G20 meeting to tackle instability triggered by Brexit Shanghai summit Page 8
Friday, July 22 2016 Year V Nr. 1092 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Politics
Legislators demand more transparency on Macao Foundation decisions Page 2
www.macaubusinessdaily.com
Travel
Forex sales
Outbound tourists increasingly prefer Asia for safety reasons Page 6
Pressure on China’s crossborder capital outflows eases Page 9
Countdown For Canidrome Greyhound racing
Two more years to move. Or shut down the Canidrome operation. The gov’t asks the greyhound track owners to ponder its future. While operators express ‘respect for the decision,’ animal concern groups remain fearful for the fate of the dogs. Page 2
Six-year low
The inflation rate in June slowed to 2.26 pct. The lowest since March 2010. In an annualized comparison for the 12 months ended June 2016 the average Composite Price Index increased by 3.67 pct from the previous period.
Winning formula
Grand Prix Museum MOP300 mln for the Grand Prix Museum revamp. A public tender will be launched at the beginning of next year. The remodel will expand the current approx. 2,000 square metres into 12,000 metres of usable space. Adding many new facilities. Page 4
Cooler economists
HK Hang Seng Index July 21, 2016
22,000.49 +118.01 (+0.54%) Worst Performers
China Mobile Ltd
+3.81%
China Resources Land Ltd
+1.99%
Hengan International Group
-2.89%
MTR Corp Ltd
-0.70%
China Unicom Hong Kong
+3.44%
Hang Lung Properties Ltd
+1.93%
Want Want China Holdings
-1.93%
Tencent Holdings Ltd
-0.54%
China Overseas Land &
+2.34%
CK Hutchison Holdings Ltd
+1.88%
China Mengniu Dairy Co Ltd
-1.20%
PetroChina Co Ltd
-0.37%
Cheung Kong Property
+2.15%
New World Development
+1.72%
China Petroleum & Chemical
-1.05%
China Construction Bank
-0.37%
Power Assets Holdings Ltd
+2.11%
Swire Pacific Ltd
+1.52%
Sands China Ltd
-0.72%
China Resources Power
-0.33%
27° 32° 27° 32° 26° 32° 27° 32° 26° 32° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
GDP forecast A private survey casts a softer view on the Chinese economy. A pool of economists sees growth cooling to 6.5 pct this year. Surveyed experts also anticipate more stimuli on the way as exports and overcapacity drag down the economy. Page 8
Inflation Page 5
2 Business Daily Friday, July 22 2016
Macau
Canidrome
End of era of greyhound racing
Who let the dogs out The government has announced that the Canidrome is to relocate within the next two years and will also pronounce on whether greyhound racing can continue. Joanne Kuai joannekuai@macaubusinessdaily.com
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h e SA R G o v e r n m e n t has ordered Macau (Yat Yuen) Canidrome Co. to relocate its greyhound racing track within the next two years. The company has also been ordered to decide whether greyhound racing activity would be continued, indicated a press release issued yesterday by the Gaming Inspection and Coordination Bureau (DICJ). The press release says that DICJ director Paulo Martins Chan met with the managing director and deputy president of the greyhound racing track operator Macau (Yat Yuen) Canidrome Co., Angela Leong, who as quoted by the press release indicated the company ‘respect [of] the government’s decision, and promised to make a proper
decision and arrangement before the deadline’. The concession for greyhound racing track operator Macau (Yat Yuen) Canidrome Co. was set to expire by the end of last year. However, it was extended until December 31, 2016 according to an executive order. Now, the company has until July 21, 2018 to decide whether to move or to shut down.
To be decided
DICJ states that if greyhound racing is to be continued the company must guarantee the living conditions and the racing arrangement of the dogs must meet certain standards, while the new location must comply with urban plans and not affect residents’ lives. Only under such premises would an application be considered by DICJ. It would also need to be further authorised by the SAR Government.
If the Canidrome is to shut down for good, the company has to make proper arrangements for its staff as well as relocating the dogs. It also pledged that the Labour Affairs Bureau
Anima: Dogs’ future of concern
Anticipating the government’s announcement signals the coming to the end of greyhound racing in Macau, as ‘there is no way for Canidrome to find another area here to accommodate the activity’, the local animal rights’ concern group remain concerned about the future of the dogs. “Once again, two more years. This is the way for the government to keep their [Canidrome’s] face. The government don’t really make decisions,” Mr. Albano Martins, president of Anima – the Society for the Protection of Animals (Macau) - told Business Daily via a phone interview yesterday. “What the government is saying
would help affected employees. DICJ said the government’s decision is based upon the report from a study conducted by the University of Macau, opinions from residents and shopowners in the neighbourhood as well as from the public, and the overall economic and social impact upon society. The government commissioned the university to conduct the research on the impact of the Canidrome last year in September. The results of the report were never made public. In 2015, the Canidrome generated MOP125 million (US$15.6 million), a 13.8 per cent drop from the MOP145 million generated in 2014. The revenue also represents less than 0.05 per cent of the whole of the gaming industry in Macau, which totalled MOP231.81 billion in 2015. Secretary for Economy and Finance Lionel Leong Vai Tac told reporters on the sidelines of a public event yesterday that with regard to the future land use of the plot now occupied by Canidrome the government would consult the public and design in accordance with the Urban Plan departments’ proposal.
now to Canidrome is that ‘the dogs are your business, just handle that’. This upsets us. Why? Because the Canidrome can sell those animals to China, to Vietnam, to Pakistan... where there’s illegal betting and animal welfare standards are even lower than in Macau. This will be a very bad image for Macau. This should not be allowed. The government should be very clear on that,” said Martins. Mr. Martins expressed his disappointment as the government had ignored Anima’s offer to help in taking over the venue of the greyhound racing track for one year, taking care of and relocating the dogs, indicating they have help pledged globally from organisations that would help with the relocation of the dogs.
Politics More transparency on Macao Foundation decisions demanded by legislators
Public funds confusion Legislators question the government on lack of transparency of Macao Foundation subsidies; and demand more discussion before new infectious diseases centre is planned. Nelson Moura nelson.moura@macaubusinessdaily.com
D
u ring y e s t e r d a y ’ s Legislative Assembly (AL) plenary session legislators questioned the government on how to improve the transparency of the process the Macao Foundation uses to allocate its subsidies, and how to prevent conflicts of interest by decision makers. The debate was initiated by an intervention by legislator Antonio Ng Kuok Cheng, who asked for a reform of the Macao Foundation system to prevent decisions for financial support not being made by the Board of Trustees with veiled interests, or behind closed doors.
Contagious doubts
At yesterday’s AL session, there was also a debate about the changes made by the government on the new infectious diseases centre plan. The Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, has stated that the planned infectious diseases centre expansion of Hospital Conde
Mentioning the recent controversy following the donation of RMB100 million (US$14.98 million / MOP120 million) by the Macao Foundation to Jinan University, Ng also questioned if the Macao Foundation should subsidise entities outside of Macau, and suggested that out of borders donations should be debated by the AL.
Excessive amount
The legislator also considered the current 1.6 per cent of revenues gaming operators dispense to the Macao Foundation as “excessive” suggesting that half of the money provided by gaming concession holders should be used for the Social Security Fund. In response, the President of the
S. Januário will have a planned height of 61.5 metres, eight floors and 80 isolation units. The Secretary also mentioned that the demolition of five buildings around Hospital Conde S. Januário would take 120 days for MOP1.1 million, but that a set date and budget for the construction of the diseases centre hasn’t yet been decided.
Administrative Council of the Macao Foundation, Wu Zhiliang, stated that the Foundation has followed all MSAR Government regulations for the distribution of subsidies and prevention of conflict of interest. Wu stated that the Council and curator members all have to declare their assets and interests, and that the services responsible for the Foundation’s financing could create a list of the members who can’t attend each meeting, having to mention the functions they have outside of the Foundation.
Legal, rational and justified
“The Jinan donation is legal, rational and justified and the Foundation cooperated as stated by the CCAC,” Wu Zhiliang stated, adding that although the Macao Foundation is predominantly active in Macau, it can also provide financial support in Mainland China. “Jinan university is a higher
education [institution] that [accepted] more than 20,000 students from Macau, so we evaluated the reasonability of supporting it. No need to justify it with complicated theories,” Wu stated. Wu also mentioned that the Chief Executive (CE) had already established that 1.6 per cent of gaming operators’ revenue would be used by the Macao Foundation, and that gaming concession owners already contribute up to 3 per cent of their revenues to “urban planning, touristic promotion and social security.” Afterwards, legislator Jose Pereira Coutinho said closed door deals only create doubts and suspicions, while legislator Au Kam San mentioned that since some association members are part of the Macao Foundation council, and since it “gives out millions of MOPs of public funds for associations and schools,” fiscal responsibility is “very important and the CCAC has to inspect the decisions attentively.”
Business Daily Friday, July 22 2016 3
Macau
4 Business Daily Friday, July 22 2016
Macau Opinion
Pedro Cortés Fireworks and creativity! The last few weeks have been hot in Macau. The weather and all land related issues, including the conclusions of the Commission Against Corruption on the Iec Long firecracker plant land swap. As my profession does not allow me to publicly comment on issues that are being handled by other colleagues or with criminal implications, I will not bother you with this matter today. As a matter of fact, what was in the news, albeit in a soft manner, was the opening of the first cultural and creative mall, which will open next month and ‘windward’ by the end of the year. Macau has seen in the last couple of years new initiatives that try to ignite the so-called diversification desired by Beijing and by all participants in the future chess game. Some speak, announce, inaugurate. Others do. Such is the case with a few entrepreneurs like Duarte Silvério of the creativity neighbourhood along the street from the pioneering initiative of the Architect Carlos Marreiros located at Albergue of the Macau Holy House of Mercy. These types of initiative are enhanced and supported even more by the Macau Government as they are true diversification. Of course, there are now pedaloes plying the Nam Van Lakes (which also figured in recent weeks regarding land issues) and new offers by the gaming concessionaires, which may change the face of the city from a high roller playground to one oriented towards family and cultural tourists. This is the future and all must participate in this new wave. Naturally, the amount of money that will flow into the pockets of the investors is not the same as it used to be. A new era has started and one must adapt to its reality. There will be no more two-digit growth in the accounts of the gaming concessionaires. That is for sure. But it does not mean that we are in crisis. No way. I don’t believe it. We are still in a cycle that may make Macau prosperous and that can put Macau on the right path. Hopefully, the winds of Beijing that our highest representative will measure, can contribute to a prosperous and harmonious future for the population of Macau. Pedro Cortés is a lawyer and frequent contributor to this newspaper.
MGTO MOP300 million for Grand Prix Museum remodel is just the beginning
Burn rubber, break concrete Museum hopes to “double or triple” number of visitors by partnering with other entities for car and bike display and attracting donations, while new technology will play a role in the five-storey expansion. Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
P
lans for the MOP300 million (US$37.55 million) construction and remodelling work to revamp the Grand Prix Museum will begin next year, following a public tender opening “at the beginning of next year,” says Macao Government Tourist Office Director (MGTO) Maria Helena de Senna Fernandes. The expected result of the remodel, which will expand the current approximately 2,000 square metres into 12,000 metres of usable space, as well as the addition of new facilities, is a significant increase; last year, the museum attracted 195,212 visitors. “It’s difficult to compare the current number of visitors [with the potential number] but I would expect at least double or triple the amount of visitors
we’re currently receiving,” the MGTO Director said at a conference detailing the tentative plans for the building. The first step in the process, according to the flowchart, will be ‘demolition of internal walls and all the existing finishing of walls, pavements, terraces, parapets and ceilings’. Plans for the project will maintain the current base and be linked to the existing structure – according to descriptions provided during the press conference. This will help to avoid over MOP100,000 in upcoming maintenance costs for a variety of issues including water infiltration and excessive energy consumption, to be curbed by new building materials and eco-friendly machinery.
Donations
The museum currently houses 38 vehicles, including motorcycles, F3
cars and touring cars but the MGTO Director said that the group will be working in concert with other entities in sourcing vehicles for the museum in order to help rotate content. “It seems to me that there are museums for automobile manufacturers but not exactly those for Grands Prix,” commented the Director, bringing up the possibility of working with museums, car manufacturers, or even racing teams as well as procuring donations from willing benefactors. The group is conducting studies with groups such as the Macau Automobile Association (Automóvel Clube de Macau) to determine the best way to proceed, noted the MGTO head.
Pricing
The deadline set for the project is the 65th Macau Grand Prix, occurring in late November 2018. Only after the launch of the public tender will the final construction budget be defined. The current cap set for the construction side of the renovation – MOP300 million – is based on a per metre calculation for the area, at a base rate of MOP19,000 for construction works per square metre, with total construction area, including outdoor areas of the building, amounting to 16,000 square metres. The area will include the building’s basement area - currently occupied by the Macau Wine Museum, the majority of the ground floor – minus the Lusitanos restaurant, and the first and second floors as well as a further outdoor roof segment dedicated to equipment and machinery. The MGTO Director expressed interest in using new technology installations in the project but is waiting in order not to install out-of-date equipment, given the project’s deadline of two years in the future. “Because of this [the 2018 opening date] we don’t want to limit ourselves, now in 2016, in terms of new technology to be installed in the museum,” said the Director, with a particular mention of racing simulators suitable for both family and professional racing use.
SMEs Promotional campaign to boost consumption
Incentivized communities Discounted coupons to stimulate local spending, diversify tourism experience. Annie Lao annie.lao@macaubusinessdaily.com
Macau Economic Services (DSE) aims to stimulate the development of the local economy and the business environment for local SMEs (small and medium-sized enterprises) as well as diversifying the tourism experience by running ‘Community Consumption Unlimited Fun 2016’, a promotional campaign encouraging spending in local districts. The event is organised by DSE, the Industry and Commerce Federation of Macau Central and Southern District, the Industry and Commerce Federation of the Islands of Macao, and the Industry and Commerce Association of Macau Northern District. The event runs for six months starting from this Saturday, according to yesterday’s press conference. Some 2,000 local businesses have participated in this event, a 20 per cent increase from the previous year, according to Tai Kin Ip, a DSE director attending the press conference. “The event aims to further diversify the city’s economy by promoting community based activities to create business opportunities. It offers local residents and visitors a variety of promotional discounts to encourage their spending in the local districts.
Meanwhile, it will help to diversify the tourism experience for visitors,” Secretary for Economy and Finance, Lionel Leong Vai Tac, said during the press conference. “It will help to attract visitors to come to Macau at a different time of the year, not necessarily during the peak holiday season,” Lei Cheok Kuan, president of the Industry and Commerce Federation of Macau Central and Southern District, said.
Online promotions
Digital promotional coupons will be offered on WeChat as a new feature
for this event, seeking to target a wider range of consumers online, the director of DSE explained. In addition, DSE will utilise the marketing facilities from the Macau Trade and Investment Promotion Institute (IPIM) and the Macao Government Tourism Office (MGTO) to further promote the event, the director said. Each district will feature lucky draws, special celebrations and art performances. The consumption carnival will first begin this Saturday in the Islands district, running until October 16. Central and Southern District will run from September 10 to December 31, while the Northern District will run from October 7 to January 6, 2017.
Business Daily Friday, July 22 2016 5
Macau CPI Inflation rate declines to 2.26 pct
Revenue
Growth of prices continues to slow in June
Xinhua bureau liable for HK$16.8 mln
Alcoholic beverages and tobacco post biggest price increase year-on-year. Nelson Moura nelson.moura@macaubusinessdaily.com
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he inflation rate in June slowed to 2.26 per cent, with the composite consumer price index (CPI) increasing 2.26 per cent year-on-year to 108.29, a further slowdown of 0.38 percentage points from the 2.64 per cent growth recorded in May, the latest data released yesterday by the Statistics and Census Service (DSEC) reveals. The increase was justified by the DSEC by higher parking space rentals, increased eating out expenses and increased tobacco prices. According to DESC, the price index for Food & Non-Alcoholic Beverages and Housing & Fuels in June represented the largest amount of household expenses but when compared to June of last year registered a continuous decline in growth, rising 2.57 per cent and 0.61 per cent, respectively. The price index for Alcoholic Beverages & Tobacco saw the biggest year-on-year increase at 47.16 per cent, followed by Education and Transport with 8.90 per cent and 6.34 per cent increases, respectively Meanwhile, the price index of Clothing & Footwear, Communication and Recreation & Culture decreased by 3.91 per cent, 0.56 per cent and 0.43 per cent, respectively.
By contrast, receding vegetable prices offset the rise in prices of fresh pork and eating out, bringing the price index of Food & Non-Alcoholic Beverages down by 0.14 per cent month-to-month. The price index of Housing & Fuels also decreased by 0.14 per cent due to lower rentals for dwellings, while rising prices of Liquefied Petroleum Gas curbed the decline. The CPI-A and CPI-B rose by 0.10 per cent and 0.19 per cent monthto-month, respectively,
Annualized rate
The CPI-A (108.39) and CPI-B (107.49) rose by 2.56 per cent and 3.31 per cent year-on-year, respectively.
Month by month
D S EC d a t a a l s o s h o w s t h a t the Composite CPI for June in 2016 increased by 0.11 per cent month-to-month. The increased prices of some cigarette brands drove up the price index of Alcoholic Beverages & Tobacco by 2.88 per cent from May to June, while the price index of Transport and Clothing & Footwear rose by 1.71 per cent on account of dearer prices of gasoline and new women’s Summer clothing.
In an annualized comparison for the 12 months ended June 2016 the average Composite CPI increased by 3.67 per cent from the previous period. The price index of Alcoholic Beverages & Tobacco (up by 38.09 per cent) and Education (up by 7.96 per cent) showed a marked increase. The average CPI-A and CPI-B went up by 3.77 per cent and 3.22 per cent, respectively, over the previous period. The average Composite CPI for the first half of 2016 increased by 3.15 per cent year-on-year to 108.16, while the average CPI-A and CPI-B rose by 3.14 per cent and 3.24 per cent, respectively. The Composite CPI reflects the impact of price changes on general households. The CPI-A relates to about 50 per cent of households which have an average monthly expenditure of MOP10,000 to MOP29,999. The CPI-B relates to about 30 per cent of households which have an average monthly expenditure of MOP30,000 to MOP54,999.
Xinhua’s Asia Pacific Regional Bureau is now in talks concerning its liability to pay HK$16.8 million (US$2.2million) in liquidated damages to its parent company, Xinhua News Media Holdings Limited announced yesterday to the Hong Kong Stock Exchange. The amount due by the branch of the news agency arises from an agreement between the two companies made in early 2011 in which the Asia Pacific Bureau had to make at least HK$30 million in operating revenue that year and HK$100 million the next year – 2012. The company failed to do so, making HK$64,000 in 2011 and HK$1 million in 2012 in operating revenue, whereupon the parent company entered into a second agreement with its Asia Pacific branch. The second agreement detailed that the subsidiary had to make ‘no less than’ HK$170 million in operating revenue for the two financial years ending March 31, 2016, as disclosed in the filing. Audited operating revenue of the subsidiary for the two-year period amounted to HK$30 million ‘which was less than HK$170 million’ notes the release, triggering conditions for the liability payment, which must be receivable ‘within one month of written request by the Company’. The parent company has yet to issue the letter; however, the filing notes that it has ‘communicated the matter’ to the Asia Pacific Bureau ‘for an amicable settlement’ and will consult legal and shareholder sources before making ‘further announcements’. K.W.
6 Business Daily Friday, July 22 2016
Macau Travel OUTBOUND TOURISTS INCREASINGLY PREFER ASIA FOR SAFETY REASONS
Safer destinations a major consideration Outbound residents prefer Japan and Korea to Europe due to recent terrorist attacks. Annie Lao annie.lao@macaubusinessdaily.com
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everal terrorist attacks in Europe have damaged the city’s outbound residents’ appetite to travel there during the Summer holidays due to safety concerns. As a result, they choose to travel within Asia instead, with Japan and Korea the most popular destinations. “Recent ongoing terror attacks have affected some outbound residents’ willingness to travel within Europe in particular,” Andy Wu Keng Kuong, president of the Macau Travel Industry Council, told Business Daily. Some of the outbound residents have, in fact, postponed their European trips. “Although the Euro currency is getting cheaper, the safety of travelling is still the major concern
for outbound locals choosing not to travel to those countries affected in Europe,” Wu explained.
travellers to spend more money on shopping this Summer,” she said.
Drop in European tours
Outbound residents going to various European countries totalled 600, down 17.4 per cent year-on-year in
May, including 33 per cent travelling on package tours, indicating a 33.8 per cent decrease, according to official data from the Statistics and Census Service (DSEC). Nevertheless, outbound residents using the services of travel agencies to travel to the United Kingdom reached 200, up 54.8 per cent yearon-year in May, of whom 100 per cent are travelling under individual arrangements by travel agency, which means they only booked flights or accommodation through the agencies.
Bookings unchanged
“The Summer holidays’ trips to Europe were already booked by the local residents in March and April in advance. At this moment, all the tours booked to Europe have not been affected and they are still going on the trips as scheduled,” Sabrina Iong Ut Iong, general manager of EGL Tours (Macau) Co Ltd, a local travel agency told Business Daily. The number of package tours to Europe remain comparable to last year in spite of low value European currencies, according to Iong. However, tourists are expected to become more liberal with money when travelling. “Since the value of the Euro currency and British Pound have dropped recently we expect Macau
Travel
The Terminal In a scenario reminiscent of the 2004 Tom Hanks movie ‘The Terminal’, an American citizen resided in Macau International Airport for around two weeks in May of last year, even after contacting the U.S. Consulate, according to airport authorities. Kelsey Wilhelm kelsey.wilhelm@macaubusinesdaily.com
An American citizen resided in Macau International Airport for approximately two weeks in May last year due to passport complications before eventually being picked up by representatives from the United States Consulate, according to airport authorities. The American citizen, surnamed Coleman, attempted to check in for his flight to Kaohsiung, Taiwan using an American passport, the detail page of which – including name, photograph and other information – was unreadable, due to water damage, noted an airport spokesman. Coleman, according to the same authority, did not request help and set up residence in the airport terminal for a number of days before staff from the airport noticed the man’s presence and provided assistance. The two staff members who assisted Coleman - Ms. Carbel Choi and Mr. Michael Iun - paid for and provided the man with food and drink, and contacted the man’s alleged relative
in Taiwan as well as the American consulate in Hong Kong, to provide assistance. Due to the man’s location in the passenger terminal and not the area beyond the immigration counters, the airport authorities said they were unable to directly provide assistance themselves.
Waiting game
A number of days after Ms. Choi and Mr. Iun contacted the American Consulate, during which time Coleman continued living in the terminal, an airport representative alleges that the Consulate contacted the American Chamber of Commerce, who sent a representative to provide Mr. Coleman with money – amounting to MOP500. The American Chamber of Commerce declined to comment on the issue, advising Business Daily contact the United States Consulate. When questioned on the issue, Kristin Haworth, spokesperson for the U.S. Consulate General for Hong Kong and Macau commented sparsely, noting that: “Due to privacy
Consul General Clifford Hart presenting the Certificate of Appreciation to Mr. Michael Iun and Ms. Carbel Choi
considerations, we are unable to share details about individual cases.” The spokesperson also assured Business Daily that with regard to cases such as these, “the safety and welfare of American citizens is the number one priority of all of our overseas missions.” However, according to the airport spokesperson, another week passed – bringing the total time Coleman had resided in the airport to two weeks - before a representative from the U.S. Consulate arrived to escort Mr. Coleman to Hong Kong. No further contact was received by the airport authorities regarding the status of Mr. Coleman until more than a year after the event, when the authorities received a call from the Consulate saying that Mr. Coleman wanted to thank Ms. Choi and Mr. Iun for their assistance and the two were invited to the Consul’s residence for an event.
Appreciation
At the event Ms. Choi and Mr. Iun were provided with Certificates of Appreciation for their ‘selfless and spontaneous acts of kindness when rendering assistance’ to Mr. Coleman, as written on the certificates. The event also welcomed “a number of private individuals, groups, and public servants who have helped
the Consulate to assist Americans in need over the past two years,” notes the Consulate spokesperson. The certificates were presented by Consul General Clifford Hart, who retires after 34 years as a politician
“The safety and welfare of American citizens is the number one priority of all of our overseas missions.” Kristin Haworth, spokesperson for the U.S. Consulate General Hong Kong and Macau at the end of this month. The Consulate chose not to respond to questions regarding the reason for Mr. Coleman’s lengthy stay in the airport before being assisted, how the Consulate assisted Coleman, the timing of awarding the certificates and whether Mr. Coleman expressed any positive or negative response to the Consulate regarding their assistance.
Corporate
BNU grants MOP450,000 scholarship fund to IFT
Banco Nacional Ultramarino (BNU) has granted MOP450,000 to the Institute for Tourism Studies (IFT) as a student scholarship fund. The cheque presentation ceremony was hosted by the President of IFT, Dr. Fanny Vong, and Mr. Pedro Cardoso, Chief
Executive Officer of BNU. The BNU IFT Mastercard is an affinity credit card jointly launched by the two parties and specially designed for IFT staff, students and alumni. For each retail transaction settled with the BNU IFT Mastercard a certain percentage will be transferred to a fund providing scholarships to IFT students.
Business Daily Friday, July 22 2016 7
Macau
Gaming
‘Cause for concern’ Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
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tarting on Wednesday, residents aged 18 and over began receiving calls from the Institute for the Study of Commercial Gaming of the University of Macau, in the interests of elaborating upon a report for the Social Welfare Bureau on problem gambling in the territory, the Bureau announced in a press release. Last year’s results of the study found 174 total cases of gambling addiction, of which 70 per cent of the individuals were male, with the majority between 30 and 39 years old, and 80 per cent residents, while 20 per cent were dealers in casinos. This year, the study will focus on the amount of participation by residents in gaming activities, perception of gaming activities and gambling addiction as well as the rate of frequency of gambling addiction in the SAR. Information collected will be used ‘as reference for the planning and development of future services for the prevention and treatment of gambling addiction and to substantiate the objective of implementing scientific governance,’ notes the Bureau. The phone interviews will run until August 19. The last annual results published showed that the primary reason for engaging in gaming activities was ‘financial difficulty’, despite the SAR having an unemployment rate for May amounting to 1.9 per cent and employees in the gaming sector
making an average MOP21,630 per month in the fourth quarter of last year, according to data from the Statistics and Census Service (DSEC). At the end of last year’s fourth quarter some 24,619 dealers were employed, of whom around 8,500 were male, DSEC data shows. The statistics group notes that zero vacancies for dealer positions were available at the end of the fourth quarter of 2015 which, combined with other indicators, ‘suggested a further slowdown in demand for manpower in the gaming sector.’
Foolish concerns
Problem gambling is not the only concern that the Cotai strip is facing, investment firm Motley Fool notes, as ‘the prospects of having three more venues open within the next year ought to be a cause for concern’ based upon the 25-month slump in casino revenues and three operators currently operating on the Strip. The investment advisors say that based on the refocusing towards ‘theme-park, family-style entertainment’ instead of junkets, the operators ‘may be diluting their chances of recovery.’ The group, however, notes that ‘the worst may be behind Macau’ but note that in regard to the new Cotai openings the three additions ‘may not so much increase the size of the pie as just more narrowly slice the existing one.’
Wynn situation
One such property is Wynn Palace, set to open on August 22 but whose
Banking
Profit
ICBC Executive Director retires
IT service company profit increases
Mr. Wang Xiquan is retiring from the Industrial and Commercial Bank of China Limited (ICBC China) ‘due to a change of job assignment’ prompting Mr. Wang to tender his resignation, notes the ICBC China in a filing with the Hong Kong Stock Exchange yesterday. Mr. Wang held the position of Executive Director and Senior Executive Vice President of the bank, both of which he resigned from, effective July 20, as well as resigning from a role in the Related Party Transactions Control Committee of the Board. The filing notes that Mr. Wang ‘has confirmed that he has no disagreement with the Board and there are no other matters relating to his resignation’ to inform shareholders about. The bank notes that Mr. Wang has performed in his role ‘diligently and conscientiously during his tenure of service’ noting his ‘important contributions’ to the company in various areas for which ICBC China ‘would like to express its sincere gratitude’.
Automated Systems Holdings Limited, an information technology (IT) services company, parent to CSA Automated (Macau) Limited, has announced a positive profit call according to a filing yesterday with the Hong Kong Stock Exchange. ‘The Group is expected to record a significant increase in profit for the six months ended 30th June 2016 as compared with that for the corresponding period last year,’ notes the filing. The increase in profit is ‘mainly attributable to the increase in order book and decrease in operating costs,’ notes Automated Systems in the filing. The group’s interim results will be disclosed in August. The group’s local subsidiary, and a 33 per cent partnership in iN Systems (Macao) Ltd, earned it HK$59.9 million (US$7.7 million) in revenue for the 2015 fiscal year, in which the company made HK$19.7 million in profit vis-a-vis HK$28.5 million in profit seen for fiscal 2014. Th e AS L G r o u p ’ s u l t i m a t e controlling shareholder is Beijing Teamsun Technology Co., Ltd.
parent company – Wynn Resorts has just been downgraded by UBS (a financial services company) from ‘Buy’ to ‘Neutral’, with a price target of US$98 on valuation, notes StreetInsider. Analyst Robin Farley commented: “With the stock now reflecting a decent opening for Wynn Palace on Cotai, we believe WYNN now has less favourable risk/return with the stock at these higher levels,” notes the publication. Concern still exists about the total number of gaming tables the group’s Cotai property can operate, with the Gaming Inspection and Coordination Bureau (DICJ) telling Business Daily yesterday that “for Wynn Palace, the number of gaming tables that will be assigned has not yet been confirmed.” Two other Cotai properties the public anxiously awaits news on
are The Venetian’s The Parisian and Chinese billionaire Stephen Hung’s The 13 luxury hotel project. Regarding these, the DICJ commented that: “For Parisian, no application has been received from The Venetian requesting adding new gaming tables to that property. As for The 13, we have not yet received any one of the gaming concessionaires requesting opening a new casino in The 13 Hotel location.” The most recent opening on the Strip, Melco’s Studio City, has been affected by the works on neighbouring The Parisian, notes Southeaster Asset Management, stating: ‘Construction activity near the property has adversely affected customer traffic flow in the short term’. However, once surrounding construction is finished, Studio City stands to benefit given that its ‘location and non-gaming attractions will draw more highly profitable mass visitors,’ notes the management company, as published on Nasdaq.
8 Business Daily Friday, July 22 2016
Greater China GDP forecast
Growth seen slowing despite policy support While fears of a hard landing in China have eased, growth in private sector investment is at a record low. Elias Glenn
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hina’s economic growth is expected to cool to 6.5 per cent this year - the low end of Beijing’s target range - even as the government steps up spending and the central bank loosens policy further to prevent a sharper slowdown, a Reuters poll showed. Persistent pressure on the world’s second-largest economy due to weak exports and massive industrial overcapacity are raising the stakes for policymakers keen on ensuring job growth while avoiding more serious
fallout from China’s mounting debt. “The economy still faces structural problems such as oversupply of real estate and overcapacity. Any policy stimulus on investment would not be indefinite and economic growth will eventually resume its downtrend,” Nomura economists said in a recent research note. The median forecast in a Reuters survey of 60 economists taken in the past week is for 6.5 per cent growth in 2016 - the weakest in a quarter of a century - with a further slowing to 6.3 per cent in 2017 as a housing recovery that supported growth earlier this year
loses momentum. The forecasts are unchanged from an April poll. The survey’s highest GDP forecast was 6.8 per cent for this year and the lowest was 6.0 per cent. The government has set a growth target of 6.5-7 per cent for this year. The economy expanded 6.9 per cent in 2015. The National Bureau of Statistics said last week that China’s economy expanded 6.7 per cent in the second quarter, slightly faster than expected and unchanged from the first quarter of the year. While fears of a hard landing in China have eased, growth in private sector investment is at a record low, leaving the economy more dependant
The property sector, which has given China’s economy a welcome boost in recent months by spurring demand for products from cement to steel, showed signs of fatigue in June
on government support. Concerns are increasing that more state-led growth risks a “vicious cycle” of declining efficiency and lower growth potential. The property sector, which has given China’s economy a welcome boost in recent months by spurring demand for products from cement to steel, showed signs of fatigue in June, with real estate investment growth cooling for a second month. Home price gains slowed in many cities in June, adding to expectations that the current housing cycle may be peaking. The central bank has held off on cutting interest rates since October, with a government newspaper quoting an “authoritative source” in May as saying the country could suffer a financial crisis and recession if the government relies too much on debtfuelled stimulus. But economists believe a further slowdown could lead the People’s Bank of China (PBOC) to cut the benchmark interest rate by another 25 basis points (bps) by the first quarter of 2017. They also expected the PBOC will lower the amount of cash that banks are required to hold as reserves (RRR) by another 75 bps by the end of 2016. Economists polled in April had expected a 25 bps rate cut and a total of 150 bps of RRR cuts this year. China’s central bank has cut lending rates six times since November 2014 to 4.35 per cent, and lowered the amount of cash that banks are required to hold as reserves to 17 per cent. Analysts also expect annual inflation to average 2 per cent in 2016 and 2017, underscoring the sluggish growth outlook. Inflation was 1.9 per cent in the first half of 2016. Reuters
Shanghai meeting
G20 has chance to soothe post-Brexit jitters A senior U.S Treasury official said the G20 needed to focus on ensuring the benefits of global trade and cooperation were shared broadly among citizens. Finance heads from the world’s leading economies will confront fresh fears about protectionism when they meet in China this weekend, with Brexit fallout and dwindling policy options to boost global growth expected to dominate talks. The Group of 20 finance ministers and central bankers meeting will put the spotlight on Britain’s new Chancellor of the Exchequer, Philip Hammond, who makes his international debut at the gathering and will need to answer questions about how London will manage its exit from Europe. Also overhanging the G20 meeting in the south-western city of Chengdu will be Donald Trump’s U.S. Presidential campaign in which protectionist themes are expected to be central, after his official nomination as the 2016 Republican candidate this week. “(On Brexit), the focus will be on what message G20 can deliver to ease concerns,” said an Asian financial official involved in G20-related issues. “We still need to remain vigilant.” The International Monetary Fund this week cut its forecast for global growth, specifically on Britain’s vote to leave the European Union. A South Korean finance ministry official said “expanded downside risks to global economic growth” post-Brexit would feature in the Chengdu talks. “With everything aside, talk about strengthening cooperation regarding monetary, fiscal and macro policy to recover global growth will be essential,” said the official. Noting the growing public backlash against trade and globalisation, a senior U.S Treasury official said the
G20 needed to focus on ensuring the benefits of global trade and cooperation were shared broadly among their citizens. “We also need to do a better of job of explaining why this cooperation is important to the lives or our citizens in terms of jobs, economic growth and stability,” the Treasury official said.
Less focus on China
With central bank meetings in both the U.S. and Japan next week, there is likely to be a focus on currencies and current monetary policy settings globally. However, for host China, the meeting may also bring less heat than February’s G20 gathering in Shanghai, when it had
to counter concerns about the possibility it would devalue its currency and spark a global currency war. Five months later the yuan is lower - it fell to 6.7 per cent to the dollar this week for the first time since late 2010 - though this decline has not raised concerns about forced depreciation. “The Chinese renminbi is moving a little bit over time but I don’t think it’s really something that...bugs G20 policymakers at the moment,” said Frederic Neumann, Co-Head Of Asian Economic Research at HSBC in Hong Kong. “There seems to be...some consensus that the Chinese are not trying to aggressively gain market share through currency depreciation.” Concerns about the health of the Chinese economy have also eased, even with growth running at quarter-century lows. “We will also talk about China but most of the G20 are convinced that
G20’s Trade Ministers meeting in Shanghai earlier this month
the country will manage to have a soft landing,” said a European official involved in the G20. Still, the United States intends to put China’s efforts to reduce excess industrial capacity on the agenda. The U.S. official said Treasury secretary Jack Lew would “highlight the need for G20 leadership in responding to the pressing problem of global excess industrial capacity.”
Key Points G20 finance ministers, central bankers meet in Chengdu Britain’s new finance minister makes international debut Donald Trump’s election campaign heightens protectionist fears China likely to keep out of policy spotlight at meeting In return, China could have its own questions for the U.S., said Zhang Yongjun, senior economist at the China Centre for International Economic Exchanges, a Beijing think-tank. “China may also ask the United States to better guide market expectations when it makes monetary policy decisions and its policy moves should not only consider its own economic condition, but also the global economic condition,” he said. Neighbouring Japan is unlikely to find support for any effort to either coordinate fiscal stimulus or intervene to weaken the yen, having previously been rebuffed for such lobbying. G20 ministers have pledged to avoid currency manipulation, and promised in February to inform one another of policy decisions that could lead to currency devaluation. “There might be sort of a reminder to the Japanese officials: ‘Hey, remember not to massage your currency too overtly’,” said HSBC’s Neumann. Reuters
Business Daily Friday, July 22 2016 9
Greater China In Brief Energy
Sinopec cuts gas output after pipeline fire China’s Sinopec Corp said yesterday it had cut daily well-head production from its Puguang gas field in Sichuan province to 4 million cubic metres after a landslide a day earlier triggered a fire on a trunk gas pipeline. The company also said commercial sales from the field has been reduced to 2.2 million cubic metres a day. Puguang is Sinopec’s largest domestic gas producing field. Entertainment
People’s Bank of China headquarters in Beijing
Wanda’s Legendary to make Pokemon film
Outflows easing
Nation’s commercial banks’ forex sales stable China’s central bank sold a net 97.7 billion yuan worth of foreign exchange in June, earlier data showed. China’s commercial banks sold a net US$12.8 billion worth of foreign exchange in June, up slightly from US$12.5 billion in May, but capital outflows are easing despite a weaker yuan, the country’s exchange regulator said yesterday. Net forex sales totalled US$173.8 billion in the first half of the year, State Administration of Foreign Exchange (SAFE) spokeswoman Wang Chunying said. “The pressure on cross-border capital outflows has been steadily easing,” Wang told a news conference. China will be able to keep cross-border capital flows steady given its relatively
sound economic fundamentals, solid current account surplus and ample foreign exchange reserves, she said. The People’s Bank of China last week reported its June forex sales were the highest in three months as the central bank sought to shield the yuan from market volatility caused by Britain’s decision to leave the European Union. China’s central bank sold a net 97.7 billion yuan worth of foreign exchange in June, earlier data showed, up from net sales of 53.7 billion yuan in May. But Chinese officials said capital outflows are largely under control, despite the weakening yuan. The
central bank’s net foreign exchange sales hit a record high 708.2 billion yuan in December. On Monday, the yuan slipped below 6.7 per dollar for the first time since late 2010, reviving some market fears of heavy capital outflows. China’s current account surplus was equivalent to 1.6 per cent of gross domestic product in the first quarter of 2016, down from historical highs of around 10 per cent, Wang said. Wang said a rise of US$13.4 billion in China’s foreign exchange reserves in June was mainly due to stronger prices of assets in which China has invested its reserves. “China’s foreign exchange reserves are ample and will provide a strong foundation for withstanding external shocks,” she said. Reuters
Billionaire Wang Jianlin’s Legendary Entertainment LLC will team up with the developers of the popular Pokemon Go game to make a live-action film based on the creatures. Legendary, which is partnering with The Pokemon Co., will begin production in 2017 for the movie, which will feature Detective Pikachu, according to a statement from the companies on Wednesday. Toho Co. will distribute the film in Japan and Comcast Corp.’s Universal Pictures will do so internationally, according to the statement. Legendary, a unit of Wang’s Dalian Wanda Group Co., is seeking to be the latest beneficiary of the frenzy surrounding Pokemon Go. Philanthropy
Brexit impact
HKEX to put LME clearing link plans on hold The HKEX and LME had hoped a tie-up would allow them to offer yuan-denominated futures and other commodities products to European investors. Michelle Price and Eric Onstad
Britain’s vote to leave the EU has prompted the Hong Kong stock exchange (HKEX) to put on hold a commodities clearing link with its London Metal Exchange (LME), dealing a blow to its bid to make the LME more profitable. Hong Kong Exchanges & Clearing Chief Executive Charles Li said the planned link-up would now have to wait due to the uncertainty created by the British vote last month. Other LME initiatives, however, should not be affected by the Brexit vote, Li wrote in his blog published on Wednesday. The freeze is another obstacle to the Hong Kong exchange’s efforts to generate a payback from its US$2.2 billion takeover of LME in 2012 by expanding into China, the world’s biggest metals consumer, an analyst said. “The Hong Kong exchange’s strategy regarding the LME seems to have gone into a holding pattern in general,” said Wiktor Bielski, head of commodities research at VTB Capital in London. “A lot of the things that they had proposed to do after buying the LME all proved to be a lot more difficult than they expected.” HKEX has succeeded, however, in some of its plans to boost profits at the LME, raising fees and boosting electronic trading, while arbitrage activity between the LME and the Shanghai Futures Exchange has soared this year. Li said the planned link, designed to clear and settle LME trades in Hong Kong, would have been subject to regulatory authorities in Hong Kong, Britain and the European Union.
“With Britain withdrawing from the EU, there is some uncertainty about the policy developments in the UK. Therefore, we will wait and monitor the development of the UK and Europe’s regulatory policy before making further plans to connect the commodities markets in London and Hong Kong,” Li wrote.
Brexit holding pattern
Last October, HKEX said it had started a preliminary study to build the link, which would allow big commodity importers in Hong Kong to hedge their trading exposure through the LME. The HKEX and LME had also hoped that such a tie-up would allow them to offer yuan-denominated futures and other commodities products to
European investors, which would further expand the use of the Chinese currency globally. “Brexit is bad news for them. Anybody that is a UK-based and internationally-focused organisation that has been regulated by the EU but isn’t going to be in the future, goes into a 2-1/2 year holding pattern,” Bielski said. The LME, the world’s oldest and largest market for industrial metals, has been operating for almost 140 years, long before the EU was created, Li said. The exchange was pressing ahead with other plans, such as establishing LME-certified warehouses on the Chinese mainland and launching a spot commodities trading platform in Shenzhen. Bielski said, however, that HKEX would continue to face difficulties in getting regulatory approvals from mainland Chinese authorities. “The Chinese without a doubt want to develop Shanghai into the major trading area in Asia and getting approval for any sort of Hong Kong-China or LME-China plans are going to be almost impossible,” he said. Reuters
Beijing plans 10 websites for online charity China will establish 10 websites to promote programs and raise funds for charity organizations, the Ministry of Civil Affairs said yesterday. The websites will be selected among those with great influence and credibility on the Internet and charity sectors, the ministry said. Applicants are required to submit applications and the finalists will be made public by the ministry after review and evaluation. Online philanthropy has become popular in China, as many believe it offers more convenience and transparency compared to traditional methods of donation. Sustainable development
Government to speed up agenda implementation China will speed up efforts to implement the United Nations 2030 Sustainable Development Agenda, said a senior Chinese diplomat on Wednesday. Li Baodong, China’s vice foreign minister, made the remarks at a high-level political forum on sustainable development which was held at UN headquarters in New York on July 19-20. Briefing representatives worldwide on measures taken by China regarding sustainable development, Li said the 2030 Agenda dovetails China’s efforts to build a well-off society in an all-round way and realize the “Chinese dream” of national rejuvenation.
10 Business Daily Friday, July 22 2016
Greater China
Investment
High noon for regulators in mainland’s Wild West bond market Market insiders say potential conflicts of interest, where underwriting banks hold information on issuers they can use to protect their loans ahead of bondholders’ interests, are common. Nathaniel Taplin and Samuel Shen
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disp u t e b e t w e e n investors and the underwriter of a bond issued by Evergreen Industries is showing up regulatory failings that need fixing if China is to sustain newly robust inflows of foreign capital into local bonds. As China’s economy slows and its currency weakens under pressure from domestic capital flight, policymakers have opened up the country’s corporate bond markets to foreign investors to help keep credit flowing. Foreign holdings of onshore Chinese bonds rose by a record 40.9 billion yuan (US$6.12 billion) in June, data from China’s main bond clearinghouse show, surpassing the flow into bonds from commercial bank wealth management products for the first time since the height of the equity bubble in May 2015. Foreigners still own less than 2 per cent of China’s bond market, but these rising flows could stall if investors, already nervous about yuan depreciation, fear unruly defaults. In the past, failing firms were nearly always bailed out, usually with the assistance of local governments, so bondholders got their money in the end. But with over 20 defaults so far in 2016, it is a much more dangerous market, and insiders say China’s regulatory structure has failed to keep up.
Holders of the Evergreen Industries Holding Group Ltd bond, now in default, claim that underwriter Industrial and Commercial Bank of China (ICBC) shirked due diligence and disclosure requirements, and ignored the conflict of interests inherent in its own separate loan to Evergreen. Evergreen bondholders are taking their concerns directly to regulators, who have participated in meetings between the bondholders and ICBC, setting up the conflict as a potential test case on China’s underwriting laws. ICBC declined to comment, but
Key Points Evergreen bond default could be test case on reform Previously rare bond defaults rising: over 20 in 2016 so far Foreign inflows into OTC bond market hit record in June Investors say further flows at risk without rule reform
an official involved with the case said current rules, which require underwriters to “urge” issuers to disclose problems as they arise and protect bondholders’ interests, were manifestly unclear. “Whether we have fulfilled our responsibilities to ‘urge’ them, you need a judge to decide that,” the employee added.
China’s bond markets are overseen by three different regulators, all with different rules, many of which have yet to be tested in court. And penalties for malfeasance are low in the interbank markets, where most bonds trade. “In the interbank market, the penalty is often just several hundred thousand yuan of fines, and some oral reprimand,” said an Evergreen investor.
Wild West
Insiders say rapid market growth total bond debt in China is up over 50 per cent in the past 18 months to 57 trillion yuan, equal to around 80 per cent of GDP - has created a “Wild West” atmosphere where underwriters and rating agencies operate with little accountability and issuers pick the market where the rules suit them best. In January, Reuters reported that newly liberalised issuance rules had resulted in a flood of high-yielding private placement bonds onto the Shanghai exchange, undermining government efforts to police risks in other areas, such as shadow banking. “(Underwriters) can take advantage of the vague rules and regulations, and choose to interpret to their advantage and skirt responsibilities,” says an Evergreen bondholder. “If it goes on like this, who will dare to invest? How can the bond market be prosperous?” Ev e rg r e e n b o n dh o l d e rs a r e pursuing their case with the National Association of Financial Markets Institutional Investors (NAFMII), which regulates commercial paper like the Evergreen issue. ICBC and the bondholders met as recently as this week, but have still not resolved their dispute.
NAFMII did not return requests for comment. Market insiders say potential c o n f l i c t s o f i n t e r e st, w h e r e underwriting banks hold information on issuers they can use to protect their loans ahead of bondholders’ interests, are common. Evergreen bondholders say ICBC has declined to say if its loan to Evergreen was repaid. “When the regulators designed the system, they didn’t realise there might be a conflict of interest between banks’ own loan books and their underwriting business,” said a Hong Kong-based employee at an international ratings agency, who regularly meets with both underwriters and issuers on the mainland. N o n eth e l ess, w i th d efa u l ts accelerating and many more cases like Evergreen’s expected, policymakers are becoming more active. On June 21, NAFMII suspended Chinese accountants Ruihua for one year for irregularities related to the January default of logistics firm Yunfeng. And a week later th e P e o p l e’ s Ba n k o f Ch i n a, which declined comment for this article, said it would support investors’ efforts to hold financial intermediaries legally accountable for lapses. Investors say they want a much stronger, clearer and court-tested regulatory framework before they widen their exposure to Chinese corporates. Ji e P e n g a t W e st e r n As s e t Management in Singapore, which invests in Chinese debt, said for now she was limiting investment to AAArated credit and top-tier state-owned enterprises. “The legal system will definitely become a concern if we move down the credit curve,” she said. Reuters
Business Daily Friday, July 22 2016 11
Asia Private poll
Japan business mood subdued as Brexit clouds outlook The service-sector index fell to 15 from 17 in June reflecting weak domestic demand. Tetsushi Kajimoto and Izumi Nakagawa
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onfidence at Japanese manufacturers held steady in July but was expected to worsen to zero in the next three months, a Reuters poll found, as Britain’s vote to exit the European Union further clouded the outlook for Japan’s export-reliant economy.
Key Points
yen gain to below 100 yen versus the dollar. The Reuters Tankan sentiment index for manufacturers was unchanged at 3 in July and was seen worsening to zero in October, dragged down by exporters of cars, electronics, steel and chemicals. The sentiment indexes subtract the percentage of companies saying conditions are poor from those saying conditions are good. A positive number means optimists outnumber pessimists.
The service-sector index fell to 15 from 17 in June, and was seen unchanged in October, reflecting weak domestic demand. Bleak business sentiment should add to calls for policymakers to do more to revive a flagging economy, with the government eyeing a stimulus package of 10 trillion yen (US$94.62 billion) or more and the Bank of Japan under pressure to ease policy further. “We cannot see the future, given the effects of a rapid yen gain due to Britain’s vote to leave EU,” a manager at a chemicals firm said in the survey, which companies answer anonymously.
“Capital expenditures are being put off because of uncertainty over Europe caused by Britain’s exit from the EU, as well as a slowdown in China’s economy, and currency situations,” a machinery maker said. While the safe-haven yen has fallen to around 105 since last week as global risk aversion abated, manufacturers reported concerns over another possible spike in the yen because of uncertainty over the global economic outlook. Last week Prime Minister Shinzo Abe ordered compilation of an economic stimulus package by the end of this month to respond to weak private consumption and investment, and external risks. Speculation also lingers that the BOJ may ease again at its July 2829 policy review. Reuters
July manufacturers’ sentiment index unchanged at +3 Service-sector firms’ index hit fresh 3-year low Business sentiment seen subdued amid weak demand Reuters poll closely correlates with BOJ tankan The Reuters Tankan, which tracks the Bank of Japan’s quarterly tankan survey, also found the service sector’s mood fell in July to levels last seen in April 2013 when the BOJ embarked on massive monetary stimulus to reflate the economy. The monthly poll of 534 big and mid-sized firms taken July 1-15, of which 266 responded, offered an early glimpse of Japanese business sentiment in the wake of the Brexit vote, which briefly prompted a sharp
Speculation also lingers that the Bank of Japan may ease again at its July 28-29 policy review
NAB survey
Australian business conditions remain strong But a poll found firms still had little in the way of pricing power, with growth in retail and final product prices at very low levels. Australian firms enjoyed strong growth in sales and profits in the second quarter, while subdued price pressures pointed to another soft reading for inflation, a survey showed yesterday. National Australia Bank’s (NAB) quarterly survey of more than 910 firms showed its index of business conditions rose one point to +11 in the second quarter, well above the long-run average and the highest since the global financial crisis. Its business confidence index eased 2 points to +2, though its monthly version of the survey showed a pick up in June. The conditions index hit +12 in June while confidence rose to +6, even though the survey was taken amid the height of uncertainty over Britain’s vote on leaving the European Union and ahead of a July general election in Australia. “Firms were still reporting business conditions consistent with an ongoing recovery in the non-mining sector”, said NAB chief economist Alan Oster.
“Firms’ expectations for business conditions in 3 and 12 months were pared back a little, but are still quite positive,” he added. “Optimism
about the outlook should bode well for the labour market and business investment going forward.” While activity was strong, the survey found firms still had little in the way of pricing power, with growth in retail and final product prices at very low levels. “Both subdued purchase and labour costs are acting to contain product
price inflation, although firms are still hinting at margin compression,” said Oster. That could herald another soft reading for consumer price inflation in the second quarter, official data for which is due on July 27.
“Firms were still reporting business conditions consistent with an ongoing recovery in the non-mining sector” Alan Oster, National Bank of Australia chief economist
Australia is trying to overcome a high dependence on mining sector
Underlying inflation slowed sharply to a record low of around 1.5 per cent in the first quarter and many analysts suspect it might have dipped even further last quarter. Financial markets are wagering that such an outcome might prompt the Reserve Bank of Australia (RBA) to cut interest rates to fresh lows of 1.5 per cent at its policy meeting on August 2. Reuters
12 Business Daily Friday, July 22 2016
Asia In Brief Oil industry
Jakarta plans strategic reserves Indonesia plans to start installing tanks for its strategic petroleum reserves (SPR) and filling them this year with the goal of covering 30 days worth of emergency stocks eventually, the energy minister said yesterday. “This year we already got an allocation of 800 billion rupiah (US$61.07 million) from the state budget for the SPR, so we can start to have it this year,” Energy Minister Sudirman Said told reporters. He said the ministry has the necessary funding to purchase and store around 1.6 million barrels of crude at current prices. Trade
South Korea exports fall South Korea’s exports during the July 1-20 period inched down 1.9 per cent to US$24.640 billion from a year ago, while imports slumped 7.3 per cent during the same period to US$22.775 billion, Customs Korea data showed on Thursday. This resulted in a trade surplus of $1.865 billion for the period, according to Reuters calculations. The customs agency releases only the total values on its website without elaborating. Estimates for the full month will be released by the trade ministry on August 1.
Central bank
New Zealand set to cut rates as it targets high currency The bank is mandated to keep inflation in a target range of 1 percent to 3 percent. Rebecca Howard
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ew Zealand’s central bank (Reserve Bank of New Zealand, RBNZ) yesterday said further rate cuts are likely as it sets its sights on the high New Zealand dollar and perilously low inflation. “At this stage it seems likely that further monetary policy easing will be required to ensure that future average inflation settles near the middle of the target range,” it said in an economic update ahead of the August 11 rate decision. The bank is mandated to keep inflation in a target range of 1 percent to 3 percent. Annual inflation is currently running at 0.4 percent and has been below the central bank’s target band since the fourth quarter of 2014. New Zealand, like most of the Asian region is struggling with tepid
inflation or even deflation as too many goods chase too little demand. But, unlike many central banks globally, New Zealand has been reluctant to cut rates given an overheated housing market. Earlier this week, however, the central bank paved the way for rate cuts by announcing new curbs on mortgage lending that are geared toward dampening the housing market. New Zealand house prices have increased by around 50 percent since 2010, driven by strong immigration, low mortgage rates and sluggish housing supply. It noted yesterday that house price inflation “remains excessive” but said the new macro-prudential tools are aimed at mitigating any risk to financial stability. Yesterday the central bank emphatically said the high New Zealand dollar was hindering efforts
to meet its inflation target. “A decline in the exchange rate is needed.” Despite rising capacity pressures and some recent increases in fuel prices, the stronger exchange rate implies that the outlook for inflation has weakened since the June statement, it added. As a result “monetary policy will continue to be accommodative,” the central bank said. “The RBNZ made very strong comments on the level of the NZ dollar,” said ASB Bank Senior Economist Jane Turner. “The RBNZ’s statement reinforces our view that the RBNZ will cut the OCR to 2.0 percent in August, then cut again to 1.75 percent in November. Before this statement, we had viewed that there was a very high threshold for the RBNZ to cut to 1.75 percent,” she said. Kiwibank Senior Economist Zoe Wallis said she still expects a 25 basis point rate cut in August but “we now expect them (RBNZ) to have to cut by another 50 basis points to a terminal rate of 1.50 percent.” Reuters
Fiscal amnesty
Four Indonesian banks to manage repatriated funds Indonesia gave a mandate yesterday to four banks to manage repatriated funds under a recently introduced tax amnesty programme, Finance Minister Bambang Brodjonegoro said. The four banks are PT Bank Mandiri Tbk, PT Bank Negara Indonesia Tbk (BNI), PT Bank Rakyat Indonesia Tbk (BRI) and PT Bank Central Asia Tbk (BCA). Mandiri, BNI and BRI are state-controlled. Finance ministry official Robert Pakpahan previously said 18 banks had met the qualifications to manage funds from the tax amnesty. But banks still need to wait for an official appointment letter from the government to formalise the mandate. Automotive industry
Hyundai to open first store for luxury brand Hyundai Motor yesterday said it plans to open its first dedicated store for its Genesis luxury car line near Seoul later this year, as the South Korean automaker looks to build a separate identity for the brand. Hyundai Motor, best known as a value automaker, launched Genesis as a standalone brand in November hoping to compete with the likes of Germany’s BMW and Audi AG in the higher-margin premium segment. The store will be located at what will be South Korea’s biggest shopping mall, Starfield Hanam, due to be opened later this year.
“The RBNZ made very strong comments on the level of the NZ dollar” Jane Turner, ASB Bank Senior Economist
Monetary policy
Bank of Japan could wipe out bets on July easing The central bank risks triggering a market backlash if it fails to meet investors’ expectations for easing. Leika Kihara and Lisa Twaronite
Investors betting the Bank of Japan (BOJ) will ease monetary policy next week could be riding for a fall, as the yen’s recent weakening and a government spending package take some pressure off the bank to step up its massive stimulus programme. Market speculation of further easing spiked last week after visiting former Federal Reserve Chairman Ben Bernanke told Prime Minister Shinzo Abe that there were still “various tools available” for monetary policy to spur growth. A Reuters poll showed 85 per cent of analysts expect the BOJ to ease on July 29, alongside the fiscal spending boost Abe is set to announce this month. The BOJ has already implemented negative interest rates and is printing 80 trillion yen (US$750 billion) a year to stimulate inflation after decades
of deflation and stagnant growth, yet inflationary expectations appear to be weakening.
Sources familiar with the BOJ say it will downgrade its assessment that underlying trend inflation is “improving steadily” next week. But there is no consensus within the bank on whether that warrants prompt action.
Bank of Japan’s Governor Haruhiko Kuroda is blaming weak inflation on temporary factors like oil price falls
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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Reserve Bank of New Zealand headquarters
Business Daily Friday, July 22 2016 13
Asia Key Points Deal still needs FIRB approval Deal “not likely” to substantially lessen competition - ACCC Asciano shares up 1 pct, Qube hits 2-mth high
M&A
Australian regulator waves through Asciano buyout The takeover must still be approved by Australia’s Foreign Investment Review Board. Swati Pandey
Australia’s antitrust watchdog yesterday gave the green light to a A$9.1 billion (US$6.79 billion) buyout of rail freight giant Asciano Ltd by a global consortium led by Canada’s Brookfield Asset Management Inc. The Australian Competition and
While officials do not rule out more stimulus in July, some say a delay in hitting the bank’s inflation target alone shouldn’t trigger immediate easing as a tightening job market will eventually push up wages and feed into prices. “It’s true underlying trend inflation lacks momentum. But what’s important is for there to be signs that inflation expectations will heighten in the future,” said one of the sources.
Market backlash
The BOJ has stood pat since it adopted negative interest rates in January, with Governor Haruhiko Kuroda blaming weak inflation on temporary factors like oil price falls. But sliding import costs from a strong yen and weak consumption have led many analysts to predict the BOJ will sharply cut its price forecasts, push back the two-year timeframe for hitting its price target and ease more. September 10-year government bond futures rose to a record high and the iShares MSCI Japan ETF index hit a five-week high this month on expectations of a July easing. “If the BOJ postpones the deadline again, it would exceed Kuroda’s term (as governor in April 2018). Many people think that doing nothing under such conditions would be unacceptable,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance in Tokyo. Some also think Kuroda will ease this month in step with Abe’s pledged spending plan, but given calls by Group of 20 nations for members to avoid relying excessively on monetary policy to spur growth, the BOJ might sit this dance out. Indeed sources have told Reuters the bank will factor in the government’s spending package in producing new projections this month, which could help minimise cuts to its inflation forecasts and reduce the pressure for easing.
Consumer Commission (ACCC) had been concerned the deal would give Asciano’s new owners, which include Australian stevedoring company Qube Holdings Ltd, too much control of the freight market. ACCC Chairman Rod Sims said the regulator had concluded there was “not likely to be a substantial lessening of competition in any market” after
Kuroda may also see less need to act, now shares have risen and the yen has eased to 106 per dollar since spiking below 100 when Britain’s vote to leave the European Union unsettled global markets last month.
Key Points Markets strongly expect BOJ easing in July BOJ officials don’t rule out action but say no consensus BOJ seen cutting price view as inflation expectations weaken Any cut in BOJ’s price forecast seen modest -sources Yen spike, stock falls eyed if BOJ puts off easing But the bank risks triggering a market backlash if it fails to meet investors’ expectations for easing. “In the case of a ‘do-nothing’ surprise, you have to look at the technicals of dollar/yen. We could see a pretty sharp move lower,” said Mitul Kotecha, head of FX strategy at Asia-Pacific for Barclays in Singapore. “We were around 100 (yen to the dollar) not too long ago, earlier in the month, and I think anything towards that level wouldn’t be surprising, if we see no action.” A Citi survey of its clients and financial institutions showed 80 per cent expected the dollar to fall more than 3 per cent against the yen if the BOJ stands pat and does not signal action in September. More than 30 per cent think the drop will be more than 4 per cent. But that might not be enough to persuade BOJ officials. “The BOJ won’t ease just because markets have factored in action,” said one of the sources. “That’s not monetary policy.” Reuters
the deal was restructured to address officials’ concerns. “To come through with no objections, no further delays, was a little bit of a surprise,” said John Corr, chief investment officer at Aurora Funds Management. The go-ahead came as a relief for Asciano shareholders following a year-long takeover battle that began with Brookfield’s initial solitary bid of US$6.8 billion last July. The ACCC could have mounted a legal challenge, a move that would have
hit the company’s share price. “The decision by the ACCC is clearly a major milestone in the process of acquiring these important businesses,” Qube said in a statement. The takeover must still be approved by Australia’s Foreign Investment Review Board but analysts expect it to get the nod as the restructured deal keeps Asciano’s strategically important ports out of Chinese hands. Brookfield and Qube joined forces in February to make a joint offer for Asciano’s port assets only, leaving the railways to China Investment Corp (CIC) and others. Asciano shareholders in June voted in favour of the buyout. Reuters
14 Business Daily Friday, July 22 2016
International In Brief Brexit
Demand for UK commercial property nosedives Investment demand for British commercial property dropped by the largest amount on record after last month’s vote to leave the European, according to a survey from the Royal Institution of Chartered Surveyors (RICS) yesterday. Its investment enquiries balance fell in the second quarter to -16 from +25. The drop was led by London, where investment demand fell to its lowest level since 2009. The survey will be of interest to Bank of England policymakers. Earlier this month, Governor Mark Carney warned the financial risks of Brexit were materialising after valuations in the commercial property sector fell sharply. Monetary policy
Brazil’s central bank holds steady on high interest rate Brazil’s central bank left unchanged its benchmark interest rate as Latin America’s largest economy remains mired in recession and high inflation. The central bank, as expected, kept the key Selic rate at 14.25 per cent, where it has been pegged for a year to support the flailing economy. The meeting of the Central Bank Monetary Policy Committee was the first one headed by the new central bank governor, Ilan Goldfajn. Goldfajn has made reining in spiralling prices his top priority. Markets expect the central bank to cut the Selic rate by a full percentage point by the end of the year. Poturgal
Rail investment finally leaves the station Portugal’s planning and infrastructure minister, Pedro Marques, said that the he was going to push ahead with engineering works on two major railway likes to Spain in the centre-north of the country, investing about €691 million. Pedro Marques was speaking in Covilhã, where he chaired a ceremony to present the Interior Mobility Plan that includes roadways and railways. The plan foresees the modernisation of the ‘Beira Baixa’ line between Covilhã and Guarda, which has been closed to traffic since 2009. Forex-related scheme
U.S. charges two HSBC executives A senior HSBC Holdings Plc manager has been arrested and charged alongside a former foreign exchange executive with engaging in a scheme to front-run a US$3.5 billion transaction by one of the bank’s clients, U.S. prosecutors said. Mark Johnson, HSBC’s global head of foreign exchange cash trading in London, and Stuart Scott, its ex-head of cash trading for Europe, the Middle East and Africa, were charged in a criminal complaint filed in federal court in Brooklyn. Both men were charged with wire fraud conspiracy.
Bad loans
Turkey unrest deals new blow to banks Banks accounted for US$170 billion of Turkey’s US$416 billion external debt in the first quarter, according to Fitch. Ercan Ersoy
T
urkey’s failed coup is dealing yet another blow to the nation’s banks already under pressure from rising bad debts and a slump in
tourism. Istanbul-based lenders Yapi ve Kredi Bankasi AS and Sekerbank TAS cancelled about US$800 million of debt sales this week after the attempt to unseat President Recep Tayyip Erdogan and ensuing political unrest spooked investors. Neither bank gave a forecast for when the sales might occur, with Sekerbank saying it would contact fixed-income investors in due course. Renewed tension - the country last night imposed a three-month state of emergency after the coup attempt - is cutting access to the funding banks need to cover their short-term debt, while a slumping lira is increasing foreign-currency lending risks. The political instability threatens to add to an already difficult year for banks as they contend with a 33 per cent surge in bad loans and soaring bankruptcy filings. “Funding for Turkish banks could become more expensive or even more difficult to access given their large dependence on market funds and their exposure to the FX market in a context where the local currency could be under pressure,” Moody’s Investors Service said in a report Tuesday, after placing Turkey under review for a possible downgrade to junk.
television. The country won’t have a problem with its external debt rollover, he said. The currency dropped to a record low on Wednesday as the government widened its post-coup purge of the country’s institutions, the central bank lowered interest rates and Standard & Poor’s cut Turkey to BB from BB+, with a negative outlook. Turkey’s banking index fell 3 per cent, while the benchmark Borsa Istanbul index lost 1.7 per cent. “We may see a rise in costs of borrowing but I would not expect a borrowing difficulty,” Ates Buldur, an analyst at Credit Suisse Group AG in Istanbul, said Tuesday by phone. “In past crises, Turkish banks have seen only an increase in the cost of funding.”
Asset quality
Even before the coup attempt, Turkish banks were confronting deteriorating asset quality in the tourism and energy industries. Bomb blasts from Ankara to Istanbul have deterred visitors, while power companies are struggling to repay loans amassed during an acquisition spree because of a slump in energy prices. Bad debts among retailers also jumped 54 per cent in April from a
year earlier, while the ratio of soured loans in the construction industry, which accounts for 12 per cent of assets, increased to 4.2 per cent from 3.4 per cent. More than 200 people died in the effort to overthrow Erdogan, which the president has blamed on erstwhile ally and exiled cleric Fethullah Gulen. Tanks rolled through the streets of Ankara and Istanbul on Friday, while warplanes and helicopters circled overhead during the uprising.
“We may see a rise in costs of borrowing but I would not expect a borrowing difficulty” Ates Buldur, an analyst at Credit Suisse Group AG in Istanbul “Downside risks for Turkish banks’ credit profiles and ratings have increased as a result of the country’s attempted military coup,” Fitch Ratings said in a report Wednesday. “Turkish banks’ credit profiles are sensitive to country risks, access to foreign credit markets and the lira exchange rate.” Banks accounted for US$170 billion of Turkey’s US$416 billion external debt in the first quarter, with US$100 billion maturing within a year, according to Fitch. Bloomberg News
Debts abroad
The nation’s lenders owe US$120 billion to institutions abroad, according to data from the Bank of International Settlements. Deputy Prime Minister Mehmet Simsek said there’s no need to worry about the economy, investments and markets after the imposition of the state of emergency, according to comments made in an interview with NTV
Turkish President Recep Tayyip Erdogan speaking during a press conference after cabinet meeting in Ankara, Turkey, 20 July 2016
M&A
AB InBev, SABMiller deal wins U.S. approval The world’s top two brewers hold brands Budweiser, Stella Artois, Miller and Pilsner Urquell. Brewers Anheuser-Busch InBev and SABMiller received U.S. antitrust approval for their US$107 billion merger on Wednesday, bringing the largest-ever consumer products deal a big step closer to completion. The combination of the world’s top brewers, which together will make nearly 30 per cent of the world’s beer, now only needs regulatory clearance from China, a blessing that is widely expected given the proposed divestment of SAB’s business there. The deal has already been cleared by Australia, Europe and South Africa, and AB InBev said it still expects closure this year. The U.S. Department of Justice (DOJ) approval, which is notable after the regulatory authority derailed several recent mega-mergers, came a day before SABMiller was to meet with shareholders at its annual general meeting in London. While its takeover by the Belgianbased brewer of Budweiser is not yet on the agenda for a shareholder vote, there has been speculation in recent
weeks that some activist shareholders may try to push for a renegotiation of terms, given the steep drop in the British currency. AB InBev will make concessions beyond its publicly stated offer to sell SAB’s stake in MillerCoors, its U.S. joint venture with Denver-based Molson Coors, as part of the deal. AB InBev will also have to curb its use of incentive programs to limit competition. Reuters previously reported that the DOJ was investigating AB InBev’s practice of financially rewarding beer distributors for selling more of its own beer than its competitors. Craft beer companies had vocally objected to the practice, which they argued hurt their ability to sell. AB InBev will also be required to secure the DOJ’s approval before acquiring any beer distributors or craft beer brands. AB InBev has already acquired several regional craft beer companies, looking to benefit from a rapidly growing niche market in the slowing beer industry. Recent deals include
Colorado-based Breckenridge Brewing, Oregon-based 10 Barrel Brewing and Virginia-based Devil’s Backbone Brewing Company. Terms of AB InBev’s agreement with the DOJ expire in 10 years.
“While we will make some adjustments to certain aspects of our U.S. sales programs and policies, our fundamental approach and commitment to this market will not change” Carlos Brito, AB InBev Chief Executive Officer
AB InBev will also divest the rights to all SABMiller beer brands currently imported or licensed for sale in the United States. Reuters
Business Daily Friday, July 22 2016 15
Opinion Business Wires
The Times of India Markets regulator Sebi (headquarters pictured) is planning to put in place a new system for crawling the internet and social media platforms like Twitter and Facebook for round-theclock monitoring of market-moving developments. The regulator is looking to rope in an expert independent agency for putting in place this new system, which may also be mandated to help Sebi expand its own presence on social media platforms. In addition to website based news feeds, information disseminated on channels like electronic media and print media which may contain information about Sebi and Indian securities market will also be monitored.
Among active managers patience is the principal virtue
Thanh Nien News Insurance companies in Vietnam reported premium revenues of more than VND38.61 trillion (US$1.7 billion) in the first six months, an increase of 25.9 per cent from a year ago, local media have reported, citing the finance ministry. It was the highest rise since 2011, news website Saigon Times Online said on Wednesday. More than 54 per cent of the reported figure came from the life insurance sector, which grew nearly 36.8 per cent. Non-life insurance revenues, meanwhile, rose 15 per cent compared to the same period last year. Official figures showed Vietnam now has 17 insurance companies, four of which controlled more than 75 per cent of the market.
The Phnom Penh Post Authorised dealerships of new cars and trucks have said a recent increase in the specific tax on vehicle imports has put a dent in profits, with some dealers claiming sales have slowed since the tax hike went into effect in April. The increase in the specific tax raised this category of excise tax from 50 per cent, to as high as 65 per cent on larger vehicles, pushing the aggregate levy on some new vehicles to nearly 140 per cent. “The tax increase is discouraging some buyers to buy new cars,” said Seng Voeung, Ford division manager of automotive business of RMA Cambodia.
The Japan News Suntory Holdings Ltd. reached a settlement with Asahi Breweries Ltd., a unit of Asahi Group Holdings Ltd., on Wednesday in a court battle over Suntory’s patent for nonalcoholic beer production. Suntory will drop its demand for the suspension of production and sales of Asahi’s Dry Zero, while Asahi will drop its request for the invalidation of Suntory’s patent, according to the two brewers. Under the settlement, reached at the Intellectual Property High Court in Tokyo, Suntory and Asahi also agreed not to clash again on the issue.
I
f you are going to use active investment managers you may want to limit yourself to those who are both truly active and, crucially, unusually patient. A recent study shows that funds which deviate substantially from the indices they track and which have average holding periods of more than two years perform exceptionally well, outperforming, on average, by two percentage points per year. What’s more, that subset of actively managed portfolios was the only one to so outperform, according to the study, by Martijn Cremers of the University of Notre Dame and Ankur Pareek of Rutgers Business School. The important distinctions here are two; how high is the “active share” of a portfolio and how long does it tend to hold its investments. Active share is a concept invented by Cremers and colleagues which measures the actual deviation a given portfolio takes from the holdings of its base index. This allows us to sort the “closet indexers” from the real active fund managers. Closet indexing is both quite widespread, due to managers wanting to minimize their own career risk, and a bit of a rip-off, as you pay for active but get something pretty close to an index fund. The study looked at mutual funds and institutional portfolios and sorted them by both active share and average holding period. So while frequent trading in the study was linked to underperformance, simply holding investments for longer did not lead to better performance unless it was by the sub-set of portfolios which were also taking big bets against the index. “Our results suggest that U.S. equity markets provide opportunities for longer-term active managers, perhaps because of the limited arbitrage capital devoted to patient and active investment strategies,” Cremers and Pareek write. Why? Hard to know for certain, but it seems that arbitrage opportunities may be thrown up by the huge numbers of closet indexers who selfservingly hew to their benchmarks while trading relatively often. “The literature on limited arbitrage has argued that trading on long-term mispricing is more expensive and difficult, especially if the fund manager risks being fired in the short term before ex-post successful long-term bets pay off. In equilibrium, that could allow relatively more longterm mispricing and thus greater profitability for the more limited arbitrage capital that is pursuing patient active strategies.” In other words, in a rather fundamental way, patient but active investors are making money
“
James Saft a Reuters columnist
because other fund managers are afraid to get fired. Patience is a virtue, but with high upfront costs All of this accords well with remarks at a CFA Institute conference this week by noted value investor Leah Joy Zell who said that taking profits from good investments too soon was often a source of regret. This makes sense. It is expensive, for a value investor like Zell, to find and research companies, taking a large upfront investment in time and energy. Simply selling one of these on after 18 months and a 60 or even 90 per cent return may not fit well with the investment or business model of a bottom-up value-oriented firm. Covering more than 20 years, the median holding period among mutual funds ranged as low as 0.9 year in the bubble year of 1999, eventually climbing to 1.7 years. This indicates that recent trends towards higher stock trading and shorter holding periods are probably down to program and algo traders, as opposed to mutual funds. Longer holding periods were “unconditionally” associated with better results, the study found, regardless of active share. Yet the only funds to show statistically significant outperformance combined high active share with long holding periods. Those funds which did outperform used familiar strategies but stuck with the stock bets these strategies threw up. “Their outperformance can largely be explained by their focus on stocks that other investors shun or find less attractive: picking safe (low beta), value (high book-to-market) and high quality (profitable, with growing profit margins, less uncertainty, higher pay-out) stocks and then sticking with those over relatively long periods until their apparent undervaluation has been reversed.” For investors seeking managers, this data will place new importance on fund selection. To enjoy these benefits investors are going to have to be willing to suffer potentially long periods of outperformance and big deviations from what the rest of the market is doing. Chopping and changing because your manager has done poorly over a year or two is not likely to yield good benefits. Find someone who has shown skill, makes conviction bets and sticks with them. Then stick with her. Reuters
So while frequent trading in the study was linked to underperformance, simply holding investments for longer did not lead to better performance
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16 Business Daily Friday, July 22 2016
Closing Setback for investors
Mainland’s factory gauge suspended
Publishers of the China Minxin Manufacturing PMI Index suspended the gauge for a second time, scrapping an early monthly reading on the world’s second-largest economy. Release of the unofficial purchasing managers index jointly compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics will be suspended “indefinitely,” the academy said yesterday in a statement on its website, without giving a reason. The indicators, which track manufacturing and services, were more volatile than the official PMI from the National Bureau of Statistics. The cancellation is another setback for investors and
economists looking for ways to take the pulse of business activity beyond official data from the government. One other early estimate of manufacturing, a flash PMI compiled by Markit Economics and sponsored by Caixin Media, was discontinued October 1. The Minxin indexes were previously released on the 21st day of each month, ahead of China’s official PMI, which the NBS releases on the first day of the month. When the gauges were suspended in December, the publishers said they would make a “major adjustment” to their calculations. The gauges resumed in January. The statement yesterday didn’t make reference to resuming publication or changing the methodology. Bloomberg News
Assets seized
Singapore to take action against major banks in 1MDB probe Of the asset seizure announced yesterday, about half belonged to Malaysian financier Low Taek Jho. Marius Zaharia and Aradhana Aravindan
S
ingapor e w i d e n e d a crackdown on alleged money laundering in a probe tied to scandal-hit Malaysian state fund 1MDB, seizing assets and announcing it will take action against some of the biggest banks based in the city-state Singapore authorities said in a statement yesterday that they had seized S$240 million (US$177 million) of assets in an investigation of 1MDBrelated fund flows for possible money laundering. They also said they found problems at three major banks, top local lender DBS Group Holdings Ltd, the world’s largest private bank UBS AG, and UK-based bank Standard Chartered. “The preliminary findings are that there were instances of control failings in all three banks and, in some cases, weaknesses in the processes for accepting clients and monitoring transactions. There was also undue delay in detecting and reporting suspicious transactions,” the Monetary Authority of Singapore (MAS) aid in a statement. An onsite inspection of another Swiss bank, Falcon PBS, owned by one of the world’s leading sovereign wealth funds - Abu Dhabi’s International Petroleum Investment Company (IPIC), in April 2016 found “substantial breaches” of anti-money laundering regulations, MAS said. It was the first time 1MDB, or 1Malaysia Development Bhd, has been mentioned by the Singapore
authorities in official statements about the money laundering investigation. In May, they said they were closing down the operations of Swiss private bank BSI AG in Singapore for serious breaches of anti-money laundering rules, the first such action in 32 years. They didn’t identify 1MDB in that announcement, though Swiss authorities did in a related move against BSI.
“Appropriate actions will be brought against those who have broken Singapore’s laws” Singapore’s authorities statement Yesterday’s joint statement by MAS, the Attorney-General’s Chambers and the Commercial Affairs Department (CAD) came the day after U.S. prosecutors filed civil lawsuits to seize more than US$1 billion in assets they said were tied to money stolen from the Malaysian state development fund. Of the asset seizure announced yesterday, about half belonged to Malaysian financier Low Taek Jho, known as Jho Low, and his immediate family, according to the statement.
Authorities did not detail the potential action they might take against the banks. Under Singapore law, the banks could face fines or other penalties, and individuals directly involved could face prosecution. “The criminal investigations by CAD are targeted at individuals suspected of committing offences in Singapore related to these flows, while MAS has been examining the financial institutions through which the funds flowed for possible regulatory breaches and control lapses,” the statement said.
“Egregious financial crime”
1MDB, which was founded by Malaysian Prime Minister Najib Razak in 2009 shortly after he came to office, is being investigated for moneylaundering in several countries. Both 1MDB and Najib have repeatedly denied any wrongdoing. Ties between Singapore and Malaysia have improved in recent years. Singapore was part of Malaysia after the end of British colonial rule but they separated acrimoniously in 1965, clouding diplomatic and economic dealings for decades. The MAS said it has carried inspections at DBS, and the local units of both Asia-focused Standard Chartered and UBS. “The MAS’ inspections did not reveal pervasive control weaknesses or staff misconduct within these banks, unlike in the case of BSI Bank,” the statement said. DBS, Standard Chartered said they will fully cooperate with the authorities. “Egregious financial crime is highly sophisticated and intentionally designed to evade systems and
controls. DBS has previously identified certain questionable activities and voluntarily reported these to the relevant authorities,” DBS said. Standard Chartered said it had also reported suspicious transactions whenever it discovered them, adding that it had strengthened its anti-money laundering controls and processes. UBS said it “self-reported the suspicious transactions” and is working closely with regulators. “Combating sophisticated international financial crime is complex and UBS is constantly enhancing its comprehensive AML (anti money laundering) processes,” it said in a statement.
“Substantial breaches”
Falcon’s inadequacies included “failure to adequately assess irregularities in activities pertaining to customers’ accounts and to file suspicious transaction reports,” MAS said. It said that Falcon’s management of key client relationships were done out of the bank’s head office in Switzerland and that the examination was still on-going. Falcon said it is in “full cooperation” with authorities and will comment further when investigations are complete. The statement from Singapore authorities also mentioned Singaporebased Raffles Money Change, a money changer and remittance agent, which was found to have inadequate risk management and oversight. The 1MDB-related investigations, which began in March 2015, are ongoing and Singapore has requested information from other countries as part of its probe. “Appropriate actions will be brought against those who have broken Singapore’s laws,” the statement said. Reuters
Oil industry
Currency
M&A
Saudi Arabia regains top ranking in China crude supply
HKEx approved to clear USD/CNH cross swaps
Komatsu to buy U.S. mining equipment rival
Saudi Arabia, the world’s biggest oil exporter, regained its position as China’s top crude supplier in June, after losing out to Russia over the previous three months, customs data showed yesterday. China imported 4.569 million tonnes of crude from Saudi Arabia in June, or 1.112 million barrels per day (bpd), down 14.2 per cent on the year but beating 961,000 bpd in May. Saudi imports edged up 0.24 per cent in the first six months of the year versus a year ago to an average of 1.06 million bpd. Russian exports to China have benefited from good demand by independent refiners since late 2015 after the country allowed them to import crude for the first time. China imported 4.107 million tonnes, or around 999,420 bpd, of crude in June from Russia, down from a record 1.24 million bpd in May. Russian imports rose 35.3 per cent in the first half to 1.05 million bpd, just behind Saudi Arabia. “Beijing is probably quite pleased with the competition for shares of China’s crude oil market,” said Washington-based China energy expert Erica Downs of the Eurasia Group. Imports from Iran rose 16.1 per cent in June over a year earlier to 780,175 bpd. Reuters
The Hong Kong Exchanges & Clearing Limited said yesterdayit had received regulatory approval to provide clearing for cross currency swaps (CCS) and it plans to launch the service in August. OTC Clearing Hong Kong Limited (OTC Clear), a subsidiary of the Hong Kong bourse, will initially provide clearing for swaps in the USD/CNH currency pair, the HKEx said in a statement on its website. It will be the first international clearing house to provide clearing for USD/CNH CCS. The CCS are traded actively in Hong Kong, where they are often used by issuers of offshore yuan bonds, also known as dim sum bonds, to swap proceeds into another currency. “This launch is an important milestone for HKEx and OTC Clear that illustrates our ambitions in FIC (fixed income and currency) and our opportunities as the RMB becomes a more international currency,” said HKEx chief executive Charles Li. OTC Clear provides a Payment versus Payment - or PvP - settlement solution through the RealTime Gross Settlement system operated by the Hong Kong Monetary Authority, which eliminates settlement risk. Reuters
Japanese mining equipment maker Komatsu Ltd has agreed to buy its smaller U.S. rival Joy Global Inc for about US$3.7 billion including debt, its biggest-ever acquisition, to boost its clout in the mining industry. Komatsu said yesterday that it would acquire 100 per cent of the Milwaukee, Wisconsinbased company for US$28.30 per share, about a 20 premium to Wednesday’s closing price. That values Joy’s equity at just under US$2.9 billion. A number of Japanese companies have been taking advantage of a stronger yen to chase overseas deals. The dollar has lost over 10 per cent against the yen this year. Sterling has also slipped. Earlier this week, tech investor SoftBank bought U.K. chip designer ARM in Japan’s largest-ever outbound M&A deal. For Komatsu, acquiring Joy will help the Japanese equipment maker expand into hard-rock mining for key metals like copper. Komatsu currently produces only surface-mining equipment. Joy also manufactures larger dump trucks - key for cost-saving in surface mining. The deal follows a flurry of consolidation in the sector over the past few years. Reuters