Polytec: Pearl Horizon hearing date not yet confirmed Property Page 2
Friday, August 26 2016 Year V Nr. 1117 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Transport
Public protest to support Uber ridesharing Page 4
www.macaubusinessdaily.com
PBOC
Shadow banking
Central bank of China says banks to spread out loans Page 8
Chinese P2P big players confident after gov’t issues measures to limit activity Page 16
Gaming
Galaxy Entertainment Group reported Q2 adjusted EBITDA up 22 pct y-o-y to HK$2.3 bln. “The Macau market continues to show gradual signs of stabilisation,” said company chairman Lui Che Woo. Citing GEG’s strong focus on “operational efficiency and prudent cost control” - with more of the same in store. Page 7
Foreign labour in demand
Mighty MICE
The city hosted 318 MICE events in Q2. Attracting 450,921 attendees and participants, up 9.1 pct y-o-y. The 18 exhibitions held in the quarter attracted most of the MICE participants.
E mp loy me n t S o m e 1 8 1 , 039 non-residential workers were registered in the MSAR in July. A 1.3 pct increase y-o-y. Workers from Mainland China numbered 117,100. The number is followed by the Philippines and Vietnam at 25,304 and 14,706, respectively. Page 5
Slower bulls
MICE Page 3
HK Hang Seng Index August 25, 2016
22,826.87 +6.09 (+0.03%) Worst Performers
China Mengniu Dairy Co Ltd
+11.98%
Link REIT
+1.42%
China Overseas Land &
-2.50%
CITIC Ltd
-1.42%
Tingyi Cayman Islands
+3.25%
China Construction Bank
+1.39%
China Resources Land Ltd
-2.36%
Sands China Ltd
-1.15%
Galaxy Entertainment Group
+2.13%
CLP Holdings Ltd
+1.39%
Sino Land Co Ltd
Cathay Pacific Airways Ltd
+1.62%
Sun Hung Kai Properties Ltd
+1.29%
Belle International Holdings
+1.59%
Want Want China Holdings
+1.19%
-2.17%
BOC Hong Kong Holdings
Hengan International Group
-1.70%
PetroChina Co Ltd
-0.95%
Kunlun Energy Co Ltd
-1.54%
CNOOC Ltd
-0.94%
-0.96%
26° 33° 26° 31° 26° 31° 25° 30° 24° 30° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
Hong Kong Stock Exchange It bottomed out in February. The Hong Kong stock market has been the second best performer in Asia. But weaker Chinese data is dampening enthusiasm. As is the increasing possibility the U.S. Fed might increase borrowing rates, heralding the end of the bull run. Page 10
2 Business Daily Friday, August 26 2016
Macau
Property
Polytec: Pearl Horizon hearing date not yet confirmed The company is confident in getting extra time from the courts to complete the project. Kam Leong kamleong@macaubusinessdaily.com
D
eveloper Polytec Assets Holding Ltd. said it is still waiting for local courts to set a hearing date for its lawsuit against the local government concerning the site for its residential project Pearl Horizon. ‘Currently, the Group is still awaiting a hearing date to be fixed by the Courts of Macau for the legal proceedings…It is expected that a
hearing date will be fixed by the Courts of Macau in the near future,’ the developer said in a filing with the Hong Kong Stock Exchange on Wednesday evening. Last December, the developer’s land concession for the plot was declared invalid by the government as the company had failed to complete the residential project before its temporary land concession expired. The company had applied for extension of the land-use term for the plot but this was rejected by
the authorities. ‘The company has therefore applied to the Courts of Macau to claim for compensation of time,’ it said in the filing. ‘[We have] strong legal grounds to obtain a confirmation from the Court of Macau that the administrative delays had been caused by the relevant government authorities,’ the developer stressed, adding it is entitled to complete the project.
Interim net profit up
For the first half of the year, the Hong Kong-listed company generated HK$42.7 million (US$5.3 million) in net profit, up 3.6 per cent year-onyear, despite total revenue plunging
47 per cent year-on-year to HK$105.1 million, according to Wednesday’s filing. M ea n w hi l e, th e r ea l estat e developer saw the rental income from its investment properties surge by 26.4 per cent year-on-year to HK$39.4 million. In particular, that generated by Macau Square, 50 per cent owned by the company, soared by 26 per cent year-on-year to HK$36.5 million. ‘The group expects its investment property portfolio will continue to generate stable income for the second half of 2016,’ it wrote. The company also added in the filing that another residential project in Macau, known as Lotes T+T1 development, is progressing well. ‘The group is making every effort to ensure the construction work [is] completed and an occupation permit [is] obtained by the middle of 2017,’ it said.
Construction Construction group generates nearly HK$6 bln in revenue
Hsin Chong local operations see fourfold drop y-o-y Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Hsing Chong Group Holdings Limited generated nearly HK$6 billion (US$774 million) in revenue in the first six months of the year, according to its filing on the Hong Kong Stock Exchange. Excluding the group’s contract work on Phase II of Galaxy the group’s total revenue reached HK$5.79 billion, a year-on-year decrease of 0.4 per cent, while including contract work it reached HK$6 billion. During the period the group was engaged in projects that were split between 50 per cent of the public
sector and MTR [Mass Transit Railway] works and 50 per cent in private clients divided between ‘prestigious property developers’ and Macau gaming operators. These include: The Venetian, Galaxy and SJM as well as Kerry Properties, New World, Swire Properties and Lai Sun Group. As of the end of the first half of the year the group had an outstanding workload exceeding HK$18 billion. ‘We have been a major player in Macau’s infrastructural development, and look forward to participating further with the award of more substantial new contracts,’ notes the group in its filing.
With the city’s planned total residential supply, the company says it “secures the business volume of Construction Industry in the coming decade’. When analysed by geographical segment, the revenue from the group’s Macau operations, despite only amounting to 13.3 per cent of the group’s overall unaudited revenue, reached some HK$793.9 million during the six-month period. This, however corresponds to nearly a fourfold drop in revenue from the local segment, as compared to HK$3.2 billion seen in the previous year – which made up 40.3 per cent of the group’s overall revenue,
trailing Hong Kong’s HK$4.7 billion in revenue during the first six months of 2015. The group’s Hong Kong operations contributed 84.7 per cent of the group’s revenue during the sixmonth period, reaching HK$5.04 billion.
Construction dominates
The reportable operating segments of the company comprise building construction, civil engineering, interiors & special projects, electrical and mechanical engineering, property and facility management services and property development and investment. A total of HK$3.23 billion in revenue was earned by the construction side of the business during the period, equalling a profit before taxation of HK$111.6 million. This, however was overshadowed by the group’s Property Development and Investment segment, which brought in the largest profit for the group during the period, at HK$400.4 million. Total profit for the group during the first six months of the year amounted to HK$382.5 million, just 18.4 per cent of the group’s profit from the corresponding period in 2015. The group’s third largest contributor in terms of profit was its Electrical and Mechanical segment, accounting for HK$36.96 million in profit during the period, while racking up HK$461.5 million in revenue. High performing segments in terms of revenue were the group’s Interiors and Special Projects arm earning HK$808.7 million, Civil Engineering at HK$880.2 million, Electrical and Mechanical at HK$461.5 million, and Property Facility and Management at HK$361.8 million. Revenue from the group’s Galaxy Phase II operations reached HK$162.5 million during the period as compared to HK$2.16 billion seen in the same six-month period last year.
Business Daily Friday, August 26 2016 3
Macau Statistics
MICE participants up nearly 9 pct in Q2 The 18 exhibitions held in the quarter attracted most of the MICE participants. Kam Leong kamleong@macaubusinessdaily.com
T
he city hosted a total of 318 MICE events during the second quarter of the year, attracting a total of 450,921 attendees and participants, which is up by 9.1 per cent yearon-year compared to 413,420 MICE participants one year ago. According to the latest official data released yesterday by the Statistics and Census Services (DSEC), 292
of the MICE events were meetings and conferences; 18 were exhibitions while the other eight were incentive events. Those attending exhibitions totalled 392,200, accounting for 87 per cent of total MICE participants in the quarter. The number represented a slight increase of 2.1 per cent. Meanwhile, those attending meetings and conferences amounted to 36,000, which jumped by 22.1 per cent year-on-year. The average duration of the
exhibitions was 3.4 days and total floor area occupied was 85,000 square metres, up 0.2 days and 27.4 per cent year-on-year, respectively. In addition, the eight incentive events drew 23,000 participants. The average duration of the events was 2 days and total floor area used was 135,000 square metres.
Receipts & expenditure
Of the total 18 exhibitions, 17 were held by non-government organisers. 16 of which told DSEC that their receipts from the exhibitions amounted to MOP63.9 million (US$8 million), of which the majority, 83.9 per cent, came from rental of exhibition
booths, whilst some 9.5 per cent, MOP6.05 million, was from the financial support of local government or other entities. In addition, 17 organisers said the expenditure of their exhibitions totalled MOP40.8 million, mainly incurred on production, construction and decoration, together amounting to 32.7 per cent of the total, whilst some 23.1 per cent of the expenses were used on publicity and public relations. These 17 exhibitors attracted 1,455 exhibitors – who were mainly local residents or from Mainland China. Some 440 surveyed exhibitors said 95.8 per cent of their receipts were from sales of products, while rental paid for exhibition booth made up 59.6 per cent of their total expenditure. According to DSEC, over 80 per cent of these interviewed exhibitors were satisfied with the professionalism, language skills, work efficiency and attitude of venue staff, while some 51.3 per cent were also satisfied with the promotion of the exhibition. However, 24.5 per cent of thosee surveyed considered that improvement was needed. For the first half of the year, a total of 628 MICE events were held in the city, of which 586 were meetings and conferences, whilst 22 were exhibitions and 20 incentive events. The events attracted 588,000 attendees. Some 501,000 of them attended the exhibitions held in the six months, which is down by 18.3 per cent year-on-year, while some 61,000 participants were recorded in meetings and conferences, an increase of 13.8 per cent year-onyear.
4 Business Daily Friday, August 26 2016
Macau Transport
Public protest to support Uber ride-sharing
Macao Community Development Initiative (MCDI) will host a public protest to support ridesharing mobile application Uber’s continued operation in Macau. The protest is planned to start at Tap Seac Square on Sunday 4th September, according to a
post made by the group on social media websites. Uber disclosed in a letter to legislators that September 9 will be the last day its service operates in Macau. ‘If the negotiations with the MSAR Government do not progress, September 9 will be the last day for Uber serving Macau,’ the letter states.
Electric buses No timetable for introducing electric buses
The wheels on the bus
T
he launch of electric buses in Macau continues without a fixed date, primarily due to the elevated cost and the lack of charging posts, as indicated by the local government and local transportation companies, as a testing period for the electric vehicles begins. As happened in 2013, on Thursday two electric buses went into circulation, for a period of 30 days, the second phase of tests for this type of transportation. Despite the positive results obtained three years ago, a decision has yet to be made about their effectiveness and entrance into common use.
How far?
Currently, there are only charging stations for the buses in the warehouse in Pac On. “In future, we will try to generalise and reserve some space for the charging,” commented the acting head of the division of transport management at the Transport Bureau (DSAT), António Ho, indicating, in total, there are nine parking lots with charging stations for electric vehicles, but none of these is for public buses. “We need to study the concrete circumstances of the routes and the charging equipment. We need to know at which stops and stations it is possible to install these charging stations,” affirmed a TCM representative, one of the three companies that provides public bus services in the SAR,
New Era also expressed its concerns about vehicle charging, not only due to the absence of charging stations but also because per day of circulation each bus must be charged between three and four hours. TCM and New Era are testing two different buses, one Chinese manufactured, the other Australian. In the first the battery has a duration of 180 kilometres, whilst the second can travel at least 300 kilometres per charge, according to the DSAT, despite the respective company, Avass, advertising a driving time of about 1,000 kilometres.
Cost
The cost is also an inhibitive factor: according to the two transportation operators, one electric bus costs between two to three times more than its gasoline-run counterpart. “These buses have a higher cost,” admits the government. “Both the bus itself as well as its operation; but, of course, we have to look at the information provided by the companies and then decide if there are other policies to help in its implementation,” said António Ho, without clarifying whether substitution is a part of these policies.
The 30-day test of the rented buses will be paid for by the government, for a total of MOP600,000.
Despite the guarantee by the bus companies that they “have the intention” to introduce buses using “new combustibles” there was no deadline established for such, with the government demanding only that the companies study the viability of these vehicles. When “the situation matures” they will be asked to “finalise some of the promised plans”. “The government has to see the technical results; now we don’t have sufficient conditions. Up to this point we don’t have a calendar for implementation; we have to take advantage of the resources obtained during this 30 day test and then conduct a study,” said the representative. The two buses will make 11 daily trips and some more challenging routes in relation to those run in 2013 – crossing the bridge from Taipa to Macau, operating on inclined sections of road, and carrying more passengers.
Lack of drivers
The New Era representative also indicated that despite the 8 per cent rise in the number of drivers they are still insufficient to meet demand. At least 40 to 50 more drivers are needed to increase from the 460 currently employed by the company. New Era is also taking into consideration the ageing of its drivers, whose average is 53 years, revealing that “3 per cent are over 60”, with few of the drivers less than 40 years of age. Much like croupier positions in casinos, the profession of bus driver can only be conducted by those holding local identity cards (BIR) and cannot be filled by foreign workers. Lusa
600,000 MOP Cost to the government for the rental of two buses
Business Daily Friday, August 26 2016 5
Macau Labour
Number of non-residential workers increases The total number of non-residential workers in July reached 181,039, posting a year-on-year rise but a dip compared to June this year. Cecilia U cecilia.u@macaubusinessdaily.com
S
ome 181,039 non-residential workers worked in the MSAR during the month of July, indicating a 1.3 per cent year-on-year growth but a slight drop of 0.7 per cent compared to June this year, according to official data sourced from the Public Security Police (PSP) posted yesterday by the Labour Affairs Bureau (DSAL). Workers from Mainland China continued to represent the vast majority
of imported workers, amounting to 117,100, up 1.5 per cent compared to the same month of 2015. Following Mainland China, the Philippines and Vietnam exported 25,304 and 14,706 non-resident workers to the MSAR. Numbers of workers from the Philippines and Vietnam increased 8.2 per cent and 2.9 per cent year-on-year, respectively. The majority of Mainland China workers participated in the construction sector, while workers from the Philippines and Vietnam
contributed mainly to the domestic work sector.
Hotel domain
In terms of industry, the sector that relates to hotels and restaurants continued to have the highest number of non-residential workers (48,375), followed by the construction sector (42,101), official DSAL data reveals. It saw an increase of 4.7 per cent year-on-year for those who worked
in hotels and restaurants and a decrease of 8.0 per cent in the construction sector, according to calculations made by Business Daily. For imported workers whose origin was outside Asia, the United States supplied the highest number at 404, followed by workers from the United Kingdom at 292. The majority of workers from these two regions contributed to the recreational, cultural, and gaming sectors, and other services.
Pan-Pearl River Delta
Nine agreements inked at Pan-Pearl River Delta Forum Nine co-operation projects were signed at the 11th Pan-Pearl River Delta Regional Co-operation and Development Forum and Economic and Trade Fair (PPRD Forum) in Guangzhou yesterday. The projects are worth more than RMB10 billion (MOP12 billion/ US$1.5 billion) in terms of investment. Chief Executive Fernando Chui Sai On was at the forum yesterday to witness the signing ceremony. Agreements signed include the Internet and Cultural and Creative Industry Park project of Fujian
Cangshan District Government and Macau Nam Kwong Company Ltd. and the ‘Work Together to Build a Green MICE (Meetings, Incentives, Conferences, and Events) City’ cooperation agreement signed by the Macau Fair & Trade Association and the MICE Alliance of Pan-Pearl River Delta Cities. The agreement focuses on the assistance and support Macau is offering to other members of the PPRD Forum. The PPRD Forum was proposed in 2003 as a platform for regional co-operation between the nine
provinces and two Special Administrative regions (SARs) – also known as 9+2 – located in the
Greater Pearl River Delta Region. They are Fujian; Jiangxi; Hunan; Guangdong; Guangxi; Hainan; Sichuan; Guizhou; Yunnan; the Hong Kong SAR; and the Macau SAR. A.L.
6 Business Daily Friday, August 26 2016
Macau Opinion
Pedro Cortés Congratulations! In the hangover of the Olympics and the aftermath of the Eurocup, brilliantly fought by a small but brave country called Portugal, most of you may not have followed – I guess there’s more important news than what I will mention now – the local representation of Benfica gave a great performance at the AFC Cup. Similar to the Uefa Europa League playoff stage, winning one match and almost drawing another one against the host team in not so faraway Kirghizstan. They were scarcely 13 minutes away from making history. Without knowing yet the results of the other playoff groups, it was already a great achievement, possible only because the leaders have a project: making the football in Macau more than an amateur league without conditions to practice or even to play. Projects like this should have visibility. For instance, the matches should have been broadcast live by our TV channels. What Bernardo Alves, who is following in the footsteps of his father Mr. Leonel Alves, Chairman of the Casa do Benfica de Macau, Mister Henrique Nunes, my good friend and also professional colleague, Daniel Alves, as well as Carlos Silva, among all the other staff, and, of course, the players have done is put Macau on the map of Asian Football. In my layman’s view, what Macau football should aspire to is to have teams in the Chinese League (whether first or second division). Of course, the government needs to create conditions for that to happen. The example of Monaco, which is also a gaming destination, could be followed (the principality has a team integrated in the French League). Macau could negotiate with the Chinese league to have one or two teams integrated in the National League. The same could happen with Hong Kong. Thus, the so-called integration slated to occur in 2047 and 2049 would have its sportive side. This idea may have already been explored but I guess these days everyone in the Macau Government is more interested in having the gold medallists of the People’s Republic of China in Macau than taking time out to think about the future of the professional sport in the Region. Hopefully, the officials may also have some time to find a solution for the announced Uberexit. The life of everyone that used the application changed for the better. Notwithstanding this, I’m sure the Macau Government’s solution is to have a better quality taxi service, supervision of well behaved taxi drivers, and all other themes that serve the Macau public. In a nutshell, all that makes me sometimes ask myself what I’m doing in this place…
Pedro Cortés is a lawyer and frequent contributor to this newspaper.
Business
Retail
Japan Home Centre revenue increases
Circle K operator revenue up 3.4 pct in H1
J
apan Home Centre (Macau) posted an increase of 7.6 per cent revenue year-on-year to HK$39.3 million (MOP40.5 million/US$5.7 million) for its fiscal year ended June 30, according to the annual report released yesterday on the Hong Kong Stock Exchange by the International Houseware Retail Company Limited (IH Retail). The comparable store sales growth rate of the stores in Macau is 1.3 per cent, down compared to the 5.9 per cent of the previous fiscal year. The total revenue of IH Retail went up to HK$2.04 billion (MOP2.10 billion/US$263 million), indicating
a growth of 4.5 per cent year-on-year despite the short-term fluctuation and challenges of the retail market. ‘The increase in revenue for the year was mainly due to the opening of new stores and growth in comparable store sales,’ the report noted. Eight self-managed stores in Macau are under IH Retail, with 277 stores in Hong Kong. IH Retail and its subsidiaries is the largest house ware retail chain in Hong Kong, Singapore and Macau. Stores can also be found in Cambodia, Indonesia, East Malaysia, Saudi Arabia and New Zealand. C.U.
Workers rights
Melco Crown: We treat all our colleagues with fairness and respect Melco Crown Entertainment has responded to Business Daily’s enquiry of yesterday regarding recent complaints about the unjustified dismissal of their former dealers saying the company emphasises fairness and respect in the way colleagues are treated. ‘On top of a set of well-communicated on-duty guidelines for all of our staff, our Company has a performance assessment system to ensure we deliver the best quality of service to our valued guests,’ wrote Melco Crown in an emailed reply to Business Daily.
The company also noted that any disciplinary action is only practised after the completion of a comprehensive review procedure conducted by the company’s management. Citing confidentiality and privacy issues, they declined to discuss individual cases, as mentioned in the response. Five to six dismissed dealers who formerly worked for Melco Crown have sought assistance from the Labour Affairs Bureau (DSAL) through the Union of New Macau Gaming Workers Rights (unofficial English name).
Convenience Retail Asia Ltd. recorded a year-on-year increase of 3.4 per cent in revenue amounting to HKD2.34 billion (MOP2.41 billion/ US$ 302 million) for the first six months of the year, according to the company’s interim report with the Hong Kong Stock Exchange yesterday. The company operated 28 franchised Circle K stores and nine Saint Honore cake shops in Macau as at the end of June. During the period, the company’s net profit registered a growth of 7.2 per cent year-on-year to HK$51.8 million. For the second half of the year, however, the company anticipates its business will slow due to the economic slowdown. ‘The Group expects a difficult business environment in the second half of 2016 due to weak consumer sentiment, high operating costs; latter expected to persist notwithstanding possible mild downward adjustments,’ the report reads. A.L. The complaints were submitted to the DSAL on Wednesday, with the Vice Director of the Union, Jeremy Lei Man Chao, telling Business Daily that the complaints have been lodged against Melco Crown. According to a report by TDM, the dismissed dealers worked in both the mass market and VIP sectors of the casino operations, and they suspect that the recent dismissals is due to the company cutting costs. C.U.
Gaming
Jockey Club: Just five days left The Macau Jockey Club is aware of its potential violation of the Commercial Code and is working to come up with a proposal to fix the situation, reports Portuguese language publication Hoje Macau. As advanced by the publication earlier this month, the Macau Jockey Club posted a loss of MOP88 million (US$11 million) for last year’s results, meaning that its corporate capital was lower than half of its original corporate capital at the time the company was set up. According to the Commercial Code of the MSAR, notes the publication, this is a violation of the law which should lead to an injection of corporate capital into the company within 60 days to repair the situation, or the company is to be dissolved. If this injection or proposal for dissolving the company does not happen, then the administrator is punished by a fine or a three-month prison term. As noted by the publication, the company has presented negative
accounts since at least 2005, with losses in 2014 reaching MOP54 million. The Gaming Inspection and Coordination Bureau (DICJ), in response to the publication’s enquiry, noted that the Macau Jockey Club has until the end of this month to “present a proposal to solve the problem in question”. ‘The Administrative Council of
our company has been informed of the issue. In March, during the annual shareholders meeting, we already [spoke] of article 206 of the Commercial Code,’ the Macau Jockey Club wrote, in response to the publication. Regarding the alleged violation of the law by the Macau Jockey Club and the measures being applied to fix the current circumstances the Macau Jockey Club declined to comment by the time Business Daily went to press. K.W.
Business Daily Friday, August 26 2016 7
Macau Gaming Galaxy profit beats estimates as new resorts woo tourists
Galaxy Q2 earnings climb 22 pct The group’s second-quarter 2016 adjusted EBITDA was up 22 pct y-o-y at HK$2.3 bln. It’s also now the largest casino operator by market share.
G
alaxy Entertainment Group Ltd’s second-quarter earnings rose 22 per cent from a year earlier, more than analysts expected, as the opening of new resorts boosted non-gaming revenue and casino market share. Adjusted earnings before interest, taxes, depreciation and amortization - or adjusted EBITDA - was HK$2.3 billion (US$297 million) vis-a-vis the HK$2.25 billion median estimate of five analysts surveyed by Bloomberg. Galaxy, Macau’s largest casino operator by market share, reported 6 per cent profit growth in the first quarter. Macau’s gaming revenue has plunged for 26 consecutive months amid China’s economic slowdown and crackdown on corruption, which has led high-end VIP gamblers to sidestep the world’s largest casino hub. The revenue decline eased in July compared to the previous month, as operators shifted focus to recreational gamblers and tourists, with more family-friendly facilities at new resorts. “The Macau market continues to show gradual signs of stabilisation,” said company chairman Lui Che Woo in a press statement following the results. “GEG supports the objectives of the recently released government reports and we continue to enhance our non-gaming offerings to help diversify and grow both GEG
revenues and the Macau economy. Moving forward to the second half of 2016 and beyond, we will continue out focus on the mass market while maintaining prudent cost control”.
Biggest share
Galaxy Macau’s second phase expansion and Broadway Macau, projects which opened in May 2015, helped Galaxy surpass Sands China Ltd. in the first half to become the city’s largest casino operator with a 23 per cent market share, according to a Daiwa Capital Markets report released prior to the results. Its market share is expected to drop later in the year as other operators debut new resorts, according to Daiwa. The company
also announced a special dividend of HK$0.18 per share, to be paid on or about October 28. “Despite the new projects on the horizon, we believe the company could still be more aggressive in its return of capital to shareholders, especially if it were to take on more debt to fund future developments, thus freeing up free cash flow for dividends,” said analysts led by Vitaly Umansky at Sanford C. Bernstein Ltd. Galaxy shares rose as much as 2.3 per cent to HK$26.40 in Hong Kong trading on Thursday, reversing earlier losses when it fell as much as 2.5 per cent. The stock has gained 5.5 per cent so far this year as at Wednesday, lagging the Bloomberg Intelligence Macau Gaming Index which rose 7.4 per cent over the period.
Cost-cutting
The company’s “key growth catalysts would be the further ramp-up
of Galaxy Phase II” although contributions will likely be limited as it’s been open over a year, Nomura International analysts led by Richard Huang wrote in a note before the results. “Longer term, growth hinges on the roll-out of Galaxy Phases III and IV, which are unlikely to come online before 2019.” Galaxy said it saw a continued shift in Macau’s casino market towards mass, or recreational, gamblers. Its first half mass market segment revenue rose 22 per cent to HK$10 billion compared to a year earlier, while high-stakes VIP gambling dropped 15 per cent to HK$13.2 billion. Lui Che Woo said in an interview in March that he planned to incorporate family-friendly theme parks into his future casino projects. The company also said Thursday that it has identified HK$300 million of additional cost cuts which will be delivered in 2016. Newsdesk with agencies
8 Business Daily Friday, August 26 2016
Greater China In Brief Reform
Authorities stress investment in revival plan A multibillion-dollar plan to boost northeast China’s flagging economy will not just use state funds, but also use private capital to invest, an official said yesterday. The three-year revival plan is not wholly funded by the state and is not a government “blood transfusion,” an official with the National Development and Reform Commission (NDRC) said, implying that the investment is not a short-term aid, but aimed at improving the region’s economic health in the long term. The plan was announced by the NDRC on Monday and involves launching 127 major projects in the northeast region from 2016 to 2018.
Monetary policy
PBOC urges banks to spread out tenor Central bank has clearly taken aim at the risks of short-term lending in a series of moves this week.
C
hina’s central bank has urged banks to spread out the tenors of their loans, hinting at its displeasure with a recent trend of banks focusing on overnight lending, banking sources told Reuters yesterday. Imbalances in China’s financial system are increasing as the economy slows, complicating challenges facing policymakers as they try to clamp down on riskier lending practices without roiling markets. The People’s Bank of China (PBOC)
met with major banks on Wednesday to discuss management of liquidity in Chinese money markets amid rising speculation over whether Beijing would continue its monetary policy easing or not, the sources said. The PBOC declined comment, but has clearly taken aim at the risks of shortterm lending in a series of moves this week. In particular, traders said the central bank may be worried that too many small banks are using short-term borrowing to fund speculative bets in the bond market.
Commerce
Vice Premier urges to improved domestic trade Chinese Vice Premier Wang Yang called for more efforts to improve domestic trade to stimulate consumption. To adapt to new economic conditions, China should upgrade its domestic trade by promoting supply-side structural reform, Wang said Wednesday at a government teleconference. The government should improve its policymaking to meet changes in the consumption structure, Wang said, calling for adapting to consumers’ demand for quality products, automobiles, services, and green consumption. Wang urged more efforts to improve market order, such as establishing a product traceability system, removing regional barriers and enhancing the consumption circumstance. U.S. candidate
Trump targets Mainland trade Republican presidential candidate Donald Trump threatened on Wednesday to slap tariffs on Chinese products to show Beijing that the United States is “not playing games anymore” when it comes to levelling the field on trade. Addressing a rally in Tampa, Florida, Trump said that if he was elected in November, he would instruct the U.S. trade representative to bring cases against China both in the United States and at the World Trade Organization. Tariffs would be necessary in some cases “because they have to understand that we’re not playing games anymore,” he added. Trump had previously pledged a 45 per cent tariff on Chinese goods. PBOC
Vice governor says micro-finance supervision should tighten China should tighten its supervision of the micro-finance industry to guard against risks to financial stability, Chinese news outlet Caixin reported China central bank vice governor Chen Yulu saying at a Beijing conference yesterday. Chen’s comments come after the country’s banking regulator on Wednesday released detailed rules to curb an unruly peerto-peer (P2P) lending sector, underlining China’s commitment to the clamp down on a sector riddled with runaway managers and pyramid schemes. Microfinance has grown quickly in China, driven by demand from cash-starved small- and medium-sized enterprises who are turned away by traditional lending institutions.
“Banks’ overnight lending in the money markets has stood around 90 per cent of their total lending since the start of this year,” said a source, who declined to be identified because he was not authorised to talk to media. To take the lead to encourage banks to lend for longer periods of time, the central bank injected cash into money markets through 14-day reverse repo agreements for the first time since February on Wednesday, in addition to employing its typical tool the sevenday reverse repo. Yesterday, the bank again conducted both seven and 14-day reverse repos, adding 220 billion yuan (US$33.05 billion) of money market liquidity in the largest single-day injection since June 27 to ease fears of a credit crunch. While China’s economic growth has cooled to 25-year lows, Beijing appears reluctant to pursue further broad-based monetary policy easing amid worries that pumping too much cash into the system could further boost already high corporate debt, put more pressure on the yuan currency and create speculative bubbles in property and financial markets. A growing number of economists
Measuring economy
Forget real GDP, nominal expansion is key to understanding Beijing China’s real-nominal gap is the latest illustration of the global struggle that the trusty old GDP tool is experiencing. Want to know what’s really going on under the hood of China’s economy? Then forget about the real gross domestic product number rolled out each quarter by officials and home in instead on nominal expansion, a measure that’s unadjusted for price swings. While China’s real growth has edged down 0.2 per centage point since the third quarter of last year, nominal expansion has accelerated 1.3 per centage points, explaining why policy makers are holding back from a big stimulus push, said Harrison Hu, chief Greater China economist at Royal Bank of Scotland Plc in Singapore.
“Nominal growth does a better job than real growth in capturing cyclical swings,” he said in a telephone interview. “Real growth is more likely to be smoothed.” It’s thus a better indicator of future policy moves; right now it indicates there isn’t a burning need for fullblown policy easing, said Hu. The upturn in nominal expansion may last until the second quarter of 2017, he said. Provincial-level data published on Tuesday by the National Bureau of Statistics for the first half underscored the divergence between nominal growth and real growth in China. Rust Belt provinces Shanxi and
Liaoning registered contractions in nominal figures, while Fujian looked much stronger in nominal terms. China’s real-nominal gap is the latest illustration of the global struggle that the trusty old GDP tool is experiencing. The rise of more amorphous internet commerce and the growth of service-providers such as home-sharing company Airbnb Inc. is making it harder to put a price on economic output. Meantime, GDP is being revised more often and by larger margins, undermining confidence in its accuracy. For Hu, China’s nominal growth is a better guide of both cyclical and structural trends. Downward pressure on the economy is likely to intensify toward the end of this year and be followed by “mini supports,” rather than interest-rate cuts or reductions in banks’ required reserve ratios, he said. Bloomberg News
Stock markets
High-speed trader IMC futures probe The probe is the latest example of China’s crackdown on high-speed traders in the wake of last year’s market rout. IMC BV, a Dutch high-speed trading firm, is being investigated by authorities in China for its activities in the country’s stock-index futures market last year. The firm has received inquiries from the China Securities Regulatory Commission (CSRC) related to futures trading at its Shanghai-based affiliate, said Ian Bickerton, a spokesman for IMC. Discussions between IMC and the regulator have been constructive and positive, Bickerton said. The CSRC didn’t reply to a fax seeking comment. “IMC has confirmed with external counsel that its futures trading activity in China complied with all applicable regulations and exchange rules,” Bickerton said by e-mail. “IMC is very confident that, after reviewing the information provided by IMC, the CSRC will resolve its inquiries positively.” Yishidun International Trading was earlier this month charged with manipulation by prosecutors in Shanghai, while a draft rule on automated trading that would have been among the
strictest in the world was published late last year. The draft was reportedly put on hold, though the regulator has yet to comment. China’s US$6.5 trillion equity market is free from HFT because buying and selling a stock in the same day is banned. But some derivatives contracts, including stock-index futures, are available to super-fast traders, whose interest helped China’s index futures market briefly become the world’s biggest last year.
Boom and bust
Regulators blamed the heightened activity for helping fuel the stock boom and subsequent bust, and in response imposed curbs that cut volume by 99 per cent. The curbs remain in force, though regulators are said to be planning on easing them. Shanghai prosecutors said on August 4 they have charged Yishidun, with a criminal case likely to begin in the next three months. Yishidun is alleged to have self-traded and also placed large
batches of orders far away from the market price, the official Xinhua News Agency reported in November, citing the Shanghai police. The hearings are expected to offer a view into how Chinese authorities view high-frequency trading. A spokesman for Yishidun said the firm “is ready to defend its position in court when required to do so.” There are as yet no formal rules governing HFT on the mainland. The CSRC in October released draft rules proposing that traders who use automated orders must report certain information and wait for a review before they’re allowed to execute their strategies. The plans were put on hold in May, according to local media. The CSRC didn’t respond to a fax seeking comment on the status of the proposals. IMC was founded in Amsterdam in 1989 by two traders working on an options exchange, and operates both a trading unit and an asset-management division. The firm conducts transactions on 100 markets around the world and also has offices in New York, Chicago, Zug, Switzerland, and Sydney, according to its website. IMC is a designated market-maker on the New York Stock Exchange. Bloomberg News
Business Daily Friday, August 26 2016 9
Greater China Trade
rs of loans believe that a massive bank bailout may be inevitable in China as bad loans mount. The PBOC has not cut reserve requirement ratios (RRR) at banks since March, and has not lowered longterm guidance interest rates since last October, though it has offered targeted funds to more vulnerable sectors. At the Wednesday meeting, the PBOC told banks that it would keep monetary policy stance basically unchanged wording that traders believed implied that the central bank would maintain a relatively loose monetary stance but only inject large amounts of longerterm cash if it sees a real need. The central bank also told banks that it would consider using reverse repos longer than 14 days to help adjust the structure of lending in the money markets, the sources said, declining to give further details. Analysts say rising leverage in the short-term repo market helped drive a bull run in Chinese onshore bonds this summer which has begun to derail in recent days. Prior to this week, liquidity in China’s financial system had been described by most as ample with few signs of stress, but money rates jumped on Wednesday after the central bank’s 14-day cash injection. Yesterday, the volume weighted average of the seven-day repo was down seven basis points (bps) in early trade at 2.42 per cent, after the highest average close Wednesday since February. The 14-day was down 12 bps and the one-day was down six bps. Reuters
Canada takes tougher line over canola export dispute China says that starting on September 1, it will toughen its inspection standard for canola over concerns about the crop disease blackleg. David Ljunggren
Canada hardened its line with China on Wednesday in a dispute over Canadian canola exports, saying bilateral relations could not improve until Beijing took action to settle the matter. Trade Minister Chrystia Freeland made the remarks in an interview just days before Prime Minister Justin Trudeau is due to visit Beijing on a trip designed to deepen economic and political ties. China says that starting on September 1, it will toughen its inspection standard
for canola over concerns about the crop disease blackleg, threatening C$2 billion US($1.6 billion) in Canadian exports of the oilseed. Freeland, stressing she felt Ottawa had addressed Beijing’s concerns, said she was “pushing very hard on this” and would be raising the matter with Chinese Commerce Minister Gao Hucheng by phone later on Wednesday. “It’s important ... the Chinese understand this is not some side issue. This is a priority issue for Canada,” she said, noting that when the Liberal
“We cannot take the next step in our relationship with China until the canola issue is resolved” Chrystia Freeland, Canadian Trade Minister
Canada is the world’s biggest exporter of canola, used mainly to produce vegetable oil
government came to power last year, Trudeau instructed her to expand trade with China. “We cannot take the next step in our relationship with China until the canola issue is resolved... We expect some action from China. Our canola is absolutely safe,” she added. Canada is the world’s biggest exporter of canola, used mainly to produce vegetable oil. Exporters, including Richardson International, Viterra Inc and Cargill Ltd, stand to lose sales to Canada’s biggest canola export market. Freeland said she did not know whether the dispute could be settled by the September 1 deadline. A spokesman for the Chinese Embassy in Ottawa said it could not immediately comment on the canola discussions The matter threatens to overshadow the visit of Trudeau, who is promising to improve Canada’s relationship with China after a rocky 10-year period under the former Conservative government. China has raised concerns for years about blackleg spreading from Canadian canola into Chinese crops of rapeseed, another name for the oilseed. Traders suggest China’s real reason for a higher standard is that its domestic rapeseed oil stocks are high. The issue is a personal one for Freeland, whose father is a Canadian canola farmer. “I have asked my dad today to send me a jar of canola he has just combined, which I’m going to take with me to China and I’m going to give it to Minister Gao,” she said. Reuters
10 Business Daily Friday, August 26 2016
Greater China Markets
Hong Kong’s equity bull run tires as concerns return The Hang Seng Index is trading near a nine-month high as it recovers from a bear market induced by turbulence in China’s financial markets. Kana Nishizawa and Crystal Tse
T
he factors that fuelled this year’s bull run in Hong Kong stocks are turning brittle. Valuations that were among the world’s lowest are now at five-year highs. An improving U.S. economy is scotching Brexit-fuelled optimism that higher borrowing costs were a remote prospect. Speculation China’s economy is stabilized has been dashed by July data showing faltering growth. At the same time, technical indicators are signalling that the Hang Seng Index’s 25 percent ascent since February’s low was too quick. For BNP Paribas SA, Hong Kong remains caught in the “pincer” between China’s structural slowdown and the return of U.S. borrowing costs to more normal levels - effects the city can’t avoid due to its reliance on Chinese spending and a currency peg to the greenback. While Value Investment Principals Ltd. says Hong Kong stock valuations remain cheaper than global peers, Bocom International Holdings Co. says shares are due a correction. “There is reason to be cautious as the market has been running ahead of itself,” said Hao Hong, chief strategist at Bocom International in Hong Kong. “The sentiment is euphoric, and the market has gotten complacent.” The Hang Seng Index is trading near a nine-month high as it recovers from a bear market induced by turbulence in China’s financial markets. The gauge is valued at 11.9 times reported earnings, up from a
four-year low of 9 in February. Its relative-strength index rose last week to a level that signals to some traders gains are overdone, while more of the measure’s 50 members are above their 200-day moving averages than at any time since May 2015. Hong Kong’s vulnerability both to China’s economy and global central bank stimulus has helped make swings between despair and optimism hallmarks of the city’s US$4.1 trillion equity market. While the S&P 500 Index hasn’t dropped more than 20 percent from a recent peak in at least six years, the Hang Seng Index has suffered two plunges in excess of 30 percent before staging some of the world’s sharpest rallies. Expectations for higher U.S. borrowing costs are growing ahead of a speech by Federal Reserve Chair Janet Yellen today. Fed funds futures ended Tuesday showing a 54 per
cent chance of a U.S. rate increase in December. In the wake of Britain’s June vote to leave the European Union, odds were less than even for any meeting through the end of 2017. A move toward historic levels would darken the outlook for Hong Kong’s house prices. Real estate companies led by New World Development Co. account for half of the Hang Seng Index’s 10 best performers since February 12, when the city’s shares ended a nine-month bear market.
Revenue outlook
Worsening Chinese economic data also threaten earnings for the city’s shares. Factory output, retail sales and investment all slowed in July, while the broadest measure of new credit rose the least in two years. China, Hong Kong’s biggest trading partner, accounted for an average 62 per cent of revenue for companies on the Hang Seng Index, according to data compiled by Bloomberg. “Economic fundamentals have not changed,” said Kevin Lai, Hong Kong-based chief economist for
Asia ex-Japan at Daiwa. “We are in a brief period of what people call risk-on, when the market loves to take risks, loves to chase yields. But fundamentally, data coming from China for July were miserable.” Even after the rally, the city’s stocks are inexpensive relative to global peers. The Hang Seng Index is 45 percent cheaper than the MSCI AllCountry World Index’s 21.5 times reported earnings. The Hong Kong gauge is still 20 percent below last year’s April high.
Catch-up rally
“Valuation for Hong Kong equities is still very reasonable if not compelling, so the fundamental support is there,” said Sandy Mehta, chief executive officer of Hong Kong-based advisory firm Value Investment Principals. “It will be more of a catch-up rally from a position of excessive pessimism, rather than a new bull market.”
‘The Hong Kong gauge is still 20 percent below last year’s April high’ Shares will struggle to extend their gains for long amid a weak domestic economy and uncertainty over U.S. interest rates, according to Ronald Wan, chief executive of Partners Capital International Ltd. in Hong Kong. Retail sales in the city have declined for 16 straight months as a weakening yuan and an anti-graft campaign drew fewer mainland Chinese tourists to the city’s shops. BNP Paribas projects the city’s joblessness to grow while the economy will flirt with deflation next year, according to a note dated Wednesday. “I don’t think things can be too impressive in the medium term,” Wan said. Bloomberg News
Hong Kong Stock Exchange trading floor
Reform
Premier eyes innovation to drive less-developed areas Li said China will increase support for small firms and start-ups to generate more jobs for college graduates. Premier Li Keqiang has stressed the need for more reforms and innovation to boost economic growth in the less-developed central and western China. “China’s central and western parts have ample room for the economy
‘Li also promised increased policy support for agriculture and to step up the renovation of dilapidated residences’
Premier Li Keqiang
to expand and can be important in accelerating the shift of economic engines,” Li said during a tour of Jiangxi Province. During the three-day tour which ended on Wednesday, the premier visited high-tech firms, industrial
parks, rural residences and flood control sites. Li praised a new business model of Farasis Energy (Ganzhou) Inc., a joint venture of U.S.-based lithium ion battery maker Farasis Energy. The company cooperates with domestic manufacturers to produce customized equipment. “The new model upgrades traditional equipment manufacturing and will create enormous industrial demand,” Li said, adding that it should
be promoted in the “Made in China 2025” program. Li also visited Nanchang’s Lattice Power Corporation, the first company in the world to offer volume production of high-powered silicon substrate-based LEDs. The premier encouraged innovators at the company and promised more policies to help innovation and entrepreneurship and step up the industrial application of new technology. During a visit in an industrial park that serves architects and designers, Li said China will increase support for small firms and start-ups to generate more jobs for college graduates. During a tour of Huangsha Village in Ruijin, one of Jiangxi’s old revolutionary bases, Li said the government will continue to improve rural infrastructure and encourage areas to nurture their own special industries. Farmers of Huangsha have managed to increase the market share of their naval oranges using the Internet. Li also promised increased policy support for agriculture and to step up the renovation of dilapidated residences. When inspecting a flood control project in Nanchang, the premier said there are still weak points in water conservancy and China will make more efforts to reinforce reservoirs, improve river control and prevent waterlogging in cities. Regions along the Yangtze River were battered by continuous downpours this summer, with many villages flooded due to poorly-maintained small dikes on tributaries. Xinhua
Business Daily Friday, August 26 2016 11
Asia Private poll
Majority of analysts see Bank of Japan easing in September More than three years of “Abenomics” have so far failed to generate a sustainable return to inflation and growth. Kaori Kaneko and Sumanta Dey
A
majority of economists expects the Bank of Japan (BOJ) will ease policy further next month, a Reuters poll found, while many respondents suspect a change in its inflation target terminology is likely. But about 40 per cent of analysts surveyed said they expected the central bank to keep monetary policy unchanged, showing analysts’ expectations are close to evenly divided. Faced with stubbornly low inflation and new fiscal spending by Prime Minister Shinzo Abe, the BOJ increased its purchases of exchange-traded funds (ETF) in July and said it would review its policies in September, steps that fell short of expectations. BOJ Governor Haruhiko Kuroda was quoted on Saturday saying that negative interest rate policy had not reached its limits and the central bank would consider whether to make any changes to its 80 trillion yen (US$798 billion) per year asset-purchase plan next month. Asked how the September review might influence BOJ policy decisions, 14 of 24 economists said it would lead to further easing, nine saw no change, and one expected a tapering of the BOJ’s stimulus drive, the poll taken Aug 16-24 found.
Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, said the BOJ was likely to slightly tweak its current quantitative easing programme and negative rate policy. “It could include a change of its monetary base target to make a range and increase corporate bond purchases,” he said. “The central bank is likely to freeze its minus 0.1 per cent negative rate.” Economists who pencilled in easing for September were, however, split on what precise steps the BOJ was
likely to take. Two economists nominated a further deepening of negative interest rates while two others opted for an expansion of commercial paper and corporate bond buying. Four said the central bank would combine additional asset purchasing and a deepening of negative rates. Six economists said they expected the BOJ would overhaul its current policy framework. Fifteen of 28 analysts who answered a separate question in the latest survey said the BOJ would adopt flexible terms on the timing for reaching its inflation target. Three said it would switch its policy to target interest rates instead of the monetary base, while the remainder
BOJ Governor Haruhiko Kuroda was quoted on Saturday saying that negative interest rate policy had not reached its limits
opted for other means such deepening negative interest rates. “There is a chance that the BOJ will no longer state a specific time to meet its price target and will change the timeframe target to a mid- to long-term objective” said Takumi Tsunoda, senior economist at Shinkin Central Bank. “In that case, the BOJ won’t come under pressure to ease policy every time it cuts inflation forecasts.” The poll’s consensus was for the BOJ to keep its -0.1 per cent interest rate steady this year and the next. More than three years of “Abenomics” - policies that rely on aggressive monetary easing, spending and reform - have so far failed to generate a sustainable return to inflation and growth. That failure pushed Abe to announce 13.5 trillion yen in fiscal stimulus earlier this month, something Japanese companies overwhelmingly say will do little to boost the economy, according to a separate Reuters poll this week. The BOJ has shifted the timing of its inflation goal several times since it implemented aggressive policy easing measures in 2013 under Governor Kuroda, as part of Abenomics, and it now expects to hit the target during fiscal 2017, which many analysts think would be difficult. The poll found that the core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, is expected to fall 0.1 per cent this fiscal year to next March but will rise 0.7 per cent in fiscal 2017, albeit less than half the BOJ’s target. Core CPI fell 0.4 per cent in June from a year ago, a fourth straight monthly fall, and is expected to slip again in July data due out on Friday. Reuters
Debt control
South Korea encourages stricter loan screening Yesterday’s statement expands the July 2015 measures, which require banks to impose stricter standards in assessing a home buyer’s ability to repay a loan. Jiyeun Lee
South Korea’s government said it will introduce risk management practices for some types of real estate loans as household debt has climbed to a new record. The government will encourage banks to impose stricter loan screening for so-called collective loans by buyers of new apartments, which have led recent mortgage growth, according to a joint statement from government ministries yesterday. The pace of household debt has accelerated in recent years as the Bank of Korea (BOK) lowered rates to unprecedented levels and the government eased property regulations to support the economy. The booming property market has played a key role in sustaining the economy, yet mounting debt is a risk if households are unable to repay the loans. Governor Lee Ju Yeol said at a press briefing this month that the BOK is monitoring debt growth as it raises risks to financial stability and that
previous measures on stricter loan screening haven’t yet had meaningful results. Household debt including credit purchases rose by 33.6 trillion won (US$30.1 billion) in the second quarter to 1,257.3 trillion won, the central bank said yesterday in a separate statement. The government said it will manage the supply of housing on lands offered by Korea Land & Housing Corp. to maintain an appropriate level and encourage borrowers of long-term “jeonse” rentals to take out amortized loans.
Debt quality
An increase in the supply of new homes can lead to oversupply, raising concerns about deterioration in quality of debt if risks to the housing market grow, the government said, adding that supply needs to be managed. “Today’s measures show the government’s focus is on managing and reducing the volatility of the longterm housing supply,” said Kim Duck Rye, a research fellow at Korea
Housing Institute. “The changes could affect collective loans, depending on how strongly banks start checking borrowers’ income.” The growth in mortgages to individual borrowers slowed in the first half of 2016, while loans made via collective lending accelerated, the government statement showed.
Collective loans refer to those made by banks to a group of people who buy units in the same apartment. These loans, which weren’t restricted by previous government measures on household debt, increased as the supply of new apartments soared. Yesterday’s statement expands the July 2015 measures, which require banks to impose stricter standards in assessing a home buyer’s ability to repay a loan and encourage fixed-rate, amortized mortgage loans. Bloomberg News
“Today’s measures show the government’s focus is on managing and reducing the volatility of the long-term housing supply” Kim Duck Rye, a research fellow at Korea Housing Institute Governor Lee Ju Yeol said at a press briefing this month that the central bank is monitoring debt growth
12 Business Daily Friday, August 26 2016
Asia Markets
Indonesian stocks dally at peak as investors fear tipping point Foreigners bought a net US$2.98 billion of Indonesian stocks in the year to August 23. Fransiska Nangoy
I
ndonesian stocks are on a roll - with 18 per cent gains this year and a boost from President Joko Widodo’s economic reforms - and yet, investors worry about buying more of a market hitting historic peaks. The Jakarta Composite Index is Asia’s second-best performer in dollar terms this year but its winning streak has turned share valuations uncomfortably rich. The ratio of the average price to 12-month forward earnings for Indonesia’s MSCI index, or the PE ratio, is 16.44 - well above its historical average of 12.4 and at its highest since 1999. The rally has come at a time when policymakers are more conservative about growth projections for Southeast Asia’s largest economy even though the economy surprised on the upside in the second quarter helped by solid consumption. Lower fiscal spending, weak corporate earnings and uncertainties over the success of the government’s tax amnesty programme aimed at improving state revenue are now clouding Indonesia’s growth prospects. “Everybody is nervous because of that, and valuation has peaked
for now,” said Ivan Chamdani, fund manager with Maybank Asset Management in Jakarta. “As a relative fund manager, I think it’s wise to reduce volatility due to climbing valuation, but no reason yet to raise your cash levels.” The stock market PE ratio is trading well above the first standard deviation of its historical mean, which hints at it being overbought, and above levels at which it reversed trend in 2007, 2013 and 2015. The stock run has been encouraged by a stable currency, expectations
the tax amnesty will bring home billions of dollars, appointment of a reformist finance minister and a delay in the U.S. Federal Reserve’s possible rate rises. Foreigners bought a net 39.47 trillion rupiah (US$2.98 billion) of Indonesian stocks in the year to August 23, their purchases jumping threefold in the weeks after the tax amnesty bill was passed in late June. Yet, memories of the shock market sell-off in 2013, when the Fed first raised the possibility of tapering its stimulus, and China’s surprise yuan devaluation in 2015, are making investors chary. Earnings too have not kept pace with expectations. Conglomerate PT
Astra International, the fifth-largest by size on the Jakarta index, has been posting profit declines since 2014 and its profit in the first half of 2016 fell 12 per cent. Property firm PT Lippo Karawaci’s first-half profit fell 36 per cent. Indonesia’s growth this year has been around 5 per cent. Newly-appointed Finance Minister Sri Mulyani Indrawati has warned that reaching a targeted 5.2 per cent growth this year would be tough, while the central bank lowered its growth estimate.
Key Points Surge in Jakarta index has turned share valuations rich Valuations may have peaked for now, says fund manager Motorbike, instant noodle sales may provide economic clues Investors are waiting for clarity. “The market should move within a narrow range as long as there’s no significant headwind,” Chamdani said. Bharat Joshi, director at PT Aberdeen Asset Management in Jakarta, said he would like to see some recovery in motorbike sales and instant noodles sales, which would indicate a pick-up in domestic consumption. Motorbike sales in August fell 28 per cent from a year earlier. “Earnings have to deliver. I’m going to look for another credible earnings improvement,” Joshi said. “Otherwise, if the third quarter disappoints, maybe the market will be bound for a crash.” Reuters
Energy sector
Thailand embarking on LNG shopping spree Bangkok is about to become a very important destination for sellers of liquefied natural gas. Supunnabul Suwannakij, Tony Jordan and Dan Murtaugh
In an oversupplied market where prices have cratered and new longterm contracts are rare, Thailand’s national oil company is bucking the trend and planning to go on a shopping spree. PTT PCL Chief Executive Officer Tevin Vongvanich hopes to nearly quadruple import capacity and said he plans to sign long-term agreements with several suppliers by the end of the year that would more than double what the country currently imports. “We’re taking the opportunity of the buyer’s market situation of the LNG at this stage to secure a few more long-term contracts,” he said in an interview at his office in Bangkok. “It’s the sale time now for LNG, so we’re doing our shopping.” The buying binge couldn’t come
at a better time for LNG sellers. Spot LNG prices in Southeast Asia have fallen 62 per cent since October 2014 as new export terminals have created a supply glut, while large buyers like Japan and South Korea have reduced demand. Thailand doubled LNG imports last year to 2.7 million tons, about 1.1 per cent of global trade, according to the International Group of LNG Importers. The country will boost imports to 3 million tons this year, Tevin said.
Committed volume
PTT signed a long-term contract in 2012 to buy 2 million tons of LNG a year from Qatar. Tevin said he’s looking to diversify by seeking to add about 3 million tons a year of committed volumes from other suppliers. “We were a bit fortunate that we didn’t commit before the price
“It’s the sale time now for LNG, so we’re doing our shopping” Tevin Vongvanich, PTT PCL Chief Executive Officer
a large LNG exporter in the future which match very well with the situation of Thailand where we need to look for additional import volume of LNG,” he said. “LNG is a grand strategy for the PTT Group at the moment.” Bloomberg News
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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collapsed, so we have that flexibility of shopping around,” Tevin said. “Currently a lot of people have been knocking on our doors for the longterm contracts.” PTT is doubling the annual capacity of its import facility to 10 million tons this year and will later increase it to 11.5 million tons. Further expansion plans, including adding a second terminal, with its size pending cabinet approval, would further boost capacity to as much as 19 million tons a year. The terminal upgrades alone could cost US$1 billion to US$2 billion, Tevin said. Bloomberg New Energy Finance expects Thailand’s imports to exceed 16 million tons a year by 2030. “For Thailand, we’re obviously the energy importing country,” he said. “We’re also looking at not just the demand growth in the natural gas consumption, but also our natural resources declining because we have been producing for over 30 years. So, naturally the supplementary supply from LNG is negligible and it will
grow more and more.” PTT’s upstream unit, PTT Exploration & Production PCL, is also playing a role in the company’s LNG strategy. The drilling arm of the company owns an 8.5 per cent stake in a 5,000-square-mile patch in the Rovuma offshore area in Mozambique. Tevin sees Mozambique as the next Qatar as the country has found sizable gas resources, which is an opportunity for its LNG strategy. “They have potential to become
Business Daily Friday, August 26 2016 13
Asia In Brief Trade
Philippine imports grow 15.4 pct Philippine merchandise imports grew by 15.4 per cent in June, making the Philippines one of Asia’s top imports performers for the first half of 2016, a government agency said yesterday. The National Economic and Development Authority (NEDA) said that total payments rose to US$6.9 billion from US$5.9 billion in June 2015. For the first half of 2016, the agency said total imports rose by 17.7 per cent to US$38.7 billion. Inward shipment of capital goods grew by 64.6 per cent in June 2016, amounting to 2.2 billion U.S. dollars, it added. Monetary outlook
Maybank does not rule out another rate cut this year
Consumption
Japanese seek bargains as economy flags The mood among businesses has deteriorated to pre-Abenomics levels. Leika Kihara
Three years of so-called “Abenomics”, Japanese Prime Minister Shinzo Abe’s bold stimulus programme, has failed to dislodge a deflationary mind-set among businesses and consumers. As the world’s third-largest economy falters again - with a stronger yen gnawing at overseas profits and domestic consumption sapping companies’ confidence to invest or sufficiently raise wages - firms that increased their prices in the hope of a sustained recovery are rethinking their strategy. Many consumers, with little extra to go around, are opting for cheaper products - welcome news for the discount retailers who flourished during two decades of economic stagnation. Housewife Yuko Narita, 48, says she is tightening the family purse strings and scouting around for sales on daily goods and clothing. “There’s a sense the economy is stalling and companies’ earnings are bad this year, so I’m holding off from spending on big items,” she said. Nobuko Jin, a 75-year-old parttime worker who receives some pension, says she is cutting back and just buying necessities. “I get the feeling prices are creeping up. I wonder where the benefits of Abenomics are going. I’m trying to spend less,” she said. Discount store operator Don Quijote Holdings, which sells everything from cosmetics and clothing to toilet paper, has seen business revive as the economy loses momentum. It expects operating profit to rise more than 4 per cent in the year to next June. “Household spending won’t be strong. That’s when consumption centres on discount stores, so it’s a tailwind for us,” said Mitsuo Takahashi, the firm’s chief financial officer. Restaurant chain operator Skylark Group has cut prices on some items and is offering more cheap
lunch menus to lure family diners. And Fast Retailing Co, owner of the Uniqlo casual wear brand, reversed course this year after two years of price hikes hurt its clothing sales. Its latest quarterly operating profit rose 18.6 per cent. “We’ll continue with our (new) strategy and bring down prices this autumn and winter,” said Ken Okazaki, the company’s chief finance officer. At discount furniture and home accessories retailer Nitori Holdings, chairman Akio Nitori said his company won’t raise prices. “Once you lose consumers to your competitors with price hikes, it’s hard to lure them back,” he said.
“Renewed fears of deflation”
Japan’s growth stalled in April-June, exports fell last month at the fastest pace since the global financial crisis, and the mood among businesses has deteriorated to pre-Abenomics levels. This all makes it tougher for policymakers, already struggling to fend off external risks, to shift Japan’s deflationary mind-set. The gloom is broadening beyond exporters hit directly by the renewed strength of the yen, which drove down the U.S. dollar to around 100 yen - some 25 per cent below levels a year ago. “We’re seeing renewed fears of deflation as the environment surrounding consumption is worsening,” said Akihiro Ito, senior executive officer at beverage maker Kirin Holdings. Isetan Mitsukoshi, Japan’s biggest department store chain by sales, has seen demand for high-end goods, which surged in the early days of Abenomics, slow this year. “Some expensive goods still sell well so it’s not like we’re back to the old days,” said CEO Hiroshi Ohnishi. “But the deflationary mind-set appears to be returning.” Abe’s administration insists the economy has emerged strongly from stagnation thanks to its mix of fiscal,
monetary stimulus steps and structural reforms. Indeed, the economy grew 2 per cent in fiscal 2013 as hopes for Abenomics bolstered Tokyo stocks and pulled the yen off record highs. But it has barely recovered from the hit to consumption from a sales tax hike in April 2014, contracting 0.9 per cent in fiscal 2014 and growing just 0.8 per cent in the year to end-March. Analysts predict, at best, feeble growth in the current quarter as both exports and consumption limp along. “I haven’t felt like I got the benefits of Abenomics strongly,” said Makoto Etani, a 45-year-old office worker in Tokyo. “I do feel there are specific kinds of people who benefited, but it’s not spread evenly throughout society.”
“Some expensive goods still sell well so it’s not like we’re back to the old days... But the deflationary mind-set appears to be returning.” Hiroshi Ohnishi, CEO of Japan’s biggest department store chain Isetan Mitsukoshi Abe has this month announced a plan for a 13.5 trillion yen (US$135 billion) fiscal stimulus package that includes pay-outs to low-income households in a renewed effort to spur growth. The Bank of Japan also eased policy last month, and may take further steps next month as it reviews its policies. But companies polled by Reuters overwhelmingly say the fiscal package, focused on public works spending, will do little to boost growth. Reuters
Malaysia’s biggest lender Malayan Banking Bhd (Maybank) is not ruling out another 25-basis-point rate cut by the central bank this year, its chief executive Abdul Farid Alias told reporters yesterday following the bank’s quarterly results. Last month, Bank Negara Malaysia surprised markets by cutting its overnight interest rate by 25 basis points to 3.00 per cent, the country’s first rate cut since 2009. The central bank governor later told state news agency Bernama that the rate cut was a “pre-emptive move” to ensure solid 2016 growth and it was “not true” there would be a series of rate reductions. GMO
Indian Government panel clears modified mustard A government panel has cleared commercial use of what would be India’s first genetically modified (GM) food crop, but the political establishment will still have to give final approvals amid wide-spread public opposition to the technology. Technical clearance for indigenously developed GM mustard seeds was given on August 11 by the panel of government and independent experts following multiple reviews of crop trial data generated over almost a decade, said two sources with direct knowledge of the matter. The decision to go ahead is likely to be made public soon by the environment ministry’s Genetic Engineering Approval Committee. Diary R&D
NZ invests in developing sheep milk industry The New Zealand government said yesterday that it is investing in sheep milk research with the aim of building new export markets, particularly in Asia. Primary Industries Minister Nathan Guy said the government had agreed a six-year partnership between the privately-run Spring Sheep Milk Co. and the Ministry for Primary Industries (MPI) with a value of 31.4 million NZ dollars (US$22.98 million). “It will involve new genetics, new farming systems and developing high premium niche products. New Zealand operators will be involved in all parts of the value chain,” Guy said in a statement.
14 Business Daily Friday, August 26 2016
International In Brief Probe
South African President supports finance minister South African President Jacob Zuma expressed “full confidence” in Finance Minister Pravin Gordhan, while saying he has no power to halt the probe into allegations that he established an illicit investigative unit during his tenure as head of the national tax agency. The presidency issued the statement after Gordhan refused a request by a special investigative unit known as the Hawks to appear at its offices yesterday for questioning, saying he had done nothing wrong. The rand and South African bonds strengthened, paring declines over the past two days. Recapitalization
EU and Portugal agree bailout for CGD bank The European Commission and Portugal said Wednesday they have agreed on a 5-billion-euro deal to recapitalise the state-owned Caixa Geral de Depositos (CGD) bank, including through a 2.7-billion-euro injection of state funds. The deal was provisionally approved by European Union competition chief Margrethe Vestager to meet the 28-nation bloc’s tough rules on preventing unfair government aid for businesses. Portugal’s banks have been under huge stress after the collapse of the country’s major lender Banco Espirito Santo in 2014 due to years of risky lending.
Ifo index
Brexit hits German business morale A record influx of migrants has led to the strongest rise in state spending since the financial crisis in 2008. Michael Nienaber
G
erman business morale deteriorated sharply in August posting the steepest monthly drop since the height of the euro zone debt crisis in 2012, a survey showed yesterday, in a sign that Brexit has weighed more heavily on sentiment among executives. The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, fell to 106.2 in August from 108.3 in July. That was the lowest reading since February and the sharpest monthly fall since spring 2012. The headline figure came in weaker than the Reuters consensus forecast for a rise to 108.5 “Business confidence in Germany has clearly worsened,” Ifo head Clemens Fuest said in a statement. “The German economy has fallen into a summer slump.”
A separate index measuring corporate expectations in Europe’s biggest economy over a six-month horizon fell to 100.1. This was the lowest since October 2014, suggesting many firms expect economic headwinds. “Brexit had a stronger effect now,” Ifo economist Klaus Wohlrabe told Reuters, adding that business expectations deteriorated the most in sectors with relatively strong ties to the British market, such as chemicals and automobiles. A sector breakdown showed that the weaker headline figure was driven by deteriorated sentiment in manufacturing, wholesaling and retailing. In construction, the business climate remained at a record level, while domestic tourism boomed due to geopolitical crises abroad suggesting that the domestic economy is still doing well. ING Bank economist Carsten Brzeski
Labour conditions
2,000 Angolan port workers strike over pay More than 2,000 employees at Angola’s second biggest port in Lobito have downed tools after going without pay for four months, striking workers said Wednesday. “We have families and it’s now four months since we have seen the colour of our money,” one striker Sebastiao Domingos told AFP. “Our employer promised to pay us last month but we haven’t seen anything.” The strike action at Lobito, a state-run port which lies about 400 kilometres south of capital Luanda and handles mainly crude oil, began on Tuesday. Official data
Spanish economy beats growth forecast The Spanish economy overcame the country’s political impasse to grow more than forecast in the second quarter, keeping the pace of the recovery alive. Output grew 0.8 per cent in the three months through June, the Madrid-based National Statistics Office said yesterday, beating an initial reading of 0.7 per cent expansion. The median estimate of economists in a Bloomberg survey also called for 0.7 per cent growth. From a year ago, the economy expanded 3.2 per cent, while adding about 484,000 new jobs. Household consumption jumped 0.7 per cent in the three months through June, the statistics office said.
said the German economy’s virtuous circle was still continuing. “However, without any new structural reforms and investments, it remains a virtuous circle on steroids,” he added. “Not the kind of steroids that could lead to a ban from the global economy but stimulus that mainly stems from two - in Germany heatedly debated - factors: refugees and the ECB.” A record influx of migrants has led to the strongest rise in state spending since the financial crisis in 2008. At the same time, rock-bottom interest rates continue to support private consumption and the construction sector.
Key Points Business climate index falls unexpectedly to 106.2 in August Biggest monthly drop since 2012, weakest reading since Feb Ifo economist: “Brexit had a stronger effect now” Corporate expectations hit lowest in nearly two years The German economy grew 0.4 per cent on the quarter between April and June, driven by higher exports, rising state spending and strong private consumption, after a mild winter helped it expand 0.7 per cent between January and March. The continued upswing generated a record budget surplus in the first half of this year, allowing Finance Minister Wolfgang Schaeuble (pictured) to increase state spending on roads, housing, digital infrastructure and migrants ahead of federal elections in 2017. Berlin expects domestic demand to drive overall growth of 1.7 per cent this year which would be on a par with last year. Exports are unlikely to contribute much to overall growth as demand from major trading partners like the United States and France wanes and orders from emerging markets such as China slow. Reuters
ILO
Youth unemployment swelling worldwide In terms of development status, emerging countries were expected to see unemployment among 15-to 24-year-olds grow the most. The number of unemployed young people is set to swell by 500,000 worldwide this year to reach 71 million, marking the first hike in three years, the UN said Wednesday. In a new report, the UN’s labour agency estimated that the global youth unemployment rate would reach 13.1 per cent in 2016, up from 12.9 per cent in 2015, and nearing its 2013 record high of 13.2 per cent. The increase “is driven by a deeper than expected recession in some key emerging commodity-exporting countries and stagnating growth in some developed countries,” said Steven Tobin, a senior economist at the International Labour Organization and the lead author of the report. The situation was meanwhile expected to stabilise in 2017, according to the ILO report. Perhaps of greater concern th a n st u b b o r n l y h i g h y o u th unemployment, the report warned, was that more than a third of young people who have a job are living in extreme or moderate poverty, compared to just over a quarter of working adults. Breaking down the numbers by region, the report showed that Arab states - hard-hit by a range
of geopolitical tensions - count the world’s highest youth unemployment rate, at above 30 per cent. Within the region, young people in oil-exporting countries like Oman, Qatar and Saudi Arabia were expected to face the greatest jobless rates amid a slowdown in growth and tighter fiscal policies, the report said. North African countries also registered a youth unemployment rate near the 30-per cent mark.
Working poor
In terms of development status, emerging countries were expected to see unemployment among 15-to 24-year-olds grow the most, rising from 13.3 per cent in 2015 to 13.6 per cent this year, affecting 53.5 million people, the report found. The world’s most developed nations meanwhile count the highest youth unemployment rate, at 14.5 per cent, affecting 9.8 million people, with the situation expected to improve only slightly next year to 14.3 per cent. But the report stressed that this “does not reflect more favourable labour market conditions” in emerging and developing countries. Instead, it indicates that “young people in these countries must often
work, typically in poor-quality and low-paid jobs in order to provide basic necessities,” it said. In fact, some 156 million working youths in emerging and developing countries are currently living in extreme poverty, meaning they have less than US$1.90 a day, or in moderate poverty, which means they have to make do with under US$3.10 a day.
“It will be very difficult to reach the goal that we have set to end poverty by 2030” Steven Tobin, a senior economist at the International Labour Organization “Given this twofold story of rising unemployment rate on one hand and a persistently high working poverty rate on the other hand it will be very difficult to reach the goal that we have set to end poverty by 2030,” Tobin told reporters, referring to one of the UN’s new targets for sustainable development. He insisted the world needed to “redouble our efforts to achieve sustainable economic growth and decent work, including for youth.” AFP
Business Daily Friday, August 26 2016 15
Opinion Business Wires
Bangkok Post Thailand’s domestic car sales are expected to recover to 800,000 vehicles next year thanks to higher income for farmers and the expiry of five-year ownership conditions for the government’s firsttime car buyer scheme. Pimonwan Mahatchariyawong, deputy managing director of Kasikorn Research Centre, said the country’s car market is likely to start recovering in 2017 after four straight years of contraction. The research house forecast overall farmers’ income to edge up 3 per cent next year to around 800 billion baht. Kasikornbank’s research house also projected the country’s economy to grow by 3 per cent this year and 3.3 per cent next year.
pfala via Foter.com / CC BY-ND
The easy money contagion The Star CIMB Bank Bhd has entered into an agreement with China Construction Bank Corp (CCB) to facilitate crossborder investments in both countries (Malaysia and China). Under the new deal, CIMB said CCB would act as its subcustodian bank in China to clear, settle and safe keep Chinese shares, bonds and other investment products on behalf of the Malaysian bank and its clients. A Memorandum of Understanding (MoU) was also inked, whereby CCB agreed to appoint CIMB as its sub-custodian bank to clear, settle and safe keep its customers’ investment portfolio in Malaysia.
Thanh Nien News Actual foreign direct investment (FDI) inflows into Vietnam reached an estimated US$9.8 billion in the first eight months of this year, up 8.9 per cent from a year ago, the Planning and Investment Ministry said. New FDI pledges in the January-August period rose 7.7 per cent from a year ago to US$14.4 billion, with most of the funds going to manufacturing, processing and real estate projects, the ministry said in a report posted on its website on Tuesday. Vietnam is forecast to receive FDI of up to US$15 billion this year, after getting a record high US$14.5 billion in 2015, buoyed by strong economic growth and the finalisation of several free-trade accords.
The Asahi Shimbun Researchers have begun a study to determine if traveling can increase a person’s happiness and ward off dementia. The study, which started in July, is being conducted by travel agency Club Tourism International Inc. and Tohoku University’s Institute of Development, Aging and Cancer. The researchers will examine the changes in individuals aged 60 or older before and after trips over a period of three years as it can be assumed that healthy people tend to travel more often. Travellers aged 60 or older account for 65 per cent of Club Tourism’s customers.
T
o consider the actions taken by the world’s major central banks in the past month is to invite an essential question: when – and where – will all this monetary easing end? At the end of July, the Bank of Japan announced that it would maintain its current negative interest rates and bond-buying program. At the same time, the BOJ pledged that it would nearly double its annual purchases of equity-traded funds, from ¥3.3 trillion (US$32.9 billion) to ¥6 trillion. And yet the announcement of a monetary-policy package that in a different era would have been considered inconceivably accommodative, actually disappointed financial markets. To the chagrin of Japanese policymakers, the yen strengthened against major currencies. Then, in early August, the Bank of England cut borrowing costs, boosted its quantitative easing (QE), and committed an extra £100 billion (US$131 billion) to encourage banks to lend. Responding to the pound’s significant depreciation against the US dollar and other currencies following the United Kingdom’s vote in June to leave the European Union, the BoE indicated the move was a pre-emptive effort to mitigate the recessionary pull of Brexit. In response to the new monetary stimulus, the London stock market surged and the UK pound slid further. In the same week, the Reserve Bank of Australia cut its benchmark interest rate to a record-low 1.5 per cent. The minutes of that meeting suggest that the cut was primarily aimed at heading off currency appreciation in anticipation of further interest-rate cuts and QE around the world. Members cited a “reasonable likelihood of further stimulus by a number of the major central banks.” In a similar vein, the Reserve Bank of New Zealand cut its policy rate 25 basis points, to 2 per cent, to counter deflationary forces and restrain the appreciation of the New Zealand dollar. In this case, the interest-rate cut took place against a backdrop of solid economic growth and a hot housing market. The world has been here before, only the names have changed. In his classic 1944 book International Currency Experience, Ragnar Nurkse argued that reflationary policies following the collapse of the gold standard of the 1920s operated by lowering currencies’ foreign exchange value, with the 1931 devaluation of the British pound unleashing a spate of competitive devaluations worldwide. While it is commonly believed that the devaluations were intended to “beggar thy neighbour,” Nurkse pointed out that they were often accompanied by expansionary monetary policy, which benefited world trade. The rationale for favouring weak currencies was that a competitive exchange rate would prevent a further contraction in domestic output and prices (deflation). The aim was to substitute external demand, in the form of an improvement in net exports, for deficient domestic demand.
“
Carmen Reinhart a Professor of the International Financial System at Harvard University’s Kennedy School of Government
We no longer live in a world dominated, as Nurkse’s was, by fixed exchange rates. The term “devaluation” is not appropriate when describing currency fluctuations within a system of floating exchange rates. Yet the recent spate of central bank actions and their timing (notwithstanding considerable diversity in terms of domestic economic conditions) suggests that interest-rate cuts and nonconventional forms of easing, if not competitive, are certainly contagious. This observation is not intended to imply that the general direction of monetary-policy accommodation is inappropriate. The prospect of deflation is a threat to prosperity and financial stability, particularly for countries with low growth and high levels of public and private debt. But the contagious nature of the rate cuts does raise the question of whether domestic monetary policies have once again become more interdependent. It would seem that among many of the world’s largest central banks, no one wants to be the one with the strong currency. This, at least, is reminiscent of Nurkse’s era. Where does this leave other major central banks? Top Chinese officials have recently begun to call for the People’s Bank of China to cut interest rates and lower reserve requirements. As for the United States, the Federal Reserve faces competing pressures. Strong recent job growth, including long-awaited gains in middle-wage employment, is a positive sign for the US labour market, and wage growth and so-called core inflation are firming. At the same time, employment gains have not translated into proportionately higher output, as productivity remains depressed, while inflation expectations remain subdued. Although the links between economic fundamentals and currency movements are elusive, it seems plausible to expect that a more hawkish path for the Fed would mean living with a stronger US dollar. But will it? The deterioration in US net exports already trimmed about 0.8 percentage points from real GDP growth in the first quarter of 2016 (largely at the expense of manufacturing). Indeed, the US current-account deficit is widening once again just as Germany’s current-account surplus is expected to hit a high of about 8.5 per cent of GDP this year (about three times China’s ratio). All of this, together with the wave of central bank accommodation worldwide (and prospects for more of the same), would seem to tilt the balance toward a more gradualist Fed approach to unwinding QE. In other words, when it comes to global monetary easing, the buck may not stop at the Fed. With so much depreciation worldwide, why would the US want the dubious honor of a strong dollar? Project Syndicate
It would seem that among many of the world’s largest central banks, no one wants to be the one with the strong currency
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16 Business Daily Friday, August 26 2016
Closing Automobile revolution
First driverless taxi hits the streets of Singapore
The first driverless taxi began work yesterday in a limited public trial on the streets of Singapore. Developer nuTonomy invited a select group of people to download their app and ride for free in its “robo-taxi” in a western Singapore hitech business district, hoping to get feedback ahead of a planned dull launch of the service in 2018. “This is really a moment in history that’s going to change how cities are built, how we really
look at our surroundings,” nuTonomy executive Doug Parker told Reuters. The trial rides took place in a Mitsubishi i-MiEv electric vehicle, with an engineer sitting behind the steering wheel to monitor the system and take control if necessary. The trial is on an on-going basis, nuTonomy said, and follows private testing that began in April. Parker, whose company has partnered with the Singapore government on the project, said he hoped to have 100 taxis working commercially in the Southeast Asian citystate by 2018. Reuters
Shadow banking
China’s big P2P platforms shrug off crackdown Industry officials said borrowers and lenders were in any case likely to find ways around the restrictions. Elzio Barreto and Sue-Lin Wong
C
hina’s bid to tame its peerto-peer (P2P) lending sector could cost smaller platforms some business, but the impact on larger players will be limited, and some of the new restrictions will be hard to enforce, analysts and industry players said. Regulators unveiled a series of measures on Wednesday night to head off signs of rising risks in its fast-growing P2P market, including borrowing limits and forcing P2P platforms to use third-party banks as custodians of investor funds. China’s P2P and online finance industry has boomed in recent years, but growth is slowing after a series of scandals and multi-billion dollar failures. The regulator’s announcement knocked 22 per cent off the New York-listed shares of Chinese P2P lender Yirendai Ltd overnight, while Chinese stocks fell to a two-week low yesterday, weighed by banking shares on concerns over the crackdown on riskier lending practices. But many larger P2P companies including Lufax, Yirendai, PPDAI and Dianrong.com, say they already comply with many of the new requirements, so could benefit from the restrictions. “Before the rules were released, people didn’t have judgement on which platform is good, but now they can understand it. Investors will definitely withdraw money from the platforms which are violating the rules,” said Cliff Zhang, chief executive of China’s oldest P2P lender PPDAI. China’s government for years maintained a hands-off approach to promote alternative sources of
funding for consumers and small businesses, which often struggle to get credit from banks and other mainstream financial institutions. The volume of P2P loans surged more than 20 times to 656.8 billion yuan (US$98.7 billion) at the end of July from just 30.9 billion yuan in January 2014, according to industry data provider Wangdaizhijia.
Nomura estimates that could reach 880 billion yuan by the end of 2016 and 1.5 trillion yuan by the end of 2018. P2P lenders have been discussing new rules with the government for several months in a bid to improve sentiment toward the sector, which took a big hit earlier this year when Ezubao, once China’s biggest P2P lending platform, folded. Ezubao turned out to be a Ponzi scheme that solicited 50 billion yuan in less than two years from more than 900,000 retail investors. The dialogue with government has given platforms the opportunity to
start preparing for the changes, and they have a year’s grace to implement some of them. “At the beginning of last year we started to transform our business model from SMEs to individuals, so now more than half of the loans we match are under this 200,000 yuan limit,” said Xie Qun, CEO of P2P platform Jimubox. “We’re confident with this oneyear grace period, we’ll be able to convert all this business to be compliant,” he added. Several lenders already segregate
“We’re confident with this oneyear grace period, we’ll be able to convert all this business to be compliant” Xie Qun, CEO of P2P platform Jimubox investors’ funds into custodial accounts with banks to prevent fraud, while for companies like Lufax, a typical unsecured loan would be in the 100,000 yuan to 200,000 yuan range, below the government cap. Industry officials said borrowers and lenders were in any case likely to find ways around the caps. “If you look at how China’s internet market has worked historically, people always find a way,” said Simon Loong, founder and CEO of WeLab, which operates a P2P platform in Hong Kong and Chinese mobile lending platform Wolaidai. “I don’t mean to try to beat the system, but people try to adapt their business model, find a way to survive with the customer base or information data they’ve already collected. People always find a way to survive.” Reuters
nayukim via Foter.com / CC BY
Exports
Regulator data
Results
Beijing cuts red tape to help Mainland banking sector processing trade sector onshore assets up
Bank of Communications holds back tide of bad loans
China will simplify bureaucratic government approval processes for its processing trade exporters to support the sector as it continues to contract amid a slowing economy. Processing trade exporters will no longer need to gain approvals from commerce authorities to secure contracts and sell bonded imports domestically, the Ministry of Commerce and Customs said in a joint statement yesterday. Processing firms typically import raw materials or components and re-export finished products. Processing trade made up 28.9 per cent of China’s total exports in the first seven months of the year, 2 percentage points lower than the same period a year ago, customs data showed. “Commerce departments at all levels and customs should collaborate closely and create a good environment for the development of process trade,” the statement said. The new measures will take effect starting from September this year. Reuters
Bank of Communications Co., China’s fifth-largest lender, held back a tide of bad debt in the second quarter but executives cautioned that it was too early to say that the worst was over. Nonperforming loans amounted to 1.54 per cent of total credit, the same as in the previous three months, the lender said at a briefing in Shanghai yesterday. Investors and analysts are monitoring Chinese banks’ second-quarter earnings for signs that the industry is getting on top of its bad loans, estimated by analysts to be much higher than the levels officially reported. While bad-debt risks are “controllable,” the situation remains severe, President Peng Chun said at a briefing. Yang Dongping, the chief risk officer, said that nonperforming loans were rising faster in some places - such as Shandong, Tianjin and Fujian - than others. Bank of Communications’s “special mention” loans, a term for credit in danger of going bad, stood at 3.07 per cent of total credit, down from 3.17 per cent six months earlier. The amount of overdue loans declined. Bloomberg News
Chinese banks held 212.7 trillion yuan (US$32.2 trillion) in onshore assets by the end of July, according to data released by the China Banking Regulatory Commission yesterday. The volume was up 14.5 per cent year on year, the banking regulator said. The combined onshore assets of China’s “big five” lenders - Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications - came in at 77.9 trillion yuan by the end of last month, accounting for 36.6 per cent of the total assets in the industry. By July, the lenders’ onshore liabilities rose 14.4 per cent to reach 196 trillion yuan, the data showed. Due to a cooling economy, China’s banks have seen profit growth slow in recent years. Earlier official data showed the net profits of commercial lenders reached 899.1 billion yuan during the first half of the year, up 3.17 per cent year on year. Xinhua