly important, as every coin the government uses is a coin that someone else loses, now or in the future. If private agents decide to open their purses to have a giant rubber duck sitting in the bay, no matter how fantastic, frivolous or meaningless you and I may think that is, it’s essentially their problem. Our opinion is legitimate but of little practical relevance. In that sense, we have little to say about the half that was footed by the promoting association, a liberal use of their resources their members were presumably happy to condone. If the government decides to do it, then our opinion has, or should have, some weight – and the wisdom of the decision can indeed be questioned. Especially, as appears to be the case, since the event was more - much more - expensive to organise in Macau than in other world venues. Some elaboration upon why that was the case would be welcome. Moreover, rumours suggest that the same project was submitted several times, with increasing budgets to match. If that is true, the very idea that the government only paid half starts to look dubious. If it is not, a clear denial should be forthcoming, avoiding unnecessary and unwarranted suspicions. But if that were indeed the case, some explanations concerning the appraisal and decision process should be forthcoming. And that might also be a matter of interest to more than one of the institutions meant to supervise the administration’s acts and to promote good governance. José I. Duarte is an economist and permanent contributor to this newspaper
Tourism 5-star hotel occupancy rate slides to 77.6 pct
Package tour visitors plunge 32 pct in April Package tour visitors from the Mainland, South Korea and Taiwan have notably decreased.
S
ome 575,000 tourists visited the Special Administrative Region on package tours last month, which represents a dive of 31.7 per cent year-onyear due to the continuous declines in the number of Mainland Chinese tourists. According to the latest data, released yesterday by the Statistics and Census Service (DSEC), the city actually welcomed more visitors on package tours - up some 2.2 per cent in April compared to 563,800 in March. Package tourists from the Mainland posted a notable decrease last month, down 34.1 per cent year-on-year to 451,000 compared to 684,400 one year ago. In particular, those from Guangdong Province shrank by 44.8 per cent year-on-year for the month, amounting to only some 123,300 compared to 223,400 for the same month of last year. In addition, the city saw the number
of package tourists from South Korea and Taiwan decline by some 13.2 per cent and 39.8 per cent year-on-year, respectively, both amounting to some 29,000 for the month. Tourists from Thailand visiting the city on package tours, however, soared by 34.3 per cent year-on-year to 16,000 in April, whilst those from Japan surged 35.9 per cent year-onyear to 9,500 last month. Accumulatively, the Special Administrative Region received 2.28 million visitors on package tours for the first four months of the year, down 34 per cent compared to one year ago. Of the total, those from the Mainland amounted to 1.77 million, plunging 36.8 per cent year-on-year.
Outbound travel drops
Meanwhile, official data reveals a total of 89,000 residents travelled outbound using travel agency services last month, which fell by 21.6 per cent year-on-year or 16.9 per cent month-on-month. DSEC explained that the drops are due to this year’s Easter holidays falling in March rather than April, as in 2015. Meanwhile, residents travelling on package tours totalled 34,000, down 27.6 per cent year-on-year. In particular, those travelling to Mainland China and Taiwan on package tours plunged 36.4 per cent and 37.6 per cent year-on-year, while those visiting South Korea on tours surged 138.8 per cent year-on-year. For the first four months of this year, a total of 402,000 outbound
residents were registered, down 16.7 per cent year-on-year, according to the DSEC.
More hotel guests but occupancy down
As at the end of last month, some 106 hotels and guesthouses were operating in the territory, providing 32,000 guest rooms, up 13.6 per cent year-on-year. Of the total, 5-star and 4-star hotels accounted for 63.6 per cent and 24 per cent, respectively. Meanwhile, the average occupancy rate of local hotels and guesthouses reached 79 per cent in April, down 0.7 percentage points year-on-year. In a month-on-month comparison, the occupancy rate at local hotels rose 2.5 percentage points. In terms of category, the city’s 5-star hotels saw their occupancy rate fall 1.8 percentage points yearon-year to 78.2 per cent, the lowest occupancy rate recorded when compared to that of 4-star and 3-star hotels - posting 83.7 per cent and 83.8 per cent occupancy, respectively. Nonetheless, the total number of guests checking into the city’s hotels and guesthouses jumped 11.5 per cent year-on-year to 917,000. Those from the Mainland accounted for 610,000 of the total, up 16.7 per cent year-on-year while those from Hong Kong continued to fall - by 8.2 per cent year-on-year - to 115,000. Accumulatively, the average occupancy rate of hotels and guesthouses stood at 77.6 per cent for the first four months of this year, down 1.7 percentage points year-on-year, whilst the total number of hotel guests rose 12.9 per cent year-on-year to 3.58 million, according to DSEC. K.L.
Trademark
Trump wins local legal battle Donald Trump, mostly known for his antics surrounding the United States presidential elections, upcoming this November, has won a trademark battle to wrest the Trump name away from Trump Companhia Limitada – a small company which registered the trademark in the city in 2006 under the category of coffee shops, restaurants and catering, according to the South China Morning Post.
The Macau Economic Services in 2012 accepted the politician’s requests
and Trump Companhia Limitada took the case to the Court of First
Instance, who concluded that the local company’s trademark was valid for the restaurant services category, noted the publication. However, Trump was able to file an appeal with the Court of Second Instance, which ruled in his favour, given the expiration of the local company’s trademark, which, combined with the previous ruling, now allows the billionaire’s Trump trademark to be associated with hospitality activities as well as restaurants and businesses, SCMP reports. K.W.
Business Daily Wednesday, June 1 2016 5
Macau Trade
Merchandise trade shrinks 19 pct in April Both local imports and exports registered yearon-year decreases in value in April.
T
he city’s total value of merchandise trade shrank by 18.9 per cent year-on-year in April, totalling MOP6.33 billion (US$791 million) in the month, driven by the lower values recorded for both local exports and imports in the month, according to the latest data released by the Statistics and Census Service (DSEC) yesterday. Last month, the total merchandise exported from the Special Administrative Region plunged by 20.9 per cent year-on-year to MOP755 million. Of the total, the value of re-exports amounted to MOP601 million, down 27.1 per cent year-on-year. Nevertheless, domestic exports jumped by 18 per cent year-on-year to MOP154.7 million due to those of tobacco rising by 50.3 per cent to MOP39 million. Meanwhile, the total value of imported merchandise posted a yearon-year decline of 18.6 per cent to MOP5.57 billion last month.
Trade of luxury goods plummets
In terms of goods, the Special Administrative Region saw its exports of clocks and watches slashed by 77.1 per cent year-on-year to MOP48.6 million in the month, in addition to a 67 per cent year-on-year decline in the export value of diamond and diamond jewellery to MOP14.8 million. The plunges in the exports of these
two types of goods drove the total export value of non-textiles products down by 23.9 per cent year-on-year, amounting to MOP681.3 million of the total, whilst exports of textiles & garments rose 24.4 per cent yearon-year to MOP74.1 million. For imports, those of mobile phones dived 63.9 per cent year-on-year to MOP305 million in the month. In addition, imports of gold jewellery and watches registered year-on-year drops of 19.2 per cent and 28.9 per cent, amounting to MOP386 million and MOP362 million, respectively. Notable decreases were also apparent in the importation of handbags & wallets (MOP181.7 million), motor vehicles (MOP100 million), cosmetics
and skincare products (MOP192.2 million) and construction materials (MOP184.7 million), accounting for year-on-year drops of 23.6 per cent, 60.3 per cent and 16.8 per cent, respectively.
Majority to Hong Kong
For the first four months of the year, external merchandise trade totalled MOP26.24 billion, down 19.8 per cent compared to MOP32.72 billion a year earlier. Of the total, export value dropped by 5.6 per cent yearon-year to MOP3.45 billion whilst that of imports dropped 21.6 per cent year-on-year to MOP22.8 billion. Analysed by destination, more than 60 per cent of the city’s exports went
to Hong Kong in the first four months of the year, valued at MOP2.08 billion, down 9.5 per cent year-on-year. However, DSEC said that exports to Mainland China, accounting for 16.4 per cent of the total, grew by 7.1 per cent year-on-year to MOP565 million in the four months, of which MOP524 million were exported to the pan-Pearl River Delta. On the other hand, 36.1 per cent of the city’s total imports were from the Mainland in the period, amounting to MOP8.23 billion, representing a decrease of 24.6 per cent year-onyear. Merchandise imports from the European Union fell 19.9 per cent year-on-year to MOP5.42 billion for the four months. K.L.
Trade
Service Trade Agreement with Mainland effective today The Service Trade Agreement under the Closer Economic Partnership Arrangement (CEPA) between Mainland China and Macau comes into effect on June 1, liberalising 153 service sectors from the SAR in China, according to a Financial Services Bureau (DSF) dispatch. The agreement, signed in November of last year, is the first free trade agreement opening up the local service sector to the
Mainland, opening up 62 new sectors to the city’s service providers, such as veterinary services, passenger transportation, supporting services for the road transport network and services to the sports sector, as reported by Business Daily. The agreement includes benefits and an improved registry mechanism, removing 12 of the 132 restrictive measures from the
Guangdong Agreement, and allowing easier access to 28 service market sectors, with the communications, cultural and border services sectors seeing 20 more liberalisation measures. Besides more favourable trade requirements, the agreement also states that any free trade agreement signed between Mainland China and other countries and regions will be extended to Macau territory if the respective agreement measures are better than the signed CEPA agreement, the DSF dispatch announced. N.M.
Monetary crimes Realtor issued bad cheques to depositors since January this year
Local real estate firm allegedly raises HK$33 million illicitly Judiciary Police (PJ) have cracked down on an illegal fundraising scheme run by a local property group involving at least HK$33 million (US$4.1 million). Three shareholders of the company surnamed Lao, Lam and Ip have been detained. According to the PJ, a total of 24 victims recently reported to the police that they had received bad cheques from the real estate group since January of this year. These victims claimed that they had deposited some HK$500,000 to HK$16 million
in the property firm for a monthly interest return of some 1.5 per cent to 2.2 per cent. The PJ did not name the real estate group involved in the case, nor disclosed the full names of the suspects bur said that the shareholder surnamed Lao is an executive of the company. Lao, declining to disclose where the illicitly-collected capital had been deposited, was caught by the PJ when he reported another case to the police department on Monday.
The three suspects were found to have issued a total of 48 bad cheques, of which 38 were issued by the suspect surnamed Lao. Meanwhile, Chinese language online media All About Macau, quoting an identified source, claimed that the suspect surnamed Lao is Lao Meng Tong, the president of Macao Group that runs the Buildings Agency property chain, in addition to other businesses related to catering, media and technology as well as building materials.
In fact, Buildings Agency has been rumoured to have financial difficulties since the end of last month. During the middle of this month, a group of 20 employees of the real estate firm sought help from the Labour Affairs Bureau for back pay from the company, claiming the group had suddenly closed five of their offices in the city. Meanwhile, Hong Kong monthly magazine East Week claimed in its cover story in this issue that all eight offices of Buildings Agency had been closed following the bust of the company’s illegal fundraising.
6 Business Daily Wednesday, June 1 2016
Macau Insurance
Gross premiums for insurance double y-o-y for Q1
I
nsurance companies across the SAR saw an average doubling of their life insurance premiums in the first quarter of 2016 - a 100.2 per cent increase compared to the same period last year - according to data released by the Monetary Authority of Macau. Gross premiums on life insurance totalled MOP4.68 billion for the period as compared to MOP2.34 billion seen in the previous year. The amount for total claims equalled MOP622.4 million for the period, a 0.9 per cent increase from the first quarter of 2015. The highest registered gross premiums for the quarter were recorded by China Life Insurance (Overseas) Co. Ltd., amounting to MOP3.26 billion for the
period, while receiving total claims of MOP110.2 million. Overall, the amount of death claims for the period underwent a 24.76 per cent increase compared to the previous year, at MOP208 million for the first three months of the year. The highest amount was recorded by AIA International Ltd. – totalling MOP153.8 million for the first three months – while also recording MOP704 million in gross premiums. The amount of surrenders – policies surrendered by their holders before they matured – amounted to MOP77.13 million, an increase of 3.87 per cent from the previous year, and was concentrated mostly in MassMutual Asia Ltd. at MOP21.35 million,
and AXA China Region Ins. Co. (Bermuda) Ltd. at MOP20.16 million. AXA China Region Insurance had a negative provision for claims outstanding amounting to MOP10.71 million for the first three months of the year, while the only other company displaying a negative provision was HSBC Life (International) Ltd. at MOP968,000. Total claims were highest at AIA International Ltd., amounting to MOP283.59 million, followed by China Life Insurance (Overseas) Co. Ltd. at MOP110.16 million.
Non-life insurance
Property risks led in gross premiums for the first quarter, amounting to MOP192.88 million. Property
risks include fire insurance, material damage, ‘all risks’, business interruption, house owners and householders and theft and burglary. The second highest, at MOP139.1 million, was Employees’ Compensation, with gross claims amounting to MOP58.5 million – a loss ratio of 42.1 per cent. Engineering claims saw the highest loss ratio, with MOP32.51 million in gross premiums and MOP29.48 in gross claims, with a loss ratio of 90.7 per cent. China Taiping Insurance (Macau) Company Ltd. saw the highest gross premiums for the three-month period, noting MOP188.38 million for the period, while gross claims for the group amounted to MOP48.61 million AIG Insurance Hong Kong Ltd. registered the highest loss ratio at 115.6 per cent, with gross premium returns of MOP17.99 million and gross claims of MOP20.79 million for the first three months of the year. K.W.
Insurance
Fitch gives China Taiping ‘A’ rating Analysts at Fitch Ratings have given an Issuer Default Rating (IDR) of ‘A’ for China Taiping Insurance Group Ltd. (TPG), China Taiping Insurance Group (HK) Company Limited (TPG(HK)) and China Taiping Insurance Holdings Co. Ltd. (CTIH), the ratings agency announced in a press release yesterday. ‘The rating affirmation reflects TPG’s improving capital strength on a consolidated basis; sound operating profitability; and broad revenue sources with strong growth dynamics,’ notes the release. The rating is based on a ‘high-probability that the Chinese Government […] would provide capital and/ or policy support, if necessary,’ as TPG is ‘wholly and directly owned by China’s Ministry of Finance,’ notes the release. Additionally, the rating agency affirmed Taiping Life Insurance Co., Ltd (TPL) on its Insurer Financial Strength (IFS) with a rating of ‘A+’ as well as an IFS rating for Taiping Reinsurance Co. Ltd (TPRe) at ‘A’.
‘The outlook is stable,’ notes the rating agency.
Future assured
Improvements in capital to the group over the 2015 year were attributed to ‘surplus growth along with the issue of new shares of CTIH, also aiding in ‘financial flexibility,’ for the year, notes the
agency. Simultaneously, Fitch noted that the consolidated financial leverage of the Insurance group (TPG) came down from 40 per cent to 27 per cent, excluding the bank loans for finance lease receivables. The group noted a statutory solvency ratio for TPL and for Taiping General Insurance
Company Limited (TPI) of 250 per cent and 263 per cent, more than double the 100 per cent mandatory minimal, and notes that TPG has ‘an adequate capital buffer to support the expansion of its insurance subsidiaries and to bugger potential asset volatility.’ The group views the Taiping Life Insurance Co., Ltd. (TPL) wing as a ‘core operating subsidiary’, based upon
its ‘significant earnings contribution to TPG as a whole,’ recording ‘solid growth in its new business value, given its emphasis on the distribution of regular longer-term protection type life products,’ with the analysts noting a 13 per cent growth in its value of in-force business for last year. ‘Fitch expects favourable underwriting profitability from domestic and overseas non-life insurance operations to sustain TPG’s earnings stability in the near term,’ notes the report. The group notes that TPL is the: ‘sixth-largest Chinese life insurer, capturing a market share of about 5 per cent in 2015. TPL and TPRe contributed to approximately 84 per cent and 5 per cent, respectively, of TPG’s total consolidated earnings in 2015,’ the report says. The group also notes that ‘an upgrade’ of TPG’s rating in the near term is ‘unlikely, given existing credit fundamentals,’ with triggers for downgrades reliant on a ‘significant decrease in the Chinese Ministry of Finance’s shareholding in TPG,’ among others. K.W.
Business Daily Wednesday, June 1 2016 7
Macau Retail
Investment
Le Saunda CEO and executive director resigns
I
n the wake of announcing a 35.5 per cent drop in consolidated profit for the 2015 fiscal year, the Chief Executive Officer and Executive Director of Le Saunda Holdings Limited has resigned, effective August 31, according to a filing with the Hong Kong Stock Exchange yesterday. The company is 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.
The retiring CEO, Ms. Lau Shun Wai, ‘confirmed that she has no disagreement with the Board and there is no matter with respect to her resignation that needs to be brought to the attention of the shareholders,’ notes the filing, while mentioning that Ms. Wai is leaving the position: ‘due to her intention to pursue her other personal affairs’. With regard to the ‘role and responsibility of Ms. Lau as Chief Executive Officer’, the filing notes that her duties will be ‘performed by the existing executive directors of the Company,’ and in the meantime Le Saunda will work at ‘identifying a suitable candidate to assume the role as Chief Executive Officer’ with a ‘further announcement in this regard’ to be made as and when appropriate. Le Saunda has a total of 896 stores, 12 of which are operating in Macau and Hong Kong. Sales for the SARbased stores saw a 29.2 per cent plunge year-on-year for the 2015 fiscal year, making RMB110.7 million, and leading to the closure of eight stores in the two cities. The group, in their annual result announcement, noted that ‘after the shop rental in Hong Kong adjusts back to a normal level, the opportunities of opening new stores would appear again,’ while expressing no intent to increase the number of sales locations in the SAR throughout this fiscal year. K.W.
Niraku interest in Nha Trang shaky Niraku GC Holdings Inc. has announced that it may waive conditions or terminate its agreement in regard to a 66.7 per cent interest in Nha Trang Holdings – initially announced on May 19 after trading hours – for a consideration of HK$100 million ‘satisfied by cash’, announced the group via filings with the Hong Kong Stock Exchange. NIraku is a holding company which, via subsidiaries, operates pachinko and pachislot hall operations and hotel operations as well as restaurant operations in Hong Kong and abroad, while Nha Trang is an investment company that primarily operates restaurants. The pachinko operator states that: ‘if any of the conditions precedent of the Agreement is not satisfied’ the group may proceed to ‘waive the conditions then unsatisfied’, ‘postpone the Long Stop Date to a Date’ falling on a business day no later than 10 business days after the original agreement – noted as 30 May 2016, or ‘terminate the agreement,’ notes
the filing. So far the company has served notice on Nha Trang extending the Long Stop Date to June 14. The filing notes, however, that ‘save and except for the above extension, all other terms and conditions of the Agreement remain unchanged and continue to remain in full force and effect.’ Niraku GC Holdings, Inc. saw a 94 per cent drop in its profit for the 2015 fiscal year – amounting to 181 million yen (MOP13.2 million), ending March 31, despite opening two new slot halls in the fiscal year, each equipped ‘with over 600 machines’ – noted a previous filing on the stock exchange. Niraku’s acquisition of the interest in Nha Trang, which operates seven Vietnamese restaurants and one ‘pinot duck’ restaurant in Hong Kong, ‘aligns with the Group’s strategy of expanding its scale of operating in the hospitality business,’ notes the filing. The group expects the acquisition to bring in new income, and enhance its market presence. K.W.
8 Business Daily Wednesday, June 1 2016
Greater China Regulation
Reform drive
Concern over national insurance rules ahead of talks with U.S. Foreign insurers already face market access barriers in China, including ownership caps and licensing difficulties Michael Martina
C
ontroversial cyber security regulations for China’s insurance industry, now before the World Trade Organization (WTO), could soon take effect despite efforts by foreign business groups to persuade Beijing to change tack. Those groups say the draft measures are vague and discriminatory, and industry experts say international insurers could be required to source substandard or insecure technology or software in order to do business in China, or use products incompatible with their global operations. First announced by the China Insurance Regulatory Commission (CIRC) last year, the draft rules have revived debate over Chinese rules that incorporate contentious data localisation mandates and “secure and controllable” provisions for IT products. Critics fear the rules could be used to drive preferential treatment for Chinese companies supplying businesses and government departments - as China rolls out its Internet Plus and Made in China 2025 strategies, which aim to make Chinese firms world technology leaders and call for more local components in key industries such as robotics. Concerns over the draft insurance regulations are likely to add to already rancorous U.S.-China trade relations ahead of the annual Strategic and Economic Dialogue on June 6-7 in Beijing, which will be attended by U.S. Secretary of State John Kerry and Treasury Secretary Jack Lew. “This is much broader than the CIRC measures. It’s about laying down a marker which they will then replicate in other sectors,” said a person with knowledge of the rules and the upcoming talks. The person said the regulations and
Key Points Foreign business groups say draft rules “unworkable” Fears they will set precedent for other sectors Regulations set to feature at June 6-7 U.S.-China talks the attending “secure and controllable” issue are set to be one of the top items on the United States’ agenda for the June talks. “This has been raised across the U.S. government at the highest levels ... there is a good understanding of what this CIRC play represents and that it’s a big problem,” the person said. China is considering similar regulations for banking technology, though push-back from industry and the U.S. government last year has slowed their rollout. Beijing has said repeatedly that foreign businesses have nothing to fear from new measures intended to address what officials say are growing security threats, such as terrorism. But industry advocates say insurance products are hardly critical to national security and don’t merit such provisions. “’Secure and controllable’ policies are unworkable for global industry,” said Jacob Parker, vice president of China operations for the U.S.-China Business Council.
Foreign insurers already face market access barriers in China, including ownership caps and licensing difficulties. Foreign-invested insurers have less than 5 percent market share in China, according to the American Chamber of Commerce.
Purchasing priority
More than 20 foreign business lobbies, including the American Chamber of Commerce in China and the American Council of Life Insurers (ACLI), petitioned the CIRC late last year to amend the draft regulations, which state that insurance companies should prioritize buying “secure and controllable” products, including Chinese encryption technologies, hardware and software. On April 19, the CIRC filed a technical barriers to trade (TBT) notification to the WTO, indicating the rules would be approved within 60 days. Trade experts say the WTO has no say in the filing designed simply to alert trade partners. The foreign groups say the rules have not been substantially changed to address concerns after an initial comment period, and the tight deadline listed in the WTO filing suggests China has little intention to incorporate feedback. Several groups plan to petition CIRC Chairman Xiang Junbo in writing ahead of the U.S.-China talks, according to documents seen by Reuters. The CIRC could not be reached for comment on the issue. The regulations currently require all
President Xi pledg for technology firm He also vowed to give scientists more power in allocating funding and directing their research China’s President Xi Jinping has vowed to increase government support for technology companies, state media reported, in an attempt to raise the country’s competitiveness that could also further fuel concerns over protectionism. Beijing has put forward so-called Internet Plus and Made in China 2025 strategies, which aim to make Chinese firms world technology leaders and call for progressive increases in domestic components in priority industries such as robotics and aerospace equipment. Foreign business groups have voiced concerns that such policies could limit foreign firms’ opportunities in China and ultimately starve innovation. “To be the world’s major scientific and technological power, the state will have to champion first-class institutes, research-oriented universities and innovation-oriented enterprises,” the official Xinhua news agency cited Xi as saying at a science event on Monday. Xi said the country will “provide bigger support for tech companies”, especially small and medium-sized China data for insurance products be stored in China, and mandate that any international data transfers be conducted according to yet unspecified regulations. That could also create obstacles to moving information overseas and to third-party service providers, such as accounting firms. Article 53 requires that insurance providers give purchasing priority to so-called “secure and controllable” products. Such provisions have appeared in a number of draft Chinese laws and regulations. Though Beijing has not formally defined the term, foreign business groups say they would entail onerous conditions, such as providing authorities access to proprietary source code or incorporating Chinese components. Reuters
Futures market
Steel, iron ore post worst month on record Other China-traded commodities fared better for the month, with Zhengzhou cotton up 3 percent, Dalian soymeal up nearly 11 percent, Dalian corn rising 6 percent Manolo Serapio Jr
Chinese steel and iron ore futures posted their sharpest monthly falls on record in May on weaker seasonal demand, with the industrial raw materials expected to face more pain in June due to rising steel supply in the world’s top producer. May’s decline follows a spectacular December to April rally fuelled by optimism about China’s economy. The buying intensified last month, swelling prices and volumes across Chinese commodities as a buying frenzy in steel-linked futures spread in everything from cotton to eggs. But sentiment soured in May as recent indicators from retail sales to trade suggested a solid recovery was not yet in place and after exchanges put in trading curbs.
The price surge pushed many shuttered Chinese steel mills to resume operations, increasing supply that could keep steel markets under pressure as seasonal demand slows down with hot weather curbing construction activity from June. These mills “just don’t start
and stop with the flows of seasonal demand,” said Daniel Hynes, senior commodity strategist at ANZ Bank. “We’d expect those to remain open for the time being and that probably should result in steel production holding up relatively well despite that normal seasonal slowdown.” The most-traded rebar on the Shanghai Futures Exchange closed 0.8 percent lower at 1,978 yuan (US$300) a tonne. Rebar, or reinforcing steel used in construction, has fallen
29 percent from its April peak. For the month, it lost 23 percent, the most since the Shanghai exchange launched rebar futures in 2009. On the Dalian Commodity Exchange, the most-active iron ore gained 0.3 percent to 344 yuan a tonne. The contract was down 32 percent from April’s high and 25 percent over May, its biggest monthly decline since launch in 2013.
Agriculture commodities gain
Stocks of imported iron ore at China’s major ports have continued to rise, hitting 100.65 million tonnes on May 27, the highest since December
Key Points Spot iron ore on course for biggest monthly fall since 2012 Iron ore stocks at China’s ports highest since Dec 2014 Raw material coke also posts worst month Rebar, or reinforcing steel used in construction, has fallen 29 percent from its April peak
But other China commodities, mainly ags, fare better
2014, according to data tracked by industry consultancy SteelHome. Given Chinese steel production has been holding up, ANZ’s Hynes said he did not expect the iron ore port inventory to rise sharply from current levels. Spot iron ore could find strong support at around US$50 a tonne, he said. Iron ore for immediate delivery to China’s Tianjin port slipped 1.2 percent to US$50.30 a tonne on Monday, data compiled by The Steel Index showed. The spot benchmark has lost 23 percent so far in May, the biggest monthly drop since August 2012. Coke, another steelmaking raw material, rose 1.2 percent yesterday in Dalian. Though the contract ended May down 22 percent, also its biggest monthly loss ever. Other China-traded commodities fared better for the month, with Zhengzhou cotton up 3 percent, Dalian soymeal up nearly 11 percent, Dalian corn rising 6 percent and Zhengzhou rapeseed meal gaining 11.4 percent. Reuters
Business Daily Wednesday, June 1 2016 9
Greater China In Brief
ges more support ms firms, reorganise research institutes and universities, and plan cities and regional centres to be attractive to innovation industries. “Our biggest advantage is that we, as a socialist country, can pool resources in a major mission,” Xi said, in comments reported late on Monday. He also vowed to give scientists more power in allocating funding and directing their research, Xinhua reported. Xi did not specify if support would be geared toward home-grown technology firms. Chinese officials have said
their policies do not unfairly take aim at foreign companies and have repeatedly promised to ramp up intellectual property rights protection to attract more foreign investment. Nonetheless, China has long sought to establish a firm grip over the country’s sensitive technology infrastructure, particularly in the face of what it says are growing security threats such as terrorism.
Many foreign technology firms were put on the defensive as their China business suffered in the wake of information leaks by former National Security Agency (NSA) contractor Edward Snowden in 2013. Frustration also has been mounting within the foreign business community over slow progress on China’s promised market-opening reforms. Reuters
“To be the world’s major scientific and technological power, the state will have to champion firstclass institutes, research-oriented universities and innovationoriented enterprises”
Yuan deposits in Hong Kong, the world’s biggest offshore yuan centre, in April fell to their lowest since August 2013, data from the Hong Kong Monetary Authority showed. Yuan deposits in April fell 4.8 percent from the previous month to 723 billion yuan (US$109.80 billion). Cross-border trade settlement amounted to 358.1 billion yuan for the month, compared with 370.7 billion yuan in March. Hong Kong-dollar deposits rose by 0.5 percent in April, while overall foreign-currency deposits grew by 0.2 percent. Yuan deposits accounted for 7.7 percent of Hong Kong’s total deposits in April.
Xi says hopes to get Philippines ties back on track
M&A
HNA to buy Virgin Australia stake Air New Zealand looks to exit
Virgin Australia yesterday said China’s HNA Aviation will buy a major stake, giving a vital cash injection and greater access to the surging Chinese tourism market just as top shareholder Air New Zealand plans to sell out. The proposed deal will see HNA Aviation, the largest private operator of airlines in China, invest A$159 million (US$114 million) through an equity placement, giving it a 13 percent stake with plans to go up to 19.99 percent. The pair plan to introduce direct Australia-China flights and co-operate on frequent flyer programmes and code-sharing. While the deal bolsters Virgin Australia’s finances, it gives HNA Aviation, owner of China’s 4th-biggest carrier, access to a lucrative market as its parent extends a US$10 billion push overseas to rival the country’s state-backed airlines. “This is a strategically important alliance,” Virgin Australia Chief Executive John Borghetti told reporters. China was Australia’s fastest-growing and most valuable inbound travel market, he said. “They’ve discussed their desire to get (to 19.99 per cent) as quickly as possible.” Virgin Australia requires the cash injection to cut debt amassed, in part, by its expansion out of the low-cost carrier market to compete with Qantas Airways Ltd. The deal is separate to Air New Zealand’s plans to sell its stake in Virgin Australia, which will represent 22.5 per cent of the airline after the diluting impact of the new share issue is taken into account. It is not clear why HNA Aviation - part of HNA Group which has announced at least US$10 billion worth of overseas M&A this year - did not purchase the New Zealand company’s share. An Air Zealand representative declined to comment on that sale, which is still open. “You’d rather have China as a shareholder (than New Zealand), wouldn’t
Hong Kong April yuan deposits fall
International relations
Xi Jinping, President of China
Jonathan Barrett and Byron Kaye
Savings
you?” Clime Asset Management senior equities analyst David Walker said. “This deal is a sign of the times and a pointer to the future.”
Move over
Air New Zealand’s 25.9 percent stake will be diluted to 22.5 percent after the initial placement, Virgin Australia said. Etihad Airways’ holding will fall from 25.1 percent to 21.8 percent, Singapore Airlines’ stake will drop from 23.1 percent to 20.1 percent. The holding of entrepreneur Richard Branson’s Virgin Group will decrease from 10 percent to 8.7 percent.
Key Points HNA to invest US$114 mln for 13 pct stake Chinese group says plans to go to 19.99 pct Deal will help Virgin Australia tap growing China market Cash will help Australian airline manage debt Chinese group extends US$10 bln overseas push
Borghetti said the HNA deal had not been discussed with Air New Zealand prior to yesterday’s announcement. Virgin did not expect the deal would require approval from the Foreign Investment Review Board, but would need to be assessed by the Australian Competition and Consumer Commission, Virgin said. The Chinese conglomerate would secure a board seat. Borghetti said he expected to see Virgin Australia aircraft in China in the first half of 2017, with major cities including Beijing and Hong Kong likely destinations. HNA’s Hainan Airlines does not currently operate scheduled services to Australia. Working with Virgin will help it compete with against domestic rivals like China Southern and China Eastern, which do fly to Australia, analysts said. “The China-Australia market is buoyant and you can expect to see more capacity in the coming months,” said Hong Kong-based Eric Lin, Director of Asia Transport Research at UBS. The proposed deal follows an announcement on Monday that HNA had entered exclusive negotiations to buy a stake in Servair, the catering business of Air France-KLM. HNA has stakes in foreign carriers like Brazil’s Azul and TAP Portugal, and owns Turkish aircraft maintenance firm myTechnic and ground-handling firm Swissport. Its Bohai Leasing unit bought aircraft leasing firm Avolon in January, giving it a fleet of more than 500 planes in total. Reuters
HNA’s Hainan Airlines does not currently operate scheduled services to Australia
China hopes to get relations with the Philippines back on track, President Xi Jinping has told new Philippine President Rodrigo Duterte, after ties were affected by an increasingly bitter spat over territorial claims in the South China Sea. Xi sent a message to Duterte late on Monday congratulating him on his formal election victory, and said the two countries had a long history of friendly exchanges and a deep traditional friendship, China’s Foreign Ministry said. “(I) hope both sides can work hard to push SinoPhilippine relations back onto a healthy development track,” Xi said. Petrochemicals
Saudi’s SABIC agrees project with Shenhua Saudi Basic Industries Corp (SABIC), one of the world’s largest petrochemicals groups, said on Monday it had signed an agreement with Shenhua Ningxia Coal Industry Group to build a petrochemical complex in China. SABIC said in a statement the joint project would be a “greenfield petrochemical complex” located in the Ningxia Hui Region of China and would help the Saudi company diversify its feedstock sources. “The joint venture would benefit from its location in Ningxia and utilize locally available coal feedstocks to be supplied by SNCG,” SABIC said. Real estate
Home prices tick up in April in Hong Kong Hong Kong home prices edged up 0.5 percent in April, snapping a half year of monthly declines, but were still down 5.6 percent from a year earlier, data showed yesterday. Home prices rose to 258.8 on a government index in April, from 257.5 in March, according to the Hong Kong government’s Rating and Valuation Department. Before April, the index had shown six consecutive months of declines in home prices in Hong Kong, one of the most expensive property markets in the world. Rental prices continued to fall, recording their seventh consecutive month of decline.
10 Business Daily Wednesday, June 1 2016
Greater China Stock indexes
Goldman sees 70% chance of mainland shares joining MSCI The index compiler said in March a decision to include 5 percent of yuan-denominated shares in its index will depend on regulators Robin Ganguly
T
he odds of Chinese stocks winning inclusion to MSCI Inc.’s global indexes in June have shot up to 70 percent with the government’s efforts to curb trading halts and clarify beneficial ownership rules, according to Goldman Sachs Group Inc. These steps have addressed two of the five issues flagged by MSCI in April regarding the inclusion of A-shares, Goldman economists led by Kinger Lau wrote in a note yesterday. They added that China will now need to deal with the remaining concerns of a 20 percent monthly
fund repatriation limit, anti-competitive clauses on index products and daily quota limits on a cross border stock program. Goldman, which had in April put the probability of inclusion at 50 percent, also flagged the importance of China starting an equity link between Hong Kong and Shenzhen. “These moves are clearly positive,” the Goldman economists wrote. “Additionally, we believe the conditional probability for a Yes in June would be materially higher if the Shenzhen-HK Connect were to be announced.” China’s stocks jumped the most in two months amid the inclusion speculation, with the Shanghai Composite Index 2.7 percent higher in afternoon trading. Gauges of financial and technology companies and led industry groups, with brokerages spearheading the rally.
US$5.6 trillion market
With an estimated US$16 billion of investment flows at stake, Chinese regulators are pushing for the nation’s
US$5.6 trillion stock market to be included in MSCI’s global benchmarks. In February, the nation’s foreign-exchange regulator issued rules making it easier for overseas investors to shift money out of the country and apply for investment quotas. The index compiler said in March a decision to include 5 percent of yuan-denominated shares in its index
“We believe the conditional probability for a Yes in June would be materially higher if the ShenzhenHK Connect were to be announced.” Goldman Sachs note
will depend on regulators implementing changes so that widespread halts can’t happen again. About 311 companies in the Shanghai and Shenzhen exchanges are still suspended or halted, representing about 10 percent of the market, according to data compiled by Bloomberg.
Trading halts
The Shanghai and Shenzhen bourses last week said that suspensions will be capped at three months for major asset restructuring and one month during private placements. The exchanges will have the right to reject trading-halt applications under extreme market circumstances in order to protect investors, they added. On May 6, the China Securities Regulatory Commission said regulators recognize and respect the rights and interests of so-called “beneficial owners of securities.” The interests of foreign beneficial owners are protected by the legal contract between them and their nominee holders, it added. bloomberg news
MSCI indexes’ inclusion would be a great step towards China’s internationalization
Infrastructure
Landbridge announces expansion of newly-acquired Port of Darwin The company signed the 99-year lease on the port in 2015 The Chinese company which purchased the 99-year leasing right for the Port of Darwin announced yesterday an US$18-million expansion of its operations, just months after taking control of the port. Landbridge Group, owned by Chinese billionaire Ye Cheng, said it would be expanding its operation in Darwin, with a one-km extension of its quay line among
“It is in line with what we wanted to occur with an investor for the port” Adam Giles, Australia’s Northern Territory Chief Minister
the planned upgrades. The multi-million dollar development would “expand cruise ship facilities”, as well as “meet future increases in
cargo volumes in the areas of dry bulk exports, liquid bulk imports, live cattle and container and general cargo throughput,” the company
said in a statement yesterday. Darwin Port chief executive officer Terry O’Connor said the plan would eventually “quadruple the size of the existing container yard.” The Northern Territory’s Chief Minister Adam Giles
told the Australian Broadcasting Corporation (ABC) yesterday that he welcomed the news of Landbridge’s plan as it would increase capacity for extra cruise and cargo routes coming into Australia’s far north. “It is in line with what we wanted to occur with an investor for the port. One of the reasons we pay a lot for goods and services that come over our port, is that our port is not big enough,” Giles said. Giles said Landbridge’s plan would also provide a major boost for tourism in the region, allowing the government to show off little-known attractions such as the Kakadu national park. “To expand the cruise ship terminal to be able to take two cruise ships... to see a new terminal itself, the dredging that’ll go on, these are big investments in tourism, which government could never, ever afford to do,” Giles said. Landbridge signed the 99-year lease on the port in October, 2015. Xinhua
Business Daily Wednesday, June 1 2016 11
Asia
Industry data
Japan’s factory output unexpectedly rises Manufacturers surveyed by the authorities expect output to rise 2.2 percent in May and increase 0.3 percent in June Leika Kihara
J
apan’s factory output unexpectedly rose in April as a series of earthquakes in the southern part of the country appeared to have had minimal impact on production, offering some signs of hope for an economy squeezed by weak exports and consumption. Household spending also fell less than expected in April and job availability hit a 24-year high, a relief for Prime Minister Shinzo Abe who is expected to delay a scheduled sales tax hike next year to avoid dealing a hammer blow to a fragile economic recovery. “The effect on output from the earthquakes may linger and inventory levels remain high. But the chance Japan can avert a big slump in second-quarter GDP has risen,” said Harumi Taguchi, principal economist at IHS Global Insight.
Factory output rose 0.3 percent in April from the previous month, confounding market forecasts for a 1.5 percent drop and following a 3.8 percent gain in March, data by the Ministry of Economy, Trade and Industry showed yesterday. The better-than-expected data triggered a brief rebound in the yen that pushed the dollar off its one-month high against the Japanese currency.
Key Points April output +0.3 pct vs f’cast -1.5 pct Manufacturers expect output gains in May, June Household spending falls less than expected Job availability hits 24-year high in April
Manufacturers surveyed by the ministry expect output to rise 2.2 percent in May and increase 0.3 percent in June, suggesting that industrial production has bottomed out. Japanese policy makers have been fighting a battle to fire up the world’s third-largest economy, but massive fiscal and monetary stimulus over the past three years have failed to stoke sustainable growth or inflation.
Signs of hope
The earthquakes in Kumamoto, southern Japan, hit only a small portion of auto output with other sectors left largely unaffected. Machinery equipment output rose in a sign of pick-up in capital expenditure, the data showed. But some analysts warn of lingering external headwinds such as sluggish emerging market demand that is expected to keep any rebound in economic activity modest at best. “We can be relieved somewhat about the effects of the Kumamoto earthquakes. On the other hand, output has been weak due to global economic situations. That part
hasn’t changed much,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute. “There are some positive moves (in the global market), but emerging markets are still slowing down and weakness remains in U.S. production, too.” In a glimmer of hope, separate data showed household spending fell 0.4 percent in April from a year earlier, much less than a 1.4 percent decline projected by analysts. Japan’s jobless rate was steady at 3.2 percent in April and the jobs-applicants ratio rose to 1.34, the highest level since November 1991, data showed yesterday. Japan’s economy narrowly averted recession in the first three months of this year and analysts expect only a modest rebound in the current quarter as sluggish global demand and tame wage growth weigh on exports and consumption. Abe, well aware of the risks, has told ruling party officials that he plans to postpone next year’s sales tax hike to ensure Japan plays its part to fend off risks of a global economic downturn. Reuters
Trade figures
Strong Australian exports suggest central bank likely on hold next week Other data out yesterday showed the country’s current account deficit narrowed 8 percent to A$20.8 billion in the quarter Ian Chua
A strong rebound in Australian exports last quarter has helped fill a hole left by slumping business investment in the economy, adding to the case for the central bank to keep its powder dry at its policy meeting next week. Net exports alone likely added a whopping 1.1 percentage points growth to Australia’s US$1.2 trillion gross domestic product (GDP). First quarter GDP is due on Wednesday. The figures from the Bureau of Statistics yesterday blew away forecasts for net exports to add 0.7 percentage points to growth. Export volumes jumped 4.4 percent while imports slipped 0.8 percent. Separately, building approvals for April rose 3.0 percent, confounding forecasts for a 3.0 percent fall. The upbeat data shook the market’s expectations for another cut in interest rates this year and sent the Australian dollar rallying more than half a U.S. cent to a high of A$0.7240. “We see an even stronger case for rates to be on hold at 1.75 percent in June and July, awaiting the July 2 election and Q2 consumer price index
report on 27 July,” said Annette Beacher, chief strategist at TD Securities. The healthy growth figures give the Reserve Bank of Australia (RBA) room to wait to see whether inflation picks up before deciding if another rate cut is needed. Earlier this month, the RBA reduced the cash rate
to a record low 1.75 percent, citing disturbingly low inflation. Investors are now giving a mere 6 percent chance of a follow-up cut next Tuesday from about a 75 percent chance just after the May cut. Other data out yesterday showed the country’s current account deficit narrowed 8
The healthy growth figures give the Reserve Bank of Australia room to wait to see whether inflation picks up before deciding if another rate cut is needed
percent to A$20.8 billion in the quarter, while government investment rose 0.7 percent. That leaves the current median forecast for a 0.6 percent increase in first quarter GDP, and for annual growth to cool to a below-potential 2.6 percent, looking slightly pessimistic. “There is quite a bit of upside risk to GDP. We’re going to end up with growth well and truly above anything we’ve seen in the U.S., Japan and Europe,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital. A n a l y st s a t W e st p a c
Key Points Net exports to contribute much more to Q1 growth than expected Upside risk now seen to Q1 GDP on Wednesday Building approvals for April surprisingly strong as well Markets no longer fully pricing a rate cut this year revised their forecast for first quarter GDP growth to 0.7 percent, from 0.6 percent previously. JPMorgan lifted their forecast to 0.9 percent, from 0.7 percent. Reuters
12 Business Daily Wednesday, June 1 2016
Asia Stock markets
Fears lead investors to check out of Asia Some market participants see foreign investment outflows across Asian asset classes as an overreaction Nichola Saminather and Vidya Ranganathan
H
aving dumped Asian shares on resurgent worries about China’s economy, the spectre of more aggressive U.S. interest rate rises is now forcing global investors to sell the region’s bonds and currencies. A net US$3.2 billion left Asian equity markets, excluding Japan, during the period May 1 to 24, the largest outflow since January, data from HSBC showed. Indonesia’s and South Korea’s bond markets, heavy recipients of foreign investment
“The renewed U.S. dollar strength and concerns around slowing stimulus in China could potentially be shortterm headwinds.” Oliver Lee, Investment Director at Old Mutual Global Investors
until March, are now seeing chunks of inflows reverse while Asia’s currencies have also fallen quite sharply. Some market participants see foreign investment outflows across Asian asset classes as an overreaction, given the strides policymakers have made in shoring up capital flight defences since the “Fed taper tantrum” in 2013. But for others, the unease around the Fed’s policy deliberations twins increasing concerns around currency volatility with broader worries about the health of the China’s real economy. “If the Fed hikes rates in June, it might come at a time when the Chinese economy weakens, and that could also mean that the Chinese currency starts to weaken again,” said Herald van der Linde, head of Asia-Pacific equity strategy at HSBC in Hong Kong. “And that could lead to a scenario where everybody’s up and down and markets fall five to 10 percent.” MSCI’s Asia Pacific ex-Japan index rose 19 percent between late January and end-April on the tailwinds of a dovish Fed, stabilisation in commodity prices and hopes China’s economy will recover. The fall - the index is down 5 percent since and touched a 12-week low on May 24 - is reminiscent of the selloff that
followed the Fed’s first rate rise in a decade in December. It also comes as a surprise for some, given the relative health of Asia’s economies compared with other emerging market blocs, such as Latin America. And the downside could be limited given the broad dollar trade-weighted index has climbed 20 percent over the past two years, suggesting Asian currencies may have already priced in higher U.S. rates. Despite this, plenty of asset managers expect further weakness in emerging markets and are positioned accordingly. Deutsche Asset Management, for instance, expects another dip in emerging markets in the second half of the year and is holding off buying Asia. “ Th e m a r k et i s s p l i t
between those who think it’s time to buy emerging markets and those who think the China data is not sustainable and U.S. rates will go up and emerging markets are overvalued,” said Sean Taylor, chief investment officer at Deutsche Asset Management. Deutsche had US$846 billion of assets under management at the end of December. Soft Chinese economic data in April has raised doubts about the effectiveness and sustainability of the fiscal stimulus being doled out in the world’s second-largest economy. Chinese stocks, the region’s worst performers, are down almost 20 percent this year. For bond investors, Asia’s weakening currencies aren’t the only concern: subdued inflation and already low central bank rates mean the scope for gains is more
limited than it is in other emerging markets. Indonesia’s rupiah government bond market, for example, received about US$5 billion of foreign investment in the year to April, but about US$670 million has left so far in May. While investors expect Indonesia’s central bank could cut rates by a further 125 basis points, the currency’s 3 percent swift decline since last week may give authorities reason to pause and investors a reason to hold back. “There’s still quite a lot of fear out there,” said Oliver Lee, investment director at Old Mutual Global Investors, which has US$37.3 billion of assets under management. “The renewed U.S. dollar strength and concerns around slowing stimulus in China could potentially be shortterm headwinds.” Reuters
Trade figures
South Korean factory output down for second month Exports have fallen since January last year although some analysts see a turnaround soon Christine Kim
South Korea’s industrial output fell in April for a second straight month and at a faster-than-expected pace, highlighting how weak exports continue to hobble Asia’s fourth largest economy. Industrial output slipped by a seasonally adjusted 1.3 percent in April in sequential terms, following a revised 1.3 percent fall in March, Statistics Korea data showed yesterday, slightly improved from a provisional 2.2 percent decline. The fall was driven by weak exports, a finance ministry official told Reuters after the data release, adding that domestic consumption-related sectors looked “satisfactory.” Semiconductors bolstered output last month, but automobile and transport equipment manufacturing,
which includes shipbuilding, proved to be a drag on activity. Exports have fallen since January last year although some analysts see a turnaround soon. Reflecting poor external demand, the average factory operation rate eased to 71.0 percent in April, which was the worst since the rate stood at 69.9 percent in March 2009. “This weakness is temporary for sure as we see exports rising in May on increased global trade volume, and more transactions,” said Jeong Won-il, an economist at Yuanta Securities Korea.
“Consumption also likely improved this month as we had an extra public holiday.” This sanguine view, however, isn’t universal, with a raft of recent data showing the economy struggling to fire after growth halved in the first quarter from the previous three-month period. Preliminary May exports data will be released today. The median forecast in a
Key Points April industrial output s/adj -1.3 pct (Reuters poll -0.2 pct) April factory output curbed by weak exports -official
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily. com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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Reuters survey was for April industrial output to have edged down 0.2 percent in monthly terms. Sub-indices linked to domestic consumption like services mostly expanded, with the data showing service-sector output up a seasonally adjusted 0.5 percent in April on-month, after a revised 0.5 percent rise in March for the third straight month of gains.
On an annual basis, industrial output dropped 2.8 percent after a revised 0.6 percent decline in March, an improvement from the preliminary data that showed a 1.5 percent drop. Analysts had forecast a 1.0 percent fall in April. Retail sales slipped 0.5 percent in April in seasonally adjusted terms on-month, which were due to base effects as March saw a 4.3 percent rise, the finance ministry official said. Reuters
Business Daily Wednesday, June 1 2016 13
Asia Strategic trend
In Brief
Southeast Asia is winning more Japanese investment than China Japanese investment growth to China slowed after protests there intensified in 2012 Keiko Ujikane
Japanese investment in Southeast Asia continues to grow, owing to the region’s potential and low labour costs, amid simmering tensions that reduce the appeal of China for some Japanese businesses. For a third straight year, in 2015 the amount of foreign direct investment from Japan to the 10-member Association of Southeast Asian Nations exceeded such investment in China and Hong Kong, according to figures compiled by the Japan External Trade Organization. The pace has been accelerating the outstanding amount of Japanese investment to Asean nations almost
tripled from five years ago to 20.1 trillion yen (US$180.9 billion) at the end of last year, according to Bank of Japan data. Japanese investment growth to China slowed after protests there intensified in 2012 following a territorial dispute over islands in the East China Sea, prompting Japanese companies to diversify investment risks. With Japan’s economic growth anaemic and the nation’s population aging and declining, companies have been searching for growth opportunities elsewhere in Asia. “Asean markets are attractive from the Japanese perspective,”’ said Ma Tieying, an economist at DBS Group Holdings in Singapore. “Many economies have great potential to grow, thanks to relatively low per-capita
April data
Thai factory output rises again
incomes and a young population profile.” The openness of markets in the region along with labour costs that are lower than in China also is attracting Japanese investment, he said. Of manufacturers responding to a 2015 survey on investment intentions, about 48 percent said they intended to strengthen or expand businesses in China, versus 73 percent in 2011. The poll by the Japan Bank for International Cooperation found that about 56 percent of the companies want to expand investment in the five key nations of Singapore, Thailand, Indonesia, Malaysia and the Philippines. The other five members of Asean are Brunei, Cambodia, Laos, Myanmar and Vietnam. Bloomberg News
Fitch Ratings
Low petrol prices benefitting Australian mortgages The reduction in petrol prices for the past two years has provided Australians with an opportunity to reduce their living expenses, Fitch Ratings said yesterday. They noted that it has also allowed Australians to boost their saving and cope better with their mortgage obligations. However, Fitch noted petrol prices might not stay low forever. Fitch said the mortgage performance of self-employed borrowers tended also to be more susceptible to a change in living costs.
“Many economies have great potential to grow, thanks to relatively low per-capita incomes and a young population profile” Ma Tieying, an economist at DBS Group Holdings in Singapore
Thailand’s industrial output rose for a second straight month in April but the recovery remains fragile with both exports and domestic consumption weak. The Industry Ministry said yesterday its manufacturing production index (MPI) in April increased 1.54 percent from a year earlier. A Reuters poll forecast a rise of 0.8 percent. In March, output rose a revised 2.2 percent from a year earlier, its first annual gain in three months. Industrial goods accounted for nearly 79 percent of total exports in April, which contracted 8 percent from a year earlier, customs data showed.
ASEAN headquarters
Results
Sun Pharma Q4 profit almost doubles Swift security
Bangladesh hack probe expands to up to dozen banks The Brusselsbased cooperative has warned that there may have been more breaches than the three already publicly identified Michael Riley and Alan Katz
Investigators are examining possible computer breaches at as many as 12 banks linked to Swift’s global payments network that have irregularities similar to those in the theft of US$81 million from the Bangladesh central bank, according to a person familiar with the probe. FireEye, the security firm hired by the Bangladesh bank, has been contacted by the banks, most of which are in Southeast Asia, because of signs that hackers may have breached their networks, the person said. They include banks in the Philippines and New Zealand but not in Western Europe or the United States. There is no indication of whether money was taken. The expansion of the investigation four months after the discovery of the Bangladesh attack, the biggest known cyber-heist in history, suggests a broad and serious campaign to
breach the international financial system. FireEye declined to comment on the report. A Swift spokesman, Natasha de Teran, said, “As we have stated before, we are actively looking into other possible instances of such fraud, but we will not comment on individual entities.” The Brussels-based cooperative, whose full name is the Society for Worldwide Interbank Financial Telecommunication, has warned that there may have been more breaches than the three already publicly identified, including those in Vietnam and Ecuador. Swift was already coming under increasing pressure from its bank customers to ratchet up its security measures in order to prevent future cyber robberies. Swift has relied on the trust within its network
- if you receive a Swift message, you can be sure it is legitimate and move the money as instructed immediately - to cement its effective dominance of the international payments system over the past four decades. If that trust erodes, it calls into doubt the foundation upon which the cooperative is built. H a c k e r s m a y h av e
“As we have stated before, we are actively looking into other possible instances of such fraud” Natasha de Teran, Swift Spokesman
targeted even more banks, Swift’s CEO, Gottfried Leibbrandt, said this week in a speech outlining plans to improve network and client defences. He didn’t provide any details about which banks may have been targeted or whether their defences had been breached. In the Bangladesh case, the Federal Reserve Bank of New York was tricked by fake Swift messages into wiring money it held for the impoverished country to hacker-controlled accounts in the Philippines. The Fed’s systems halted an additional US$850 million the attackers tried to have transferred. Hackers also stole US$12 million from an Ecuadorean bank in January 2015, and tried to move about US$1.2 million in an attack late last year on a Vietnamese lender that was foiled. Bloomberg News
India’s largest drugmakers Sun Pharmaceutical Industries Ltd reported a near-doubling in fourth-quarter profit, although that missed analysts’ estimates as weakness in emerging markets outweighed higher sales in India and the United States. Net profit for the world’s fifth-largest generic drugs maker in the January-March quarter jumped to 17.1 billion rupees (US$255 million) from 8.9 billion rupees in the same period a year earlier. While U.S. sales were up 19 percent and India sales rose 17 percent, sales in emerging markets that include Brazil, Mexico, Russia and South Africa were flat due to adverse currency rates, the company said. M&A
Samsung C&T to appeal on share buyback price The company said it plans to appeal against a court ruling ordering it to pay five shareholders more for a buyback offered during a merger last year that consolidated stakes in Samsung Group affiliates. The deal combined construction firm and Cheil Industries into a merged entity also called Samsung C&T. The Seoul High Court ruled that five shareholders who sued C&T for more money should be offered 66,602 won (US$55.92) per share for the stock they held in the construction firm prior to the merger, compared with 57,234 won offered last year. The ruling could raise the price of the merger for the Samsung Group by about US$26 million.
14 Business Daily Wednesday, June 1 2016
International In Brief Transport strike
France’s CGT union urged to negotiate France’s government, seeking to avert public transport paralysis when a European soccer tournament kicks off next week, urged the hardline CGT trade union yesterday to negotiate a way out of a confrontation over planned labour law reforms. The transport and labour ministers made the appeal following signals that the CGT, the second largest union by membership, may be ready to talk after months of street protests and rolling strikes. The Socialist government meanwhile used its cheque book to settle sectoral disputes. Results
Sberbank’s CEO forecasts Russian banks profit Russian banks will make around 700-800 billion roubles (US$10.6-12.1 billion) in profit in 2016, the chief executive of Russia’s top bank Sberbank said. “The first quarter showed banks already feel significantly better,” German Gref told Rossiya-24 television in an interview broadcast yesterday. Sberbank reported record first-quarter profit of 117.7 billion roubles last week. Nevertheless, slightly over half of Russian banks were loss-making in the first three months of the year, Gref said. Russia’s banking system consists of around 700 banks, with Sberbank, VTB and Gazprombank being the largest by assets.
Prices evolution
Euro-area inflation rate remains negative The European Central Bank’s next interestrate decision will be announced on Thursday Catherine Bosley
E
uro-area consumer prices failed to increase for a fourth consecutive month, highlighting policy makers’ struggle to stoke inflation despite multiple rounds of stimulus. Prices fell 0.1 percent in May from a year earlier, the European Union’s statistics office in Luxembourg said yesterday. That’s in line with the median estimate in a Bloomberg survey of economists and follows a drop of minus 0.2 percent in April. The unemployment rate held at 10.2 percent last month, according to a separate Eurostat release. The European Central Bank, led by Mario Draghi, has been battling for the past three years to bring inflation in line with its mandate, cutting interest rates below zero and buying a raft of securities including sovereign bonds. Even with the economy slowly improving, consumer-price growth remains far away from the ECB’s goal of just under 2 percent, raising the question of whether extraordinary stimulus is losing its effectiveness. “Inflation is way below the objective, so the ECB will keep the door for more easing open,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. “It will not be easy for Draghi to choose
“We will have several months of very low, and sometimes negative, headline inflation... That will start to change in the last quarter of this year”
the right words, he has to keep the easing fantasy alive but he has to say that growth is OK - not in every country, but on average it’s OK.”
ECB meeting
The ECB’s next interest-rate decision will be announced on Thursday, and economists predict policy will remain unchanged after a fresh round of stimulus in March that included interest-rate cuts and a bump of 240 billion euros (US$267 billion) to the bond-buying program. Draghi will hold a press conference in Vienna, where officials gather for one of their regular out-of-Frankfurt sessions. While most economists in Bloomberg’s monthly survey predict the central bank’s forecasts for inflation and growth will be left unchanged or increased at this week’s meeting, they also see the relief as short-lived: Two thirds predict Draghi will eventually need to announce yet more stimulus.
Personally optimistic
That view stands in contrast to Vice President Victor Constancio’s more optimistic stance. He said that he “certainly personally expects” consumer-price growth to be near the ECB’s goal of just under 2 percent in two years time. In March, the ECB forecast euro-area growth of 1.4 percent this year, 1.7 percent in 2017 and 1.8 percent in 2018, with inflation of 0.1 percent, 1.3 percent and 1.6 percent, respectively. “We will have several months of very low, and sometimes negative, headline inflation,” Constancio said in an interview with Bloomberg
Victor Constancio, ECB Vice President
Television on May 24. “That will start to change in the last quarter of this year and I am very confident that the forecast that next year we will be above 1 percent will materialize, and certainly then will continue to increase for 2018.” In May, core inflation, which strips out volatile elements such as food and energy, accelerated to 0.8 percent from 0.7 percent in April, the Eurostat data showed. The inflation rate in Spain held steady at minus 1.1 percent this month, data released on Monday showed. In Germany, the region’s biggest economy, a slide in consumer prices unexpectedly halted. “The ECB can say that, while it is very early days, its March stimulus package may be contributing a little to the resilience of euro-zone domestic demand,” said Holger Schmieding, chief economist at Berenberg Bank in London. “Without ruling out a further stimulus, that will make it easy for the ECB to stay on the side-lines for the foreseeable future.” Bloomberg news
Anti-corruption fight
Brazil’s minister quits over leaked recordings Brazil’s Transparency Minister Fabiano Silveira resigned on Monday after leaked recordings suggested he tried to derail a sprawling corruption probe, the latest cabinet casualty impacting interim President Michel Temer’s administration. Silveira, the man Temer tasked with fighting corruption since he took office on May 12, announced his plans to step down in a letter, according to the presidential palace’s media office. No replacement for Silveira has yet been named. Silveira and Senate President Renan Calheiros became the latest officials ensnared by leaked recordings secretly made by a former oil industry executive as part of a plea bargain. Debt crisis
Sasol says Mozambique gas project unaffected Mozambique’s debt crisis and lower oil prices will not affect Sasol’s US$1.4 billion gas project because costs will be covered by the South African energy company and recouped through gas revenues, the company said on Monday. Mozambique missed a loan repayment deadline this month, plunging one of the world’s poorest countries into a debt crisis. Slowing growth and delays to the start of offshore gas production have added to Mozambique’s cash flow problems with ratings agency Fitch downgrading the war-scarred southern African nation’s credit rating last week, warning that a default was likely.
Global markets
Mideast funds more cautious on equities, bonds Fund managers have turned less positive on balance towards fixed income Middle East fund managers have grown more cautious about building positions in both equities and fixed income, partly because of the risk of a U.S. interest rate hike as soon as June, a monthly Reuters poll showed. The poll of 14 leading fund managers, conducted over the last 10 days, shows 21 percent anticipate reducing allocations to Middle Eastern stock markets in the next three months, while 14 percent expect to raise them. In last month’s poll, 36 percent expected to increase their allocations to regional equities while 29 percent anticipated a
reduction. Over the last month, trading volumes in major Middle East equity markets have shrunk, most notably in Saudi Arabia. That suggests investors have now largely factored in positive events such as an oil price rebound, leaving few bullish catalysts for markets, fund managers said. Trading volumes may not pick up for many weeks because of the approach of the holy month of Ramadan and summer holidays.
Saudi, Egypt
The poll showed funds remain on balance modestly positive towards Saudi Arabia after last month’s announcement of a longterm economic reform plan to reduce the economy’s dependence on oil. Nevertheless, many managers are focusing on pressure on corporate earnings from spending cuts and rises in
taxes and fees. Sentiment towards Egypt’s stock market has worsened; there was a burst of optimism after a currency devaluation in March, but since then the economy has continued to perform poorly, a hopedfor surge of foreign investment has been slow to materialise, and black market prices show a risk of more currency depreciation.
Key Points Managers now marginally negative on balance toward equities Recent oil price rebound now largely factored in Focusing on pain of austerity Only 7 percent expect to raise Egypt allocation Rising supply is concern for bond investors
Only 7 percent of managers now expect to increase allocation to Egyptian equities and 21 percent plan to reduce exposure, compared to a balance of 29 percent in each category in the previous poll. Fund managers have turned less positive on balance towards fixed income; 29 percent expect to increase their allocations over the next three months while 14 percent anticipate cutting them. Last month, 29 percent expected to increase allocations and none to reduce them. Beyond the risk of a U.S. rate hike, increasing supply is a concern for investors in the bonds of the six Gulf Cooperation Council (GCC) countries as Saudi Arabia and other governments come to the international debt market to finance some of the state budget deficits caused by low oil prices. Reuters
Business Daily Wednesday, June 1 2016 15
Opinion Business Wires
The Times of India Indian economy will grow 7.7 per cent in the on-going fiscal amid likely improvement in the industrial and agricultural sectors’ performance on account of good monsoon, though the investment cycle is expected to take at least 6 months to witness a pick-up, says a survey. “The growth in 2016-17 is expected to be supported by an improvement in the agricultural and industrial sector performance. Prediction of a good monsoon after two consecutive years of sub-optimal rainfall backs the improved outlook in the current fiscal,” according to the Federation of Indian Chambers of Commerce and Industry’s Economic Outlook Survey.
Making matters worse for the resource-rich emerging economies, commodity prices have plummeted since 2014
Reigniting emerging-economy growth
The Phnom Penh Post With the e-commerce law hoped to be passed before the end of the year, industry experts said it is important for Cambodian businesses to begin to encourage e-commerce activity, with an emphasis on electronic payments systems. “My understanding is that [the e-commerce law] is largely about the validity of electronic contracts and electronic signatures, which is a great step,” said Chris McCarthy, co-chair of eBusiness Working Group, at a panel discussion on e-commerce on Monday. The next logical step after the e-commerce law is eventually passed would be to instil consumer and merchant trust in using online payment options, he added.
The Jakarta Globe Around 736,000 individuals are trapped in modern-day slavery in Indonesia, the Walk Free Foundation, a global human rights group dedicated to ending modern slavery, found in its “2016 Global Slavery Index” released yesterday. Indonesia ranked tenth out of the 167 countries surveyed in the index, based on the absolute number of people considered slaves, namely children who have been denied education after being forced to work or marry early, men unable to leave their work due to debt and women and girls exploited as unpaid and abused domestic workers.
The Star Every year, an average Malaysian household throws away more than one month’s salary on food they don’t eat, research by Solid Waste Corporation Management (SWCorp) concluded. The food that Malaysians waste not only affects their pockets, but it is estimated to be enough to feed millions daily. The research found that about a quarter of the food is wasted by Malaysians during preparation, production and consumption. In one study conducted by SWCorp, a household with five people spends an average of RM900 on food alone.
I
t is no secret that emerging economies Michael Spence are facing serious challenges, which have undera Nobel laureate in economics, is Professor of mined their once-explosive growth and weakened Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution. their development prospects. Whether they return to the path of convergence with the advanced economies will largely depend on how they approach economies, which have become highly dependent an increasingly complex economic environment. Of course, these economies’ development path was on their neighbours. never simple or smooth. But for most of the post- In short, emerging economies have been challenged World War II period, until as recently as ten years by externally generated macroeconomic shifts, ago, it was relatively clear-cut. Countries needed to unconventional monetary policies, widespread open their economies at a sensible pace; leverage volatility, and slow growth in developed markets. global technology and demand; specialize in trad- Without much of a playbook to guide them, it is able sectors; pursue a lot of investment (some 30% unsurprising that their ability to cope with these of GDP); and promote foreign direct investment, challenges has varied considerably. with appropriate provisions for knowledge transfer. Generally, those that have fared better, such as India, Throughout this process, the emerging economies have combined sound growth fundamentals and recognized the importance of allowing market mech- reforms with pragmatic and activist measures to anisms to work, guaranteeing property rights, and counter the external sources of volatility. India has safeguarding macroeconomic and financial stability. also, of course, benefited from lower oil prices. Perhaps most important, they knew that they had Commodity exporters like Brazil have struggled to focus on generating employment, particularly more, but not just because of falling natural-resource in urban areas and modernizing sectors, and on prices. In fact, the decline in prices, together with the reversal of capital flows, exposed weaknesses in inclusiveness more broadly. As they pursued this agenda, emerging economies the underlying growth patterns that had previously experienced stuttering starts and numerous crises, been masked by favourable conditions. often associated with excessive debt, currency traps, Now there is yet another challenge, which is beand high inflation. And, upon reaching middle-in- coming larger by the year. Whichever path emerging come levels, countries confronted the policy and economies choose for addressing these challenges structural pitfalls that accompany the transition to must also account for the fundamental shift driven high-income status. Nonetheless, in an increasingly by digital capital-intensive technologies. While digopen global environment, characterized by strong ital technologies have created new kinds of jobs in growth (and demand) in the advanced economies, high-tech sectors and the sharing economy, among others, they have been reducing the emerging economies managed and dis-intermediating “routine” to make huge and rapid progress. white- and blue-collar jobs. That all changed after the 2008 In short, Here, rapid advances in robotics are global financial crisis. To be sure, emerging the core of the development agenda economies have particularly relevant, as increasingsophisticated machines threaten remains the same. But it is vastly been challenged ly to supplant low-cost labour in a more complicated. by externally variety of sectors. The high fixed One set of complications arises generated and low variable costs of these techfrom external global imbalances, distortions, and heightened vol- macroeconomic nologies mean that once robots shifts, become more cost-effective than atility in capital flows, exchange rates, and relative prices. Given unconventional human labour, the trend will not reverse, especially given that authat such challenges are essentially monetary tomated assembly can be located new, there is no proven roadmap policies, close to markets, rather than where for overcoming them. After all, the widespread labour is cheapest. developed economies have not volatility, and Jobs in electronics assembly, which previously engaged in the kind of slow growth plays a huge role in global trade unconventional monetary poliin developed and has helped to drive growth cy seen in recent years – a period in many emerging economies – characterized by ultra-low interest markets. notably, China – are particularly rates and ultra-fast cross-border vulnerable. While trades involving capital flows. For the emerging economies, with their relatively sewing – textiles, apparel, shoes – are not yet being illiquid financial markets, such trends encourage automated much, it is probably only a matter of time over-dependence on low-cost external capital, which before they are. can be withdrawn in a heartbeat. Rock-bottom bor- As the classic sources of early comparative advanrowing costs also spur excessive reliance on leverage, tage dwindle, countries – particularly earlier-stage weakening the will to undertake reforms needed to developing countries – will need to implement boost potential growth – and further exacerbating policies that feature services (including tradable the economy’s vulnerability to a shift in interest services) more prominently; they will also need to adjust their investment in human capital. Whether rates or investor sentiment. Making matters worse for the resource-rich emerging this amounts to removing the bottom rungs on the economies, commodity prices have plummeted since ladder of development remains to be seen. The 2014. After a prolonged period of accelerating demand relatively unconventional growth pattern in India, growth, notably from China, governments came to with its early emphasis on services, may hold imregard high commodity prices as semi-permanent portant lessons. – an assumption that caused them to overestimate In any case, the developing countries – and estheir future revenues. Now that prices have dropped, pecially the emerging economies – clearly have a these countries are facing huge imbalances and fiscal lot on their plates. As these economies add items strain. And governments are not alone; the private – protecting themselves from volatility, countering sector, too, relied on rosy assumptions to justify unfavourable external conditions, and adapting to powerful technological trends – to their core strucimprudently high levels of leverage. Slower growth in the advanced economies has also tural growth agendas, they will invariably make weakened trade flows, adding to the headwinds. mistakes, and even stumble. This will produce As Mohamed El-Erian has observed, in the global high variance in performance across countries and economy, your neighbourhood – the economies probably reduce the average pace of convergence. to which you have economic or financial links – But it will not, in my estimation, derail convergence matters. That is all the more true for the emerging completely. Project Syndicate
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16 Business Daily Wednesday, June 1 2016
Closing Monetary base
Hong Kong Exchange Fund assets at HK$3.5 trillion
central bank said in a statement. The HKMA said the rise in foreign currency assets was mainly due Assets at the Exchange Fund, which is used to back to an increase in unsettled purchases of securities, the issuance of Certificates of Indebtedness and the Hong Kong dollar, totalled HK$3,546.1 billion the mark-to-market gains on foreign currency (US$456.54 billion) at the end of April, the Hong portfolios. The rise in Hong Kong dollar assets was Kong Monetary Authority (HKMA) said yesterday. The figure was HK$41.2 billion higher than the total mainly due to additional placements from fiscal reserves, HKSAR government funds and statutory at the end of March, with foreign currency assets and Hong Kong dollar assets rising HK$32.7 billion bodies and the increase in market value of Hong Kong equities. Reuters and HK$8.5 billion respectively, the city’s de facto
Sales decrease
Hong Kong’s April retail sector falls for 14th straight month Mainland tourists are avoiding the city amid political tensions
H
ong Kong’s retail sales fell for the 14th successive month in April, as a drop in tourists and weak local consumption deepened the pain for retailers in the city. Retail sales in April slid 7.5 percent from a year earlier to HK$35.2 billion (US$4.5 billion) in value terms, less than a 9.8 percent slump in March. In volume terms, April sales dropped 7.6 percent, government data showed yesterday. “Many types of retail outlet still recorded notable falls in sales, reflecting
the continued drag from the slowdown in inbound tourism as well as the more cautious local consumer sentiment amid subpar economic conditions,” the government said in a statement. Hong Kong is struggling with mounting economic challenges from the prospect of rising U.S. interest rates, which has stepped up capital outflows, and from China’s economic slowdown. Mainland tourists are avoiding the city amid political tensions with China and growing calls from radical activists for greater autonomy from Beijing. “The near-term outlook for retail sales will continue to depend on the performance of inbound tourism,” the government added.
Hong Kong tourist arrivals in April fell 2.1 percent from a year earlier to 4.69 million, after sliding 4.3 percent in March. Mainland visitors, which accounted for 73.8 percent of the total, fell 4 percent to 3.46 million in April. April sales of jewellery, watches, clocks and valuable gifts fell 16.6
Key Points April sales of jewellery, watches down 16.6 pct y/y April tourists fall 2.1 pct y/y, mainland visitors down 4 pct MasterCard’s April retail sales in Hong Kong fall 5.7 pct
percent in value terms, a 20th consecutive month of decline. Department store sales slid 6.8 percent on year, while wearing apparel fell 5.9 percent. MasterCard’s MasterCard Advisors said its retail sales in Hong Kong in April contracted 5.7 percent from a year earlier amid declining Chinese tourism and subdued local spending. A string of retailers from jewellery firms to cosmetics retailers have warned of weaker sales amid a decline in mainland tourists and weak consumer sentiment. Chow Tai Fook Jewellery and cosmetic chain Sa Sa International had warned that their annual profit for the year ended in March could be half what it reported last year. General merchandise stores operator AEON Stores said they would swing into the red for the six months ending in June, while apparel chain Bauhaus expected its net profit for the year ended in March to fall 70 percent. Reuters
Finance ministry
Tourism
World Bank
India looks to launch stressed-debt fund
China’s rich kids want personalized, digital travel
Floods, political change hamper Myanmar growth
India is looking to launch a fund to invest in stressed assets, junior finance minister Jayant Sinha said yesterday, as regulators strive to cleanup non-performing loans that have stifled banks’ lending power in Asia’s third-largest economy. Indian banks are saddled with sour loans of around US$120 billion, accounting for 11.5 percent of their loan portfolio. The problem loans sitting on their books have made banks wary of lending, choking off funding for projects that are typically financed by banks. “We will have a significant stressed assets fund,” Sinha, India’s minister of state for finance, told reporters on the side-lines of an event organised by credit rating agency CRISIL in Mumbai. “So we expect there will be a vibrant market to be able to take these assets that are in need of equity capital right now over and to bring them back to a high-quality operating performance,” he said. Television channel CNBC TV18 earlier on Tuesday reported India was considering launching a distressed debt fund, with several parties including India’s National Investment and Infrastructure Fund (NIIF) and top lender State Bank of India potentially involved. The minister said the government was working on several options, including one involving SBI, and that details of such a fund were still being finalised. Reuters
Wealthy young Chinese want personalized and unique luxury experiences when traveling, with digital services throughout their trip, according to a new report. These rich kids, aged 18 to 36 with average personal wealth over 38 million yuan (US$5.78 million), prefer interactive guest services on smart devices over traditional service, and expect this technology to record their personal preferences, according to surveys of 525 respondents by Marriott International and the Hurun Research Institute. Their report showed that wealthy youngsters also research trips online. WeChat emerged as the primary source of travel information, obtained from official WeChat accounts and those of friends and professional travel advisors. Third-party apps are also important information channels and popular platforms include Ctrip, Qunar and Tuniu. Last year, Japan was the respondents’ top destination for shopping, France was their popular destination in Europe, and Australia was the top destination for leisure. China’s young luxury travellers want a wider choice of novel tours. They are interested in adventure travel, polar exploration and road trips taking them further afield to destinations including Africa and the Middle East, the report showed. Xinhua
Myanmar’s growth rate, once one of the world’s most impressive, has dipped following heavy floods and an investment slowdown sparked by uncertainty over its political transition, the World Bank said yesterday. A civilian government led by veteran democracy campaigner Aung San Suu Kyi took power in March after clinching a clear majority in elections late last year, ending five decades of outright military rule. It was a transformative moment for a nation and its economy, which withered under the former junta. But the election - and the long transition period between the two governments - has dragged on growth in the past year, the World Bank said, leaving investors wary as they waited for the dust to settle. The bank estimated that Myanmar’s GDP growth during the 2015/16 financial year at seven percent - still in the top tier of the world’s fastest growing economies but a significant dip from the previous year’s 8.5 percent. The bank had previously estimated that Myanmar would grow 8.2 percent for the 2015/16 period. Myanmar authorities do not release official economic data. But it added that the country’s overall economic prospects remained strong. AFP