Macau Business Daily July 6, 2016

Local bank deposits dip 0.2 pct in May to MOP889.3 billion Monetary Page 4

Wednesday, July 6 2016 Year V Nr. 1080 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Trade

CEPA exports stabilise in June after a 56.6 pct m-o-m decline in May Page 3

Legal

ALF Law Office in Hengqin opening Friday, hopes to break even in three years Page 6

www.macaubusinessdaily.com

Monetary policy

Brexit vote to unleash more easing from Asian central banks Page 11

Business optimisation

Hedge funds move to cut costs amid challenging environment Page 10

Unlucky 13 Land Law

Not its fault. So says Nam Van Development Co. Ltd. Arguing yesterday that the group’s delays in the development of its 13 land plots in the reclamation areas of Zone C and D are down to the gov’t. Whose imminent reclamation of the land parcels has been termed a ‘robbery’. Page 2

Sandy bottom

Built but will they come?

Infrastructure Land reclamation on the Zone A project is 75 pct done. If sand supply remains stable the project should be completed in six months, says the Infrastructure Development Office (GDI). GDI is calling for gov’t co-ordination with neighbouring Guangdong to ensure supply. Page 4

Local business representatives applaud new trade law changes. But believe only increases in private and public initiatives - coupled with increased financial support - can generate a significant increase in MSAR trade fairs.

Buyer beware

Property Fifty Macau commercial store buyers are angry.

Seeking help from the gov’t for breaches of their leasing contracts. Taken out on Zhuhai shopping mall properties worth 100 million yuan. Page 7

GDP revisited

MICE Page 5

HK Hang Seng Index July 5, 2016

20,750.72 -308.48 (-1.46%) Worst Performers

Sun Hung Kai Properties Ltd

+0.83%

Hang Seng Bank Ltd

-0.37%

Want Want China Holdings

-5.06%

Li & Fung Ltd

-3.41%

China Merchants Holdings

+0.73%

China Construction Bank

-0.78%

Tingyi Cayman Islands

-4.77%

Cheung Kong Infrastructure

-2.83%

Wharf Holdings Ltd/The

+0.53%

China Overseas Land &

-0.80%

Galaxy Entertainment Group

-3.63%

China Shenhua Energy Co

-2.63%

Belle International Holdings

+0.00%

CLP Holdings Ltd

-0.88%

Sands China Ltd

-3.59%

Henderson Land Develop-

-2.46%

MTR Corp Ltd

+0.00%

Sino Land Co Ltd

-0.92%

Hang Lung Properties Ltd

-3.45%

Ping An Insurance Group Co

-2.30%

27° 31° 28° 32° 29° 33° 28° 34° 28° 33° Today

Source: Bloomberg

Best Performers

Thu

Fri

I SSN 2226-8294

Sat

Sun

Source: AccuWeather

R&D calculation The gov’t has reviewed its latest year data. After China’s National Bureau of Statistics started using a new method of calculating GDP. Billed as ‘better reflecting the contribution of innovation to economic growth.’ The growth rate for 2015 remained at 6.9 pct, revised up 0.04 percentage points. Page 8

2 Business Daily Wednesday, July 6 2016

Macau

Land law Nam Van Development: “New land law unfair and unjust”

That’s not my fault!

The major land concessionaires of Zone C and Zone D in Nam Van said yesterday in a self-organised seminar that the lack of development of its plots in the areas is not their fault – it’s the government’s.

Kam Leong kamleong@macaubusinessdaily.com

N

am Van Development Company Ltd. argued yesterday that the group’s delays in the development of its thirteen land plots in the reclamation areas of Zone C and D are not its fault, calling the government’s imminent action of taking back the land parcels outright ‘robbery’.

In a seminar held by the company discussing the city’s new land law, the president of Nam Van Development, Jorge Neto Valente, claimed that the implementation of the new land law was “the only existing law in the past 16 years that has had such damaging consequences to the Special Administrative Region”.

“In my opinion, the law needs to be amended or retouched at least,” the company president claimed.

The new land law, implemented in March 2014, regulates that no extensions are allowed for temporary or conditional land concessions, which carry a validity of 25 years, if developers fail to complete their projects on their sites and such sites are reclaimed by the government.

Last November, the Secretary for Transport and Public Works, Raimundo do Rosario, said that the government intended to reclaim 14 plots in Zone C and Zone D once these concessions expired at the end of July (this year) as these plots had been left undeveloped.

Wrong decision

The owner of thirteen of the land plots that are to be reclaimed by the government at the end of this month, Mr. Valente told authorities that the move to take back the land plots is the wrong decision. “[Despite] the government telling people [to appeal] to the courts [for objecting to the repossession of land plots], the public’s confidence in the local legal system and in the courts will be affected - and this is a mistake,” said the company

president, who is also a lawyer and heads the local lawyers association.

“The courts will not replace the decision of the government. The courts will not allow, nor declare, the decision of the government to be void. Based on the legal system, the administrative courts will only check whether the government’s decision is in accordance with the current laws,” Mr. Valente declared.

Nam Van was granted these land plots in 1992. In 2001, once greenlighted by the government, it allocated the 13 land plots to different subsidiaries for developing the parcels.

“Government is stealing”

O n e o f th e i n v est o rs i n th e subsidiaries, Patrick Wong, who now owns plots C5 and C6 in the areas, said yesterday that the company’s delays in developing these land plots was due to it trying to meet the government’s requests.

“My drawings for the planning [for plots C5 and C6] were approved by the government in March 2007. But due to protecting the city’s world heritage, the government asked us to pause our plan,” Mr. Wong, who is the executive director of Nam Van Development, said.

“When our development was halted, the ex-Secretary for Transport and Public Works (Lao Si Io) said we needed to respect the World Heritage, yet added that [the benefits] of land awardees wouldn’t be affected,” the company executive added.

Mr. Wong also argued that the government had announced in 2011 that the lack of development on his two land plots was not because of the company, questioning the reason why the government is now intending to reclaim the plots.

“In 2011, Lao Si Io released a list of 65 plots, with their reasons for being left undeveloped not the concessionaires’ liability … I think someone is stealing my land now.

Is this a big misinterpretation by the incumbent government?” he queried.

Legal action final remedy

Asked by reporters whether the company would take any legal action following its 13 land concessions to be announced void at the end of this month, Mr. Valente indicated that legal actions would be the company’s last solution.

“We should bear in mind that investors don’t look for compensation.

They look for developing their project as any compensation would be [lower than] the damages made by the government’s repossession of the land plot,” the lawyer said.

“The compensation is our last remedy to reduce the losses of investors,” he stated.

Law amendments urged

Meanwhile, Chief Executiveappointed legislator Gabriel Tong Io Cheng agreed yesterday that the government’s intended action of taking back the undeveloped plots for which land awardees are not responsible is like a crime.

“I don’t think the initial aim of the new land law is to steal others’ land plots. If the government grants a land plot - while all procedures for development need to be approved by the government but it hasn’t approved any for 25 years – this would be a fraud. Hence, I’d rather believe that this is a misinterpretation of the law,” the legislator claimed.

In fact, last week the legislator submitted a bill calling for an interpretation of the temporary

concession of the new land law to the Legislative Assembly. The bill seeks to allow Chief Executive Fernando Chui Sai On to decide whether a temporary concession could be extended if concessionaires are not the liable party for the lack of development on the plots.

M e a n w h i l e, C E - a p p o i n t e d legislator-cum-lawyer Lionel Alves perceives the new land law as failing to protect off-plan home purchasers in the territory.

“The implementation of the law on property off-plan sales is to protect the benefits of homebuyers by asking all offplan homebuyers to register their purchases at the government department. But when all these registrations could become ineffective as a land concession carrying a 25-year term expires, is this really a step to protecting home buyers?”

Mr. Alves questioned.

Alves believes that the government should at least compensate concessionaires at the time of loss if it is not their fault that the land plots haven’t been developed.

“For example, if a football match is halted for three minutes due to a player being injured, the referee would compensate these three minutes at the end. Giving extra time for compensation is a fair method,” the lawyer said. “ T h e c a s e [ o f N a m Va n Development] is different from idle plots which their developers could build on but do not do anything… In this case, land concessionaires want to develop, yet they cannot due to the documentation,” the CE-appointed legislator argued.

From ‘hearing’ to ‘seminar’

27. Nevertheless, the company announced the cancellation of the hearing just one day after.

Changing the nature of the event to a ‘seminar’, the company denied yesterday that it is pressuring the government.

Paul Tse: Case by case

a mechanism for the short term to evaluate each of the cases a land concession is due. So that it can evaluate which party is accountable for the lack of development of the plots and extend their land use term,” the Association head said.

“If we cannot treat the issue fairly, justly and transparently, every local resident will pay for this problem,” he warned.

The seminar held by the company was initially supposed to be a public hearing. On June 23, the company announced that it would hold a public hearing on the new Land Law on June

On the other hand, Paul Tse See Fan, director of the Association of Building Contractors and Developers, suggested during the seminar yesterday that the government set up a mechanism to evaluate the non-developed plots case by case before announcing its intent to take back the plots.

“The authorities should set up

Business Daily Wednesday, July 6 2016 3

Macau Entrepreneurs MOP162.4 million has been awarded in SME support in the first five months of 2016

Nurturing innovation Nelson Moura nelson.moura@macaubusinessdaily.com

T

he government’s lending to local young start-ups and small & medium-sized enterprises (SMEs) reached MOP29.3 million in June, the latest data released yesterday

by Macao Economic Services (DSE) reveals.

The economic department provides three types of financial aid schemes - namely, the SME Aid Scheme, the SME Credit Guarantee Scheme for specific projects and the SME Credit Guarantee Scheme. In May, however, only the Aid Scheme was awarded, amounting to some MOP40.13 million in loans to the city’s SMEs. The SME Aid Scheme, offering i n t e r est-f r e e l o a n s o f u p t o

MOP600,000 per applicant for different finance purposes, awarded MOP19.44 million to 51 applicants in the month - a drop of some 51.6 per cent compared to the approved amount of MOP40.1 million in May, as well as a fall of 104 applications from May to June.

In all, the two schemes awarded MOP162.42 million in the first five months of the year, with the SME Credit Guarantee Scheme awarding MOP45.88 million and the SME Aid Scheme handing out MOP116.53 million.

Retail

The city’s small and mediumsized retailers were the biggest beneficiaries of the loan scheme for this year so far. The industry was allocated some MOP32.1 million in

loans during the first five months of the year, accounting for 27.5 per cent of the total.

Meanwhile, the SME Credit Guarantee Scheme lent MOP9.94 million in loans to seven successful applicants last month vis-a-vis zero approved applications in May. The scheme provides each beneficiary with a credit guarantee equal to 70 per cent of the loan approved by the participating

Trade

CEPA exports stabilise in June Exports of zero-tariff goods to Mainland China stabilise in June in the wake of a 56.6 per cent month-on-month decline in May. The city’s exports of zero-tariff goods to Mainland China under the Closer Economic Partnership Arrangement (CEPA) decreased slightly from May to June of this year, falling 1 per cent to MOP4.8 million (US$600,732), the latest official data released by the Macau Economic Services (DSE) reveals.

The minimal decrease in the amount shows signs of stabilisation in the wake of a 56.6 per cent drop in exports from the month of April to end-May - a fall from MOP11.17 million to MOP4.85 million.

In the first five months of the year the total amount of CEPA exports totalled MOP42.22 million.

Including June, the accumulated

exports of goods under the agreement totalled MOP709.52 million since coming into effect in January 2004.

In addition, for the month of June the number of Macau Service Supplier certificates amounted to 598, six more suppliers since the beginning of the year.

The certificates allow local companies and enterprises to operate their businesses on the Mainland and enjoy zero-tariff treatment.

The largest percentage of certificates is allocated in the transport of goods service sector – amounting to 50 per cent of the total. This sector is followed by medical and dental service providers, amounting to 25 per cent of overall certificates. N.M.

banks, capped at MOP 3.5 million.

The local wholesale industry was granted MOP17.1 million in loans in the month, accounting for 37.3 per cent of the total, while the real estate business received loans amounting to MOP9.5 million, or 20.9 per cent of the total.

Young startups receive MOP5 mln The Young Entrepreneur Aid Scheme has also provided MOP5 million in loans to local young people to start their own businesses in June, according to data from the DSE. The young start-up aid scheme offers interest-free loans of up to MOP300,000 (US$37,500).

Entrepreneurs aged between 21 and 44 are eligible for a loan for eight years, with repayments starting after 18 months.

The scheme received 26 applications in June whilst the economic department gave the green light to 21, suggesting an approval rate for the month of 80.7 per cent, lower than that of nearly 82 per cent in May. For the first five months of this year, some MOP39.24 million in loans were approved for young entrepreneurs, bringing the accumulative granted lending via the scheme to MOP155.98 million since it was implemented in August 2013.

4 Business Daily Wednesday, July 6 2016

Macau

Monetary

Deposits dip 0.2 pct in May Local banks received fewer deposits from non-residents in the territory in May. Kam Leong kamleong@macaubusinessdailiy.com

T

otal deposits with the city’s banking sector registered a slight drop of 0.2 per cent month-on-month to MOP889.3 billion (US$111.2 billion) in May due to decreases in

deposits from non-residents, the latest monetary statistics released yesterday by the Monetary Authority of Macau (AMCM) reveals.

Of the total deposits with local banks, those denominated in Hong Kong Dollars (HKD) accounted for nearly half, or 48.4 per cent, while the local currency of Patacas (MOP),

US Dollars (USD) and Renminbi (RMB) occupied 20.6 per cent, 19.8 per cent and 8.1 per cent of the total, respectively.

Some MOP452.6 billion in deposits with the banks were from local residents, up 0.4 per cent monthon-month. In addition, deposits from the public sector increased by 1.4 per cent month-on-month to MOP152.9 billion in the month.

The banking sector saw deposits from non-residents

Infrastructure

GDI: Reclamation work for Zone A completed in six months GDI says sand supply for reclamation of Zone A is 75 per cent done.

Annie Lao annie.lao@macaubusinessdaily.com

A timeline has been announced, based upon material supply, in response to a written enquiry by Legislator Kwan Tsui Hang to the government regarding delays in the new urban Zone A and the Ka-Ho Tunnel in Coloane.

The response from the Infrastructure Development Office (GDI) states that the reclamation work of Zone A is 75 per cent completed and that if sand supply remains stable until the conclusion of the project the rest of the reclamation work can be completed in six months.

GDI noted that the issues concerning sand supply shortage need to be co-ordinated by the local government and that of neighbouring Guangdong as currently sand suppliers cannot provide accurate timetables for

supply to the SAR. Given the circumstances, the Bureau is unable to set a fixed date for the conclusion of the project.

In addition, an accident involving exploding dynamite in Tianjin in Mainland China caused a halt to construction on the Ka-Ho Tunnel project - due to the discontinued supply of explosive materials from the Mainland in the wake of the accident.

This is the latest in a series of

construction plan adjustments for the Ka-Ho Tunnel project. In August of last year plans were modified in order to build section connections and a bridge for vehicles for the project first because of the impact of strict management measures controlling dangerous goods imposed by the Chinese government.

In addition to previous enquiries, Legislator Kwan Tsui Hang asked how compensation will apply to the developers on public project delays for Zone A and Ka-Ho Tunnel, to which GDI replied that relevant compensation would be based on the contract with the developers if delays continue.

post a month-on-month decrease to MOP283.8 billion for the month.

Loans

M ea n w hi l e, n e w l y a p p r o v e d domestic loans by local banks to the city’s private sector grew 0.6 per cent month-on-month to MOP397.9 billion in May, of which 65.2 per cent, or MOP259.4 billion, was denominated in HKD, whilst some other 28.8 per cent, or MOP114.6 billion, was MOP-denominated.

F u r t h e r m o r e, l o c a l b a n k s’ approved external loans rose by 0.2 per cent month-on-month to MOP367.8 billion. Of the total, 48.8 per cent, or MOP179.4 billion, were USD-denominated, whilst those denominated in HKD and CNY accounted for 27.2 per cent and 15.3 per cent of the total, respectively.

As at the end of May, the loan-todeposit ratio for the resident sector remained virtually stable from the previous month at 65.7 per cent. The ratio for both the resident and nonresident sectors rose 0.5 percentage points to 86.1 per cent.

Money supply

Currency in circulation grew marginally - by 0.1 per cent monthon-month in May - whilst demand deposits rose by 2.1 per cent monthon-month. Money supply (M1) thus jumped by 1.7 per cent from April and quasi-monetary liabilities grew 0.2 per cent.

M2, the sum of M1 and quasimonetary liabilities, hence increased by 0.4 per cent month-on-month to MOP465.3 billion as at the end of May. This amount, however, represents a year-on-year decrease of 5.7 per cent.

According to AMCM, MOP only accounted for 30.6 per cent of M2, while HKD made up 51.4 per cent.

The other two major currencies in M2 were CNY and USD, which accounted for 6.2 per cent and 9.4 per cent of the total as at the end of May, respectively.

Property Agency Real estate firm seeks licence renewal

Hospitality

Midland Macau suspends commercial operations

Banyan Tree appoints Fabrice Collot as General Manager

Annie Lao annie.lao@macaubusinessdaily.com

Midland Macau, a real estate company held by Midland Holdings Ltd., has had to suspend its operations for the month of July following the expiration of its real estate agency’s temporary licence on June 30. The group is currently in the process of renewing the licence, with expectations that the procedure will be completed by the end of July, according to Chinese language newspaper Macao Daily on Sunday.

On July 1, Midland Macau initiated the suspension of its operations and business activities.

Rules are rules

The new Real Estate Business Law, effective from July 1 2013, mandates a three-year temporary real estate licence for brokers that consequently requires property agencies in the city to apply for licence renewals before July 1.

Brian Chu, managing director of Midland Macau and Zhuhai said that the company would not withdraw from the Macau market and must merely complete the procedure of renewing its agency licence, requiring time. The Housing Bureau requires four management staff from Midland Macau to conduct the registration in person, and given that some of the company individuals needed to come from Hong Kong, Midland Macau has made a request to the Bureau to speed up the process. The renewal, however, will still take more than 20 days to complete, Mr. Chu said.

Currently, Midland Macau is taking the opportunity to increase staff training. The company also decided to close down one branch - a street-level ground floor office - and plan a move into a high-end office building, Mr. Chu said. The real estate firm plans to hire 50 new staff in the future and Chu stresses that Macau is still an important market for the company.

Banyan Tree Hotels and Resorts has announced the appointment of Fabrice Collot as the new general manger of Banyan Tree Macau. From June 2016 Collot is responsible for the overall running, administration and service standards of Banyan Tree Hotels and Resorts’ first property in Macau.

The company says Fabrice Collot joined Banyan Tree group in 2007 and served at Banyan Tree Al Areen Spa and Resort in Bahrain in the capacity of Executive Assistant Manager prior to being promoted to Hotel Manager one year before being transferred to the Angsana Riads Collection in Marrakech, Morocco.

The company says Fabrice Collot has amassed a wealth of expertise in government administration as well as the hospitality industry with over 27 years of experience in senior management roles across four continents.

Prior to joining Banyan Tree Macau, Collot served six years as General Manager in the Maradiva Villas Resort and Spa in Mauritius, Wanda Realm

Ma’anshan and Wanda Tianjin in China starting from 2011.

Fabrice Collot is a graduate of the School of Hospitality in Marseille, France, where he attained his Certificate of Cooking and Waiter and a double Master’s Degree in Hospitality and Cooking, Pastry, Wine Vintage (Sommelier) and enrolled in a Master’s Degree in Business Administrations from Cornell University. J.K.

Business Daily Wednesday, July 6 2016 5

Macau Law

Portuguese Prosecutor’s term renewed for two years

magistrates - António Queiróz and António Vidigal - both have indefinite licence to serve with the office and have yet to announce a return date to their home country as long as the Joaquim Teixeira de Sousa, one of three Portuguese MSAR’s invitation continues, notes the broadcaster. Following magistrates working in the Public Prosecutor’s Office of the the visit by the Portuguese Attorney General of the Portuguese MSAR, will remain for a further two years instead of returning Republic, Joana Marques Vidal, to the MSAR in April, to Portugal following the expiration of his current contract in August, Portuguese-language broadcaster TDM Radio reported. representatives of the two territories signed an agreement allowing for magistrates interested in working in the MSAR to The prosecutor will continue to serve the Public Prosecutor’s be commissioned for four years, with a single contract renewal Office, receiving a new contract - effective September 1 – for a further four years available, Business Daily reported. which has a two-year duration. The other two Portuguese

MICE Trade law changes seen as insufficient

More cheese needed to attract MICE Local business representatives applaud new trade law changes but believe only through increases in private and public initiatives - coupled with increased financial support - can a significant increase in the numbers of trade fairs be seen in the SAR. Nelson Moura nelson.moura@macaubusinessdaily.com

L

ocal business representatives consider the new changes to the trade law as positive but would like to see more private and public initiatives and an increase in the amount of financial support in the trade sector.

The comments come in the wake of the recent approval by the Legislative Assembly (AL) for new revisions to the Foreign Trade Law - introducing an ATA carnet system to simplify Customs clearance - in order to promote the local MICE and logistics industry.

“Current legislation is not essential for MICE and conventions.

In the end it boils down to organisation level and initiative.”

Filipe Cunha Santos, President of the Portugal-China Chamber of Commerce and Industry (CCILC)

The ATA system enables the free movement of goods across frontiers and their temporary admission to a Customs territory with relief from duties and taxes.

Authorities have stated that the new changes to the law will aid foreign exhibitors and businesses and facilitate the growth in the number of local MICE [Meetings, Incentives, Conventions and Exhibitions] activities, one of the goals presented in the city’s Five-Year Development Plan.

This comes after the total number of MICE events held in the first quarter of 2016 dropped by 20 compared to the same period last year - to a total of 191, according to information from the Statistics and Census Service (DSEC).

Participants and attendees of the SAR’s MICE events also decreased by 50.4 per cent to 124,960 in the first three months of this year, DSEC data also indicated.

Organisation, initiative and financing

“Current legislation is not essential for MICE and conventions. In the end it boils down to organisation level and initiative,” comments the President of the Portugal-China Chamber of Commerce and Industry (CCILC), Filipe Cunha Santos.

For the CCILC President, Macau could be the “MICE centre for the region” but Santos believes that this would require much improvement in both private and public initiatives as well as government support in order to catch up with its neighbouring regions.

“At the moment I think there are only three trade fairs in Macau per year,” lamented Santos, “while in Hong Kong and Singapore you can see plenty more, organised by the private and public sector - and highly subsidised by the local government

to promote them not just in Asia but the rest of the world.”

The organisation President also points out that “Hong Kong organises many conventions and trade expos of international level that unfortunately you don’t see the government in Macau organising. When there’s actual support provided it’s highly bureaucratic, something I already experienced before,” Santos told Business Daily.

According to the Hong Kong Tourism Board the city received a total of 314,000 overnight visitors for MICE events in the first quarter of 2016, more than double the number of visitors Macau welcomed for the sector in the same time period.

For the President of the International Lusophone Markets Business Association (ACIML), Eduardo Ambrósio, many of the visitors coming to Macau’s MICE events, on many occasions, may even have different motives for their trip.

“A lot of people that come to the trade fairs and expos just use it as an excuse to come here and gamble.

Since Chinese are limited to three entries to Macau they take advantage of the government invitations for the trade fairs to come and gamble. That’s my experience,” notes Ambrósio.

“The government has to be wiser; it can’t be spending money bringing business representatives that are just going to gamble and don’t even appear in the convention events,” the ACIML president told Business Daily.

Over-subsidise me

For Filipe Cunha Santos, the solution for increasing the number of MICE events in the city lies in augmenting the amount and value of subsidies, distributing them in a more objective way to the private sector in Macau and through the Macao Trade and Investment Promotion Institute (IPIM).

IPIM assumed the responsibility for co-ordinating the promotion of the convention and exhibition industry on January 1 of this year.

In the first quarter of 2016, subsidies

from the Macao Trade and Investment Promotion Institute (IPIM) for the first quarter of 2016 totalled more than MOP4.2 million (US$527,523), according to a May 25 dispatch in the Official Gazette.

Of that amount 83.29 per cent, amounting to MOP3.47 million, went towards the partial funding of the Dynamic Macau Business and Trade Fair in Jiangmen, Guangdong, according to Business Daily calculations.

Another 13 per cent of the subsidies went to the Macao Convention and Exhibition Feature.

“A lot of people that come to the trade fairs and expos just use it as an excuse to come here and gamble.”

Eduardo Ambrósio, President of the International Lusophone Markets Business Association (ACIML)

What about trade?

In term of the benefits to general trade between Portuguese-speaking countries and China through Macau, the ACIML President believes that “any legislation that eases trade is good.”

Santos on the other hand doesn’t see any harm in new legislation but also doesn’t believe it will make a big difference in the amount of trade flowing from Portuguese-speaking countries to China.

“Instead, [the government] should pass more specific measures such as financing different operations, establishing trade representatives from different Portuguese-speaking countries here for low prices, more financing of trade companies, and easing the hiring of foreign human resources,” Santos told Business Daily.

6 Business Daily Wednesday, July 6 2016

Macau

Lektou partners at ZLF Law Office plaque unveiling ceremony this February Law firm ZLF Law Office in Hengqin to be inaugurated this Friday

Delta brief Lektou Hengqin new office expects to break even in three years.

Joanne Kuai joannekuai@macaubusinessdaily.com

L

ocal law firm Rato, Ling, Lei & Cortés – Advogados’ (Lektou) new office in Hengqin - in partnership with Chinese company Zhong Yin Law Firm and Fongs of Hong Kong - is to be officially inaugurated this Friday.

Banking and Finance, Corporate and Commercial, Construction and Intellectual Property, and Special Registration of Trademarks are expected to be the main areas of practice of the ZLF Law Firm (ZhongYin/Lektou/Fongs), the firm’s Macau partners told Business Daily.

“Nonetheless, as a new law office, we, with our Chinese and Hong Kong partners in this venture, are expecting

to have new areas in the near future, depending upon the demand from our clients and potential clients,” said Lektou.

Opportunities and challenges

The joint venture in Hengqin comes after China’s implementation of the Pilot Measures for the Operation of Joint Law Firms in Guangdong Province.

The measures enable law firms from the two Special Administrative Regions to open new firms by partnering with Chinese legal companies in the Province’s three Free Trade Zones - namely, Qianhai in Shenzhen, Nansha in Guangzou and Hengqin in Zhuhai.

“We see it as a corollary of our Macau practice and, of course, the step for the integration that will occur in 2047 and 2049,” said Lektou. “We consider that Hengqin, rather than a new case of success as Macau was, is a new opportunity and with the support of the Central Government will become a prime leisure destination for Chinese and international tourists.”

Nevertheless, the Macau partners admit they’ve already encountered some challenges, such as cultural differences, especially in the business culture. The law firm reckons it is “a learning process that may make us better serve our clients and give them more options than solely the Macau market.”

Two-way channel

Lektou said the new joint law firm on Hengqin Island will target both regional and international clients, mainly Mainland corporations wanting to enter the Macau and Hong Kong market through Hengqin, as well as Macau investors and clients based in Portuguese-speaking countries that are willing to establish a basis on the island.

A plaque unveiling ceremony took place in February to inaugurate the carefully chosen premises for the partners, as “there are not too many available”. The construction work on the project was recently finished and the office is “ready to open for business”.

ZLF Law Office in Hengqin

Some entities of Portuguesespeaking countries have already enquired about the conditions for setting up in Hengqin, said Lektou, and the group expresses confidence in increasing interest from its clients and potential clients to foster its current businesses and further growth.

“We expect to at least break even in three years. Hopefully, we can do it before that. Of course, we all hope to expand the business and make profits,” said Lektou. “Nonetheless, as we were the pioneers in terms of integration of cultures in terms of partners, we also expect to be pioneers in this specific market and more than profits we shall consider the experience for our organisation and for our lawyers and staff.”

Hengqin and beyond

Macau lawyers from Lektou, both Portuguese and Chinese, who have acquired licences to practice in Hengqin will be stationed on the island with the intention to place “as many Macau lawyers as demand requires in the future”.

The law firm believes that being present plays an important role in exploring the new market. In addition, it expresses a desire “to participate in an even more international environment which is very useful for the future of our collaborators”. “ I t w i l l b e a n o u tsta n di n g achievement and in case we are successful, which we truly believe we will be, we may even consider opening offices in other locations, such as in the Portuguese-speaking countries or in the Asia Pacific Region,” said Lektou.

While for the time being, public transportation and cars with doublelicence plates are used by the Macau lawyers operating out of the island, Lektou also expressed hope for beneficiary policies for Hengqin to be launched as soon as possible – such as an allowance for Macau licensed vehicles to travel to Hengqin freely - that “will make our life very easy and will give us a second workplace within 10-20 minutes from our Macau office”.

Business Daily Wednesday, July 6 2016 7

Macau Gaming Bernstein: Casino receivables mostly insulated from junket woes

Marginal protection from higher provisions Gaming analysts say direct VIP business remains a more profitable business relative to junket VIP. Joanne Kuai joannekuai@macaubusinessdaily.com

A

nalysts at brokerage Sanford C. Bernstein Ltd. say Macau junket operators are facing an increasingly negative environment, with direct VIP revenue growing as a proportion of total due to the sharp decline in junket VIP, according to a note issued yesterday.

‘We believe the recent expansion of casino receivables relative to gaming revenues has more to do with the growing proportion of the direct VIP business as a result of a shaper decline in junket VIP,’ reads the note.

‘Macau casino operators appear to be managing the risks prudently and direct VIP business remains a more profitable business relative to junket VIP despite higher provisions for bad debt.’

Optimistic outlook

Analysts Vitaly Umansky, Clifford Kurz and Simon Zhang wrote that they believe the direct VIP pickup

has more to do with a rapid decline of junket-driven VIP, rather than casino operator’s concerted efforts to grow the business.

“We estimate that direct VIP rolling chip volumes also experienced a decline over the past two years by 5 per cent to 10 per cent, albeit a lower rate of decline than junket VIP,” said

the analysts.

However, they believe that the outlook is “more sanguine”, citing reasons such as direct VIP being more profitable than junket VIP, casino operators acting more prudently, most of the operators still generating the bulk of their earnings from the mass business, and the expectation for VIP trends to improve.

In addition, the analysts pointed that that Macau casinos’ balance sheets are still healthier than those in other major gaming jurisdictions.

To give one example, the Bernstein analysts say that Marina Bay Sands in Singapore has twice the received balance and only one half of the VIP revenues of Sands China.

Greater profits

Bernstein noted that direct VIP is ‘far more profitable’ than junket VIP, and by bypassing junket operators, casinos can potentially achieve ‘a much higher EBITADA margin’ from Property

Macau buyers seek assistance in Zhuhai property scam Macau buyers claim deceit by Zhuhai developers when buying commercial stores in a luxury shopping mall in Zhuhai.

Annie Lao annie.lao@macaubusinessdaily.com

A group of 50 Macau commercial store buyers in a Zhuhai shopping mall are seeking help from the MSAR Government for breach of leasing contract, claiming to have been deceived by Zhuhai developers.

About 200 Macau residents who bought commercial stores worth about 100 million yuan (US$ 15 million) in a high-end shopping mall called MO Mall, located on 2095 Ying Bin Nan Road in Zhuhai, have signed a petition complaining about a breach of contract on their leases.

Cheong I Man, one of the purchasers of property in Mo Mall and also the representative of the Macau residents group yesterday submitted a petition to the Government Headquarters office and the Macau Central People’s Government Liaison Office, requesting assistance.

In the letter the buyers urge the government to intervene, enhancing consumer rights for Macau residents in Zhuhai.

The purchasers claim to have been deceived by two Zhuhai developers Zheng Bang Real Estate Development

Company Ltd. and Zhuhai Hua Xu Investment Company Ltd. In 2013, the two developers promised by contract that the buyers would be guaranteed a lease contract from 2013 to 2022 - with total rental income worth 7 per cent to 9 per cent above what purchasers normally pay for commercial stores in an attempt to lure buyers to purchase the stores in the mall, according to Ms. Cheong.

The first phase of the leasing contract ended on June 29 2016, having commenced June 22, 2013. However, the developers asked the buyers to reduce rental fees by 50 per cent, which was not in line with what the contract promised – detailing no more than a 10 per cent reduction in rent, Ms. Cheong explained.

The 50 per cent cut in rent has caused financial losses for the buyers.

“Some of the buyers are already retired and depend upon the income generated by the lease contract, but now they have no income to live on,” Ms. Cheong told Business Daily. Most of the Macau buyers had previously sold their own properties in Macau in order to buy the commercial stores in Zhuhai and they still have to repay the loan to the bank, Ms. Cheong said.

VIP players, attributable to factors within casino operators’ control such as the player commission and rebates, amount of credit provided to players, the average period of debt repayment, and the ability to collect on outstanding debts.

Direct VIP gross gaming revenue would need to rise significantly from current levels before casino operators would experience a noticeable impact on earnings.

The analysts added that Wynn, MGM and SJM are likely to be the least affected by rising provisions for direct VIP, largely given the relatively small representation of direct VIP GGR. Galaxy and Melco are at the other end of the spectrum and are more exposed to rising provisions. ‘Yet even then the impact to EBITDA for Galaxy and Melco from higher provisions in direct VIP would likely amount to around 7 per cent at the high-end of the range,’ the brokerage added.

Aviation

Direct flight links MSAR to Manado, Indonesia Some 205 Chinese travellers took off from Macau International Airport and arrived in Ratulangi International Airport, North Sulawesi, Indonesia

by Lion Air’s Boeing 373 on Monday, reported Chinese News Agency. This represents the opening of the direct link between the SAR and Manado, a city on an Indonesian island.

North Sulawesi Governor Olly Dondokambey expects that direct visits from a number of cities in China can be done regularly so that the Indonesian government’s target to increase tourist arrivals can be achieved.

Lion Air is seeking to attract 30,000 Chinese tourists to Manado by yearend. “From now, we will have daily flights from six Chinese cities to Manado,” said Rusdi Kirana, Lion Group boss, and a member of the Presidential Advisory Board.

The six cities are Macau, Shenzhen, Chongqing, Wuhan, Shanghai and Changsha. Rusdi said the six cities have huge market potential, large populations and high purchasing power.

The Indonesian Government has expressed its target of attracting 1.2 million Chinese tourists to the country and North Sulawesi can be one of the main attractions, says its governor.

“We believe North Sulawesi is a proper travel destination [for tourists] from Asia Pacific, particularly China with its huge market,” said the governor. J.K.

8 Business Daily Wednesday, July 6 2016

Greater China GDP

Government revises up size of 2015 economy to reflect R&D The growth rate for 2014, also adjusted fractionally, stayed at 7.3 per cent.

C

hina has revised up the size of the world’s second-largest economy by adding research and development (R&D) spending into its calculations for gross domestic product, the statistics bureau said yesterday.

The move will help bring China’s calculations for the value of its goods and services more in line with global standards set by the United Nations and other world organizations, amid widespread investor scepticism about the accuracy of the country’s official data.

The new method has increased the value of GDP but has only slightly affected annual growth rates, the National Bureau of Statistics (NBS) said on its website. Growth for 2015 was amended marginally, but basically remained at 6.9 per cent, the slowest in a quarter of a century.

The value of 2015 GDP was revised up by 1.3 per cent to 68.55 trillion yuan (US$10.3 trillion) from the previously announced 67.67 trillion yuan, the bureau said.

“Rapid growth of R&D spending and activities have played an increasingly important role in promoting economic growth, but the traditional accounting method cannot fully reflect such an impact,” the bureau said.

“This has been a long time coming.

Obviously, in terms of the timing, it is quite convenient for them in some respects,” said Julian Evans-Pritchard at Capital Economics in Singapore.

“They’re already starting to push up against their growth target for this year and more generally for the 5-year target of 6.5 per cent growth. This makes that a little easier because R&D spending has been increasing more rapidly than the economy as a whole.”

China will report second-quarter growth figures on July 15.

The bureau said the change mainly reflects contributions to growth from R&D spending. Such spending that brings about economic benefits for firms will be calculated as fixed capital formation, rather than intermediate consumption.

Key Points China revises up the size of 2015 GDP by 1.3 pct Revises 2015 GDP growth rate marginally, still at 6.9 pct Says new method has slightly affected annual growth rates Could make it easier for gov’t to hit growth target - analyst

China aims to boost its R&D spending as a share of GDP to 2.5 per cent by 2020.

The GDP growth rate for 2014, also adjusted fractionally, stayed at 7.3 per cent, while growth in 2013 was revised to 7.8 per cent from 7.7 per cent.

China also is studying new ways to assess the economic contribution from industries seen as part of the “new economy”, such as biotech firms and online retailers, a deputy head of the statistics bureau said in speech published on Sunday. Reuters

Internet trend

Millions of domestic reality shows succeed starring themselves Wang Jianlin, founder of Dalian Wanda Group, streamed video of himself playing poker with associates on a private jet.

Lulu Yilun Chen

Pole dancing, bungee jumping, a woman eating maggots: at any given hour, millions of Chinese are livestreaming all of this and much more on their smartphones.

Crazes come and go at necksnapping speed in the world’s largest online marketplace, but China’s livestreaming phenomenon shows staying power and is already a significant business. Tiny start-ups and Internet

giants alike are making money selling virtual gifts—flowers, cars, toys—to people keen to reward their favourite live-streamers. As the business matures, Alibaba Group Holding Ltd. and others may start selling ads on the most popular streams.

“This isn’t a fad that will disappear, as the business model has proven to be viable,” said Zhu Xiaohu, managing partner at GSR Ventures Management Co., who invested in Inke, one of about 200 live-streaming start-ups that have

attracted an estimated US$750 million in venture capital. “But the amount of interest in this sector is so high, bubbles could be forming and many will fail.”

In the U.S., tech companies are eager to make live streaming more popular.

Twitter Inc. last year acquired the app Periscope and has integrated live video into its main product. Facebook has made it possible for users to stream live and has boosted the prominence of such broadcasts in its news feed. Mobile app YouNow has taken off among teens.

But the Chinese version of livestreaming has caught on much more quickly and broadly. Tens of millions of young people (many of them single men) live in soulless megalopolises far from where they grew up and are seeking human connection—even if it means watching and interacting with a stranger eating dinner. “China’s wide adoption of mobile phones and the loneliness brought on by a fast-paced migrating society means people are more willing to connect this way,” says Jia Wei, who runs the live-streaming division for Nasdaq-listed social media app Momo Inc. Many streams -known as showrooms- feature ordinary people doing remarkably ordinary things. Zhou Xiaohu, a 30-year-old safety foreman at a construction site in Inner Mongolia, is one of 10 million active users on Inke, a two-year-old Beijing start-up.

Like many Inke users, Zhou logs on after work and watches until bedtime.

Zhou, who’s single and bored, flicks through other people’s showrooms and sometimes streams footage of himself eating dinner and watching television.

He has plenty to choose from; as many as 60,000 people are broadcasting at the same time.

“It satisfies my needs,” says Zhou, who has spent about 700 yuan (US$105) gifting people he follows and earned about 200 yuan in return. “Think of it as

a substitute for TV shows and games.”

Li Wenqi, a 31-year-old Chinese hairdresser based in Kobe, Japan, takes followers to tourist attractions and dining spots. A tour of Tokyo’s redlight district is his most popular stream so far. More than 3,000 people watched as Li wandered the neighbourhood for about six hours—even though he never ventured indoors. “I just have this urge to share,” he says. “I want others who haven’t been to Japan before to know what it’s like here.”

Li has delegated two trusted fans to maintain order in his showroom; they can silence or kick out viewers who use vulgar language or stir up trouble.

Two months into his side-line, Li has

‘The most popular streams attract as many as 400,000 people at a time’

Business Daily Wednesday, July 6 2016 9

Greater China Mainland markets

In Brief

Commodities mostly fall as stimulus hopes pared back The metal surged by its 6 per cent upside limit on Monday.

Manolo Serapio Jr

Chinese commodities mostly dropped yesterday after big gains in the prior session, driven by expectations of stimulus measures to spur economic activity in the world’s biggest consumer of raw materials.

But prices came off session lows and some futures rose after a private survey showed China’s services sector activity hit an 11-month high in June, indicating that Beijing is making progress in rebalancing the world’s No. 2 economy.

The strength in services could offset some of the weakness in manufacturing, economists say, reducing the urgency for more stimulus.

Given a robust services sector, sentiment towards the Chinese economy “is going to be cautious rather than outright fearful,” said Vishnu Varathan, a senior economist at Mizuho Bank in Singapore.

In deciding over stimulus measures, countries were also likely to wait for Britain to make the first move to cushion the impact of its vote to leave the European Union, said Varathan.

“A lot of the stimulus that might come through would probably do so with a bit of a lag primarily because a lot of the policymakers elsewhere don’t want to jump the gun,” he said.

“It’s also unfortunate that the post-Brexit rally on stimulus hopes got stretched a bit too far so the correction is, to some extent, self-inflicted.”

Agriculture futures led losses, with soymeal on the Dalian Commodity

earned about 15,000 yuan from virtual gifts sent by fans on Momo’s app.

The most popular streams attract as many has 400,000 people at a time.

They often feature famous people. Wang Jianlin, founder of real estate colossus Dalian Wanda Group, streamed video of himself playing poker with associates on a private jet via an app backed by his son. More than 300,000 people watched, and many sent virtual gifts to China’s richest man. Many showrooms feature women wearing revealing clothes and doing pretty much anything that comes to mind—shopping, playing video games, seductively eating fruit.

Top streamers earn hundreds of thousands of dollars a month,

Exchange closing down 3.2 per cent at 3,360 yuan (US$504) a tonne, but off a session low of 3,274 yuan.

The most-traded Dalian soymeal contract hit the highest since at least 2000 on July 1.

Dalian soybeans dropped nearly 2 per cent and rapeseed meal on the Zhengzhou Commodity Exchange tumbled 4.5 per cent. Dalian corn slipped 2.5 per cent.

Rainy weather over the July 4 holiday weekend in the United States also weighed on corn and soy prices, traders said.

Construction steel rebar on the Shanghai Futures Exchange closed 0.4 per cent lower at 2,402 yuan a tonne after falling more than 4 per cent at one point.

Raw materials coking coal and coke on Dalian fell nearly 2 per cent. But iron ore ended 2.1 per cent higher at 440.50 yuan per tonne after slipping as much as 2 per cent.

Key Points Agriculture futures big losers led by rapeseed meal, soymeal Iron ore comes off lows after rebar cuts losses Nickel firm on potential Philippine mine closures China June services activity hits 11-month high Shanghai nickel was the lone gainer in base metals, rising 3.4 per cent amid worries over potential mine closures in the Philippines. The metal surged by its 6 per cent upside limit on Monday.

A rally in Chinese commodities in April soon turned into a rout after exchanges stepped in to curb speculative activity. Reuters

Liveable cities

Traffic, environment biggest concerns More than 75 per cent of Chinese people surveyed said they consider traffic the most important factor in creating liveable cities.

According to a survey conducted by China Youth Daily, which was published in yesterday’s edition of the newspaper, more than 85 per cent of 2,003 respondents said they are concerned about building liveable cities, and in addition to transportation, they also stressed a clean environment and safe communities.

Nearly 60 per cent of respondents were satisfied with the living conditions in their cities. However, about 14 per cent expressed discontent.

Central bank

PBOC panel says don’t underestimate risks

according to Momo’s Jia. They get as much as 50 per cent of the revenue generated from admirers’ virtual gifts; the hosting companies keep the rest.

While streaming is a relatively small chunk of revenue for big companies like Alibaba and Tencent Holdings Ltd., the addictive videos are a useful way to keep users locked into their sites. Smaller companies are doing a thriving business. In the first quarter, Momo generated US$15.6 million in gift commissions.

In an effort to stand out on camera, live streamers have been known to pull crazy stunts—drinking themselves into oblivion, say, or munching maggots.

China’s regulators are watching and

cracking down on anything deemed pornographic or a potential danger to the state. When dozens of young women popped up online suggestively eating bananas, the authorities were quick to kick them off the web. The official scrutiny has forced companies to hire teams of censors; at Inke 1,000 people screen every showroom for content that’s critical of the government, pornographic or violent.

Censorship isn’t much of a concern for Li since he focuses mostly on travel and leisure in Japan. “I enjoy interacting with other people this way,” he says. “It’s much faster and more gratifying than other forms of social media.” Bloomberg News

China’s central bank said it’s closely monitoring domestic and external risks to the economy and that the complexity of the situation shouldn’t be underestimated. The People’s Bank of China cited market volatility spurred by the U.K.’s decision to leave the European Union, according to a statement released late Monday after a quarterly monetary policy committee meeting. Domestic economic and financial performance remains stable overall, the advisory panel led by PBOC Governor Zhou Xiaochuan said. The central bank was more upbeat on the U.S. economy, which it said is “recovering moderately.”

Monetary policy

Enough room to fine tune money in 2H Policymakers will have more room to fine tune monetary policy and money supply growth will likely be slower in the second half of 2016, the state-owned China Securities Journal said in a commentary yesterday. At the same time, the nation’s economy will still require fiscal support, the paper said. Consumer price inflation already reflects the impact of liquidity injected into the economy over the past half year, the paper said, while further price increases are likely to be limited in the second half of the year.

Tourism

Mainlanders visiting Sri Lanka increase While Sri Lanka’s tourist arrivals only marginally increased by 2.2 per cent, arrivals from China increased 28.8 per cent in June 2016, compared to the same period last year, the data released yesterday by the Sri Lanka Tourism Development Authority (SLTDA) showed.

Data showed Chinese tourists contributed the largest growth, with 19,952 tourists arriving in the country in June. The month recorded 118,038 tourists arriving in the country compared to the 115,467 arrived in June 2015. India still maintained the largest amount, with the arrival of 27,068 tourists, 4.7 per cent increase than a year before.

10 Business Daily Wednesday, July 6 2016

Greater China

Challenging environment

With ‘2-and-20’ fees under fire, Asia hedge funds seek cost cuts They lost 2.4 per cent this year through the end of June.

Klaus Wille and Suzy Waite

W

hen Ruhong Huang’s Hong Kong-based hedge fund crossed a key milestone after gathering US$100 million in assets, he made an unusual choice. Rather than continuing to go it alone, he decided to join a “platform” to help his firm with everything from hiring administrative staff to handling compliance.

While Huang’s move is uncommon, he isn’t alone. Hedge fund platforms in Asia, which traditionally have helped fledgling firms with a few million dollars set up shop, are now seeing bigger managers turn to them to help save as much as 90 per cent of their annual operating costs. That’s signalling a fundamental change in the economics of the hedge fund business, as investors are balking at the hefty “2-and-20” fees that were once a fixture in the industry and compliance costs are spiralling higher.

“The market has shown to be unforgiving of funds that lack strong operations,” said Huang, whose Credence Global Fund tapped the services of a firm called Swiss-Asia Financial Services Pte. “The costs and efforts of building out the institutional infrastructure to support a bigger fund add up very quickly and takes a lot of time.”

This shift is happening against an increasingly challenging environment for hedge funds, which had been struggling even before Britain’s vote to leave the European Union sent markets tumbling. Rising regulatory costs and volatile markets have led to more fund liquidations than launches for the first time in at least a decade, according to Eurekahedge Pte, and investors are pulling the most money from hedge funds since the global financial crisis. The US$2.9 trillion industry is headed for its worst first-half performance

since 2011, stymied by global shocks from China to London.

“I do think a greater proportion of start-ups will join a platform as the regulatory and compliance costs have risen, and look like they will keep rising in the future,” said Howel Thomas, who runs a US$37 million Hong Kong hedge fund, Wykeham Capital, which is supported on a platform run by Geomatrix HK Ltd.

“Time spent on administration and operations is time spent away from what really matters” Ruhong Huang, Credence Global Fund

Asia’s hedge funds lost 2.4 per cent this year through the end of June, according to Singapore-based Eurekahedge, the worst start to a year since 2010. Investors, who’ve traditionally paid 2 per cent in management fees and 20 per cent of investment gains, are pushing back. The average hedge fund management fee stood at 1.63 per cent last year and the profit share has declined to 17.9 per cent, according to an annual survey published

by Deutsche Bank AG in February.

Helping start-ups

As recently as three years ago, Swiss Asia catered to managers with assets ranging from US$2 million to US$40 million, according to Chief Operating Officer Steve Knabl. Today, the firm has two hedge funds on its platform that are larger than US$75 million.

Other firms that provide services, including OP Investment Management and Rogers Investment Advisors, also say they’re being approached by bigger hedge funds.

Such providers offer hedge funds a range of services, from giving them office space to assisting them with operational infrastructure, and even helping them hire lawyers and prime brokers. Many also have the capability to help hedge funds start operations across different markets. Some firms base fees on a percentage of assets, while others negotiate rates based on the level of support required. Hedge funds with more complex strategies and high-volume trading typically have to pay higher rates.

Cost savings

Hedge funds seeking to set up shop in Asia typically spend between US$400,000 and US$2 million a year, according to industry estimates. A potential US$2 million in annual costs can be reduced to US$150,000, said Ed Rogers, chief investment officer of Rogers Investment Advisors, which runs operations in Hong Kong and Tokyo.

“What sane businessman doesn’t want to save US$1.85 million in costs as a start-up?” said Rogers, who was previously the head of prime services and sales in Tokyo at Deutsche Bank AG before starting his own firm in 2006.

At the end of 2013, Black Crane, a hedge fund with offices in Hong Kong and Singapore, joined Wolver Hill Asset Management Asia, another firm overseen by Rogers, with US$15 million in assets. The manager now has US$40 million, according to Rogers.

While such firms aren’t unique to Asia, there is more demand because the region has different jurisdictions and many markets are not easily accessible for a single asset manager.

The industry is also comparatively smaller, with assets at US$172 billion, compared with US$1.5 trillion in the U.S., and average fund sizes are about half of those in the U.S. Asia has about ten service-provider focused firms such as Rogers and Swiss-Asia, founded in 2004 by Olivier Mivelaz, a former executive at Swiss bank Banque Cantonale Vaudoise. They are different from hedge fund “seeders,” or strategic investors,

who often provide startups with seed capital in exchange for a stake in the funds or the fund management firm.

They’re also different from prime brokers, who provide services like lending securities for shorting, executing trades or lending money.

About US$2.8 billion, or 2 per cent of Asia-based hedge funds, are managed on a service-provider focused platform, according to Eurekahedge.

‘Tenants matter’

Alvin Fan, chief executive officer of the Hong Kong-based OP Investment Management, says that he is now seeing funds with assets of between US$200 million and US$500 million talking to him about a launch. Fan also said he is seeing an increase in funds that are growing their assets under management and are still opting to stay.

“Those funds would not have joined five years ago because they could afford their own infrastructure at the time,” Fan said.

There are some drawbacks. Some institutions prefer standalone hedge funds because of concerns regarding intellectual property and lax supervision from platforms, Fan said.

“It’s essentially like sharing a building together. Tenants matter. Neighbours matter. Compliance matters,” said Fan, who was previously head of investor relations at OP Financial Investments Ltd., a listed investment company in Hong Kong. “‘Flexible supervision,’ which we hear a lot, is like a mall with paper-thin walls the whole structure burns down at the light of a match.”

For Credence Global Fund’s Huang, joining up with Swiss-Asia allows him to spend more time time doing what he does best: Investing money. The fund, which employs relative-value strategies, has returned an annualized 18.6 per cent since its inception in March 2011.

“Time spent on administration and operations is time spent away from what really matters,” Huang said. “By outsourcing these tasks, I can focus on performing well.” Bloomberg News

Business Daily Wednesday, July 6 2016 11

Asia Monetary policy

Australia’s central bank silent on outlook as it holds rates Political uncertainty at home and abroad had argued for keeping the policy powder dry for now.

Wayne Cole

A

ustralia’s central bank kept interest rates at an all-time low of 1.75 per cent yesterday, a widely expected decision given political uncertainty at home and abroad and a lack of timely data on domestic inflation.

The Reserve Bank of Australia (RBA) ended its July policy meeting with no guidance on whether it might

ease any further, disappointing some who had looked for an explicit easing bias.

“Further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate,” was the dry conclusion of RBA Governor Glenn Stevens.

Vote counting continues after elections in Australia, leaving the country without a government, while

scars from Britain’s decision to leave the European Union are still fresh.

Yet a Reuters poll of 37 economists found the majority still looked for the central bank to cut in August, while markets put the probability at 50-50.

With further easing seen likely in Europe and Japan and greatly diminished prospects of a tightening in the United States, the RBA will be under pressure to cut if only to limit any appreciation in the local dollar.

All eyes on inflation

Official figures for second-quarter inflation are also due on July 26 and

Key Points RBA holds rates, offers no guidance on further cuts Market wagering on easing given low inflation, global stimulus Retail sales rise sluggish 0.2 pct in May, prices soft Trade deficit widens to A$2.2 bln, but export volumes firm

RBA Governor Glenn Stevens

another weak reading would greatly bolster the case for another rate cut.

Inflation has been running at just 1.5 per cent, uncomfortably below the RBA’s 2 to 3 per cent target band.

The impact of poor pricing power was clear in the retail sector as data from the Australian Bureau of Statistics showed sales up a slim 0.2 per cent in May, not much better than April.

That was disappointing given the retail industry has sales of A$290 billion a year and is the second biggest employer with 1.25 million workers.

Fierce competition from new entrants from offshore has depressed prices for everything from food to clothes. That eats into dollar revenues even as more goods are sold.

“I anticipate we’ll be dropping prices over the course of the next 5 years,” John Durkan, managing director of the giant Coles supermarket chain said recently. “I don’t see prices increasing during that period.”

It is this disinflationary sea change that prompted the RBA to cut rates in May. Weak prices have also been a feature of Australia commodity exports in the last couple of years, with ample supplies hurting iron ore and coal in particular.

Yet the hundreds of billions of dollars spent on expanding mines means the country is shipping more of the stuff than ever, providing a crucial boost to real economic growth.

Exports alone accounted for almost half the 3.1 per cent growth enjoyed in the year to March.

Trade data for May out yesterday showed exports rose 1 per cent as shipments of iron ore and coking coal both gained in the month. Exports to China were up almost 10 per cent on May last year despite worries about sluggish growth there. Reuters

Asian currencies

Brexit mess boosts prospects of regional central bank easings The vote has also delayed expectations of U.S. Federal Reserve interest rate increases this year.

Britain’s vote to leave the European Union has ramped up the urgency for some Asian central banks to ease monetary policy, as a prolonged period of uncertainty threatens

“Not everyone has the same room for manoeuvre” Frederic Neumann, co-head of Asian Economics research at HSBC

a wider downshift in trade and investment.

Economists warn delayed investment decisions and a hit to jobs and consumption from Brexit

will hurt exports from Asia’s tradereliant economies, which are already reeling from weak external demand, particularly from China.

A round of Asian central bank policy meetings in the region this month could reveal an increased bias to ease policy, if not deliver outright interest rate cuts.

“The uncertainty of the EU and UK relationship is likely to put a dampener on Asia’s exports to that region, perhaps extending Asia’s trade recession,” said Khoon Goh, head of research in Asia at ANZ in Singapore.

HSBC sees increased prospects of easing in Australia, New Zealand, South Korea, Japan, China and Thailand although the risks of inflation from currency weakness could constrain policy options in emerging markets like India, Indonesia and Malaysia.

Central banks in South Korea and Malaysia meet next week and while economists don’t expect them to ease either, their policy rhetoric could reveal a more dovish bias.

Korea last week unveiled an US$8.5 billion economic support package to weather the Brexit shock, giving the central bank some room to hold off immediate policy stimulus.

And despite policy constraints, pricing for a Bank Negara Malaysia

rate cut has increased in recent days with 5- and 10-year government bond yields falling to their lowest since 2013.

Safe-haven, Fed impact

The Brexit vote has also delayed expectations of U.S. Federal Reserve interest rate increases this year.

That may pressure smaller and vulnerable economies like Singapore, whose economy is dwarfed by trade flows, as a higher local currency would weigh on its already struggling exports.

Nowhere is the currency effect more acute than in Japan where the central bank in January introduced a negative interest rate policy in a desperate effort to revive the world’s third-largest economy.

The yen’s spike last month, led by Brexit-driven safe-haven flows, has increased expectations the Bank of Japan’s (BOJ) will further expand monetary stimulus at the July 28-29 meeting.

“Luckily, the BOJ is not likely to sit idly by: expect officials to try to lean against an overly rapid climb of the yen. Direct FX intervention is certainly one possibility, but additional monetary easing will need to be part of the mix,” HSBC’s Neumann said. Reuters

12 Business Daily Wednesday, July 6 2016

Asia GDP

Philippines cuts 2016-17 growth targets New president’s economic team has promised sweeping changes to maintain robust economic growth.

T

he Philippines yesterday cut its growth targets for this year and next, but vowed to spur activity in one of Asia’s fastest growing economies by spending more on infrastructure.

The economy is now expected to grow 6-7 percent this year, from the previous forecast of 6.8-7.8 percent, Budget Secretary Benjamin Diokno told a media briefing.

For 2017, the growth target was trimmed to 6.5-7.5 percent from 6.67.6 percent. The economy grew 5.9 percent in 2015.

Weak farm output due to drought and external headwinds were expected to drag on overall growth into next year, Diokno said.

To support activity, the government will increase next year’s budget deficit to 3 percent of its gross domestic product (GDP) from 2.5 percent this year, which had already been upwardly revised, he added.

The deficit ceiling will be at 3 percent from next year through the end of the six-year term of President Rodrigo Duterte, who was sworn in on June 30.

For the rest of Duterte’s term through 2022, Diokno said annual GDP should grow by 7-8 percent.

“We will make sure we will not put projects in the budget that are not ready for implementation,” he said.

Duterte’s economic team has promised sweeping changes to boost infrastructure, fix traffic congestion, improve investment frameworks and maintain robust

economic growth.

Infrastructure spending will increase to 5.2 percent of GDP next year from a projected 5 percent this year, Diokno said.

Th e g o v e r n m e n t i s a i m i n g for a wider tax base to fund increased spending. Yesterday, Finance Secretary Carlos Dominguez said he will review ex e m p t i o n s t o a 1 2 p e rc e n t sales tax.

The government is targeting a national budget of 3.3 trillion pesos (US$70.4 billion) in 2017, up from 3.002 trillion pesos for this year. Reuters

“We will make sure we will not put projects in the budget that are not ready for implementation” Rodrigo Duterte, Philippine President

Philippine President Rodrigo Duterte

Election

No alternative to Abe seen in Japan’s industrial heartland Ruling LDP party is set to maintain its majority in the upper chamber poll on Sunday.

Growing apathy is also clear, with 23 percent of respondents saying they support no party and 26 percent not knowing who to vote for with the election nearing.

Masatsugu Horie and Kazunori Takada

More than three years into his second term as prime minister, Abe has stressed the need for political stability at a time of global uncertainty following the U.K.’s decision to leave the European Union and ahead of the U.S. presidential election. His ruling coalition is seeking a two-thirds majority that would let him start a process to revise the U.S.-imposed pacifist constitution.

Abe came into office in December 2012, vowing to revive the economy with a three-pronged strategy of “bold” monetary easing, fiscal spending and structural reforms.

Early optimism led to a doubling of the benchmark stock index as a weaker yen boosted exporters and tourism. Corporate profits soared to record highs, though jitters about the economic outlook made companies reluctant to boost wages and investment at home.

The yen since the start of 2016 has reversed course. It hit the strongest level against the dollar since 2013 after the June 23 Brexit vote.

Abe last month decided to postpone a consumption tax increase, citing worries it could further erode consumer spending and dent the nation’s economy. Opposition parties say this shows that Abe’s policies have flopped.

Democratic Party chief Katsuya Okada on Friday called Abenomics a “failure,” saying the prime minister had wasted “3 1/2 years of precious

Shuttered factories dot the streets of Osaka, a city that once reverberated with the sound of trucks delivering all manner of parts to Japan’s industrial giants.

Signs advertising available space underscore how competition from places like China and South Korea has eaten away at the fortunes of small companies in what was once a thriving manufacturing heartland. Prime Minister Shinzo Abe has done little to turn this situation around, laments Koichi Kawakami, who owns small machinery parts company.

Even so, Kawakami, the 53-yearold president of Shinsei Co., says he’ll probably vote for Abe’s ruling Liberal Democratic Party in Sunday’s election for the upper house of parliament.

“I really don’t have anybody I want to vote for,” Kawakami said. “The opposition parties can’t seem to pull themselves together, so I’m guessing Abe might be the best option in terms of stability.”

Kawakami’s view is reflected in the polls. Fifty-five percent of respondents to an Asahi survey published Monday said Abe should rethink his economic policies. Even so, his LDP party is set to maintain its majority in the upper chamber, receiving support from 31 percent of voters, far outpacing the 9 percent support for the main opposition Democrats.

Touting stability

55 per cent of economy

Small- and mid-sized companies, or SMEs, generate about 55 percent of Japan’s economic activity, according to government data. A survey released by the Bank of Japan on Friday showed sentiment among such firms worsened in the second quarter while that for large manufacturers showed a surprise improvement.

Kawakami, who employs four fulltime and about 50 part-time workers, said that last year’s increase in the minimum wage led to higher costs.

Sales, he said, were down 20 percent in May from a year earlier.

“There’s nothing wrong with pursuing external policies such as foreign exchange, but he should leave wages and other domestic issues to us to deal with,” Kawakami said.

Yen dynamics

Fellow Osaka business owner Mamoru Shimada, whose company supplies auto parts for Toyota Motor Corp., says he supports the LDP for having helped boost corporate profits. But he

added that owners of smaller firms shouldn’t tie their business strategies to the weaker yen as market moves are beyond their control.

“It’s too simplistic to think that production will be moved back to Japan just because of the yen’s weakness,” Shimada said. “Japan has to make unique high-tech products.

Currency rates won’t be an issue if that’s the case.”

Takashi Noumi, who runs a processing plant for parts used in ships and large construction vehicles, says Abe has not done enough to cultivate the manufacturing sector.

“Abenomics has helped bring in foreign tourists but has shown little interest in supporting the manufacturing sector,” he said, citing the takeover of Sharp Corp. earlier this year by Taiwan’s Foxconn Technology Group.

Still, in a country that has been led by seven prime ministers over the past decade, Noumi said political stability is important. ”It’s not good for the ruling coalition to maintain their current strength, but I also don’t want the government to be overturned,” he said. Bloomberg News

‘Democratic Party chief Katsuya Okada on Friday called Abenomics a “failure”’

Prime Minister Shinzo Abe

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time” in power by failing to implement much-needed structural reforms while the yen was weak.

Business Daily Wednesday, July 6 2016 13

Asia Stock market

In Brief

Beer drinkers in Thailand power Singapore’s best stock in 2016 The stock is valued at 22 times its 12-month projected earnings.

The biggest gainer among Singapore’s stocks this year is a foreigner.

Thai Beverage Pcl has jumped 37 per cent to a record in 2016, benefiting from rising consumption in Thailand, where stimulus and low interest rates have driven the benchmark index to the highest level in almost a year. Singapore’s equities market, by contrast, is a laggard in Southeast Asia, suffering from lacklustre growth at banks, developers and oil-rig builders. Thai Beverage’s return this year is almost triple that for the second-best stock in the Straits Times Index.

Malaysia’s Affin Hwang Asset Management Bhd. and London’s J O Hambro Capital Management Ltd. are buying Thai Beverage shares, convinced the stock has further to climb despite record valuations, as it offers a haven from market turmoil around the world and may benefit from any restructuring plans.

“With slowing global growth, whatever shows potential or sustainable growth attracts a premium,” Kar Tzen Chow, Kuala Lumpur-based fund manager at Affin Hwang Asset, which oversees about US$7.6 billion, said by phone. “ThaiBev’s spirits business continues to be stable and the beer business has shown a recovery.”

Thailand is betting on more than US$18 billion in stimulus measures to help boost local demand and offset an export slump. The nation’s central bank has forecast economic expansion at 3.1 per cent this year, compared with growth of 1 per cent to 3 per cent for Singapore, whose economy is among the most vulnerable in Asia to swings in global demand. More than 90 per cent of Thai Beverage’s revenue came from Thailand in 2015, data by Bloomberg show.

“The fundamentals for Thai Beverage are very strong, with earnings

supported by increasing domestic consumption in Thailand,” Nicholas Teo, a trading strategist at KGI Fraser Securities Pte in Singapore, said by phone. “In contrast, profits at traditional Singapore industries such as banks, shipyards and real estate are deteriorating.”

Billionaire Charoen Sirivadhanabhakdi, who expanded his property business amid government measures to curb alcohol consumption in Buddhist Thailand, was forced to list his Thai beverage unit in Singapore in 2006 after activists and monks held protests to block a local share sale by the company. Thai Beverage, which sells Chang beer, Blend 285 Whiskey and SangSom rum, has grown to become Southeast Asia’s largest beverage stock by market value.

Boosting estimates

The surge in Thai Beverage will continue as analysts raise their earnings estimates to reflect greater contribution from its beer business, according to Samir Mehta, who helps oversee about $1.2 billion at J O Hambro in Singapore.

Analysts increased their average profit forecasts for 2016 by 7.4 per cent to 26 billion baht (US$741 million) after its first-quarter net income jumped 30 per cent from a year earlier. Beer sales volumes soared 61 per cent, lifting the brewery operation’s contributions to group revenue to 33 per cent from 23 per cent. The spirits business remained its cash cow.

Some see the stock rally as overdone.

Revamp seen

There is “limited upside” at current levels following the stock’s recent price run-up, according to Jodie Foo, an analyst at OCBC Investment Research, who cut the stock to hold in a June report.

Thai Beverage is trading at the highest level ever relative to the broader MSCI All Country World Index.

The stock is valued at 22 times its 12-month projected earnings, above

its average of 16 in the past five years and almost double the multiple for the Straits Times Index, data compiled

by Bloomberg show.

Speculation that Charoen will further revamp his beverage businesses in Thailand and Singapore may spur more rallies in the stock, said Religare Capital Markets in a May note. The company’s founder and chairman may consolidate his drinks businesses held through Singapore-based Fraser & Neave Ltd. and Oishi Group Pcl into Thai Beverage, according to the report. Company officials couldn’t be reached for comment.

“The fundamentals for Thai Beverage are very strong, with earnings supported by increasing domestic consumption in Thailand” Nicholas Teo, a trading strategist at KGI Fraser Securities Pte in Singapore The company’s strategic road map toward having 50 per cent revenue contribution from countries outside Thailand as well as from non-alcoholic beverage by 2020 may be sped up via acquisitions and restructurings, according to OCBC’s Foo in her report.

Charoen controls Fraser & Neave through TCC Assets Ltd., which owns 59 per cent of the Singapore company and Thai Beverage, which holds another 29 per cent, according to data compiled by Bloomberg.

“We bought the shares because their cash flows are decent,” J O Hambro’s Mehta said. “The upside could come from the restructuring that the group might undertake. They could simplify the structure and that’s going to be beneficial for the minority shareholders.” Bloomberg News

Energy plan

S. Korea to invest in renewable energy South Korea’s government unveiled a plan yesterday to spend about 42 trillion won (US$36 billion) on helping develop renewable energy industries such as solar and wind powers and eco-friendly power plants by 2020. Minister of Trade, Industry and Energy Joo Hyung-hwan said at a meeting for future energy strategy committee that the government will invest 42 trillion won in new energy industries by taking all available policy measures by 2020, promising deregulations and various assistances to develop the new energy sectors as new growth engine for exports.

Thai central bank

Direct investment in overseas securities authorized Thailand’s central bank said yesterday it would allow Thais to invest directly in overseas securities later this month, as part of a plan announced last year to encourage capital outflows to hold down the baht currency.

From July 20 individuals or firms with deposits or securities of 100 million baht (USUS$2.85 million) or more can directly invest up to US$5 million per year in overseas securities, Bank of Thailand Assistant Governor Chantavarn Sucharitakul said in a statement. Thai authorities have been encouraging a weakening of the baht to aid exports.

GDP

South Korea aims for bigger services contribution South Korea said yesterday it expects the services industry to boost gross domestic product growth by 0.1 to 0.2 percentage points every year until 2020 as the government announced plans to stoke activity in the sector. The finance ministry also said it sees the value added of the services industry, or the contribution of the industry to overall GDP, to rise to 65 per cent by 2020 from 59.7 per cent seen in 2015. The forecasts came as the government said it would re-introduce bills to ease regulations and bolster the country’s services sector amid weak exports.

Auto industry

Australia’s new vehicle sales climb

Thai Beverage sells Chang beer

Sales of new vehicles in Australia hit a record in June as seasonal price competition boosted demand for SUVs and commercial vehicles, a sign consumers still had the confidence to splash out on big ticket items. The Australian Federal Chamber of Automotive Industries’ VFACTS report yesterday showed 128,569 new vehicles were sold in June, up 2.2 per cent on June last year.

Both months had the same number of selling days. Sales were up 33 per cent on May. June is typically a strong month as dealers cut prices to clear stock for the end of Australia’s financial year.

14 Business Daily Wednesday, July 6 2016

International In Brief Britain confidence

Pessimism among businesses almost doubles after vote Confidence among British businesses fell sharply following the vote to leave the European Union, a survey showed yesterday, reinforcing the view that the economy could be in for hard times after the historic decision. The number of businesses pessimistic about the economy over the next twelve months jumped to 49 per cent in the week following the referendum from 25 per cent before the vote outcome, according to a survey conducted by YouGov and the Centre for Economics and Business Research.

Overhaul

Nigeria’s oil minister replaced as state oil company boss Nigerian President Muhammadu Buhari has replaced Oil Minister Emmanuel Ibe Kachikwu as group managing director of state oil company NNPC as part of a wider board overhaul. Oil accounts for about 70 per cent of Nigeria’ revenue, but the OPEC member has been hit hard by a prolonged drop in crude prices that has caused the deepest crisis in Africa’s biggest economy for more than a decade. Dr Maikanti Kacalla Baru, previously group executive director for exploration and production, will take the reins from Kachikwu, who will remain on the board as chairman, the president’s spokesman said on Monday.

POST-BREXIT

EU says British tax-cut plan not a good idea New tax target, which has no timetable, would give Britain the lowest rates of any major economy.

T

he European Union’s top economic official yesterday criticised a British proposal to slash corporate tax to less than 15 percent following the nation’s vote to quit the bloc.

Britain’s finance minister George Osborne said at the weekend he would seek to reduce corporation tax to under 15 percent over fears of a corporate exodus following the June 23 referendum to leave the EU. The bloc gave a frosty reception to the plan, however, saying it would raise the threat of a competitive series of corporate tax cuts as countries try to lure firms to their shores.

“Going to 15 percent does not seem to me to be a good initiative,” EU economic affairs commissioner Pierre Moscovici told French radio station Radio Classique. “ W e sh o u l d n o t e n t e r i n t o exacerbated fiscal competition

b et we e n ou rse l ves, or fiscal dumping,” Moscovici said in the first public reaction by the EU to Osborne’s proposal.

The British chancellor of the exchequer revealed his plan in an interview with the Financial Times published on Sunday evening. The Treasury confirmed the comments to AFP. Prior to the Brexit vote, British tax rates on corporate profits were already set to be cut from 20 to 19 percent next year and to 17 percent in 2020.

But the new target, which has no timetable, would give Britain the lowest rates of any major economy, and put it closer to the 12.5 percent rate in EU member Ireland.

“We must focus on the horizon and the journey ahead and make the most of the hand we’ve been dealt,” Osborne told the Financial Times.

“I will wait for the Conservative party to have a real leader, and it will not be (Osborne) who prepares Britain’s next budget” Pierre Moscovici, EU economic affairs commissioner

M&A

LSE shareholders back Deutsche Boerse merger London Stock Exchange Group Plc shareholders overwhelmingly voted to approve a plan to merge with Deutsche Boerse, hoping the deal can go through despite Britain’s vote to leave the European Union.

The British company asked its shareholders to back its US$27 billion merger with its German counterpart to create a European exchange giant on Monday, dismissing concerns it was “shackling itself to a corpse” after Britain’s EU referendum result. LSEG Chairman Donald Brydon told an extraordinary meeting of shareholders that he was confident of “satisfactory” regulatory approval for the deal from Brussels.

Petrobras probe

Brazilian police target former Workers Party treasurer Brazil’s federal police served five arrest warrants and conducted search and seizure operations in three states on Monday, in the latest round of a sweeping corruption probe around state-run oil firm Petroleo Brasileiro SA. Police said contractors paid at least 39 million reais (US$11.99 million) in bribes to executives of Petrobras, as the oil company is known, and rigged public auctions at Petrobras’ research centre Cenpes. Part of the funds allegedly embezzled were directed to the leftist Workers Party, the ruling party in Brazil from 2003 to May 2016.

But Moscovici said that Osborne’s initiative “also means an absolutely considerable loss for the British treasury in a situation in which deficits in Britain are already much too high”.

Those deficits would now “attract more attention from markets and rating agencies” because Britain would no longer be operating in the EU framework, he said.

However, Moscovici also said there was no reason to be “excessively worried”, suggesting that Osborne may not be around to implement his tax cut plan.

“I will wait for the Conservative party to have a real leader, and it will not be (Osborne) who prepares Britain’s next budget,” Moscovici said.

The commissioner also issued a warning to those calling for a referendum on EU membership in France.

“I also say to all those who may be tempted by a referendum in France that a referendum hurts, it burns, it divides and it does not yield solutions,” Moscovici said. AFP

Pierre Moscovici, EU economic affairs commissioner

Business mood

Bank of Canada survey shows subdued sentiment The overall balance of opinion on investment in machinery and equipment pointed to modest increases in the next 12 months.

David Ljunggren

Canadian business sentiment remained subdued in the second quarter, as the drag of cheaper oil and modest domestic demand cancelled out the boost from foreign demand, the Bank of Canada said on Monday.

The central bank’s quarterly Business Outlook Survey is the latest sign the economy is still struggling with the energy sector slump. The bank is widely expected to leave policy unchanged at its July 13 interest rate announcement.

The survey, concluded before Britain’s shock vote to leave the European Union on June 23, reported a sharp divergence between companies hit most directly by low oil prices and those not affected by the sector’s woes.

“The Bank of Canada’s wait-andsee stance is well justified by these results, but they aren’t yet worrisome enough to give thoughts to another rate cut,” Avery Shenfeld, chief economist for CIBC Capital Markets, wrote in a report to clients. The central bank cut interest rates twice last year.

Expectations for the next rate hike

have been pushed back to the first quarter of 2018, according to a Reuters poll of primary dealers last week, who expect Brexit to weigh on Canada’s economy.

“The Bank of Canada’s waitand-see stance is well justified by these results, but they aren’t yet worrisome enough to give thoughts to another rate cut” Avery Shenfeld, chief economist for CIBC Capital Markets

The overall balance of opinion on investment in machinery and equipment pointed to modest increases in the next 12 months, said the survey.

Firms tied to the energy sector and affected regions planned to curtail investment spending, while even exporters unaffected by low oil prices were looking forward to only modest increases in investment.

Firms generally planned to add jobs over the coming year but hiring intentions remain below post-recession levels. Companies that are part of the energy supply chain are looking to cut jobs while the service sector is looking to hire.

Businesses expect only a marginal acceleration in sales growth over the next 12 months. A weaker Canadian dollar should boost growth of export sales, the survey said.

“For many firms, however, foreign demand is insufficient to offset weakness coming from their domestic customers and, in some cases, refocusing sales efforts towards export markets is proving difficult,” the survey said.

Businesses said credit conditions eased over the past three months, with firms citing improved market receptiveness to new debt or equity issuance.

A separate survey of senior loan officers also found that overall business lending conditions tightened slightly in the second quarter. The reports of tighter conditions were concentrated among firms with energy sector exposure. Reuters

Business Daily Wednesday, July 6 2016 15

Opinion Business Wires

Taipei Times President Tsai Ing-wen (pictured) urged the military to stride forward at a steady pace amid public criticism over recent controversial incidents implicating military officers, pledging to not shirk her responsibility as commander-inchief of the nation’s armed forces and to push for drastic reforms. Calling on the military to have the courage to face its mistakes and challenges, Tsai said the greater the frustration soldiers encounter, the larger steps they should take in their march forward. Tsai said she would not sugarcoat recent controversies involving the military and tell them that everything about the nation’s armed forces is positive.

The Korea Herald Chinese companies have already outrun Korean rivals in competitiveness and are quickly catching up in the high technology sector, an analysis by a private economic think tank said yesterday. The Korea Economic Research Institute evaluated the non-financial listed firms of the two countries with 2007 and 2014 as comparison points.

Assessment guidelines had eight areas, such as profitability and asset size.

According to the analysis for 2014, Chinese counterparts outperformed South Korean companies in five of the eight categories - profitability, growth, asset size, the number of patents and overseas mergers and acquisitions.

The Times Of India Calling India a “sweet spot” in the subdued global economy, finance minister Arun Jaitley (pictured) on Monday said indication of “good rains” will further boost the country’s growth momentum. “This time, it looks like rains are going to be good and India can grow very well. There are signs (for that),” he said addressing the first national minerals & mining conclave here. “When the going is good everybody grows. But, at such a time (global downturn) becoming the fastest growing economy is an example in itself. It shows that we are ready and capable to deal with such changes and perform,” he noted.

China Vanke’s eclipse casts light on market dysfunction

L

ike a full solar eclipse, the opportunity to test a theory of market efficiency in real time seldom arrives. Such a chance was presented on Monday when shares of China Vanke, the nation’s largest developer outside state control, resumed trading in Shenzhen after a six-month suspension.

China Vanke’s local-currency A shares plunged by the daily limit of 10 per cent, even as their counterparts in Hong Kong climbed as much as 9.6 per cent. The divergence is explained by a valuation gap that opened up since the Shenzhen shares were halted on December 18 amid a hostile takeover attempt

by Baoneng Group.

Vanke A shares Monday -10 per cent As the fight became increasingly complex and acrimonious, the Hong Kong shares - which stopped trading for only two weeks - dropped 29.9 per cent. Investors locked into the Shenzhen stock could only watch. No wonder MSCI remains cautious about adding mainland shares to its emerging market indexes.

Local shareholders were understandably quick to sell as soon as trading resumed.

Arbitrage then kicked in and the Hong Kong shares rallied.

Bingo: same company, same day, two exchanges just 17 kilometres apart, and completely opposite trading results. The trend may continue for several days, given that Vanke’s A shares ended the day at the equivalent of HK$25.59, versus HK$16.22 for the Hong Kong stock.

The rare sight of a company’s stock heading at such velocity in different directions is a reminder of the frictions, regulatory opacity and administrative whims that interfere with price discovery in China.

Remove those barriers and prices adjust quickly,

“

Inquirer.net Globe Telecom and its fully-owned venture capital subsidiary Kickstart Ventures, Inc. bolstered the second staging of Slingshot Philippines 2016, the two-day National Summit on Start-ups and Innovation covering the fields of agriculture, biotechnology, electronics, and digital start-ups, among others. With the theme “Accelerating the Innovation Economy,” Slingshot 2016 provided an avenue for young minds with big ideas, innovators, investors, and policymakers to collaborate and set the standard for the Philippine start-up community. Globe, through its enterprise information and communications technology (ICT) arm Globe Business, served as co-presenter of the event.

Christopher Langner a Bloomberg columnist

as market efficiency would dictate.

The phenomenon also serves to cast doubt on the solidity of mainland valuations. Other things being equal, stocks in Hong Kong - with a more transparent and predictable regulatory regime that’s less tolerant of arbitrary trading suspensions should deserve a higher rating.

The opposite is the case. The CSI 300 Index trades at 14 times reported earnings, versus 6.9 for the Hang Seng China Enterprises Index of mainland shares traded in Hong Kong.

Vanke’s H shares are on a P/E of 8.4 times, compared with 13.3 times for the A shares.

After a swath of suspensions during last year’s market crash, Chinese authorities have recognized the problem and have announced a three-month limit on halts. In the meantime, uncoordinated trading halts may create other opportunities for adventurous traders. There are at least three more duallisted Chinese companies whose mainland shares are suspended while the Hong Kong securities continue to trade: Beijing Jingcheng Machinery, Dongjiang Environmental and Chongqing Iron & Steel.

Beware, though: Any profits will hardly be risk free. Anyone engaging in an arbitrage trade may wait for months or longer before a suspension is lifted. What’s more, rules can be changed at any time. Like eclipse watchers, China investors also must try to see what’s blocking out the light. Bloomberg News

After a swath of suspensions during last year’s market crash, Chinese authorities have recognized the problem and have announced a three-month limit on halts

”

16 Business Daily Wednesday, July 6 2016

Closing Economic dependence

Twin crises expose Angola’s failure to kick its oil habit With crude languishing at US$50 a barrel, down from over US$100 in mid-2014, Angola is starved of dollars.

Ed Cropley

A

month ago, a 17 tonne shipment of bananas left Angola for Portugal in what state media heralded as a “first symbolic batch” in the resurgence of a farming sector wiped out by civil war.

But that war ended 14 years ago and since then Angola has overlooked agriculture, developing instead an addiction to oil income and the imports it buys. Now, with crude less than half its price of two years ago, the country appears to be grinding to a halt.

Africa’s top oil producer needs more than a container load of fruit to solve a financial and economic crisis - compounded by a public health crisis - that has laid bare the failings of the “diversification” mantra of Jose Eduardo dos Santos, its president for the last 37 years.

Oil wealth turned Angola into sub-Saharan Africa’s third-biggest economy and one of the continent’s few “upper-middle income” states.

But beyond the high-rises on the capital’s Dubai-style coastal promenade, the problems are plain to see.

Cranes stand idle atop half-finished concrete office blocks in Luanda while piles of rubbish lie uncollected in the streets, a result of municipal budget cuts imposed this year to try to balance the books.

The squalor is a breeding ground for vermin, flies and disease, and health experts say it is no coincidence that a yellow fever epidemic that started in December in one of Luanda’s vast slums has spread across the country and beyond, reaching even China.

“Luanda is dirty, disgusting,” said 58-year-old businessman Antonio Bobbe, edging past a vagrant rummaging through a mound of trash. “The government doesn’t do anything. There’s no responsibility.

You should see the rats. They’re huge.”

On top of the filth, a shortage of hard currency makes doing business tough for anyone but the well-connected.

“If you have friends, government friends, you can get dollars. If not, nothing,” said Bobbe. “We hope that the situation changes, but at the moment there’s no light at the end of the tunnel.”

“Angola rising” no more

Before independence from Portugal in 1974, Angola was a major exporter of fruit, coffee and sisal. Then two decades of conflict destroyed commercial agriculture and since peace returned in 2002 problems ranging from uncleared mines in sugar plantations to uprooted rural workers have frustrated efforts to revive it.

While Angola has rebuilt an impressive infrastructure, getting any sort of productive industry off the ground has gone nowhere apart from the oil on which it relied to achieve breakneck economic growth.

It now churns out 1.8 million barrels a day from its offshore fields and is China’s leading crude supplier. But those petro-dollars come at a price.

Oil accounts for 40 per cent of GDP, 70 per cent of government revenues and 95 per cent of foreign exchange income, leaving the nation of 25 million people dangerously exposed to fluctuations in world oil markets.

With crude languishing at US$50 a barrel, down from over US$100 in mid-2014, Angola is starved of dollars. Growth has slowed to 3 per cent - almost a recession in local terms - while the national currency has collapsed and inflation in a country that imports almost everything hit an annual 29 per cent in May. For dos Santos, a Soviet-trained oil engineer regarded as the pillar of post-war stability, the timing of the twin crises could not be worse.

They have struck a year before an election and two years before what the 73-year-old president has said will be his retirement.

“The fragilities of the post-conflict state that dos Santos has built are being exposed,” said Paula Roque, an Angola expert at Britain’s Oxford University. “That whole rhetoric of ‘Angola Rising’ no longer holds.”

Desperate, the government swallowed its pride and sought help from the World Health Organization against yellow fever but last week the International Monetary Fund said Luanda had ended talks about a broad financial rescue package.

The government has not commented and finance minister Armando Manuel did not respond to requests for an interview.

Golden goose

Besides yellow fever, few indicators are as telling as the kwanza currency, down more than 40 per cent in the last year against the dollar at the official central bank rate.

Available only to a lucky few individuals and firms, the rate is of little consequence to ordinary Angolans, who have to rely on a black market where the kwanza is worth as little as 570 to the dollar, less than a third its official value of 165.

“For people bringing in anything from the United States or South Africa it’s very difficult,” said 26-year-old Nadio Medina, who used to import used cars from South Africa. Now he sells eggs wholesale to pavement burger stalls.

In an unusually frank admission last month, dos Santos admitted that bloated state oil company Sonangol, the central pillar of the economy and the source of nearly all its dollars, had not paid a cent into state coffers since January.

“Our country lives upon imports imports for food, for raw materials to national manufacturers, for industry, agriculture, construction,” he said.

“We need to make other goods to export besides the oil. That is a strategic task.”

Yet looking past the rhetoric, the only thing likely to change is Sonangol.

Last month, dos Santos made his 43-year-old daughter Isabel chief executive, inviting cries of “supersonic nepotism” from antigraft website Maka Angola, a rare dissenting voice in one of Africa’s most politically-closed states.

Last year, for instance, 17 members of a Luanda book club were jailed for reading a volume described as a “blue-print for non-violent resistance to repressive regimes”.

Isabel dos Santos - said by Forbes magazine to be Africa’s richest

Jose Eduardo dos Santos, president of Angola for the last 37 years

woman - insisted her appointment was everything to do with shaking up Sonangol and nothing to do with a dynastic dos Santos succession plan, as her father’s opponents allege.

“It’s not because of politics. I was brought into this project because of my experience from the private business sector,” she told Reuters in an interview that laid out her central aim: to produce more oil for less money.

Foreign oil firms Chevron and BP applauded her plans that include having Boston Consulting Group and PriceWaterhouseCoopers as advisers and stripping out Sonangol’s real estate, banking and aviation units to focus on oil.

To many, the overhaul is the clearest sign yet that President dos Santos really is preparing for retirement but not necessarily to make way for his daughter.

“It’s not about Isabel becoming president,” said Alex Vines, head of the Africa programme at London’s Chatham House think-tank. “The regime relies on Sonangol. It’s the goose that lays the golden egg and the reason she was put in charge is because it needs serious reform.”

Reuters

Fukushima disaster

Government

Central bank survey

Pacific Ocean radiation levels returning to normal

India’s Prime Minister expands cabinet

S.Korean banks to tighten lending to big companies

A new international research has found out that radiation levels across the Pacific Ocean are quickly returning to normal five years after the Fukushima disaster.

A review by the Scientific Committee on Oceanic Research, which brought together some of the world’s foremost ocean experts, found radiation levels off the east coast of Japan were fast returning to normal after being tens of millions of times higher than usual following the disaster.

Following a massive earthquake and ensuing tsunami, in March 2011, three of the Fukushima nuclear plant’s reactors were disabled, causing a nuclear accident which triggered one of the largest ever disposals of nuclear material into the world’s oceans. Radioactive elements were carried back into the Pacific, with the ocean’s currents dispersing it across a huge area.

After analyzing data from 20 studies of radioactivity related to the Fukushima accident, the report’s co-author, Western Australian environmental academic, Pere Masque, said the levels were reducing rapidly from Japan’s coast across the Pacific.

However, Masque said the analysis showed that radioactive materials were still leaking from the nuclear plant on Japan’s east coast, resulting in the contamination of offshore coastal waters. Xinhua

Indian Prime Minister Narendra Modi inducted 19 new ministers into his cabinet yesterday to bolster his two-year-administration but drew criticism that he was backtracking on a promise of lean government.

The ministers, announced by the government, were sworn-in at a ceremony at the presidential palace but their portfolios were not immediately announced.

A top government source told Reuters Modi had dropped five of cabinet colleagues.

With the expansion, the size of Modi’s cabinet has swelled to 78 - one of the biggest in years and a far cry from Modi’s 2014 election promise of “minimum government and maximum governance”.

“If this was a reform-minded government, you would be reducing the numbers of people and portfolios, shedding ministries,” said Manoj Joshi, a political expert at Observer Research Foundation in New Delhi.

“What you can read from this is that it is not particularly efficient or concerned about governance,” Joshi said, referring to Modi’s ruling Bharatiya Janata Party.

A number of new ministers hail from India’s backward castes, members of which are widely expected to play a critical role in an election in the most populous state of Uttar Pradesh next year. Reuters

South Korean banks are expected to tighten lending to big corporations during the July-September period, boosting corporate credit risks amid the on-going restructuring on trouble shipbuilders and shipping firms, a central bank survey showed yesterday.

The lending attitude index stood at minus 19 in the third quarter, marking the lowest since the fourth quarter of 2008 when the global financial crisis erupted, according to the Bank of Korea (BOK) survey of 172 banks and non-bank lenders conducted between May 30 and June 10.

The negative figure means more lenders replied the tightening of lending standards than those seeking to ease loan standards.

The reading for big corporations tumbled to minus 25 in the third quarter, down 7 points from the previous quarter. It reflected growing fears among lenders over the on-going corporate restructuring in the shipbuilding and shipping industries that would increase uncertainties of the economy.

The government has led the country’s three main shipbuilders to cut back on workforce by 30 per cent and reduce overcapacity by 20 per cent by the end of 2018.

The nations’ top two shipping lines are struggling with ship-leasing companies to cut charter rates, a requirement by creditor banks to provide more loans. Xinhua