Landing raises funds to support further Jeju preparation Funding Page 6
Monday, September 18 2017 Year VI Nr. 1385 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusiness.com
KYC
Property
VR
No KYC measures yet for HK ATMs: HKMA Page 7
Real Madrid Hengqin project part of overall shift to diversify MSAR Page 3
S&P
Portugal rating upgrade opening investment opportunities Page 14
Households in China see real estate prices increasing Page 10
Legislative Assembly revamp
Election
Once every four years. The population votes on the city’s legislative assembly. More changes than expected. Mak Soi Kun’s party raking in the votes, followed by Ella Lei, while Melinda Chan’s list didn’t make re-election. Young democrat Sulu Sou grabs a seat, as does Agnes Lam. Page 2
Sustainable tourism, dispersing tourists to secondary markets, using innovation – the way forward for tourism says the CEO of the Pacific Asia Travel Association (PATA), Mario Hardy. Best example of success in controlling tourist numbers: Bhutan. Social media and gamification couple with immersive experiences as well as diversification of tourism source markets. Compete or die says the expert. Interview | Tourism Pages 4 & 5
HK Hang Seng Index September 15, 2017
No repeat of 2014
Crackdown Analysts point out that a recent increase in anti-corruption measures by the central gov’t, with 181 investigations announced in the first eight months of the year, focusing on ‘notable’ figures from banking, insurance and more, could result in slowdown in VIP sector uptick, while mass market continues ‘robust’. Page 6
Loans in China outperform Banks Mainland’s banks credit numbers performed better than expected in August, with mortgages fueling demand. However there are signs that credit growth may have reached a peak. Page 8
27,807.59 +30.39 (+0.11%) Worst Performers
Henderson Land Develop-
+2.75%
Hong Kong & China Gas Co
+1.09%
AAC Technologies Holdings
-3.10%
Lenovo Group Ltd
-0.94%
China Mengniu Dairy Co Ltd
+2.73%
Link REIT
+1.01%
China Shenhua Energy Co
-1.35%
Hang Lung Properties Ltd
-0.87%
CNOOC Ltd
+2.71%
Hengan International Group
+0.94%
Want Want China Holdings
-1.10%
Sino Land Co Ltd
-0.86%
China Overseas Land &
+2.01%
Swire Pacific Ltd
+0.88%
WH Group Ltd
-0.98%
Hong Kong Exchanges &
-0.76%
Geely Automobile Holdings
+1.22%
China Mobile Ltd
+0.80%
China Resources Power
-0.97%
Cathay Pacific Airways Ltd
-0.67%
27° 32° 27° 31° 27° 31° 26° 31° 26° 32° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Changing tourism spectrum
2 Business Daily Monday, September 18 2017
Macau Election
Legislative Assembly re-shuffle Results show that Jiangmen tongxianghui and unionist took the crown, democrats took three seats and, while SJM’s Angela Leong On Kei was re-elected, Melinda Chan failed to regain a seat Cecilia U cecilia.u@macaubusinessdaily.com
M
ak Soi Kun topped the list in the sixth Legislative Assembly (AL) election, winning 17,207 votes, followed by unionist Ella Lei Cheng I, bringing in 16,694 votes. The second candidates for both lists - Macau-Guangdong Union and Union for Development - Zheng Anting and Leong Sun Iok also saw their AL terms secured, the only lists to win multiple
seats. Meanwhile, Si Ka Lon and Song Pek Kei, from the Fujian community, secured only two seats, losing a seat when compared to the last election led by Chan Meng Kam. The group once headed by Chan had decided to split into two, led by Si and Song, with Si telling the media that the less favourable outcome of this year’s election was due to a more fierce competition, and that Chan no longer running had an effect on the results as well. Ho Iong Sang and former political organization partner
Wong Kit Chen also succeeded in retaking their seats in the legislative body. The first candidate of the group New Hope, José Pereira Coutinho, was successful in securing a seat in the assembly but the party was unable to secure a second. With votes equally distributed among the three democratic groups, Ng Kuok Cheong and Au Kam San confirmed their continuation of serving the AL, while new blood from pro-democracy group and the youngest elected legislator at 26 years old, Sulu Sou Ka Hou also
successfully entered the AL. The next AL also welcomed newly elected candidates Agnes Lam. On the other hand, Angela Leong On Kei, SJM’s executive director, had her seat secured for for the next fouryear term but was unable to obtain a seat for her partner - local businessman William Kuan Wai Lam. Leong criticised the more stringent measures regarding the gaming industry implemented by the Electoral Affairs Commissioner (CAEL), leading to a reduced number of her supporters, TDM
Chinese Radio reported. Melinda Chan, wife of local businessman David Chow Kam Fai, the head of casino operator Macau Legend Development Ltd, failed to get enough votes to secure a seat in the assembly. Speaking to the press after the vote count, Tong Hio Fong, the head of CAEL, reported that this year’s election had seen the participation of approximately 57.22 per cent of the 305,615 registered voters, up 2.2 percentage points, or 22,992 voters, when compared to last AL election in 2013.
Election
Livelihoods continue to prevail in voters' choices Voters at the ballot box, however, also perceived that casting votes would perhaps make a reform for the AL Cecilia U cecilia.u@macaubusinessdaily.com
Voters of this year’s Legislative Election have their minds on candidates that could likely resolve issues relating to transportation and housing. The majority of voters that Business Daily talked to yesterday are not satisfied with the performance of the previous Legislative Assembly (AL). A civil servant surnamed Chan expressed a wish for new blood in the AL who are unbiased and that act in accordance to issues rather than for their own benefit. “It is necessary for the AL to have different voices,” remarked Ms. Chan to
Business Daily. “If most of the legislators are related to the business sector than obviously they would favour decisions that benefit their businesses.” The 30-year-old civil servant divulged that she would not vote for those who are related to business or tongxianhui [Chinese native-place associations]. Ms. Chan said that she had noticed a lot of shuttle buses carrying eldery people to the ballot box, and stating that the related authorities (the Commission Against Corruption or Electoral Affairs Commission) had not investigated the matter. “These senior citizens had their badges representing some sort of associations
stuck on them and many of them don’t even know what they are voting for,” said Ms. Chan. Business Daily also spoke with a number of senior voters and all of them said “they know nothing, they just came and vote.” However, Ms. Chan also stated that more young people were willing to vote in this year’s election. “After the hit of [Typhoon Hato], I believe more young people come out and vote,” commented Ms. Chan. “Like some of my co-workers, who didn’t vote last time, decided to vote this time because the previous AL was really bad.” A 54-year-old housewife surnamed Chan, on the other
hand, told Business Daily that she dislikes former legislators who support the government without disagreement. “Some of these legislators advocated to support women but why in the end di they vote against the Domestic Violence Prevention Bill?” questioned Mrs. Chan. Meanwhile, Mrs. Chan commented that the campaign period is too short. “I notice that only the big associations are giving out pamphlets near my place,” said Mrs. Chan. “Many of my friends didn’t even know that the campaign had started.”
Vote matters
Another voter surnamed Tsang spoke to Business Daily
after casting his vote yesterday, opining that casting a vote would open up opportunities for a change in the AL in the long run. “Although only 14 are directly elected, if we choose someone who wants to make a change at the AL I think in the long run that the AL will change,” said Tsang. “Like more directly elected [seats], but if we don’t vote there will be no change for sure.” Voting for the third time, Tsang expressed the wish that the new AL would expedite its work. “The previous AL was slow in making progress, like with the rental law,” said Tsang. “They just finished the voting at the very end of the AL session.”
Business Daily Monday, September 18 2017 3
Macau Hengqin
Real Madrid adds lustre to China’s wannabe “Orlando” tourist hub The transformation of Hengqin is part of Beijing’s efforts to bolster links between Hong Kong, Macau and nine cities in the Pearl River Delta region, or so-called “Greater Bay Area” Farah Master
J
ust a stone’s throw across a narrow waterway from the world’s largest gambling hub Macau, a former oyster farming island is being transformed into China’s newest tourism haven. Dubbed by some as China’s answer to Florida’s Orlando - a global tourist magnet with its cluster of major theme parks - Hengqin has seen property prices more than double over the past two years. While still a dusty mass of construction sites, Hengqin now draws millions annually to its anchor attraction, the “Chimelong Ocean Kingdom” theme park, with a slew of hotel, malls and sprawling residential developments being built nearby. Spanish soccer club, Real Madrid, announced last week they would open an interactive “virtual reality” complex in Hengqin, in partnership with Hong Kong-listed developer, Lai Sun Group. The 12,000-square metre venue, set to open in 2021, will include virtual reality entertainment and a museum showcasing the club’s history. The transformation of Hengqin, which is three times as large as Macau, is part of Beijing’s efforts to bolster links between Hong Kong, Macau and nine cities in the Pearl River Delta
region, or so-called “Greater Bay Area”, modelled after other dynamic global bay areas such as Tokyo and San Francisco. “Hengqin will be the Orlando of China. Macau is Las Vegas (and) Hong Kong is New York,” said Larry Leung, an executive with Lai Sun that is helping build the Real Madrid complex at its “Novotown” project in Hengqin. “Within an hour you can have them all.” Novotown’s entertainment mix will also feature China’s first Lionsgate movie world with theme rides from blockbuster films such as the Hunger Games and Twilight, as well as a National Geographic educational centre. And high-end hotel chains and luxury yacht makers are building more hotels and a marina on Hengqin.
Expanding the MSAR
Chinese officials see Hengqin helping Macau diversify away from casinos to a more wholesome tourism industry. More than 80 per cent of Macau’s public revenues come from the gambling sector. Businesses in Macau have been encouraged to invest in Hengqin with the government providing cheaper rent and tax subsidies. Galaxy Entertainment, Shun Tak and Macau Legend have also earmarked developments for Hengqin.
Realtors expect property prices to keep rising once a sea bridge linking Hong Kong, and a high speed rail station are completed. Hoffman Ma, deputy chairman of Success Universe Group, which operates the Ponte 16 casino in Macau, said Hengqin could take some convention and exhibition business away from the former Portuguese colony. “It doesn’t make sense for Macau to do that, due to a consistent labour shortage,” he said. Wang Lian, from Wuhan in central
China, brought his daughter to watch whale sharks and polar bears at Chimelong Ocean Kingdom recently. Industry reports show 8.5 million people visited China’s top theme park last year, more than Hong Kong Disneyland’s 6.1 million, and almost a third of the 28 million people who visited Macau last year. “China’s population is so big they need something like this nearby [...] its (Hengqin’s) economic ties will also help Macau develop,” Wang said. Reuters advertisement
4 Business Daily Monday, September 18 2017
Macau
Mario Hardy, CEO of the Pacific Asia Travel Association (PATA)
Interview
Sustainable tourists As the CEO of the Pacific Asia Travel Association (PATA), Mario Hardy has been advocating for the development of sustainable tourism through dispersion of tourists to secondary markets, innovation, and creative offerings for many years. Business Daily talked to the tourism expert about how the sharing economy can improve Macau’s hotel and tourism industry and if having an annual visitor cap could resolve excessive visitation in the city Nelson Moura nelson.moura@macaubusinessdaily.com
W
hat is the main goal of PATA? Our mission is really to help destinations and businesses to develop sustainable tourism. We include both private and public sector organisations; we have almost 100 destinations who are members of PATA and over 850 corporations who are members as well, including 75 universities. We’re a bridge between the private and public sector, we’re trying to bring people together around the same table and have some meaningful discussions about the development of tourism and help destinations who might be facing challenges or difficulties over tourism or not enough tourists. Or simply talk about business and how to develop it more efficiently. Your organisation emphasises the sustainable development of tourism. In which areas do you believe these developments need to be made? It’s very important for the organisation. I always mention that when we talk about sustainability, the first thought that comes to mind is the environment and climate change. These issues are an important part and we do our best in those areas too, but it’s not the only part of sustainability, which is also about business, people, communities and society in general. We want to make sure we don’t end up in situations with excessive tourism, with residents complaining and saying ‘enough is enough, get out of my city’, or starting to have racial conflicts due to excessive occupation
of their space. It’s about better planning and planning for the long term. Planning for too much or planning for not enough. Finding the right balance is always a challenge. Sometimes it’s seasonal, sometimes it depends on the days of the week. I think there are solutions for all these problems, we just need to plan better.
“Macau should provide more shows with celebrities that can make more people willing to fly over” Excessive visitation is something that seems to apply to Macau, with some reports believing the city could see 40 million visitors annually by 2020. Do you believe Macau is ready for that amount and what similar cases have you seen in the region? I think this issue is very pertinent to many destinations. We all know about Barcelona, Venice or Reykjavik (Iceland) - European cities where residents are very vocal about the issue of over tourism. In Asia, cities are maybe less vocal, but certainly there are areas such as Angkor Wat (Cambodia), which as a UNESCO site has way too many tourists, with the region not being able to handle the situation, or handling it badly. I always say, there are 17,508 islands in Indonesia, but everyone goes to one (Bali) and not even the entire
island, but just a part of it. Thailand also suffers from this in certain destinations such as Koh Samui, Chiang Mai, Pattaya or Phuket, but there’s so much more to the country than these destinations, just like there’s so much more in Cambodia than Angkor Wat. PATA has been promoting for almost four years what we refer to as the dispersal of tourism: getting tourists to explore the secondary destinations in the rest of the country, to plan for infrastructure development in these regions, because it takes time. If suddenly millions of people started to fly to Lombok, Indonesia they wouldn’t be ready for it.
For me, it’s one of the leading examples of how to properly manage tourism. If a country was to start from scratch today, this is how I would envision it to manage and control the number of tourists.
What regions have you seen that have successfully enforced measures to control tourist numbers? Probably the best case would be the Kingdom of Bhutan. This might sound controversial, but they control the number of tourists that can enter the country every year. Some of the local tour operators obviously are not very satisfied with that because it hits their business, they want to grow but they can’t because there’s a cap. However I think they’re actually doing the right thing. They have a balance of not accepting more tourists until they can handle and cope with them. They’re saying we can accept X amount, and next year maybe a little bit more, after we develop new roads, new infrastructure in the East where there's none at the moment. It’s a small country so it’s maybe a bit easier than other places. They know how many rooms they have, they know what is their maximum occupation per day, per week or per month, and say ‘this is how much we can cope with’.
Which sector do you see pushing more towards the measures for sustainable tourism PATA advocates? It depends from country and destination. If I was to generalise, I would say probably the private sector is pushing more for change. Maybe sometimes not for the right change, but I think they’re probably the ones more vocal about it.
Although such a cap has to be a publicly-led measure, does it have to be completely government-run? Yeah, but hopefully with some type of collaborations and agreements with the private sector, if it is the right thing to do for the country and the industry. After all, this also allows them to charge a premium for it, it is expensive to go to Bhutan, but it’s a privilege.
Macau has also been, and is catering to, a very specific type of customer, the Chinese tourist, for many years. What risks does this situation entail and how can Macau improve? There’s a large risk of being largely dependent on a source market or one type of product. What happens when you’re no longer the flavour of the day? I’ve seen this in many destinations. Look at what happened in South Korea, where over 60 per cent of their source market originated from mainland China. Because of the [THAAD anti-missile defence system] crisis, there’s not a single [Chinese] tourist going to South Korea
Business Daily Monday, September 18 2017 5
Macau anymore. Overnight they lost over 60 per cent of their market. It will come back, they’ll resolve the issue, but overnight they lost a huge chunk of their market. The message of this for any destination, is to make sure you have a good mix of source destination markets and product offerings. That’s what Macau needs to find: what is the other thing they can offer? What really helps in Macau are the shows you have. I know people from Singapore, Taiwan or Thailand that come here just because there’s a big show in town. Macau should provide more shows with celebrities that can make more people willing to fly over. In Macau, the majority of tourists concentrate on certain spots or areas. What methods can be used to convince tourists to visit secondary or lesser-known attractions? There’s a lot of ways we can encourage people to go and discover. There needs to be collaboration between the public and private sectors to put packages, to tell stories differently, create itineraries. In Taipei, Taiwan we’re hearing how to use art to create different pathways for people to circulate, or create in the surrounding villages or mountains paths where you place some sculptures or interactive technology. Not just something that can give people an excuse to take selfies, which everyone loves in Asia, but something that actually pushes people to explore something different. You need to think of it differently. What would entice someone to start from a different location or decide to explore a different area? It sounds silly, but maybe a yellow brick road will help discover something different. What innovations can support the development of sustainable tourism? There are so many out there available. Tell stories about the destination to get people to know it and understand it better, to share about new places that people don’t know about, but that are wonderful. Social media plays a good role in doing this. Gamification is also an interesting way to affect this, such as apps, contests or competitions. We’ve seen the success of the Best Job in the World campaign in Australia, how it drove a better knowledge of the destinations. There’s a lot that can be played with that, it’s not high-tech, it’s lowtech but it works. If you want to go a little bit more high-tech, you can do things like beacons to solve the issue of over-tourism, by creating virtual pathways that drive people to go and discover something different. Robotics and all of this is cool and fun but it’s too early, they’re not
“There is a role for the government to play with Uber and Airbnb in terms of safety and security in collecting money […] Now, is it their job to stop them and block them from coming into the market or creating new opportunities? Absolutely not” sophisticated enough at this stage. How can sharing economy services such as a Uber and Airbnb, which have faced opposition from the Macau government, help in developing the local tourism market?
I’m totally behind the sharing economy. I think it’s a wonderful creation and I hope we can share a lot more other stuff that we have. There are plenty of other sharing websites, where we can share skis, surfboards and even dresses. I’m being asked this question very often by governments and the private sector, about if there should be regulations on these services. I usually respond that there is a role for the government to play with Uber and Airbnb in terms of safety and security in collecting money. They should be paying taxes like anyone else or any other business and they are, maybe not in all jurisdictions but in certain places. That’s the role of the government, that’s its job. Now, is it its job to stop them and block them from coming into the market or creating new opportunities? Absolutely not. It’s free world competition, and the winners win. Of course the government should put in place policies to make it a fair market, if hotels are paying a huge amount of taxes and the guy next door with a great property on Airbnb doesn’t pay any. But for the hoteliers that are against this idea I would say, sorry guys, you just have to be more creative. Be innovative, do something different. What examples of hotels being innovative have you seen? I’ve seen this case of a very successful Airbnb apartment which had an incredible idea. Why no hotel has thought it [I don’t know]. [It’s]of recreating the room of Van Gogh. An exact replica of the room where he worked and died, with the paintings and everything. How cool is that? You’re offering an experience. There are boutique hotels who offer incredible experiences. I stayed in one in Barcelona recently, which has a 4D immersive Virtual Reality experience,
which reflects on the walls and transported me into something different. I fell asleep under the ocean with turtles floating around the room and I woke up in space. It was fantastic. I also met this gentleman in Abu Dhabi who owns a hotel chain called the Jannah Group. He found out that around one of his main properties there were a lot of Airbnb’s. So instead of competing with them, he went to them and said ‘listen how about we make a deal. You need someone to manage keys and cleaning, I can do that for you, and all of your guests can enjoy the hotel facilities, use the pool, the gym, etc. Of course if they’re using the facilities they can have a drink, lunch or dinner in my property’. It’s win-win for everybody. That’s being creative. It’s Airbnb and hotel owners collaborating and sharing some space together.
“My only regret for Macau is that, if you want to be like the Las Vegas of Asia, fine, but why not make it more Macanese, more local and unique? Instead of being an exact replica of Las Vegas?” Do you believe new technological changes in booking systems will bring an end to traditional travel agencies? No, but they do need to change and
adapt. Every business in the world has to embrace technology regardless of what industry you work in. You can’t ignore technology anymore, you have to embrace it and adapt your business to the changes coming up. Change the way you work, offer something different, there will always be a place for something unique. Traditional agencies need to use technology to know their clients and personalise their offerings. If you don’t adapt you’ll die and be replaced. Is the average tourist nowadays much harder to satisfy? Yes, because they’re more experienced. They’ve travelled much, they’ve seen a lot, they want to experience something different. The days of waking up in a hotel where you have no sense of place are over. I wake up in dozens of hotel rooms every week and I have no idea where I am. I could be in Istanbul, Shanghai or New York and the room looks exactly the same. But if I stay in a boutique hotel in Shanghai that has a Chinese decor then yeah, I feel like I’m in China. Then what would be your opinion on the style of the integrated resorts in Macau? My only regret for Macau is that, if you want to be like the Las Vegas of Asia, fine, but why not make it more Macanese, more local and unique? Instead of being an exact replica of Las Vegas? I guess with Macau being so close to mainland China, it allows Chinese an opportunity to experience Vegas, I can understand that aspect. For Macau as a destination, it would’ve been nice to have a sense of place, where you know you’re in Macau with all the mixed heritage of China and Portugal.
6 Business Daily Monday, September 18 2017
Macau Opinion
Sheyla Zandonai* Political observations Elections are a high point in politics. Yet traditional mechanisms of political representation seem to have been lacking lately, in efficient ways of governing and representation itself. We know power and economic interests often take the lead in government. Since neoliberalism became the widespread instruction in democracies and not-so-free political regimes, the common good is a battle. Nearly everywhere in the world, political systems are functioning with some degree of dysfunction. Nepotism, traffic of influence, and corruption are common currency in many of them. Does it make them acceptable? I doubt it. That is a reason why mechanisms of accountability should be operative and clearly defined. An independent judicial system, for instance, or requiring that politicians make public their accounts, can do no harm to humanity. When someone works so close to the public good, it is just expected that the good be made public, and an actual aim of governing. Nothing is new in this. It is in Confucius and in Laozi. In its latest modern, Western conception, politics is a matter of representation, a service rendered to the collective. The collective is, nevertheless, disjointed. In democracies, parties represent groups of interest, and groups are ever more diverse and fragmented, with the demise of clear ideological lines which once defined left and right wing politics in a more categorical way. France’s president-elect Emmanuel Macron is an example in point of how a clear left-right cut is no longer, at least in that country. If it is going to yield better results and for whom, that’s a matter to be followed closely. While the right is not necessarily concerned with social benefits and principles of equality, the left has also failed in quite disappointing ways in some parts of the world. Latin America continues to produce forms of populism. Although some may appear more sophisticated and concerned with improving people’s lives, they barely engage in structural matters capable of yielding sustainable development. Instead, they generate deep social and moral upheavals when governments collapse. With the introduction of more participatory ways of governing, bridging gaps between constituents and representatives, the political process has become more democratic in a way, more close in line with representation itself, but also more intricate and dispersed. Diversity within politics is a good sign of representation, but it also requires ever more mature mechanisms of checks and balances, and negotiation and accommodation. The floor is open.
* Journalist.
Anti-corruption
Winds of change Brokerage firm Sanford C. Bernstein indicated in a report that a rise in anti-corruption activities by the Chinese central government in the first eight months of this year could mean lower future VIP results, but remained positive about the outlook for the local mass gaming market Nelson Moura nelson.moura@macaubusinessdaily.com
D
espite a recent increase in anti-corruption measures by the Chinese central government, analysts from brokerage firm Sanford C. Bernstein don’t believe there will be a repeat of the crackdown that led to the drop in gaming revenues around three years ago. However this increase could decelerate the VIP sector’s improvement in recent years, with the mass market facing brighter prospects. In a report released on Friday entitled ‘Bimmers & Baccarat - How worried should we be about escalating anti-corruption activity in China?’ Bernstein evaluated the risk factors for the gaming industry after a recent uptick in anti-corruption measures was registered. ‘Among the various indicators we follow to determine the health of the high-end Chinese consumer and premium/luxury spend, we monitor the level of apparent anti-corruption activity in China as a potential impact on sentiment,’ the note stated. These indicators seemed to show that after a long period of ‘moderation’ from the beginning of last year, data seems to show that since early spring of this year there has been the largest ‘sustained pick-up in anti-corruption activity since 2014, as several high-profile senior politicians have been placed under official investigation’. Analysing the level of announcements of anti-corruption investigations China’s Central Commission for Discipline Inspection (CCDI) made since 2014, Bernstein pointed out that the volume of investigations announced per month fell from frequently over 50 to less than 20 between 2014 and 2016. However, that number saw an uptick in the first eight months of 2017 when a total of 181 investigations were announced, including 156 in the six months since March.
Another signal the firm considered ‘notable’ was the positions of the officials under investigation, which included China’s ‘top banking and insurance regulators, the head of the anti-graft committee for the Ministry of Finance’ and Sun Zhengcai, formerly considered by Financial Times analysts as a possible successor to Xi Jinping as the Chinese Communist Party Secretary.
Fading VIP prospects
The firm considered that in recent years a ‘moderating anti-corruption campaign, a relatively strong China economy and good consumer/ business confidence coupled with improved liquidity’ has helped improve the VIP sector since the autumn of 2016, with the premium market being up 25 per cent ‘year to date through August’. However, Bernstein believes this ‘VIP sector liquidity bump’ will ‘fade’ due to Chinese credit restrictions, money supply growth slowing down and as ‘real estate pricing softens’. ‘The VIP segment is likely to continue to face uncertainties due to instituted cooling measures on real
estate in Chinese Tier One and Tier Two cities, enhanced regulatory framework with respect [to] Macau (junkets and banking anti-money laundering), tightening Chinese liquidity and weakening commodity prices,’ the note considered. This could result in VIP growth slowing to a year-on-year uptick of between 4 per cent and 6 per cent. Mass market on the other hand should ‘continue to stay robust’ as new supply expansion and improved transport increase the amount of overnight visitations, which could then lead to a growth in average visitor spending. Therefore, after being up by 14 per cent year to date through August, the firm’s analysts predicted mass market gaming results could see a yearly growth in the upcoming months of between 11 and 12 per cent. ‘However, premium mass may face some headwinds due to similar cooling measures as will become evident in VIP demand. Further, hotel vacancy is coming down, which may create additional headwind if hotel openings are delayed,’ reads the note.
Integrated Resorts
Landing muscling up to complete Shinhwa World, Jeju The last of a series of strategic disposals from the Hong Kong-listed casino and theme park developer is to focus its finances and efforts in South Korea Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The developer of Jeju Shinhwa World, Landing International Development Limited, announced it has raised some HK$1.79 billion (US$229.21
million/MOP1.84 billion) in net proceeds through the placing of shares for further development of the amusement park, the company said in a filing with the Hong Kong Stock Exchange. The 24 billion shares corresponding
to the placing represent approximately 19.45 per cent of the issued share capital of the company immediately after the completion of the placing. In the announcement of its interim results on August 29, Landing noted it was ‘focusing on the preparation of Jeju Shinhwa World’s commencement of the full resort operations by the end of 2017,’ adding that the construction of phase one development of hotels and the theme park – started in the first half of 2016 – was ‘close to being completed,’ with the conclusion of the project expected by 2019. The company further said it planned to slow down sale activities for properties during the second half of 2017, in order to focus on the progressive opening and marketing of the theme park. Under the current development plan, Jeju Shinhwa World is to host a myths and legends theme park, a waterpark and retail and food complex.
Business Daily Monday, September 18 2017 7
Macau Gaming finance
Still knowing your customer Whereas the monetary authorities of the Macau and Hong Kong SARs remain unable to confirm if money withdrawals at ATMs in both jurisdictions have decreased or increased since the implementation of KYC technology in Macau, data released by an investment bank shows dependence on CUP cards for cash remains ‘high’ in the city promote the integrity of the financial system of Macau and to enhance the protection of the legal rights of Mainland cardholders.’
Sheyla Zandonai sheyla.zandonai@macaubusiness.com
A
pplying different identity verification controls at ATM machines in the Macau and Hong Kong SARs suggests the Chinese government has different purposes, namely, to prevent ‘money laundering and capital flight,’ says Jacky Yuk-chow So, Dean of the Faculty of Business Administration at the University of Macau and BNU Chair Professor of Finance. ‘Given the major difference between the two cities, casino and gambling, and given that the policy [KYC] is applied to Macau only, it is more likely that money laundering using the casino industry may be the more likely reason [for using the technology here],’ he told Business Daily. Having come into effect in early June, the KYC technology involves facial recognition and identity card reading of mainland China UnionPay (CUP) cardholders when withdrawing cash from local ATMs, capped at MOP5,000 for each transaction and
High dependence
MOP10,000 daily. Despite recent media reports in Hong Kong that the use of the new technology in Macau has led to a considerable increase in the volume of cash withdrawals in ATMs in the neighbouring city, the Hong Kong Monetary Authority (HKMA) has not confirmed nor denied these claims. ‘We maintain regular dialogues with the banking industry on different supervisory issues. We do not comment on details of any such dialogues,’ HKMA told Business Daily. The central financial regulatory body of Hong Kong only confirmed to Business Daily that it has ‘no plans to require ATMs to install facial recognition technology’ in
the neighbouring territory. HKMA further noted that it came to this conclusion after having studied ‘applications of different technologies, including the feasibility, soundness and cost efficiency of facial recognition and other types of biometric authentication technologies, having regard to the technologies used in other jurisdictions.’ A similar question posed to the Monetary Authority of Macao (AMCM) – whether or not the volume of CUP cash transactions has decreased in local ATMs with the new KYC policy – also went unanswered. AMCM only said that the implementation was requested of financial institutions ‘with the aim to
On the other hand, a report by Morgan Stanley published last week revealed that dependence on mainland China UnionPay cards for cash remained ‘high’ for the premium mass gaming segment during the year ended August 2017, showing an increase when compared to the last two years. The investment bank outlined that as much as 70 per cent of gambling funds have been sourced through UnionPay cards for customers gambling higher sums, compared to 66 per cent in 2016 and 60 per cent in 2015. According to Morgan Stanley’s analysis of a survey conducted with 1,000 Chinese gamblers in Macau and in the U.S., there is increased risk for premium mass with the implementation of facial recognition, transaction limits, and rising scrutiny. ‘We think the cash withdrawal limit of RMB100,000 per card per annum since
2016 and Know Your Customer (KYC) features for ATM machines in Macau will continue to reduce usage of cash and increase the usage of UnionPay cards in pawnshops,’ the institution noted.
Gaming preferences
According to Morgan Stanley’s research, Macau remains the ‘top casino gaming destination’ among Chinese gamblers, with 70 per cent of the respondents having visited the city during the period analysed, while the Philippines appeared as ‘the least preferred destination’ for Chinese gamblers. Outside Macau, Singapore has overtaken South Korea as the most popular gambling destination in Asia. The investment bank expects, however, the number of Chinese visitors to the Philippines to increase in the next few years – already up 33 per cent in the first half of 2017 year-on-year – driven by an 'improved geopolitical relationship,’ and ‘visas on arrival granted to Chinese visitors (tour groups) in August,’ adding it believes those could become visa-free ‘soon.’ advertisement
8 Business Daily Monday, September 18 2017
Greater China Banks
Yuan loans surprisingly strong, but growth may have peaked Household loans accounted for 61 per cent of total new loans last month Kevin Yao and Fang Cheng
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hinese banks extended more credit than expected in August, buoyed by demand from home buyers and companies, but there are signs that credit growth may have reached a peak as tighter monetary conditions filter into the broader economy. Beijing is trying to reduce financial risks by containing rising debt and defusing property bubbles amid fears they could derail the world’s second-largest economy, although policymakers are seen treading warily before a key party meeting next month. Chinese banks extended RMB1.09 trillion (US$166.5 billion) in net new yuan loans in August, central bank data showed on Friday, well above analysts’ expectations. Analysts polled by Reuters had predicted new yuan loans of RMB900 billion, up from RMB825.5 billion in July. “Today’s data are consistent with our view that, having reached a peak during the current business cycle in mid-2016, broad credit growth is now on a downward trajectory,” Julian Evans-Pritchard, Capital Economics’ China economists, said in a report. Yan Ling, a Shenzhen-based analyst at Merchants Securities, said a gradual slowdown in credit growth, coupled with a steady rise in borrowing costs, could weigh on the economy in the fourth quarter but the expected
slowdown may be modest. Household loans, mostly mortgages, rose to RMB663.5 billion in August from RMB561.6 billion in July, according to Reuters calculations based on the central bank’s data. Household loans accounted for 61 per cent of total new loans last month, down from 68 per cent in July. Short-term household loans in August doubled from July to RMB216.5 billion, reflecting a surge in consumer lending as some home buyers may have turned to shortterm consumer loans due to curbs on mortgages, analysts said. Corporate loans climbed to RMB483 billion in August from RMB353.5 billion in July. Broad M2 money supply (M2) in August grew 8.9 per cent from a year earlier, hitting a fresh low since records began in 1996 and missing forecasts for an expansion of 9.1 per cent and compared with July’s 9.2 per cent. China’s central bank has said that the slowing M2 growth could be a “new normal” due to the stepped-up crackdown on risky shadow lending activities. Total social financing (TSF), a broad measure of credit and liquidity in the economy, rose to RMB1.48 trillion in August from RMB1.22 trillion in July, the data showed. Some economists had expected an increase in the TSF to RMB1.3 trillion. Combined trust loans, entrusted loans and undiscounted bankers’ acceptances, which are common
Household loans, mostly mortgages, rose to RMB663.5 billion in August from RMB561.6 billion in July
forms of shadow banking activity, rose by RMB130.3 billion in August, versus a fall of RMB64.4 billion in July, according to Reuters calculations.
Steady monetary policy
In its second-quarter policy report, the central bank said it would strike a balance between deleveraging and maintaining stable liquidity, suggesting policymakers were keen to keep the economy on an even keel. Analysts believe the central bank is likely to keep policy steady ahead of the once-infive-years Communist Party Congress later in October, where President Xi Jinping is expected to consolidate his hold on power. Regulatory tightening has moderated somewhat amid signs that a surge in money market interest rates earlier this year are trickling down to the real economy, and
authorities appear unlikely to tap the brakes any further in the near term. China posted a flurry of disappointing data on Thursday - including its slowest growth in investment in nearly 18 years - suggesting the economy is finally starting to lose some momentum as borrowing costs rise. The economy had defied expectations for a slowdown despite the stepped up property curbs and debt crackdown, partly as an infrastructure-led building boom has fed demand and prices for everything from cement to steel to other building products. Outstanding yuan loans at the end of August grew 13.2 per cent from a year earlier, more than an expected 13 per cent rise but steady with the pace in July. Analysts say China’s campaign to reduce financial risks this year has had mixed
success so far, and opinions differ widely on whether it is moving quickly enough or decisively enough to avert the risk of a debt crisis down the road. Regulators are making significant inroads in reducing interbank borrowing – perhaps the most pressing risk and have curbed some riskier types of shadow banking. However, China’s economy still remains heavily reliant on credit, and analysts agree more comprehensive structural reforms are needed. Though the pace of credit growth may be easing, new bank lending and total social financing may hit fresh records this year and continue to outpace economic growth. A recent Reuters analysis showed corporate debt is growing faster than last year, with few companies using stronger profits to reduce debt. Reuters
Markets
Hong Kong proposes creation of securities listing policy panel Proposals made in June 2016 suggested the creation of two new committees to develop and regulate listing policies in Hong Kong Elzio Barreto
Hong Kong’s securities regulator and the stock exchange on Friday proposed a new listing policy panel as part of their initiative to improve transparency and governance in the Asian financial hub. The final proposals underscore the Securities and Futures Commission’s (SFC) desire for a “more direct presence” in listing regulation and to become more active in objecting to certain listings, according to conclusions from the consultation process that started in June 2016. The consultation drew nearly 9,000 submissions from market participants and pitted the city’s banks and the Chamber of Hong Kong Listed Companies against international asset managers who favoured tougher scrutiny of listing candidates. The chamber and banking sector have pushed back against reforms over fears they could give the SFC too much power and potentially stymie the market for initial public offerings (IPOs). “We have been demonised,” SFC Chairman Carlson Tong told a news conference. “If we are too popular
with the market, we are not doing a very good job as a regulator. Our job is to ensure quality in the market.” The proposals made in June 2016 suggested the creation of two new committees to develop and regulate listing policies in Hong Kong. The CEO of Hong Kong Exchanges and Clearing (HKEx) would no longer
sit on the listing committee while the SFC’s chief executive would sit on a newly created listing policy committee. The proposed changes followed investor criticism of possible conflicts of interest in the current framework, whereby HKEx acts as both the profit-driven market operator
Securities and Futures Commission’s headquarters
and regulator of IPOs. HKEx has also clashed with the SFC over listing matters.
‘The Chamber of Hong Kong Listed Companies and banking sector have pushed back against reforms over fears they could give the Securities and Futures Commission too much power’ The new policy panel would be set up as an “advisory, consultative and steering body” outside the SFC and the HKEX to initiate and centralise discussion of listing policies, according to a joint statement. Reuters
Business Daily Monday, September 18 2017 9
Greater China Currencies
In Brief
Venezuela publishes oil prices in yuan to shun U.S. dollar The global oil industry overwhelmingly uses the dollar for pricing of products Venezuela published the price of its oil and fuel in Chinese currency on Friday in what it called an effort to free the socialist-run country from the “tyranny of the dollar,” echoing a plan recently announced by President Nicolas Maduro. Maduro last week said his government would shun the dollar after the United States announced sanctions that blocked certain financial dealings with Venezuela on accusations that the ruling Socialist Party is undermining democracy. A weekly Oil Ministry bulletin published on Friday listed September prices in yuan, while including prices from previous weeks and months in dollars. “This format is the result of the announcement made on Sept 7 by the president ... that Venezuela will implement new strategies to free the country from the tyranny of the
dollar,” the ministry wrote in a statement released after the bulletin. Venezuela’s yuan-based prices appear to be the result of multiplying dollar prices by the dollar/yuan exchange rate. The price per barrel for the week ending Friday was RMB306.26, equivalent to US$46.76 based on the exchange rate listed in a footnote. That is up from the previous week’s price of RMB300.91, or US$46.15 based on the corresponding exchange rate. The ministry did not respond to an email seeking additional details. “Nobody is changing contracts for now,” said one oil trader consulted about the issue who asked not to be identified. “Oil is a commodity that is traded almost exclusive in dollars. PDVSA’s debts, for example, are still denominated in dollars ... and that’s how they’ll have to pay bondholders,”
the trader said, referring to the state oil company. Venezuela’s Dicom currency system on Wednesday temporarily suspended the sale of dollars in order to incorporate other currencies.
‘Venezuela remains dependent on the greenback given that it conducts ample commercial trade with the United States’ Late socialist leader Hugo Chavez during his 14-year rule repeatedly vowed to back away from the dollar, which he said was being printed indiscriminately and was destined to lose its place as the world’s dominant currency. But Venezuela remains dependent on the greenback given that it conducts ample commercial trade with the United States both through exports of oil and imports of U.S. food and consumer products. Sanctions by the administration of President Donald Trump blocked U.S. citizens from buying new debt from Venezuela or its state oil company, but did not directly interrupt import and export operations. Reuters
M&A
What crackdown? Expect more Mainland deals, bankers say The 19th Party Congress this autumn could mark an inflection point for deals involving state-run companies China will remain a major source of deals as local firms invest overseas and foreign companies put money into the world’s second-largest economy, despite a government crackdown on splashy acquisitions, bankers and investors said. While new rules to curb irrational spending and outflows have dragged down overseas investments by China’s acquisitive companies this year, versus blockbuster 2016 levels, deals are still being made and 2017 promises to be a year on par with 2015, the sources said over a two-day gathering in Singapore. But the road is not without hurdles as some countries are raising barriers for Chinese buyers. The United States has become more aggressive in limiting investment in key sectors, with President Donald Trump last week blocking a Chinese-backed private equity firm from buying chipmaker Lattice Semiconductor Corp. Partly due to this and Beijing’s curbs, China’s outbound M&A volumes nearly halved in the first six months of 2017, according to Thomson Reuters data. The deals that have come under pressure are in sectors like films, entertainment and sports. However, the “desire for Chinese companies to go out has stayed intact”, said Wei Sun Christianson, China chief executive and Asia Pacific co-chief executive for Morgan Stanley. “There are a lot of very credible buyers. Certainly, there is higher execution risk, but deals do get approved.” Sellers are demanding more guarantees, but many also see Chinese companies as long-term partners
who can help promote a global presence, especially in Asia, a major area for investment, several industry participants said. Among Chinese buyers, the most active are those that get Beijing’s blessing by investing in sectors the government is focusing on such as technology and green energy. “If Chinese buyers are clever, have the blessing of government, and focus on non-sensitive sectors - there are good assets out there,” Christianson said. Jing Ulrich, vice chairman of Asia Pacific at JP Morgan Chase, agreed that “the desire of Chinese companies ... to expand overseas continues”. There will be deals from companies pursuing projects associated with Beijing’s Belt and Road initiative to build a modern day “Silk Road”, Ulrich said. Earlier this year, ChemChina bought pesticides and seeds group Syngenta, which was advised by JP Morgan, in what is China’s largest ever outbound deal. The purchase was prompted by Beijing’s desire to use the Swiss firm’s
portfolio of top-tier chemicals and patent-protected seeds to improve domestic agricultural output. More inbound deals are also expected as China welcomes foreign direct investment, investors and bankers said. Any move to ease curbs on majority ownership in many sectors, including financial services, will spur more such deals, they added. The 19th Party Congress this autumn could mark an inflection point for deals involving state-run companies, the sources said. Specific changes could involve broadening the scope of reform of state owned enterprises (SOEs), moving beyond just consolidation and into spin-offs of non-core assets and the restructuring of subsidiaries with undervalued assets. “So far, we have not seen much movement in SOE reform,” said Weijian Shan, chairman and CEO of private equity firm PAG Group. “What we see of interest is the private sector, which is much more scalable. Ten years ago, it was hard to put in US$100 million - today you can easily put in several billion.” Reuters
Regulator
Banking sector’s assets at RMB239 trln China’s banking sector’s total assets were RMB239 trillion (US$36.6 trillion) at the end of August, the country’s banking regulator said on Friday. China’s commercial banks’ non-performing loans ratio was 1.86 per cent at the end of August, the China Banking Regulatory Commission said in a statement posted on its website. It also said the country’s commercial banks’ capital adequacy ratio and provision coverage ratio were 13.2 per cent and 175.1 per cent, respectively. The banking sector’s interbanking business continued to contract in August, the statement said. Futures
Beijing cuts margin requirements China’s financial futures exchange said on Friday it is cutting margin requirements and transaction fees for certain stock index futures contracts, as regulators use an on-going equity market recovery to relax restrictions imposed during a 2015 crash. The changes will take effect today. Margin requirements for CSI300 index futures and SSE50 index futures will be cut to 15 per cent of contract value from 20 per cent, the China Financial Futures Exchange said in a statement on its website. Transaction fees for closing intraday positions will also be lowered for all contracts, including CSI500 index futures, according to a separate statement. Solar plant
Dubai awards contract to Shanghai Electric, ACWA Power Dubai’s state energy utility awarded a US$3.9 billion contract to build and run a 700 megawatt solar power plant to a consortium comprising Shanghai Electric and Saudi Arabia’s ACWA Power, the government said on Saturday. The project will feature a 260-metre tower receiving focused sunlight, the world’s tallest such tower, the government said. The consortium bid to supply electricity to Dubai for US$7.3 cents per kilowatt hour. The first stage of the project is due to be commissioned in late 2020. It is part of the Mohammed bin Rashid al-Maktoum Solar Park, a vast complex which is projected to generate 1,000MW by 2020 and 5,000MW by 2030. M&A
Ant Financial to try again MoneyGram deal Chinese payments company Ant Financial is planning to resubmit its application for U.S. review of its deal to buy MoneyGram International Inc for US$1.2 billion, a source familiar with the matter said on Friday. Ant Financial and MoneyGram have already refilled for clearance from Committee on Foreign Investment in the United States (CFIUS) when they were unable to secure it within an assessment period after the first application, Reuters reported in July, citing sources. Ant Financial’s latest attempt for approval would be its third as the maximum time of 75 days for assessing such applications nears completion.
10 Business Daily Monday, September 18 2017
Greater China Real estate
One-third of households see home prices rising in Q4 China’s real estate investment and sales growth picked up pace again in August as demand held up
T
he percentage of Chinese households that believe still-hot housing prices will keep rising in the coming quarter, despite state moves to cool them, remains at nearly onethird, a survey by China’s central bank showed on Friday. The People’s Bank of China said its survey of 20,000 households found that 31.8 per cent predicted a price rise in the fourth quarter. That was slightly above the 31.2 per cent who felt that way in the survey for the third quarter. China’s property prices have continued to creep steadily higher, in spite of heavy government intervention, partly due to a shift to increased demand in the country’s smaller cities. Prices of new homes in 70 major cities grew 9.7 per cent in July from a year ago, with a monthly increase of 0.4 per cent, official data showed. The latest survey results highlights the challenges Chinese policymakers face as they tread carefully to tame
a property market without bursting the bubble and dealing a blow to economic growth. In the latest central bank houseprice survey, 10.3 per cent of households predicted a price fall in the coming quarter, compared with 9.6 per cent three months ago.
Key Points 31.8 pct see Q4 prices rising, from 31.2 pct in survey for Q3 Q4 price falls expected by 10.3 pct of households Fewer now feel monetary policy is relatively tight The percentage predicting that house prices would be “basically unchanged” in the next quarter was 46.1 per cent - identical with the number from the survey about third-quarter expectations. Beijing has tightened monetary conditions this year to tackle its
growing debt pile as mortgages soar, but credit is still growing faster than economic output and most China watchers don’t expect the central bank to tap too hard on the brakes. A separate central bank survey
published on Friday showed Chinese bankers who believe China’s monetary policy is “relatively tight” in the third quarter fell to 22.1 per cent, down 8 percentage points from the second quarter. Reuters
Cybercurrencies
Beijing cryptocurrency exchanges told to announce trading halt China is cracking down on the cryptocurrency business to try to limit risks as consumers pile into a highly speculative market that has grown rapidly this year Brenda Goh
Chinese authorities have ordered Beijing-based cryptocurrency exchanges to stop trading and immediately notify users of their closure, signalling a widening crackdown by authorities on the industry to contain financial risks. Exchanges were also told to stop allowing new user registrations as of Friday, according to a government notice. The notice was signed by the Beijing city group in charge of overseeing internet finance risks and circulated online. A government source verified it to Reuters. Platforms should also tell the government by Wednesday Sept. 20 how they will allow users to make withdrawals in a risk-free manner and handle funds to make sure investor interests are protected, according to the notice, which was also reported by state newspaper Securities Times. “All trading exchanges must by midnight of Sept. 15 publish a notice to make clear when they will stop all cryptocurrency trading and announce a stop to new user registrations,” the government notice said. Reuters and other media reported earlier last week that it planned to shut down the exchanges. Shanghai-based BTCChina, a major Chinese bitcoin exchange, said on Thursday it would stop all trading from Sept. 30, citing tightening regulation. Smaller Chinese bitcoin
exchanges ViaBTC, YoBTC and Yunbi on Friday announced similar closures. Beijing-based platforms OkCoin and Huobi, which are among China’s biggest exchanges, said late on Friday that they planned to stop yuan-based trading by Oct. 31. Bitcoin fell by more than 10 per cent on Wednesday after a warning by JPMorgan Chief Executive Jamie Dimon that it “is a fraud” and will eventually “blow up”.
“Illegal flows”
Li Lihui, a senior official at the National Internet Finance Association of China and a former president of the Bank of China, told a conference in Shanghai that global regulators should work together to supervise cryptocurrencies.
“Digital tokens like bitcoin, ethereum that are stateless, do not have sovereign endorsement, a qualified issuing body or a country’s trust, are not legal currencies and should not be spoken of as digital currencies,” he said. “They can become a tool for illegal fund flows and investment deals.” He said there should be a distinction between digital currencies, which were being studied and developed by authorities such as the Chinese central bank, and digital tokens such as bitcoin. Digital currencies developed by authorities could be used for good, with the right regulation, he said. The state-backed internet finance body was set up by the central bank, and its members include banks, brokerages, funds and consumer finance
companies. On Wednesday, it urged members to abide by Chinese laws and not deal in cryptocurrencies. Since January, Chinese bitcoin exchanges have rolled out a series of changes to comply with increased scrutiny by Beijing. But they were thrown into chaos on Sept. 4 when China issued a directive banning initial coin offerings (ICOs).
Key Points Beijing-based exchanges told to cease trading Authorities ask platforms to notify users by Friday Signifies widening crackdown on the industry OKCoin, Huobi to halt yuan-based trades by Oct. 31 China’s crackdown “is all about protecting market stability and protecting the interest of investors, so halting these kinds of initial coin offerings is a very necessary action,” Li said. Vlad Zamfir, a researcher at the Switzerland-based Ethereum Foundation, told Reuters that it was no surprise China is moving against such currencies. Beijing has capital controls, he said, that are “in direct tension with the free ability to send any amount of money anywhere without any kind of delay”. Reuters
Business Daily Monday, September 18 2017 11
Asia Financial system
Small creditors use India’s new bankruptcy rules to put the squeeze on big players The new rules give any creditor owed 100,000 rupees the right to drag a multi-billion dollar company to court Devidutta Tripathy and Abhirup Roy
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n late June, one of India’s top wind power equipment makers, Inox Wind Ltd, was dragged into insolvency courts by a logistics handler over unpaid dues of US$88,000. Two weeks on, the matter was settled, with dues paid off. The case illustrates how small creditors and vendors, previously at the mercy of large debtors, are now using India’s new bankruptcy code as a pressure ploy to secure payment of dues that would earlier have been all but impossible to recover. India overhauled bankruptcy laws last year with the main goal of helping banks tackle a US$150-billion bad loan issue that is crimping growth in the economy. Less than a year on, insolvency professionals say it is vendors and small suppliers, also referred to as operational creditors, who are using the new rules as leverage to recover dues much more effectively than banks owed far larger sums. “It is not necessarily a negative thing, but it was not the objective of the new code,”
said Ashish Chhawchharia, a partner at Grant Thornton who works on insolvency cases. The new rules give any creditor owed 100,000 rupees (US$1,560) the right to drag a multi-billion dollar company to court. They lay out a stringent timeline for resolution, or force debtors into automatic liquidation, giving outsize influence to vendors and suppliers who would normally rank well below secured financial creditors, such as lender banks, in any bankruptcy process. But they have also stirred fears of a tsunami of cases jeopardising the plans of banks with billions of dollars at stake, and which are forced to join such proceedings. “If an operational creditor initiates a process, that basically brings in unwilling financial creditors, even if they do not deem it the right time or course of action,” said leading insolvency lawyer Sumant Batra. The court that handles such bankruptcy cases, the National Company Law Tribunal (NCLT), should first test the intent of any operational creditor making a bankruptcy plea, he added.
“NCLT has to hold an enquiry at the beginning to determine whether this has been filed only for recovery of debt, or whether this has been actually filed for a resolution or a liquidation process.”
Ericsson-RCom
Swedish telecom equipment firm Ericsson became the first high-profile foreign vendor to use the tool, filing a petition last week to drag Indian telecom carrier Reliance Communications to insolvency courts over unpaid dues of US$180 million. By comparison, RCom, as the company is widely known, owes nearly US$7 billion to its banks, who have
agreed to a standstill over its servicing obligations until year end, while the company attempts to restructure. RCom said it plans to challenge the Ericsson plea. About 1,000 insolvency petitions have been triggered since early 2017, when the first case was admitted under the new rules, but consultant EY estimates about 80 per cent of these were withdrawn following outof-court settlements. About 60 per cent of the cases brought to the NCLT are initiated by operational creditors, industry estimates show. Sanjay Ruia, a Mumbai chartered accountant who took a holiday tour operator to
bankruptcy court over unpaid audit and advisory fees, said the law had made it easier for creditors like himself who would formerly have struggled to recover dues. Still, many fear the arm-twisting tactics could make life tougher for secured financial creditors, who must make steep balance-sheet provisions for loans to borrower firms entangled in bankruptcy proceedings. For its part, Inox Wind, which settled the dispute with the logistics firm, remains a “solvent company with excellent financial health” and has been regular in servicing all commitments to its lenders, it said in a statement in July. Reuters
Survey
Japan manufacturers’ mood sags amid global uncertainty The Reuters Tankan sentiment index was seen sliding over the next three months Tetsushi Kajimoto and Izumi Nakagawa
Japanese manufacturers’ confidence worsened for the first time in four months in September from the previous month’s decade-high level and was expected to fall further, weighed by global uncertainty, a Reuters poll showed. The monthly poll - which tracks the Bank of Japan’s (BOJ) closely watched quarterly tankan - found the service-sector mood had its best reading in more than two years, adding to recent signs of recovery in private consumption. Compared with three months ago, the Reuters Tankan’s sentiment indexes for manufacturers and service sector firms held largely unchanged, pointing to a steady reading in the central bank’s upcoming tankan due on October 2. Firm tankan results would support the BOJ’s upbeat view on Japan’s economy, which is expected to continue moderate growth after posting its sixth straight quarter of expansion through June. The BOJ’s last tankan showed big manufacturers’ business confidence hit its highest level in more than three
years in the June quarter. However, the Reuters Tankan sentiment index was seen sliding over the next three months, reflecting uncertainty over the U.S. and Chinese economies - Japan’s key trading partners - as well as risks such as North Korea’s missile launches and nuclear weapons programme. “Our domestic clients are being cautious about capital spending
due partly to anxiety about future prospects for Abenomics,” wrote a manager of a machinery producer, referring to Prime Minister Shinzo Abe’s reflationary policy. “Capital spending is being put off overseas as well due to uncertainty on the recovery prospects for Europe, America and China.” Another machinery maker wrote in the survey, in which companies respond anonymously: “While special
demands for industrial equipment related to smartphones have subsided, sales of home apparatus are seesawing due to the murky global outlook.” The sentiment index for manufacturers fell two points to 25 in September in the poll of 548 large- and mid-sized companies, conducted Aug. 30-Sept. 12, in which 268 firms responded. The index was down one point versus June, dragged down by producers of industrial materials such as oil and steel. The Reuters Tankan service-sector index rose five points to 34, marking the best reading since June 2015, led by retailers and information and communications firms. The index has risen one point from three months ago. The manufacturers’ and service-sector indexes were expected to fall to 21 and 28 respectively in December. “The domestic market is dwindling and consumption has not livened up with consumers tightening their purse strings,” a manager at one manufacturer noted. “It will take more time to shake off the deflationary mind-set.” Reuters
12 Business Daily Monday, September 18 2017
Asia Trade
India current account widens to 4-year high as imports surge Analysts expect the current account deficit to narrow as exports pick up Suvashree Choudhury
I
ndia’s April-June current account deficit widened to its highest in four years as imports surged, but strong capital inflows comfortably financed the gap, data from the Reserve Bank of India showed on Friday. The current account deficit widened to 2.4 per cent of gross domestic product, or US$14.3 billion, as imports pushed the trade deficit to US$41.2 billion from US$23.8 billion in the same period a year ago. In the quarter ending in June last year, the current account deficit was 0.1 per cent or US$401 million. It is now at its highest level since the June quarter of 2013. The widening of the yearon-year deficit was primarily due to a larger increase in merchandise imports relative to exports, the RBI said in its release.
While imports rose, some export-oriented sectors also slowed after India imposed its new goods and services tax (GST) in July, adding to the current account gap, analysts said.
“It appears the last month’s transition to GST had affected some export sectors, but that is expected to normalise going ahead” A. Prasanna, economist at ICICI Securities Primary Dealership
Analysts expect the current account deficit to narrow as exports pick up, but capital flows are likely to slow as the foreign investment limits for debt have been fully used up. “It appears the last month’s transition to GST had affected some export sectors, but that is expected to normalise
going ahead,” said A. Prasanna, economist at ICICI Securities Primary Dealership. He said he expected the full year current account deficit to be 1.5 per cent of GDP. Despite a wider current account gap, the balance of payments surplus was US$11.4 billion in AprilJune, compared with US$6.97
billion a year ago, helped by strong dollar inflows that boosted the rupee 0.43 per cent during the quarter. India’s capital surplus, which includes foreign direct investment and portfolio inflows, stood at US$25.4 billion compared with a US$7.18 billion surplus a year ago. Reuters
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Monetary policy
Bank of Japan economist says c.bank may allow rates to rise in 2018 He warned that achieving the central bank’s 2 per cent target will take several more years Leika Kihara and Sumio Ito
A well-connected former central bank executive said on Friday the Bank of Japan may allow long-term interest rates to rise more next year if continued strength in the economy pushes inflation to around 1 per cent. Hideo Hayakawa, a former top Bank of Japan (BOJ) economist who retains close contact with incumbent policymakers, said the central bank would not be able to cap long-term rates for long if they rose because of improving economic fundamentals. But if rates were driven up by external, temporary factors such as a spike in U.S. yields, the BOJ would have little trouble capping bond yields, he told Reuters in an interview. Hayakawa said “core-core” consumer inflation, which strips away the effect of volatile fresh food and oil costs, could accelerate to around 1 per cent in the fiscal year ending March 2019 thanks to the strengthening economy. “If so, there’s a chance the BOJ will adjust its long-term rate target sometime next year,” Hayakawa said. “A central bank cannot indefinitely cap bond yields at levels inconsistent with economic fundamentals.” Under its yield curve control (YCC) framework adopted last year, the BOJ pledges to keep short-term interest rates at minus 0.1 per cent and the 10-year bond yield around zero per cent. Hayakawa, who was among the few experts who predicted the adoption of YCC, said the BOJ may either raise the 10-year yield target or allow longterm rates to rise further by targeting the shorter 5- or 8-year segment of the curve.
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Any such step could come before inflation hits the BOJ’s 2 per cent target and would not be tantamount to monetary tightening as the bank would still keep borrowing costs very low, he added. Japan’s economy expanded at an annualised rate of 2.5 per cent in the second quarter thanks to robust exports and a pick-up in consumption. But core consumer prices, which exclude fresh food but include oil costs, rose just 0.5 per cent in July from a year earlier, well below the BOJ’s 2 per cent target. Core-core consumer inflation has hovered around zero per cent so far this year and rose 0.1 per cent in July from the year earlier, underscoring companies’ reluctance to hike prices. The BOJ cut its price forecasts in July and now expects inflation to hit 1.1 per cent in the year ending in March 2018, still exceeding a 0.6 per cent rise projected in a Reuters poll. Hayakawa, well-versed in the BOJ’s drafting of price forecasts, said the bank was unlikely to reduce much its price projections at its next quarterly review in October given growing signs of strength in the economy. But he warned that achieving the BOJ’s 2 per cent target will take several more years, forcing the bank to delay dialling back stimulus and leaving it with few resources to fight another recession. “YCC is a sustainable framework but doesn’t have the power to dramatically boost inflation,” said Hayakawa, now a senior economist at the Fujitsu Research Institute, a private think tank. “If the BOJ fails to hit its price target during the current economic expansion, it’s left with a pretty bad situation.” Reuters
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Business Daily Monday, September 18 2017 13
Asia Korean crisis
In Brief
North Korea vows to complete nuke program after latest missile Earlier in the last week, the Security Council tightened sanctions after the U.S. dropped key demands such as an oil embargo to win support from Russia and China Kanga Kong
North Korea said it will complete its nuclear program in the face of heightened United Nations sanctions after the isolated nation on Friday fired a second intermediate-range ballistic missile that flew over Japan. Leader Kim Jong Un claimed his nuclear program is nearly complete despite a series of sanctions by the UN Security Council and his final goal is to build “the equilibrium of real force” with the U.S. and prevent military action against Pyongyang, the Korean Central News Agency said Saturday. Kim personally guided the launch of the latest Hwasong-12 missile, it said. The test was aimed at “calming down the belligerence of the U.S.” and “confirming action procedures of actual war,” the state-run agency said in a statement. The test was North Korea’s second missile over Japan in as many months. The missile flew over Hokkaido and successfully hit its target in the Pacific Ocean, KCNA said. The rogue state conducted its sixth and most powerful nuclear test on Sept. 3. It has launched more than a dozen missiles this year as Kim’s regime seeks the capability to hit the continental U.S. with an atomic weapon. President Donald Trump has said all options -- including military -- are on the table to stop North Korea from threatening the U.S.
Earlier in the last week, the Security Council tightened sanctions after the U.S. dropped key demands such as an oil embargo to win support from Russia and China. The resolution seeks to cut imports of refined petroleum products to 2 million barrels a year, ban textile exports and strengthen inspections of ships that are believed to be carrying cargo in breach of sanctions.
China warning
The U.S. should cease threats against North Korea and do more to resolve the crisis, China’s ambassador to the U.S. Cui Tiankai told reporters in
Washington Friday. China will never recognize North Korea as a nuclear state and opposes nuclear weapons anywhere on the Korean peninsula, he said. South Korea estimated the latest North Korean missile reached an altitude of 770 kilometres and travelled 3,700 kilometres -- further than the 3,400 kilometres from Pyongyang to Guam. In August, North Korea threatened that it planned to test fire four intermediate-range missiles into waters near Guam, a U.S. territory with military bases, but said later it would wait and see how the U.S. behaved before carrying out the plan. Bloomberg News
Indonesia’s external trade returned to a surplus in August, led by growth in manufacturing and mining exports, and produced the biggest surplus in more than five years, the statistics bureau said on Friday. August surplus was US$1.72 billion, the bureau said, outpacing the US$520 million a Reuters poll had expected. In July, Southeast Asia’s largest economy had its first trade deficit since late 2015. Exports and imports increased sharply from July 2016 due to a low base as the Eid al-Fitr holidays fell in that month last year. The holidays for 2017 were in June.
New Zealand home sales drop
An undated photo released on 16 September 2017 by the North Korean Central News Agency, is described as showing the country’s leader Kim Jong Un (R), guiding a launching of the medium-to-long range strategic ballistic rocket Hwasong-12 at an unspecified location. Source: Lusa
JD Sports enters South Korean market
Traders said that South Australia is particularly prone to price spikes and supply squeezes to speak about market trends. “Once consumption soars amid a real heat wave, production will struggle to keep up,” the trader said. “We could see a repeat of last summer: prices spike and the lights go off.” The concern is shared by Australia’s energy market operator, which warned earlier this month the country faces more blackouts over the coming southern hemisphere summer. Traders said that South Australia is particularly prone to price spikes and supply squeezes. “Volatility is always much more prevalent in South Australia because they get most of the extreme heat due to the...northerly winds blowing in from central Australia,” said Andrew Koscharsky, Director of Energy with commodity trading house RCMA Group. “Adding to all of this is the reliance on renewables...especially wind farms, which are more set up to catch the southerly winds, rather than the northerly winds in summer.” This summer’s weather forecasts
New Zealand home sales fell sharply in August in the latest sign that the country’s recently overheated housing market was losing steam, but house prices held up relatively well. The number of properties sold across the country fell 20 per cent last month versus a year ago, the Real Estate Institute of New Zealand (REINZ) said on Friday. It said not one region in the country had seen a rise in the number of properties sold during August versus a year ago - something that has only happened three times in the last seven years. Investment
Peaking and creaking: Australia’s summer set to bring new power supply squeeze
Australia faces another electricity supply squeeze towards the end of the year, with wholesale power prices already soaring in the latest sign that the country’s creaking power infrastructure is struggling to keep up with peak summer demand. In the latest red flag that the country’s upcoming hot season could see a repeat of last year’s supply shortages, wholesale power prices for South Australia for base load (24 hours) delivery in December have shot up to A$130 (US$103.91) per megawatt-hour (MWh), nearly a third above their current level. Traders say those high prices mean the market expects to feel the pinch of a supply squeeze towards 2018. “If prices are already so high without the presence of a heat wave or an unexpected power plant shutdown, that indicates a supply squeeze is already being priced in,” said one Australian power trader, declining to be named as he was not authorised
Indonesia swings back to surplus
Real estate
Energy
Henning Gloystein
Trade
will do little to lighten the mood. Thomson Reuters meteorologist Georg Mueller said this week that Australian “temperatures will be slightly above normal in most areas” between September and December.
Key Points Summer 2017/2018 power prices for South Australia soar South Australia seen particularly prone to supply shortage Power prices prohibitively high despite vast resources That is adding fuel to the flames of a heated political debate in Australia. Despite its wealth, thanks in part to some of the world’s biggest natural gas and coal reserves, the country struggles to find enough fuel for its own power stations, triggering demands to force companies to hold back some fuels for the domestic market. Australia’s wholesale power prices are also prohibitively expensive for any energy-intensive industry, like aluminium smelters or industrial manufacturers. The average first quarter base load power price of these three provinces is A$128 per MWh (US$102.32). That compares with US$60 per MWh in Singapore, where all the fuel has to be imported, including on tankers as liquefied natural gas (LNG) from Australia, or US$50 per MWh in fuel importing Germany. Reuters
British sportswear retailer JD Sports Fashion said on Friday it had continued its global expansion with a joint venture deal to enter the South Korean market. JD said its agreement was with footwear retailer Shoemarker and its J&S Partners unit, which currently trades as Hot-T. The British firm has purchased an initial 15 per cent of Hot-T for 5.5 million pounds (US$7.4 million) and has a call option to buy a further 35 per cent stake following the finalisation of Hot-T’s year to Dec. 31 2017 accounts. JD said it intends to exercise the option and re-brand the Hot-T stores as JD. Auto industry
Mazda to make all models hybrid, electric by early 2030s Mazda Motor Corp plans to make all of its vehicles electric-based, including petrol hybrids, by the early 2030s, Japanese media reported on Friday, as more automakers shift strategies to meet tightening global emission regulations. The Japanese automaker plans to use electric motors in all of its models by that time, Kyodo News reported, without citing sources. A Mazda spokeswoman declined to comment on the report. At the moment, Mazda’s line-up does not include any all-battery electric vehicles, though it sells one hybrid model, a version of its Mazda3.
14 Business Daily Monday, September 18 2017
International In Brief Monetary policy
Russian central bank cuts key rate The Russian Central Bank lowered its main interest rate to 8.5 per cent from 9 per cent on Friday and said it expected to deliver more cuts in the next six months as inflation slows. After putting monetary easing on halt in late July, the Central Bank has now embarked on a new rate-cutting cycle as inflation - its key area of responsibility - had weakened more than expected. Unlike in previous statements, the central bank did not say that global geo-political risks along with fluctuations in the rouble posed upside risks for Russian consumer inflation. Natural disaster
Hurricane Harvey slams U.S. retail sales U.S. retail sales unexpectedly fell in August and industrial output recorded its biggest drop since 2009 as Hurricane Harvey disrupted activity, suggesting the storm could dent economic growth in the third quarter. Harvey, which lashed Texas in the last week of August, also has impacted the labour market. Hurricane Irma also is likely to hurt the economy, though analysts expect a rebound in the fourth quarter. The Commerce Department said retail sales dropped 0.2 per cent last month, the biggest decline in six months as motor vehicle sales tumbled 1.6 per cent. Sales of building materials, electronics and appliances as well as clothing also fell.
Fiscal policy
EU plan to raise taxes for global Internet firms hits snag If the divisions persist, a minimum number of ten EU states may apply the tax on their own under a procedure known as enhanced cooperation Francesco Guarascio
A
European Union plan to raise more tax from digital multinationals faced the first signs of scepticism on Saturday, as smaller members of the bloc warned about the economic impact from such a move. France wants to tax companies like Google and Facebook on their turnover, rather than profits, to increase revenue from global online groups, accused of paying too little in Europe. More than a third of the EU’s 28 members backed Paris on Saturday at a meeting of EU finance ministers in Tallinn, the Estonian capital, but the move needs the agreement of all member states to reduce the risk of legal challenges. “We should be very careful,” Denmark’s finance minister Kristian Jensen said, warning of the risks of pushing innovative companies away from Europe. His remarks were echoed by Luxembourg’s finance minister Pierre
Gramegna, who said any EU solution would need global backing to avoid damaging Europe’s competitiveness. “It does not make any sense” for Europe to move without a global agreement, he said. The Czech Republic and Malta said a turnover tax would be technically difficult to implement.
Key Points Smaller states sceptical on turnover tax move led by France Plan gains support; may be applied only by individual states Talks to continue until December for a compromise deal
If the divisions persist, a minimum number of ten EU states may apply the tax on their own under a procedure known as enhanced cooperation. Countries can also charge the tax unilaterally. “Enhanced cooperation is certainly
Budget
Argentina projects economic growth of 3.5 pct Argentina’s 2018 budget bill forecasts economic growth of 3.5 per cent next year and average annual inflation of 15.7 per cent, Treasury Minister Nicolas Dujovne told Congress on Friday. The bill proposes a 2018 primary fiscal deficit of 3.2 per cent of gross domestic product (GDP) as previously announced. But it lowered the expected 2017 deficit to 4.0 per cent from 4.2 per cent previously. The average exchange rate for 2018 is seen at 19.3 pesos per U.S. dollar. The government also revised its 2017 average expected exchange rate to 16.7 pesos per dollar, down from the 17.92 included in the 2017 budget. Credit cards
Rising delinquencies to add to U.S. banks’ worries U.S. banks, already under pressure from slower loan growth and low interest rates, could be facing yet another challenge as a rising number of Americans fall behind on their credit card payments. Several large U.S. banks and credit card companies, including Capital One Financial Corp and JPMorgan Chase & Co, reported a rise in credit card delinquency rates for August, the second consecutive rise after falling for four months. While the rates remain significantly below the levels hit during the 2008-2009 financial crisis, rising delinquencies could result in higher loan losses for lenders.
a legally possible option,” Valdis Dombrovskis, vice president of the European Commission, told a news conference at the end of the ministerial meeting. But the objective at this stage is to reach an agreement among all members by the end of the year, followed by legislative proposals next spring, he added. The commission will outline other legal options to tax the digital economy in a paper in the coming days.
Quick fix
French Finance Minister Bruno Le Maire said the turnover tax was necessary to allow EU countries to move quickly. “Otherwise we risk a breakdown with citizens across Europe,” he added. Ten states signed a statement in support of this approach on Saturday. In addition to France, they are Germany, Italy, Spain, Austria, Bulgaria, Greece, Romania, Slovenia and Portugal. Belgium and the Netherlands publicly backed the initiative. Others did so in private meetings. The French plan was seen as a “quick fix” to address the issue, but European officials acknowledged it may have some drawbacks. It could be easily exposed to legal challenges, divide the EU and cause trouble with the United States, home to most major online companies, they said. Estonia, which holds the EU’s rotating presidency, proposed a more structural solution that would permit states to tax companies where they have a digital, not just physical, presence. The two plans could be complementary and be part of a two-step approach, the Estonian undersecretary for tax, Dmitri Jegorov, said. Reuters
Ratings
Portugal returns to investment grade after 5-1/2 years Lisbon last year churned out the lowest budget gap since 1975 Andrei Khalip and Sergio Goncalves
Standard & Poor’s on Friday became the first of the big three credit ratings agencies to lift Portugal back to investment grade, citing its improving economy and public finances. Portugal lost the investment grade at the height of its debt crisis in January 2012. The upgrade is likely to attract more portfolio investment in Portuguese debt at a time when the positive impact of the European Central Bank’s asset-buying programme is subsiding. “We now expect that the yield spreads with most European countries will narrow and this is very important, for investors too, as they look a lot at the spreads, sometimes more than at the actual yields,” Finance Minister Mario Centeno told Reuters. “We are now a lot more prepared for any future evolution of the monetary policy in Europe,” he added. The loss of the investment grade by the last of the Big Three in January 2012, also after an S&P move, made Portugal’s benchmark 10-year bond yields blow out to a record of over 17 per cent. The yield has since come down to around 2.8 per cent, helped by Portugal’s own improvements and the ECB bond-buying, but it still is the second-highest in the euro zone after Greece’s.
Standard & Poor’s, which had rated the country at BB+ with a stable outlook, shifted its position by one notch to BBB-, the lowest investment grade mark, again with a stable outlook. “While we view the high level of public and private sector indebtedness as a credit weakness, we observe that external financing risks have declined significantly,” it said in a statement, projecting that the economy would grow by more than 2 per cent on average in 2017-2020.
“We are now a lot more prepared for any future evolution of the monetary policy in Europe” Mario Centeno, Finance Minister of Portugal That is above S&P’s previous forecast of 1.5 per cent. It also said it expected this year’s budget deficit target of 1.5 per cent of GDP to be met, “putting the government debt to GDP ratio on a more firmly declining path”. Lisbon last year churned out the
lowest budget gap since 1975, and in June, the European Council ended a disciplinary process against Portugal, which only emerged from a threeyear international bailout in 2014, over its excessive deficit. Two weeks ago, Moody’s Investor Service left Portugal’s rating unchanged at Ba1, or one notch into speculative territory, but upgraded Portugal’s outlook to positive from stable, which usually means an upgrade is on the cards. Fitch Ratings, another of the big three, did the same in June. Canada’s DBRS, a smaller credit ratings agency, has been the only rater recognised by the European Central Bank to maintain Portugal’s rating at the lowest investment-grade level throughout its 2011-14 debt crisis and bailout. The International Monetary Fund said earlier on Friday in a report that “a ratings upgrade would significantly expand the investor base for Portuguese sovereign debt and offset the impact of any further decline” in the support to the debt market provided via the ECB’s programme, which is due to end this year. Portugal endured years of painful austerity under the bailout, but the left-leaning Socialist government, in power since late 2015, has managed to combine budgetary discipline with a reversal of some of the austerity measures. Reuters
Business Daily Monday, September 18 2017 15
Opinion Business Wires
The Times of India Government on Saturday ruled out any further extension in filing of returns under GST after December and advised the taxpayers to file them in advance and not wait for the last day. “We have kept long deadlines for GST filing. For at least six months the taxpayers have to file their own assessment. There will be no extension later,” Revenue Secretary Hasmukh Adhia told reporters here after the first meeting of the Group of Ministers (GOM) that was formed to tackle the IT-related glitches. The GST Council has allowed businesses to file GSTR-3B, which is a self-assessment of their sale and purchases, till December.
Separating the dos from the don’ts of investing
Viet Nam News The Ministry of Construction will submit a plan to the Prime Minister on promoting stable and healthy development of the local real estate market in this year’s fourth quarter. This plan will assess the market situation, forecast mediumterm development trends and propose solutions, mechanisms and policies to enhance sustainable development of the real estate market. It is expected to remove difficulties in the market, and in particular lead to transparency. Since the beginning of 2017, the real estate market has continued to maintain steady growth.
The Korea Herald Lotte Hotel & Resorts said yesterday it opened its second hotel in Russia last week as it seeks to tap deeper into the overseas market. The new hotel opened in Saint Petersburg on Friday. It launched its first Russian operation in Moscow in 2010. Lotte currently operates hotels in the United States, Vietnam, Uzbekistan and Myanmar. Lotte Hotel & Resorts is affiliated with Lotte Group, South Korea’s fifth-largest conglomerate with sprawling businesses in food, retail and construction.
Philstar President Rodrigo Duterte’s deadly drug war and the armed Islamist rebellion pose “rising” risks to the Philippine economy, though it should continue to grow robustly in the short term, Moody’s Investors Service said. Duterte is battling militants in the southern city of Marawi, while rights groups have accused him of orchestrating a crime against humanity with police killing more than 3,800 drug suspects in 14 months. “The reemergence of conflict in the southern Philippines, as well as the Duterte administration’s focus on the eradication of illegal drugs, represents a rising but unlikely risk of a deterioration in economic performance and institutional strength,” the credit ratings agency said.
Ben Carlson director of institutional asset management at Ritholtz Wealth Management
I
n late July, Oaktree Capital’s Howard Marks put out a memo describing current investment trends that could turn out to be mistakes. Marks urged caution on equity valuations, low volatility, FAANG stocks (Facebook, Amazon, Apple, Netflix and Google), ETFs, interest rates, private equity, venture capital and even bitcoin. Caution alone is not an investment strategy, so Marks penned a follow-up memo last week to give investors six options for how to invest in a low-return world: Invest as you always have and expect your historic returns. Invest as you always have and settle for today’s low returns. Reduce risk to prepare for a correction and accept still lower returns. Go to cash at near-zero return and wait for a better environment. Increase risk in pursuit of higher returns. Put more into special niches and special investment managers. And here’s how he would proceed, given today’s choices: As I mentioned above, none of these possibilities is attractive or a sure thing. But there are no others. What would I do? For me the answer lies in combination of numbers 2, 3, and 6. Investing is never a sure thing because we’re all forced to deal with an uncertain future. But today’s environment does present investors with few easy decisions. I agree with Marks that numbers 2, 3 and 6 are your best options, so I’m going to run through a list of pros and cons for each. Invest as you always have and settle for today’s low returns. Pros: Given current valuation and interest rate levels, it makes sense that market returns should be lower going forward. Doing nothing is a decision. The simplest option for most investors is to stick with their long-term investment plans and adjust their expectations. As long as you can keep your costs and expectations in check, there’s no reason sticking with a well thought-out strategy shouldn’t continue to work. Cons: If markets are unable do the heavy lifting for a portfolio, investors are going to have to pick up the slack elsewhere and learn to behave enough to earn their fair share of market returns. Lower market returns likely mean people should save more, make more, work longer, spend less or adjust their lifestyle in retirement. Reduce risk to prepare for a correction and accept still lower-returns. Pros: Reducing risk can give you valuable dry powder to take advantage of future opportunities. The hope is that you can put money to work at
“
lower valuations or higher yields if and when things eventually go wrong. Cash is a position even if it doesn’t pay much in terms of interest income at the moment. Reducing risk offers optionality. Cons: You could be waiting a long time to put your money back to work, so extreme patience is required. In the latest streak the S&P 500 Index hasn’t had a double-digit decline since February 2016. There have been no 5 per cent downturns since June 2016. And it’s been 10 months since the last 3 per cent correction. Timing the market is also a gateway investment to a cash addiction. There are always good reasons to wait for another buying opportunity. When stocks go up you tell yourself you’ll wait for a correction, and when a correction comes you tell yourself you’ll wait until they drop just a little further. There are no all-clears when things are going down, so you must incorporate rules to guide your actions. Going to cash also means you have to be right twice -- once when you get out and again when you get back in. Put more into special niches and special investment managers. Pros: Niche investments and specialized investment managers can offer uncorrelated return streams, provide downside protection or take an opportunistic approach to the markets. Risk-adjusted outperformance through a unique manager or strategy can add value as a returnenhancer or portfolio diversifier. Cons: It’s tough to find consistent sources of alpha in the markets because of increased competition, high costs and lack of access to the best money managers. Marks is one of the greatest investors of all time, but it’s nearly impossible for most of the investing public to invest in his funds as they are reserved mostly for large institutional investors. Diversification is the idea of reducing specific risk in your portfolio. Looking for special niches or a special investment manager introduces specific risk back into the portfolio. There’s nothing wrong with the pursuit of special investment returns, but it should be done in moderation for those who would like to control risk in their portfolio. You can make more money but also lose more as the distribution of returns widens out. There are no right or wrong answers here, but Marks’ idea of combining different strategies seems like a prudent form of risk management. Investing is a form of regret minimization, so a diversification by strategy is an intelligent way to minimize the probability of making the wrong choice. Bloomberg View
Diversification is the idea of reducing specific risk in your portfolio
”
16 Business Daily Monday, September 18 2017
Closing NHK reports
Japan’s leader Abe may call snap general election
Japanese Prime Minister Shinzo Abe may call a snap general election for the nation’s lower house of parliament, NHK reported without saying where it obtained the information. Abe appears increasingly inclined to call an election after a recovery in public support, according to NHK. He will make a decision after discussions with senior Liberal Democratic Party and government leaders, according to the national broadcaster.
Japanese newspapers Nikkei and Sankei also reported that Abe may call a vote. The Sankei said Abe had solidified his position around calling an election and that a vote on Oct. 29 is most likely. NHK reported two weeks ago that support for Abe’s ruling coalition had climbed 5 points to 44 per cent, with the government’s approval rating exceeding disapproval for the first time in three months, citing a poll. Abe has already consulted with his government coalition partner Komeito, according to NHK. Bloomberg News
Property
Mandarin Oriental receives proposals for Excelsior Hong Kong Mandarin Oriental said in June it was testing the market for a potential sale of the property on the waterfront overlooking Victoria Harbour in Hong Kong’s Causeway Bay Andreea Papuc
M
andarin Oriental International Ltd. has received interest from potential buyers of the Excelsior hotel in Hong Kong in what would be a test of the resilience of demand for the city’s commercial real-estate assets that has sent prices soaring. There were at least five bids for the property valued at HK$30 billion (US$3.8 billion), including a Chinese-backed consortium of Sun Hung Kai Properties Ltd. and Hysan Development Co., the Hong Kong Economic Journal reported on Saturday. Mandarin Oriental said Friday it had received offers while no decision had been taken on a sale. The proposals will form the basis “for further consideration of the company’s strategic options,” according to a statement from the company. No assumption should be made regarding whether the property will or will not be sold, Mandarin Oriental said. Mandarin Oriental said in June it was testing the market for a potential sale of the property on the waterfront overlooking Victoria
Harbour in Hong Kong’s Causeway Bay district in light of “current strong commercial property valuations in Hong Kong.” The government has approved redevelopment of the site for a commercial building with a gross floor area of 684,000 square feet (63,546
square meters), according to Bloomberg Intelligence. “Robust investment demand for Hong Kong office space, driven by record-breaking land sales, could prompt landlords to sell their commercial properties” in the second half, Patrick Wong, an industry
analyst with Bloomberg Intelligence, wrote in May. Hong Kong hotels will struggle to capture high-end, transient Chinese tourists amid rising new supply over the next 20 years, Bloomberg Intelligence analyst Margaret Huang said in a report in June. Hotel room prices in Hong Kong face further declines as high-end Chinese leisure travellers opt to take vacations at other Asian or longhaul destinations, Huang said, citing Mandarin Oriental among hotel operators whose revenue per room available would come under pressure.
traded on the Singapore stock exchange surged 21 percent on Friday to close at S$2.56. That was the biggest jump in almost nine years and the highest close since October 2007.
“Robust investment demand for Hong Kong office space, driven by recordbreaking land sales, could prompt landlords to sell their commercial properties”
Record price
Excelsior hotel in the centre of the image
Aviation
Earlier this year, two Chinese companies bid a record HK$16.9 billion (US$2.2 billion) for a piece of waterfront land zoned for residential development. Mandarin Oriental, controlled by trading company Jardine Matheson Holdings, operates 30 hotels and eight residences in 20 countries and territories. The group’s hotels are all five-star luxury properties, with the exception of The Excelsior, which is rated four star. It also has a strong pipeline of hotels and residences under development. Shares of Mandarin Oriental
M&A
Patrick Wong, an industry analyst with Bloomberg Intelligence Th e Excelsior, w hich opened in 1973, sits on the first land parcel sold after Hong Kong became a British colony in 1841. Bloomberg News
Humanitarian crisis
Fuel shortage prompts flight Apple, Dell join bid to buy cancellations at Auckland Airport Toshiba’s chip business
600,000 Rohingya children may flee to Bangladesh
A jet fuel shortage is causing flight cancellations at New Zealand’s Auckland Airport with disruptions expected to continue. A total of 23 international and domestic flights have been cancelled in the last 24 hours, Auckland Airport corporate affairs manager Simon Lambourne told Reuters by telephone yesterday. Fuel companies are rationing oil because a leaking Auckland supply pipeline has been closed for repairs at New Zealand’s only refinery at Marsden Point, Whangarei. Refining NZ, which owns the pipeline, said it could take 10 to 15 days to repair, according to a news report by Radio NZ. The pipeline is the only source of jet fuel for Auckland Airport. “Airlines operating at Auckland Airport have had their usual fuel allocations reduced. We appreciate this will be inconvenient and will require airlines to take alternative fuelling measures,” said Andrew McNaught, a spokesman of Mobil Oil New Zealand Limited, which represents fuel suppliers. Airlines would have to carry more fuel to enable return flights without refuelling and stop to fuel at other airports on the way to and from Auckland, McNaught said in an emailed statement yesterday. Reuters
Some 600,000 Rohingya children could flee to Bangladesh by the end of the year, a relief group said yesterday, highlighting the scale of the humanitarian crisis triggered by violence in Myanmar’s Rakhine state. More than 400,000 Rohingya Muslims have now arrived in Bangladesh from their Buddhist dominated homeland to escape violence that the United Nations says could be ethnic cleansing. According to the UN, more than half of the refugees are children, and more than 1,100 have arrived alone after trekking mud roads and hills for days. “That number could rise beyond one million by the end of the year if the influx continues, including about 600,000 children, according to UN agencies,” Mark Pierce, the Bangladesh chief of Save the Children charity, said. The UN has also said it was possible that all the estimated 1.1 million Rohingya could flee Rakhine. Bangladesh and relief agencies are struggling to cope with new arrivals sheltering on roadsides, hills and open spaces close to existing camps around Cox’s Bazar, which borders Myanmar. Aid agencies have said thousands of Rohingya were half-starving and a major health emergency could break out. AFP
U.S. tech titans Apple and Dell have joined a bid to buy Toshiba’s memory chip business, a deal seen as key to the survival of the cash-stripped Japanese industrial conglomerate, the US investor leading the consortium has said. “Last week Bain Capital made a revised offer” for Toshiba, which “brings in a broad list of strategic partners including Apple, Dell” and others who will invest in the business, Bain Capital said in a statement obtained by AFP yesterday. It was the first time Apple’s name has been officially confirmed as part of the bid, although it has reportedly also been involved in rival bids for the lucrative Toshiba segment. The announcement came after Toshiba said last week it had picked the Bain Capital-led consortium as the leading candidate to buy its prized chip business in a deal reportedly worth some US$18 billion. The development was the latest twist in a long-running saga as Toshiba agonises between three groups of suitors for its chip business. The Bain Capital-led group also includes the statebacked Development Bank of Japan and the public-private Innovation Network Corp. of Japan as well as South Korean chipmaker SK Hynix. AFP