Inky Store makes its mark on city fashion Startup focus Page 4
Thursday, June 22 2017 Year VI Nr. 1323 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Private survey
Southeast Asian companies’ confidence at 3-year high Page 11
Clueless
No date for The 13 opening Page 3
www.macaubusinessdaily.com
Retreat
Crown’s Asian branches vanishing after trial Page 5
Stock Exchange
Taiwan and Korean markets react to Mainland’s MSCI inclusion Page 11
Heritage reassurance UNESCO
Between a rock and a hard place. The Chief Executive has spoken out regarding World Heritage sites in the MSAR. With particular reference to UNESCO concerns about sightlines. Confirming the gov’t will protect the sites - and that he was not concerned about listing despite previous critical reports. Page 2
Tug of (price) war
Inflation The Statistics and Census Services revealed inflation data yesterday. Figures indicate increasing prices for services targeting residents. With decreasing prices for products and services catering to tourists. Page 7
Taking stock
Manila attacks Genting Hong Kong is closely following investigations into the Manila attacks. As revealed in Hong Kong stock notes filed by the company, it ‘will continue to assess its impact on the company and its business.’ Page 6
Not making waves yet
New Taipa Ferry Terminal data performance is similar to its predecessor. Suggesting that the new facilities are off to a slow start. New services are expected to be operational in July to provide a more attractive offer.
MSCI finally says yes
New terminal Page 3
HK Hang Seng Index June 21, 2017
25,694.58 -148.46 (-0.57%) Worst Performers
Geely Automobile Holdings
+2.21%
Ping An Insurance Group Co
+0.19%
China Petroleum & Chemical
-2.52%
Cathay Pacific Airways Ltd
-1.47%
China Merchants Port Hold-
+2.12%
Hong Kong & China Gas Co
+0.14%
Wharf Holdings Ltd/The
-1.94%
Sands China Ltd
-1.34%
Link REIT
+1.15%
AAC Technologies Holdings
+0.10%
Hang Lung Properties Ltd
-1.92%
Sun Hung Kai Properties Ltd
-1.27%
China Resources Power
+0.83%
CK Hutchison Holdings Ltd
+0.00%
New World Development
-1.92%
PetroChina Co Ltd
-1.22%
Lenovo Group Ltd
+0.20%
China Mobile Ltd
-0.06%
Kunlun Energy Co Ltd
-1.54%
Bank of East Asia Ltd/The
-1.19%
28° 31° 28° 31° 28° 31° 28° 31° 28° 32° Today
Source: Bloomberg
Best Performers
FRI
SAT
I SSN 2226-8294
SUN
MON
Source: AccuWeather
Markets Beijing yesterday hailed the decision by index compiler MSCI to include it in its key emerging markets list. Saying it was a signal of confidence in the world’s number two economy. Following three failed attempts as China’s leaders expand its global market influence. Pages 8 & 15
2 Business Daily Thursday, June 22 2017
Macau Elections
CCAC reminds gaming industry to sidestep elections
Gaming Co-ordination and Inspection Bureau (DICJ) met with representatives The local anti-graft body, the Commission of the six operators and four junket promoters. The chairman of the CCAC Against Corruption (CCAC), has noted the oversight body had “given reiterated that gaming operators must instructions to the operators that not help promote any given candidate the candidate lists, when acquiring or list of candidates for the upcoming signatures on their candidate list, cannot Legislative Assembly elections. use any influence or threat” to sway their The affirmation comes after a meeting vote or acquire their support. held at the end of May in which the
Politics
CE pledges to protect city’s heritage
M
acau’s Chief Executive (CE) Fernando Chui Sai On has proclaimed that the MSAR Government will protect the city’s heritage sites, remarking that it is normal for non-profit organisations and environmentalists to report any concerns to UNESCO, saying he was not concerned that Macau would thus be affected in its listing of World Heritage Sites. The comment was made yesterday prior to his visit to Shanghai. Earlier this month, a report by the World Heritage Committee slammed China and the MSAR Government’s
performance on heritage preservation practices, such as the several construction projects near the Guia Lighthouse that would have affected its sightlines. Meanwhile, regarding the request of revising the new Land Law by legislators Zheng Anting and Leonel Alberto Alves, the CE has affirmed that the request is currently undergoing evaluation by the Secretariat for Administration and Justice. Chui stressed that the previous proposal submitted could be accepted or turned down, while recalling that there had been a Rent Law accepted and Labour Law rejected.
Fernando Chui Sai On pictured in a graduation event this week. Source: IBS
The social housing project at Wai Long Road was also mentioned by the CE. Chui urged society not to
merely consider the environmental evaluation of the Wai Long social housing project, saying that the focus
should be placed on how to create suitable conditions to ensure the health of residents. C.U.
Construction
SJM Cotai Palace works remain suspended The investigation into the accident which resulted in the death of a construction worker on Sociedade de Jogos de Macau’s (SJM) Grand Cotai Palace in Cotai is still ongoing, with no fixed date for the resumption of work on the site in question, according to a
Labour Affairs Bureau representative. On Sunday, the Bureau published a notice that site construction work had been stopped while the department investigates the incident involving a construction worker from the Mainland falling 10 metres due to
insufficiently high barriers surrounding a metre-wide opening in the floor. Given that each accident is investigated on a ‘case by case’ basis, no fixed date has yet been set for work on the site to resume, with the DSAL announcing this week that it would
‘conduct rigorous inspection of the construction sites’ and if ‘infractions are found […] the responsible parties will be punished and ordered to suspend works, without tolerance for any infraction, in order to ensure the security of work [on the sites]’. Business Daily contacted SJM for comment but had not received a response by the time this article went to print.
Consumer prices
Urban renewal
Inflation on the rise for basic services
Fong Son Kin: More industries sought for rejuvenated industrial buildings
Education and health led the increase in the composite consumer price index (CPI) in May 2017, according to the latest data released by the Statistics and Census Services (DSEC) yesterday. Prices for education and health services went up 7.46 per cent and 5.14 per cent year-on-year, with DSEC noting that the increases were mainly attributable to higher charges for outpatient services and rising tuition fees. On the other hand, prices for communication, housing and fuels dropped 5.79 per cent and 1.28 per cent, respectively. Overall, as at May 2017, inflation was 0.95 per cent higher than last year, and 0.28 per cent higher than the previous month. On a monthly basis, the latest data released also indicated increasing
prices for services targeting residents and decreasing prices for products and services catering to tourists. Receding charges for package tours, lower airfares, reduced prices of alcoholic beverages, as well as motorcars drove down the price indices of recreation and culture, transport, and alcoholic beverages and tobacco by 0.82 per cent, 0.34 per cent, and 0.32 per cent, respectively. For the 12 months ended May 2017, the average consumer price increased 1.37 per cent from the previous period, with important increases in the price indices of alcoholic beverages and tobacco up 9.99 per cent, education up 7.75 per cent, and transport up 6.12 per cent. The average price index for the first five months of 2017 rose 0.92 per cent year-on-year. S.Z.
Fong Son Kin, chairman of the Industrial Association of Macau (IAM), said the government could include more industries in industrial categories such as software development, movie making and photography studio. The comments came during TDM radio programme Macao Forum. Fong said the categories for industrial usage should be revised to suit current economic development in order to assure the full utilisation of industrial buildings. The government proposed the rejuvenation scheme for industrial buildings in 2011. However, due to the sparse ownership of buildings, successful rejuvenation was limited, said the IAM chairman. Fong also suggested amending the current law, given that the rejuvenation of industrial buildings, or change of building usage, requires approval of 100 per cent of owners.
No playing
Recently, the government forcibly closed down 10 children playgrounds due to the absence of a licence, seven of which were located in industrial buildings. The playgrounds, according to current regulations, do not qualify for a licence since playgrounds are not categorised as an industrial activity, the Head of Department of the Environment, Hygiene and Licensing of the Civic and Municipal Affairs Bureau (IACM), Fong Vai Seng, said. Meanwhile, the chairman of the
Architects Association of Macau, Leong Chong In, said that mixed usage of industrial buildings, meaning units used for industrial as well as commercial operations, would pose a high fire risk. In Hong Kong, as cited by Leong, rejuvenation can only be performed for the entire industrial building. C.U.
Business Daily Thursday, June 22 2017 3
Macau Transport
Casinos
Larger but not busier The new Taipa Ferry Terminal has registered an average of 20,000 passengers and 125 sailings daily, a number similar to the previous temporary ferry terminal
T
he new Taipa Ferry Terminal, inaugurated on June 1, has registered an average of 20,000 passengers and 125 sailings daily, according to information provided by the Marine and Water Bureau (DSAMA) to Business Daily. This would represent a total of 420,000 passengers and 2,625 sailings since the terminal initiated operations at the beginning of the month.
According to DSAMA, the average number of passengers and sailings are similar to the ones registered by the temporary ferry terminal, which was operational from 2007 until the considerably larger 200,000 square metre new terminal development was completed 10 years after work began. When questioned what improvements the department would apply in the new terminal, DSAMA said it is working on the
optimisation of signage, including increasing hanging or standing signs. The department also told Business Daily that CSI Group Ltd. - the company awarded a three-year contract for the management of commercial areas in the new terminal - would start operations on July 1, with the contractor “urged to initiate the procedures of business invitation as soon as possible”. Currently, no commercial areas are in operation in the new ferry terminal, with DSAMA having stated previously “administrative procedures took longer” for this sector after a public tender was opened in August of last year. N.M.
Reinforcing the barriers Gaming operators were advised by Judiciary Police (PJ) to strengthen frontline security checks, increase the number of personnel and install metal detectors at their property entrances, the police department has told Business Daily. The suggestions were made after the PJ received reports on enhanced casino security measures made by the gaming operators. Gaming operators were requested to each send a report on their property’s current security situation to the PJ and the Gaming Inspection and Co-ordination Bureau (DICJ) folowing a meeting held after a deadly attack on Resorts World Manila in the Philippines on June 2. The PJ said it is currently analysing the reports, telling Business Daily the police department, together with the DICJ, will meet the gaming operators again “as soon as possible to look into the details” of the security situation. N.M.
Hotels
Not yet on the calendar The 13 unable to confirm it will stick to the previous slated date for the hotel opening of July 2017, as the operating licence is still being processed by the local tourism office Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The 13 Hotel has not been able to confirm if the opening of its premises will take place at the end of July 2017, as previously affirmed by the group. Speaking to Business Daily, a spokesper son for the company said: “The commercial opening of The 13 will be in 2017, with
[the] exact date to be announced.” It is possible an eventual delay in the opening might be related to the issuing of the operating licence for the hotel by the Macao Government Tourism Office (MGTO). In reply to Business Daily enquiries, the tourism bureau, the body in charge of issuing operating licences for hotels in the city, said that ‘the licensing procedures
related to the mentioned hotel and the related establishments are still being processed.’ Information about the opening of the hotel at the end of next month was an nounced in a filing of the company with the Hong Kong Stock Exchange in early April. In the same filing, the company indi cated that the occupation permit for the premises had been issued on March 29, 2017 and that they were ‘in the process of obtaining necessary licences for the operation and pre-opening preparation of the Hotel.’ As for gaming tables on the hotel premises, the Gaming Inspection and Co-ordination Bureau (DICJ) confirmed that, as of yesterday, they “had not yet received any one of the gaming concessionaires requesting to open a new casino in The
13 Hotel location.” The Bureau’s spokesperson further ex plained that in the event of requests from local casino operators, the Bureau will consider criteria such as the proportion of non-gaming elements in order to conduct their assessment. The 13 has not replied to additional questions as to whether or not gaming operators have approached the company or showed interest in operating gaming services in the facilities. The company had previously mentioned plans to host 66 gaming tables within the hotel premises, when it was still named Louis XIII Holdings Limited, according to World Casino Directory. After it officially changed the property name to The 13, it no longer referred to intentions of including a casino operation on the premises. advertisement
4 Business Daily Thursday, June 22 2017
Macau
Bringing the fashion world home Startup name: Inky Store Industry: Fashion Elevator Pitch: A wardrobe that makes people happy
We’re the first brand selling it here and we can have a deal with the company, but it would be much easier if I was in Hong Kong. Hong Kong has a larger reputation and they have a larger number of fashion companies. In Macau, we don’t see many multi-brand shops.
Interviewee: Founder Inky Leong
Nelson Moura nelson.moura@macaubusinessdaily.com
W
hat were you doing before you started Inky Store? I worked in the luxury fashion stores like Burberry and Hermes for around five years, after which I decided to open my own store, Inky Store. I also work for SD Magazine as a fashion columnist and I’ve been blogging a lot about fashion for around five years. Have you studied fashion? I haven’t studied fashion; in fact I don’t have any degree. I just love fashion because my mother loves it as well, and when I was younger I would just follow her to go shopping everywhere. How did you get the initial capital for your company? I used my own money. For the first store at Rua do Bispo Medeiros in 2014 we had to spend around MOP500,000 (US$62,232) and for the second on Rua de Francisco Xavier Pereira around MOP1 million, since the rents are quite high. Who is your main target customer? Not just people that really enjoy fashion, it can be people looking for everyday clothes. Some customers come here to get clothes for their wedding or their birthday. It’s not just about fashion but also lifestyle, personal experience and memory. How would you describe the type of clothes Inky Store sells? Inky Store is a woman’s select shop and we have a lot of brands from London, Paris and South Korea. Every season I go to those places in Europe and every month I go to
South Korea to choose and pick up clothes. A lot of the products are not my design but I select them. In March of this year we created a men’s clothes brand named I.N.K., with a store having just opened in this area and a store in Shenzhen to open this year. I think we’re in the middle spectrum in term of price, not too high-end. I would say it’s around MOP500 but it can also go to MOP5,000; we have a large gap in prices, it depends upon the chosen brand. What were your main difficulties in opening the stores? I think the market size in Macau is very small as most customers just want one or two kinds of clothes, always the same style. There’s also a lot of competition, lots of clothes shops. I also have to deal with the suppliers directly and it can be difficult. For example, there’s a designer called Stephen Jones, who used to be the head designer for Princess Diana and Dior, and when we talk to the company they’re not interested in a market like Macau, it’s considered too small a market.
“Every season I go to places in Europe and every month I go to South Korea to choose and pick up clothes. A lot of the products are not my design but I select them” How has business been? Business has been good and I’m lucky. When we opened our first store the market was good for business but when we opened our second store one year after, the economy went down. The first store had good visitation but the second not so much, so I had to change our action plan for the products, our operations, everything. From one year to now the market has been normal, not very good and not very bad. The location of the first store is quite good - many boutiques
moved to Rua do Bispo Medeiros. Three years ago, there were only three stores but now there’re maybe 10. How do you see the Macau fashion scene? There’s no fashion magazine in Macau so I don’t think locals have a great sense of what is fashion or lifestyle. The magazine I work for has four pages of fashion but there’s no magazine only focused on it. I think many locals love fashion but don’t know where to get it. Now they can come to my store, the real one or online, talk about what they want or maybe mention something they saw in a magazine and request it. Do you sell clothes online? Not for now but in the future we will, we’re planning to sell in Taobao. We don’t have Alipay. How important is social media promotion for your business? Three years ago Facebook was more important, but now I think WeChat is more important for our future promotion. Every week, we try to post a lot of ‘moments’ and inform our customers of promotions and products. If we didn’t post on WeChat maybe we wouldn’t have customers now. Instagram is not very good for Macau but it’s good for overseas markets What are your biggest difficulties right now? I think management. We have 10 employees and half are from Mainland China. A lot of employees, especially from Macau, quit the job after a short period; they work part-time for about one or two months and then quit. I think this is the Macau culture. What are your future plans for this year? We will open a pop-up store in Galaxy in July, so I believe our direction will be to move our stores to hotels and large properties, where there is more tourist foot traffic. What advice would you give other entrepreneurs? I would advise them to get experience in a related job for a while to gather marketing, sales skills and learn the trade.
Business Daily Thursday, June 22 2017 5
Macau Nam Van Lakes
IFT to rent out Nam Van space, close down café
The privatisation of the café run by the Institute for Tourism Studies (IFT) next to Nam Van Lake has taken a step forward, the city’s Official Gazette has announced. A dispatch in the Official Gazette advises that the President of the Institute for Tourism Studies, Fanny Vong Chuk Kwan, has been authorised by the Secretary of Social Affairs and Culture, Alexis Tam Chon Weng, to rent out two units in the area, namely S7 and S8, to two separate companies: Café New
Green View and Estabelecimento de Comidas Seek Your Choice. Both companies already have other operations in the MSAR. The decision for the shop to no longer be run under IFT was disclosed last year, with the group opening a public tender for the properties which “received some offers” but had yet to announce any winners of the tender. So far, no timeline is in place for the handover of the shops.
M&A
Going once, going twice After more than a year of negotiations Dah Sing’s insurance business has been sold for HK$10.6 bln Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
A
fter over a year of negotiations the sale of Dah Sing Bank’s insurance businesses have been completed, with both the Dah Sing Life Assurance Company Limited and Dah Sing Insurance Services Limited being sold to Tahoe Investment Group Co. (formerly known as Fujian Thai Hot Investment Company Limited). While still pending approval from local authorities, the additional acquisition of Macau Life Insurance and a distribution arrangement with Banco Comercial de Macau S.A. is set to also take place. In
total, combining the sale and exclusive 15-year bancassurance partnerships with Dah Sing Bank and BCM, the deal amounts to HK$10.6 billion (US$1.36/MOP10.92 billion). Speaking about the acquisition, the Chairman of Tahoe Investment Group, Huang Qisen, noted that “through this acquisition, Tahoe Investment further improves its foundation in the financial services sector and also makes important progress in global layouts and consolidates its development strategy to become an enhanced integrated investment group”. Dah Sing’s services will be maintained after the switch, and continue with its life insurance, health and medical,
investment-linked assurance and savings protection plans. In April, the local monetary authority (AMCM) met with Macau Life Insurance Company in the wake of a report circulated by Hong Kong’s Chinese-language Apple Daily publication, stating it ‘it
has followed up on the report and met with the insurance industry, stressing the law regulations that the industry must obey’. The report in question cites MIC’s CEO allegedly requesting that staff workers on tenders have ‘more
under-the-table co-operation’ with other insurance companies,’ as well as ‘negotiations with other companies for reinsurance’. The most recent interim report published by Dah Sing Banking Group Limited, the seller, showed that its profit for the first six months of 2016 for the group reached HK$1.07 billion, a 13.9 per cent year-on-year decrease for the period.
Lusophone world
Technology
Shaking hands
Fortinet: Demand for cyber security to increase
Local consultancy firm Perfeição Lda has signed a co-operation agreement with Portuguese business newspaper Jornal Económico, with the publication helping promote a Portuguese products trade fair to be organised with Nam Kwong (Group) Company Limited at the end of the month in Shenyang Nelson Moura nelson.moura@macaubusinessdaily.com
Finance and law consultancy service company Perfeição Lda has signed an agreement with Portuguese business newspaper Jornal Económico for the exchange of information and the organisation of events between Portugal, Mainland China and Portuguese-speaking countries. A delegation by the local company founded by the ex-president of the MSAR Legislative Assembly, Susana Chou, travelled to Lisbon to sign the agreement with the newspaper owned by Portuguese publishing group Megafin-sociedade Editora S.A. Perfeição specialises in finance and law consultancy as well as translation services, connecting business opportunities in Mainland China with Lusophone countries: the partnership involves the joint organisation of conferences, events and business delegations to develop investment opportunities. According to the company’s Executive Director, Sandy Chan, at the end of this month Perfeição will co-organise a Portuguese product trade fair with Nam Kwong (Group) Company Limited in the Chinese city of Shenyang, with Jornal Económico assisting with promotion. “We are seeing lots of information gaps and cultural barriers [in the way of] facilitating the exchange of
China and Portugal in investment and economic activities. We believe we’re in a good position to bring both parties together and that opens door for more companies,” Ms. Chan told Business Daily. The Perfeição representative also stated that this collaboration would help the company gain more “awareness” from the Portuguese market and that it would “kick off” its extensive collaborations in Portugal. “For a long time, Chinese companies have had multifaceted co-operation with Portuguese-speaking countries, but seldom through Macau,” the Project Manager of Perfeição, Stephen Wong, told Business Daily. According to Mr. Wong, events such as the 5th Ministerial Conference of the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries held last year, and the Summit on the Chinese Central SOEs’ Support of Macao in the Building of China and Portuguese-speaking Countries Co-operation Platform in May, helped Chinese companies realise the role the city could conduct. Mr. Wong also told Business Daily that Perfeição is “expanding multi-aspect co-operation with many Chinese companies and Portuguese-speaking countries’ companies” but that as of now he could not provide information on future deals.
Cherry Fung, country manager for Hong Kong, Macau and Mongolia for cyber security firm Fortinet, says the demand for cyber security services in the Hong Kong market this year will drive the sector’s market value up 8.75 per cent, to MOP87 million, according to Hong Kong IT industry analytic website Unwire.pro. The county manager predicted that the demand for 2018 would further increase by 7 to 8 per cent. Last month the ‘ransomware’ cyber
attack – dubbed WannaCry – affected some 300,000 computers worldwide. The attack blocked access to infected computer systems, requesting payment in exchange for allowing access again, in the case of WannaCry, through cryptocurrency Bitcoin. According to a study conducted by Fortinet, ‘80 per cent of organisations reported high or critical-severity exploits against their systems’ around the world. Nick Ng, team lead of the consultant team for Fortinet in Hong Kong and Macau, said mobile applications such as Whatsapp could also be exposed to threats if applications were not downloaded via official platforms. In the wake of the attack, the MSAR Government announced that none of the public administration and public services had been targets. C.U.
Travel
Corporate travel build-up for Greater Bay Area A new focus on the Greater Bay Area and the promotion of corporate travel within the area has arisen through the recent share acquisition by JMI Global of Swire Travel, Hong Kong’s largest travel management company, according to TTG Asia. JMI Global is wholly owned by the founder and chairman of KWG Property Holdings, one of the largest privately owned property developers in Guangzhou and listed on the Hong Kong Stock Exchange. The transfer “brings a lot more synergy to Swire Travel, thanks to KWG’s strong base in Guangzhou,”
said the Managing Director of Swire Travel, Gloria Slethaug. “KWG has a small inbound travel business in Guangzhou and hence looks for experienced hands like Swire Travel,” she continued, pointing out that first tier and second tier cities hold potential due to “a lot of unstructured corporate travel management for SMEs (small and medium enterprises) or larger corporations”. “We will leverage KWG’s network and local expertise to build up Great Bay Area business for us, strengthening corporate business as a whole,” she concluded, as quoted by the publication.
6 Business Daily Thursday, June 22 2017
Macau Opinion
Ashley Sutherland-Winch* Ready to become famous? You can now receive a formal education to become a social media influencer from a university in Mainland China. The Yiwu Industrial and Commercial College (YWICC) near Shanghai is offering courses that are meant to equip students with the skills for online fame teaching students everything they need to know to become an influencer from make-up classes, catwalk and dance training to video production. The university sees an incredible opportunity in the market. Mainland China has over 700 million people that use social media and standing out in the crowd can be tough. Topearning influencers, or Internet celebrities – known as ‘Wang Hong’ - can earn up to US$46 million a year. At the YWICC, students are taught the skills needed to pursue viral fame. At the university, students complete three years of classes to obtain an associate degree. Some of the classes offered in the courses are ‘Performance & Swing Ability’; ‘Fashion & Aesthetic Ability’; ‘Public Relations Etiquette & Cultural Literacy’ and ‘Network Marketing & Operational Capacity’. These courses aim to give aspiring influencers a start at navigating the complex market of social media influencing. Twenty-one year old Mengna Jiang told news wire AFP: “I like dressing myself up really pretty and taking pictures, I feel like this major really suits me”. Converting Internet popularity into making actual revenue varies from the East to the West. The majority of Mainland China’s Internet celebrities may host a regular Q&A session or host live streaming events where they film everything from their latest shopping excursion to everyday life. In live streaming, for example, the main source of income derives from viewers sending virtual gifts. For instance, a virtual car is RMB150 (US$21.96), which viewers can pay for and give as a present. The final revenue is split 3:7, with 30% of the revenue (RMB99,541 or US$14,580 going to the influencer and the remainder going to the platform hosting the live stream (RMB218,990 or US$32,076). Influencers can also monetise their video channels through advertising and featuring sponsors in their videos and photos. It is estimated that China’s Wang Hong industry was worth US$10 billion in 2016 and could double by 2018. There is not a perfect equation for Internet fame and to become an influencer is a process that can be very difficult or incredibly easy. One viral video and proper management of social accounts can work. I’m not surprised that educational institutions are capitalising on this new field, but courses alone may not guarantee Internet fame.
*Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Impact
Genting monitoring Resorts World Manila investigation Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
G
enting Hong Kong Limited has announced that it is ‘closely monitoring the aftermath and investigations’ of the attack on Resorts World Manila on June 2 of this year, referring to the ‘robbery/ arson incident resulting in a number of deaths and injuries,’ as published with the Hong Kong Stock Exchange. Genting Hong Kong holds a 45 per cent interest in Travellers, according to the group’s annual report. The attack - and subsequent investigation into the security measures in place and other systems relating to the fire and theft - resulted in the suspension of the provisional licence of Travellers to operate casinos and other gaming facilities, pending ‘final determination by Pagcor of Travellers’ alleged liability for the Incident,’ notes the release. The last hearing on the case was held yesterday in Manila, in which the security chief of Resorts World Manila admitted he had been using a fake name, having changed it from Armenio to Armeen, revealed during questioning to be the name of his brother, who works in Naga City, Rappler reported. Following the admission the chief invoked his right against self-incrimination. In all, 37 people died in the attack on the resort from smoke inhalation after a lone gunman identified as Jessie Carlos set casino tables on fire
and eventually died after he set himself on fire in an upstairs hotel room. While the Chief Operating Officer of Resorts World Manila, Stephen Reilly, noted that “there would have been a different hiring process” had he known about the fake name, he still stated that “Mr. Gomez, I can state, has proven himself to be very
credible in his capacity while he was working for Resorts World,” Rappler cited. The Genting filing notes, given the investigation, it ‘will continue to assess its impact on the Company and its business’ and will ‘update shareholders in relation to any material developments in due course’.
Gaming
Online gaming suspicions: Accounts frozen in Yunan Province Over 100 accounts frozen by authorities following an investigation by the Chinese police in the province of Yunan into online gambling could be unfrozen if no ties are found to the activity, illegal in China, according to the Myanmar Times. Statements by the Vice Governor of the province noted that 132 accounts in the city of Ruili were frozen following an eight-month investigation into online gambling, while in total the bank in question, Agricultural Bank of China, has frozen 5,000 accounts in three provinces linked to online gambling, illegal transfers, illegal deposits and withdrawals, the Vice Governor told the publication. Statements by the central government’s Ministry of Foreign Affairs confirm that the ‘Chinese police are investigating gambling-related criminal cases in the province […] and have frozen a batch of relevant assets in accordance with the law’. The Vice Governor of the province noted that not all the frozen accounts were linked to online gambling, but could have been used to receive transfers from accounts linked to the activity. A statement issued by the Chinese Embassy in
Myanmar noted that the temporary freezing of the accounts was in the long-term interest of traders along the border between the two countries, and to protect regular trade. This was reiterated by the Ministry of Foreign Affairs spokesperson,
who noted that: ‘the law enforcement departments of the two countries have close co-operation in combating cross-border crimes. The Chinese side is willing to continue to maintain close communication and co-ordination with Myanmar in investigating the cases, thus jointly upholding the good order along the China-Myanmar border area and the benefits of the inhabitants of the border area of the two countries.’ K.W.
Corporate
Portuguese Painters Exhibit at Clube Militar until this Saturday
As part of its regular cultural activities, Clube Militar de Macau has announced it will host the Portuguese Painters Exhibition at the Club Gallery until this Saturday, June 24. Club President Ambrose So noted that the cultural activities – in particular music and the visual arts – are an “essential” part of the institution’s commitment to “being a place where the various communities of Macao can meet and engage in a dialogue.” The Portuguese Painters Exhibition brings together works by three artist painters “with strong personalities and identities” - Cruzeiro Seixas, Alfredo Luz and João Paulo. Although only the works by Seixas relate directly to surrealism, the
8-24/6
6月8日至24日 Cruzeiro Seixas
João Paulo
Alfredo Luz
Exposição dE pintura portuguEsa CiClo de exposiçÕes pontEs dE Encontro
系列畫展 : 交匯之橋
MEEting bridgEs series of exhibitions
葡萄牙畫家展覽 portuguEsE paintErs Exhibition
other two are also said to be largely influenced by the latter artistic movement. The Portuguese Painting Exhibition is the first of a set of three planned by the Club to be held this year.
Business Daily Thursday, June 22 2017 7
Gaming Strategy
As Mainland trial looms, Crown’s offshore network is hard to find A dismantling of its overseas office network would be the latest sign of a strategic reversal at billionaire James Packer’s Crown in the wake of the China arrests Angus Whitley and Daniela Wei
C
rown Resorts Ltd.’s operations in eight Asian countries are suddenly hard to find. Since the Australian casino operator’s staff were detained in China last October and accused of illegally promoting gambling, Crown’s network of offices from Macau to Indonesia appears to have vanished. Visits to seven of the eight premises showed offices that appeared to be shuttered. With 19 individuals due to appear next week in a Shanghai court, references to all but one of Crown’s representative offices outside Australia have been removed from the company’s website, leaving just Hong Kong. Phone numbers for those offices, previously listed online, won’t connect or are answered by individuals who no longer represent Crown. The apparent retreat underscores the scale of the fallout from the detentions, which fuelled concern that China was clamping down on overseas casino operators that drum up business on the mainland. Any scaling back of international marketing might weaken Crown’s ability to attract big-spending gamblers from overseas. When asked about the office closures, employees affected and what prompted the changes, a representative for Crown in Melbourne said the company had no comment. The company also declined to comment on whether it would be tougher to attract high-stakes players to Australia without offshore offices. A dismantling of its overseas office network would be the latest sign of a strategic reversal at billionaire James Packer’s Crown in the wake of the China arrests. New Chief Executive Officer John Alexander is focusing on Crown’s hotels and casinos in Australia, including a new A$2 billion (US$1.5 billion) luxury resort on Sydney’s waterfront. That new resort is focusing on high rollers, even after turnover from so-called VIPs slumped since the crackdown.
Closed offices
In Vietnam, the former Ho Chi Minh City office is empty, and a woman who said she was Crown’s former representative said it closed about six months ago. Staff at a building in Bangkok say Crown vacated the premises this month. There’s no trace of Crown at its former premises in Taipei and Jakarta. In Singapore, Macau and Kuala Lumpur, the Crown offices were closed during business hours and neighbouring tenants or building management say the offices appear to have been shuttered in the past few months. Meanwhile in India, where Crown previously listed just a phone number for its representative office, a man who identified himself as Nilay Singh said he no longer works for Crown as its head of marketing in the country. A Crown staff member at the company’s Hong Kong premises, which mainly handles payments, said it was business as usual there. The woman,
who asked not to be identified as she’s not authorized to speak to media, said Crown had not notified the Hong Kong office of any changes at other offices in Asia. According to Internet Archive, a non-profit that’s a repository of cached web pages, Crown’s multiple offices were listed as recently as May 3 on its website but had disappeared by May 27.
‘Perceived risks’
Crown, with Packer as its biggest shareholder, is focusing on its Australian resorts after selling out of its Macau venture with Lawrence Ho. Packer has since returned to the board and has made resolving the situation in China his top priority.
‘In Singapore, Macau and Kuala Lumpur, the Crown offices were closed during business hours and neighbouring tenants or building management say the offices appear to have been shuttered in the past few months’ The overseas marketing offices helped to funnel visitors to Crown’s resorts in Australia. More than one third of the revenue at the Melbourne and Perth resorts in the year ended June 2016 was generated by international visitors, predominantly from Mainland China, according to Crown’s latest annual report. Closing down international offices could be aimed at mitigating perceived risks in using Asian locales to market to Chinese gamblers, said Sudhir Kale, who has worked on projects for Crown and other large casinos as head of GamePlan Consultants in Queensland. Crown is sending a signal that, “‘Hey, we have shut down most of our offices. We’ve learnt from the experiences. And not just in China, but in other markets, we are taking the appropriate steps to prevent these things from happening again,”’ Kale said. Crown shares have dropped 0.8 percent in the period since the news of the detentions in October through
Tuesday. That trails a 6 percent gain by Australia’s benchmark index.
Exercising caution
Crown said June 13 that the detained workers in China have been charged with offenses related to the promotion of gambling. Among those scheduled to appear in a district court on June 26 is the company’s head of international high-roller operations, Australian Jason O’Connor. It’s illegal to run a casino or promote one anywhere in China, other than in Macau, the world’s biggest gambling market.
Crown isn’t alone in exercising caution. The company’s main Australian rival, Star Entertainment Group Ltd., closed its doors to new business from China in the wake of the detentions. Star stopped chasing new customers in China or even taking calls from unknown parties, CEO Matt Bekier said in February. Star is pushing ahead with a plan to generate more income from Southeast Asia to reduce reliance on China. The most lucrative markets are Singapore, Malaysia, Indonesia and Thailand, Bekier said then. Bloomberg News advertisement
8 Business Daily Thursday, June 22 2017
Greater china Index
‘A’ shares get MSCI nod in landmark moment for Mainland’s markets MSCI has been in discussions with Chinese regulators and global investors for four years Dion Rabouin and Michelle Price
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hina’s stocks took a major step towards global acceptance yesterday, finally winning a long campaign for inclusion in a leading emerging markets benchmark, in what was seen as a milestone for global investing. U.S. index provider MSCI said yesterday Hong Kong time it would add a selection of China’s so-called “A” shares to its Emerging Markets Index after having rejected them for three years running. Inclusion in the index marks a key victory for the Chinese government, which has been working steadily over the past few years to open up its capital markets, investors said. “Given the size and importance of China as an economic superpower, I think this is a historic moment,” Kevin Anderson, senior managing director of State Street Global Advisors and head of investments in the Asia Pacific region told Reuters yesterday. “It’s a long-awaited and much-debated decision in the past, and I think it’s more than symbolic as it will create additional flow of capital and potentially a new segment of institutional investors in the China market.” Traders said MSCI’s widely-expected “Yes” decision had been largely priced in, with the announcement triggering some profit-taking in bluechips, which are no longer cheap after strong rallies this year. MSCI has been in discussions with Chinese regulators and global investors for four years over whether to add yuan-denominated shares to the Emerging Markets Index – tracked by around US$1.6 trillion in assets – but excluded them because of restricted access to China’s equity markets. Yesterday, the company said China had made enough progress in opening up its markets for MSCI to add a selection of 222 large-cap stocks. The stocks, which would represent
a weighting of just 0.73 per cent in the benchmark, will be included via a two-phase process in May and August next year. The move will see around US$17 billion to US$18 billion of global assets move into Chinese stocks initially, MSCI executives told reporters on Wednesday, adding that over the long-term the full inclusion of the China market could see more than US$340 billion of foreign capital flow into the country.
Key Points MSCI says will add 222 China stocks to EM Index next year Decision should draw US$17blnUS$18bln into China initially Stocks will be added in two phases in May and August Investors hail “historic” decision after 3 years of rejection Index firm says no timeline for full China A share inclusion
Sebastien Lieblich, global head of index management research at MSCI declined, however, to provide a likely timeline for the full inclusion of “A” shares, saying it would depend on continued progress on China’s reform agenda. MSCI, he noted, would like to see
China further relax controls on repatriating capital out of the country, and act to curb frequent share suspensions. “It’s really in the hands of the Chinese stakeholders, they are dictating the timing. It’s very difficult for us to articulate any type of timeline with respect to further inclusion,” Lieblich told reporters. The China Securities Regulatory Commission, which has overseen many key reforms in recent years, welcomed MSCI’s decision. “The inclusion of ‘A’ shares in the MSCI index is in line with the inevitable needs of international investors and reflects the confidence of international investors in the good prospects for China’s economic development and stability of the financial market,” the CSRC said in a statement.
Relaxed criteria
MSCI in March relaxed its criteria for inclusion by cutting the number of proposed stocks to 169 from 448 in a bid to address ongoing curbs on repatriating capital from China and investor concerns over the country’s high number of suspended stocks. The 169 stocks can be easily accessed by foreigners through the “Stock Connect” link launched in 2014 and significantly expanded in December. MSCI said it had increased the selection to include a further 53
domestic Chinese stocks that are also listed in the Hong Kong market, and which will be better known to foreign investors. Chinese companies listed overseas already account for 28 per cent of the EM Index as of May but the addition of domestic, yuan-denominated China stocks could see the country account for as much as 40 per cent of MSCI’s Emerging Market Index in the future. The A-share market, including shares from Shanghai and Shenzhen markets, is worth roughly US$7.5 trillion, the world’s largest after the New York Stock Exchange and Nasdaq. BlackRock Inc, the world’s largest asset manager, endorsed MSCI’s decision. “We believe our clients will benefit from today’s decision to bring Chinese equities into mainstream investment,” said Ryan Stork, BlackRock’s chairman for Asia-Pacific in Hong Kong and one of the company’s most senior executives, in an emailed statement. MSCI also surprised many emerging market investors by failing to upgrade Argentina, leaving its in the smaller frontier markets index, where it has been since 2009. The index provider also said it would consult investors about adding Saudi Arabia companies to the emerging benchmark and that Nigeria would remain a frontier market, with the possibility of being downgraded to “standalone” status. Reuters
Markets
Sinochem Group said to mull listing oil assets in Hong Kong Its assets stretch from upstream production and oil refining to tankers China’s Sinochem Group is considering listing its oil-related business in Hong Kong, according to people with knowledge of the plan. The state-owned chemicals conglomerate is making initial evaluations of its oil assets, which have a combined value of around RMB100 billion (US$14.6 billion), said the people, who asked not to be identified as the information is confidential. It hasn’t made a final decision about the assets that would be included in a listing, which may happen as soon as early 2018, and details such as valuation may change, another person said. The move would be in line with President Xi Jinping’s drive to reform the nation’s bloated state-owned enterprises by introducing outside
capital and mixed ownership. Nobody answered two calls, a fax and email to Sinochem seeking comment. Bloomberg reported in March that Sinochem hired investment banks to arrange a stake sale to outside investors ahead of a potential initial public offering. Sinochem could
still eventually seek listing of entire group, two of the people said. Separately, the company is seeking a merger with China National Chemical Corp., known as ChemChina, Bloomberg reported in October. Sinochem’s oil assets stretch from upstream production and oil refining
to tankers, storage facilities and fuel stations, according to its website. The company has recoverable reserves of roughly 800 million barrels of oil equivalent in nine countries, as well as refineries with annual processing capacity of around 25 million metric tons, and it trades about 100 million tons of crude and products annually, the site says.
Chemical core
Hong Kong Stock Exchange trading lobby
Sinochem could be looking to shed oil assets to focus the parent company on its core chemicals business, said Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd. The Beijing-based company has three Hong Kong-listed units focusing on fertilizer, real estate and finance, as well as one Shanghai-listed company, Sinochem International Corp., investing in areas from energy to rubber as well as metallurgy. The group held total assets of more than RMB350 billion at the end of 2015, according to its website. Bloomberg News
Business Daily Thursday, June 22 2017 9
Greater China Power struggle
Changing of the guard: Vanke founder Wang Shi steps down A shareholder meeting to elect new board members will be held on June 30 Clare Jim
China Vanke Co Chairman Wang Shi, one of the best known people in Chinese business, will step down from the board after a years-long power struggle saw the nation’s No.2 property developer fall under state control. The 66-year-old former government official and People’s Liberation Army veteran said it was time to hand over the reins of the company he founded in 1988 and built into a real estate powerhouse that rode on the back of China’s economic boom. The move was widely expected after China Vanke was taken over by the Shenzhen government in March, ending a struggle for boardroom control and raising questions about to what extent the property giant would remain a market-driven company. “I have decided not to be re-elected as Vanke’s director since the beginning of the discussion of a new board,” Wang wrote in his blog.
“Today, I’m handing the leadership to (President) Yu Liang. I believe it’s the best timing. They are younger but mature enough.” A shareholder meeting to elect new board members will be held on June 30, and the company said it had nominated three senior executives of major shareholder Shenzhen Metro, including its chairman, general manager and chief financial officer, as non-executive directors. The state-owned subway operator’s control over Vanke was affirmed earlier this month after it raised its stake to 29.38 per cent, surpassing financial conglomerate Baoneng Group, which had sought to oust Vanke’s management.
High regard
Wang is an unusually colourful figure in China’s staid boardrooms - an entrepreneur who also rows, climbs mountains and hit gossip headlines when he began dating a much younger actress. He has scaled Everest twice and is the first Chinese man to climb
Wang Shi
the highest mountains in all seven continents. He set up Vanke - now valued at US$34 billion - from an office equipment company and donated his shares to a charity early in its transformation into a private company. “Someone who got rich overnight could be in danger, probably even be killed … and I didn’t know what to do with so much money,” he was quoted as telling a seminar.
Key Points Wang one of the best-known Chinese business leaders Resignation follows takeover by state-run Shenzhen Metro Shenzhen Metro nominates 3 nonexec directors for June 30 vote No impact on Vanke operation - analysts The leadership crisis began in late 2015 after Baoneng launched its takeover bid and some disgruntled investors stepped up criticism that Wang was spending too much time studying at Harvard and Cambridge and not enough at the company. The ensuing power tussle saw Wang cede much authority to the Shenzhen government as Vanke lost its title as the country’s biggest homebuilder to rival China Evergrande Group. Wang’s departure could be a positive for the company, removing the last element of the boardroom battle and appeasing some investors, analysts said. “The Wang Shi era has officially come to an end, but he stopped managing the company years ago so his departure will have no impact to the company’s operation,” CRIC Hong Kong head of research David Hong said. Shenzhen Metro said in a statement it “respects Mr. Wang Shi’s decision” and would continue to support Vanke’s mixed ownership. Reuters
Diplomacy
Beijing invites Ivanka Trump, Jared Kushner to visit Kushner helped plan and attended the U.S.-China summit at Trump’s Mar-a-Lago resort in April Matt Spetalnick
The government of China has invited U.S. President Donald Trump’s daughter, Ivanka Trump, and his son-in-law, Jared Kushner, to visit Beijing later this year, a White House official said on Tuesday. China’s overture appeared aimed at deepening engagement with the influential young couple, who played a role in the first summit between Trump and Chinese President Xi Jinping in April, which set an improved tone for relations between the world’s two biggest economies. Kushner, a senior adviser who entered the White House with no government experience, has been assigned the job of conducting Middle East peace diplomacy and will visit the region this week for talks with Israeli and Palestinian leaders. Helping to manage relations with China is another part of his foreign policy portfolio. At the same time, Kushner has come under heavy scrutiny, with high-profile investigations into alleged contacts between current and former Trump aides and Russian officials.
No further details were available on the Chinese invitation, which was first reported by Bloomberg News and confirmed by a White House official on condition of anonymity. The Chinese embassy in Washington did not immediately respond to a request for comment. Trump railed against China,
especially its trade practices, during the presidential campaign. A fence-mending phone call in February was arranged by Kushner and China’s U.S. ambassador, Cui Tiankai, U.S. officials said, after Cui invited Ivanka Trump to the Chinese embassy’s Lunar New Year reception, where her daughter sang in Mandarin. Kushner helped plan and attended the U.S.-China summit at Trump’s Mar-a-Lago resort in April. Reuters
US President Donald J. Trump’s assistant and daughter Ivanka Trump (L) with husband White House senior advisor, Jared Kushner (R). Lusa
In Brief Reforms
State firms complete 48 ‘mixed ownership’ reforms this year China has completed 48 deals allowing private capital to invest in government-run enterprises by June 20, part of a “mixed ownership” reform programme aimed at rejuvenating the state sector, the official China Securities Journal reported yesterday. The deals were worth a total of RMB11.04 billion (US$1.62 billion), up nine fold compared to the same period of last year, the report said, citing data from the Beijing Equity Exchange. China’s mixed ownership reforms are part of ambitious plans to revive the country’s bloated and debt-ridden stateowned sector. CK hutchison
Li Ka-shing says retirement won’t stop him working Hong Kong’s richest man Li Ka-shing said yesterday he has not decided when to retire and will stay as group senior advisor after he steps down as the chairman of CK Hutchison Holdings. Li’s comments came a day after the Wall Street Journal reported the tycoon had told associates he planned to retire by his 90th birthday in July next year. “When I decide to retire, I will make an announcement for sure,” Li said. “But not much will change. I will still come to the building, I will still come to the office, I will still work. I will be a senior advisor then.” Technology
ASML in Mainland training initiative ASML, one of the world’s largest equipment suppliers to computer chipmakers, will team up with a public Chinese research consortium to open an education centre in Shanghai, it said yesterday. ASML and the Shanghai Integrated Circuit Research and Development Center plan to equip an existing clean room in Shanghai with ASML equipment to train a larger workforce capable of servicing ASML’s lithography systems in existing and new fabrication plants. Shanghai is centrally located for China’s chip industry. The move is in line with Chinese ambitions to expand semiconductor manufacturing capacity significantly under its current five-year economic development plan. Start-ups
Tencent’s investment frenzy reaches outer space The Chinese social media giant is looking beyond Earth-bound opportunities. China’s largest corporation has invested in Moon Express, a start-up that aims to put drones on the lunar body; Argentina’s Satellogic, which specializes in satellite imagery; and Planetary Resources, which is looking into asteroid-mining. Tencent’s increasingly adventurous deal spree reflects a growing ambition that’s driven China’s new crop of internet titans, including Alibaba Group Holding Ltd., beyond their core businesses.
10 Business Daily Thursday, June 22 2017
Greater China Markets
Taiwan to encourage more share listings The bourse and the Korea Exchange could as soon as July or August jointly launch indexes comprised of Taiwanese and South Korean technology firms Roger Tung
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aiwan will encourage more of its financial firms to list locally and create new products with its South Korean counterpart to curb pressure from possible outflows to China after mainland shares were added to a key global benchmark, the head of the island’s bourse said yesterday. Taiwan Stock Exchange Corp President Lee Chi-hsien told Reuters in a phone interview that Taiwanese financial firms, including Shanghai Commercial & Savings Bank Ltd and Nan Shan Life Insurance Co Ltd, will be encouraged to list on the main index. “We must rely on ourselves and make Taiwan stocks bigger and better,” Lee said. His comments came after U.S. index provider MSCI said it would add some of China’s so-called “A” shares to its Emerging Markets Index for the first time, giving China a win in its long campaign for inclusion in a leading emerging markets benchmark, in what was seen as a milestone for global investing.
A spokesman for Shanghai Commercial, which trades on the local over-the-counter market, said it had no current plans to list on the main bourse, a move which could boost its profile with investors. Changes in Nan Shan Life’s management in recent years has made public listing still a ways off due to regulatory requirements on its main shareholders. Nan Shan Life was not
immediately available for comment Lee said the bourse and the Korea Exchange could as soon as July or August jointly launch indexes comprised of Taiwanese and South Korean technology firms, and companies that offer high dividends to attract more investors to the two exchanges. The two exchanges signed a memorandum of understanding in December 2015 on expanding their exchange traded fund markets and creating new indexes. Lee said that in the short term, MSCI’s move would have a limited impact on the Taiwan main index but its effect over the longer term should not be underestimated.
Passive funds investing in MSCI’s Emerging Market Index may reduce their holdings in Taiwan shares by T$11.98 billion (US$392.97 million), accounting for 0.09 per cent of foreign investor holding in Taiwan shares by market capitalization, according to the island’s Financial Supervisory Commission.
Key Points After MSCI adds China shares, Taiwan stocks need to be “bigger and better” Encourages Nan Shan Life, Shanghai Commercial to list Could launch indices with Korea Exchange as soon as July Estimated T$11.98 bln to be pulled from Taiwan shares -regulator Taiwan’s technology subindex is the biggest and most heavily-weighted sector, at around 48 per cent, in the main index, followed by the financial subindex, around 14 per cent. This year so far, there have been nine initial public offerings on the main bourse, compared to 25 last year and 24 in 2015, based on exchange data. The main index closed up 0.2 per cent yesterday, after touching fresh 17-year highs during the session. Reuters
C.bank survey
More Mainland bankers regard policy as ‘relatively tight’ A separate survey published by the central bank showed business confidence among entrepreneurs in China also picked up to its highest level in more than three years Nearly one-third of Chinese bankers feel the country’s monetary policy has been “relatively tight” in the second quarter, a central bank survey showed on Tuesday. A total of 30.1 per cent of bankers believed monetary policy was “relatively tight” in April-June, according to the survey, an increase of 9.8 percentage points from the first quarter. About 67 per cent of respondents said the policy is appropriate, down 6.9 percentage points from the percentage saying that in a first-quarter survey. The increase in citing of “relatively tight” appears to reflect intensifying worries about a liquidity squeeze as a vigorous regulatory clampdown on riskier forms of financing has kept liquidity conditions unusually tight this year. But while more bankers to feel the heat of tighter money, their confidence about the economy rose in the second quarter. An index in the central bank survey on confidence
was 67.8, the highest since the fourth quarter of 2013, as profitability edged up. A reading above 50 indicates business expansion. A separate survey published by
the central bank showed Business confidence among entrepreneurs in China also picked up to its highest level in more than three years. The entrepreneurs’ confidence index rose to 65.4 per cent in the second quarter, 3.9 percentage points higher than in the January-March, and only slightly below the 67.0 level in the first quarter of 2014. China’s economy generally remained on solid footing in May, but
China’s central bank headquarters in Beijing
tighter monetary policy, a cooling housing market and slowing investment reinforced views that it will gradually lose momentum in coming months. China’s fast start to the year led the International Monetary Fund last week to raise its 2017 growth forecast to 6.7 per cent from 6.6 per cent in April, though it recommended Beijing accelerate reforms and rein in credit expansion. Reuters
Business Daily Thursday, June 22 2017 11
Asia
Sentiment also edged up in India and Thailand, but weakened in Australia Private poll
Asia firms’ confidence at 3 year-high The most bullish respondents were from the construction and engineering as well as transport and logistics industries Brenda Goh
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usiness confidence in Asia rose to a three-year-high in the second quarter of the year, propelled by a slew of favourable economic data across the region and easing concerns over the health of China’s economy, a Thomson Reuters/INSEAD survey showed. The Thomson Reuters/INSEAD Asian Business Sentiment Index, representing the six-month outlook of 101 firms, climbed to 74 in AprilJune from 70 three months earlier. A reading over 50 indicates a positive view. “The world economy is starting to look more solid,” said Singapore-based economics professor Antonio Fatas at global business school INSEAD. “The U.S. is reaching good levels of GDP and employment, with Europe finally recovering and Asia seeing less risks ahead. China looks like it’s in a more stable situation after having ups and downs because of capital outflows over the last couple of years and also the risks of a debt crisis.” China is widely expected to meet its 6.5 per cent economic growth target this year without too many bumps, helped by a pick-up in exports and stable growth in factory output and retail sales. The government has also sought to reduce debt. Reflecting the upbeat picture, the
country upon which much of Asia depends for trade scored a business sentiment subindex of 75, up from 72 three months prior. In nearby Japan, sentiment hit its highest-ever with a subindex of 83 compared with 61 in the previous quarter and an average of 58 in the survey’s eight-year life. The country’s central bank in April offered its most optimistic assessment of the economy in nine years, saying it was turning toward expansion.
Key Points Thomson Reuters/INSEAD Asian Q2 sentiment index 74 vs 70 Q1 Businesses say disruptive technology is biggest risk Japan among most optimistic economies, Singapore least Construction and engineering most positive sectors Buoyant consumer confidence and export growth that exceeded initial estimates helped Indonesia’s sentiment subindex rise 8 points to 83, its highest in over a year. Sentiment rebounded the most in South Korea with a 50-point jump in its subindex to 75. The result came after the country’s new president vowed to review a decision to deploy a U.S. anti-missile system which
had angered China and prompted a boycott of Korean goods. “The cloud of political risk has disappeared,” Fatas said. “Last quarter the data for South Korea was looking weaker. There was potential for crisis with some trading partners, in particular China.” Sentiment also edged up in India and Thailand, but weakened in Australia, Taiwan and the Philippines. Singapore posted the lowest subindex of 62 - but even that was the strongest lowest subindex the survey has seen since it began in 2009.
Construction bullish
Thomson Reuters and INSEAD polled companies from June 2 to 16. Of the 101 respondents, 56 per cent rated their six-month outlook as positive, the highest proportion in over six years. 37 per cent were neutral and 7 per cent were negative. Respondents included Australia’s APA Group, Japan’s Hitachi Ltd, South Korea’s Kia Motors Corp, India’s Vedanta Ltd and China Eastern Airlines Co Ltd . The most bullish respondents were from the construction and engineering as well as transport and logistics industries, with half of such firms saying business volume had grown over the past three months. The two sectors are set to benefit from China’s pledge in May to lend about US$56 billion for infrastructure projects across Asia, Europe and Africa as part of its Belt and Road initiative. The metals and chemicals industry registered the biggest jump in sentiment, by 41 points to 81, while confidence was also buoyant among
firms in the healthcare, financial and retail sectors. “E-commerce in Southeast Asia has significant potential for growth for years to come,” said Magnus Ekbom, group chief strategy officer at survey respondent Lazada Group SA, an online retailer backed by Alibaba Group Holding Ltd. “We are on track to achieving our goal of making 100 million products available across all of our 6 markets.” The real estate sector and the household, food and beverage sector tied for the lowest subindex, while sentiment in the technology and telecommunications industry fell 7 points to 67. Survey respondent Intouch Holdings PCL, a Thai telecoms firm, said it was anticipating positive impact in the second-half of the year from the mobile and fixed broadband business. “Overall, mobile competition still remains due to continued handset campaign offerings,” the firm said in an email to Reuters. “However, we see an opportunity from an uplift in data consumption from customer’s behavioural changes.” Firms ranked disruptive technologies as the chief risk to their sixmonth outlooks. Disruptive technologies include the sharing platforms of Uber Technologies Inc and Airbnb Inc which are increasingly taking market share from traditional industry leaders. Other risks cited include an inconsistent U.S. administration and protectionism. The U.S. president has pledged to pursue policies widely described as protectionist, including withdrawing from the Trans-Pacific Partnership trade pact. Reuters
12 Business Daily Thursday, June 22 2017
Asia
Activism
No more quiet chats? Australia becomes new frontier for shareholder disruption Activists publicly targeted 26 Australia-listed companies in the first five months of 2017 Jamie Freed and Maiya Keidan
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s BHP Billiton fends off the attention of Elliott Management, activist funds are targeting other Australian firms, shaking up a corporate culture that has long favoured quiet chats over splashy headlines. Seeking new, less crowded markets, activist investors are using Australia’s shareholder-friendly laws to pressure corporate boards criticised as clubby and conservative in an effort to improve returns. “Whereas before it was quite normal for companies to address any potential shareholder activism in Australia behind closed doors, only now is there a real appetite to go public and to take the message direct to shareholders,” said Michael Chandler, governance director at shareholder engagement firm Global Proxy Solicitation. Activists publicly targeted 26 Australia-listed companies in the first five months of 2017, a quarter more
than same period five years ago, according to data from research firm Activist Insight. While the number of targets is similar to last year, the size of targets has jumped. Elliott’s three month campaign targeting BHP, known as “The Big Australian”, has cemented the idea that no company is immune. The strategy appears to be bearing some fruit, with activist shareholders winning board-level resignations or strategy changes. Among the more recent campaigns, building firm Brickworks Ltd is in court to defend its corporate structure from attack by Perpetual Ltd, while Wilson Asset Management forced the exit of Hunter Hall Global Value Ltd’s chairman in April.
New frontiers
More attacks are also coming from overseas - a change for a country where activist investors have largely been home-grown. Between 2013 and 2016, 86 per cent of Australian campaigns came from domestic investors, compared with advertisement
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59 per cent in Canada and 39 per cent in Japan, according to Activist Insight data. “The U.S. markets are a bit saturated, so (activist investors) look at the markets that don’t have as much activist focus at the moment and that are most similar to the U.S.,” said David Hunker, head of shareholder activism defence at J.P. Morgan. Apart from New York-based Elliott’s push into Australia, Britain’s Crystal Amber Fund Ltd has moved aggressively into the market, last year building an initial 10 per cent stake in medical device developer GI Dynamics Inc. Crystal Amber backed a new management team’s plan to commercialise the company’s obesity and diabetes treatment, is pushing for an AIM listing in Britain and has grown its stake to more than 40 per cent. Unlike some other Asian markets, Australian corporate rules help activist investors. Shareholders can call a meeting to remove directors with only a 5 per cent stake and boards are barred from putting in place U.S.-style “poison pills” to insulate themselves from a change of control. Yet compared with the United States, where Elliott last month raised more than US$5 billion in 24 hours for a new fund, shareholder activism is still niche in Australia. “None of the big name marquee activists have really made an attack down here publicly until Elliott,” said Gabriel Radzyminski, managing director of Sandon Capital, one of the few dedicated activist funds in Australia. “You’ve got to have an appreciation for local mores and customs. It doesn’t mean foreigners can’t do it, but you have just got to be conscious.” Australia has a relatively insular, risk-averse community of board members and investors who for the most part do not seek public confrontation, said Gilbert + Tobin partner Justin Mannolini. “I do think we are culturally inclined to avoid conflict rather than to bring it on,” he said. Many independent directors also hold seats on multiple boards. “In Australia we have this independent non-executive director club where you have a large group
of ex-CEOs, ex-bankers, ex-lawyers in some cases and they are very much dependent on their income for parts of their retirement in sitting on four or five board seats,” said another lawyer who advises boards and requested anonymity for fear of reprisals. “It is very much a club.” Sometimes, the mere act of taking a campaign public can sometimes be enough to shake things up. Directors don’t want to be “tainted” and lose out on future roles and fees because they were rejected by shareholders. A Gilbert + Tobin review of the 2016 AGM season found nearly half of the proposed resolutions from activists seeking to remove board members were withdrawn before the meeting because the directors voluntarily resigned or the activist succeeded in getting a board appointment of its choosing.
Key Points Elliott attack on BHP underscores rise of activism in Australia Activists like Australia’s regulations, less crowded market Australian boards criticised as clubby, conservative Australian investors favour quiet pressure, have had successes Some investors and directors say Australian boards do respond to feedback from major investors and they can achieve their aims without confrontational, public spats. For example, Insurance Australia Group in 2015 killed plans to establish a general insurance business in China after fund managers privately baulked at the risks. Shareholders in BHP succeeded in privately persuading the miner to change its dividend policy last year and to halt pricey expansion plans in 2012. Aberdeen Asset Management portfolio manager Mark Daniels, whose firm owns BHP shares, said he couldn’t recall any case in which he backed an activist’s public push for change. “We wouldn’t be invested in the company if we didn’t like it in the first place,” he said. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Thursday, June 22 2017 13
Asia M&A
Toshiba picks Japan govt-Bain group to buy chip unit, big hurdles remain Toshiba said in a statement it took into consideration concern about technology transfers Makiko Yamazaki
Toshiba Corp has chosen a consortium of Japanese government investors and Bain Capital as the preferred bidder for its chip business, aiming to seal a deal worth some US$18 billion by next week as it scrambles for funds to cover massive losses. But prospects for a clean early resolution to the sale of the world’s No. 2 producer of NAND flash chips remain unclear as Western Digital, its chips business partner that has launched legal action to prevent a deal without its consent, was not part of the winning group. The consortium has offered around 2 trillion yen (US$18 billion), a Toshiba spokesman said. That appeared to be somewhat less than a 2.2 trillion yen offer from a rival bidder, U.S. chipmaker Broadcom and its partner U.S. private equity firm Silver Lake. But the government-Bain consortium, while hastily and awkwardly conceived, has been seen as the most likely suitor by many analysts as it would automatically gain an implicit stamp of approval from the Japanese government which is keen to keep key semiconductor technology under domestic control.
While some analysts believe that talks over the hotly contested deal have been so complex that only a government-led solution is viable, others doubt that the group will provide the necessary leadership the chip unit needs. “There are many parties involved in this consortium,” said Atsushi Osanai, a professor at Waseda University Business School. “It has undergone so many twists and turns during its formation process, that I’m sceptical about whether it can promptly make bold decisions. In that sense, Broadcom or Foxconn would be better suited.” In addition to Bain, the group includes state-backed fund, the Innovation Network Corp of Japan and the Development Bank of Japan. South Korean chipmaker SK Hynix Inc and the core banking unit of the Mitsubishi UFJ Financial Group Inc are in talks to provide financing. Toshiba said in a statement it took into consideration concern about technology transfers, job security for
its domestic workforce and prospects of clearing regulatory reviews in its decision. Following the announcement, Western Digital reasserted in a statement that Toshiba was in breach of their joint venture contracts and said that a U.S. court hearing on its request for an injunction was scheduled for July 14. A representative for Broadcom was not immediately available for comment. Silver Lake declined to comment. Foxconn, the world’s largest contract electronics maker, also bid. Formally known as Hon Hai Precision Industry , the Taiwanese firm’s consortium included Apple Inc and computing giant Dell Inc. Foxconn did not immediately respond to a request for comment. Toshiba is rushing to sell the unit to cover billions of dollars in cost overruns at its now-bankrupt Westinghouse nuclear unit and to dig itself out negative shareholders’ equity that could lead to a delisting. Reuters
Lenders
Fitch estimates the combined ratio for Thailand’s nonperforming and special-mention loans at 6.6 per cent in the first quarter
Nonperforming loans at Thailand’s banks are set to peak toward the end of 2017, according to Fitch Ratings, an outlook that may salve investor sentiment in one of Asia’s worst-performing stock markets this year. Thai economic growth is subdued but relatively stable at about 3 per cent, signalling a slower expansion in bad loans in the months ahead and an eventual peak by year’s end or just after, said Parson Singha, senior director for financial institutions at Fitch Ratings in Bangkok. “It depends a lot on how the economic cycle goes,” Parson said in an interview Monday. “Growth has been relatively weak for the past several years, but at the same time it does look like the business environment has not been fundamentally poor, and banks have been tightening their
Inflation
Malaysia’s May consumer prices rise Malaysian consumer prices in May were 3.9 per cent higher than a year earlier, government data showed yesterday, due to higher transport and food costs. The figure was below the 4.0 per cent forecast in a Reuters poll, and down from April’s 4.4 per cent. Inflation had reached an eight-year high of 5.1 per cent in March. Transport costs rose 13.1 per cent from a year earlier in May, data from the Statistics Department showed, while prices of food and non-alcoholic beverages rose 4.4 per cent. Malaysia’s central bank said the annual headline inflation rate was 4.3 per cent in the first quarter of 2017. Forecast
Philippine c.bank to hold rates now The Philippine central bank is widely expected to leave interest rates unchanged today, with any policy action likely to come after its new governor assumes his post next month. According to all 12 economists in a Reuters poll, the benchmark interest rate will be kept steady at 3.0 per cent - where it has been since the central bank moved to an interest rate corridor system in June 2016. But some economists expect the central bank to adopt a more hawkish tone today to lay the groundwork for a tighter policy in the second half of this year. Expansion
Thailand’s worse-than-China bad loan ratio nearing peak
Supunnabul Suwannakij
In Brief
underwriting standards.” Gross nonperforming loans at commercial banks climbed to 2.94 per cent of total loans in the first quarter, Bank of Thailand data show. That’s the highest level since 2011, underscoring challenges for lenders from a lackluster economy and elevated household debt. For now, Fitch continues to have a negative outlook on the country’s banking sector, Parson said. The banking sector has a combined market value of roughly 2.2 trillion baht (US$65 billion) or 14 per cent of the SET Index’s total stock market value. Rising bad loans risk denting investor sentiment. The SET index has advanced 2.3 per cent in 2017, the least after China among major Asian stock markets. The Thai government’s plan to accelerate major infrastructure projects
could bolster investor confidence by increasing demand for new loans and so help to lower the bad-debt ratio, said Prapas Tonpibulsak, chief investment officer at Talis Asset Management Co. in Bangkok. Based on its own calculations, Fitch estimates the combined ratio for Thailand’s nonperforming and special-mention loans at 6.6 per cent in the first quarter. Special-mention loans are those between one month and three months overdue. China had a nonperforming loan ratio of 1.74 per cent at the end of March. In India, stressed assets rose to about 17 per cent of total loans by December.
‘Gross nonperforming loans at commercial banks climbed to 2.94 per cent of total loans in the first quarter’ Even after bad loans peak in Thailand, new accounting rules due to be implemented in 2019 will prevent banks from undertaking very aggressive lending, according to Parson. The standards, called IFRS 9, are likely to lead to increased provisioning and banks are already taking steps to prepare, he said. Thailand’s economy may expand about 3 per cent in 2017, trailing behind neighbours such as Indonesia and Malaysia, International Monetary Fund estimates show. Depressed private-sector investment is among the challenges facing the country’s military government, which seized power in a 2014 coup. Bloomberg News
SoftBank founder Son pledges to stay at helm SoftBank Group founder Masayoshi Son, Japan’s richest man, said yesterday he’ll spend the next decade identifying a successor to drive his rapidly growing technology empire, which has amassed an unprecedented investment war chest over the past year. Since the departure of former chief operating officer Nikesh Arora last year, Son has been without an immediate candidate to replace him should he step down. Son, aged 59, told investors at the group’s annual general meeting in Tokyo yesterday that he had no intention to step down anytime soon. Investment
Facebook gets Indonesia nod for local unit Social networking giant Facebook Inc has received an in-principle approval to set up a domestic unit in Indonesia and the government is now processing the details, the country’s investment chief said yesterday. Indonesia has been pushing multinational technology firms to be locally incorporated, arguing that companies such as Alphabet Inc’s Google set up small business entities to provide “auxiliary” services and get away with minimal taxation, while booking most of their revenue from the country elsewhere. Facebook currently operates in Indonesia through an office in central Jakarta.
14 Business Daily Thursday, June 22 2017
International In Brief Crown prince
Saudi King’s shakeup clears son’s path to throne Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman has replaced his cousin as heir to the throne in an abrupt shakeup that consolidates the 31-year-old leader’s growing power in the world’s biggest oil exporter. The new crown prince, who already controls the defence, oil and economy portfolios, took over from Muhammad bin Nayef, 57, who also lost his post as Interior Minister. King Salman, 81, also retroactively reinstated all allowances and bonuses that were cancelled or suspended to civil servants and military personnel. Quantitative easing
ECB says corporate bonds were bought at negative yield Around 12 per cent of corporate bonds held by the European Central Bank have been bought at negative yields and over half of all purchases involved French or German firms, the ECB said in a bulletin article yesterday. The figures are among the most detailed on the scheme and come after several members of the European Parliament criticised the ECB for the lack of transparency on the roughly 100 billion euros worth of buys. The ECB purchases the bonds as part of its 2.3 trillion asset buying programme, known as quantitative easing, aimed at curbing borrowing costs to induce growth and ultimately inflation. Corruption
Brazilian police deliver graft investigation against Temer Brazil’s federal police on Tuesday delivered to a top court justice the bulk of their investigation into allegations that President Michel Temer took bribes in exchange for political favours doled out to the world’s largest meatpacker, JBS SA. The document, made public by the top court, is a significant step in the investigation, which is widely expected to lead to Brazil’s top federal prosecutor lodging corruption charges against Temer by the end of next week, according to several sources with direct knowledge of the probe. Mozambique
Govt. and Shell sign memorandum for gas processing The Mozambican government and oil company Shell this week signed a memorandum of understanding to process part of the natural gas discovered in the country to diesel, the government said yesterday. Following the discovery of large reserves in the northern Rovuma Basin, the Mozambican government agreed with the operators that part of the gas extracted five years from now will be reserved for domestic use, although most will be exported by sea. In 2016, a tender was launched for projects that took advantage of this quota and Shell’s proposal was one of those selected in January, leading to the signing of this memorandum of understanding.
Report
Oil firms could waste trillions if climate targets reached A study found Exxon risks wasting up to half its budget on new fields that will not be needed
E
nergy giants including Exxon Mobil and Royal Dutch Shell risk wasting more than a third of their budgets on projects that will not be needed if climate targets are to be met, a think-tank report shows. More than US$2 trillion of planned investment in oil and gas projects by 2025 could be redundant if governments stick to targets to lower carbon emissions to limit global warming to 2 degrees Celsius, according to a report by the Carbon Tracker think-tank and institutional investors. It compared the carbon intensity of oil and gas projects planned by 69 companies with requirements needed to meet the warming target set by the 2015 Paris agreement, which will require curbing fossil fuel consumption. It found Exxon, the world’s top publicly-traded oil and gas company, risks wasting up to half its budget on new fields that will not be needed. Shell and France’s Total would see up to 40 per cent of their budgets misspent. Fossil fuel producers have come under growing pressure from investors to reduce carbon emissions and increase transparency over future investment. Sweden’s largest national pension fund, AP7, one of the authors of the report, said last week it had wound down investments in six companies, including Exxon, which it said had
violated the Paris agreement. Top energy companies have voiced support for the Paris agreement reached by nearly 200 countries. Many of them have urged governments to impose a tax on carbon emissions to support cleaner sources of energy such as gas.
Key Points Many high-cost projects unnecessary if climate targets met More than a third of Exxon, Shell budgets seen at risk by 2025 The report found five of the most expensive projects, including the extension of Kazakhstan’s giant Kashagan field and Bonga Southwest and Bonga North in Nigeria, will not be
needed if the global warming target is to be met. Around two thirds of the potential oil and gas production which would be surplus to requirement is controlled by the private sector, “demonstrating how the risk is skewed towards listed companies rather than national oil companies”, the report said. Saudi Arabia’s state-run Aramco, widely considered the lowest cost oil producer, would see up to 10 per cent of its production rendered uneconomical, the report said. The report’s authors said their discussions with oil companies had shown the companies wanted to remain flexible to respond to future developments and possible changes in the oil price. Companies including Shell and BP have rejected the idea that assets could end up redundant, saying the reserves they hold are too small to be affected by any long-term decline in demand. Reuters
Monetary policy
Fed policymakers in tug-of-war on inflation, instability Chair Janet Yellen expressed confidence inflation would eventually perk up, but some policymakers cast doubt Ann Saphir and Lindsay Dunsmuir
The outlook for inflation and the future of financial stability are emerging as duelling concerns at the heart of a debate at the U.S. central bank over how fast to proceed on future interest-rate hikes. That is a change from years past, where high unemployment was at the top of the Federal Reserve’s worry list for the U.S. economy. But with the U.S. unemployment rate now at 4.3 per cent, most Fed officials are now convinced that nearly all Americans who want jobs can and do get them. That is a main reason the Fed last week raised its target range for shortterm interest rates for the second time this year, even though recent inflation readings have drifted away from the Fed’s 2-per cent target, confounding expectations based on history and theory. Fed Chair Janet Yellen expressed confidence inflation would eventually perk up, but some policymakers cast doubt. Chicago Federal Reserve Bank President Charles Evans on Tuesday became the latest to express worries on that front, saying he is increasingly concerned that a recent softness in inflation is a sign the U.S. central bank will struggle to get price pressures back to its 2 per cent objective. “I will say that the most recent inflation data made me a little nervous about that. I think it’s much more challenging from here on out,” Evans
said in an interview with broadcaster CNBC. Evans, who is a voter this year on the central bank’s rate-setting committee, said that global forces, not just specific one-off reasons, could be behind a retreat in inflation over the past three months. He said on Monday that he supports waiting until the end of the year before considering another rate hike.
“I will say that the most recent inflation data made me a little nervous about that. I think it’s much more challenging from here on out” Charles Evans, Chicago Federal Reserve Bank President
Speaking to reporters after a speech at the Commonwealth Club of California, Dallas Fed President Robert Kaplan had similar concerns, saying he wants to wait for more evidence that the recent retreat in inflation would be temporary. And though Kaplan said he retains an “open mind” about how many
more rate hikes the Fed should deliver this year, he also highlighted an additional worry: the likelihood in his mind that even when fully healthy the U.S. economy will need interest rates to stay below 3 per cent. With the 10-year Treasury yield barely above 2 per cent, he said, markets are forecasting sluggish growth ahead, and the Fed should be “careful” about lifting short-term rates, now between 1 per cent and 1.25 per cent, much further. Kaplan, like Evans, votes this year on monetary policy. Meanwhile two other Fed policymakers, speaking at a conference on macroprudential policy in Amsterdam jointly organized by the Dutch and Swedish central banks, suggested they are concerned less about raising rates too fast or too high than about keeping them too low for too long. Boston Fed President Eric Rosengren said on Tuesday that the era of low interest rates in the United States and elsewhere poses financial stability risks and that central bankers must factor such concerns into their decision-making. “Reach-for-yield behaviour can make financial intermediaries and the economy more risky,” Rosengren said. He noted financial intermediaries will need to factor in the possibility of lower rates, particularly during economic downturns, and flatter yield curves. Earlier, at the same conference, Fed Vice Chair Stanley Fischer warned that while the United States and other countries have taken steps to make their housing finance systems stronger, a prolonged period of low interest rates has helped boost house prices, which was a precursor to the last financial crisis. Neither Rosengren nor Fischer mentioned the economic outlook or current U.S. monetary policy in their prepared remarks. Reuters
Business Daily Thursday, June 22 2017 15
Opinion
MSCI betting that China will change is wishful thinking Nisha Gopalan a Bloomberg Gadfly columnist
C
an you get China to change? That’s the underlying question investors should ask themselves following MSCI Inc.’s decision to add mainland shares to its benchmark indexes. At the initial stage, 222 A shares will be included with a total weight of 0.73 per cent. Offshore-traded Chinese companies already comprise a large chunk of the MSCI Emerging Markets Index. For Beijing, it’s a coup, but as I have noted previously, there are still risks. Money managers creating exchange-traded funds will still require Chinese stockexchange approval, and the broader market remains prone to trading halts. The number of trading suspensions in the China A-share market is by far the highest in the world, according to Credit Suisse Group AG. There are currently more than 100 names suspended, representing 5.3 trillion US$ p e r c e n t o f th e China stock market MSCI China A international index’s weight. Some of the hand wringing may be overdone, because many mainland shares are already accessible to global investors through trading pipes routed via Hong Kong. But the MSCI EM Index is a different beast, tracked by more than US$1 trillion dollars of pension money and passive funds. At some point, more A shares may become part of it, although that hinges upon further reforms. China A shares could account for 9 per cent of the index within five years and attract some US$230 billion of inflows, according to Goldman Sachs Group Inc. Commenting in a statement after news of the inclusion, the China Securities Regulatory Commission said it plans to facilitate foreign money managers’ A-share investments, adding the decision shows international confidence in China’s economic prospects. As Bloomberg Intelligence economists Tom Orlik and Fielding Chen note, the “hope is that the symbolic win adds momentum to a process aimed at increasing the openness and efficiency of China’s capital markets.” But as history shows, previous engagements between the world and Asia’s biggest economy haven’t always resulted in freer markets. Sixteen years after China joined the World Trade Organization, foreign carmakers and investment banks are still forced to form joint ventures with local partners. Just months after the yuan was included in the International Monetary Fund’s elite club of global reserve currencies, Beijing imposed capital controls to prevent it from falling, undermining China’s quest to make its currency a global one. The entry of China stocks is just one small step toward drawing the world’s secondlargest equity market into the global sphere. Exposure may be limited, but a repeat performance of 2015’s China stock-market crash could have huge ramifications. All those pension funds that track MSCI indexes should brace for some volatility. Bloomberg Gadfly
6.9
China’s plan to boost commodity trading needs reality check
T
he call by China’s securities regulator for the country’s wealth managers to invest in domestic commodity futures is both encouraging and somewhat bizarre. The China Securities Regulatory Commission (CSRC) aims to promote the domestic derivatives industry by loosening regulations that restrict how commercial banks, insurance companies and pension funds invest in commodity futures, Fang Xinghai, the commission’s vice chairman, said on June 17. Fang, who was speaking at a financial forum in Qingdao, didn’t give further details of the proposal, but it seems to fit into recent moves by the authorities in Beijing to promote commodity trading and become more of a player in global markets. The positive news out of the CSRC’s announcement is that China seems to be getting serious about opening up its markets and encouraging a broader range of participation. Several commodity contracts have taken off in recent years, such as iron ore on the Dalian Commodity Exchange (DCE). But these have often been criticised as more like legal casinos for daytrading retail investors rather than offering price discovery or viable hedging for market participants. As part of efforts to boost commodity trading, China’s three major exchanges, the Shanghai Futures Exchange, the Zhengzhou Commodity Exchange and the DCE, are planning to boost the number of commodities that can be traded. Contracts for certain fruits, chemicals and electricity are among those being considered, adding to an already considerable array of contracts for commodities that would be considered somewhat obscure in Western markets, such as bitumen and silicomanganese. But while expanding the amount of commodities being offered and boosting the number and type of investors allowed to participate in the markets sounds promising, it’s not straightforward.
“
Clyde Russell a Reuters columnist
commodities such as iron ore, steel and coal. Measures included increasing margins to be held against positions and boosting the cost of trading on the exchanges. These steps did have some impact on cooling commodity trading last year, but probably not to the extent that the authorities wanted. The problem for investors in Chinese commodity exchanges is that they can never be certain as to when, and how, the authorities will act to clamp down on trading. Allowing financial institutions to trade in commodities may smooth out some of the volatility, assuming they adopt longer-term positions based on expectations of supply and demand fundamentals. But if these investors choose to act more like hedge funds in taking large positions in order to drive the market in their preferred direction, it will boost volatility and undermine the use of Chinese commodity exchanges as a hedging tool. As the world’s biggest producer, consumer and importer of commodities, China should have well-developed and open futures exchanges. But simply loosening regulations to allow for greater participation doesn’t address the underlying problem in China, namely the uncertainty of government interference and the trust deficit this causes. To be truly effective, China’s commodity contracts would also have to be fully open to foreign traders, something that isn’t currently the case. But for foreigners to participate, regulatory certainty becomes essential, meaning Beijing must curb its inclination to intervene in the markets if it sees developments it doesn’t like. It’s this problem that has so far prevented China from setting up a crude oil futures contract, which would be aimed at capturing a chunk of the global trade in this key commodity. The struggles of China, the world’s biggest importer of crude oil, to launch a viable futures contract covering the fuel shows just how far the country still has to travel in its ambition to become a global commodity hub. Reuters
The positive news out of the CSRC’s announcement is that China seems to be getting serious about opening up its markets
Trust deficit
If there is one thing investors have learnt about the authorities in Beijing is that they aren’t afraid to intervene in what are supposed to be free markets if they don’t like the price movements and volatility. On several occasions last year, the authorities took steps to crack down on trading in then hot
”
16 Business Daily Thursday, June 22 2017
Closing Wealth
Lusa
Trump’s net worth slips to US$2.9 billion
Donald Trump’s office properties aren’t bringing in as much cash as banks that loaned him money had expected. That’s the biggest finding in an updated assessment of the president’s net worth, which has slipped to US$2.9 billion, according to the Bloomberg Billionaires Index, down from US$3 billion a year ago. The calculation, five months after Trump’s inauguration, relies on figures compiled from lenders, mortgage documents, annual reports, market data and a new financial
disclosure released June 16. The decrease is driven mostly by a drop in the value of three office properties in Manhattan, where financial data compiled by Trump’s lenders offer a consistent picture: They’re underperforming appraisals conducted when Trump was issued loans. The buildings -- 40 Wall Street, Trump Tower, and 1290 Avenue of the Americas, a tower in which Trump holds a 30 per cent stake -- are victims of a changing New York office market, where gleaming new skyscrapers are attracting tenants and demand for space in vintage properties is falling. Bloomberg News
Smartphones
After toppling Apple in China, Oppo eyes world market Globally it ranks fourth behind Samsung, Apple and Huawei Julien Girault
W
ith its army of salespeople and vast network of o u t l ets, a relatively new smartphone maker has exploded in popularity to overtake global giants Apple and Samsung in China’s market -- and now it has its eye on the West. Oppo began life selling DVD players in the in the southern manufacturing hub of Dongguan a little more than a decade ago and only broke into the handset market in 2011. But with an aggressive marketing strategy and concentration on bricks-andmortar stores in small and medium-sized cities -- rather than relying on online customers -- sales have soared. Last year it had a market share of 16.8 per cent making it the China market leader and while a slip in the first three months of 2017 put it just behind local rival Huawei, according to market analyst IDC, it remains well ahead of Apple and Samsung. Globally it ranks fourth behind Samsung, Apple and Huawei. While its rivals focus on the premium end of the smartphone market in major cities and online, Oppo makes
relatively cheap devices -- its latest model is less than half the price of an iPhone 7. Oppo also sells them in actual shops. It has 200,000 outlets across China -- less than 10 per cent of its purchases are made online -while retailers are offered generous commissions in exchange for promoting the brand. “In small cities, consumers unfamiliar with smartphones need to see and touch the devices and to have salespeople there to help them,” said Yi Jun, Oppo’s international sales director. At the company’s factory in Guangdong province, Oppo handsets are submitted to a series of durability tests including one-metre drops and
temperature changes ranging from -40 degrees Celsius to 85 degrees Celsius. “Technology is essential for meeting consumers’ expectations,” Yi said, pointing to Oppo’s fast-charging ability, high-definition camera lens and sleek design.
‘Brand ambassadors’
Now Oppo’s rivals are starting to follow suit. Chinese brand Xiaomi, which lost significant market share in 2016, has been relying on the web for sales of its top-of-the-range smartphones. But in February it announced plans to go back to old-fashioned selling techniques with plans to open 1,000 stores by 2020 in the hope of reversing its fortunes. As competitors play catch up, analysts warn Oppo must maintain its momentum to
stay on or near the top. It needs to continue expanding its sales network and offering competitive products, said Mo Jia, an analyst at technology research firm Canalys.
“We are very interested in entering the U.S. and European markets, we are working on it... but without a precise timeline” Yi Jun, Oppo’s international sales director
Oppo has also been boosting its sales abroad, including emerging markets in Southeast Asia where its share more than doubled to 13.2 per cent last year -- by far the biggest increase among its rivals, IDC data shows. I n I n d i a, i t w a s t h e fourth-biggest player in the fourth quarter, with 8.6 per cent market share, behind Samsung, Xiaomi and Lenovo. “Its success in these
countries comes from frantic marketing,” said IDC analyst Tay Xiaohan, noting the use of local celebrities as “brand ambassadors” as it targets millennials. It is also starting to back high-profile sports teams to increase brand awareness. Earlier this year it forked out more than $160 million to become an official sponsor of the Indian cricket side. And Oppo is adapting its products to satisfy the “selfie” trend. “We noticed the craze in Southeast Asia for group selfie and tailored our devices accordingly,” Yi said, referring to special camera features that enable users to take better self-portraits.
Next stop is the West
“We are very interested in entering the U.S. and European markets, we are working on it... but without a precise timeline,” Yi said. It will be challenging. While Huawei has managed to make a name for itself in U.S. and European smartphone markets, it was already very present in those places as a telecom equipment manufacturer, said Annette Zimmermann, an analyst with technology research company Gartner. And Oppo’s direct sales strategy might not be as successful in markets dominated by mobile network operators that provide handsets with their contracts. AFP
Commerce
Mercer’s survey
Diplomacy
After years of talks, Japan, EU near free trade pact
Luanda pips Hong Kong as costliest city: study
Beijing counters Trump, says North Korea efforts ‘indispensable’
Japan and the European Union are nearing a broad agreement on a free trade pact, Japanese Foreign Minister Fumio Kishida and a senior EU trade official agreed yesterday, the foreign ministry said. Japan and the European Union have been negotiating an Economic Partnership Agreement (EPA) since 2013 to promote trade and investment by eliminating tariffs and improving investment rules. Kishida spoke by phone with European Commissioner for Trade Cecilia Malmstrom. “Both shared understanding that a broad agreement is within reach,” a ministry official told Reuters, quoting a statement issued after the conversation. Signing an EPA with the European Union, which comprises roughly 10 per cent of Japan’s total foreign trade, is among the key goals of Prime Minister Shinzo Abe’s “Abenomics” stimulus programmes and growth strategy. The EU-Japan deal has taken on greater importance since U.S. President Donald Trump took the United States out of the multi-member Trans-Pacific Partnership pact, leaving the remaining 11 members including Tokyo to figure out what to do without the group’s biggest economy. Reuters
Angola’s capital Luanda has overtaken Hong Kong to become the costliest city in the world for expats, Mercer’s annual survey said yesterday. Dethroned last year by the Chinese city, Luanda regained the dubious honour despite the depreciation of the local kwanza currency against the dollar, according to the survey by the Mercer consulting group. While Hong Kong is bounced back down to second place it remains the most expensive Asian city “because of its currency’s link to the dollar, a factor which makes local housing more expensive,” the report said. After topping the Cost of Living report for three consecutive years, Luanda was piped by the Asian city in 2016, owing to a stronger Hong Kong dollar. This year Tokyo completes the podium, moving up from fifth place last year because of the yen’s appreciation and “the dynamism of the housing market” in Japan. The survey compares the cost of over 200 items in over 200 cities, including housing, food, transport and entertainment. AFP
China hit back at U.S. President Donald Trump yesterday, saying its efforts on North Korea have been “indispensable.” China has “played an important and constructive role” in seeking peace on the Korean peninsula, Foreign Ministry spokesman Geng Shuang told reporters in Beijing. China strictly implements United Nations Security Council resolutions and isn’t the crux of the North Korean issue, he said. The remarks came a day after Trump said that China had failed to rein in North Korea. The comment suggested he’s weighing new options to deal with a regime that’s vowed to develop nuclear weapons capable of striking the U.S. mainland. “While I greatly appreciate the efforts of President Xi & China to help with North Korea, it has not worked out,” Trump wrote on Twitter. “At least I know China tried!” Trump commented the day after a 22-year-old college student died in Ohio following more than a year of imprisonment in North Korea. A State Department spokeswoman said Tuesday the U.S. was considering possible steps including a ban on Americans traveling to the country. Bloomberg News