Fresher air recorded in 2015 Environment Page 5
Wednesday, October 26 2016 Year V Nr. 1159 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong
www.macaubusinessdaily.com
Gaming
Retail
Mobile payments
Hotels
Stocks surveillance
Sanum Investments pleased with investment treaty confirmation Page 7
Belle sales in MSAR, HK plunge Page 4
Alipay expands services for Chinese tourists to U.S. Page 10
Ritz-Carlton Macau appoints new GM Page 4
Global exchange operators oversee traders by artificial intelligence Page 16
Land Promises Politics
The city’s new land resources in the reclaimed urban zones will be prioritised for public housing, not for settling the govt’s 88,000 square-metre land debts, the Secretary for Transport and Public Works, Raimundo do Rosário again guaranteed yesterday at the Legislative Assembly. Page 5
Money, money, money
Stand by the currency
Top officials from the People’s Bank of China sent messages to ease worries about the Renminbi. While Ma Jun said the impact of the dollar hike on the Chinese currency would be limited, Yi Gang insisted that the RMB would remain broadly stable.
Society Increasing the annual cash handout from MOP9,000 to MOP12,000; higher amounts for medical coupons; higher allowances for continuous study; and salary hikes for public servants - these are the suggestions from the Macau Civil Servant’s Association to the Chief Executive for his 2017 policy address. Page 3
Fewer construction workers
Manpower The number of non-resident construction workers continued decreasing in September, down by 13.5 pct y-o-y, or 5.1 pct m-o-m, amounting to 39,347. The same month saw the city’s foreign workforce total 180,227, a slight decrease from August-end. Page 2
Still optimistic RMB Pages 8 & 10
HK Hang Seng Index October 25, 2016
23,565.11 -38.97 (-0.17%) Worst Performers
Galaxy Entertainment Group
+2.78%
Hang Lung Properties Ltd
+0.79%
Belle International Holdings
-9.14%
China Unicom Hong Kong
-0.96%
Sands China Ltd
+1.59%
Sun Hung Kai Properties Ltd
+0.78%
AAC Technologies Holdings
-3.94%
BOC Hong Kong Holdings
-0.89%
+0.69%
CLP Holdings Ltd
-1.25%
PetroChina Co Ltd
-0.88%
Henderson Land Develop-
+0.98%
Wharf Holdings Ltd/The
China Resources Land Ltd
+0.90%
AIA Group Ltd
+0.57%
CITIC Ltd
-1.04%
China Merchants Port Hold-
-0.72%
Ping An Insurance Group Co
+0.86%
Hong Kong & China Gas Co
+0.40%
Want Want China Holdings
-1.03%
Hengan International Group
-0.71%
26° 29° 25° 29° 25° 29° 22° 28° 23° 27° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Gaming Despite the visit by Chinese Premier Li Keqiang and the threat of two typhoons, gaming analysts are still confident that Macau’s casino revenue can register another year-on-year growth for October. Page 6
2 Business Daily Wednesday, October 26 2016
Macau In Brief Politics
CE to announce 2017 Policy Address on November 15 The Chief Executive Fernando Chui Sai On will announce the city’s Policy Address for the Fiscal Year 2017 on November 15 at the Legislative Assembly (AL), according to a press release published by the AL yesterday. The CE will take questions from legislators regarding the 2017 Policy Address at a Q&A session to be held the following day. Ella Lei Cheng I, vice-president of the Macao Federation of Trade Unions (FOAM) said on Monday that the CE had already confirmed the city’s social welfare benefits for next year would not be lower than that of this fiscal year. A.L.
Labour
Non-resident workers from the Philippines increase 9 pct y-o-y
Fewer non-resident construction workers Non-resident workers from the construction sector saw a significant year-on-year decrease in September Nelson Moura nelson.moura@macaubusinessdaily.com
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total of 180,277 nonresident workers were working in the Special Administrative Region as at the end of September, a slight decrease of one per cent, or 1,901, compared to the end of August,
according to the latest official data released yesterday by the Labour Affairs Bureau (DSAL). On a year-on-year comparison, the number of non-resident workers in September registered a slight decrease of 0.3 per cent, down from the 180,751 recorded in the same period last year. As at the end of September, the
Diplomatic
Mozambican prosecutorgeneral visits MSAR The Prosecutor-General of the Republic of Mozambique Beatriz Buchili arrived in the MSAR on Monday with her delegation, for a seven-day trip in the city. The Mozambican team will hold discussions with the MSAR government and exchange experiences relating to the judicial systems of the two places. The meetings will include discussions about the judicial progress in combatting crimes, administrative and judicial management, as well as training institutions. According to a press release from the Macau Prosecutor’s Office, the two parties have reached a consensus on strengthening contacts and enhancing co-operation. The Mozambican officials will later visit local judicial institutions such as the Court of Final Appeal. They will also pay a visit to Guangdong Province from October 27 to 28 before they complete their visit on October 29. C.U. Public works
Water Bureau studies mutual water quality supervision with delta region The Marine and Water Bureau (DSAMA), the Infrastructure Development Office (GDI) and the Environmental Protection Bureau (DSPA) have held their second joint meeting on water management with China’s Pearl River Water Resources Commission Ministry of Water Resources. The parties discussed the viability of the MSAR and China mutually supervising the water quality of waters nearby the city, in order to establish a long-term co-operation mechanism for water quality supervision. In addition, they also discussed the latest situation for building the city’s fourth crosssea bridge connecting the Peninsula and Taipa, as well as guidelines for seeking each other’s opinion on water-related infrastructure. C.U.
Finance
AL sub-committee wants more info on budget bill The second-standing committee of the Legislative Assembly kicked off their discussions on the bill to amend the current budget framework law yesterday, indicating that the government should provide more information in order for the legislature to better supervise the public infrastructure plan. According to the chairman of the committee, Chan Chak Mo, the AL sub-committee had listened to the opinions of the legal advisory group. The advisers stated that the number of articles in the new bills is fewer when compared to that in the current laws, or even when compared to similar bills of other jurisdictions.
But the legislator told reporters the practicability of the new bill could not be measured by the number of articles it contained. The sub-committee chairman also indicated that all committee members agreed that the government would need to submit more detailed information on the public project works, in order for the legislature to better monitor expenses. Other members also requested the government should list its responsibilities for the execution of the future law in the bill. The bill passed its first reading at the AL last week. A.L.
city’s hotels and food & beverage establishments continued to be the largest employers of non-resident workers, with a total of 49,446 nonresident employees, accounting for 27.4 per cent of the total. The number of non-resident employees in the sector represents a jump of 4.8 per cent, compared to 47,192 in September last year, while the number of workers increased by 75 compared to the end of August.
Construction workers down
The construction industry was the second largest employer of nonresident workers, with some 39,347 non-resident workers employed as at September-end, despite the number representing a year-on-year decrease of 13.5 per cent, down from 45,509 in the same month last year. On a month-on-month comparison, the number of foreign labourers in the sector also decreased by 5.1 per cent, down from 41,470 in August. DSAL data also revealed that 24,533 foreign workers were domestic helpers, an increase of 6.3 per cent year-on-year, up from 23,086. The number of foreign domestic helpers also grew by 162, up from 24,371 registered in August. Other non-resident workers were primarily employed by the wholesale & retail industry (19,524), realestate, industrial and commercial establishments (18,378), as well as culture, entertainment and gaming (13,528) - including the 1,207 construction workers directly hired by gaming corporations.
Keeping it close by
In terms of origin, Mainland Chinese workers accounted for 64.5 per cent of the city’s total foreign workforce in September, amounting to 116,191, a slight decrease of 0.4 per cent yearon-year, or down 1,788 from the previous month. The second largest number of nonresident workers in Macau was from the Philippines, with a total of 25,970, representing an increase of nine per cent year-on-year, or a growth of 280 workers month-on-month. Vietnamese nationals occupied the third position with 14,790 workers at the end of September, a jump of 2.2 per cent from the same month last year. Hong Kong residents working in the city posted the largest decrease, down by 29 per cent year-on-year to 6,583, from 9,271.
Property
Housing Bureau: 1,545 affordable housing contracts completed The Housing Bureau said 1,545 successful applicants for public affordable housing had finished the procedures for obtaining their housing purchase and sales certificates as of August this year. The announcement was made in the Bureau’s reply to legislator Chan Meng Kam’s written enquiry. The government body added that further notices are being sent to successful applicants who are to live in the affordable housing projects Edificio Koi Nga and Edificio Ip Heng, in order for them to receive the certificates. The Bureau noted that it had already completed 362 cases for the certificates in the first eight months of the year, which is much faster than the annual average of 400 cases for
the past three years. Legislator Chan criticised the Bureau’s progress in dealing with the contracts. He questioned why the
bureau had not been able to provide a timetable for residents to have an idea of when their housing contracts could be completed. C.U.
Business Daily Wednesday, October 26 2016 3
Macau Society
Civil Servant’s Association calls for more social benefits The public servant group hopes the government can increase the cash handout amount and raise the salary of public servants next year. Annie Lao annie.lao@macaubusinessdaily.com
I
ncreases in social benefits and civil servant’s benefits, as well as improvements in local workers’ rights were proposed to the Chief Executive (CE) yesterday, said the President and Director of the Macau Civil Servant’s Association (ATFPM), José Pereira Coutinho. In a meeting with the CE yesterday, the group presented recommendations for the MSAR Government Policy Address for Fiscal Year 2017, at the CE’s Office. Speaking to reporters after the
meeting, the ATFPM President said that they had suggested that the government should increase total expenditure on social benefits due to rising inflation in the city. “We are asking the government to raise the amount of the cash handout programme to MOP12,000 (US$1,502) from the current MOP9,000, and to increase the medical coupons from MOP600 to MOP1,000 per resident per year,” Mr. Coutinho said. According to the head of the association, they also proposed to the top official that the government should expand the usage scope of medical coupons, which currently cover private clinics only.
ATFPM meets with Chief Executive yesterday
Other suggestions proposed by the public servant's association, in terms of social benefits, included increasing the city’s pension fund benefits, as well as raising the study allowance for the Continuing Education Development Plan of the Education and Youth Affairs Bureau (DSEJ), the association head added. In addition, the ATFPM requested the government to build 80,000 affordable housing units in the city for next year.
Proposed salary hike for public servants
The ATFPM also proposed that the CE raise the salary of civil servants by six per cent for the coming fiscal year. “We believe [the hike] is possible. But for the amount, the CE replied that the government is still studying the proposal of increasing the salary point of public servants by MOP4 to
MOP85, from the current MOP81,” the president said. He claimed that during the meeting, the group had also urged the government to build a new accommodation building for the city’s civil servants. “Before the handover to Mainland China, the then-[Portuguese] Government had built many accommodations for the civil servants. However, after the handover, there has been none,” Mr. Coutinho pointed out. He added that proposals aiming to increase the benefits of civil servants were also covered in the group’s meeting with the CE, such as the retirement scheme.
Worker rights
On the other hand, the group leader claimed they had pushed the government to set up new legislators to establish the city’s trade union law in order to protect the rights of local workers. “Setting up new regulations to protect the local workers could also help reduce the burden at the local court,” he said. The ATFPM President revealed that the Office of the Secretary for Administration and Justice (GSAJ) is still researching the topics and more time is needed. “We are willing to discuss with the Secretary for Administration and Justice Sonia Chan Hoi Fan to seek a proper resolution for this problem,” he said. “We have mentioned many times that these problems have been in the society for a long time. Right now, we still have no resolutions from the government. We hope these problems can be solved before the CE ends his tenure in two years,” Mr. Coutinho said.
4 Business Daily Wednesday, October 26 2016
Macau Travel
Opinion
China Travel appoints new chairman
runs several businesses in Macau, including managing Metropark Hotel Macau and travel agency China Travel International Agencia De Viagens E Turismo Investment Hong Kong Limited has appointed Zhang Fengchun Grand, Limitada. According to the filing, Mr. Zhang currently as its new chairman of the has a ‘personal interest of Board, effective since the past Monday, according to a company 880,000 shares of the company’ filing with the Hong Kong Stock and ‘has beneficial interest in Exchange yesterday. China Travel 890,000 underlying shares’. N.M.
José I. Duarte*
Not too light
Some topics never seem to go away. The light rail system is one of them. It has been going on – the topic, not the rail - for a decade or so now. We are seldom reminded of the subject for good reasons. As a rule, it is usually about overrunning costs, missed schedules or blatant management omissions; occasionally, it is promises or targets that may appear as just wishful thinking. Some fear the expected operational starting date for the Taipa section is, at best, well-intentioned optimism. Building the Taipa section has been a never-ending source of administrative troubles and operational disruptions. Regardless of the date for the effective start of operations, we can only wish that the construction works will end soon so that the daily activities of residents and the traffic flow can regain a certain degree of normalcy. The date for operations on the peninsula section, whether it will ever come, is still being guessed at. October has been prodigal; the topic made several media headlines. The new track location, we are told, will be announced before the end of the year. Is it good news? Construction on the peninsula side, if and when it starts, risks becoming a nightmare. It is difficult to avoid the feeling that many seem to believe that the light rail solution is not adequate for the peninsula, but nobody seems to want to acknowledge that. As a result, we may be stuck with a worstcase scenario. One where implementation is delayed because few believe the solution is good; and yet no alternative is seriously considered, as that would imply recognizing that somewhere, someone got it wrong. So we keep hoping that somehow things will find a way to settle on their own. The drama, if we may use the word, is that in all likelihood what may happen is that the situation will become more intractable with the passage of time. The more we delay, the narrower the range of viable alternatives, and the greater the negative impact and costs will be. That might be changing. Some legislators have raised the possibility of ditching the current solution and opting for a different one. Regardless of the merits of the proposed alternative, it does have one virtue: this is possibly the last opportunity we have to assess carefully the pros and cons of a transport solution that may prove the inefficiency and the most damaging side of the city. *economist and permanent contributor to this newspaper.
Retail Sales in HK, Macau plunge while Mainland remains stable
Belle interim net profit down nearly 20 pct
F
ootwear and sportswear retailer Belle International Holdings Ltd registered a year-on-year decrease of 19.7 per cent in its net profit for the six months ended August 31, amounting to RMB1.73 billion (MOP1.61 billion), despite total revenue recording a slight increase of 0.9 per cent year-on-year, the company informed the Hong Kong Stock Exchange in a filing on Monday after trading hours. During the six months, the retailer generated a total of RMB19.4 billion in revenue, of which nearly 98 per cent was earned from the company’s Mainland Chinese market, totalling RMB19 billion, an increase of 1.6 per cent year-on-year. However, the company’s revenue in Hong Kong and Macau dropped by 12.7 per cent year-on-year to RMB424.6 million, compared to RMB486.3 million for the same period
last year. In addition, the company’s revenue in other retail locations also plunged by 25.2 per cent year-onyear to RMB104.5 million. In terms of business, revenue earned from retail sales of sportswear and apparel jumped by nearly 15 per cent year-on-year to RMB10.9 billion, up from RMB9.5 billion. ‘The growth of the sportswear and apparel business was mainly due to same store sales growth and continued retail network expansion,’ the retailer explained in the filing. On the other hand, sales of footwear decreased by 12.7 per cent year-onyear, down to RMB8.6 billion for the six months, compared to RMB9.8 billion a year ago, due to a drop in same store sales, the company said. As at the end of August, the company was operating a total of 138 retail outlets in Hong Kong and Macau, in addition to a total of 20,600 self-managed outlets in Mainland China. K.L.
Retail The retailer’s profit in MSAR slides 16 pct
I.T. turns loss to profit in H1 Clothing retailer I.T. Ltd posted a net profit of HK$39.1 million (US$4.9 million) for the first half of its fiscal year ended August 31, a turnaround from a net loss of HK$31 million for the same period last year, according to its filing with the Hong Kong
Stock Exchange. The retailer’s total turnover registered growth of 7.4 per cent year-on-year to HK$3.6 billion f o r t h e s i x m o n t h s, b o o st e d by increased retail sales in Mainland China, up by 14 per cent
year-on-year to HK$1.53 billion. However, the company’s sales in Macau recorded a year-on-year decrease of 9.2 per cent to HK$91.7 million, while its operating profit in the MSAR also plunged by 15.8 per cent year-on-year to HK$26.7 million. ‘Although recent data has suggested a slowdown in the diminishment of the gaming sector in Macau, a form of recovery still lacks positive momentum,’ the retailer remarked in the filing. I.T. also saw its sales in Hong Kong fall by two per cent year-on-year to HK$1.5 billion, with same-store sales decreasing by 0.9 per cent year-on-year. On the other hand, the company’s turnover generated from its business in Japan surged by 46.9 per cent year-on-year to HK$348.5 million for the six months, compared to HK$238 million in the same period one year ago. K.L.
Hotels
Ritz-Carlton Macau appoints new General Manager Th e Ri tz-Ca r l t o n M aca u has appointed Christian Gurtner as its new General Manager, according to a company release yesterday. The new GM will be responsible for managing the hotel operations of The RitzCarlton Macau, which is located at Galaxy Macau, owned by the Galaxy Entertainment Group. Mr. Gurtner joined The Ritz-Carlton Millenia in Singapore as an executive assistant manager for Food & Beverage in 2012, and was later promoted to hotel manager in 2013. Prior to that, the executive formerly held management positions with hotel brands Four Seasons Hotels and Resorts, Starwood Hotels & Resorts, and Hyatt in Switzerland, United States, Canada, Hong Kong, Mainland China and Singapore. The
Ritz-Carlton Macau is an all-suite hotel with 230 suites and part of the Ritz-Carlton Hotel Company,
L.L.C. properties, a wholly owned subsidiary of Marriott International, Inc. N.M.
Business Daily Wednesday, October 26 2016 5
Macau Politics
Legislators consider public housing will not be able to cool the current real estate market
Land for the people Government guaranteed again that no land from the new reclamation areas would be used to repay land debt. Nelson Moura nelson.moura@macaubusinessdaily.com
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uring yesterday’s Legislative Assembly (AL) plenary session, the government reassured that no land from the city’s new reclaimed urban zones will be used to settle the government’s current land debts of some 88,800 square metres. The response was made to an oral interpellation made by directly-elected legislator Antonio Ng Kuok Cheng. The legislative member enquired about the government’s policy of ‘Macau land for Macau people,’ urging the government to assure that the city’s reclaimed urban zones
would be used to increase public housing supply. “The government should ensure the future housing units in the areas will only be sold to Macau permanent residents without any residential property, as well as avoid speculation of housing units by buyers with multiple properties,” the legislator said. Secretary for Transport and Public Works, Raimundo do Rosário replied that construction of new affordable housing would be the priority for the new urban zones. Meanwhile, the Secretary indicated that by not using the new urban zones to repay the land debts, the recovery of idle land plots would be the major way used to resolve these debts.
“We will operate according to the approved urban planning law. There have been 38 land plots of which concessions considered expired, while more will expire, we should give more time. Maybe we’re not working as fast as you want but we’re working,” the Secretary said.
Public doesn’t equal private
However, some legislators consider that the proposed public housing units in the new urban zones won’t help to cool down the local real estate market, believing that the government instead should focus on the grants of private projects. “In a capitalist society, there should be a market for private housing units, not just public housing,” said legislator Melinda Chan Mei Yi. “The real estate market is really expensive now and young people can’t afford to purchase their own houses, which is hurting the business of real estate agents”. The directly-elected legislator urged the government to take the private sector into account. A similar view was expressed by Legislator Ng, who considers that new public housing won’t solve the problems in the private housing market, with many properties unoccupied due to their high prices. The government has proposed building 28,000 public housing units in Zone A of the reclaimed areas.
Rosário: No need to know about height limits Environment
Improved air conditions in 2015 But the city is experiencing other environmental issues such as more significant water pollution and more waste Cecilia U cecilia.u@macaubusinessdaily.com
The concentration of air pollutants in the city decreased last year compared to the numbers in 2014, but the city continues to face environmental issues such as increasing amounts of waste and poor water quality, according to the latest publication of ‘Macau’s Environmental Condition in 2015’ report, released by the Environmental Protection Bureau. In 2015, the city recorded an improvement in overall air conditions, the report said. The data shows that the number of days with ‘good’ air quality increased at four of the five automatic air-quality monitoring stations last year when compared to the data recorded in 2014, except at the station located at the Concordia Industrial Park. The number of days when air pollution was recorded as ‘moderate’ decreased last year compared to 2014, indicating that air conditions in some places in the city had improved. The 2015 report lists transportation, aviation, business, domestication and areas relating to services, construction and waste incineration as factors that contributed to air pollution in the city last year. In terms of greenhouse gases, transportation and local supply of electricity are the major contributors. Due to a decrease in carbon dioxide emissions, the level of greenhouse gases has been gradually decreasing for the past decade, according to the official data.
Increased non-metallic pollution
According to the latest environmental report, there was an increase in paid water consumption, in particular for domesticate usage, up three per
cent year-on-year. But the city saw water usage decrease in industrial and public consumption, down 19 per cent and one per cent year-onyear, respectively. Due to the ongoing development of resorts and gaming venues in Cotai, water consumption in the area saw a year-on-year increase of five per cent, the highest increase among all areas of the city. The water supplied in the city, meanwhile, saw a year-on-year increase in the index of non-metallic pollution of 12.3 per cent, indicating a new record high in a decade, whilst the index of metallic pollution declined by 44.4 per cent, also a new record low for the past ten years. The report explained that organic pollutants are the major factors causing outbreaks of red tide. Areia Preta and the Inner Harbour areas experienced the greatest non-metallic water pollution levels, according to the report.
Continuing wastage issues
The official report shows that some 500,000 tonnes of waste were sent to the local incineration plant last year, compared to around 300,000 tonnes in 2014, a figure that is higher than other neighbouring cities in terms of the quantity of municipal waste per capita. Meanwhile, the city also saw a year-on-year increase of 20.5 per cent in the number of discarded vehicles, from 9,390 in 2014 to 11,315 in 2015. In terms of recycling in the city, the official data shows an overall increase in the weight of recycled items, with aluminium cans (43 per cent) and metallic items (34.8 per cent) registering the biggest growth compared to 2014. Despite the increased weight of recycled items in Macau, the rate of waste created still exceeded the weight of recycled items, the report indicated. The report suggests that the government should introduce policies to cope with the problems as soon as possible, in addition to strengthening education and legislation.
Meanwhile, the Secretary claimed he didn’t know the reason why the height limits for four land plots in Zone C near Nam Van Lake had been loosened prior to the withdrawal of the plots’ development plans in August 2006. Legislator Song Pek Kei queried the
reason why the then-government had increased the height limits for the four land plots that belong to Nam Van Development Company Ltd. But the Secretary said he didn’t know why, and didn’t even need to know why, as regulating height limits for plots of land is the responsibility of the director of the Land, Public Works and Transport Bureau (DSSOPT), a situation which has remained unchanged since the handover. He added that despite the fact that the Secretary for Transport and Public Works chairs the city’s urban planning committee, given the committee’s nature as a consultative body, it’s not a must for the DSSOPT director to accept the committee’s opinions and recommendations. Meanwhile, the incumbent DSSOPT director, Li Canfeng, added that his Bureau would accept all opinions and recommendations made by the Committee that would benefit the public and residents.
6 Business Daily Wednesday, October 26 2016
Gaming Gaming
Positive predictions Analysts believe October revenue will climb despite premier’s visit and two typhoons Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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nalysts are predicting that despite a visit by Chinese Premier Li Keqiang and two typhoons this month, gross gaming revenues for October will keep going with the trend of year-on-year increases, continuing the two-month positive streak seen so far. Last year’s gross gaming revenues for October saw the 4th highest monthly values of the year, as well as a 17 per cent month-on-month increase, reaching MOP20.06 billion (US$2.5 billion), according to official data from the Gaming Inspection and Coordination Bureau (DICJ). Current estimates for this October by analysts at Bernstein are the most cautious, ranging between MOP20.8 billion and MOP21 billion for the whole month, whereas those by Telsey Advisory Group take the highest position, at MOP21.8 billion. Analysts at Wells Fargo are predicting between a four and seven per cent year-on-year increase, with expected revenue of between MOP20.86 billion and MOP21.46 billion for the month, according to Business Daily calculations.
Negative effects
Wells Fargo analysts, led by Cameron McKnight, predict that revenues in the second week of the month dropped roughly 50 per cent, ‘below
the historical 40 per cent drop following Golden Week,’ averaging MOP720 million in average daily revenues for the first 23 days of the month. However the group noted that the second week of October ‘did include a visit by Chinese Premier Li Keqiang’, which Bernstein analysts stated ‘negatively impacted VIP’ from October 11 to 16. Analysts at Telsey note that other negative impacts came about the following week in the form of typhoons, ‘as well as weak hold in some VIP rooms’. The group however, expects increased results in the final week of the month ‘as weather and VIP hold improves’. Bernstein analysts downplay the impact of
the typhoons even further, stating that the most recent one had ‘minimum impact on the gross gaming revenue’.
Moving on
Much of the drive to ‘suggest that the Macau market is improving’ continues to be fuelled by the two newly-opened properties: Wynn Palace and The Parisian Macao, note analysts at Telsey, describing the former’s opening as ‘lukewarm’ and the latter’s as ‘strong’. Views continue to be conflicted as to the effect of the detention of 18 Crown employees by Mainland Chinese authorities. Analysts at Wells Fargo note that, according to their contacts, this could result in a five to 10 per cent impact on ‘near-term’ gaming revenues. Analysts at Bernstein don’t quantify the effects of the
detention, but continue to mention ‘intensified anti-corruption activity in China’ and ‘China and/or Macau government clampdown on junket activities’ as sector risks.
Breakdown
After a readjustment to the third quarter breakdowns, readjusting a portion of VIP revenue into mass, ‘in order to account for the distortion’ from some smoking-related premium mass and ‘other reporting shifts by operators’, Bernstein analysts see the third quarter as showing positive results in mass table gross gaming revenue. Growth of 10.4 per cent year-on-year amounting to US$3.4 billion was estimated by the group for the third quarter, while VIP estimates see a seven per cent year-on-year decline for the quarter. The analysts note that overall, gross gaming revenue during the quarter grew by 1.2 per cent year-on-year in the third quarter, ‘the first positive figure since the third quarter of 2014’.
Business Daily Wednesday, October 26 2016 7
Gaming
Verdict
Sanum Investments happy with investment treaty confirmation
A BIT pleased
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fter recent statements by the spokesperson from China’s Ministry of Foreign Affairs regarding a ruling by the Singapore court concerning local company Sanum Investments in their case against the Laos Government, Sanum notes it is ‘pleased’ with the confirmation that local investors are protected by the Bilateral Investment Treaty (BIT)
between China and Laos. ‘The unanimous ruling by five respected jurists in the Supreme Court Singapore was a verdict based squarely on the language of the treaty itself as well as international law, and is the same verdict rendered by the international tribunal of internationally-renowned legal scholars originally empaneled to hear Sanum’s claims, which is chaired by
Graft
Former Pagcor chairman facing plunder and graft charges After the Philippines’ Commission on Audit (COA) began looking into the awarding of a lease contract that it found highly irregular, the local Philippine media has reported that former Philippine Amusement and Gaming Corporation (Pagcor) chairman Cristino Naguiat and nine other officials are facing charges for plunder and graft. Chairman of the anti-graft group Volunteers Against Crime and Corruption (VACC), Dante Jiminez and board member Arsenio Evangelista compiled an eight-page report, investigating the former Pagcor chairman and alleged coconspirator’s plot to defraud the government to the amount of about 234 million pesos (MOP40 million/ US$4.9 million). This was allegedly done by entering into an agreement with the Vanderwood Management Corporation for the leasing of a
government owned property, which was already leased to the Oceanville Hotel and Spa Corp. Mr. Naguiat claimed the lease would save the agency millions of pesos, however according to the VACC, the subject of the lease contract was “non-existent” at the time of the lease agreement execution. The reason for the lease, according to Mr. Naguiat, was that Pagcor had decided to move its Gatchalian Waterfront Manila Pavilion Hotel, and VMC had agreed to build a structure for it on the leased land, according to Pagcor’s requirements. “[They] acquired ill-gotten wealth through [misuse] of public funds and raid on the public treasury, and by taking advantage of their official positions,” further notes the anticorruption volunteer group, quoted by local media.
the former Deputy General Counsel to the World Bank,’ notes the response to Business Daily’s enquiries. The enquiries came about following the ruling by the Singapore court to apply the moving treaty frontier (MTF) rule to Sanum’s case against the Laos Government, encompassing Macau within the territory covered by the BIT, a decision that a Chinese Ministry of Foreign Affairs (MFA) spokesperson recently called “incorrect”. ‘These experts have come to the same conclusion: that investors from Macau, including Sanum Investments, are protected by the PRC-Laos BIT,’ notes the statement from Sanum. ‘We are pleased that there has been universal confirmation of this protection in the relevant legal forums.’ Sanum notes that it will continue to ‘vigorously defend our rights until we
have prevailed and Laos has paid us fair compensation,’ in regards to three legal actions it has taken against the Laos Government and San Marco Capital. The legal actions concern the unfair seizure of a hotel and casino complex Sanum operated in Laos until it was seized by the Laos Government due to an alleged US$70 million (MOP560 million) in unpaid taxes. ‘Sanum, and its parent company LHNV (Laos Holdings N.V.), are entitled to compensation for the illegal actions taken by the government of Laos against them as investors. The statements by the esteemed MFA spokeswoman do not alter the facts of Laos’ expropriatory actions, nor made those actions legal or just in any way,’ states the group. The casino and hotel complex in question has since been sold to local gaming operator Macau Legend. K.W.
Casino-resorts
Silver Heritage Nepal soft opening in February Silver Heritage Group, which operates casinos in Vietnam and Nepal, has announced that it is planning a soft opening of its new hotel in Nepal in February 2017, according to a filing on the Australian Securities Exchange. The foundations for the casino, hotel function rooms and F&B areas are 100 per cent complete, notes the filing, and the first phase of the property – with a 100-room 5-star hotel, 52 gaming tables, and 200 electronic gaming machines - is set to cost the group about US$40 million (MOP320 million). The property, with a gross gaming floor area of nearly 2,500 square
meters, constitutes the third phase of the group’s ‘India-facing strategy’, encompassing three hotel and casino properties in Nepal near the Indian border. The first phase, the 41-room Hotel Devotee with 3 tables and 20 gaming machines, opened in Dhangadhi in 2013, while the second phase – opened in 2015 – added the 120-room Shangri-la Hotel, with 22 tables and 38 gaming machines. The newest addition intends to further cement the group’s position and take advantage of neighbouring India’s legislation that only allows casino gaming in two states.
8 Business Daily Wednesday, October 26 2016
Greater China In Brief Reform drive
State-owned firms profits fall Profits of China’s state-owned enterprises (SOEs) fell 1.6 per cent year on year to 1.72 trillion yuan (around 254 billion U.S. dollars) during the first three quarters of the year, the Ministry of Finance said yesterday. The pace of decline accelerated from a 1.3-per cent decrease in the first eight months. During the JanuarySeptember period, profits of SOEs under central government control dropped 5.4 per cent from a year earlier, while those of locally administered SOEs rose 8.1 per cent. The profit decline in SOEs was partly due to the country’s drive to reform its growth model and cut overcapacity. Moody’s
Mainland leads record global green bond issuance China led the surge in global green bond issuance in the third quarter which amounted to a record US$26 billion, a report from Moody’s Investors Service said yesterday. The growth reinforces efforts to acknowledge and address climate change, highlighted by the Paris Agreement on climate change going into force in November, it said. China accounted for 44 per cent of global sales of green bonds for the quarter ended Sept. 30, followed by supranationals and Mexico which took 16 per cent and 8 per cent, respectively.
PBOC economist
Impact on yuan from expected US rate hike will be limited Policy sources have said earlier that the central bank would tolerate the yuan’s fall to as low as 6.8 per dollar this year
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potential U.S. interest rate hike in December will have limited impact on the yuan, the People’s Bank of China (headquarters pictured) chief economist Ma Jun told reporters yesterday. Speaking to a small group of foreign reporters at a luncheon, Ma said the yuan was under depreciation pressure ahead of the expected rate hike, but may recover when the Federal Reserve actually raises rates. Ma said he does not expect the Fed to be very aggressive on raising rates. The impact on the yuan from a December rate hike will be limited because it has been anticipated and priced in by the market, he said. “Emerging market currencies, including the yuan, have come under some pressure to depreciate before the Fed rate rise. Maybe they will rise after the rate hike,” he said. The yuan’s fall of more than 1.5 per cent against the dollar since the end of September has renewed speculation in some quarters of a continued slide in the Chinese currency. The yuan has remained stable versus a currency basket in October despite falling against the dollar, which has been strengthening against major currencies amid expectations that the Fed might raise rates in December, Ma said. The yuan’s drop against the dollar shows the central bank is “very
faithful” to its new currency regime, Ma said. Under the regime, the PBOC sets the yuan’s daily mid-point versus the dollar based on the previous day’s closing price, taking into account changes in major currencies. Ma declined to comment on a specific level in the yuan exchange rate that the PBOC might tolerate. Policy sources have said earlier that the central bank would tolerate the yuan’s fall to as low as 6.8 per dollar this year. Ma also commented on China’s efforts to rein in a red-hot property market after home prices rose at the fastest on record in September. Recent city-based property control measures in China will cool prices and demand for mortgages, Ma said,
adding that the PBOC will consider the possible impact of monetary policy on the property sector. “Changes in property prices will affect financial stability and financial stability is one of the central bank’s important goals,” he said. Bank lending in recent months has been dominated by household lending, primarily mortgages. China’s outstanding mortgage loans to individuals rose 33.4 per cent to 17.93 trillion yuan (US$2.65 trillion) from a year ago by the end of September, central bank data showed on Friday. The banking regulator said on Saturday it had asked lenders to step up risk management of property loans amid record gains in house prices that have raised concerns of price bubbles and ballooning debts. Ma also said that China’s economy should grow about 6.7 per cent in 2016 and average producer prices will likely show positive growth in 2017. Reuters
Financing
Regulator asked to curb property firms’ fundraising China’s securities regulator has been instructed to curb access to bond and H-share financing by real estate firms, online financial magazine Caixin reported yesterday, citing sources. H-shares are Hong Kong-traded stocks issued by companies registered in mainland China. China’s main economic planner has also been instructed to curb bond issuance approvals by real estate firms, Caixin said. Caixin’s report comes amid increasing signs of a crackdown on China’s bubbly real estate market. Multiple industry sources told Reuters last week that bond issuance by real estate firms on public exchanges has become far more difficult recently. Auto industry
Beijing to cut number of new cars Beijing’s transport authority yesterday said that the city will limit the number of cars on road to 6.3 million in 2020, as part of efforts to reduce traffic congestion. According to Beijing Municipal Commission of Transport, the number of new license plates available to registered drivers, currently handled through a monthly lottery, will be reduced from the current 150,000 a year to 100,000 in 2018. The total number of cars on road in Beijing was 5.62 million by the end of 2015. The city has seen car numbers grow by 303 per cent from 1998 to 2013, with many major roads plagued by severe congestion.
Overcapacity
Cut remains priority despite coal price rises The National Development and Reform Commission has pledged to increase supply without weakening capacity-cutting efforts. A short-term supply shortage has buoyed up coal prices in China, but the change is not expected to disrupt the government’s long-term goal of reducing overcapacity in the sector. Coal producers led a rally on China’s stock market on Monday as shares of all 33 coal companies traded on the stock exchanges increased, and five surged by the daily limit of 10 per cent. The rises followed rapid coal price increases in the past few weeks amid a government campaign to cut ineffective production, accompanied by recovering coal demand due to a stabilizing economy and the onset of winter. The Bohai-Rim Steam-Coal Price Index, a government-backed gauge of coal prices in northern China’s major coal ports, rose to RMB577 (US$85.1) per tonne last week, the highest since the start of the year. China’s coal price index has climbed for four consecutive months since June, reaching 414.07 in September, up 11.99 per cent month on month and 22.71 per cent from a year earlier, according to the National Development and Reform Commission (NDRC). China is the world’s largest consumer of coal. The industry has long been plagued by overcapacity and has felt the pinch over the past two years as the economy cooled and demand fell. During the first eight months of the year, China’s coal output fell 10.2 per cent year on year to 2.18 billion tonnes, and the government aims to cut more capacity to upgrade the industry and reduce carbon emissions.
In the meantime, China’s economy has showed signs of improvement i n r e c e n t m o n t h s, w i t h t h e manufacturing sector expanding and the property market booming, leading to higher coal consumption. As rising coal prices hurt the profits of the downstream powerindustry and threatened the supply for winter heating, central and local governments since late September have held a series of coal-production management meetings to ensure market supply. The NDRC has pledged to increase supply without weakening capacitycutting efforts. Last month, it decided to relax the limit on production days for efficient coal producers, with the former 260day cap increasing to a maximum of 330 days. The original limit, had
it been followed, would have cut production by over 500 million tonnes in 2016. As of mid-October, coal inventories in major power plants had increased 22.7 per cent from the end of August to 62.3 million tonnes, NDRC deputy secretary-general Xu Kunlin said Tuesday. In the longer term, China’s coal supply will continue to be excessive due to the development of clean energy and the green economy, and it will remain an arduous task to reduce capacity and upgrade the industry, Xu told reporters. By 2020, China’s coal consumption will reach 4.1 billion tonnes at most, while its coal production capacity will hit 4.6 billion tonnes even if capacity reduction goals are achieved, Xu said. China plans to cut coal capacity by half a billion tonnes in the next few years, with vast funds set aside to help displaced workers. This year, the government aims to slash capacity by 250 million tonnes. Xinhua
“By the end of September, China had accomplished over 80 per cent of its annual coal capacity reduction goal” National Development and Reform Commission
Business Daily Wednesday, October 26 2016 9
Greater China M&A
HNA Group buys stake in Hilton, extends hotels push Hilton brands include Conrad Hotels & Resorts Ankit Ajmera and Denny Thomas
China’s aviation and shipping giant HNA Group extended its push into hotels and Chinese tourism on Monday, paying US$6.5 billion to buy a 25 per cent stake in Hilton Worldwide Holdings Inc from biggest shareholder Blackstone Group LP. The deal marking the second investment in the hotel industry this year by ambitious and fast-growing HNA, now the operator of more than a dozen airlines including flagship carrier Hainan Airlines Co and a group with more than US$100 billion in assets. In April HNA bought Carlson Hotels Inc, owner of Radisson hotels, for an undisclosed sum. It also comes as Chinese companies step up hotel deals to tap freespending mainland China tourists, now travelling overseas in record numbers. Their spending at home and abroad is expected to hit US$72 billion this year, according to China Travel Academy, a governmentbacked research institute. Chinese companies have also been splurging on foreign acquisitions to sidestep slowing growth at home. The HNA deal would take China’s overseas M&A to a record US$191 billion so far this year, more than 70 per cent of 2015’s tally. HNA agreed to buy its shares in Hilton for US$26.25 each, a 14.6 per cent premium to Hilton’s Friday’s closing price, valuing the whole of Hilton at about US$26 billion. Blackstone took Hilton private in
2007 for US$26.7 billion, including debt, and the private equity firm listed the company in 2013 in the biggestever hotel IPO. Established in 1993, HNA has emerged under the stewardship of co-founder and chairman Chen Feng as one of China’s most acquisitive overseas dealmakers, having announced about US$20 billion of deals this year alone, according to Reuters calculations. As well as buying aviation assets,
HNA has been investing in other travel-related businesses, including Swiss airline catering firm Gategroup Holdings, and U.S.-listed electronics distributor Ingram Micro. It now controls 11 companies listed on mainland China and Hong Kong stock markets. Earlier this month HNA’s Avolon Holdings agreed to buy CIT Group aircraft leasing assets worth US$10 billion, a deal that will create the world’s third-largest lessor.
In hotel deals, however, it hasn’t all been plain sailing for would-be Chinese buyers. In April, Chinese insurer Anbang Insurance Group Co, owner of the iconic Waldorf Astoria in New York, abandoned its pursuit of Starwood Hotels & Resorts Worldwide following a bidding war with Marriott International Inc. Marriott completed the acquisition of Starwood in September to create the world’s biggest hotel chain.
Key Points HNA agrees to buy 25 pct stake for US$26.25/shr Deal values all of Hilton at about US$26 bln HNA to appoint two directors to Hilton’s board 2nd HNA hotels deal this year after Radisson purchase Chinese overseas M&A spree at record US$191 bln year-to-date Meanwhile HNA’s latest deal will see it appoint two directors to Hilton’s board, raising its size to 10. It will also give HNA a stake of about 25 per cent in Hilton’s real estate and timeshare businesses, following their expected separation by the end of 2016. Blackstone will continue to have two seats on Hilton’s board, including Jonathan Gray who will remain as chairman. Evercore was the financial adviser to Hilton, while JPMorgan advised HNA. Reuters
10 Business Daily Wednesday, October 26 2016
Greater China RMB
Central bank deputy says yuan to be broadly stable Yi Gang said that China would maintain its prudent monetary policy while keeping ample liquidity in the financial system There is no basis for continuous depreciation of China’s yuan currency, and the exchange rate will remain broadly stable, the deputy governor of China’s central bank said in a newspaper editorial yesterday. The comments by Yi Gang (pictured) in the People’s Daily, the official paper of China’s ruling Communist Party, came after a two-week slide in the yuan that shaved off more than 1.5 per cent of its value against the dollar.
On Monday, the yuan hit a fresh six year low against the dollar, drawing large dollar sales by state banks, which some traders suspected was being carried out on behalf of the central bank to support the currency. The yuan’s fall has been exacerbated by global uncertainties such as Britain’s exit from the European Union, which battered most emerging
currencies, but recent weakness has revived memories of China’s surprise devaluation last August and another rapid depreciation early this year. Those declines in the yuan spread turmoil in global financial markets as investors fretted about deepening economic woes as growth slipped to a quarter-century low. Even before Brexit, most market watchers polled by Reuters had already expected Beijing would allow the yuan to weaken modestly this year as the economy continues to slow. China Foreign Exchange Trade
System data showed on Monday that the index for the yuan’s value based on the market’s trade-weighted basket stood at 94.30 on Friday, down 0.4 per cent from the previous week. Market confidence in the likelihood of a U.S. interest rate rise in December has also pressured the yuan with a recent Reuters poll showing the largest bearish positions in the currency since late July. Yi said two-way volatility of the exchange rate against the dollar had increased over time. Separately, Yi also said that China would maintain its prudent monetary policy while keeping ample liquidity in the financial system. The government would strengthen its credit policy to support small and medium-sized enterprises, he said in the editorial. Reuters
Key Points Yi says Yuan to remain broadly stable Yuan less volatile than other major reserve currencies China to maintain prudent monetary policy, to keep ample liquidity
They echoed repeated statements by other top policymakers over the past year as the yuan has weakened substantially against the dollar. “The Chinese currency has stayed stable against a basket of currencies. The yuan was less volatile than major reserve currencies, and its volatility was far below other emerging market currencies,” Yi said.
Mobile payment
Alipay targets Mainland tourists with U.S. payment deals Eric Auchard
China’s Alipay is expanding its mobile payment app service into the United States through partnerships with payment processors First Data and Verifone, the latest deals in a global strategy to reach Chinese consumers travelling abroad. Alipay, which counts 450 million active users in China, is the top mobile payments player there. It is a unit of privately held ANT Financial, which is in turn an affiliate of publicly traded Chinese internet company Alibaba. com. It has begun actively expanding
outside China over the past year via partnerships in Asia and Europe. In Britain, for example, luxury department stores Harrods and Selfridges and retailers Holland & Barrett and the Body Shop now accept Alipay. Instead of seeking to go head to head with major payments players outside its home market, Alipay targets the fast growing Chinese tourism market, which numbered 117 million travellers in 2014, according to the United Nations World Tourism Organisation, and is forecast to double by 2020. Through the Verifone deal announced on Monday, Alipay is
targeting top-tier merchants across retail, luxury goods, health supplement and department stores. Verifone supplies more than 29 million payment devices and terminals worldwide. First Data serves more than six million business locations. Alipay and rival WeChat, a unit of Tencent, together make up 90 per cent of the Chinese mobile payments market, with gross merchandise value estimated at more than US$1 trillion last year, dwarfing other mobile payment systems around the world, according to iResearch China estimates. Sabrina Peng, president of Alipay
International, said in a recent interview that her company’s ambition is to become a global payments provider over the next decade, with 60 per cent of its transaction volume coming from outside China. “We are targeting 2 billion users in the next 10 years,” she said. French payment terminal supplier Ingenico announced in August an expanded deal with Alipay to allow merchants across Europe to use Ingenico’s payment gateway to accept payments from Alipay users visiting the region.
Key Points Alipay sets Verifone payment terminal deal in N. America/ Europe Chinese payment app also signs up merchant acquirer First Data U.S. expansion follows payment provider deals in Europe and Asia The Alipay service is also being integrated into terminals from Concardis, a payments provider for merchants in German-speaking Europe. Wirecard, also of Germany, is developing a payment system that uses two-dimensional QR barcodes popular in China to help merchants across Europe accept payments from Alipay users. Alipay has a similar deal with mobile payments start-up Zapper in Britain to allow Chinese tourists to use QR codes in more than 1,000 restaurants there. Counter Service convenience stores and Paysbuy, a Thai payment processor are Alipay’s partners in Southeast Asia, while Japan’s Recruit, and Korea’s KICC are also supporting Alipay, the company said. Reuters
Business Daily Wednesday, October 26 2016 11
Asia Quarterly data
South Korea GDP growth still on track Despite Samsung’s smartphone crisis and the worst-ever strikes at Hyundai Motor nearly wiping out the second quarter’s 1.2 per cent rise in factory output Christine Kim
S
outh Korea’s economic growth is expected to hit the central bank’s 2.7 per cent forecast this year, with third quarter GDP data showing the economy would have grown faster were it not for the setbacks suffered by Samsung Electronics Co Ltd and Hyundai Motor Co. “When you take away the effects from Samsung and Hyundai, third-quarter growth was considerably better than expected,” said Chung Kyu-il, a director at the Bank of Korea (BOK), although he did not give a figure for the amount of growth lost. Gross domestic product rose a seasonally adjusted 0.7 per cent over July-September versus the second quarter, the Bank of Korea estimated yesterday, ticking down from a 0.8 per cent quarterly rise. With growth on track, the central bank is more likely to observe than act on monetary policy while looking out for a pending U.S. Federal Reserve rate hike expected by year-end. Chung added that fourth quarter growth will also be affected by Samsung’s decision to drop its fireprone Galaxy Note 7 smartphone, although the economic impact from
lost manufacturing was nearly all reflected in the third quarter. Manufacturing overall fell 1.0 per cent in the third quarter, with Samsung’s smartphone crisis and the worst-ever strikes at Hyundai Motor nearly wiping out the second quarter’s 1.2 per cent rise in factory output. Despite the strikes ending, there will not be an immediate jump in manufacturing in the fourth quarter, BOK director Chung said, although
the bank’s forecast will be achievable as long as sequential GDP growth hits 0.1 per cent or higher next quarter. ING economist Tim Condon said calls for monetary easing may shift to seek fiscal expansion as central bank rate cuts have resulted in heavy household debt growth, reduced consumption, and inventories piling up at manufacturers. Most analysts see another rate cut early next year, but Kim Doo-un at Hana Financial Investment said today’s data would encourage the central bank to keep rates on hold in the near term. The median forecast in a Reuters survey of 19 analysts was for South Korea to post growth of 0.6 per cent in the third quarter in sequential terms.
In annual terms, GDP rose 2.7 per cent in the third quarter, down from a 3.3 per cent rise in the second quarter and marking its slowest growth since April-June of 2015. Construction investment saved Q3 growth as expected, rising 3.9 per cent in sequential terms and picking up from 3.1 per cent growth in the June quarter. Construction jumped 4.4 per cent over the same period, speeding up from a 1.0 per cent gain in the second quarter. Services rose 1.0 per cent in the September quarter from the previ-
Key Points Q3 GDP +0.7 pct s/adj q/q (Reuters poll +0.6 pct) Q3 GDP +2.7 pct y/y (Reuters poll +2.6 pct) Construction props up growth, as expected Samsung, Hyundai undermine manufacturing in Q3 BOK 2016 growth f’cast of 2.7 pct seen achievable
Gross domestic product rose a seasonally adjusted 0.7 per cent over July-September versus the second quarter, the Bank of Korea (headquarters pictured) estimated yesterday
ous three-month period, also better than a 0.6 per cent gain in the second quarter, thanks largely to government efforts to launch nationwide retail sale events to pry open wallets. Capital investment slipped 0.1 per cent, down from 2.8 per cent growth in the previous quarter. The Bank of Korea cut its policy interest rate by 25 basis to 1.25 per cent in June, its eighth cut since starting this easing cycle in mid-2012. The government has been churning out supplementary budgets nearly every year since then to help keep the economy afloat. Reuters
M&A
DBS, Julius Baer weigh bids for ABN AMRO Asia wealth unit The bank currently has about 130 bankers to the rich in Asia and the Middle East Saeed Azhar and Sumeet Chatterjee
DBS Group Holdings and Julius Baer Gruppe are weighing bids for Dutch lender ABN AMRO Group’s Asia private banking business that manages about US$20 billion in assets, several people with direct knowledge of the matter said.
Key Points ABN AMRO unit sale likely to attract other bidders too Bank manages about US$20 billion in Asia private banking assets M&A bankers estimate deal value at US$300-US$350 mln
ABN AMRO, which has hired Lazard Ltd to advise on the sale, could also receive preliminary bids from other wealth managers, the people said, adding that first-round bids are due in the next few weeks. The sale could fetch between US$300 million and US$350 million,
or 1.50-1.75 per cent of assets under management, senior M&A bankers said, citing valuations for similar deals. The Dutch bank’s plan comes after several Western firms have withdrawn from private banking in Asia, hit by pressure to reduce costs at home, slowing growth in the region and rising compliance costs. ABN AMRO declined to comment on whether there was a plan to sell
the business but said in an emailed statement that it had cut more than 20 jobs in Hong Kong and Singapore in the past few months to make its business more efficient. The bank, which returned to the stock market in November after seven years in government hands, currently has about 130 bankers to the rich in Asia and the Middle East. DBS, Julius Baer and Lazard declined to comment. Sources declined to be identified as the talks were confidential. While some smaller Western wealth managers have left the
region, Asia is emerging as a key battleground for firms such as UBS and Credit Suisse as their traditional markets show slower growth and as countries like China and India produce more millionaires. With nearly 5 million individuals with US$1 million in liquid assets, Asia Pacific is the fastest growing wealth region in the world. Earlier this year, Barclays agreed to sell its wealth and investment management business in Hong Kong and Singapore to a unit of Singapore’s Oversea-Chinese Banking Corp (OCBC). Reuters
12 Business Daily Wednesday, October 26 2016
Asia In Brief Spectators decline
Malaysia mulls dropping out of hosting F1 Malaysia is considering not to host the Formula One race at the Sepang circuit due to declining ticket sales and lack of TV viewership, the New Strait Times reported yesterday. According to Ahmad Razlan Ahmad Razali, chief executive of Sepang International Circuit (SIC), ticket sales had been on the decline since 2014 and sales for the Malaysian Grand Prix this year only reached between 55 and 60 per cent. Television viewership also registered the “lowest in history,” Razlan told the Malaysian newspaper. Although SIC had an agreement with the Formula One license holders until 2018, Razlan said they would consult with stakeholders to determine the matter. OECD chief
S.Korea should use more public spending
Inflationary
Singapore central bank sees subdued GDP outlook The Monetary Authority of Singapore said a neutral policy stance will be needed for an “extended period”
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subdued growth outlook for Singapore’s trade-reliant economy is expected to keep inflationary pressures modest, the central bank said yesterday, highlighting a bumpy road ahead for the city-state amid lingering weakness in global demand. Singapore’s economy is likely to have a small negative output gap in 2016, and the gap could widen slightly next year, the Monetary Authority of Singapore (MAS) said in its half-yearly macroeconomic review. “Amid a subdued outlook for GDP growth, emerging slack in the labour market, and contained imported inflation, the medium-term outlook for MAS core inflation is for it to trend
gradually towards the historical average of 2 per cent.” There could be downside risks to the inflation outlook if weakness in global demand persists, it added. “Cross-border spillovers of disinflationary pressures may pose some downside risks to Singapore’s inflation outlook, taking into account the possibility that weak global demand could persist for an extended period of time,” the MAS said. Earlier this month, the central bank held its exchange-rate based monetary policy steady despite a surprisingly sharp economic contraction in the third quarter. The MAS said a neutral policy stance will be needed for an “extended period”, underscoring a
South Korea should use more public spending to boost economic growth as it has the fiscal space to do so, Angel Gurria, head of the Organisation for Economic Cooperation and Development (OECD) said yesterday. Gurria, visiting Seoul for a seminar to mark the 20th anniversary of South Korea’s membership in the group of wealthy nations, said in an interview that monetary policy has seen diminishing returns globally. However, he said expansionary monetary policy is not altogether ineffective. GDP
Lao gov’t proposes to lower growth target Lao government has asked the National Assembly to lower economic growth target over the next four years after encountering difficulties that resulted in failure to meet the target set for last fiscal year. According to a proposal made by Lao Prime Minister Thongloun Sisoulith at the ordinary session of Lao NA’s Eighth Legislature Monday, average economic growth target over the next four years will be 7.2 per cent, lower than the previous target of at least 7. 5 per cent set in the five-year National Socio-economic Development Plan for 2016-2020. Reorganization
Indicted Lotte chairman plans to reshape conglomerate Lotte Group’s chairman, indicted in a corruption probe, yesterday unveiled a major restructuring of the beleaguered South Korean conglomerate in a move to bolster confidence among consumers and potential investors as it restarts plans to list its hotels arm. In his first official media appearance since being indicted by prosecutors earlier this month, Shin Dong-bin said the country’s fifth-biggest conglomerate, with assets worth more than US$90 billion, will adopt a holding company structure to simplify ownership and boost transparency.
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dim outlook for the economy with a growing number of analysts saying the risk of a recession meant the central bank could be forced into an off-cycle easing. Over the past two years, Singapore’s economy has been hobbled by a slowdown in China, weak global demand and falls in global oil prices. The MAS said the cumulative effects of its policy easings since January 2015 will continue to provide support to economic growth and help ensure medium-term price stability. The MAS reiterated that core inflation is expected to average around 1 per cent this year and rise to 1-2 per cent in 2017. Energy-related components will begin to contribute positively to inflation, the central bank said. Global oil prices have risen nearly 38 per cent so far this year, but are still down more than 55 per cent from their mid-2014 peak above US$115 a barrel. The all-items consumer price index is likely to turn positive in the fourth quarter of this year, the MAS said. It kept its forecast for headline inflation to rise to 0.5-1.5 per cent in 2017 from around -0.5 per cent this year. All-items CPI has declined from a year earlier for a record 23 straight months, weighed down by falls in oil prices, lower housing costs and falls in the prices of car permits. The central bank said its analysis suggests that “nearly three-fifths of the effects from MAS’ past policy easing moves since January 2015 have yet to be transmitted through to the economy.” Reuters
Policy statements
NZ central bank to publish cash rate projections The central bank underscored that the change has no bearing on the way the bank conducts monetary policy. New Zealand’s central bank said yesterday its monetary policy statements will now include projections for the official cash rate as opposed to the 90-day bank bill rate, guidance economists said will help make the policy outlook clearer.
“They are just trying to reduce the possibility that their message gets confused”
The monetary policy statement contained a quarterly forecast for the 90-day bank bill over a 4-year projection period. However, the 90-day bank bill includes funding costs for banks as well as positioning and it can be impacted by credit and liquidity considerations. Economists said an official cash rate projection is less ambiguous. “They are just trying to reduce the possibility that their message gets confused,” said BNZ Head of Research for New Zealand Stephen Toplis.
The central bank underscored that the change has no bearing on the way the bank conducts monetary policy. “As with previous 90-day rate forecasts, projections for the official cash rate are conditional on the Bank’s assessment of current economic conditions and assumptions about the future evolution of the New Zealand economy,” it said. The next monetary policy statement is due Nov. 10 and economists are widely expecting the central bank to cut the rate by 25 bps to a record low 1.75 as inflation remains well below the bank’s 1 to 3 per cent target range. ANZ Senior Economist Philip Borkin said the move to use the official cash rate “removes a bit of ambiguity but doesn’t change what the message is going to be.” Reuters
Stephen Toplis, BNZ Head of Research for New Zealand
It now views a projection of the official cash rate “as a more transparent way of presenting the expected policy actions needed to achieve its inflation target,” the Reserve Bank of New Zealand (headquarters pictured) said in a statement. Up until now, the 90-day bank bill rate has been considered a proxy for the official cash rate as it “typically moves in a consistent manner with the official cash rate,” the bank said. Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U 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
Business Daily Wednesday, October 26 2016 13
Asia Trade
Japan’s new recipe for exports: feed the world’s foodies Hong Kong is the top destination for Japan’s food exports, and a model of the potential Japan sees in increasing trade Stanley White
Japan’s export engine built around cars and electronics has stalled, but the future could be using the country’s gourmet culture to cast itself as a purveyor of high-quality food. Prime Minister Shinzo Abe wants to increase agriculture exports by a third in the next three years to 1 trillion yen (US$9.62 billion), although experts say he needs to aim much higher if food is to become a mainstay export for Japan. “Italy uses its food culture to drive food exports, and France is doing the same thing with wine,” said Katsunori Nakazawa, head of the export promotion division at the Agriculture Ministry.
“I want this for Japanese food as well. If our farmers don’t sell abroad, our agricultural industry won’t grow.” The recipe seems pretty simple: better logistics, an advertising blitz and a splash of social media buzz with the tag #japanesefood - and some lobbying of foreign governments. Japan’s total exports fell an annual 6.9 per cent in September, a 12th straight fall, the finance ministry said on Monday. Shipments of cars, electronics parts and steel all declined, while exports of food rose 7.6 per cent from a year earlier.
Room to grow
In 2015, Japan’s food and marine products exports were worth 745.1
billion yen (US$7.2 billion) according to the Agriculture Ministry, which is only 1 per cent of total exports of 75.6 trillion yen. Auto exports were 10.4 trillion yen or almost 14 per cent of total shipments, while semiconductor and electronic parts brought in 3.9 trillion yen, about 5 per cent of total exports. Hong Kong is the top destination for Japan’s food exports, and a model of the potential Japan sees in increasing trade. With just 7 million people, the territory takes almost one-quarter of Japan’s food exports and supermarkets commonly stock wagyu beef, soba buckwheat noodles and scallops from Japan.
Key Points PM Abe wants to cash in on popularity of Japanese food Food is 1 pct of total exports, Asia a target area Hong Kong is major export market, China fourth “I always have confidence in Japanese goods,” said a 66-year-old retiree in Hong Kong who gave her name as Valerie, as she shopped in a Japanese supermarket. “They will not export produce that are fake or harmful,” she said, touching on the qualities that Japan intends to leverage to increase its food exports. The United States is Japan’s second-biggest market for food exports, followed by Taiwan, mainland China and South Korea. The agriculture ministry said. Together, the top five
destinations accounted for about 70 per cent of food exports last year.
Aim higher
Scallops, salmon and trout are the top food exports to China. Japan plans to lobby Beijing to let in its beef, pork and dairy products, and also wants China to lift import restrictions that were put in place after the Fukushima nuclear meltdown. Rice exports to China are growing fast, so Japan plans to increase domestic processing plants authorised to ship to China. In Southeast Asia, Japan will lobby Malaysia to allow beef imports and get halal certification. The government also wants to sell more rice, fruit and green tea in Thailand and Vietnam. Sales of sake rice wine and green tea to Europe are already booming, and Japan plans a marketing push to further increase brand awareness and will lobby European countries that restrict beef imports. The government has allocated almost US$200 million for targeted improvements to agriculture trade infrastructure, such as better storage facilities near airports and meat processing plants that will comply with foreign health standards. “I think we can easily get to 1 trillion yen, so we need to be thinking about the next goal,” said Yasufumi Miwa, a senior specialist in agriculture at Japan Research Institute who serves on advisory panels at the Agriculture Ministry. “Once we get to 5 trillion yen, I think agriculture can become a mainstay for exports along with cars and electronics.” Reuters
Official visit
Philippines’ Duterte hits out at U.S., then heads to Japan The President described Japan as a true friend that had played a “preeminent and peerless role” as a big investor and Philippine development partner Philippine President Rodrigo Duterte lashed out anew at the United States yesterday and said it could forget a bilateral defence deal if he stayed in power long enough, in the latest jarring statement from Manila about the future of the alliance. The fresh broadside from Duterte came as he was about to board a plane for an official visit to fellow U.S. ally Japan, a big investor in the Philippines that is becoming nervous about its apparent pivot towards rival power China.
Commenting on a visit to Manila on Monday by Daniel Russel, an Assistant Secretary of State, Duterte said Washington should forget about an Enhanced Defence Cooperation Agreement (EDCA) with the Philippines if he were to stay in charge longer. “You have the EDCA, well forget it. If I stay here long enough,” he said.
“I do not want to see any military man of any other nation except the Filipino. That’s the only thing I want.” Th e r e m a r ks w e r e a n o th e r perplexing swing from Duterte, who last week announced in China his “separation” from the United States, before assuring that ties were not being severed and he was merely pursuing an independent foreign policy. His latest swipe at Washington could rattle Japanese Prime Minister Shinzo Abe, who wants to keep ties with the Philippines tight. In a composed reading of a statement
prior to departure for Tokyo, Duterte described Japan as a true friend that had played a “preeminent and peerless role” as a big investor and Philippine development partner. Japanese Chief Cabinet Secretary Yoshihide Suga yesterday said both presidents would have a meeting to “further the strategic partnership with the Philippines”. It is unclear where Duterte’s latest diatribe leaves U.S.-Philippines ties. Russel had left Manila in confident mood and U.S. Secretary of State John Kerry had expressed optimism the two countries could “work through” a period of confusion caused by Duterte’s remarks last week. Reuters
Key Points Duterte tells U.S. to forget defence deal if he stays in power Duterte, heading to Japan, had earlier softened anti-U.S. rhetoric Philippine leader had declared ‘separation’ from United States Duterte says must discuss S.China Sea with Beijing at some point The volatile, crime-busting Duterte had on the eve of the visit softened his remarks last week about a “separation” from Washington, telling Japanese media he wasn’t planning to change alliances and was only seeking to build trade and commerce with China. But he pulled no punches yesterday when he said he hated havi n g f o r ei g n t r o o p s i n th e Philippines and told the United States not to treat his country “like a dog with a leash”.
Filipino President Rodrigo Duterte (C) is escorted during a departure ceremony at Manila’s international airport yesterday. Duterte leaves for Japan to meet Prime Minister Shinzo Abe.
14 Business Daily Wednesday, October 26 2016
International In Brief Biz mood
German confidence rebounds German business confidence has hit a two-year high, the Ifo economic institute said yesterday, suggesting the country had shaken off post-Brexit blues, but analysts warned of a possible slowdown ahead. The Munich institute’s headline business confidence index hit 110.5 points in October, up one point from the September reading of 109.5, and the highest level since April 2014. A plunge in the index over July and August was blamed by observers on Britain’s June 23 vote to quit the EU, but a spring had returned to German businesses’ step by September. Official data
Eurozone gov’t deficit ratio falls The seasonally-adjusted general government deficit to gross domestic product (GDP) ratio stood at 1.5 per cent in the second quarter in 19-country eurozone, down from the previous quarter, official data showed Monday. The reading was 1.6 per cent in the first three months, said Eurostat, the statistic office of the European Union (EU), adding that the wider 28-country EU recorded a ratio of 1.8 per cent between April and June, as well lower than the 1.9 per cent in the previous quarter. Data showed that in the second quarter, total government revenue in the single currency bloc amounted to 46.4 per cent of GDP. Cyber safety
U.S. banking group to reduce cyber risk The Financial Services Information Sharing and Analysis Centre (FS-ISAC), an influential U.S. financial industry group, said on Monday it had formed a unit to enhance collaboration among its members and the U.S. government as a way to help reduce cyber security threats to the financial system. The new unit, known as the Financial Systemic Analysis & Resilience Center (FSARC), will proactively identify, analyse, and coordinate activities using more sophisticated techniques, the FS-ISAC said in a statement. The FSARC is the result of a meeting this year involving the six biggest U.S. banks. Results
Visa profit beat analysts’ estimates Visa Inc, the world’s largest payments network operator, reported better-than-expected quarterly profit and revenue, boosted by the inclusion of Visa Europe’s results and as customers spent more using its network. The company said total payments volume increased 47.1 per cent to US$1.86 trillion on a constant dollar basis in the fourth quarter ended Sept. 30, from a year earlier. “We have begun to see the benefits from our acquisition of Visa Europe and strong cost discipline helped our results,” Chief Executive Charles Scharf said in a statement.
Commodities dependence
IMF urges African states to cut deficits African economic growth was more than 5 percent in the decade leading up to the commodity price drop Duncan Miriri
A
frican exporters of oil and commodities should remove subsidies and boost taxes to weather their slowest growth in more than two decades, the International Monetary Fund said yesterday. The Washington-based fund cut its 2016 growth forecast for SubSaharan Africa to 1.4 percent, from 3 percent in May, as economies from Nigeria to Zambia reel from the drop in commodity prices. Abebe Selassie, the director of IMF’s African Department, said growth could start to recover next year to 3 percent, but only if the battered economies carry out fiscal reforms. “Should they fail to do that, vulnerabilities will heighten and the crisis of the weak economic performance we have seen so far will get even more difficult,” he told Reuters. African economic growth was more than 5 percent in the decade leading up to the commodity price drop, but it is now being dragged lower by 23 resource-dependent nations like Nigeria, South Africa and Angola. While average growth was 3 percent last year, countries that are more diversified like Rwanda and Senegal will continue to grow at more than 5 percent. Nigeria, which is in its first recession for more than 20 years, has been seeking to widen its tax base, to offset lower revenues caused by the slump in oil prices. Selassie said Nigeria’s low debt was a source of strength, adding officials needed to offer more certainty
through a “coherent and consistent policy package”. Zambia, which has been hit by lower prices of copper, could save some money by eliminating fuel subsidies, he said. “Fuel subsidies take out huge amounts of government resources and generally also they tend to be very regressive.” Kenya, a broad-based economy that is still growing at a robust 6 percent, was justified in expanding its fiscal deficit to invest in roads, power plants and other infrastructure. “However, it is important to make sure going forward, the
medium-term consolidation path that the government has in mind is adhered to,” Selassie said. The East African nation plans to partly plug a gaping budget deficit this fiscal year from international capital markets. Selassie said African nations needed to balance commercial debt, like Eurobonds, with other cheaper forms of financing from development institutions. Several nations have made debut Eurobond issues in recent years but the pace has slackened off. Eurobonds “cannot be the main source of financing for countries. It can complement other forms of financing and importantly, you want to minimize the deficit financing.” Reuters
Christine Lagarde, head of the IMF
Reform advance
Eurozone approves bailout funds for Greece The left-wing government of Greek Prime Minister Alexis Tsipras has reached milestones in a wide variety of reforms Eurozone officials announced yesterday they have approved 2.8 billion euros for Greece from its huge third bailout after the cash-strapped nation delivered the needed reforms. Following the latest disbursement approved by the European Stability Mechanism (ESM), Greece will have received 31.7 billion euros of the 86-billion-euro bailout granted in July 2015, its third since being engulfed by debt in 2010. “Today’s decision to disburse 2.8 billion euros (US$3.0 billion) to Greece is a sign that the Greek people are steadily making progress in reforming their country,” the ESM’s managing director Klaus Regling said in a statement. An ESM spokesman told AFP the funds would likely be disbursed today. The left-wing government of Greek Prime Minister Alexis Tsipras has reached milestones in pension reform, bank governance, the energy sector, and revenue collection, according to the director of the ESM, the Eurozone body controlling Greece’s bailout loans. The government won office in January 2015 initially opposed to creditor demands.
“It has also taken further steps in making the new privatisation and investment fund operational,” Regling said of the government which won office in January 2015 initially opposed to creditor demands.
‘IMF and EU creditors disagree sharply on how much Athens can improve its finances through on-going reforms’ If Greece implements more of the reforms under the bailout programme, its economy could “accelerate next year and the government may be able to start issuing bonds again next year,” Regling said. Athens has not issued bonds since 2014, the only time that has happened since the start of the crisis in 2010. Two weeks ago Eurozone finance
ministers unlocked 1.1 billion euros for Greece but held back the other 1.7 billion over Athens’s mountain of unpaid bills over doubts from Germany. The eurozone had demanded more data before approving disbursement. The 1.1 billion euros is to be used for debt servicing, while the 1.7 billion euros will go to a dedicated account for clearing arrears, the Luxembourg-based ESM said.
Good cooperation
Athens has also lived up to pledges to clear arrears, which will boost the economy, Regling said. “I hope our good cooperation with the Greek government continues, so that the second review of the programme can be completed in a timely manner,” he added. Athens is eager to win the latest bailout cash and complete a second review by the end of the year, which would then trigger talks on reducing the country’s huge debt load. Germany, Europe’s economic powerhouse and paymaster which holds elections next year, is loath to forgive any of Greece’s debt, but tackling the problem is a firm demand of rescue partner, the International Monetary Fund. The Washington-based IMF, a key player in Greece’s three bailouts, has said it won’t give a penny to the latest one until it sees a concrete plan from the Europeans to substantially cut Greece’s massive debt burden. AFP
Business Daily Wednesday, October 26 2016 15
Opinion Business Wires
Taipei Times The nation’s industrial production posted annual growth of 5.02 per cent last month, marking its second consecutive month of expansion, boosted by demand for Apple Inc’s iPhone 7 series, the Ministry of Economic Affairs said. The recovery might help industrial output swing back into positive territory this year, after last year’s decline. Manufacturing last month climbed 6.47 per cent year-on-year, marking its fifth consecutive month of gains, the ministry said. The electronic component sector saw a 20.69 per cent annual jump in production due to strong demand for the iPhone 7, Department of Statistics Deputy Director-General Wang Shu-chuan said.
The return of dollar shortages Viet Nam News The country’s seafood exports are expected to reach US$7 billion this year, a year-on-year increase of 5.5 per cent, according to the Việt Nam Association of Seafood Producers and Exporters (Vasep). Trương Đình Hòe, Vasep’s general secretary, said: “Seafood export revenues this year will surely reach US$7 billion or may be a little more than that. “In the early months of the year the seafood sector faced difficulties and challenges. Then a balance in supply and demand in the world market helped the prices of some seafood products recover.”
The Phnom Penh Post Cambodia is close to signing an ambitious agreement with the Indonesian government that would pave the way for the Kingdom’s rice producers to export 1 million tonnes of rice under a new quota scheme, a state official said. Soeng Sophary, spokesperson for the Ministry of Commerce, said a memorandum of understanding between Cambodia and Indonesia has already been finalised and is ready for ink. “Everything is agreed upon between the two governments already,” she said. “We are just waiting for the right time to sign the MoU and then the private sector will be engaged in the process.”
Straits Times The world’s largest floating solar photovoltaic cell test-bed measuring one hectare and containing 10 different solar photovoltaic systems was launched yesterday (in Singapore) by Minister for the Environment and Water Resources Masagos Zulkifli. The US$11 million test-bed will, over the next six months, be used to study the performance and cost-effectiveness of the various systems. Speaking at the Asia Clean Energy Summit held at the Sands Expo and Convention Centre, Mr Masagos said that being sustainable should not be considered as an alternative or a trade-off to economic development.
I
mmediately after World War II ended, a new phrase entered the economic lexicon: “dollar shortage.” European economies were coping with extensive war-related damage and a broad array of impediments to their efforts to rebuild their industrial base. At the time, the United States was the only provider of capital equipment for reconstruction. So, without access to US dollars, Europe’s economies could not obtain the inputs needed to increase their exports. With limited, if any, hard-currency (US dollar or gold) reserves on hand, and little prospect for acquiring dollars through export earnings, European economies attempted to shrink their current-account deficits by compressing imports from other (mostly) European countries. The expectation was that import compression would permit them to accumulate sufficient dollars to purchase capital imports from the US. But, because numerous countries employed the same tactics in an environment in which a broad array of capital controls was in place and official exchange rates were pegged to the US dollar, a parallel currency market flourished. The black market’s premium (relative to the official exchange rate) in most European countries (and in Japan) skyrocketed through the early 1950s, reaching levels that we now tend to associate with “unstable” emerging markets. Today, seven decades later, despite the broad global trend toward more flexibility in exchange-rate policy and freer movement of capital across national borders, a “dollar shortage” has re-emerged. Indeed, in many developing countries, the only thriving market for the past two years or so has been the black market for foreign exchange. Parallel currency markets, mostly for dollars, are back. This time, the source of the dollar shortage is not the need for post-conflict reconstruction (though in some cases that is also a contributing factor). Rather, countries in Africa, the Middle East, Central Asia, and Latin America – most notably Venezuela – have been hit very hard by plunging oil and commodity prices since 2012. After a long and spectacular “bonanza” in commodity prices since the early 2000s, driven largely by China’s investment boom, many commodity exporters found themselves with historically high levels of foreign-exchange reserves. These war chests were kept mainly in dollar assets, especially US Treasury securities. During the bonanza years, avoiding or leaning against currency appreciation was probably the major challenge that many central banks faced. In that heady environment, some countries went further and adopted (once again) a policy of pegging their currency to the dollar. For countries that had embraced more flexible
“
Carmen Reinhart Professor of the International Financial System at Harvard University’s Kennedy School of Government.
exchange rates – Russia, Brazil, and Colombia, among many others – the initial reversal of oil and primary commodity prices ushered in a wave of currency crashes, while those that maintained more rigid exchange-rate arrangements experienced rapid reserve losses. Because the price slump has persisted, by 2015 capital controls were being tightened and currency pegs were being adjusted or abandoned. Fining, threatening, or even jailing informal currency traders have not been particularly successful. The dollar shortage has become acute in countries like Egypt, Nigeria, Iran, Angola, Uzbekistan, and South Sudan, among many others. In Myanmar, where exchange rates were unified in 2012, the parallel market for dollars has been reinvigorated. The phenomenon is far more widespread, complex, and varied – but it is useful to focus on the more extreme cases. A search of news articles from 2000 to 2016 in which the terms “dollar shortage,” “black market,” or “parallel markets” for foreign exchange appeared, indicates that dollar shortage concerns escalated in 2008, amid the global financial crisis. The increase since 2014, however, has been more persistent. Floating the exchange rate has not altogether eliminated the parallelmarket premium in countries such as Nigeria, as de facto dollar rationing is still pervasive. In the meantime, depreciation or devaluation (which has been even more dramatic in the black market) will not boost exports much, because a single or handful of commodities – prices for which remain depressed – dominate these countries’ tradable sectors, while public and private debts are denominated in US dollars. Of far greater urgency is that dollar shortages have become food shortages in countries such as Egypt and Venezuela, as well as much of SubSaharan Africa, which rely heavily on food imports. Given import compression, the resulting scarcities, and skyrocketing black-market prices, the most vulnerable segments of the population have been left at real risk. The Marshall Plan, through its generous provision of grants, was designed to relieve the dollar shortage in post-war Europe. No modern-day equivalent is visible on the horizon. In the current setting, it is more plausible to expect a variant of the 1980s, with more emerging and developing countries seeking IMF programs. This, perhaps, may be an opportunity for China to fill a void at the top. Project Syndicate
In many developing countries, the only thriving market for the past two years or so has been the black market for foreign exchange. Parallel currency markets, mostly for dollars, are back.
”
16 Business Daily Wednesday, October 26 2016
Closing New technologies
Wall Street watchdogs turn to A.I. Two exchange operators will use the technology to monitor traders and prevent malicious behaviour John McCrank
A
rtificial intelligence programs have beaten chess masters and TV quiz show champions. Next up: stock market cheats. Two exchange operators have announced plans to launch artificial intelligence tools for market surveillance in the coming months and officials at a Wall Street regulator tell Reuters they are not far behind. Executives are hoping computers with humanoid wit can help mere mortals catch misbehaviour more quickly. The software could, for instance, scrub chat-room messages to detect dubious bragging or back slapping around the time of a big trade. It could also more quickly unravel complex issues, like “layering,” where orders are rapidly sent to exchanges and then cancelled to artificially move a stock price. A.I. may even sniff out new types of chicanery, said Tom Gira, executive vice president for market regulation at the Financial Industry Regulatory Authority (FINRA). “The biggest concern we have is that there is some manipulative scheme that we are not even aware of,” he told Reuters. “It seems like these tools have the potential to give us a better window into the market for those types of scenarios.”
FINRA plans to test artificial intelligence software being developed in-house for surveillance next year, while Nasdaq Inc and the London Stock Exchange Group expect to use it by year-end. The exchange operators also plan to sell the technology to banks and fund managers, so that they can monitor their traders. Artificial intelligence is the notion that computers can imitate nuanced human behaviour, like understanding language, solving puzzles or even diagnosing diseases. It has been in development since the 1950s and is now used in some mainstream ways, like Siri, an application on Apple Inc’s iPhone that can engage in conversation and perform tasks. While financial firms are already applying artificial intelligence software for everything from compliance to stock-picking, it is only starting to become useful for market oversight. “We haven’t really let the machines loose, as it were, on the surveillance side,” said Bill Nosal, a Nasdaq business development executive who is overseeing its artificial intelligence effort.
50 billion events
Market surveillance generally relies on algorithms to detect patterns in trading data that may signal manipulation and prompt staff to investigate.
M&A
But the sheer volume of data can lead to an overwhelming number of alerts, many of which are false alarms. FINRA monitors roughly 50 billion market “events” a day, including stock orders, modifications, cancellations and trades. It looks for around 270 patterns to uncover potential rule violations. It would not say how many events are flagged, or how many of those yield evidence of misbehaviour. The “machine learning” software it is developing will be able to look beyond those set patterns and understand which situations truly warrant red flags, said Gira. Machine learning is a subset of artificial intelligence in which computers figure out new tasks without having been programmed to do so. In the case of market surveillance, that would mean the computers “learn” which trading patterns lead to enforcement charges, in order to flag the right ones. FINRA plans to test the new tool next year alongside its existing systems to compare the results. The regulator has already moved its surveillance systems to Amazon. com Inc’s web-based Cloud, giving it more computing power to quickly analyse massive data. Nasdaq is working with cognitive computing firm Digital Reasoning, which it invested in earlier this year. LSE has teamed up with International Business Machine Corp’s Watson business and cyber-security firm SparkCognition to develop its
Regional summit
A.I.-enhanced surveillance, Chris Corrado, chief operating officer of LSE Group, told Reuters in an interview. Watson has become something of a household name, having bested contestants in the game show “Jeopardy” in 2011.
Trader integrity
The technology would not necessarily prevent events such as the 2010 “flash crash,” when the Dow Jones Industrial Average temporarily plunged more than 1,000 points. However, it could be quicker to catch manipulative behaviour thought to contribute to them, potentially saving market watchdogs time and money.
“The biggest concern we have is that there is some manipulative scheme that we are not even aware of” Tom Gira, executive vice president for market regulation at the Financial Industry Regulatory Authority
FINRA, Nasdaq and LSE would not provide specific figures for how much the software costs to develop or how much money they expect it to save. For instance, investigators spent years cross-referencing trading data with old electronic communications to make their case against a group of global banks whose traders were rigging foreign exchange benchmarks. Nasdaq said the software it is testing with Digital Reasoning and other financial firms could do that task almost in real time. Artificial intelligence start-up Neurensic launched a tool that creates an “integrity score” for traders based on how their trading patterns match up against patterns regulators have deemed suspicious. “To have that information in terms of running your business more efficiently or proactively avoiding regulatory troubles is huge,” said David Widerhorn, the firm’s chief executive. Neurensic has also worked with regulators on market-manipulation investigations and is in talks with two exchanges on supplying artificial intelligence software for surveillance, he said. Reuters
Green energy
Syngenta says deeper EU probe ASEAN business council won’t derail ChemChina deal launched in Vietnam
IEA hikes forecast after ‘turning point’ year
Syngenta AG sought to allay investor concern about a drawn-out regulatory process for its US$43 billion takeover by China National Chemical Corp., saying it’s confident the deal will get done even as scrutiny pushes the transaction into next year. “We are highly confident that our deal will get passed,” Chief Executive Officer Erik Fyrwald said after publishing earnings yesterday. “There may be some regulatory remedies, and we are prepared with regulators to resolve that quickly, but there’s nothing to stand in the way of our deal getting done.” Financing for the acquisition is in place and there’s little overlap between the two businesses, the CEO said. The Swiss maker of herbicide and pesticides expects the approval process to extend into the first quarter of 2017, having previously said the transaction would be completed by the end of this year. “As we feared,” the ChemChina review is delayed, Jeremy Redenius, an analyst at Bernstein, said in a note to investors. The Chinese state-owned company agreed to buy Basel-based Syngenta in February. The transaction has already received backing from a U.S. national security panel and has 11 antitrust approvals including South Africa, Israel and Japan, Syngenta said. Bloomberg News
Government support and lower costs will power stronger-than-expected global growth in renewable energy over the next five years, the International Energy Agency (IEA) said yesterday. After a record 2015, global renewable electricity capacity will grow by 825 gigawatts by 2021, a massive 42-per cent rise, the IEA said. The estimate is 13 per cent higher than the agency’s forecast last year. The IEA has been criticised in some quarters for being over-cautious about renewables. In 2021, solar, wind and other renewable sources will provide comprise 28 per cent of world electricity production compared to 23 per cent in 2015, the IEA said. Last year marked a “turning point” for renewables in terms of investment and use, the IEA declared. The pick-up is mostly down to “stronger policy backing” in the United States, China, India and Mexico, it said. Costs are expected to drop by around 25 per cent for solar panels, and 15 per cent for onshore wind. China accounted for 40 per cent of all renewable capacity increases last year, a rate that amounted to installing two wind turbines every hour, the agency said. AFP
The Association of Southeast Asian Nations (ASEAN) Regional Business Council (RBC) was launched by the World Economic Forum (WEF) yesterday. The council’s mandate is to promote public-private cooperation on the most pressing issues in the ASEAN, in the context of the fourth industrial revolution and its implication on the region, said a press release by WEF. The council will focus on building infrastructure, promoting cross-border trade and investment in ASEAN, developing a digital economy, examining the future of jobs and industry in the region and championing the principles of inclusive growth. In the year ahead, the RBC is expected to launch a number of other initiatives including a strategic infrastructure programme that promotes blended finance. ASEAN has a large infrastructure deficit that cannot be addressed through public investment alone. Private capital is needed, but many projects fail to secure funding because investors see them as too risky. Blended finance harnesses flows of official development assistance to alleviate these risks while also allowing private capital to be raised, the WEF said. Xinhua