Future Bright halves losses in H1 F&B Page 3
Thursday, August 25 2016 Year V Nr. 1116 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusinessdaily.com
Money
Gaming labour
Banking
Surplus of BOP current account plunges in 2015
Dah Sing posts HK$1.07 billion profit in H1 Page 7
Page 4
Dismissed casino workers lodge complaints against Melco Page 4
Retail slump Industry
Retail sales dipped 11.1 pct q-to-q and 8.7 pct y-on-y to MOP13.17 bln in Q2. Total value of retail sales posted their lowest quarterly value since 2015. Car sales plummeted by half vis-à-vis the same quarter of 2015. Page 3
Asia top firms
Analysts not excited over HKShenzhen link perspective Page 9
Tencent vies with Samsung over value crown title Page 11 Uber runs out of road
The car hailing service is going. Uber informed the city’s legislators of the decision to leave the local market on September 9 via letter. Which legislator Au Kam San shared on social media. Its departure is lamented by many. But MOP10 mln-plus paid in penalties for operating without a licence has taken its toll. Over 2,000 full-time and part-time drivers will be affected. Transportation Page 2
HK Hang Seng Index August 24, 2016
Ka-Ho recovery
Land The gov’t is to recover a 90,000 sq. m plot intended for Coloane Port expansion. Another victim of non-development prior to the expiration of its land concession in 2013. The administration says the company - owned by STDM, the MSAR Gov’t and Nam Kwong Group – has no rights to compensation. Page 2
Hungry for more
F&B Catering businesses here are proliferating. As demand and supply grow, however, caterers are getting increasingly smaller pieces of the pie. Location is key, they say, while more training and manpower is favoured over gov’t subsidies. Page 6
Beijing confronts P2P
Shadow banking risks China has imposed limits on lending by peer-to-peer platforms to individuals and companies. In an effort to curb risks in one part of the loosely-regulated shadow-banking sector. An individual can borrow as much as 1 million yuan (US$150,000) from P2P sites - including a maximum of 200,000 yuan from any one site, the China Banking Regulatory Commission said in Beijing yesterday. Pages 8 & 15 22,820.78 -178.15 (-0.77%)
Worst Performers
Want Want China Holdings
+2.64%
Hang Lung Properties Ltd
+0.00%
Galaxy Entertainment Group
-3.19%
Link REIT
-1.92%
Wharf Holdings Ltd/The
+0.99%
BOC Hong Kong Holdings
+0.00%
Cheung Kong Property
-2.15%
Bank of China Ltd
-1.73%
CITIC Ltd
+0.16%
China Petroleum & Chemical
+0.00%
Belle International Holdings
-2.14%
Tingyi Cayman Islands
-1.73%
MTR Corp Ltd
+0.12%
HSBC Holdings PLC
+0.00%
Industrial & Commercial
Sun Hung Kai Properties Ltd
-1.54%
Hang Seng Bank Ltd
+0.07%
China Unicom Hong Kong
+0.00%
Ping An Insurance Group Co
New World Development
-1.52%
-2.00% -1.97%
26° 32° 26° 32° 26° 31° 26° 30° 25° 30° Today
Source: Bloomberg
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Sat
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Sun
Mon
Source: AccuWeather
Stock markets
2 Business Daily Thursday, August 25 2016
Macau Transport
Uber: September 9 last day in Macau The ridesharing application confirms that they are leaving the local market. Kam Leong kamleong@macaubusinessdaily.com
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ar-hailing application Uber is to cease its service in the Special Administrative Region after September 9, it informed the city’s legislators in a letter. ‘We will make sure all our driver partners and passengers know that Uber will soon halt its service in Macau. If [the negotiations with] the government do not progress, September 9 will be the last day for Uber serving Macau,’ the company wrote in the letter. This letter, signed by the company’s general manager of the Asia Pacific region, Mark Brown, and its director of Public Policy, Damian Kassabgi, on August 22 was uploaded by legislator Au Kam San to social media yesterday. Speaking to Business Daily the directly elected legislator said he received the letter via the Legislative
Assembly, believing the ridesharing mobile application had sent the same letter to all legislators. Uber launched its operations in Macau last October. According to the letter, it currently has over 2,000 fulltime and part-time driver partners in the territory.
On Tuesday, the Secretariat for Security said local police had prosecuted 379 cases of Uber drivers providing unlicensed taxi services in the past 10 months, adding that the company had paid over MOP10 million in penalties to the authorities. According to the local laws, drivers providing unlicensed taxi services in the city will receive a fine of MOP30,000 if they are caught, whilst Uber has been paying the fines for
their drivers caught by the police. ‘We believe we do not have to make such a decision if the government is showing willingness to regulate the car-hailing operations and to create an operating environment without prohibitive fines,’ the executives of the company wrote. Mr. Au, who supports the operation of Uber in Macau, indicated that the departure of the company from the local market will not benefit the city. He perceives that the company has helped to address the difficulties of local passengers catching taxis. “I have done what I can do,” the legislator said. “I’ve tried to appeal to the Secretary for Transport and Public Works Raimundo do Rosario for Uber but he directly rejected [my overtures]”. Meanwhile, the general manager of Uber in Macau, Trasy Lou Walsh, said the company would not stop trying to convince the Macau Government. “We continue to seek opportunities to work with the government on modern ridesharing regulations that will give us the chance to continue serving the people of Macau,” she said.
Industrial production
Manufacturing production up in Q2 as energy production down The index of industrial production of the city went up slightly by 0.7 per cent quarter-to-quarter to 90 between April and June, att ri b u tab l e t o th e i n c r eas e d production of the manufacturing industry, the latest data published b y th e Stati sti cs a n d C e n s u s Services (DSEC) reveals. In the three months, the overall index of the manufacturing industry rose by 10.2 per cent quarter-toquarter to 107.1. In particular, the manufacture of tobacco surged by 30.4 per cent quarter-to-quarter to 148.3, whilst that of textiles soared by 34.5 per cent to 7.4.
In addition, the production index of the manufacture of food products and beverages grew by 6.3 per cent to 164.7. N ev e r t h e l e s s, t h e g e n e r a l production index of electricity, gas and water supply dropped by 6.9 per cent quarter-to-quarter to 78.2. The production index of electricity registered a decrease of 9.5 per cent to 72.8 compared to the previous quarter. DSEC explained that the decline is due to a drop in the generation of electricity during the period. Meanwhile, the index of water supply jumped by 8.6 per cent quarter-to-quarter to 124.7, driven
Tobacco manufacture increased by 30.4 per cent q-to-q
by the increase in water treated. On a year-on-year comparison, the index of industrial production fell by 9.5 per cent in the second quarter, due to that of electricity, gas and water
supply going down by 21.2 per cent year-on-year. Meanwhile, the index of manufacturing went up by 7.4 per cent compared to the same quarter in 2015. K.L.
Land
Hotel
Gov’t to recover Ka-Ho Port expansion land
Pousada de São Tiago: LRT works affecting occupancy
The government declared yesterday the invalidity of the concession of a land plot in Coloane originally designated for expanding the island’s only port, according to yesterday’s Official Gazette. The land parcel was granted to Macauport - Sociedade de Administração de Portos S.A. in 1988 to expand the Ka-Ho Port on the northeast tip of Coloane Island, where the Macau Oil Terminal and Macau Cement Manufacturing Co. Ltd. are located.
The plot, occupying some 90,000 square metres, will be recovered by the government as it had been left undeveloped before the expiry of the land concession on April 10, 2013, the Secretary for Transport and Public Works Raimundo do Rosário wrote in the dispatch. The official website of the company shows that gaming tycoon Stanley Ho’s Sociedade de Turismo e Diversões de Macau (STDM) holds 55.2 per cent of the company’s stake via its wholly-owned subsidiary Marban Corporation. Meanwhile, the MSAR Government holds some other 31.8 per cent of the interests; and staterun conglomerate Nam Kwong Group holds 12 per cent. The dispatch reads that the company would have no right to compensations from the government. The land awardee can still file a judicial appeal to the Court of Second Instance within 30 days, as well as a notice of objection to Chief Executive Fernando Chui Sai On within 15 days. The current Land Law mandates that no extensions are permitted for temporary or conditional land concessions carrying a validity of 25 years if developers fail to complete their projects within the land-use term. K.L.
Pousada de São Tiago Hotel, located near the Sai Van Lake on the Peninsula, claims the property’s occupation has dropped more than 40 per cent due to the construction of the LRT [Light Rail Transport] in Barra, Portuguese broadcaster Radio Macau has reported. The executive assistant manager of the hotel, José Leal, told the broadcaster that the construction works, taking place every Monday to Saturday, have driven away many of the property’s guests, especially those from Hong Kong. The hotel executive added that the company has lowered its room rates in order to win back its customers. “I have no problem to make it public that the average room rate of the
hotel has decreased from MOP2,400 to MOP1,900 on average,” the broadcaster quoted Mr. Leal as saying. The hotel provides 12 suites, according to its official website. The hotel’s assistant manager claimed yesterday that the company is now seeking new strategies in order to compete with other hotels in casino properties. “Let’s see when the works [of the LRT] are completed. But I guess it will still take ages,” he said. Mr. Leal refers to the construction of the Barra transport hub. The project, a three-storey underground complex of bus stops and car parks for vehicles, buses and tourist coaches, will be connected to a future LRT station in the district.
Business Daily Thursday, August 25 2016 3
Macau Business
MSAR retail sales drop 8.7 pct in Q2 Retail sales dropped 11.1 per cent quarter-to-quarter hitting MOP13.17 billion for the second quarter of the year, with total value of retail sales posting their lowest quarterly value since 2015. Car sales plunged by by half vis-à-vis the same quarter of 2015. Cecilia U cecilia.u@macaubusinessdaily.com
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h e ci t y ’ s r etai l sa l es dropped by 11.1 per cent quarter-to-quarter and 8.7 per cent year-on-year to MOP13.17 billion (US$1.6 billion), according to the official data released yesterday by the Statistics and Census Service (DSEC).The value of retail sales for the first half of 2016 amounted to MOP27.98 billion (US$3.5 billion) indicating a decline of 9.8 per cent year-on-year. The latest data from the DSEC shows that car sales dropped 51.6 per cent year-on-year, amounting to MOP422 million (US$53 million). The notable drop in car sales can be attributed to the tax increase imposed on new car imports last December, as well as the
of local retailers expect their sales volume to remain stable in the next quarter compared to the same quarter of last year, while 46.3 per cent said they anticipate declining sales volumes. With regard to the outlook of retail prices in the coming third quarter compared with the third quarter of 2015, data shows that 72
per cent of retailers expect prices to remain stable whilst about 19.5 per cent forecast a decrease. Meanwhile, 40.3 per cent of retailers believe their business performance will remain stable for the third quarter compared with the second quarter but around 50.4 per cent of them anticipate a deterioration.
on time, which it claims is due to forces ‘beyond its control’ including a ‘lengthy exchange of views’ between the group and various government departments of the Zhuhai Hengqin New Area regarding building development and design plan. Failure to meet the deadlines ‘may lead to a daily penalty of RMB628,108.11 unless
such failure to meet any development milestones is caused by force majeure or government reasons,’ notes the filing. The foundation work drawing plan for the project has been submitted and is pending approval, after which the group can apply for the foundation work permit and proceed with foundation works.
issue of limited parking space in the city, as reported by Business Daily earlier last month. The major segment of the city’s retail sales, watches, clocks and jewellery also experienced a decline of 15.1 per cent year-on-year, totalling MOP2.55 billion (US$319 million) for the quarter. Other segments recording year-on-year decreases include that of communication equipment (which fell 29 per cent), goods in department stores (a drop of 10.6 per cent) and goods in supermarkets (down 7.2 per cent). By contrast, adults’ clothing, which accounted for the third largest segment of the whole retail market in the quarter, recorded MOP1.65 billion (US$206 million) in retail sales value, an increase of 19.8 per cent year-onyear, official data shows. DSEC reveals that 47.1 per cent
Restaurants Future Bright losses halved y-o-y in H1
A brighter future Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Future Bright, the restaurant-based company whose primary shareholder is local legislator Chan Chak Mo, has seen a 42.9 per cent year-on-year improvement in its results for the first six months of the year, according to its filing with the Hong Kong Stock Exchange. The company posted a loss of HK$15.7 million for the period, compared with a HK$27.5 million loss the previous year. This was mainly attributed to the group’s food souvenir business, which lost HK$14 million, impairment losses on assets amounting to some HK$1.7 million, and a net fair value loss from the group’s property investment business amounting to some HK$1.7 million. ‘The Group has been able to improve its performance and narrowed down its losses in the Period,’ notes the filing. With regard to sector, Future Bright saw a HK$353.6 million contribution in turnover from its catering business, a 6.3 per cent drop compared to the first six months of
2015. Gross operating profit from food and catering amounted to HK$58.3 million for the six months, a 21 per cent decrease year-on-year; however the sector created HK$1 million in net profit after tax visa-vis a HK$32 million loss for the same period in 2015. ‘The Group’s food and catering business continued to face high operating costs […] the Group has decreased its total area of restaurants from 276,986 square feet in the first half of 2015 to 238,523 [in H1 2016] followed by the streamlining of unsatisfactory restaurants and food court counters,’ notes the filing. This decrease in area was primarily due to the closure of a food court in Huafa Mall in Zhuhai last August. Currently, the group operates 49 restaurants.
Hengqin
In addition, the group noted that its property development project in Hengqin is ‘progressing’, with the soft soil foundation treatment work to be completed soon. However, Future Bright is facing an alleged breach due to a failure to obtain its permit for carrying out foundation works
Future Bright operates nine Japanese restaurants
4 Business Daily Thursday, August 25 2016
Macau Opinion
Ashley Sutherland-Winch Pokémon Fury Pokémon Go is still missing from Macau smartphones. Gamers were excited last month when Pokémon Go launched in Hong Kong, assuming play in Macau was approaching but after four weeks of waiting local public enthusiasm is slowly losing momentum. There are two Pokémon Go Macau Facebook pages, one with 3,800+ followers and the other with over 10,000. Both pages are swamped with frustrated Pokémon fan posts begging Niantic, the company responsible for the augmented reality video game, to launch in Macau, while others express a loss of enthusiasm and waning interest. Regardless of the pending launch date, businesses should pay close attention to the benefits of the game. Small businesses around the globe are utilising a feature called a ‘lure’ which draws Pokémon creatures to a specific location. Potential customers flock to the ‘lure’ location hoping to catch a Pokémon, in the meantime giving businesses the opportunity to offer promotions to sell their goods and services to the waiting gamers. U.S. and UK companies are seeing increased revenue following the purchase of lures, so now is a great time to begin researching your company’s ability to purchase lures and plan promotions, so that when Pokémon Go launches in Macau, you can cast your lures ahead of the competition. Eric Neustadter, former head of Microsoft’s Xbox Live gaming service, wrote in a widely-shared tweet: “If you run a bar/restaurant and aren’t spending US$10/day on lures and advertising, what are you even thinking?” Meanwhile, Axiom Capital Management has reported that there is data that suggests a decline in the app’s popularity overall; collecting data on the number of daily active users, engagement and time spent on the app each day, noticing all figures are significantly lower that the same data from a month prior. They report that “play has peaked and already in decline.” Businesses in Macau should view this short cycle of engagement as a clear directive to be prepared to take advantage of Pokémon Go the second it launches in Macau - observing the successes and pitfalls of other cities and making the initial wave of excitement optimal for your company. Japanese authorities have recently signed a deal with Niantic to place Gyms and Pokéstops in areas where they would like to boost tourism. Macau could absolutely utilise a similar strategy to launch a wide-scale promotion, bringing gamers from China, where the game has also not launched, to our city in a Pokémon fury.
Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Monetary The city registered an overall surplus of MOP18.6 billion in international payments
Surplus of local BOP current account plunges in 2015 Last year, the surplus gained from the local exports and imports of services posted a notable decline year-on-year. Kam Leong kamleong@macaubusinessdaily.com
I
n 2015, the current account of the city’s Balance of Payments (BOP) posted a decline of 32.3 per cent in its annual surplus due to the decrease in the local exports of services, according to preliminary data released yesterday by the Monetary Authority of Macau (AMCM). BOP - comprising current account, capital account and financial account - is a statistical statement summarising external transitions of an economy with the rest of the world. Last year, the city’s overall BOP surplus was preliminarily estimated at MOP18.6 billion (US$2.3 billion) by the monetary body, compared to a revised surplus of MOP617 million for 2014. During the year, the city’s surplus from the services account went down by 27.1 per cent year-on-year to
Workers Rights
MOP240.7 billion from MOP330.4 billion in 2014, as service exports decreased by 24.9 per cent yearon-year to MOP271.3 billion, whilst service imports fell marginally by 0.9 per cent to MOP30.6 billion. The merchandise trade deficit narrowed by 2.9 per cent year-onyear to MOP91 billion from MOP93.7 billion. The decrease in the deficit is attributable to the nine per cent increase in the city’s imports of goods, to MOP15.6 billion, which offset a decline of 1.2 per cent in exports of MOP106.7 billion. In addition, the net outflows of primary income and secondary income both recorded decreases in the year compared to 2014. The primary income account, which reflects cross-border flows of factor income, posted a net outflow of MOP29.8 billion, compared to that of MOP63.1 billion one year ago as total payments fell by 46.5 per cent year-on-year to MOP66.9 billion.
In addition, the net outflow of secondary income went down by 20.8 per cent year-on-year due to the decline in payments of some 19.7 per cent year-on-year to MOP17.5 billion. The account comprises mainly inflows and outflows of personal transfers as well as donations received or made by local social service organisations with respect to the rest of the world.
Financial account
On the other hand, the financial account of the BOP registered a surplus of MOP33.7 billion, which was slashed by 87 per cent yearon-year compared to a surplus of MOP101.6 billion in 2014, as the net outflow of net financial non-reserve assets plunged by 85 per cent yearon-year to MOP15.2 billion. Of the total non-reserve assets, direct investment recorded a net outflow of MOP3.5 billion in 2015, which is down by 53.9 per cent compared to that of MOP7.6 billion one year ago Meanwhile, a net inflow of MOP76.1 billion was recorded in the city’s other investment, which is contrary to a net outflow of MOP65.9 billion in 2014. AMCM explained the turnaround is due to the increase of local banks’ external liabilities in the period. In addition, financial derivatives continued to register a net inflow in 2015, amounting to MOP2.7 billion, slightly up by 3.8 per cent year-on-year. On the other hand, the city’s portfolio investment recorded a net outflow of MOP97.4 billion last year, which surged by 115.5 per cent compared to MOP45.2 billion in 2014. According to the monetary authority, the growth was boosted by the significant increase in external securities investments held by local residents.
Gaming workers association rebukes Melco Crown for unjustified dismissal
Busted flush Around five to six dismissed dealers who formerly worked for Melco Crown have sought assistance from the Labour Affairs Bureau (DSAL) through the Union of New Macau Gaming Workers Rights (unofficial
English name). The complaints were submitted to the DSAL yesterday, with the Vice Director of the Union, Jeremy Lei Man Chao, telling Business Daily that the complaints have been lodged against Melco Crown. Lei also affirmed that some dismissed dealers have found new jobs. According to a report by TDM, the dismissed dealers worked in both
DSEC
Mak Hang Chan new deputy director of DSEC The former acting deputy director of the Statistics and Census Services (DSEC), Mak Hang Chan, has now been appointed deputy director of the DSEC, according to a dispatch published in the Official Gazette yesterday. The tenure of the new deputy
director is one year, commencing August 15. Ms. Mak joined the DSEC in 1989 as a statistics technician, serving as Chief of the Demographics, Social and Labour Department before assuming the role of acting deputy director in February of this year. A.L.
the mass market and VIP sectors of the casino operations, and they suspect that the recent number of dismissals is due to the company cutting costs. They also revealed that given the recent poor performance of the gaming industry, and with many tables constantly vacant, many dealers have received warning letters just for showing lack of spirit or signs of sleepiness. They also told TDM that two to three workers on average have been dismissed in recent months. The dismissed dealers also claim that the company has promised to award bonuses of around MOP100,000 (US$13,000) each to senior employees but the bonuses cannot be received once the relevant employee is dismissed. Business Daily has contacted Melco Crown for comment about the allegations but no response had been received by the time the story went to press. C.U.
Business Daily Thursday, August 25 2016 5
Macau
Greyhound racing
Follow the rabbit By Tony Lai
A
sia’ssole greyhoundracing track has seen better days and is facing worse in the wake of the government’s decision mandating that the company operating the track relocate or close down within two years. The final closing date – July 2018 – will bring to an end the nearly 90-year history of the track that stretches back to August of 1931.
History
Built by a group of Chinese and American investors who recognised the popularity of greyhound racing in Mainland China after World War I, the track did not initially meet expectations, notes the Canidrome on its official website. This led to the suspension of the venue and its use as a refugee shelter during the invasion of Hong Kong by the Japanese Army during World War II in 1942. It wasn’t until the 1960s that the Portuguese administration decided to kick-start the business, granting a concession to Chinese Indonesian businessman Cheung Kuan Pau in 1961, which was to be overturned one year later and re-granted to Macau Greyhound Co. Ltd. The concession was subsequently acquired by current operators Macau (Yut Yuen) Canidrome Co. Ltd., in 1963 – which was headed by the father of Macau’s first Chief Executive Edmund Ho Hau Wah – and reopened in August of that year. In 1983, following the death of the elder Ho, Sociedade de Turismo e Diversōes de Macau (STDM), founded by casino magnate Stanley Ho Hung Sun, became a major shareholder in the venture, and continues to be to this day, with Angela Leong On Kei, legislator and fourth wife of Stanley Ho, serving as an executive in the company.
Respect
Angela Leong said she “respected” the government’s recent decision to relocate or close the track but
The company’s revenue accounted for a paltry 0.04 per cent of the city’s gross gaming revenue last year, when the company recorded profits of MOP4.8 million, down 82 per cent from MOP26.7 million in 2014 and 95.4 per cent from
questioned why the government based its decision on a report about the importance and influence of the Canidrome conducted by the University of Macau. The report was not made public. Complaints from residents in the vicinity, located in the northern part of the Macau Peninsula, complain of the stench of faeces and noise pollution from the barking of the greyhounds having a detrimental effect on them. A survey by the General Union of Neighbourhoods Association, which asked 900 residents in the northern district their opinions on the track, found that nearly 50 per cent of the respondents thought the track should be closed down or relocated, with 40 per cent saying that the barking was detrimental and 35 per cent noting that the stench affected their lives. However, nearly 40 per cent of respondents also expressed their hope that the Canidrome could stay put due to its unique offerings.
Awful
The company which operates the track, and has held the monopoly on the rights for greyhound racing since 1963, has also been instructed to improve the living condition of the greyhounds - in the event that the track moves - as current conditions have been noted internationally as far below proper levels. “The conditions are awful, it’s prison-like, barren cells – and, in fact, it really is like being exported to another country and put on death row,” Lyn White, Animals Australia campaign director, told ABC earlier this year. Australia banned the export of greyhounds in 2013 after the MSAR could not comply with Australian welfare standards and earlier this year a global campaign demanded Ireland ban greyhound exports to the territory, receiving support from celebrities and activists worldwide.
Where do they go?
Albano Martins, president of Anima and proponent of the closure of the
its MOP103.3 million take in 2011. Last year’s gross gaming revenue from greyhound racing betting amounted to MOP46 million, equivalent to what the MSAR’s 30 plus casinos could generate in less than two hours.
dog-racing track opines that it’s good news that the track could close but criticizes the authorities for granting a two-year grace period, saying: “This is a way for the government to keep their [Canidrome’s] face.” The Anima president worries about the future of the dogs in the eventuality that the track closes down, noting that the animals could
be sold to countries with worse animal welfare standards such as Vietnam and Mainland China. The local gaming regulator only mentioned that the Canidrome had to make proper arrangements for its staff and dogs if it was closing down, while Angela Leong urged the administration to provide “adequate support” on the relocation of the track, as well as arrangements for staff and dogs. Leong has not directly commented upon whether the Canidrome would continue operating after two years.
6 Business Daily Thursday, August 25 2016
Macau
Food & Beverage
Catering a moveable feast More catering businesses have opened, increasing the catering options in the SAR, with more venues now becoming available to hold events. At the same time, local SMEs face a lack of human resources, putting a major hurdle in the way of the catering aspects of the food and beverage industry. Annie Lao annie.lao@macaubusinessdaily.com
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here is a growth in both demand and supply for catering services in the city, especially given that in the past there was a significantly lower amount of options for hosting parties or social events - and local business owners are seizing the opportunity while wading through the challenges. Tinna Ho, owner of Lakeport Party Paradise - a local catering company that offers party venues, banquet and catering services - told Business Daily that her business was originally opened as a café and subsequently expanded its operation to offer catering and party services upon spotting a significant demand for them in 2013.
“People nowadays do not only go to McDonald’s to host a birthday party; they now have more options than before,” Ho explained, going on to comment that the key advantage in the business is to have an accessible and centrally located venue such as near a public car park and providing large enough space for children to play in a playground.
Coming together
Matt Ng, owner of Taste Gather, a local catering company that began operations in 2015, also seized his opportunity after noting the lack of catering choices in the territory. “Most of the city’s cafés and restaurants offer catering services but there aren’t many professional ones only focusing on catering services,” Ng said.
“Most of the cafés and restaurants offer catering services but there are not many professional ones who only do catering.”
“People nowadays do not only go to McDonald’s to host a birthday party; they now have more options than before.”
Matt Ng, owner of Taste Gather
Tinna Ho, owner of Lakeport Party Paradise
“There is a demand for the catering business in Macau as people in the past used to host a social gathering at a traditional Chinese restaurant or a ballroom in a hotel,” Ho said. Ho witnesses that over the past three years catering businesses have increased in number and offerings in the city, especially with regard to events for the younger members of society.
Maggie Chiang, director and executive chef of Maquette, a local French and Italian restaurant which offers tailor-made catering services, opened in 2013 and has a contrary view. “There is potential for Macau to develop a catering business. At this stage, Macau still doesn’t have sufficient demand for holding events with catering provided. It will take
a few years to develop a culture of eating for running events,” she explained. Chiang says that although there has been an increase in events in Macau catering services are not necessarily always involved. She suggests education on food catering in the form of workshops to stimulate an increase in demand for catering services in the city. She said that holding events that have a food element could lead to a higher level of satisfaction in client experience. “Food can make people come together for networking with each other over drinking and eating,” Ms. Chiang added.
Difficulty
Like many other small and mediumsized enterprises (SMEs) in Macau, lack of human resources is a major issue for operating a catering business given the fact that the amount of staff needed is high. “We need quite a lot of staff to offer catering services in order to host a social event but it is very difficult for us to hire people here as our staff turnover is high,” Ms. Chiang conceded. “Most of our staff only worked for us for a short period of time and then they left us to work for casinos,” laments Tinna Ho. To counter this, Ho suggests that building up a professional local brand name in the catering business is essential for making workers feel proud of working in the local catering business. Another solution is to increase workers’ salaries.
Competition
With new casino resorts opening, more people now choose to go to casinos for dining and entertainment, which have also created a threat for local catering businesses, comment the business owners. Ho notes that with regard to her Lakeport Party Paradise business upgrading professional catering services is the key to staying competitive. This includes obtaining professional catering certificates in Hong Kong and overseas. Another, alternative, strategy is to keep the price affordable for everyone, she added. Ho said the local government should pursue initiatives other than only disbursing interest-free loans
to SMEs as she has witnessed that many café and eateries in Taipa run by young people have recently closed due to their lack of experience in running an F&B business. She suggests the government provide more professional training and classes in the food and beverage area in order to increase professionalism in the business whilst creating more manpower for the industry.
Marketing
But waiting around for government opportunities is not the only way to proceed, notes Ho. Participating in local food exhibitions is another way for the local SME food businesses to promote itself in the city
“There is potential for Macau to develop the catering business. At this stage, Macau still doesn’t have sufficient demand for holding events with catering provided. It will take a few years to develop a culture of eating in the city.” Maggie Chiang, director and executive chef of Maquette “We participate in a food expo each month, such as in The Venetian Macao and Macau Fisherman’s Wharf. It helps us network with other companies within the same industry in order to create further business opportunities. By doing this, we have widened our product choices in our business,” she said. The three catering companies have also found that word-of-mouth is effective, in addition to employing social media such as Facebook to promote their businesses.
Business Daily Thursday, August 25 2016 7
Macau Banking Despite dipping local profit, the banking group has still posted HK$1.07 billion in profit
Money in the bank Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
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ah Sing Banking Group Limited has posted a 3.85 per cent year-on-year drop in profit before taxation for its Macau operations during the first six months of the year, according to its filing withd the Hong Kong Stock Exchange. This comes despite a year-on-year increase in operating income in the MSAR for the period, reaching a total of HK$203,689 - 1.9 per cent higher than the first six months of 2015. ‘Our Macau business reported moderately lower profitability, whilst the performance of our Mainland subsidiary, Dah Sing Bank (China), improved,’ noted the business and financial review of the group’s interim results. The group recorded overall profit for the six-month period of HK$1.07 billion, a year-on-year decrease of 13.9 per cent, noting that performance was ‘adversely affected’ by the weakening economic conditions in global and local economies. In particular, weak retail sales and domestic consumption in Hong Kong, volatility in both equity and currency markets and interest rates that are ‘extremely low’, even rendering negative yield for government bonds ‘in some developed countries,’ are cited by the report. Net interest for the group improved 11 per cent, reaching HK$1.77 billion; however, the group was faced with sluggish loan growth during the period, also recording drops in fee and commission income of 19.3 per cent when compared to the first six
months of 2015, reaching HK$508 million. The group’s return on assets of 1.1 per cent and return on equity were lower year-on-year due to lower profit, while the cost to income ratio ‘was slightly up’ - from 46.8 per cent to 49.3 per cent ‘due to the reduced income during the period, despite tight cost control,’ notes the filing.
Local sale
The group entered into a sales agreement in June of this year for the disposal of its Macau Life Insurance Company Limited (MLIC) subsidiary and its Hong Kong Dah Sing Life Assurance Company Limited (DSLA) subsidiary to a subsidiary of Fujian Thai Hot Investment Company Limited (Thai Hot). The agreement
is subject to ‘certain conditions precedent including regulatory approvals,’ notes the filing. In addition, the group has announced that the banking subsidiaries of the company, including DSB and Banco Comercial de Macau, ‘propose to enter into new bancassurance distribution agreements for 15 years, with DSLA and MLIC, respectively’. This will allow for DSLA and MLIC, ‘subject to satisfaction or waiver of the relevant conditions’ to become subsidiaries of Thai Hot on completion of the share sale agreement.
Tough conditions
‘Conditions in the first half of 2016 have generally been difficult,’ notes the filing. ‘These more difficult economic conditions have led to slower
loan growth, lower fee and commission income, and higher loan impairment charges. It is unlikely that local economic conditions will rebound strongly in the near future, and therefore business conditions are expected to remain weak in the second half of the year. As the sluggish rate of loan growth continues and is not expected to recover strongly in the second half of the year, this has begun to be reflected in lower loan pricing for certain loan products such as residential mortgages.’ Given the above reasons, the group notes that it will remain cautious during the remainder of the year with regard to credit and overall risk management and will closely manage costs. The focus for growth is on engagement with customers and will be in line with its July-launched ‘Together we progress and prosper’ theme for the Dah Sing Bank branch.
8 Business Daily Thursday, August 25 2016
Greater China
Key Points Crackdown latest move to rein in poorly regulated finance firms P2P platforms cannot take deposits nor create asset pools Regulator says P2P firms should not be credit intermediaries P2P firms not allowed to sell wealth management products Shadow banking
Beijing cracks down on peer-to-peer lending Hands-off approach to promote the rapid development of the sector, however, led to a large number of high-profile P2P failures, scandals and frauds.
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hina’s banking regulator issued tough new rules yesterday to tighten regulation of the country’s US$60 billion peer-to-peer lending sector, which has been dogged
by scandals and fraud. The measures mark the latest attempt by China to reduce risks to the world’s second-largest economy by cleaning up the its rapidly growing but loosely regulated online financial sector.
Peer-to-peer lending (P2P) platforms will not be able to take deposits, nor provide any forms of guarantee for lenders, according to a joint document issued by the China Banking Regulatory Commission (CBRC), Ministry of Public Security, Cyberspace Administration of China, and the Ministry of Industry and Information Technology. The regulator said some P2P firms were running Ponzi schemes and raising funds illegally, and said it would bar firms from 13 “forbidden” activities. Under the new rules, P2P firms would not be permitted to sell wealth management products which are popular with many Chinese investors, nor issue asset-backed securities, and must use third party banks as custodians of investor funds, the regulator said. It added that P2P firms cannot guarantee investment returns nor investment principal, and they would be subjected to higher disclosure requirements. The regulations follow the April passage of a plan by the State Council, or cabinet, to clean up the non-bank financial sector after rare demonstrations by angry investors stoked fears of social unrest. The banking regulator is responsible for tightening regulations over P2P, online trust businesses and online consumer finance firms
China’s online P2P lending platforms, which match small business and individual borrowers with retail investors with spare funds, has seen rapid growth in the past two years largely due to the lack of regulatory oversight. The industry raised more than 400 billion yuan (US$60 billion) by November last year, CBRC data showed. But among the more than 3,600 P2P platforms, more than 1,000 were problematic, the CBRC had said. The rise of P2P lending was originally seen by the government as a type of financial innovation that could make funds accessible to credit-hungry consumers and small businesses, which continue to struggle to get loans from traditional financial institutions. Beijing’s hands-off approach to promote the rapid development of the sector, however, led to a large number of high-profile P2P failures, scandals and frauds. The consequences have devastated many retail investors, who dumped their life-savings into P2P platforms in hopes of receiving double-digit returns, threatening China’s social and financial stability. Ezubao, once China’s biggest P2P lending platform, turned out to be a Ponzi scheme that solicited 50 billion yuan (US$7.5 billion) in less than two years from more than 900,000 retail investors through savvy marketing. Investor funds were squandered by Ezubao executives on lavish lifestyles. Retail investors are still unable to get back their hard-earned money, and many have blamed Beijing for its lack of regulation and scrutiny. Reuters
Markets
Analysts gloomy on Hong Kong’s Exchange aft HKEx shares had climbed 3.4 per cent in the week leading up to the announcement. Kana Nishizawa
Hong Kong Exchanges & Clearing Ltd.’s outlook hasn’t improved despite last week’s official announcement of a trading link with Shenzhen, according to analysts. The proportion of sell recommendations is at its highest level since 2013, according to data compiled by Bloomberg, and price estimates suggest an 8.6 per cent stock decline in the next 12 months. Daily turnover, which jumped last week, is declining, and shares have fallen 5.4 per cent in a week. The stock traded without the rights to a dividend on Tuesday. Research notes published after the August 16 unveiling of the Shenzhen link draw a glum picture, as analysts were left unsurprised by the long-awaited approval: Goldman Sachs Group Inc. said there is now an absence of positive news flow around the company, while Citigroup Inc. said the link was possibly the last catalyst for the exchange.
“There’s no more optimism in the short term - the last piece of good news has been announced,” said Daniel So, a strategist at CMB International Securities Ltd. in Hong Kong. “Market turnover at these levels cannot support its valuation. I expect 20 per cent downside from here by the end of this year.” The connect program with the Shenzhen Stock Exchange will give
Business Daily Thursday, August 25 2016 9
Greater China E-commerce boom
In Brief
Private equity sees room for growth in storage space Online retail as a percentage of total retail in China has grown steadily to 12.6 per cent. Elzio Barreto
When U.S. private equity heavyweight Warburg Pincus started looking at China’s logistics sector in late 2009, there were more modern warehouses in Boston than in the whole of the world’s most populous country. But as Chinese consumers embarked on an online shopping spree, demand has soared from appliance makers, express delivery firms and e-commerce companies such as Alibaba Group Holding Ltd and JD.com Inc, far outpacing supply and prompting a parallel binge in investment in warehouses and logistics businesses. Deep-pocket investors including Carlyle Group LP, Canada Pension Plan Investment Board (CPPIB) and Warburg Pincus have splashed US$12 billion on the sector in China since 2013, says real estate consultancy Jones Lang LaSalle. “The thinking was even if it didn’t necessarily scale to the size we were anticipating, we had a good sense that while Boston is a pretty decent size city in the U.S., China should have far more modern warehousing space over the longer term,” said Jeffrey Perlman, who heads Southeast Asia at Warburg Pincus and also focuses on real estate investments across Asia Pacific. “We were taking that directional bet that, with this transformative shift from a manufacturing-based economy to a service-, consumption-based economy, ultimately you need to store the goods somewhere.” Although China’s economy expanded in the second quarter at the slowest pace since the global financial crisis
ter Shenzhen link investors a wider selection of stocks for cross-border trading. HKEx shares had climbed 3.4 per cent in the week leading up to the announcement. Daily turnover on Hong Kong’s main exchange averaged HK$85.4 billion (US$11 billion) last week, about 28 per cent more than this year’s average, according to data compiled by Bloomberg. Investors will likely have to face the reality that turnover won’t increase as much as they expect, Tony Tanaka, an analyst at Haitong International Securities Group, said in a report on August 19, cutting his rating to sell from neutral. Turnover was HK$60.8 billion on Tuesday.
Bullish to bearish
In the days before the Shenzhen link was announced, prices for bullish bets relative to bearish ones on HKEx were increasing to their highest in more than a year, according to data compiled by Bloomberg. The so-called skew has since been reversing course. “People use options largely for shortterm speculation - so it could be buy on rumour and sell on facts,” said Tony Chu, a Hong Kong-based money manager at Sophus Capital. Shenzhen
of 2008-09, online shopping revenues have soared and are expected to double to 7.5 trillion yuan (US$1.13 trillion) in 2018 from last year, consumer and internet consultancy iResearch estimates. Online retail as a percentage of total retail in China has grown steadily to 12.6 per cent, and is forecast to reach 17 per cent in 2018, according to iResearch and China’s National Statistics Bureau. By comparison, U.S. e-commerce sales accounted for 8.1 per cent of total sales in the second quarter of 2016, underscoring the fast adoption of online shopping in China, where consumers with rising incomes use smartphones to order everything from appliances and clothes to flowers and pizza. India, another emerging Asian giant with a burgeoning middle class, has seen a similar trend and is also attracting investment in warehouses. “These changes are structural changes,” said Jimmy Phua, head of real estate Asia at CPPIB. “Certainly competition has been increasing. What we know, what we see is no secret, the world sees it as well. Other investors, other managers, can see that in this sector there will be sustained growth.”
Rents pressured
China’s logistics market reached 1 trillion yuan in 2015, led by an increase in so-called storage spending that includes warehousing, processing and packaging of goods. CPPIB has committed US$2.6 billion to China’s logistics market, including a US$1 billion investment unveiled late in 2015 in a venture with Goodman Group. Warburg Pincus-backed e-Shang has
connect is “just like the Shanghai connect, it’s small. It’s not a big earnings driver.” With the Shanghai link contributing to just 1.3 per cent of HKEx’s total revenue in the first half of the year, the new link won’t have a large impact, Citigroup analyst Darwin Lam wrote in a report on August 16. Earlier this month, HKEx said firsthalf net income declined 27 per cent compared to the year-ago period on lower trading. With the stock at 34 times estimated earnings, it’s among the most expensive compared to its global peers.
Upgrade, downgrade
It was a different story when the Shanghai link was announced in April 2014. The news spurred a wave of analyst upgrades that month, although downgrades followed the program’s commencement in November. About 47 per cent of analysts tracked by Bloomberg are now recommending investors sell the shares, compared with 29 per cent a year ago. Lorraine Chan, spokeswoman for HKEx, declined to comment on analysts’ opinions. “Shenzhen connect only marks another milestone in the first phase of our mainland mutual market access
grown into one of the largest logistics providers for e-commerce companies including JD.com, with Thomson Reuters publication IFR saying the company could raise US$1 billion in a 2016 initial public offering (IPO). To be sure, the surge in investments has created an oversupply of warehouses and pressured rents, particularly in smaller cities, while increased competition from new players has made it harder to secure land in toptier cities such as Beijing and Shanghai, analysts and investors said. Still, investors expect the impact on rents will be less severe for large, more modern warehouses that have been the focus of private equity firms, while the oversupply of logistics space will likely be limited to lower-tier cities. Real estate consultant DTZ Cushman & Wakefield forecasts warehousing space will grow 10 per cent a year through 2020. “E-commerce particularly is growing at rates that are significantly higher than the overall GDP growth, that’s a huge demand driver for the logistics sector,” said Jason Lee, Carlyle Group LP’s head of Asia real estate. Carlyle-backed China Logistics Property Holdings Co Ltd , which just went public in Hong Kong in a US$459 million IPO in July, is spending 2.1 billion yuan in 2016 to add some 1.1 million square metres of new warehousing space to its portfolio this year and build new warehouses that will be completed in 2017. With planned investments of US$1.8 billion through 2019, the company expects to build 34 new logistics parks, adding 4.5 million square metres of space, according to its IPO prospectus. Hong Kong-based real estate private equity firm Gaw Capital Partners, which joined last year with logistics company Vailog China to develop and buy warehouses, is raising a second investment vehicle after making a US$300 million push last year. The second vehicle, with co-investments from sovereign wealth funds and pension funds, will close in the next 3-6 months and will be at least the same size, said Kenny Gaw, president and managing principal at Gaw Capital. “I can’t predict how the growth of e-commerce will be in the next 10 years, but it’s still one of the fastest growing sectors in China,” Gaw said. “And China will remain the biggest e-commerce market in the world.” Reuters
plans,” said Chan. HKEx will benefit from capital flow as mainland markets open up, Michael Wu, an analyst at Morningstar Inc., wrote in a report on August 16. Exchange-traded funds are likely to be allowed in the stock link program next year, and there are plans for more bonds and stocks to be included in the mutual market program, HKEx Chief Executive Officer Charles Li said in a briefing last week. While authorities didn’t give a start date for the link with Shenzhen, which has been expected for more than a year, HKEx said last week preparations for the launch will take about four months. Daily limits will be the same as for Shanghai’s, 13 billion yuan for orders going north to the mainland and 10.5 billion for southbound traffic. The connect will also include smallcap companies listed in Hong Kong that have a market value of more than HK$5 billion. “People might have had higher hope on the basket of eligible stocks and on the expansion of daily trading quota too,” said Francis Chan, a Bloomberg Intelligence analyst. “Demand for stock connect has been limited. It’s unlikely that Shenzhen stock link will make a material difference for HKEx.” Bloomberg News
HK IPO
Postal bank to get US$6 bln in investor commitments State-owned Postal Savings Bank of China (PSBC) is seen getting between 60 percent to 80 percent of its Hong Kong IPO covered by commitments from cornerstone investors, people with direct knowledge of the deal said yesterday. The bank, China’s largest by branches, has secured about US$2 billion in commitments from China State Shipbuilding Corp (CSSC), out of a total of about $6 billion expected in cornerstone investments for the IPO, added the sources, who declined to be named because details of the deal aren’t yet public. The bank is looking to raise about US$8 billion in the deal. SWIFT
Yuan back to fifth most-used world payment currency China’s yuan bounced back to be the fifth most-active currency for global payments in July, thanks to a big fall in payments in other currencies, global transaction service provider SWIFT said yesterday. The yuan’s market share increased to 1.9 percent in July from 1.72 percent in June. While the overall yuan payments declined by 0.68 percent from June, payments in all currencies fell by 10.08 percent, SWIFT said. China’s “redback” follows fifth behind the U.S. dollar, the euro, sterling and the Japanese yen. R&D
Government funds 18 bln yuan on science projects The National Natural Science Foundation of China (NSFC) has approved funding for 38,160 projects this year, with a total investment of more than 18 billion yuan (US$2.8 billion). With a budget of 24.8 billion yuan for 2016, the NSFC received 177,551 applications as of August 16, it announced on Tuesday. For programs exploring scientific frontiers, each has received an average 600,000 yuan investment. Those designated priority areas, such as quantum information technology, cosmic ray detection, and global environmental change, were each financed with 2.8 million yuan on average. Online protection
Beijing issues regulation to tighten cyber security Chinese authorities have unveiled a document on Internet regulation in a bid to beef up cyber security, the Cyberspace Administration of China (CAC) said yesterday. The guideline was issued by the CAC, the General Administration of Quality Supervision, the Inspection and Quarantine of China, and the Standardization Administration of China. According to the document, mandatory national standards will be introduced to regulate the fields of major information technology infrastructure protection and classified networks. Authorities will accelerate the introduction of standards in cyber security, personal information protection, cyber security information sharing and other fields.
10 Business Daily Thursday, August 25 2016
Greater China
‘State-owned Asset Supervision and Administration Commission said it has this year conducted health checks on related debts on a regular basis’
Markets
State asset manager to closely monitor bonds to avoid defaults China’s debt market has witnessed an increasing number of defaults over the past year as the economy slows. Samuel Shen and Nathaniel Taplin
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h ina’ s s t a t e a s s e t manager sought to ease market worries about possible defaults, pledging yesterday to scrutinize bonds maturing in three months and saying a state-owned railway firm has managed to avoid default. In a bid to bolster confidence in state-owned enterprises, the
State-owned Asset Supervision and Administration Commission (SASAC) said it would “further i m p r o v e i ts d y n a m i c s y st e m to monitor debt risks, and will put bonds maturing over the next three months in scrutiny spotlight”. The commission said it will “analyse such bonds one by one, make timely precautions, and actively deal with risks, in order to prevent bond
defaults, and maintain stability of China’s financial markets.” I t a l s o sa i d Ch i n a Ra i l w a y Materials Co Ltd had made full payments in time on 6.8 billion yuan (US$1.02 billion) worth of bonds due this year, after SASAC prompted the company to meet its obligations. In April, China Railway Material suspended trade in 16.8 billion yuan worth of debt instruments as it become the first enterprise owned by China’s central government to encounter repayment difficulties. C h i n a’ s d e b t m a r k e t h a s witnessed an increasing number of defaults over the past year as
the economy slows, amid signs that the government is increasingly unwilling to bail out private-owned companies. Regarding possible defaults by central government-controlled enterprises, SASAC said it has this year conducted health checks on related debts on a regular basis, and urged companies to deal with such risks properly. China’s banking regulator has said the country will not open its treasury futures market to commercial banks in the near future due to concerns about a possible jump in volatility as the number of bond defaults grows. Reuters
Expansion
Jiangxi Copper targets investors with mining fund It is an unusual move for a Chinese government-owned producer and reflects the company’s global ambitions. Jiangxi Copper Co Ltd said yesterday it has set up a Cayman Islands-based fund that will buy mining projects as the Chinese state-owned copper producer sets its eyes on potential bargains as the commodities cycle bottoms. As China’s largest copper producer reported a 37.9 per cent drop in profits due to weak metals prices, it said it had allocated US$100 million through its subsidiaries to establish Valuestone Global Resources Fund I in the Cayman Islands with CCB International Asset Management Ltd, part of China Construction Bank Corp.
and hedge funds to use investment arms to buy into mining projects, it is an unusual move for a Chinese government-owned producer and reflects the company’s global ambitions. “The focus is not to secure supply, it is rather how to make a profit at the bottom of this industry cycle,” analyst Helen Lau of Argonaut Securities in Hong Kong said.
“Eventually Jiangxi Copper may participate in operating and investing... but they may ask the (private equity) fund to just flip it.” The fund may be able to cast its net wider than traditional private equity units, said Lau. Private equity funds have been on the hunt for deals for the past few years but have largely held back on purchases. However, Jiangxi’s fund could have greater capacity to develop projects since it is a major producer as well as a stakeholder offering operational know-how and could pay for the offtake, said Lau.
‘Jiangxi didn’t identify what projects it was targeting, but said the fund will capture opportunities arising from low metals prices’ By August 4, the fund had US$150 million in initial funding and was now open to domestic and foreign institutional investors. The aim is to get US$300 million in total investment. Jiangxi didn’t identify what projects it was targeting, but said the fund will capture opportunities arising from low metals prices. While it is not unusual for banks
The company is China’s largest copper producer
Jiangxi Copper sources only 20 per cent of its supply from its own mines. It has said its next step will be to focus on international acquisitions and Lau said the fund will help Jiangxi bolster its international M&A experience. Jiangxi has had limited success overseas with projects in Afghanistan and Peru, unlike peers such as China Moly and Minmetals. The Afghani project has been delayed after insurgent attacks that have also hampered nearby infrastructure builds. London Metal Exchange copper prices have fallen by more than quarter since May 2015 amid concerns about slowing demand from China, the world’s top commodities consumer, and are languishing at around US$4,700 per tonne. Reuters
Business Daily Thursday, August 25 2016 11
Asia Share prices
Samsung, Tencent surge in race to become Asia’s most valuable firm. Tencent is now the world’s 12th-biggest company by market value and Samsung the 17th-largest, Thomson Reuters data shows. Nichola Saminather
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encent Holdings Ltd and Samsung Electronics Co Ltd are racing to be crowned As i a’ s m o st va l u a b l e company as expectations for robust earnings growth push their share prices to record highs. Their surge - both have gained by a third this year - has made them the world’s best performing largecap tech stocks and highlights how these nimble Asian firms are thriving while rivals Apple Inc and Alibaba have struggled. “These companies can grow earnings despite weaker global growth,” said Andrew Gillan, head of Asia ex-Japan equities at fund managing firm Henderson Global Investors, which is overweight on Asian technology firms. “The operating fundamentals of the Chinese internet sector particularly have surprised positively in the most recent quarterly results.” While many investors remain upbeat about Samsung and Tencent, some caution the firms are vulnerable to rapid swings in sentiment on any sign of slowing momentum. Samsung and Tencent have been more volatile than the Asia tech sector and the broader market this year. Yesterday, Samsung said sales of its latest flagship smartphone were
out-stripping supply, but secondhalf profits could still take a hit if production shortfalls are not fixed and a recovery in components demand fails to eventuate. Moody’s Investor Service also warned that Samsung’s profit margins might narrow in the second half because of seasonal factors in the consumer electronics business and competitive pressures. For Tencent, the market expectations that are driving shares higher are themselves a risk, according to Nomura. A faster-than-expected slowdown in personal computer
game revenue, aggressive spending and new products or business models from competitors could weigh on earnings, the bank warned.
The numbers
Samsung and Tencent have added about US$30 billion in market value since last Thursday, surging to all-time highs. Tencent is valued at US$249 billion, only 4 per cent smaller than the most valuable Asian firm, China Mobile, at US$259 billion. Samsung is now worth US$239 billion. Tencent is now the world’s 12thbiggest company by market value and Samsung the 17th-largest, Thomson Reuters data shows. That’s up from Nos. 26 and 33 respectively just five months ago, according to a PricewaterhouseCoopers ranking released March 31.
Samsung shares’ have significantly outperformed Apple’s - the Korean firm has leapt 50 per cent over the past year, while the U.S. company has gained 3 per cent amid concern about weak sales in China. The gap between Samsung’s price-to-earnings ratio of 12.4 and Apple’s 12.7 is now the narrowest since late 2011, although Samsung is still worth less than half the US$586 billion Apple, according to Thomson Reuters data. Samsung’s share price growth spurt comes after years of struggle in its smartphone business which left investors impatient for higher returns. The firm revived mobile profits by restructuring its product line-up this year and is seeking ways to sustain earnings momentum. Buybacks and higher dividends have also boosted shares. Tencent is significantly more expensive than Samsung. The Chinese internet firm, whose popular WeChat and Weixin messaging apps in China saw active monthly user numbers jump 34 per cent in the second quarter, trades at 46.8 times earnings, closing in on Facebook’s 59. China’s slowest economic growth in 25 years and some questionable acquisitions have clouded the outlook for Chinese e-commerce giant Alibaba, but Tencent has managed to thrive thanks in part to its focus on rapidly growing mobile gaming. Tencent outshone peers including Baidu with a forecast-beating 47 per cent jump in second-quarter profit, after it diversified into areas such as music, video and advertising. HSBC expects further earnings growth, driven by new income st r ea m s s u ch as a dv e rti si n g, premium content, cloud services and finance. Reuters
Environmental risks
Philippine miners seek meeting with Duterte A crackdown on the sector is being led by Environment and Natural Resources Secretary Regina Lopez Manolo Serapio Jr and Enrico Dela Cruz
Philippine miners claim the government’s environmental crackdown is a “demolition campaign” against mineral producers and are seeking to meet with President Rodrigo Duterte amid a spate of shutdowns stemming from the probe, an industry official said. Duterte’s seven-week old government has so far suspended 10 mines, eight of them nickel, for environmental infractions, sowing fear among large-scale miners in the world’s top nickel producer that more shutdowns may follow. The country’s mining industry expects to push ahead with US$23-billion worth of new investments from this year through 2020, but this “spirit of optimism is being shattered by ... a very unstable policy outlook,” Benjamin Philip Romualdez, president of the Chamber of Mines of the Philippines, said at an industry conference yesterday. “Notwithstanding the on-going demolition campaign that is
maliciously maligning the true nature of legitimate mining, we will not allow anyone, to destroy our industry ... and we will all do this under the rule of law,” said Romualdez. It was the first time that domestic miners have spoken strongly against the government’s tough clampdown.
Key Points Going ahead with US$23-billion in new investments
environmentalist who thinks openpit mining is “madness”. Romualdez, also the president of gold-and-nickel producer Benguet Corp that is pursuing a US$350-million expansion of one of its gold mines, has appealed for an industry meeting with Duterte so that future policies could be “based on science and hard facts and not on mere slogans of hard-line ideology”.
‘Not lumped in one basket’
Miners say the government should zero in on illegal small-scale miners causing the most environmental harm. “We can’t be lumped all in one basket. There are those that do really
Ten miners suspended so far in environmental audit Duterte, who was invited to speak at the conference but did not attend, has previously warned miners to strictly follow tighter environmental rules or shut down, saying the nation could survive without a mining industry. The crackdown on the sector is being led by Environment and Natural Resources Secretary Regina Lopez, an
Philippine President Rodrigo Duterte
well and there are those that don’t do well and the government should be able to distinguish,” Nickel Asia Corp Chief Executive Gerard Brimo said. Leo Jasareno, who is leading the government’s environmental audit, said there was no plan to shut the mining sector. “The purpose of the audit is to ensure that only responsible mining is pursued,” Jasareno told Reuters by phone. Congressman Erlpe John Amante, who has called for a ban on exports of unprocessed minerals, says there is a need “to make mining more relevant”. Unless miners invest in processing plants, the Philippines may be better off shutting its mines given the sector’s modest contribution to the economy, Amante has said. Reuters
12 Business Daily Thursday, August 25 2016
Asia Gaming licenses
Philippines to issue new online gambling permits Duterte this month refused to renew the exclusive license of Philweb Corp. Enrico Dela Cruz
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he Philippines will issue online gaming licenses soon for operators that target overseas punters, seeking a new revenue source after deciding not to renew permits for services used by poor Filipinos. Philippine President Rodrigo Duterte, who has already unleashed a crackdown on drugs, is turning his guns on a booming online gaming
industry and this month scrapped one firm’s monopoly of gambling in licensed online cafes. Instead, the government wants to encourage more casino and betting operators to set up online services that target gamblers overseas. “We’re readying the application forms. It’s no longer the Filipinos who are betting but foreigners,” Andrea Domingo, head of the Philippine Amusement and Gaming Corp (Pagcor), told reporters after
a budget hearing at the House of Representatives. She did not stipulate how many of these licences for offshore gaming would be offered, but said they would be issued for six months initially and that Pagcor plans to charge “high fees”. “We don’t know yet how saleable it is,” she said. “There might be no takers, or there could be many applicants.” The permits will be offered on a first-come-first-serve basis and reviewed after six months, Domingo said. She did not give any idea of how much they will cost.
“If it is profitable then we will finetune,” she said, adding the issuance of permits will be “very transparent”. The Philippine gaming industry is one of Asia’s most freewheeling, attracting scores of online foreign companies over the past decade to set up servers aimed at overseas punters, and has lured investments of billions of dollars in casino resorts. Domingo said the fees collected from the new licences could help offset the loss of about 10 billion pesos (US$215 million) in annual revenues following the government’s decision not to renew the licenses of operating e-bingo and e-games outlets.
Key Points After drugs crackdown, Duterte turns his guns on gambling Govt wants gambling operators to target overseas punters Not renewing permits for services used by poor Filipinos Pagcor, which also regulates casinos, contributed 8.9 billion pesos to the state coffers in May, representing dividends from 2015. Duterte this month refused to renew the exclusive license of Philweb Corp, the operator of more than 300 cafes offering e-bingo and e-games across the country. The president singled out Philweb’s owner Roberto Ongpin, one of the richest men in the southeast Asian nation, as an example of an oligarch who benefited while the poor suffered. Domingo said Pagcor will also not renew the licenses of other e-bingo and e-games operators when they expire. Reuters
Stock market
Lumbering Indian state companies become hot bet Not all state companies are doing well, with banks continuing to struggle with bad loans. Manoj Rawal and Abhirup Roy
India’s state-owned companies, from builders such as NBCC to oil firms such as Bharat Petroleum Corp Ltd, are attracting top investors as cheap valuations, improving earnings, and share buybacks make them stand out in an otherwise expensive market. A government move to increase taxes on dividends has spurred these cash-rich companies towards buying back shares for the first time to reward investors, but supporters say the allure extends beyond that. Many of the biggest state-owned companies are in the oil and gas sector, which is benefiting handsomely from a government decision allowing them to set prices - effectively turning them into regular profit-seeking businesses. Valuations are also cheap. As a result the Nifty Public Sector Enterprises (PSE) Index has surged nearly 17 per cent since the start of June, handily beating the 6 per cent gain in the broader Nifty 50 index, or NSE index, over the same period. “They are good strong companies, good balance sheets - no issues there,” said Mahesh Patil, co-chief investment officer, Birla Sun Life Asset Management, which has US$22 billion under management. “They had seen some pain due to the cyclical downturn. (But) I think public sector undertakings (PSUs) as a
theme have the potential to re-rate.” This new-found investor appeal marks a turnaround for a category that had typically underperformed private sector peers and was seen as composed of poorly-run and bloated mammoths. To be sure, not all state companies are doing well, with banks continuing to struggle with bad loans while other companies such as power equipment maker Bharat Heavy Electricals have suffered from strong private sector competition. Buybacks, however, remain attractive: Four state companies, including Coal India announced
“They are good strong companies, good balance sheets - no issues there” Mahesh Patil, co-chief investment officer, Birla Sun Life Asset Management
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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nearly 150 billion rupees (US$2.24 billion) in buybacks between May and July, and analysts expect more to follow suit in the year ahead. The share buybacks follow the introduction in February of an additional tax on dividend income of more than 10 million rupees as a way to generate more state revenue. But strong earnings potential is now an attractive element as well, reflecting the number of state companies concentrated in sectors with fast-improving prospects. After two consecutive years of declining profits, companies in the Nifty PSE Index are on average expected to show a rise of nearly 10 per cent in full-year profit for the year ending in March 2017, according to Thomson Reuters data.
Builder NBCC Ltd has surged nearly 22 per cent so far this year on expectations that earnings will grow 30 per cent in the year ending March 2017. BPCL, set to report quarterly results early next month, is up 29 per cent so far this year and hit a record high this month. Despite the expected recovery in earnings, state companies in the Nifty PSE index are trading at a one-year forward price-to-earnings ratio of about 14 times - well below the NSE’s price-to-earnings ratio of 18-19 times or the NSE’s historic 10-year average of about 15 times. “The Government’s initiative to revitalise PSUs through policy and monetary measures, seems to have begun to bear fruit, especially within the energy and power segments,” said Paras Adenwala, an investment manager for Capital Portfolio Advisors. Reuters
Business Daily Thursday, August 25 2016 13
Asia Government spending
In Brief
Australia sees upturn in public investment Bureau of Statistics showed spending on public works surged almost 16 per cent in the second quarter. Wayne Cole
Australia is finally enjoying a longawaited recovery in government investment as spending on public works expanded at a double-digit pace last quarter to hit the highest in more than two years. The upturn, combined with recordbreaking spending on home building, has cushioned the impact from a long retreat in mining investment, providing vital support to economic growth.
‘Approvals to build new homes are running at an historically high annual pace of 224,000’ Yesterday’s data from the Australian Bureau of Statistics showed spending on public works surged almost 16 per cent in the second quarter from the same period a year ago, to reach A$9.5 billion (US$7.2 billion) in inflationadjusted terms. Home building was up a healthy 9.7 per cent at A$17 billion during the quarter, benefiting from historically low mortgage rates and brisk population growth.
All that spending provided a timely offset to a mining-driven slump in engineering work, which fell 25 per cent in the year to June. The net result was that total construction work slipped 3.7 per cent in the second quarter, from January-March, to stand at A$47.4 billion. Work done in the first quarter was also revised up to show a dip of just 0.3 per cent from the originally reported 2.6 per cent drop.
Stimulus is working
The climb in residential construction will reassure the Reserve Bank of Australia (RBA) that monetary stimulus is working. Its latest cuts in May and August took rates to an all-time low of 1.5 per cent and have yet to make their mark on building plans. Approvals to build new homes are running at an historically high annual pace of 224,000 and much
of that is for high-rise towers which take longer to complete, thus extending the lifecycle of the building binge. Just as welcome was a spate of new public transport projects by state governments, which ended years of frugality for public investment. The shift was clear in results from building products group Boral this week. “Major roads and infrastructure projects are clearly ramping up,” said CEO Mike Kane. “As this sector has been gradually strengthening, the resource boom, including the major LNG projects, has tapered off,” he added. “Strong demand from housing activity has helped to ensure a smooth and broadly steady transition.” Boral’s shares are up 17 per cent this year, more than triple the gain of the broader market. Importantly for the broader economy, construction is also labour intensive. Since mid-2013 when the home building boom began, the construction sector has added over 100,000 jobs and more than compensated for the 35,000 lost in mining. Reuters
The climb in residential construction will reassure the Reserve Bank of Australia that monetary stimulus is working
Finance minister
Terrence Edwards
Mongolia’s budget deficit stands at 20.6 per cent of gross domestic product, far higher than previously estimated despite a series of austerity measures designed to plug the country’s finances, the finance minister said. A new government elected in June is facing an economic crisis, reflected by a precipitous drop in the tugrik currency, as it attempts to reverse four years of slow growth and dropping foreign investment that it says the previous administration tried to manage with out-of-control spending and borrowing.
‘The last government made promises of affordable homes and new infrastructure on the back of 2010-2012 mining boom’ With foreign exchange reserves dwindling to low levels, members of Prime Minister Jargaltulga Erdenebat’s government met visiting International Monetary Fund officials last week. Mongolia’s new finance minister, Battogtokh Choijilsuren, said offbudget accounts had pushed the cashstrapped country’s budget deficit
South Korea’s rights post lowest deficit in Q1 Trade balance in intellectual property rights posted the lowest deficit in the first quarter since relevant data began to be compiled in 2010, central bank data showed yesterday. Trade balance in intellectual property rights, including patent, model utility right, trademark, franchise right and design right as well as copyright, was a deficit of US$784.4 million in the January-March period, according to the Bank of Korea (BOK). It was 60.1 per cent lower than the same period of last year, marking the lowest since 2010 when the BOK began to compile the data. Assessment
Japan keeps economic view intact Japan’s government kept its assessment of the economy unchanged in August but offered a slightly more downbeat view on consumer inflation than last month, as prices slid on weak household spending and the strong yen pushed down import costs. The government left unchanged its assessment that exports and factory output were flat, as well as its view that household spending was moving sideways on static consumer sentiment. “Japan’s economy continues to recover moderately, though weakness in some areas can be seen recently,” the Cabinet Office said. The assessment was unchanged from last month. Results
Mongolian budget deficit much bigger than thought Nation may face harsh cutbacks in government spending.
Intellectual property
well above the 4 per cent limit set by law. Previously, the government had estimated the deficit to be 3.4 per cent of GDP. Choijilsuren told parliament on Tuesday the deficit now stood at 20.6 per cent of GDP, and submitted an amended budget for 2016 that would trim it to 18.2 per cent. The new budget took into account social welfare programs put into place by the previous administration and other off-the-books spending. It also included more tepid projections for government revenue as the country’s coal and copper exports reap smaller profits with prices of commodities sagging and slower growth in China, the main consumer of those goods. “The expected revenue performance for Mongolia is less than planned,” a report on the Mongolian parliament website quoted Choijilsuren as saying. Dale Choi, an analyst with Mongolian Metals and Mining, wrote in an emailed note that Mongolia would likely amend the law that caps the deficit at 4 per cent of GDP. The last government, in office from 2012 to 2016, made lavish promises of affordable homes and new
infrastructure on the back of 20102012 mining boom. Controversial legislation and disputes with investors such as Anglo-Australian miner Rio Tinto Ltd over the Oyu Tolgoi copper-gold mine kept those dreams out of reach, however. Rio Tinto last May went ahead with the construction of a US$5.6 billion expansion after resolving the dispute over taxes and costs, but revenue has suffered in 2016 from lower-quality ore dug out of the open-pit mine. Fitch Ratings on Tuesday said public finances continued to pose a challenge while the tugrik plunged 20 per cent from the end of June. Standard & Poor’s on August 19 downgraded Mongolia by one notch to ‘B-’. Meanwhile, Mongolia may face harsh cutbacks in government spending. The Human Development Fund, which has distributed cash widely to Mongolians since 2009, may receive less government money since funding is tied to copper revenue, said Choi. “I think it’s a luxury the state cannot afford. Now going forward, I think it’s important to target the transfer to people who really need it,” Choi said. Reuters
Qantas clocks record profit after painful cuts Top Australian airline Qantas Airways Ltd yesterday posted a record annual profit and declared its first final dividend in eight years, as it reaped the benefits of a painful restructure undertaken in the face of fierce global competition. The result vindicates CEO Alan Joyce who has faced sometimes bitter criticism since undertaking the costly shakeup of the socalled “flying kangaroo” two years ago. Under his watch, the company has shed thousands of staff, taken billions of dollars in write-downs, withheld dividends, cut flights to keep ticket prices up and locked in fuel hedging contracts that let it benefit from a slump in the oil price. Investment
Singapore pushes for deeper engagement with Africa International Enterprise (IE) Singapore yesterday announced the establishment of its third Overseas Centre in Africa during the Africa-Singapore Business Forum 2016 as the city state is pushing for deeper engagement with Africa. The new centre, due to open in Nairobi in 2017, will give Singapore companies access to the fast-growing East Africa region, expanding IE Singapore’s comprehensive in-market network to assist Singapore companies across the continent. Lee Ark Boon, chief executive officer of IE Singapore, noted that Africa’s long-term growth prospects are strong, and Singapore companies looking to diversify from traditional markets should consider options in Africa.
14 Business Daily Thursday, August 25 2016
International In Brief Investments
Portugal’s “golden visa” scheme doubles The amount of investment captured by the Portuguese “Golden Visa” scheme more than doubled (132 per cent) year on year in the first seven months of 2016, to €571 million, according to the Portuguese Foreigners and Border Service (SEF). Between January and July of this year, investments made in return for a Resident Visa totalled €571,511,345.63, compared to €246,536,441.59 in the same period of last year. Citizens from China are at the top of the leader board with 2,790 visas, followed by Brazil (188), Russia (132), South Africa (117) and Lebanon (58). M&A
Pfizer to buy antibiotics business from AstraZeneca Pharmaceutical company AstraZeneca has agreed to sell its small molecule antibiotics business to Pfizer Inc in a deal that could be valued at more than US$1.5 billion. AstraZeneca, which saw off a US$120 billion takeover attempt by Pfizer in 2014, said the sale would allow it to focus on developing new medicines in its main areas of cancer, and respiratory and cardiovascular diseases. The U.S. company, which on Monday bought cancer drug firm Medivation for US$14 billion in cash, said the antibiotics would enhance its portfolio of more than 60 anti-infective and anti-fungal medicines.
Blockchain
UBS leads team of banks working on settlement system The World Economic Forum said in a report this month that more than 90 central banks are discussing the use of blockchain. Jemima Kelly
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wiss bank UBS is leading a team of four of the world’s biggest banks developing a system to enable financial markets to make payments and settle transactions quickly using blockchain technology. UBS has developed a “Utility Settlement Coin” (USC), which is a digital cash equivalent of each of the major currencies backed by central banks, such as the dollar or euro, rather than a decentralised new digital currency such as bitcoin. The USC would be convertible at parity with a bank deposit in the corresponding currency, making it fully backed by cash assets at a central bank. Spending a USC would be the same as spending the real currency it is paired with, UBS said. Blockchain projects such as this have the potential to shake up the settlement system used by banks, under which transactions can take
several days to finalise and which costs the financial industry US$65US$80 billion a year, according to an Oliver Wyman report last year. “Digital cash is a core component of a future financial market fabric based on blockchain technologies,” UBS Investment Bank’s head of fintech innovation Hyder Jaffrey said. The Swiss bank first launched the concept in September 2015 with London-based blockchain company Clearmatics, and has been joined on the project by BNY Mellon, Deutsche Bank , Santander and brokerage ICAP. Blockchain works as a tamper-proof shared ledger that can automatically process and settle transactions using computer algorithms, with no need for third-party verification. Because it does not require manual processing, nor authentication t h r o u g h i n t e r m e d i a r i e s, t h e technology can make payments faster, more reliable and easier to audit. Similar systems are being developed
by others, such as SETL, a Londonbased start-up run by City grandees, while some major banks are working on their own projects. But this is the first time big banks have teamed up to work on a digital cash settlement system. Financial regulators are still trying to assess the implications of blockchain - also called “distributed ledger technology” - and whether it could meet technical, governance, legal and regulatory requirements. The World Economic Forum said in a report this month that more than 90 central banks are discussing the use of blockchain, and estimated that 80 per cent of the world’s commercial banks would have initiated projects using the technology by 2017. “The practical use and implementation possibilities of central bank digital currency is rightly becoming a hot topic in the financial service industry,” Deutsche Bank Global Transaction Banking Chief Digital Officer Edward Budd said. “It raises questions, and possibilities, over a fundamental market structure principle: who can have access to central bank money and how,” he said. Reuters
Monetary stance
Argentina cuts key interest rate Argentine inflation eased further in August, the central bank said on Tuesday when it announced it was cutting its 35-day reference rate for the fourth week in a row, part of an effort by policymakers to pull the economy out of recession. The bank cut the rate 50 basis points to 28.75 per cent, a move aimed at pushing cash into the economy by making central bank notes less attractive to investors. This helps gross domestic product grow, but it can also be inflationary. Inflation was 2.0 per cent in July, down from 3.1 per cent in June and 4.2 per cent in May. World Bank President
Jim Yong Kim launches bid for second term World Bank President Jim Yong Kim on Tuesday formally launched a bid for a second five-year term as head of the multilateral development lender, whose board pledged an “open, merit-based, and transparent” selection process. Kim, a global public health expert and former Dartmouth College president, notified the board of his intention to continue in the bank’s top job after his current term ends on June 30, 2017, the bank said. The notification typically kicks off a new selection process, and the bank said it would follow criteria adopted for the 2012 selection, when Kim was first appointed president.
Official data
U.S. new home sales race to near nine-year high The broader PHLX housing index, which includes builders, building products and mortgage companies, rose 2.07 per cent, outperforming the overall U.S. stock market. New U.S. single-family home sales unexpectedly surged in July, reaching their highest level in nearly nine years amid robust demand, brightening the housing market outlook and bolstering views that economic growth will pick up in the third quarter. Housing market strength should offset some of the drag from manufacturing, with other data on Tuesday showing production at factories remaining constrained by weak orders. The Commerce Department said new home sales jumped 12.4 per cent to a seasonally adjusted annual rate of 654,000 units last month, the highest level since October 2007. It was the fifth straight monthly gain in new home sales. July’s increase, however, likely exaggerates housing market strength as it has not been matched by robust housing starts. Still, sales were up 31.3 per cent from a year ago. July’s surprise increase pushed new home sales well above their
second-quarter average, pointing to sustained momentum in the market for new homes. The gain came mostly from homes not yet started or still under construction, suggesting a rebound in residential construction investment, which was a minor drag on economic growth in the second quarter.
Key Points New home sales increase 12.4 per cent in July Supply of new homes for sale lowest since last November Manufacturing activity moderates in August Housing market strength, marked by rising home values which are boosting household wealth, is helping to buoy consumer spending, cushioning the blow to the economy from a downturn in business spending as well as an inventory correction.
Ti g h t e n i n g l a b o u r m a r k e t conditions, which are steadily lifting wages, as well as mortgage ra t e s n ea r h i st o r i c l o w s a r e supporting housing. Reports last week showed ground-breaking on single-family housing projects r i s i n g t o a f i v e- m o n t h h i g h in July and sentiment among homebuilders increasing in August.
Raises near-term outlook
New home sales are likely benefiting from a chronic shortage of previously owned houses available for sale. With sales surging, the inventory of new homes on the market fell to an eight-month low in July. This means builders will need to ramp up construction activity to meet demand. At July’s sales pace it would take 4.3 months to clear the supply of houses on the market, the fewest since June 2013, and down from 4.9 months in June. Separately, data firm IHS Markit said its flash U.S. manufacturing purchasing managers’ index slipped to a reading of 52.1 in August from July’s nine-month high of 52.9. A reading above 50 indicates expansion in the factory sector. Manufacturers reported slower order growth this month, with some companies saying that a number of clients had adopted a wait-and-a-see approach until the outcome of the U.S. presidential election in November. Reuters
Business Daily Thursday, August 25 2016 15
Opinion Business Wires
Jakarta Globe Direct investment in Indonesian firms from foreign and domestic sources is expected to grow more slowly this year, the country’s investment board chief said on Tuesday (23/08), noting that Southeast Asia’s largest economy had lost out to Vietnam in the regional competition to attract funds. Thomas Lembong, chief of the Investment Coordinating Board (BKPM), said total direct investment from both foreign and local investors will likely grow 12-14 per cent annually in 2016, excluding investment in banking, oil and gas sectors. That compares with 17.8 per cent growth in such investment in 2015.
The Star The signature verification card payment transaction for cardholders will be gradually abolished (in Malaysia) to make way for the implementation of the pin and pay system on July 1, 2017. Bank Negara Malaysia Payment System Policy Deparment director Tan Nyat Chuan said that before the full implementation, cardholders would be given six months, beginning January until June 2017, to familiarise themselves with the new system. The pin and pay system uses a PIN enabled card that allows a cardholder to make a purchase by keying in a sixdigit PIN, with no signature required.
China’s super-bus exposes dark side of P2P lending
I The Straits Times A popular Taiwanese drink, Chun Cui He milk tea, has been taken off the shelves for now as it was found to contain a food additive not permitted in Singapore, the Agri-Food & Veterinary Authority (AVA) said. L-theanine is currently not on the list of permitted food additives under the Food Regulations of Singapore. It is found in green tea leaves and is said to have calming properties. News reports said 7-Eleven was also removing the milk tea from its stores in Hong Kong.
Inquirer.net Mining is bound to carry on in the Philippines as many companies, especially those that are publicly listed, have no choice but to follow regulations and industry standards, according to Senator Cynthia Villar. Villar, chair of the Senate committee on environment and natural resources, Tuesday said the only thing that made mining questionable was the environmental impact. “I don’t think companies don’t take care of their environment, but maybe there is confusion because there are many illegal mines in the country,” she said in an interview.
t looked like the future: a wide, elevated Chinese bus that would speed atop tracks straddling the road while multiple lanes of traffic flowed below. And the future looked surprisingly near. In early August, a prototype of the Transit Elevated Bus - or TEB - was tested in northern China. Just as international excitement began to build, however, the TEB story went off the rails. According to China’s state media organs, previously big boosters of the project, the TEB was little more than a publicity stunt - one of the dozens of peerto-peer lending scams that have duped retail Chinese investors in recent years by promising unreal annual returns. The bus bust has thus become a symbol of a different - and far more damaging kind of Chinese ingenuity. The TEB’s promoters promised investors 12 per cent returns on their money, despite the fact that the prototype bus seemed likely to tip over, couldn’t clear most urban bridges and wasn’t tall enough to accommodate most vehicles underneath it. They could get away with it in part because those kinds of numbers are par for the course in China’s P2P lending industry, which averaged returns of 13.3 per cent in 2015. Demand for such loans has exploded in recent years, growing in volume from US$4.3 billion in 2013 to US$71 billion in 2015. The appeal is twofold. First, China’s big state-owned banks have traditionally focused their attention on other companies in the state sector, at the expense of consumers and small businesses. A budding entrepreneur, or a young couple looking to pay for a wedding, often had to rely on the goodwill and deeper pockets of friends and family, loan sharks and, more recently, unregulated “shadow” lenders that specialized in expensive, short-term loans. Meanwhile, cash-rich Chinese are anxious to find yields higher than the anaemic rates paid by China’s state banks, which typically fall below 3 per cent. China’s dodgy stock markets aren’t a terribly appealing alternative, while the attractiveness of Chinese real estate varies by region. In big cities where property can still produce good returns, the price of entry is oftentimes too rich for China’s middle classes. And for retirees looking for little more than a steady income, it’s too much of a gamble. On the surface, P2P products seem like a tantalizing investment alternative, especially when they’re linked to glitzy projects such as high-end real estate or futuristic, road-straddling buses. But as far too many investors have learned in recent
“
Adam Minter Bloomberg View columnist
years, the opportunities for abuse are rife, with many lenders collecting funds before they ever have a targeted loan - or any intention of lending. In those cases, P2P might be better described as peer-to-Ponzi. Late last year, China’s top banking regulator warned that over 1,000 of the country’s P2P lenders were “problematic.” Not long after, Ezubao, once of the biggest, collapsed, taking US$7.6 billion invested by 900,000 Chinese with it. The idea for an elevated bus was cooked up long before anybody had heard of online P2P. In 2010, its inventor claimed that the TEB was about to undergo a much-touted trial in Beijing. That test was cancelled amid doubts about the technology and the integrity of the people behind it. Lac ki n g f u n ds, th e T EB disappeared until the technology was acquired last year by Bai Zhiming, a property developer with no background in mass transit. He resuscitated the project using a P2P lending platform, Huaying Kailai, that raised US$26 million promising high returns to be paid out years in advance of any potential deployment of the technology. According to an executive at Huaying Kailai, at least 200 investors have now requested refunds. As such scandals spread, the potential for a backlash among angry investors has Chinese leaders deeply worried. Earlier this year, the government began demanding that local officials shut down retail P2P storefronts and suspend registration of companies with finance-related names. State media is reporting that further regulations are in the works, including caps on loan size. Yet frauds keep turning up, in part because the P2P industry isn’t just a local problem. Lenders operate across cities, regions and provinces, and tackling them requires a legal and technical sophistication that’s beyond the capabilities of many local governments. Ultimately, officials in Beijing are going to have to bring to bear the kind of regulatory firepower they already apply to the state-owned banking sector. That’ll erode some of the dynamism that’s made Chinese P2P lending so attractive, not to mention bring down those ludicrous returns. Some innovations, though, can ride a bit too high. Bloomberg View
Lenders operate across cities, regions and provinces, and tackling them requires a legal and technical sophistication that’s beyond the capabilities of many local governments
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16 Business Daily Thursday, August 25 2016
Closing Oil industry
Cnooc posts half-year loss on Canadian oil sands charge
During the first half of the year, Brent crude, the global benchmark, averaged roughly 30 per cent lower than the same period in 2015, roiling Cnooc Ltd. posted its first-ever half-year loss global explorers. Prices have whipsawed this as crude’s plunge and write-downs on assets, year, flipping five times between bear and bull including Canadian oil sands, destroyed profit at China’s biggest offshore oil and gas producer. markets, as production from nations outside the Organization of Petroleum Exporting Countries, The company swung to a 7.74 billion yuan including China and the U.S., declines in the (US$1.16 billion) loss in the January to June wake of a price crash that began in 2014. period, compared with a net income of 14.7 Cnooc’s output in the first six months of billion yuan a year earlier, the Beijing-based the year rose 0.6 per cent to 241.5 million explorer said in a statement to the Hong Kong barrels of oil equivalent, Cnooc said in the stock exchange on Wednesday. Oil and gas revenue fell 28.5 per cent to 55.08 billion yuan. statement. Bloomberg News
Official trip
Saudi prince to discuss reform drive in visit to Mainland The Arabian delegation will discuss energy cooperation agreements with China and Japan.
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audi Arabia’s powerful Deputy Crown Prince Mohammed bin Salman will discuss the kingdom’s drive to cut its reliance on oil exports in visits to China and Japan that begin next week, Saudi media and sources said yesterday. In April, Prince Mohammed launched radical economic reforms designed to develop non-oil industries in Saudi Arabia and attract billions of dollars of foreign investment. Chinese and Japanese banks and companies are expected to play major roles. The prince will visit China early
next week for talks on economic ties as well as security issues, the Saudi Gazette reported. He will then visit Japan from August 31 to September 3, meeting Prime Minister Shinzo Abe, Japan’s Chief Cabinet Secretary Yoshihide Suga told reporters. From Japan, Prince Mohammed will return to China to chair Saudi Arabia’s delegation to the September 4-5 summit of leaders of the world’s 20 biggest economies in the eastern city of Hangzhou, the Saudi Gazette said. A Saudi source familiar with the trip said Prince Mohammed would
present to the G20 his economic reform plan, which envisages state spending of around 270 billion riyals (US$72 billion) in the next five years on projects to diversify the economy. Prince Mohammed’s father, King Salman, led the Saudi delegation to last year’s G20 summit in Turkey; heading this year’s delegation would be a fresh political boost for the 31-year-old prince, who rose to prominence when his father took the throne in January 2015. Saudi officials will discuss energy cooperation agreements with China and Japan, including a plan to cooperate with China in storing crude oil, the Saudi cabinet said on Monday. Saudi Arabia has traditionally
accounted for most of Asia’s crude imports, but OPEC’s top producer has lost ground in a number of major markets including Russia and China, and faces a further threat from Iran, which is ramping up exports after
‘National oil giant Saudi Aramco has been in talks with China’s CNPC and Sinopec for investment opportunities in refining’ the removal of Western sanctions. National oil giant Saudi Aramco has been in talks with China’s CNPC and Sinopec for investment opportunities in refining, marketing and petrochemicals, Saudi Energy Minister Khalid al-Falih said earlier this year. U n d e r P ri n c e M o ha m m e d’ s economic reforms, Riyadh plans to sell a stake of up to 5 per cent in Aramco that could be worth tens of billions of dollars, and Chinese and Japanese money could prove crucial in smoothing the sale. In June, Saudi and Japanese officials discussed possible Japanese investments in an initial public offer of Aramco shares that might occur as soon as in 2017. Officials at top Chinese banks have said they would be interesting in being involved in the offer. Reuters
GDP
Private report
Control failures
German economy grows Chinese private health at better than expected rate insurance market to surge
HK regulator fines Morgan Stanley
Strong foreign trade and buoyant consumption drove Germany’s economy, Europe’s largest, to better-than-expected growth in the second quarter, federal statistics office Destatis said yesterday. Gross domestic product (GDP) grew by 0.4 per cent between April and June, adjusted for seasonal, calendar and price effects - twice as fast as analysts surveyed by Factset predicted. However, the final figure, which confirmed a preliminary Destatis reading earlier in August, represented a slow-down from the unexpectedly strong 0.7-per cent expansion in the first quarter. According to preliminary estimates, exports of goods and services increased by 1.2 per cent between April and June, while imports fell by 0.1 per cent. Overall, the data showed “mixed signals” in the German economy. Households increased spending by 0.2 per cent and the state by 0.6 per cent compared with the previous quarter. But business investment in capital goods fell by 2.4 per cent and in construction by 1.6 per cent. Looking back at the previous year, the economy was 1.8 per cent larger between April and June than the same period in 2015, adjusting for price and calendar effects - a slightly slower growth rate than the first quarter’s 1.9 per cent. AFP
Hong Kong’s securities regulator said it fined and reprimanded the local securities unit of Morgan Stanley for internal control failures related to disclosure of short-selling orders and comprehensive documentation of electronic trading services. Morgan Stanley Hong Kong Securities Ltd was fined HK$18.5 million (US$2.4 million) related to internal control failures between 2013 and 2016, the Securities and Futures Commission (SFC) said in an e-mailed statement yesterday. The breaches of Hong Kong’s code of conduct included failure to avoid “conflicts of interest between principal and agency trading” and non-compliance with certain disclosures in short-selling orders, the SFC said, as well as failure to properly document its electronic trading systems. The SFC said the U.S. bank cooperated with the watchdog in resolution of its concerns, and had agreed to hire an outside firm to review its internal controls. The regulator said during an investigation of irregular price movements of two stocks on June 21, 2013, it found the bank’s Hong Kong securities unit traders responsible for agency trade - or external clients - also dealt in the stocks on a principal basis, which refers to the firm’s own holding. Reuters
By 2020, China’s private health insurance market could be worth 1.1 trillion yuan (US$167 billion), as upwardly mobile Chinese look for alternatives to public health care, according to a report. The figure would be fivefold the 2015 amount, which stood at 241 billion yuan. The fastest growth is expected in reimbursement policies, which are expected to represent 36 per cent of the future private insurance market, the lion’s share of the market by that time, accounting for 64 per cent, will be critical-illness policies, which are expected to grow at a slower rate, according to a report by the Boston Consulting Group and insurance giant Munich Re. Reimbursement policies are more expensive but more flexible than their critical illness counterparts. Critical-illness insurance pays a lump sum if an insured person is diagnosed with one of the covered medical conditions, while reimbursement insurance pays-out on an on-going basis should a health problem require longer-term consultations, treatments or hospital visits. The most likely people to hold a reimbursement insurance policy today are 35-55 years of age, married with children, and have a minimum annual household income of 200,000 yuan, according the report. Xinhua