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The Glorious Voice of Adele

Time to Remove The Surveillance Blinders

ARTS | A9

OPINION | A11 WEDNESDAY, NOVEMBER 25, 2015 ~ VOL. XL NO. 62

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Business & Finance pple is seeking to launch its new Apple Pay electronic-payment service in China by early February, but it could face regulatory hurdles. A1

China lifted a restriction on brokerages, no longer requiring them to buy more shares than they sell in daily proprietary trading. B5 German prosecutors launched a probe into possible tax evasion related to Volkswagen emissioncheating scandal. B2 Yahoo has been gripped by a morale crisis as executives instrumental to a turnaround plan have left. B1 Alibaba is in talks to buy a controlling stake in SCMP of Hong Kong. B1 Mining companies are digging up record amounts of copper even as prices plumb new lows. B5 China’s deal to buy assets from 1MDB could give it more sway in Malaysia. A3

World-Wide Turkey’s military shot down a Russian jet fighter it said entered its airspace near Syria, escalating tensions between Moscow and a key NATO member. A1

HABERTURK TV CHANNEL/EUROPEAN PRESSPHOTO AGENCY

A

The deal to combine Pfizer with Allergan would create a drug firm so big that Pfizer is already thinking of breaking it up. B2

IN FLAMES: A still image from video footage aired by the HaberTurk TV channel on Tuesday showed a Russian fighter that was shot down near the Turkish-Syrian border. The situation could undermine international efforts to create a coalition to defeat Islamic State.

Turkey Downs Russian Jet Ankara claims fighter violated airspace; Russia says it was over Syrian territory

The Turkish military shot down a Russian jet fighter it said had entered its airspace from Syria on Tuesday, in an escalation of tensions between Moscow and a key NATO member fighting separately in the Syrian war.

Russian President Vladimir

Putin tore into Turkey over the sian-Turkish relations.” downing, saying the jet fighter Kremlin spokesman Dmitry was carrying out strikes on Is- Peskov stressed that Mr. Putin lamic State milihadn’t spoken of tants in Syria, a military reBy Dion Nissenbaum including Russponse to the and Emre Peker in sians, and posed shootdown and Istanbul and James no threat to said the Kremlin Marson in Moscow Turkey. was waiting to The downing was “a stab in hear the North Atlantic the back, carried out by ac- Treaty Organization’s reaccomplices of terrorists,” he tion. said at a televised meeting The Turkish military said it with the king of Jordan. “To- repeatedly warned the jet that day’s tragic incident will have it was within 15 kilometers (9 Please see FIGHTER page A4 serious consequences for Rus-

A Smoother Path to Devaluation

China’s antigraft agency said it would inspect a host of corporate, institutional and investment enterprises in Shanghai. A3

Obama and Hollande met in Washington as the French leader seeks to corral more nations to help combat Islamic State. A4 A lockdown in Brussels entered a fourth day, as some officials began questioning the government’s handling of the situation. A6 The U.S.’s Kerry condemned months of attacks carried out by Palestinians on Israelis and said they were acts of terror. A3 Islamic State claimed an attack that Egypt’s state media said killed four people at a hotel in the Sinai Peninsula. A4 A Thai court indicted two men police say carried out an August bombing at a shrine that killed 20. A6 CONTENTS Arts............................... A9 Business News.. B1-4 Crossword.............. A12 Heard on Street. B10 Markets Digest..... B8 Money & Inv.... B5-10

Opinion.............. A10-11 Property Report... B7 Sports........................ A12 Technology................ B3 U.S. News.................. A7 Weather................... A12 World News....... A2-6

China: RMB28.00; Hong Kong: HK$23.00; Indonesia: Rp25,000 (incl PPN); Japan: Yen620 (incl JCT); Korea: Won4,000; Malaysia: RM7.50; Singapore: S$5.00 (incl GST) KDN PP 9315/10/2012 (031275); MCI (P) NO. 106/10/2015; SK. MENPEN R.I. NO: 01/ SK/MENPEN/SCJJ/1998 TGL. 4 SEPT 1998

s Copyright 2015 Dow Jones & Company. All Rights Reserved

HEARD ON THE STREET: The yuan is back on a downward path, trading near its weakest point of the year. But this time, Beijing policy makers seem to have a better handle on the situation. B10

i

i

Free State of Bottleneck created by mistake after WWI; ‘a fairy tale’

BY NINA ADAM LORCH, Germany—Marco Barillaro is foreign minister of a country that got on the map by cartographic error.

Never mind that his Free State of Bottleneck, now a tiny collection of castles and hillside wineries, lasted only a few years almost a century ago and was never officially recognized.

Mr. Barillaro and his government colleagues aim to keep its heritage alive anyway.

Bottleneck’s self-appointed, unpaid cabinet meets erratically, usually at a tavern or foreign-ministry headquarters, a rustic restaurant at a campsite.

The ministers drink local Riesling and brainstorm plans to promote the region or drum up

Site of Russian fighter jet's disputed airspace breach LEB.

SYRIA Damascus

ISR. JORDAN

IRAQ 100 miles 100 km

Source: Turkish military

THE WALL STREET JOURNAL.

three million stuffed with industrial parks across the Pearl ZHONGSHAN, China—Thirty River from Hong Kong, lasers years ago, Levi Strauss & Co. are replacing dozens of workers began producing its iconic jeans who scrub Levi’s blue jeans D E S T I N Y in China, eager to tap a seemwith sandpaper to give them ingly endless stream of workers the worn look that American willing to sew for a few dimes consumers find stylish. AutoA multimedia series an hour. Now that stream is mated sewing machines have on how we will work, starting to dry up. cut the number of seamstresses how we will age and Over the coming decades, a needed to stitch arc designs how we will live in labor shortage will force Levi into back pockets. Digital printthe coming decades. and scores of other Western ers make intricate patterns on brands to remake their China jeans that workers used to do WSJ.com/2050 operations or pack up and with a mesh screen. leave. The changes will mark a “Labor is getting more exnew chapter in the history of globalization, pensive and technology is getting cheaper,” says where automation is king, nearness to market is Andrew Lo, chief executive of Crystal Group, one crucial and the lives of workers and consumers of Levi’s major suppliers in China. around the world are once again scrambled.

While China’s economic downturn is providThe stirrings of change are visible already. In ing some respite from the labor crunch, Crystal’s Please see 2050 page A8 an apparel factory in Zhongshan, a gritty city of

Don’t Tell These Ministers Their Country Doesn’t Exist i

TURKEY

BEIJING—Apple Inc. seeks by early February to launch its new Apple Pay electronic-payment service in China—a vibrant but fiercely competitive market for digital money—according to people familiar with its discussions.

The Cupertino, Calif., company has struck deals recently with China’s big four state-run banks, the people said, by which potential Apple Pay users could link the service with their local bank accounts.

Apple Pay could still face regulatory hurdles in China, where banking and e-commerce are overseen by a number of government agencies, the people said. Apple hopes to launch the service before Feb. 8, China’s Spring Festival holiday.

How much Apple would charge for purchases made through Apple Pay has been a sticking point, say the people involved with the talks. In the U.S. it gets 0.15% of all credit-card transactions and 0.5 cent per debit transaction, according to people familiar with the matter.

An Apple spokeswoman declined to comment. Media officials for two of China’s big four state banks, Industrial & Commercial Bank of China Ltd. and China Construction Bank Ltd., declined to comment. Media officials for the other two, Agricultural Bank of China Ltd. and Bank of China Ltd., didn’t respond to requests for comment.

Apple Pay works on the latest iPhone models, such as the 6 and 6S. It is based on near-field communication technology, Please see APPLE page A2

A NATION OF 1.4 BILLION FACES A LABOR SHORTAGE

BY KATHY CHU AND BOB DAVIS

ROLEX DELA PENA/EUROPEAN PRESSPHOTO AGENCY

The U.S. economy expanded at a faster pace than initially estimated in the third quarter as businesses stocked up on goods. A7

YEN ¥122.43 g 0.33%

Apple Pay Is Slated ToLaunch In China

What’s News

Shareholders rejected Li Ka-shing’s proposal to merge Cheung Kong Infrastructure and an affiliate power company. B1

ASIA EDITION

support among locals. say. Part of the hourglass“When people see me walk- shaped blank spot became a ing through Lorch,” says Mr. diplomatic no man’s land the Barillaro, whose day job is run- size of Gibraltar. ning the campsite, “I Locals thought it can tell it clicks and resembled a bottle’s they are aware of neck, cut off from my role.” the rest of unoccuFree State of Botpied Germany by tleneck, Freistaat Flrough mountains on aschenhals in Gerthe cork end and man, came about by bordered by the a stroke of fate at Rhine on the other.

World War I’s close, “It’s unthinkable when Allied powers today and, to be honmapped occupation est, it should have zones in Germany. happened,” Bottleneck Crest never Two carelessly says German Lt. Col. penciled compass arcs around Achim Kloppert, a military histhe cities of Koblenz and Mainz torian who has visited the releft roughly 17,000 people in gion more than a hundred limbo between the American times. “Officers at the time Please see MAP page A2 and French zones, historians

D E M O G R A P H I C

In South America, Populist Tide Ebbs

The presidential victory of center-right politician Mauricio Macri in Argentina marks a potential turning of the socalled pink tide of populist political movements that swept South America sharply leftward over the past 17 years.

By David Luhnow in Mexico City and Juan Forero in Buenos Aires

While some populists, such as Bolivia’s Evo Morales, remain popular and firmly entrenched in power, others are now fading thanks to the decline in commodity prices that fuels the region’s exports, a string of corruption scandals, economic mismanagement and voters’ desire for change.

Mr. Macri’s win in Buenos

Aires on Sunday ends 12 years of “Kirchnerismo,” a populist brand of leftist politics embodied by President Cristina Kirchner and her late husband, Néstor. Together, the pair nationalized industries, stripped the central bank of independence, and ramped up spending and subsidies. Those policies lifted incomes temporarily but hurt investment and stoked inflation.

In Brazil, leftist Dilma Rousseff, a former guerrilla who belongs to the Workers’ Party, is struggling with a 10% approval rating amid the country’s biggest economic slump in 25 years and a long-running corruption scandal involving state-oil giant Petrobras.

On Dec. 6, Venezuelans are Please see CHANGE page A6

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A2 | Wednesday, November 25, 2015

WORLD NEWS

CHINA’S WORLD ANDREW BROWNE A self-described drifter and thrill-seeker, Fan Jinghui didn’t fit the typical profile of Chinese victims of terrorism overseas.

Among the scores of Chinese expatriates who have met violent deaths in the past decade at the hands of extremists, most have been workers in state companies drilling for oil, operating mines or building highways, hospitals and other infrastructure in unstable parts of Africa, the Middle East and Central Asia.

But the recent killing of the itinerant Beijing resident

by Islamic State, along with a Norwegian hostage, triggered a particularly bitter outpouring of online commentary in China. While France responded to the massacre in Paris by declaring it was at war with Islamic State, and U.S. and Russian jets pounded the

MAP

country.

That has eaten away at China’s long-standing policy of “noninterference” in the affairs of other countries.

The shift was dramatically apparent in 2011 when China deployed naval vessels and air force transport planes to pluck more than 35,000 Chinese nationals to safety from Libya as the country descended into civil war. This year, Chinese naval ships were again in action extracting Chinese nationals from war-torn Yemen. And China for the first time sent combat troops to join U.N. peacekeepers, adding them to forces in South Sudan after getting an agreement that the U.N.’s mandate there would include protection of Chinese oil installations. Previously, China’s extensive contribution to U.N. peacekeeping had been mainly in logistics and other support functions.

In response to Mr. Fan’s killing, don’t expect Chinese fighter jets to join bombing runs against Islamic State; China lacks the ability to project force in that way, even if it wanted to. It has no overseas military bases, and shuns military alliances.

But it’s only a matter of time, say security analysts, before China sends in special forces to free hostages or rescue Chinese civilians

Caught Between the Lines Two carelessly drawn arcs around the German cities of Koblenz and Mainz following WWI created a diplomatic no-man's-land, known as the ‘Free State of Bottleneck.’

Koblenz

Berlin GERMANY

(Current borders)

Area of rough terrain

Area of detail

AREA CON TROLLED

BY U.S.

Rh i

n

e R

iv

AREA

er

CON

FREE STATE OF BOTTLENECK

TR OL LE

AREA C O N T RO L L E D

BY FRAN C E

Wiesbaden

Lorch

D

BY

Continued from Page One clearly did a sloppy job.”

The region, including the Rhine villages Lorch and Kaub, created territorial friction.

France tried to snag the area, but residents wanted no part of France and pushed to rejoin Germany, says Bottleneck President Peter Josef Bahles.

“Most people think it was a joke,” says Monika Kunz, a local vintner, “but it was deadly earnest.”

People of the steep valley begrudgingly established a government, printed money and lived an outlaw existence: No country recognized Bottleneck, and its neighbors forbade commerce with it, so the occupiers deemed its foreign trade to be smuggling.

Locals adapted to their absurd predicament. Bottleneck’s “emergency money” depicted people drinking local wine. “If Adam had only had the wine from Lorch, he would not have eaten the Apple,” reads the scrip, cherished by collectors. “This grape juice would have deafened him to Eve’s cunning plan.”

The wine proved more liquid than the bank notes. Rhine boat crews paid for Bottleneck wine and liquor with meat, coal and other goods scarce in the outlaw land, locals say.

“It sounds like a fairy tale,” says Alan Sked, professor of international history at the London School of Economics and Political Science. “Something as amusing, comical and magical as this, you do not usually associate with German history.”

It isn’t clear when Bottleneck ended its estrangement, historians say. Locals say it was when the French occupied

group’s strongholds, critics noted that the Chinese government offered only angry rhetoric in response to the killing of Mr. Fan. “Beyond that, what else can it do?” scoffed one Internet user.

Any accusation of impotence abroad, when Chinese lives are at stake, stings Beijing’s leadership. Almost certainly, Mr. Fan’s brutal slaying, together with the deaths of three Chinese rail executives gunned down in the Mali hotel siege, is likely to accelerate a trend for Beijing to intervene in lawless areas of the globe to protect its own nationals and massive investments.

President Xi Jinping vowed to strengthen collaboration with the world community “to resolutely fight violent terrorist activities that hurt innocent lives.” A foreign ministry spokesman said Monday, “In light of new circumstances, we will come up with new proposals to ensure the security of Chinese citizens and institutions overseas.”

To an extraordinary degree, China’s international security policy in recent years has been driven by the political imperative to be seen doing everything it can to protect an estimated five million Chinese nationals living and working outside the

A

LL

Mainz IE

D

PO

WE

10 miles RS

10 km

Source: Free State of Bottleneck Initiative, Historians

it in 1923. University of Mainz historian Stephanie Zibell says it was probably when French forces left in 1924.

Bottleneck reverted to German jurisdiction, but survived in local lore.

Residents took pride in a former border-crossing post, left from the Bottleneck era, that made a cameo in the 1960 Elvis Presley movie “G.I. Blues.”

In 1994, some residents decided to revive the ersatz nation and declare themselves its government. They created a flag and coat of arms.

“Ministers are appointed according to their skills and abilities,” Mr. Barillaro says, noting he qualified as foreign minister through his sound knowledge of computers and new media.

“It’s great to be the tourism minister, because I get to sample all the best wine and food,” says Harald Kutsche, a restaurant

THE WALL STREET JOURNAL.

head chef who has led the Ministry of Tourism since 1994. “You receive special attention.”

To attract tourists, the cabinet organizes annual wine tastings at venues such as a baroque estate overlooking the Rhine that also serves as a dental clinic and beauty spa. But it is usually the same faces that show up and quaff free wine, locals say.

About 15 years ago, a local bank helped issue a regional currency, the Bottleneck taler, for payments in local shops and restaurants. Few of the silver coins circulated, as collectors and speculators snapped them up.

With silver’s price down, leaders see a chance to issue new talers, but the minting machine is too outdated, says President Bahles.

Then there are the passports. The government has sold about 4,000 so far to locals and visitors. An additional 2,000

APPLE

A hostage in Mali, where three Chinese rail executives were killed. volvement,” they write.

Count on any such action triggering a vigorous debate about Chinese strategic intentions.

China’s aggressive moves in the South China Sea, where it is building artificial islands with military-capable runways, as well as in the East China Sea are widely viewed in Washington as evidence that China seeks to replace America as the regional hegemon, and is ultimately bent on global primacy. Chinese boots on the ground in the world’s trouble spots would add to those apprehensions.

Yet that outcome is look-

are on order. The mock documents cost up to €55 (about $59) and hold only novelty value. Their real draw is an accompanying three-course meal.

“I don’t let my clout hang out,” says Michael Roessler, whose title is minister of environment, conservation and reactor safety, although there is no nuclear reactor nearby, “but I happily show off my passport to curious tourists.”

Manfred Rose, a semiretired tour guide from Wiesbaden, about an hour’s drive away, enjoys confusing customs officials with his Bottleneck passport. “It can be a real door opener, but unfortunately not all international airports deem it fit for a visa,” says Mr. Rose, who has collected stamps in his Bottleneck passport from over a dozen countries. He also presents his German passport.

Bottleneck faces frequent military incursions. Officers from a German army base up the Rhine often visit the local site of a daring 1814 river crossing by Prussian and Russian troops chasing Napoleon.

Bottleneck leaders say young Germans should appreciate the region’s history more.

One and two centuries ago, says Mr. Barillaro, it was “a bulwark against the French.”

The cabinet now wants to establish ceremonial ties with other micro-entities, like the Free State of Boyard on France’s coast. Last year, Boyard President Marc VigneronLarosa visited Bottleneck, although both sides stress it wasn’t a diplomatic mission.

“We are interested in establishing a relationship,” says Mr. Vigneron-Larosa.

As to the question of “whether micro-nations have a future,” he says: “It goes without saying.”

Americans Warned Of Threats to Travel

Market share, Chinese third-party payment platforms, as of second quarter 2015.

Alipay 45% Tenpay* UnionPay Merchant Services 99Bill China PnR YeePay iPS Others

19 14 7 7 4 2 3

*Includes WeChat and Mobile QQ Source: Analysys

Apple Pay could still face regulatory hurdles in China.

THE WALL STREET JOURNAL.

Apple Pay is looking to enter a market where electronic payments are booming but entrenched rivals dominate. Staterun UnionPay holds a monopoly on processing credit-card and debit-card payments, effectively locking out MasterCard Inc. and Visa Inc. The private sector is dominated by Alipay, run by an affiliate of Alibaba Group Hold-

conference he was interested in joining with Apple on payments, provided it was a “marriage” that both sides want.

In June, Apple registered an entity in Shanghai’s free-trade zone to operate Apple Pay, according to official media and the Shanghai government’s company-registration database.

—Yang Jie and Lingling Wei

ing Ltd., and Tenpay, run by Tencent Holdings Ltd. Alipay had nearly 45% of the market as of the second quarter and Tenpay almost 19%, according to research firm Analysys.

Apple could gin up interest from potential partners. Last year Alibaba Executive Chairman Jack Ma told The Wall Street Journal’s WSJD Live tech

ing more likely as Mr. Xi pushes China even more deeply into troubled parts of the world.

At the heart of his international grand vision is a plan to revive ancient overland trade routes to Europe by building a network of highways, railways and energy pipelines through Central Asia and Pakistan. The “Silk Road Economic Belt” project is designed to bring East Asian-style prosperity and stability to some of the most politically volatile parts of the planet, creating new export markets for China and—just as important—checking the spread of Islamic extremism to its vast Xinjiang border region that’s torn by violent strife involving mostly Muslim Uighurs.

Pulling off this project will put armies of Chinese workers in harm’s way, requiring China to engage more deeply in the domestic politics of countries along the route, and raising the prospect of military involvement.

As Beijing plans its next security moves, it will be looking hard at public opinion. The image of a bloodied Mr. Fan, published in an Islamic State magazine, may prove to be a turning point in China’s relations with the world.

trapped in a crisis.

In their book “China’s Strong Arm: Protecting Citizens and Assets Abroad,” Jonas Parello-Plesner, a Danish diplomat, and Mathieu Duchâtel, a senior researcher at the Stockholm International Peace Research Institute, write that the next time trouble erupts in a fragile country and threatens Chinese interests, Beijing will be under greater pressure from its citizens and companies to intervene decisively. “When, where and under which extreme circumstances this will happen is an open question, as is the degree of military in-

Money Machines

MONICA DAVEY/EUROPEAN PRESSPHOTO AGENCY

Continued from Page One which allows users to tap their devices on readers at store sales counters and make purchases by scanning their fingerprints.

Sales of the iPhone in greater China, which includes Hong Kong and Taiwan, rose 87% from a year earlier in the quarter ended Sept. 26. Apple’s overall greater China sales increased 99% to $12.5 billion.

Success for Apple Pay in China could boost the fledgling system, launched last year and currently available in the U.S., the U.K., Canada and Australia.

Apple Chief Executive Tim Cook has been in close contact with Chinese government agencies and has said publicly that he would like to bring Apple Pay to China as soon as possible.

One Chinese developer who has seen the latest beta version of Apple’s mobile-operating system said logos for China’s UnionPay can be found within the package. China UnionPay Co. media officials didn’t respond to requests for comment.

PANORAMIC/ZUMA PRESS

Terrorism Hastens a Turning Point for Beijing

BY DAMIAN PALETTA

WASHINGTON—The U.S. State Department issued a world-wide travel alert following a month of deadly terrorist attacks on three continents that have killed hundreds of people, including Americans.

The alert, the first in nearly a year, expires on Feb. 24. It comes during the busiest U.S. travel week of the year, with millions of Americans hitting the roads and airways for the Thanksgiving holiday.

The State Department, in its warning Monday, said terror groups including Islamic State and Boko Haram “continue to plan terrorist attacks in multiple regions. These attacks may employ a wide variety of tactics, using conventional and nonconventional weapons and targeting both official and private interests.”

The State Department often issues travel warnings, but alerts are more uncommon, reserved for short-term events, whereas warnings can be indefinite and resulting from general instability.

Nonetheless, an alert doesn’t mean a terror attack is imminent. It more likely reflects recent events—such as the spate of terror attacks—and the need for heightened caution.

A top concern for many intelligence officials is the risk posed by Islamic State militants who traveled to fight and train in Syria and Iraq and then returned to their home countries in Europe or elsewhere.

“Additionally, there is a continuing threat from unaffiliated persons planning attacks inspired by major terrorist organizations but conducted on an individual basis,” the alert said.

It said terror attacks in the past have targeted sporting events, theaters, markets, airports and airplanes.

Following the 2001 terrorist attacks in the U.S., the government has struggled at times to warn citizens of the dangers of possible threats. The Department of Homeland Security for a time used a colorcoded warning system, but that system was eventually scrapped.

The State Department last issued a world-wide travel alert in December 2014, following a terror attack in Australia. The terror attack in Paris that targeted the Charlie Hebdo satirical magazine came just a few weeks later.

In the past several months, Islamic State-aligned militants

CORRECTIONS AMPLIFICATIONS Readers can alert The Wall Street Journal to any errors in news articles by emailing wsjcontact@wsj.com.

are believed to have carried out multiple terror attacks in France, Egypt, Turkey and Lebanon. A separate attack in Mali on Friday, believed to have been carried out by a group that claims ties to al Qaeda, left more than 30 dead. Combined, the attacks have killed more than 400 people, including at least two Americans.

U.S. officials have stressed in recent days that they haven’t detected imminent plans by terror groups to carry out a Paris-style terror attack on U.S. soil, but police and national-security officials have been operating on heightened alert status.

Department of Homeland Security Secretary Jeh Johnson on Monday addressed the elevated risk and acknowledged “anxiety across our country.”

“As we approach the holiday season, it is important to note that, at present, we know of no credible and specific intelligence indicating a Parislike plot on the U.S. homeland,” he wrote on the agency’s website. “But, the public should know that those of us in national security, homeland security, and law enforcement are working overtime to monitor threats, continually evaluate our security posture, and guard the homeland.”

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Wednesday, November 25, 2015 | A3

WORLD NEWS

Malaysia Deal Offers Potential for China Chinese companies could gain leverage on projects, including a high-speed railway

China’s $2.3 billion deal to buy power assets from a debtridden Malaysian governmentinvestment fund could give Beijing greater sway in the Southeast Asia nation and pave the way for Chinese companies to win a string of coveted infrastructure deals.

State-owned China General Nuclear Power Corp. agreed to pay 9.83 billion Malaysian ringgit ($2.3 billion) in cash and take on an unspecified amount of debt for a group of power plants from 1Malaysia Development Bhd., or 1MDB. The deal came as part of series of agreements struck between Chinese Premier Li Keqiang and Malaysian Prime Minister Najib Razak’s government, including Beijing buying Malaysian government bonds and boosting investment in Malaysia, according to China’s state-run Xinhua News Agency. The Southeast Asian nation’s economy has been rocked by a political scandal involving 1MDB and by low oil prices.

For China, the deal appears to offer the world’s secondbiggest economy broader influence across the region, in line with the government’s “One Belt, One Road” policy.

In addition to the pledge to buy government bonds, Mr. Li expressed an eagerness for China to cut infrastructure deals in Malaysia, including

OLIVIA HARRIS/REUTERS

By P.R. Venkat in Singapore and Rick Carew in Hong Kong

The Kuala Langat power plant is among 13 sold by 1Malaysia Development to state-owned China General Nuclear Power Corp. building a high-speed railway linking Malaysia and Singapore, other rail projects in the country and a China-Malaysia port deal, Xinhua reported.

The political nature of the deal was reinforced by China General Nuclear’s decision to buy the assets instead of the company’s Hong Kong-listed unit, CGN Meiya Power Holdings Co., which withdrew from the bidding process after making an initial approach.

The unlisted China General Nuclear has greater financial firepower and flexibility to en-

sure a deal would close quickly. It won’t need to seek shareholder approval or make the same disclosures as the Hong Kong-listed company would. Malaysia’s tender rules had limited foreign ownership of local power assets to a minority stake, but an exception to those rules was made for the Chinese buyer, according to people familiar with the situation.

The deal with China came days after a visit to Malaysia

by U.S. President Barack Obama, who spoke broadly

during a town hall event about human-rights protections and civil liberties. Mr. Obama had pushed for closer ties between the U.S. and Malaysia to offset growing Chinese influence in Southeast Asia.

The Chinese state-owned firm outbid an offer from a Malaysian state-run power company. Tenaga Nasional Bhd., which is 30%-owned by Malaysia’s sovereign-wealth fund Khazanah Nasional Bhd., wouldn’t offer as steep a price as China General Nuclear, given controversies surround-

ing 1MDB, according to people familiar with the situation.

The deal to unload 1MDB’s energy assets may have helped lift sentiment toward the Malaysian stocks and the ringgit.

The Malaysian stock market gained 0.4% on Tuesday, while the ringgit rose 1.1% against the U.S. dollar late in Asia.

Tuesday morning in New York, the dollar was buying 4.2233 ringgit, down from 4.2856 ringgit late Monday.

After 1MDB bought power plants in 2012 from two Malaysian companies, it wrote

down the value of the purchase from one of them, and the seller recorded a big gain on its financial statements.

1MDB said the premium it paid reflected the experience of the staff that ran the power plant.

The fund paid roughly 12 billion ringgit for the plants and valued them at around $4 billion in a planned initial public offering this year.

After the deal, funds tied to one of the companies were donated to a charity linked to Mr. Najib, which later donated money to schools in a battleground state during a tightly fought national election, The Wall Street Journal reported in June. The 1MDB fund denied the purchases were driven by political considerations. Mr. Najib has denied wrongdoing.

Mr. Najib formed 1MDB in 2009 to spur growth in the Southeast Asian country, but the fund has since accumulated more than $11 billion in debt and is the focus of a series of global investigations.

Political rivals to Mr. Najib criticized 1MDB for overpaying for the power plants and losing money. Tony Pua, a member from the opposition Democratic Action Party, said that 1MDB spent 12.1 billion ringgit to acquire the power companies, which came with about 8 billion ringgit of legacy debt.

“Now 1MDB desperately sold its power companies for 9.83 billion ringgit, clocking in 2.27 billion ringgit of losses.”

1MDB wouldn’t comment.

Xinhua News Agency quoted Mr. Li as saying that China would also grant a 50 billion yuan ($7.8 billion) quota to Malaysia under the Renminbi Qualified Foreign Institutional Investor program to boost trade and investment between the two countries.

Kerry Condemns ‘Terror’ Graft Probes Hit Shanghai Committed by Palestinians JERUSALEM—U.S. Secretary of State John Kerry condemned months of violent attacks carried out by Palestinians on Israelis and said they were acts of terror.

“It is very clear to us that the terrorism, these acts of terrorism which have been taking place, deserve the condemnation that they are receiving,” he said Tuesday at a briefing before individual meetings with Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas.

Mr. Kerry made his remarks at the start of his first visit to Israel in more than a year.

“Today I express my complete condemnation for any act of terror that takes innocent lives and disrupts the day-to-day life of a nation,” added Mr. Kerry, who is expected to urge the two leaders to work together to end the violence.

Standing beside Mr. Kerry, Mr. Netanyahu linked the attacks in Israel to terrorist attacks in other parts of the world and called on world powers to support his country.

“There can be no peace when we have an onslaught of terror—not here, not anywhere else,” he said. “Israel is fighting these forces every hour, we’re fighting them directly, against the terrorists

JACQUELYN MARTIN, PRESS POOL

BY FELICIA SCHWARTZ

Mr. Netanyahu, right, and Mr. Kerry each spoke briefly to the media at a news conference in Jerusalem on Tuesday. themselves, we’re fighting also against the sources of incitement.…It’s not only our battle, it’s everyone’s battle.”

Mr. Kerry was to later meet Israeli President Reuven Rivlin and opposition leader Isaac Herzog in Jerusalem, before traveling to the West Bank city of Ramallah to meet Mr. Abbas.

Ahead of his meeting with Mr. Netanyahu, Mr. Kerry said he regretted that American citizens had also been swept up in the violence in Israel. He also said he had spoken on Monday with the family of Ezra Schwartz, an 18-year-old Yeshiva student from Mr. Kerry’s home state of Massachusetts, who was shot and killed last week in the West Bank.

SHANGHAI—China’s antigraft agency said it would inspect a host of corporate, institutional and investment enterprises in Shanghai, the latest sign that the government’s anticorruption push is expanding in the nation’s financial capital.

The Shanghai branch of the Chinese Communist Party’s watchdog, the Central Commission for Discipline Inspection, said it had assigned personnel at 20 local enterprises, including two major securities brokers, six universities and a handful of state-owned enterprises.

The agency made no specific accusations in the notice posted on its website.

President Xi Jinping’s anticorruption push has moved

He described Mr. Schwartz as “a young man who came here out of high school ready to go to college, excited about his future.”

In a stop in Abu Dhabi on Monday, Mr. Kerry told reporters he had no “highfalutin grandiose hidden agenda” for his trip to Israel.

The White House has said peace talks between Israelis and the Palestinians won't restart before President Barack Obama leaves office in 2017.

Mr. Kerry’s stops in Tel Aviv, Jerusalem and Ramallah come at the end of a three-day trip to the Middle East that has so far focused on intensifying the international response to Islamic State and a political process to ending the continuing conflict in Syria.

across the nation over the past three years, and recently made waves in Shanghai. Earlier this month, the watchdog said it was investigating suspected violations of discipline—terminology it uses to mean corruption—against a vice mayor, the highest official so far named in the city during the three-year campaign.

It isn’t unusual for the antigraft agency to announce sectors and companies it will examine, and it has done so in the past in Shanghai. Some of the institutions named Tuesday have been cited in the past for problems with, in some cases, punishment for particular officials.

The new round of inspections will look at local private-

equity firm Shanghai Alliance Investment and at local brokerages Guotai Junan Securities Co. and Haitong Securities Co., Tuesday’s report said.

Leading names in industry will also be inspected from the energy, aviation and financial sectors, including Shanghai Automotive Industry Corp., Shanghai Media Group, China Pacific Insurance, Shenergy Co., Shanghai Electric Group Co. and Shanghai International Airport, the agency said.

The focus on Shanghai, mainland China’s financial capital, also follows midyear turmoil in the country’s stock markets that has resulted in a widespread investigation by the party’s antigraft inspectors.

—Yifan Xie

“I invented it and made it”

Sweden Reverses Asylum Policy

BY ANNA MOLIN STOCKHOLM—Sweden proposed a range of measures Tuesday aimed at cutting the number of asylum seekers reaching the country and forcing other European Union countries to accept more refugees.

The move, which would tighten Sweden’s asylum rules, is an about-face for the country which along with Germany has been one of the EU’s strongest proponents of a generous asylum system.

Prime Minister Stefan Löfven told reporters his leftleaning government would initiate talks with the center-

right opposition to reduce Sweden’s asylum policies to a minimum standard in accordance with international and European norms.

The changes would likely be in effect for three years from next April. They would allow only temporary residence to all but quota refugees, increase the requirements needed by relatives to gain Swedish permission to join family members and permit the use of medical records to determine asylum-seeker’s age, the government said.

“The intent of these measures is to significantly reduce the number of people coming,” Mr. Löfven said. “We need asy-

lum seekers to turn to other countries.”

The premier also criticized the EU for failing to jointly deal with the biggest flow of displaced people since World War II. He called for an overhaul of the entire migration system including the Dublin Convention, which requires refugees to seek asylum in the EU country they first entered.

The Nordic country of 9.8 million people—which has received more than 110,000 asylum-seekers this year alone— is straining to manage the surge and recently warned it would no longer be able to guarantee shelter for all of the refugees crossing its border.

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WORLD NEWS

Kurdish fighters who drove Islamic State from Sinjar say they won’t let Arabs return After U.S.-backed Kurdish forces drove Islamic State militants from the Iraqi city of Sinjar this month, some of the fighters involved began looting houses of Sunni Arabs suspected of ties to the extremist group.

By Sam Dagher in Beirut and Ben Kesling in Sinjar, Iraq A week later in the oil-rich region of Kirkuk, Kurdish fighters expelled about 60 Sunni Arab families who had remained in the ruins of one village, according to local officials and residents. They said it was one of more than 50 Arab villages razed or partially demolished by Kurds who recaptured them from Islamic State since July. The Kurds suspected some male relatives of the expelled families of fighting with the Sunni radicals of Islamic State.

Sunni Arab officials and residents in Iraq accuse Kurds of exploiting the war with Is-

lamic State to grab land. In Syria as well, Sunni Arabs are either fleeing, being forced out or are blocked from returning to areas seized by Kurds or Iran-backed groups, according to residents and some of the Kurdish fighters themselves.

It is part of a broader shift in Iraq and Syria, where opponents of Islamic State such as Shiites and Kurds are claiming recaptured land and oil resources that have long been in dispute.

These conquests are redrawing internal boundaries, displacing communities and deepening ethnic and sectarian tensions in the two increasingly fragmented countries.

Immediately after Kurdish forces known as Peshmerga captured Sinjar, Peshmerga in uniform and members of the Yazidi religious minority could be seen looting houses and shops in town while trucks filled with furniture, rugs and appliances streamed out of the area.

Days later, the Peshmerga set up strict checkpoints to stop the practice because, as one guard said, they worried the looters might trigger Islamic State booby traps left behind in houses.

BEN KESLING/THE WALL STREET JOURNAL

Recapture of Iraqi City Ignites Tensions

Iraqi and Kurdish flags are raised in Sinjar after the city was recaptured from Islamic State Nov. 13.

And, he added, it just looked bad to outsiders, gesturing to a reporter standing nearby.

More than a dozen Yazidis fighting with the Peshmerga in Sinjar after they took over the city on Nov. 13 vowed to never let Arabs return to the area.

Yazidis bore the brunt of Islamic State’s brutality in Sinjar. More than 1,000 Yazidi women have been kidnapped

by Islamic State, according to the United Nations, and community leaders say many remain slaves.

Sunni Arab officials warned that if the Kurds drive members of their community away from Sinjar, this risked pushing more people into the arms of Islamic State, also known as Daesh.

“There are some outlaws who helped Daesh,” said Hus-

samelddin al-Abbar, a Sunni Arab member of the provincial council of Nineveh, where Sinjar is located. But he cautioned: “After what happened in Sinjar, people will say it is better to stay under Daesh.”

Mehme Khalil, the Kurdishappointed mayor of Sinjar region, denied plans to purge Arabs from the area.

But he said the lack of government services and uncer-

Obama, Hollande Talk on Terrorism

FIGHTER

WASHINGTON—President Barack Obama and French President François Hollande, meeting for the first time since the attacks in Paris, said they agreed on the need to do more in the U.S.-led military campaign against Islamic State.

Mr. Hollande’s stop in Washington is part of a whirlwind international tour to corral a broader coalition of key nations to ramp up efforts to combat Islamic State. Already France and the U.S. have increased their intelligence sharing to help French warplanes hit more Islamic State targets in Syria.

But the linchpin in a broader strategy is Russian President Vladimir Putin, whom Mr. Hollande will meet in Moscow later this week. Efforts to link Russia’s military offensive in Syria with the U.S.-led coalition grew more complicated Tuesday, however, after the Turkish military shot down a Russian jet fighter along the Syrian border.

Mr. Putin called Turkey’s decision “a stab in the back.”

Mr. Obama, speaking at a joint news conference with Mr. Hollande, said Turkey had a right to defend its airspace and called Russia’s Syria operations “an ongoing problem.”

Mr. Obama has outlined two conditions for military cooperation with Russia against Islamic State: that Moscow trains its airstrikes on Islamic State targets, and that Mr. Putin helps broker a political resolution to the Syrian conflict.

CARLOS BARRIA/REUTERS

BY CAROL E. LEE

The French and U.S. presidents met Tuesday at the White House.

Disagreements over whether Syrian President Bashar al-Assad should remain in power—and, if so, for how long—continue to be the main obstacle. The U.S. and France have said Mr. Assad must eventually exit as part of a political transition, arguing that otherwise violence will continue among forces besides Islamic State who are opposed to his continued rule.

But the Nov. 13 attacks in Paris have forced the U.S. and Europe to reassess the fight against Islamic State, adding new urgency to requests for deeper commitments. Tuesday’s meeting came as Brussels remains locked down under threats and after the U.S. issued a special world-wide terrorism alert for U.S. citizens traveling abroad.

Current and former French officials said Mr. Hollande needs Mr. Obama to take a

more assertive role on Syria and the fight against Islamic State, both for Paris’s security strategy and for the French leader’s domestic standing.

These officials said the French public is demanding Mr. Hollande take aggressive steps to combat terrorism after the attacks in Paris last week. Conservative French politicians and parties are seeking to use the attacks to win seats in regional elections next month and promote policies tightening France’s borders and immigration policies.

“If the U.S. doesn’t want to do it, someone will have to do it,” said Joseph Bahout, a consultant to France’s Foreign Ministry and currently a visiting scholar at the Carnegie Endowment for International Peace, a U.S. think tank. “It won’t solve itself.”

Russia, which began airstrikes in Syria in September,

also has an imperative to change its strategy, the U.S. believes, following its conclusion that Islamic State was behind the recent downing of a Russian passenger jet in Egypt.

The question looming over the meeting between Mr. Obama and Mr. Hollande is whether their discussions will yield any tangible results.

The White House played down expectations for specific announcements out of the meeting with Mr. Hollande, saying that in addition to the military effort in Syria and Iraq the two leaders would discuss potential steps the U.S. can take to help France with security at home.

“We certainly believe that there is more that France and their European partners can do in terms of sharing information among themselves and with the United States,” White House press secretary Josh Earnest said Monday. “And we obviously would welcome steps that they would take to do that.”

Such moves wouldn’t only make Europe more secure, but the U.S. as well, Mr. Earnest said.

White House officials also played up the symbolism of the two leaders standing shoulder-to-shoulder.

The French, Mr. Earnest said, “can and should take a lot of solace in knowing that the most powerful country in the world has their back and is standing with them in this difficult time.”

—Jay Solomon contributed to this article.

Islamic State Claims Egypt Hotel Attack CAIRO—Islamic State claimed responsibility for a Tuesday attack that Egypt’s state media said killed four people at a hotel in the Sinai Peninsula, including a judge and a prosecutor supervising parliamentary elections.

Sinai Province, the extremist group’s Egyptian affiliate, posted a statement on social media saying two of its fighters had targeted a hotel where judges were staying. SITE Intelligence Group, which monitors global jihadist activity, distributed the statement.

The Egyptian military said three militants were involved in the attack. A suicide bomber attempted to drive a vehicle into the Swiss Inn hotel in the town of Al Arish, according to a military statement released earlier on Tuesday.

He was killed when police shot at him, detonating the explosive-laden vehicle, the military’s statement said. Another assailant, wearing an explosive vest, tried to blow himself up inside the hotel’s kitchen, but was killed by security forces.

A third militant who gained access to the hotel’s rooms

fired randomly at guests, killing a judge, the military said.

Two others killed were policemen.

The attack left 12 people wounded, including security personnel, civilians and army personnel, the military said.

Backup forces were deployed to the scene.

The Sinai Province group, based in the restive area, regularly targets police and military installations.

Elections across the country are normally supervised by judges, and several have been

deployed to North Sinai to monitor the balloting process.

Monday concluded the final phase of voting in Egypt’s first parliamentary election since 2012.

Final results in the election, which is expected to stock the representative body with politicians loyal to President Abdel Fattah Al Sisi, are due after runoffs in early December.

Turnout has been the lowest in a national election since 2011.

North Sinai, ground zero in Mr. Sisi’s war on militant

AGENCE FRANCE-PRESSE/GETTY IMAGES

BY DAHLIA KHOLAIF

Ambulances arrived at the Swiss Inn hotel in Al Arish on Tuesday.

groups that took root in the years of instability after the 2011 ouster of former dictator Hosni Mubarak, is among the 13 constituencies that participated in the two-day voting round.

A curfew imposed on areas of the district, overseen by the visiting judges, was temporarily eased to encourage people to vote.

Militants have killed hundreds of security personnel and government loyalists since 2013 and shot dead an Islamist parliamentary candidate last month. That attack prompted several others to withdraw from the race.

Egypt’s army has evacuated and destroyed homes in large swaths of the northern Sinai area as part of its yearslong battle against the insurgency.

But the militants’ efficiency is increasing and the scope of the insurgency is extending beyond Sinai to other parts of the country.

On Oct. 31, Islamic State claimed responsibility for the downing of a Russian passenger jet shortly after takeoff from the Red Sea resort city of Sharm El Sheikh, killing all 224 aboard.

Continued from Page One miles) of Turkey’s border and tracked the plane as it crossed into Turkish airspace.

“This isn’t an action against any specific country,” said one Turkish government official.

“Our F-16s took necessary steps to defend Turkey’s sovereign territory.”

The long-feared confrontation could undermine expanding international efforts to create a broad military coalition to defeat Islamic State fighters accused in a string of deadly terrorist attacks in recent weeks, from Beirut to Paris to Egypt.

It also represents the most serious clash between global powers jostling for control in the tangled Middle East conflict. NATO ministers were meeting later Tuesday at the request of Turkey, which had complained vociferously that Russia had violated its airspace before.

Turkey and Russia’s diplomatic relations have been increasingly strained since Moscow started ramping up its military support for the embattled regime of Syrian President Bashar al-Assad.

America and its Western allies have been struggling to contain Russia’s influence in Syria and persuade Moscow to play a more constructive role in targeting Islamic State. But Russia has resisted efforts to shift its strategy in Syria, and the shootdown could make it more difficult for world leaders to work with Moscow.

Two Turkish F-16s shot down the jet fighter after it crossed into Turkish airspace and ignored 10 warnings in five minutes to return to Syrian airspace, according to the Turkish military.

The Turkish military released a map showing what it said was the flight of the jet as it apparently crossed into Turkey over Hatay province, which abuts northern Syria.

Mr. Putin said the plane was 1 kilometer inside the Syrian border when it was hit.

The jet fighter crashed inside Syria, just south of the Turkish border, where Russian and Syrian planes have been targeting Turkmen fighters.

Turkey’s leaders have repeatedly warned Russia and Syria that it was ready to intervene to help Turkmen rebels in Syria.

While both pilots appeared to have ejected from the plane after it was hit, Syrian rebels released video showing the body of what they said was one of the Russian pilots.

Also, a Syrian rebel faction known as the First Coastal Division and affiliated with the relatively moderate, Westernbacked opposition Free Syrian Army said it used a U.S.-made missile to destroy a Russian helicopter searching for the pilots.

The group posted a video on the Internet depicting what it said was one of its fighters firing at the helicopter, which was already on the ground.

tain security prevented their immediate return.

“Everyone’s a brother to us,” said the mayor, wearing traditional Kurdish garb of baggy trousers and militarystyle jacket. “But anyone who committed a crime has no place among us.”

Still, he said those with suspected connections to Islamic State wouldn’t be allowed back into Sinjar.

Both Kirkuk and Sinjar lie along a fault line between the semiautonomous Kurdistan region in Iraq’s north and territory captured by Islamic State—all of it in Sunni-majority provinces just south of the Kurdish region.

Kurds have been expanding the territory under their control by taking hold of contested and resource-rich areas such as Kirkuk province and the region of Sinjar after capturing them from Islamic State.

These areas and others are part of a long-running land dispute that has pitted Iraqi Kurdistan against the central government in Baghdad and local communities against one another, helping fuel the country’s Sunni insurgency.

—Ali A. Nabhan contributed to this article.

The footage then showed the helicopter exploding into a ball of flame.

The U.K.-based Syrian Observatory for Human Rights, an opposition group monitoring the conflict through a network of activists in Syria, said the helicopter had already made an emergency landing.

The claims couldn’t be independently verified. Mr. Peskov said the Kremlin didn’t have any information on the fate of the plane’s pilots or the helicopter claims.

Russia’s decision to start carrying out airstrikes in Syria in September created new challenges for the U.S. and its allies in the fight against Islamic State militants, as Moscow tries to shore up Mr. Assad and military leaders refine plans meant to avoid destabilizing confrontations between competing forces.

This isn’t the first time Turkey has shot down a jet fighter on its border with Syria. In March 2014, Turkey shot down a Syrian jet that it accused of violating its airspace in similar circumstances.

The mounting risk of confrontation is also threatening strong trade ties.

Ankara and its NATO allies have repeatedly accused Russia of breaching Turkey’s airspace from Syria, and shot down one unmarked Russianmade drone in mid-October.

Russian Foreign Minister Sergei Lavrov canceled a previously scheduled Wednesday visit to Turkey and recommended that Russians not visit the country.

The mounting risk of military confrontation is also threatening strong trade ties, with President Recep Tayyip Erdogan warning Moscow to “think carefully” about taking steps counter to Ankara’s national interests.

After Russia’s first incursions into the Turkish airspace in early October, Mr. Erdogan threatened Moscow with diverting Turkey’s natural-gas purchases to other providers— a move that would curb Russian energy sales to its secondbiggest market.

Russia has responded by announcing that it cut in half the capacity of a gas pipeline dubbed Turk Stream, which Moscow wants to build to circumvent Ukraine to deliver gas to Europe.

Tense diplomatic ties between Moscow and Ankara could also threaten the construction of Turkey’s first nuclear-power plant.

While Moscow says it is fighting terrorists, Turkey maintains that Russia has been striking Western- and Ankarabacked rebels seeking to oust the regime in Damascus.

Last week, Turkey called Moscow’s ambassador in Ankara to the foreign ministry and warned Russia against continuing a bombing campaign targeting Turkmen villages in northern Syria.

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Lockdown Enters Day Four Brussels schools to reopen as manhunt for Paris attack suspect continues

CHANGE Continued from Page One expected to hand President Nicolás Maduro, the heir to the late leftist firebrand Hugo Chávez, a big loss in midterm elections there. Polls show the opposition winning by at least 20 percentage points, likely giving it control over congress and giving momentum to a possible recall vote on Mr. Maduro.

“What happened in Argentina [Sunday] was the first change in Latin America,” said Maílson da Nóbrega, former Brazilian finance minister and partner in the consultancy Tendências Consultoria in São Paulo. “It may be the start of a downfall in populist governments. I think the next one should be Venezuela….And I think Brazil will follow suit in 2018.”

An economic downturn explains part of the desire for change by voters. Venezuela is undergoing its worst economic contraction since its independence from Spain two centuries ago. After shrinking by 4% last year, the economy is expected to contract by 10% this year and a further 6% next year, according to the International Monetary Fund.

The IMF forecasts a 3% contraction for Brazil this year, followed by an additional 1% decline next year. In Argentina, the economy grew just 0.5% last year, and is seen growing 0.4% this year followed by a 0.7% recession next year.

“When there’s no money, there’s no populism,” said Martha Lagos, head of the Chile-based Latinobarómetro polling firm. Ms. Lagos said the end of the commodity boom will hurt all governments in South America, from left to right, but that the populist left will pay the highest price because they managed their economies the worst.

A shift to the center could have profound consequences for the region, opening the door to a more pragmatic brand of politics, but also raising risks of instability if the poor see no benefit. Countries struggling to pay their bills amid the commodity downturn

YVES HERMAN/REUTERS

With schoolchildren stuck at home for a second straight day, a few museums opened their doors, including the Toy Museum and Autoworld, a sprawling car museum not far from the European quarter.

However, downtown Brussels remained practically a ghost town on Tuesday morning.

The Belgian government said on Monday that although the heightened security alert would last until next week, schools and parts of the subway system would reopen Wednesday. Police are conducting an international manhunt for Salah Abdeslam, a Belgian suspected taking part in the Paris attacks on Nov. 13.

The lockdown was imposed after a raid on Friday discovered an automatic weapon and

A Belgian soldier patrolled a street on Tuesday in central Brussels, which remained a ghost town. material that authorities believe could be used to create a suicide vest.

The decision to reopen schools prompted some parents to question what, if anything, had changed that now made it safe for children to return to school, compared with Monday and Tuesday.

Rudi Vervoort, prime minister of the Brussels region, tweeted that he would drop his child at the crèche tomorrow morning “without any worry.” A spokesman for Mr. Vervoort said hundreds of ad-

ditional security staff would be deployed on Wednesday to protect schools and the metro system in Brussels.

Joelle Lacroix, who heads a group of parents’ associations, said: “Parents are contacting us, very worried, and trying to understand what changed since Monday.”

Nerves remained on edge.

More conferences were called off. An energy conference between the European Union and Norway, scheduled for Friday, has been delayed due to security concerns, Norway’s gov-

ernment said Tuesday. The GSMA, an association of mobile-phone operators, postponed a major conference scheduled for Dec. 3 in Brussels “due to the ongoing security situation.”

Some local officials criticized the continued lockdown ordered by federal authorities.

“It’s a general catastrophe; we can’t continue like this in these conditions. We can’t live under the Islamist regime,” Yvan Mayeur, the mayor of Brussels, told the public Belgian radio RTBF on Tuesday.

may open up more to foreign investment and trade. Ties will likely improve with Washington.

Mr. Macri has already signaled his intention to take a much harder line on Venezuela, the U.S.’s biggest opponent in the region. The government there has largely rolled back democratic freedoms in the past few years, stacking the courts and jailing opponents like Leopoldo López, the country’s most popular opposition leader.

Until now, Argentina has been Venezuela’s most influential unconditional ally in South America. But Mr. Macri said last week that as a member of Mercosur, the South American customs union, Argentina would ask for Venezuela to be suspended from the organization for violating the so-called democratic clause, citing “abuses in the persecution of opponents and freedom of speech.”

Mr. Lopez’s wife, Lilian Tintori, was with Mr. Macri and his team on Sunday night in Buenos Aires.

Pressed by China’s slowdown and the decline of commodity prices, some countries like Argentina could become more open to trade and foreign investment.

In recent weeks, the U.S. Chamber of Commerce organized its first formal visit to Argentina in at least a decade.

Representatives from U.S. companies in sectors ranging from agriculture to banking met with Mr. Macri’s team to bring up issues like resolving the country’s dispute with creditors and ending capital controls.

“We were really pleased to receive their assurances they would be addressing all these points early in his term,” said Jodi Bond, vice president for the Americas at the chamber, who was on the trip.

At around the same time, Mr. Morales, the Bolivian president, went to New York trying to drum up investment in his country. Even Cuba, the hemisphere’s lone communist regime, is opening up by restoring diplomatic relations with the U.S. and cautiously seeking foreign investment.

A shift in Argentina to greater trade and openness

could prod Brazil, its biggest trade partner, to move faster to engage in trade agreements with the outside world, according to former Brazilian Finance Minister Rubens Ricupero.

“It means that Brazil will almost certainly have to take a different approach to trade negotiations,” he said.

The pink tide began in late 1998 with the election of Mr. Chávez, a former tank commander and failed coup leader. From then until 2008, seven more left-of-center leaders took office in South America, from giant Brazil and relatively affluent Argentina to poverty-stricken Bolivia. In all, nearly 300 million of South America’s 365 million people were living in countries governed by leftist leaders in the late 2000s.

In 2005, Argentina, Venezuela and Brazil teamed up to block President George W. Bush’s plans for a hemispherewide trade pact.

helped lift millions out of poverty.

But many governments didn’t save for a rainy day.

Brazil built up reserves of some $371 billion, but Argentina has less than $30 billion and Venezuela less than $20 billion. And even Brazil failed to run a budget surplus during any of the boom years.

Today, all three countries are struggling with rising inflation rates and growing red ink. Now Brazil’s budget deficit, including interest payments on foreign debt, is 9.3% of annual economic output, according to government figures.

The IMF estimates Argentina’s budget gap at 2.5% and Venezuela’s at 21.3%.

“They spent like they were going to develop, without planning for a rainy day,” said Eduardo Gamarra, a professor of international relations at Florida International University. “Blinded by commodities, they forgot about doing the kinds of things you have to do,

An economic downturn explains part of the desire for change by voters.

Not all the leftists were populists. Those in Chile and Uruguay, for instance, have pursued free-market policies while boosting social-welfare programs. Argentina and Venezuela, however, turned to nationalizing foreign companies and printing money to fund cash transfers to the poor, moves that stoked high inflation but ensured the loyalty of millions come election day.

The leaders of Venezuela, Ecuador and Bolivia also amended constitutions to lengthen their terms, while staking out positions that Washington considered hostile, such as forging ties to Iran.

The populists took power at the beginning of a decadelong commodity boom. Venezuela, with the world’s largest oil reserves, got hundreds of billions of dollars in outsize oil profits during the time of Mr. Chávez. Brazil became a world leader in products ranging from chickens and orange juice to iron ore. Cash-transfer programs in countries like Brazil

like diversify exports and invest more in people than commodities. Latin America hardly has any universities in the global top 500.”

The difference in recent economic performance between countries governed by the populists and more moderate leaders in the region is stark. Economic output in South America’s Mercosur trade bloc, which consists of Venezuela, Argentina, Brazil, Uruguay, and Paraguay, declined 0.4% last year and is expected to fall a further 2.3% this year.

Those in the so-called Pacific Alliance, a bloc that is far more trade-oriented and made up of Mexico, Peru, Colombia and Chile, grew 2.6% last year and are expected to grow 2.3% this year, according to estimates by BBVA bank.

As the money flowed in during the commodity boom, corruption scandals spread.

Brazil has been embroiled in a scandal involving kickbacks at state oil firm Petrobras that have implicated the ruling

LISBON—Portugal’s president appointed antiausterity Socialist leader António Costa as prime minister in a move that ends weeks of political turmoil, but opens the door to a period of economic uncertainty.

The ascent of the 54-yearold former mayor of Lisbon makes Portugal the second eurozone country this year, after Greece, to rebel against a belttightening recipe imposed on troubled Southern European economies by the European Union.

Greece’s rebellion, which started with the election of far-left Syriza party in January, has been short-lived, with the government now imposing austerity measures to meet the terms of its latest EU bailout.

Mr. Costa, who has formed a parliamentary alliance with three euroskeptic, far-left parties, will also face challenges making good on his pledges to increase public wages and unfreeze pensions.

Such was the concern of the Portuguese political establishment over the proposals that President Aníbal Cavaco Silva on Monday insisted that Mr. Costa adhere to six conditions, including maintaining a tight party. In Argentina, Mrs. Kirchner’s former vice president, Amado Boudou, has been indicted in two separate corruption cases. He denies any wrongdoing. And Mrs. Kirchner and her son are being investigated on money laundering accusations. They deny any wrongdoing and claim that courts are politically motivated.

Venezuela, meanwhile, is considered the most corrupt country in the Americas.

Transparency International, the group that tracks citizen perceptions of corruption around the world, has Venezuela near the bottom of the 174 countries it cataloged for corruption in 2014. Venezuela is perceived as being more corrupt than Syria, Guinea-Bissau or Zimbabwe.

In the U.S., federal prosecutors are now investigating several officials in the upper echelon of the Venezuelan government for drug trafficking and the pilfering of billions of dollars from the state oil company, investigators and people close to the investigation have told The Wall Street Journal.

“These new leaders were icons of social movements.

They were supposed to be different from the traditional politicians. But they demonstrated they behaved exactly like traditional politicians, if not worse,” said Ms. Lagos at Latinobarómetro.

The rising incomes of the poor in the region have made them more demanding of results from their politicians, and growing connectivity allows voters to compare themselves to other countries more easily, said Thiago de Aragão, a political analyst in Brasília.

“In the end, it’s all about the ability of governments to deliver,” he said. “I believe Hugo Chávez was the one most responsible to kill the logic of populism in Latin America. It became clear he was all speech and no deliverables.”

Increasingly, he said, Latin America is likely to finally leave behind the old ideological divides between left and right and focus on what works.

“Ideology is just the gift-wrap.

The content is what matters.”

Unpopulism Some Latin American leaders who championed populist economic policies have fared worse than others who didn’t. A sampling of each: Selected countries with populist leaders

MEXICO

VENEZUELA

COLOMBIA BRAZIL

ARGENTINA CHILE

Approval ratings

Inflation, 2015

Peña Nieto gets high marks on revamping the economy, but his popularity suffered after allegations of influence peddling and the killing of 43 students last year.

Enrique Peña Nieto Mexico

42 %

Cristina Kirchner Argentina

39

16.8

Juan Manuel Santos Colombia

33

4.4

Colombia’s economy is growing, but President Santos has struggled in pursuing peace talks with the country’s deeply unpopular Marxist rebels.

Michelle Bachelet Chile

29

4.4

Chile’s economy is also resilient, but allegations of influence peddling have hurt President Bachelet.

Nicolás Maduro Venezuela

23

159.1

Dilma Rousseff Brazil

10

8.9

2.8 %

Kirchner lost popularity as corruption scandals mounted and the economy stalled.

Despite solid approval ratings, her hand-picked successor lost on Sunday.

President Maduro lacks his predecessor’s deep pockets and charisma. The result has been a steady decline in popularity and a deep economic slump.

Rousseff’s poor approval rating results from a corruption scandal at state oil company Petrobras and an economy that went from boom to bust.

Sources: IMF (estimated inflation); Polls: Management & Fit (Kirschner, Nov.), Ibope (Rousseff, Sept.), Adimark (Bachelet, Oct.), Datexco (Santos, Sept.), El Universal (Peña Nieto, Nov.), Datanalisis (Maduro, Oct.)

THE WALL STREET JOURNAL

ARMANDO FRANCA/ASSOCIATED PRESS

BY PATRICIA KOWSMANN AND MATT MOFFETT

BRUSSELS—Parts of Brussels cautiously returned to life Tuesday as the city’s lockdown entered its fourth day, while some local officials began questioning the government’s handling of the situation.

By Tom Fairless, Julian E. Barnes and Valentina Pop

Antiausterity Socialist Takes Helm in Portugal

Prime Minister António Costa budget and strong banking system, before he named him as prime minister.

Mr. Costa’s appointment comes weeks after Oct. 4 national elections in which the center-right coalition of incumbent Prime Minister Pedro Passos Coelho won the most seats in parliament, but lost its majority. Mr. Cavaco Silva, who once headed Mr. Passos Coelho’s Social Democratic Party, reappointed the prime minister, but his government collapsed 11 days later.

Mr. Costa’s administration will be the first Portuguese government supported by farleft parties in the country’s four decades of democratic rule.

WORLD WATCH THAILAND

Two Men Indicted for Bangkok Bombing

A military court in Thailand indicted two men who police say carried out a deadly August bombing at a central Bangkok shrine that left 20 people dead and more than 120 injured.

The blast at the popular Erawan Shrine was one of the most serious acts of violence in Bangkok in decades. Authorities have declined to call it an act of terrorism out of apparent fear that it would hurt the country’s huge tourism industry.

The two suspects, identified as Bilal Mohammad and Mieraili Yusufu, were indicted Tuesday on 10 counts—none of them terrorism charges—connected to the blast. The charges included conspiracy to explode bombs and committing premeditated murder, said defense lawyer Chuchart Kanpai.

Both men have been described by officials as ethnic Uighurs from western China’s Xinjiang region. Officials say the blast was carried out by a peoplesmuggling gang seeking revenge on Thai authorities for cracking down on their operation.

Thai officials say there was no political or religious motive behind the attack, but skepticism about the police explanation on the shrine attack has abounded because of leaks, contradictions and secrecy surrounding the investigation.

—Associated Press GERMANY

Growth Rate Eases Amid Weak Exports

The economy slowed in the third quarter, as solid domestic consumption was countered by weak exports and slack corporate investment, official data showed Tuesday.

Germany’s quarterly growth rate eased to 0.3% from 0.4% in the second quarter, the Federal Statistical Office said, confirming a flash estimate from Nov. 13. This translates into an annualized growth rate of 1.3%, the weakest rate since the third quarter of last year, and a sign that the slowdown in China and recessions in other developing economies is hurting Europe’s export champion.

Private consumption was up 0.6% from the second quarter as consumers took heart from a buoyant labor market, rising wages and lower energy prices.

Government consumption climbed 1.3%, as Germany faces rising costs related to a record influx of migrants. The government has already put aside €6.1 billion ($6.48 billion) from an expected budget surplus this year to fund housing and other costs for people seeking sanctuary.

—Nina Adam

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THE WALL STREET JOURNAL.

U.S. NEWS

Growth Gets an Upward Revision Third-quarter GDP rose at 2.1% rate as inventory winnowing proved less of a drag

WASHINGTON—The U.S. economy expanded at a faster pace than initially estimated in the third quarter as businesses stocked up on more goods, suggesting the sixyear-old expansion remains on track to close out the year with modest but unspectacular growth.

Gross domestic product, the broadest measure of goods and services produced across the economy, advanced at a 2.1% seasonally adjusted annual rate in the third quarter, the Commerce Department said Tuesday, up from the initial estimate of a 1.5% growth rate. That matched the forecast of economists surveyed

by The Wall Street Journal.

Despite the stronger performance, the growth pace from July through September marked a sharp slowdown from the second quarter, when the economy expanded at a 3.9% rate.

The third-quarter boost was largely due to a sharp upward revision for private inventories, which still weighed on GDP growth, but not nearly as much as initially estimated.

Rising stockpiles help boost gross domestic product, but they could be a potential drag in the fourth quarter when those inventories are drawn down.

“The key takeaway is that the inventory adjustment that has always been inevitable for the second half of the year is likely to drag out to two, or more, quarters rather than being concentrated primarily in the third quarter,” said Stephen Stanley, chief economist at Amherst Pierpont Securities, in a note to clients. “The

LUKE SHARRETT/BLOOMBERG NEWS

BY KATE DAVIDSON

The U.S. economy remains on a slow-growing path. Here, a Whirlpool facility in Greenville, Ohio. movement in inventories basically just shuffles growth between Q3 and Q4.”

From a year earlier, the economy grew 2.2% in the third quarter, the slowest year-over-year advance since the first quarter of 2014.

Overall, economic growth has hovered around a modest 2% rate for the past several years, with no sustained breakout for the economy since the end of the recession in 2009.

Meanwhile, balance sheets of U.S. companies weakened in the third quarter. Corporate profits after tax, without inventory valuation and capital consumption adjustments, fell at a 3.2% pace from the second quarter, the biggest drop since the fourth quarter of 2014.

On a year-over-year basis, corporate profit growth was 1.4%, compared with 8.5% year-over-year growth in the

second quarter.

That measure of corporate profits tracks most closely with what companies report in earnings statements. Profit data aren’t inflation adjusted.

“Broadly speaking, we expect the outlook for corporate profits to remain challenging given the strong dollar, rising labor costs, more restrictive financial conditions, and weak external demand,” BNP Paribas economists Bricklin Dwyer and Laura Rosner said in a note to clients.

Tuesday’s report also showed business investment— reflecting spending on construction, equipment and research and development—was stronger than initially estimated. Nonresidential fixed investment rose at a 2.4% pace, compared with an earlier estimate of a 2.1% advance, as firms boosted spending on equipment.

Trump Still GOP Poll Leader Following Terror Attacks DES MOINES, Iowa—National security ranks as the top issue for many Republican voters after this month’s terrorist attacks in Paris, Mali, Beirut and Egypt. But to the dismay of the GOP establishment and more experienced candidates, the new foreign-policy focus isn’t shuffling the standings in the party’s presidential primary.

During a weekend Iowa candidate forum, many voters pointed to Donald Trump, who leads most Republican polls, as the nation’s best chance to contain Islamic State militants.

“Obviously, with all the business knowledge that Trump has, he has to have international knowledge that would be useful,” said Kathy McCammant of Grinnell, Iowa, who attended the forum. Mr. Trump wasn’t one of the seven candidates at the event.

Ms. McCammant’s husband, Dale, said Mr. Trump’s lack of government experience would be a benefit. “He doesn’t play the political game as much as the other candidates,” he said.

Both McCammants said they are considering backing Mr. Trump or Florida Sen. Marco Rubio. Mr. McCammant said he also likes Sen. Ted Cruz of Texas.

Post-Paris public opinion polling shows the McCammants are hardly alone. A Suffolk University/Boston Globe poll found a plurality of New Hampshire Republicans said terrorism and national security are the nation’s most important issues. The same survey, released Saturday, found Mr. Trump with twice as much support in New Hampshire as any other GOP candidate.

The enduring strength of Mr. Trump, who has said he watches national-security experts on television talk shows to educate himself on the issues, is a quandary for party leaders and his rivals. “I do believe that Paris was a game changer, and yet we haven’t seen the manifestation of that yet,” said Mike Schreurs, a West Des Moines marketing

SCOTT OLSON/GETTY IMAGES

BY REID J. EPSTEIN

Voters listen as Republican candidate Marco Rubio spoke Saturday at the Smokey Row Coffee House in Oskaloosa, Iowa.

CEO who is the founder of Iowans Supporting Israel.

South Carolina Sen. Lindsey Graham, a presidential candidate who serves on the Senate Armed Services Committee, said: “The weight of this event is going to fall heavily on Trump and Carson. Generalities aren’t going to cut it anymore,” referring to retired neurosurgeon Ben Carson, who has seen a dip in the polls.

“They’re either going to up their game and rise to the occasion or people will go someplace else.”

Mr. Rubio, who serves on the Senate Committee on Foreign Relations, also is stressing his national-security credentials, both during a weekend tour of Iowa and in a new advertisement. “This is a civilizational struggle between the values of freedom and liberty, and radical Islamic terror,” Mr. Rubio says in a TV ad, which will air on national cable broadcasts. “Either they win or we do.”

Yet even Republican voters who say they are wary of Mr. Trump’s lack of experience in government admire his style.

“Nobody in Iowa wants Donald Trump for president,” said Dave Tyree, a Sundaypreacher at the Church of

Christ in Chariton, Iowa, who was among the 1,100 social conservatives attending the event hosted by the Family Leader, an organization of local evangelical Christians. “But everybody in Iowa wants somebody like Donald Trump for president.”

Ron Dardis, a former adjutant general of the Iowa National Guard who is supporting Mr. Graham, said he remains hopeful that the new focus will move voters toward candidates with foreign-policy experience. “I would like to believe that that has made a difference,” said Mr. Dardis. But “I haven’t seen evidence that it’s happening.”

Mr. Trump has navigated the shift in focus partly by turning the national security discussion back to his signature issue: immigration. Mr. Trump has said he would block Syrian refugees from coming to the U. S. and force those already in the country to leave.

Don Berndsen of Clive, Iowa, said he likes Mr. Trump’s bravado on immigration and foreign policy and doesn’t think he would seek to implement the policy ideas he has entertained, such as creating a national registry for Muslims or deporting Syrian refugees.

Real final sales, a measure of economic output that excludes changes in inventories, increased at a 2.7% pace in the third quarter, down from an earlier estimate of 3% growth. The figure roughly measures the value of U.S.made goods and services people and companies purchased at home and abroad.

Consumer spending, which represents more than twothirds of economic output, increased at a 3% rate in the third quarter, down from an initial estimate of 3.2% and from the second quarter’s 3.6% pace. The recent gain was led by strong spending on long-lasting goods, like automobiles.

Economists had expected a strong dollar and weak demand overseas would weigh down economic growth in the third quarter. Tuesday’s report showed trade subtracted

0.22 percentage point from the growth rate. Exports, which add to output, increased at a 0.9% pace in the third quarter, down from the initial estimate of 1.9%, while imports rose 2.1%.

Government spending, which has largely been a drag on economic growth since 2010, advanced at a 1.7% pace, in line with the previous reading.

GDP measures have been heavily revised in recent quarters, making the initial data more difficult to interpret.

Further revisions for the third quarter are possible on Dec. 22, when the Commerce Department releases its third estimate of GDP. But Tuesday’s report will be the last read for Federal Reserve officials before their next meeting Dec. 15-16, when many economists expect the central bank to raise shortterm interest rates for the first time in nearly a decade.

“Assuming that we continue to get good data on the economy, continue to get signs that we’re moving closer to achieving our goals” there is a strong case to be made in December to raise rates, Federal Reserve Bank of San Francisco President John Williams said Saturday.

The latest figures are unlikely to dissuade Federal Reserve officials from raising rates at their meeting next month, economists said.

“Although the recovery from the Great Recession has been disappointing at times, the positive flip side is that a six-year run of moderate growth has prevented the economy from overheating,” PNC senior economist Gus Faucher said in a note to clients. “There do not appear to be any serious imbalances in the domestic economy that would indicate a recession any time soon, although the global outlook is a downside risk.”

U.S. Watch MINNESOTA

Five Protesters Shot At Police Station

Police in Minneapolis are searching for three white suspects after five people were shot late Monday at the site of a demonstration over a black man who was killed by police earlier this month. Police say those shot suffered non-lifethreatening injuries.

Protesters have been camped out at the fourth precinct station since the Nov. 15 shooting of 24-year-old Jamar Clark by a white officer. Mr. Clark died the following evening. While tensions have flared, the protests have largely been peaceful.

Organizers from Black Lives Matter Minneapolis described the shooters as whites who were asked to leave the demonstration. Witnesses said the men wore masks.

—Mark Peters and Kris Maher ILLINOIS

Chicago Policeman Charged With Murder

A Chicago police officer was charged with murder in the death of a black teenager as officials in the city prepare to release a video of the shooting.

Prosecutors said officer Jason Van Dyke turned himself in to authorities to face a first-degree murder charge in the death last year of 17-year-old Laquan McDonald. A lawyer for Mr. Van Dyke, who is white, has said he was protecting himself and others.

Mr. Van Dyke is the 15th police officer to be charged with murder or manslaughter for an on-duty shooting in the U.S. this year, according to research by Philip Stinson, an associate professor of criminal justice at Bowling Green State University.

—Zusha Elinson and Mark Peters

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THE WALL STREET JOURNAL.

A8 | Wednesday, November 25, 2015

FROM PAGE ONE

2050

GILLES SABRIÉ FOR THE WALL STREET JOURNAL (2)

Continued from Page One blue-jeans factory here still pays 20% above the market rate. It organizes cooking classes and singing contests to keep workers happy.

Last month, China announced it was abolishing its decades-old policy restricting most couples to one child. But that won’t likely put much of a dent in the country’s looming demographic problem, economists note.

Fearing that China will see an exodus of manufacturers, Chinese Communist Party Chief Xi Jinping last year called for “an industrial robot revolution” in China, which has become the world’s largest market for automation.

A mixed future Looking ahead to 2050, the future appears mixed for consumers around the globe. Lowcost production in China has helped suppress inflation in the U.S., Europe and at home. It is an open question whether automation can hold down costs as effectively as Chinese peasant labor did. But consumers should look forward to more choice, faster delivery and, perhaps, less harm to the environment.

Some technologists even think that inventions such as 3-D printing—essentially printers that replicate solid objects like copiers reproduce printed pages— will have a big impact by 2050.

“In 2050, you could potentially have a 3-D printer at home that could produce all the fabrics you want,” said Roger Lee, the chief executive of Hong Kong’s TAL Group, which makes 1 of every 6 dress shirts sold in the U.S. for brands from Banana Republic to Brooks Brothers.

“That would make us obsolete.”

The end of very cheap labor in China is giving a push to these advances in technology, which will make China less central to global manufacturing. But changing consumer tastes—enabled by the same technological change—are diminishing China’s role too.

Consumer demand is growing for customized goods, whether they are pharmaceuticals tailored to individual genes or craft beers tailored to individual palates. That makes distance from market an increasing disadvantage, especially ordering huge quantities of goods from China and waiting a month for delivery by ship. Factories are likely to get smaller and more dispersed. “Logistics, taxes and marketing may become more expensive compared to labor costs,” said Gary Hufbauer, a trade expert at the Peterson Institute for International Economics. “All that would make China less attractive.”

Examining the choices faced

by Levi, whose history traces the course of globalization, provides a window into the challenges and opportunities presented by China’s demographic transition. The 162-year-old company manufactured solely in the U.S. until the 1960s, with its jeans becoming a symbol of the American West, sought by teenagers the world over.

A garment worker in Zhongshan, China, watches a TV show on a smartphone as her friends hang out on the street. Below, Levi’s pockets are aligned for stitching.

Levi first began production overseas in Hong Kong in 1966.

In the following decades it expanded production in Mexico, Europe and Asia, as low-cost countries competed for foreign investment. In the early 1980s, demand for jeans declined, and the San Francisco company laid off a third of its global workforce, according to a Harvard Business School study, and moved more aggressively overseas to cut costs. In 1986, Levi started to shift production to China.

In recent years, privately held Levi has overhauled its supply chain to squeeze out costs and revive a business that analysts say was late to trends such as colored denim. Levi’s revenue has grown each of the past two years, reaching $4.75 billion in fiscal 2014, but pales compared with the company’s $7.1 billion in revenue at its peak in 1996.

“We are moving toward agility,” says Liz O’Neill, Levi’s senior vice president of product development. “The real money is having the right product in front of the customer at the right time.”

China’s rise to the world’s No. 2 economy relied on a huge increase in the country’s working-age population, which expanded by 380 million people between 1980 and 2015. In one of history’s greatest migrations, hundreds of millions of rural Chinese headed for cities for manufacturing jobs that were a step up from peasant labor, even though the work paid poorly by global standards.

China’s foreign shipments rose about 6,700% between 1980 and 2007, when China surpassed the U.S. as the world’s largest exporter. Manufacturers who had been automating U.S. and European factories to shave labor costs stopped once they set up in China. “Machines couldn’t compete,” says David Love, a Levi executive vice president. As late as 2002, Chi-

Pricier China Manufacturing labor costs per hour*, adjusted for productivity, as a percentage of U.S. wages each year Advanced economies Emerging economies 175% Germany $37.90 Brazil $37.72

150

Canada $29.58

nese labor costs were just 60 cents an hour, according to the Conference Board, a business research group.

But China’s working-age population recently peaked, and its socalled demographic dividend has started to turn into a demographic drag. By 2050, the working-age population will decline by 212 million, estimates the United Nations—roughly as many people as live in Brazil, the world’s fifth most-populous nation.

Wages and benefits have already been rising in double-digit percentages for the past decade as workers can command higher rates. Although wage growth may ease this year because of the economic slowdown, the pressure is bound to increase in coming decades as the number of workers plunges.

Changes in China Outside the Zhongshan factory that makes Levi’s jeans, a white banner tells potential workers that “no experience is necessary” and promises bonuses for new recruits.

In Nansha, a manufacturing

The Robots Are Coming, but Don’t Worry Yet ATLANTA—In a former kitchen-cabinet workshop here, a dozen engineers are creating robots to sew garments and rugs—tasks usually relegated to low-wage workers in distant countries.

SoftWear Automation Inc., the startup that employs the engineers, promises to transform the apparel industry, automating production so goods can be made in factories anywhere by robots and small teams of people tending them.

So far, the robots can do only basic tasks, like sewing around button holes or the edges of fluffy bath rugs. They can’t do other things people are good at, such as holding together two floppy pieces of material while sewing them into a shirt. SoftWear’s SewBots can’t produce a finished garment, though the firm hopes to reach that stage next year.

“It’s going to be incremental,” says K.P. Reddy, SoftWear’s CEO. The same can be said for many potential applications of robots, 3-D printers and other forms of automation, ranging from the assembly of consumer goods to caring for the elderly.

Though progress has been incremental so far, in coming decades the gains could add up to a significant reduction in the need for human workers in many fields.

“By 2030, 90% of jobs as we

Automation Nations Top five markets for industrial robot sales 150,000 robots

China: 150,000 Projected 2014–18 growth: 163%

120,000 90,000 60,000 30,000 Projections

0 2001

’05

’10

Source: International Federation of Robotics

know them today will be replaced by smart machines,” three analysts from the research firm Gartner Inc. wrote in a 2013 report.

They defined smart machines as ones doing things previously thought doable only by people, such as learning from experience.

By 2050, such machines are likely to “do every job that we presently do,” says Vivek Wadhwa, a fellow at Stanford University and frequent writer on technological trends.

The most common tasks for industrial robots today include heavy lifting, welding and applying glue, paint and other coatings. Robots can lift heavier

North America: 44,000, +42% Japan: 40,000, +37% S. Korea: 40,000, +62% Germany: 25,000, +25%

’15 THE WALL STREET JOURNAL.

weights than people and are far more precise. Unlike people, they can be relied on to do exactly what they are told. They also can work around the clock.

Robots still can’t match people in versatility, common sense or improvisation, however.

To demonstrate robots’ shortcomings, Rodney Brooks, chairman of Rethink Robotics Inc. and a former professor at the Massachusetts Institute of Technology, thrusts a hand into his front pocket and pulls out his keys. That task requires far more dexterity than today’s robots can muster.

—James R. Hagerty

hub 30 miles north of Zhongshan, rising salaries over the past decade have made it possible for Li Yu, 28, to buy a modest house.

“There are many different opportunities today,” says Mr. Li, who repairs machinery that assembles circuit boards. “I’d like to do something I’m good at. Of course, if there’s a better opportunity, I will take it.”

Adding to the shortage, many factory workers will be drawn back to their hometowns to take care of the growing ranks of Chinese older than 60, whose share of the population is forecast to double by 2050 from 2015, to 36.5%. “I really want to go home,” said Fu Yingjiang, 32, a laborer from Hubei province who has been working in factories in Zhongshan and elsewhere for 10 years. Awaiting him are a wife and two children, along with his blind mother and terminally ill father.

Already, China’s rising labor costs—now $14.60 an hour on China’s coast, adjusted for productivity, compared with $22.68 an hour in the U.S., according to the Boston Consulting Group— have diminished China’s competitiveness. Adding energy costs, China is now a more expensive place to manufacture than Indonesia, Thailand, Mexico and India, says BCG. None of this means Levi is going to abruptly pull up stakes. Levi lists about 200 Chinese factories where it does business, five times as many as any other country.

Levi is adapting its laser technology so it can etch different patterns to make one type of denim look like another, reducing costs by buying less fabric. For a new line of women’s wear, Levi said it needed only 12 fabrics, rather than 18. In the past three years, Levi said, it cut the number of its suppliers by 40% and the number of fabrics by 50%.

The changes also give Levi greater flexibility, said Ms. O’Neill, the 44-year-old executive who helps oversee the company’s supply chain. If a pair of jeans using a particular fabric is selling well, she says, Levi can use lasers to produce more of the desired look, and pare back designs that are losers. “The idea is to delay decision making for as long as possible,” Ms. O’Neill said.

Levi executives say they have largely abandoned a strategy of relocating production to one impoverished country after another, known as “chasing the needle,” in favor of other forms of cost cutting.

Even so, to stay competitive, Mr. Love said, the execu-

tive vice president, Levi turns to lower-wage countries like Cambodia to produce some plain jeans that are cardboard stiff and require little processing. Levi is also checking out African countries where wages are low and the population, unlike China’s, is youthful and growing. The company isn’t convinced yet that Africa’s infrastructure is up to snuff.

Levi faces other challenges producing in China. It takes about 30 days to ship jeans by sea and land from China to Hebron, Ky., a big Levi distribution center for the U.S., long enough for Levi to miss changes in fashion and get stuck with unwanted inventory. McKinsey & Co. says the next big change in manufacturing is “mass customization,” or responding to individual consumer preference.

Shoppers already can pick from thousands of designs and fits of clothing on e-commerce sites, a practice that is likely to increase over the coming years as consumers use scanners to upload their body measurements.

For China and the companies that do business there, these changes threaten to remake the traditional manufacturing model where goods are produced in huge runs in China’s coastal cities and shipped thousands of miles by sea. Instead, technologists expect a profusion of smaller factories over the coming years, designed to meet local preferences. Moody’s Analytics, in an analysis for The Wall Street Journal, forecasts that the U.S. trade deficit with China will diminish and turn positive by 2042, in good measure because of these changes.

Levi is already experimenting with more localized production. When a line of so-called skinny jeans, which it made in China, became a big hit in Europe, it turned to factories in Poland and Turkey to fill the unanticipated demand and cut shipping time, said Ms. O’Neill.

In the U.S., Levi produces its “vintage” jeans. The company uses lasers and other techniques to reproduce the wear patterns of jeans that cowboys and miners once wore.

Levi used Mexican plants to produce some of its most highfashion women’s jeans—ones with patched-up holes and complex stitching—when it noticed that U.S. women were patching jeans on their own because they liked the look. Mexico is only four days by truck from Levi’s Kentucky distribution center.

These days in hilly, arid Torreon, Mexico, Apparel International Inc. is counting on China’s shrinking working-age

125 U.K. $27.13

Japan $24.75 100

U.S.† $22.68

Czech Republic $19.37 South Korea $18.45 Poland $17.17

75

China† $14.60

50 0

Russia $11.33 Mexico $9.33 Taiwan $8.42

Thailand $5.99 India $5.36

255

Indonesia $1.20 0 2000

’15

*Including wages and benefits †For the largest manufacturing regions (Yangtze River Delta in China and Southern states in the U.S.) Source: Boston Consulting Group

THE WALL STREET JOURNAL.

population and rising wages to gain an edge. Fifteen years ago, the big jeans maker halved its workforce of 6,000 because it couldn’t compete with China. Now it is modernizing aggressively.

The company’s 58-year-old research director, David Reyes, hangs jeans on a conveyor belt in a big ultraviolet ray chamber to replicate the look of sun bleaching. “My grandmother used to toss my jeans on the top of the roof,” he recalls. “The sun bleached them yellow.” He wants to produce a similar tint—and interest Levi in producing such jeans in Mexico.

Levi said it expects China production to rise only “modestly” next year; new orders are up for grabs. Apparel International’s president, Oscar Gonzalez, says the company now boasts an advantage over China—a large pool of apparel workers who were laid off in past downsizings. Excess labor has helped him keep wage increases to 2% or 3% a year, he said.

“Every Monday when we recruit,” he added, “there are long lines of applicants.”

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THE WALL STREET JOURNAL.

Wednesday, November 25, 2015 | A9

ARTS & ENTERTAINMENT

REVIEW JIM FUSILLI

HAVING ESTABLISHED HERSELF before her 20th birthday as a powerfully emotive singer, poignant lyricist and winning personality, Adele returns with “25” (Columbia), her much-heralded third album. It’s an uneven, too-many-cooks recording, but with enough high points—and some very high points—that it ultimately proves to be a worthy entry to her catalog.

Heartbreak and its aftermath have been Adele’s métier, as evidenced on her previous recordings “19” and “21.” (“19” was her age when that album was released. She was “21” when she began recording her second disc.)

Some songs she composed in her midteens that apLooking back, peared on “19” had she puts the both a bulletproof cockiness and a ways of her fractured fairy-tale younger years view of love that can precede experibehind her. ence—a Taylor Swift outlook that resonates with young music fans.

On “21” Adele was more earthbound: She wrote much of the album after a breakup with a longtime boyfriend; and, while touring the U.S. behind “19,” she had been exposed to country music and its compact storytelling. Thus, her lyrics on “21,” informed by love gone wrong, have a vivid resonance that connects on a visceral level, and the music rises to the standard of her words, expressive voice and a delivery that is both stately and shaky. It is a stunning success, both artistically and, with more than 30 million albums sold, commercially On the new disc, Adele looks back: Having found love, had a child, gone through surgery to remove a benign polyp from her vocal cords, and suffered the miseries of celebrity, she puts the ways of her younger years behind her. Now 27—she began to write for and record this album in 2013, hence the title—she is reordering priorities,

as the past slips away and the present is measured in fleeting moments. In “All I Ask,” written with Bruno Mars, she sings: “Hold me like I’m more than a friend / Give me a memory I can use.” In “When We Were Young,” a tune she composed with Tobias Jesso Jr., she sings, “Let me photograph you in this light in case this is the last time that we might be exactly like we were.” Regret tugs at her in “Million Years Ago”: “Sometimes I just feel it’s only me / Who never became who they thought they’d be.”

Such sentiments are repeated with insistence and her writing has the ring of honest reporting. The melancholy perspective seems part of her natural growth.

With Adele, the performance, be it in concert or on disc, is foremost about her voice. On “25” it remains a glorious instrument, capable of hushed tenderness and blasts of intense passion. Melismatic flights are at a near minimum, and her bravura never overwhelms. In brawny, melodramatic ballads like “Hello” and “When We Were Young,” she beckons the listener with a quiet introductory statement and then shares an emotional cry. In the spry “Remedy” and the somber “Love in the Dark,” she sings effortlessly, allowing her instinctive warmth to convey a consistent subtext: The young woman with the velvety voice and compelling command is suffering.

Her anguish resonates and the personal becomes universal. If it’s wise to have tissues nearby when pressing play on an Adele disc, it’s the character of her voice that makes it so.

A lack of consistency and flow harms “25.” Adele has always used several producers on her albums, but here the tracks

Adele’s third album, ‘25,’ is out now. don’t unite to make a whole. The little bit funky “Send My Love (To Your New Lover),” written with and produced by pop hit makers Max Martin and Shellback, feels like it was pulled off the shelf. Contributions by Paul Epworth, who worked effectively with Adele on “21” and the theme song for the James Bond film “Skyfall, are disappointing: “I Miss You” is marred by intrusive percussion, and “Sweetest Devotion ” never makes up its mind whether to be a folk tune or a muscular ballad. And Danger Mouse’s “River Lea,” with its rollerrink organ and approximation of gospel, fails to add up to much.

On the other hand, Greg Kurstin produced and co-composed “Hello,” the brisk “Water Under the Bridge” and the Charles Aznavour-like “Million Years Ago,” and though the tracks explore three different approaches to pop, they work well together.

Ariel Rechtshaid delivers with “When We

Were Young,” underpinning the ballad with eerie keyboards played by Nico Muhly and Roger Manning Jr. For the most part, Adele’s voice and her affecting stories compensate for the shortcomings on “25.” Already one of the bestselling pop singles from the last decade and a half, “Hello” is a performance for the ages, as is “When We Were Young.” These singles are so powerful that listeners should be careful not to overlook well-conceived and fluently delivered tracks like Ryan Tedder’s “Remedy.” Beauty is in abundance on “25,” as is evidence of the evolution of the woman behind the talent. It is a tribute to Adele’s prior achievements that more may be expected from her than what’s here, but at its best “25” is quite enough.

—Mr. Fusilli is the Journal’s rock and pop music critic, and the author of “Catching Up: Connecting With Great 21st Century Music” (Bliss Publishing).

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A Talent Evolves

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A10 | Wednesday, November 25, 2015

OPINION REVIEW & OUTLOOK

resident Obama set as one of his politi- els to take a hit during the financial panic and cal goals the restoration of trust in gov- bank bailout, but the numbers have continued ernment, so seven years later how’s to fall and are now at historic lows. that working out? Not good.

Democrats (26%) or those A new U.S. study finds who lean that way are less Not even bad. We’re talking historically awful. distrustful than Republicans trust in government That’s the news from the (11%), but that’s still a rehits an all-time low. latest Pew Research survey markable vote of ill-confithat asked some 6,000 Amerdence considering President icans about their views of the Obama is a Democrat. But federal government. Only 19% of Americans perhaps it’s not surprising considering that say they trust the government to do what is this Administration has presided over so right “just about always” (16%) or “most of many government messes—the stimulus that the time” (3%). We’d like to find that 3% be- didn’t stimulate, the ObamaCare rollout and cause they must be taking some kind of happy rising premiums, the Veterans Affairs debapill. cle, and now the rePollsters have asked vival of global jihad. this question since In Government We Mistrust Americans aren’t 1958, and fewer than Share of the public that trusts the federal government to even sure the governthree in 10 Americans do what is right just about always or most of the time ment can fulfill its have expressed trust in 100% most basic obligation the feds in every major of protecting the national poll since July 80 country from ene2007. Pew says that is mies, foreign or “the longest period of 60 domestic. low trust in governOur liberal friends ment in more than 50 40 might think we’d years.” cheer these results, As the nearby but not really. We pre20 chart shows, trust has fer a smaller governbeen falling steadily ment, and we think a 0 since it reached 60% government that fo’90 ’00 ’10 ’70 ’80 briefly in the wake of cused on doing its the 9/11 attacks. The Source: Pew Research Center core obligations well high was 77% in 1964, would be more but notice how trust has fallen as the govern- trusted. Skepticism about government promment has taken on ever-more responsibilities. ises is always called for, but democracies get Trust plunged in the 1960s with the Great So- into trouble when wariness devolves into ciety and the Vietnam War, and kept sinking nearly universal cynicism. through Watergate, rising inflation and the This mistrust may well be the secret behind Jimmy Carter years.

Donald Trump’s success in the GOP presidential Trust in government revived during the Rea- race. If Americans don’t believe anything poligan years, as rapid economic growth returned ticians say, they might take a flyer on someone and the U.S. won the Cold War, but it has only who will say anything. Meanwhile, ponder the reached those levels again during the 9/11 rally- irony of our most progressive President deliv’round-the-flag period. You’d expect trust lev- ering so much hostility to government.

H

Reviving Argentina

istory is replete with great nations bility in global capital markets, and it can that decline into tragic despotism start by settling with creditors who hold and poverty, but less common is the claims totaling more than $15 billion from story of national revival and the country’s 2001 default.

Three ways Macri can This fight has turned into an renewed prosperity. The latter is the challenge for Arlegal brawl, restore the rule of law international gentina’s new Presidentwith Mrs. Kirchner deelect, Mauricio Macri, who and investor confidence. nouncing “vultures” for the swept away 12 years of Persin of wanting their cononist rule on Sunday in some tracts honored. rare good news for global freedom.

It’s in the interest now of Mr. Macri and The Buenos Aires Mayor has a heroic task the U.S. bondholders at Elliott Management, ahead, with an economy in recession and 25% among others, to find a financial comproannual inflation. Yet Argentines deserve credit mise. This could mean the issuance of new for showing more fight than Brazilians and bonds, but the important point is that ArgenVenezuelans have in shaking off left-wing pop- tina needs to show it wants to clean up its ulism. Restoring Argentina’s reputation for debt sheet and honor international lending following the law will be crucial to reviving mores. Then it will be able to return to domestic confidence and attracting foreign global capital markets for the investment it capital, so allow us as friendly outsiders to of- needs to grow. fer some suggestions.

Investors also need impartial Argentine Start with a credible probe into the suspi- courts to protect their property rights, and cious death of Alberto Nisman, the prosecutor Mr. Macri can stop the Kirchner habit of politwho was investigating the 1994 bombing of icizing the judiciary. When Mrs. Kirchner a Buenos Aires Jewish community center that wanted to nationalize the Spanish oil company killed 85 people. He indicted seven Iranians Repsol she alleged that it wasn’t keeping its for the crime and alleged that President Cris- investment obligations. The company denied tina Kirchner’s government was involved in a the charge, but it had no hope of winning in cover-up of Iran’s role.

Argentine courts. Mr. Macri wants investors In January, the day before he was to pres- to return to develop the country’s huge oil reent his findings to the Argentine congress, serves, and one place to start would be revisitNisman was found dead in his apartment with ing the Repsol robbery. a bullet through his head. Mrs. Kirchner’s govMuch of Latin America took a bad left deernment has sullied the probe into his death tour 15 or so years ago, and it’s too early to by trashing Nisman’s reputation and initially know if Mr. Macri’s victory signals a larger calling it a suicide. Maybe it was, but Argen- movement back to free markets. But he can tines deserve a finding by someone untainted make such a shift more likely by showing that by the Kirchner clique. a return to the rule of law is essential to reArgentina also needs to restore its credi- storing broad prosperity.

E

The End of Borderless Europe?

urope prides itself on its passport-free ment over whether it should apply only to travel under the Schengen agreement, flights into the EU, or also to flights between but that policy like so much else is under member states. After the massacre in Paris, assault from terrorism and the the EU Parliament is poised Some restrictions are to approve the broader vermigrant wave from the Middle East. European Union leaders sion favored by national inevitable to restore are scrambling to restore pubgovernments. public confidence. lic confidence, but perhaps While not a border-control not fast enough. provision, PNR can boost conEuropean justice minisfidence that borderless travel ters on Friday endorsed tighter immigration doesn’t mean official blindness to the movechecks for EU citizens returning from abroad. ments of potential security threats. Civil liberUnder current rules, member states aren’t re- tarians should be glad they’ve lost this arguquired to check EU nationals against the ment, because the alternative isn’t Schengen Information System, a criminal surveillance-free travel within Europe. It’s a watchlist used to vet non-EU citizens entering return of national borders. the bloc. Governments are discouraged from Neither of these measures is a substitute screening EU citizens except under unusual for more extensive counterterror efforts. And circumstances. the bigger political challenge to open borders That’s a potentially fatal loophole when Is- remains the refugee crisis. Several countries lamic State and other jihadist groups are re- already have imposed temporary border cruiting thousands of EU passport holders. checks and more will do so if authorities Mandating such checks at every entry point can’t reassure citizens that they can manage would seem to be a minimum condition for the influx. persuading a skeptical public that the EU can Europe’s original sin, like America’s, was control its external borders. not doing more to end the Syrian civil war There’s also been progress on the Passen- before it spread its refugee and terrorist conger Name Record initiative, which collects tagion to Europe. Defeating Islamic State data on travel patterns into and within the should now be the first priority. But in the EU to help authorities detect possible ter- meantime, saving a liberal Europe will rerorist behavior. PNR had bogged down in quire some restrictions on cross-border identhree years of debate in the European Parlia- tification and tracking.

ASSOCIATED PRESS

P

Donald Trump’s Secret Weapon

Students at Boston College during a demonstration earlier this month.

Radical Parents, Despotic Children “Liberal Parents, Radical Children,” was the title of a 1975 book by Midge Decter, which tried to make sense of how a generation of munificent parents GLOBAL raised that self-obVIEW sessed, politically spasBy Bret tic generation known as Stephens the Baby Boomers. The book was a case study in the tragedy of good intentions.

“We proclaimed you sound when you were foolish in order to avoid taking part in the long, slow, slogging effort that is the only route to genuine maturity of mind and feeling,” Miss Decter told the Boomers. “While you were the most indulged generation, you were also in many ways the most abandoned to your own meager devices.”

Meager devices came to mind last week while reading the “Statement of Solidarity” from Nancy Cantor, chancellor of the Newark, N.J., campus of Rutgers University. Solidarity with whom, or what?

Well, Paris, but that was just for starters.

Ms. Cantor also made a point of mentioning lives lost to terrorist attacks this year in Beirut and Kenya, and children “lost at sea seeking freedom,” and “lives lost that so mattered in Ferguson and Baltimore and on,” and “students facing racial harassment on campuses from Missouri to Ithaca and on.”

And this: “We see also around us the scarring consequences of decade after decade, group after group, strangers to each other, enemies even within the same land, separated by an architecture of segregation, an economy of inequality, a politics of polarization, a dogma of intolerance.”

It is an astonishing statement. Ms. Cantor, 63, is a well-known figure in academia, a former president of Syracuse University who won liberal acclaim by easing admissions standards in the name of diversity and inclusiveness. At publicly funded Rutgers she earns a base salary of $385,000, a point worth mentioning given her stated concern for inequality. The Newark Star-Ledger praised her as a “perfect fit” for the school on account of her “exceptional involvement in minority recruitment and town-gown relations.”

Yet this Stanford Ph.D. (in psychology) appears to be incapable of constructing a grammatical sentence or writing intelligible prose. All the rhetorical goo about the “architecture of segregation” and “dogma of intolerance” rests on deep layers of mental flab. She is a perfect representative of American academia. And American academia is, by and large, idiotic.

That’s why I’m not altogether sorry to see the wave of protests, demands, sitins and cave-ins sweeping university campuses from Dartmouth to Princeton to Brandeis to Yale. What destroys also exposes; what they are trashing was already trashy. It’s time for the rest of the

country sit up and take notice.

For almost 50 years universities have adopted racialist policies in the name of equality, repressive speech codes in the name of tolerance, ideological orthodoxy in the name of intellectual freedom.

Sooner or later, Orwellian methods will lead to Orwellian outcomes. Those coddled, bullying undergrads shouting their demands for safer spaces, easier classes and additional racial set-asides are exactly what the campus faculty and administrators deserve.

In other words, the radical children who grew up to run the universities have duplicated the achievement of their parents, and taken it a step further. In three generations, the campuses have moved from indulgent liberalism to destructive radicalism to the raised-fist racialism of the present—with each generation left to its increasingly meager devices. Why should anyone want to see this farce repeated as tragedy 10 or 20 years down the road?

Sooner or later, Orwellian methods on campus will lead to Orwellian outcomes.

Education entrepreneurs have long been trying to find a new way forward, without much success. For-profit schools could help—if they weren’t the constant target of liberal invective and government investigations. It might help, too, if concerned alumni could apply greater pressure on their alma maters in the face of these campus uprisings. But as the Bass family discovered when they tried to establish a Western Civilization program at Yale some 25 years ago, rich schools can afford to blow off rich alumni.

A better way might be to found great new universities, as John D. Rockefeller did with the University of Chicago or Andrew Carnegie did with the Carnegie Technical Schools (later Carnegie Mellon) in Pittsburgh. Is there an Adelson or a Gates or a Walton University to be started along similar lines, perhaps on the campuses of colleges that have recently closed their doors? It would help, too, if these new schools adopted the model of Hillsdale College in Michigan (where there are no protests) by refusing to accept federal subsidies, thus relieving them of the strictures and mandates by which the government enforces political correctness.

The campus uprisings of 2015 are the latest symptom of the disease of the American academy. Nobody should be surprised by it. Whether the disease of the academy also becomes the disease of the American mind depends on how far we are willing to let this go. Another generation shouldn’t be incubated in idiocy before we try something new.

LETTERS TO THE EDITOR

Future of Taiwan and the People’s Republic I disagree with Andrew Browne’s essay “The End of ‘One China’” (Review, Nov. 16). The Nov. 7 meeting between Taiwan and China’s heads of state expressed a virtually unshakable agreement between Beijing and Taipei that the ideal of “One China” and Taiwan’s de facto independence will remain inviolable. It was an unambiguous commitment to preserve and build on a fruitfully ambiguous understanding referred to as the “1992 Consensus.”

I interpret Xi Jinping’s bold decision formally to indicate affirmation of the “1992 Consensus” and ambiguously imply the equality of the two governments as a good sign that Beijing’s aggressive activities in the Spratly Islands are only one aspect of its foreign policy. As a whole, this policy expresses the forceful nationalism of a rising world power, which, after all, borders the Pacific Ocean as much as does the U.S., but very much seeks peaceful relations along its borders and with the U.S. Mr. Xi’s bold action to resolve the tension between China and Taiwan is strong evidence that former U.S. Secretary of State Henry Kissinger was on the right track when, in his 2011 book “On China,” he called for a U.S.-China policy aiming both to preserve U.S. military primacy in the Pacific and gradually form a “Pacific Community” based on mutual respect.

THOMAS A. METZGER Stanford, Calif.

I applaud Andrew Browne for outlin-

ing a solution to Taiwan’s status that considers the hopes and expectations of the 23 million people in Taiwan. There is no doubt that the vast majority of Taiwanese don’t wish to be governed by a one-party state. While China’s growing economic clout has blinded many nations and large corporations to the truth about Taiwan, it should be recognized that Taiwan has developed into an alternate version of what a Chinese state can be with the rule of law, multiparty political system and free press.

It is the most LGBT-friendly nation in Asia. It’s unfortunate to hear ESPN announcers referring to Taiwan as “Chinese Taipei” at sporting events. If at some future date China has continued its remarkable development to the point that Taiwan would feel comfortable to join the mainland in a federation of sovereign Chinese states, then the people of Taiwan should decide whether that is an acceptable path.

Pressure from China and other outsiders will only harden the feelings of the Taiwanese against moving closer to the mainland.

BARRY CULBERTSON Cumming, Ga. Letters intended for publication should be addressed to: The Editor, 1211 Avenue of the Americas, New York, NY 10036, or emailed to wsj.ltrs@wsj.com. Please include your city and state. All letters are subject to editing, and unpublished letters can be neither acknowledged nor returned.

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THE WALL STREET JOURNAL.

Wednesday, November 25, 2015 | A11

OPINION

By Michael B. Mukasey And Jamil N. Jaffer

A

s we learn more about the Islamic State-backed terror attacks in Paris on Nov. 13, and about other threats like the one that caused Brussels to go on highest alert over the weekend, it has become increasingly clear: America and its allies have failed to gather and process the intelligence necessary to protect their citizens.

The terror threat is rising while Obama and Congress have moved to limit U.S. intelligence capabilities.

It is unsurprising that Americans are worried about the threat at home. Islamic State has long sought to conduct attacks in the U.S. by recruiting Americans to its cause through various social-media outlets.

In the past week alone, Islamic State has claimed that it has operatives in the U.S. ready to take action, including specifically against New York City and Washington, D.C. Some of this is undoubtedly classic terrorist rhetoric, but the Paris attacks show that Islamic State has both the capacity and the desire to inflict mass casualties on Western countries. Al Qaeda is hardly out of the picture; its allies in Mali claimed responsibility for the bloody rampage Friday in Bamako at a hotel favored

by Western visitors, leaving 27 dead.

Plainly, the terrorism threat environment is bad and getting worse.

This is no time to be paring back intelligence-gathering capabilities. Yet that is precisely the course on which U.S. Congress and President Obama have put America, with at least some cooperation from the judicial branch.

The president seems comfortable, even in light of recent events, leaving in place the significant restrictions on the collection of intelligence on foreigners that he imposed in the aftermath of the illegal Edward Snowden surveillance disclosures two years ago.

Congress has been complicit in these efforts. Less than six months ago, libertarian Republicans and liberal Democrats joined hands with the White House to impose fresh limits on the collection of telephone and other metadata—which includes no content but is limited to calling and called numbers, date, time and length of call or their equivalents. The move was an effort to mollify privacy advocates who claimed—falsely—that this program was a surveillance dragnet that undermined Americans’ privacy and civil liberties.

In fact, U.S. courts have long held that the collection of metadata is not subject to the Fourth Amendment’s limitations if an individual voluntarily shares this data with third parties in order to route communications. A district court in Washington has taken a somewhat different view, and a New York appellate court has suggested that Congress must clearly authorize such collection. But until the Supreme Court holds otherwise, the general rule is that it is wholly appropriate to collect such data.

GETTY IMAGES/ISTOCKPHOTO

Time to Remove the Surveillance Blinders

Whatever one might think of the views of the federal courts on these questions, the notion that U.S. intelligence agencies might need basic information on whether terrorism suspects overseas have been dialing phone numbers or emailing people in the U.S. seems entirely reasonable.

The entire purpose of this program when it was initiated by the Bush administration, continued by the Obama administration and approved more than 40 times by federal judges on the Foreign Intelligence Surveillance Court, was to provide an early-warning system for potential terrorist activity so that the government can detect whether a foreign terrorist is in communication with someone in the U.S. Only then could the government seek court permission to monitor the full content of these communications.

In considering how best to balance privacy and civil liberties with the need to protect the nation against terrorism, it is perverse to discourage the government from using an approach that limits the collection of email and phone-call content and instead simply seeks to connect the dots of terrorists’ communications.

Yet Congress and President Obama have willingly hobbled the program.

It is time to reconsider, given how dramatically circumstances have changed. The leadership in Washington has the responsibility to take every reasonable step to protect the American people.

So what might Congress do in the next weeks and months to foster better intelligence-gathering that will increase security? The following three steps would be a good start: • Restore the metadata programs

to their pre-Snowden status so they can provide a solid early-warning system based on data about who is communicating with whom (content would still be protected).

• Encourage—or require, if need be—the president to restore the full collection of national-security-related intelligence overseas.

• Make permanent a variety of essential post-9/11 authorities intended to protect the nation: the “roving” wiretap authority to account for replaceable cellphones; the “lone wolf” authority to target those terrorists inspired by—but without a direct connection to—Islamic State or other groups; and the FISA Section 702 programs that authorize collection of intelligence against foreigners located outside the U.S., who have no legitimate claim to protection under the Constitution.

There is no guarantee that even if these measures are enacted, the U.S. won’t suffer a domestic “setback,” as President Obama daintily described the Paris bloodbath. The best intelligence tools are of only limited value unless the country is led by a president who would direct their use effectively. President Obama shows little sign of warming to such a task. The least Congress can do is make sure that the tools are available to his successor.

Mr. Mukasey served as U.S. attorney general (2007-09) and as a U.S. district judge (1988-2006). Mr. Jaffer is a former associate counsel to President George W. Bush and a former counsel to the assistant attorney general in the national security division of the U.S. Justice Department.

A New Approach to Improving Asia’s Labor Conditions

By Michael Posner

T

his week sees the beginning of the Christmas shopping season in the U.S., known as Black Friday. The era of fast fashion will bring great deals for consumers but too little consideration for the well-being of those who make the holiday bounty.

Make no mistake, these workers are happy to be employed. The globalized economy has generated scores of new jobs in places such as Cambodia, Honduras and Sri Lanka, particularly benefitting young women.

But with these significant benefits come daunting challenges: a rise in human trafficking, child labor and dangerous factories, among other serious human-rights concerns. Two years after the collapse of the Rana Plaza factory in Bangladesh that killed almost 1,200 workers and injured 2,500 others, scores of factories remain unsafe and existing responses aren’t solving a range of problems. Fresh thinking seems in short supply.

The World Economic Forum has taken up the challenge, proposing a bold new model to address these chronic, large-scale problems. It advocates shared responsibility, in which local and global businesses, governments, international financial organizations like the World Bank,

unions and foundations join forces to address the most pressing human-rights challenges. Together, they would agree to focus on transparency, not the blame game.

This model would prioritize and identify the most serious risks throughout global supply chains, separating visibility from an assumption of responsibility by any one group. Instead, companies, governments and other actors would work together to allocate both remedial costs and enforcement responsibilities collectively in an equitable manner.

This model for shared responsibility stems from two premises. First, the current system for policing global supply-chain operations isn’t working. At the moment, each global brand is responsible for monitoring the factories, farms or fishing fleets from which it sources its products.

This may help global brands mitigate their own risks. But it fails to shine a light into the places where much of the work is done: the vast networks of subcontractors and subsubcontractors for whom no one takes responsibility.

Even if we identify the most serious risks to the majority of workers in these informal work arrangements, and accurately estimate the real costs of fixing them, it is unreasonable to assume that either lo-

cal governments or private companies would be willing or able to pay these costs. Neither Wal-Mart, the world’s largest merchant, nor the 200 global brands and retailers operating in Bangladesh, nor the Bangladeshi government, can or will provide the massive funds needed to fix Dhaka’s dilapidated infrastructure. So what to do?

Transparency, not blame, when it comes to helping Asia’s workers.

The shared responsibility model offers an ambitious but practical way forward, allocating costs among various public and private actors.

And it’s a model that has been successful elsewhere.

Take Detroit, where Dan Gilbert, CEO of Quicken Loans, helped build a public-private partnership called the Blight Removal Task Force. It developed a detailed plan to tear down condemned buildings and spur economic revitalization in Detroit at a cost of approximately $1 billion.

The task force raised these funds from a combination of city, state and federal government, companies and private funders including the Ford Foundation. Detroit has torn down

nearly 8,000 condemned buildings and bought more than 2.6 million units of commercial space downtown.

Much more needs to be done in Detroit. But the Blight Removal Task Force illustrates how the private sector, government and civil society can come together to address formidable and seemingly intractable social and economic issues.

Pakistan has tried a similar collective effort. In the late 1990s, factories in Sialkot produced many of the world’s premium soccer balls using child workers, some as young as 8 years old, to do the stitching.

Soccer-ball manufacturers launched a public-private partnership with the Sialkot Chamber of Commerce, the government of Pakistan, FIFA, the International Labor Organization (ILO) and the U.S. Department of Labor.

Together they built new stitching centers and created the Independent Monitoring Association, which was initially funded by the ILO and is now financed by industry. While child labor continues to be a serious problem in Pakistan, this collective effort began to change societal expectations.

For most global industries, the shared responsibility model would be a bold step forward. In Bangladesh, it should start locally with the government and local manufac-

turers convening all the main stakeholders to develop a common plan of action.

They could invite global brands and retailers, but also the governments of developed countries, international development banks, private foundations, and unions to map the entire supply chain and assess the real costs of factory safety. Once they do so, these parties themselves could decide collectively to allocate costs among local and global industry, home and host governments, the international financial institutions, and private donors to raise the funds to meet the need.

This approach recognizes that workers in less developed countries are the beneficiaries of globalization and want very much to keep their jobs. At the same time, they seek to work in dignity and safety. Shared responsibility offers a way to address supply chain challenges collectively so that these workers’ dreams can become a reality.

Mr. Posner is Kohlberg professor and co-director of the Center for Business and Human Rights at NYU’s Stern School of Business and chair of the World Economic Forum’s Global Agenda Council on Human Rights. He is a former U.S. Assistant Secretary of State for Democracy, Human Rights and Labor.

Helping the Escaped Slaves of Islamic State

By Sohrab Ahmari

T

Dohuk, Iraq here are few therapists working today in Iraq, where mental health is a low priority in a country battling the jihadists of Islamic State. But in a nondescript apartment in this Kurdish city nestled in the mountains of northern Iraq, German psychologist Jan Ilhan Kizilhan runs a clinic for women who are victims of Islamic State.

One of them at the clinic last week is named Sahira (Mr. Kizilhan asked that I use only the first names of his patients). She pulls out her smartphone and scrolls through photos until she finds the right one. It shows a

smiling baby girl in polka-dot pajamas playing with a big pink ball. When Islamic State in August 2014 overran the Yazidi stronghold of Sinjar, the 26-year-old Sahira and her three children, including Lozin, the 2-year-old in the photograph, were enslaved and transferred to the caliphate’s capital in Raqqa, Syria.

There, she says, they became the property of an Islamic State commander named Abu Jihad, who was bent on Arabizing and Islamizing Sahira’s children. (The Yazidis are a Kurdish minority whose faith blends elements of Christianity and Islam with the region’s pre-Islamic religions.) After Lozin repeatedly failed to say Islamic prayers correctly, Abu

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Jihad locked the toddler inside a small box in the scorching heat. No one was allowed near the box for seven days.

After the box was finally unlocked, her mother says, Lozin was probably already close to death, but then the Islamic State commander punched her in the small of her back, finishing off the baby before handing her over. Sahira says that when she protested, Abu Jihad lifted her daughter’s body high above his head and dropped her on the floor, and said: “The Yazidis are not believers. We can do anything we want with you.”

Sahira’s ordeal wasn’t over. For months she had resisted Abu Jihad’s attempts to rape her—until he raised the stakes by tying her 4year-old son to a car and threatening to drag him to his death. She relented, and endured what followed. Eventually, Sahira’s family secured her and her two surviving children’s release by buying them back from Islamic State.

How do you begin to heal scars like this? Mr. Kizilhan’s solution is to bring 1,000 of the severest cases to Baden-Württemberg, in southwest Germany, for a period of intensive treatment. The €95 million ($100 million) “preventative asylum” project is funded by the Baden-Württemberg state government. For Mr. Kizilhan, himself a Turkish-born Yazidi who immigrated to Germany at age 6, it’s personal. Islamic State doesn’t see Yazidis like him as human.

“As a scientist you learn that ideology can blind people,” he says. “In the morning they rape children, and at night when they go home they’re loving fathers and husbands.” To treat Is-

lamic State as just another al Qaedastyle terror group, he warns, is to ignore the “Nazi-like,” genocidal evolution of its Islamist worldview.

On each of his visits to Iraqi Kurdistan, Mr. Kizilhan interviews dozens of women to identify those most in need of evacuation. Most are Yazidis and Christians, with smaller

At this clinic in Iraq’s Kurdish north, women who have suffered unspeakable cruelty come for help. numbers of Shiite Muslims. He is now close to the program’s headcount limit, forcing him to make wrenching decisions as the women take him on a tour of the depths of Islamic State depravity.

For the Islamic State jihadists, slavery and the attendant sexual violence are intended to shatter non-Muslim societies. It is a family enterprise, with fighters’ female siblings and legitimate wives helping control slaves.

Najaa, 24, and her 4-year-old niece spent nine months in the hands of Islamic State. She was sold three times by fighters, all of whom “married” her (some Yazidi women use the word to avoid saying “rape”).

The worst part of her experience, she says, was watching helplessly as her Islamic State “family” burned her niece’s hands and tied her in stress positions for speaking Kurdish instead of Arabic, or failing to recite Quranic passages. Najaa and her niece escaped Raqqa one day while her captor was out of the

house. “I thought many times that I should commit suicide,” she tells Mr. Kizilhan. “But the only reason I didn’t was because I had to protect this girl.”

Today Najaa has fewer suicidal thoughts, but she says she “doesn’t believe in any human being.” Like many of Mr. Kizilhan’s patients, she has lost the trust that binds women to the world. Most experience episodes in which they lose contact with the present tense and imagine they are back in captivity. They lose hair, can’t concentrate and suffer nightmares.

Some fighters develop steady “relationships” with their slaves.

Hadya, an 18-year-old Yazidi beauty, spent 15 months with an emir, or “prince,” and still has relatives in captivity. During the first few months the emir imprisoned her and repeatedly punched her in the head. Later he came to trust her and even took her on family outings. After she cut her wrists in an attempt to commit suicide, the emir’s sister took strict charge of his prized possession. Eventually she was bought back by her family for $15,000.

Islamic State’s cruelty is astonishing. So is the courage of the women who have faced it. The story of life under Islamic State is also the story of the resilience of the human spirit.

“I get strength from the women and girls,” Mr. Kizilhan says. “They tell you about horrific things, but they are still able to have perspective.

This kind of trauma will always be part of your life. But the key is to not forget that it is not your whole life.”

Mr. Ahmari is a Journal editorial writer based in London.

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A12 | Wednesday, November 25, 2015

SPORTS

English Soccer’s Out-of-Nowhere Star In the summer of 2008, Allen Bethel, the chairman of Stocksbridge Park Steels soccer club, was on the hunt for a goal scorer.

His options weren’t great. His team played in a division seven tiers below the English Premier League, where it averages under 500 fans a game. He could offer a salary of only around $160 a week. His pitch to players was simple: “We always pay on time.”

So Bethel took a punt on a scrawny, slightly hotheaded 21-yearold who had been banging in goals for Stocksbridge’s unpaid reserve team.

His name was Jamie Vardy.

It turns out Bethel was on to something. Seven years on, Vardy is the most lethal striker around. Not only is he the Premier League’s unlikely leading scorer with 13 goals, but his hot streak has propelled lowly Leicester City to the top of the standings.

“Everybody wants to stop Jamie Vardy,” Leicester manager Claudio Ranieri said of his striker. “That’s normal—but maybe we’ll pass the ball to other players.”

Or maybe not. This season the Foxes have kept passing the ball to Vardy and Vardy has kept on scoring.

He has been on the board in a 10 consecutive games. One more on Saturday against Manchester United and he will break a 12-year-old Premier League record held by Dutch scoring legend Ruud van Nistelrooy.

What makes Vardy’s sudden explosion so astonishing is that it defies almost every rule for growing a modern soccer player. His direct style is a throwback. His spindly frame looks ill-suited to an elite athlete. And his breakthrough at age 28 comes at a time when star players are identified in elementary school.

But for reasons that range from his breakneck speed to Leicester’s tactical setup, Vardy has become that rarest of soccer players: an out-of-nowhere star.

“He leads the way for non-league players,” said former Crystal Palace striker Mark Bright, who also started out in the lower reaches of English soccer.

Vardy’s emergence may be almost unfathomable, but it isn’t hard to understand what makes him so effective.

Vardy has been clocked at 22.02 miles

CRAIG BROUGH/REUTERS

BY JOSHUA ROBINSON

Leicester City’s Jamie Vardy celebrates his goal against Newcastle on Saturday, his 10th straight game with a goal. an hour this season, according to data from ChyronHego and Opta Sports, making him the Premier League’s fastest player. That pace, combined with his unflagging engine and instinctive finishing, has been his calling card since his days at Stocksbridge.

“There was no great secret to Jamie. He was ridiculously quick,” said Andrew Pilley, who signed him in 2011 for Fleetwood Town, then in the fifth tier. “It was almost like cheating.”

Vardy has burst onto the scene at a time when trends in modern soccer make his pace and direct running even more dangerous. Top clubs have embraced a high-pressing game based on forcing turnovers close to the opposition goal. But a team with the ability to break at lightning speed can cause mayhem by exploiting the holes this leaves in defense.

Leicester has tailored its tactics accordingly. The Foxes knock the ball long and hope that Vardy can use his

pace to beat his markers to it. Only two teams have played more long balls than Leicester this season, according to WhoScored.

“I can’t believe what I’ve been seeing on Saturday nights. He’s always on his own,” said Bethel. “Why can’t the Premier League, with all those supposedly good defenders, stop him?”

More than anything, the explanation may lie in Vardy’s meandering route to the top level. Hard-nosed no.

9s like Vardy are a dying breed in European soccer. Arsenal’s longtime manager Arsene Wenger, a specialist of youth development, believes youth academies are geared to produce silky passers. Tough strikers who commit “in the zones where it hurts” and “live on the edge of the rules,” he says, are almost nonexistent in Europe.

“The natural goal scoring ability that Jamie has is coached out of a lot of players,” Pilley said.

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Vardy isn’t the first player to blaze a trail from non-league soccer to the top tier. Long before excelling for Arsenal and England, Ian Wright was a late bloomer at Greenwich Borough.

Striker Kevin Phillips started out as an undersized defender at semiprofessional Baldock Town but went on to record a 30-goal Premier League season. Charlie Austin, who was playing non-league soccer as recently as 2009, had 18 Premier League goals for Queens Park Rangers last year.

But those storybook rises seemed a thing of the past. As clubs poured money into youth scouting and talent development, the idea that an elite goal scorer could simply slip through the cracks seemed almost impossible.

In fact, the youth soccer revolution may have helped Vardy flourish. Today, top Premier League prospects hone their skills in reserve sides limited to just three outfield players over the age of 21 in their lineups. So youngsters miss out on facing the

grizzled brutes that populate the lower reaches of English soccer.

“Are they ready for the blood and thunder of the Premier League?” Pilley said. “When you’re playing the games that matter, you might get an elbow in the face.”

The first painful blow of Vardy’s career came when he was cut by Sheffield Wednesday around the age of 16 for being too small, he said. To carve out a career, he would have to start again at the bottom. That turned out to be around 5 miles and six divisions from Sheffield Wednesday at Stocksbridge Park.

Bigger clubs were soon sniffing around, Bethel said. But they saw warning signs, like a series of red cards and Vardy’s conviction for assault following a pub brawl. A court forced him to abide by a curfew and wear a monitoring tag on his ankle, even during games. On longer road trips, Stocksbridge would substitute him before full-time, stick him in a car and send him home to make curfew.

Still, Vardy’s talent was impossible to ignore. Fleetwood Town sent scouts to see him on six separate occasions. When they filed reports, the options were “Watch Again,” “Definite No,” or “Sign him.” All six came back unequivocal: “Sign him.”

“The concern was he’d only been scoring goals against part-time players,” said Pilley, who eventually signed him to a contract worth around $1,300 a week. “He’d been scoring against the electrician, the plumber, and the postman. The question was could he do it against fulltime athletes?”

That question—can he cut it at the next level?—has followed Vardy everywhere. He signed for Halifax Town from Stocksbridge Park in 2010 and, a year later, bounced to Fleetwood.

Halfway into his only season there, Fleetwood said it was already receiving offers of $1.6 million for him, four times the record for a non-league player. It wound up taking the cash from Leicester.

When Leicester was promoted to the Premier League at the end of the 2013-14 season, Vardy finally got his chance to prove he could cut it at the top level. “Jamie is an easy boy, He doesn’t think about the expectation,” Ranieri said. “I love him.”

T O T E O P E N

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BUSINESS & TECH. Pfizer’s Breakup Plan

Firm weighs splitting drug behemoth in two BUSINESS NEWS | B2

MONEY & INVESTING China Eases Curb On Stock Sales FINANCE | B5

Wednesday, November 25, 2015 | B1

THE WALL STREET JOURNAL.

© 2015 Dow Jones & Company. All Rights Reserved.

INSIDE:

Li Ka-shing proposal to merge two assets is rejected, in a blow to succession plans

BY WAYNE MA

HONG KONG—A stormy shareholders meeting dealt a blow to tycoon Li Ka-shing on Tuesday, as investors voted down the proposed US$13 billion merger of his group’s infrastructure arm and a cashrich affiliate power company.

The rejection of the deal to merge Mr. Li’s two Hong Konglisted units—Cheung Kong Infrastructure Holdings Ltd. and Power Assets Holdings Ltd.—is a setback for the octogenarian and his elder son and likely successor, Victor. CKI

had signaled it wanted access cash, after the company’s to an $8.75 billion cash pot shareholders earlier this year held by electric utility Power voted down a proposal for it to Holdings so that it could fund buy as much as US$1.58 billion acquisitions. of CKI bonds. The 87-year-old But about half of the inde- Mr. Li has said that Victor, 51, pendent Power Aswho runs his father’s sets shareholders infrastructure and who voted Tuesday ports businesses, will rejected the deal, sureventually take over passing the threshold the business empire, needed to kill the without providing a merger, CKI said timetable. The tycoon Tuesday in a regulais restructuring his tory filing. Some anabusinesses and has lysts and two influenspent billions buying tial shareholderEuropean telecommuproxy firms had nications and railcar opposed the deal, assets over the past Li Ka-shing suggesting that two years ahead of Power Assets was worth more any such transition. than CKI was offering.

Hong Kong securities law It is the second time that prevents Mr. Li from revisiting Hong Kong’s richest man has a merger for at least one year. failed to access Power Assets’ Meanwhile, analysts say, he

will face pressure to return to investors at least some of the billions in cash locked away in Power Assets through a special dividend.

Both companies said in written statements that they were “disappointed” that the proposed merger was unsuccessful. “CKI will continue to move forward in our own strategies for growth,” a spokeswoman for CKI said.

“We are disappointed at today’s voting result but respect the views expressed by shareholders. It will be business as usual for the company,” said a spokesman for Power Assets.

On Tuesday, hundreds of elderly mom-and-pop investors streamed into a five-star hotel owned by Mr. Li to grill his right-hand man, Power Assets Please see LI page B2

Yahoo CEO Faces Morale Challenge Marissa Mayer has repeatedly said reviving growth at Yahoo Inc. would take multiple years. But many insiders have lost patience, saying the embattled chief executive has no clear sense of direction and has misled investors and advertisers about the company’s progress.

In recent months, a crisis of morale has gripped Yahoo, as dozens of executives who had been instrumental to Ms. Mayer’s turnaround plan have left for jobs elsewhere.

Ms. Mayer called a meeting with senior executives in August and asked them to sign a written agreement to stay with the company for at least three more years, according to two people familiar with the meeting.

Finance chief Ken Goldman was one of the first to pledge his commitment, but some executives left the room unsure they could make such a promise, one of the people said.

In January, Ms. Mayer expects to complete the spinoff of shares in Alibaba Holding Group Ltd., putting the focus squarely on Yahoo’s core business. Sales from that business continue to shrink, from $4.5 billion in 2012 when Ms. Mayer arrived to $4.4 billion last year and even less expected for 2015.

Under Ms. Mayer, Yahoo’s forays into mobile software, online video and search have cost the company hundreds of millions of dollars but yielded no meaningful growth in total users or revenue. Ms. Mayer said last month the company would adopt another strategy to “reset” the company’s focus, without providing details.

The CEO has hired management consultant McKinsey & Co. to look for areas of the company to cut, said a person familiar with the matter.

Forbes and Recode earlier reported aspects of Yahoo’s troubles.

The stagnation prompted activist investor Starboard Value LP last week to call on the company to halt its Alibaba spinoff

ELIJAH NOUVELAGE/REUTERS

BY DOUGLAS MACMILLAN

Marissa Mayer’s plan to spin off Alibaba shares would intensify the focus on Yahoo’s core business. and instead find a buyer for its core business. Yahoo has failed to get prior approval of its plan from the Internal Revenue Service, raising the risk that the agency could later challenge the spinoff’s tax-free status.

On an October earnings call Ms. Mayer said the company feels strongly the deal meets requirements for tax-free status.

A Yahoo spokeswoman declined to make Ms. Mayer available for an interview. She pointed to earnings calls in which Ms. Mayer has defended the progress she has made in adding new lines of revenue from mobile ads and other areas. The company declined to comment further.

When the Ms. Mayer is forced to deliver bad news, she employs what she calls a “jiujitsu move”—trying to create a diversion by producing tantalizing information, according to people who have worked closely with her.

For example, Ms. Mayer created an accounting metric called “Mavens” designed to spotlight the growing parts of Yahoo. The grouping includes

Mayer's Mavens Yahoo’s ‘Mavens’ businesses (mobile, video, native and social ads) are growing, but analysts say much of that revenue is coming out of its other segments. $1.2 billion

Revenue 3Q 2015 Other $804M

1.0 0.8 0.6 0.4

Mobile, video, native/ search ads $422M

0.2 0 2014

’15

Source: the company

THE WALL STREET JOURNAL.

revenue from mobile, video, native and social ads but excludes Yahoo’s largest portion of revenue—its shrinking business of display ads on desktop computers.

Analysts say much of Mavens growth comes at the ex-

pense of Yahoo’s desktop business, since many advertisers are shifting their ad spend from older formats that are more expensive and considered less effective.

“The Mavens number was ridiculous because the vast majority of what they are generating was not new revenue,” said Brian Wieser, an analyst at Pivotal Research LLC. When Yahoo announced its $1.1 billion acquisition of Tumblr Inc. in May 2013, Ms. Mayer said that adding the blogging site’s 300 million users would put Yahoo over the 1 billion mark.

That year, Ms. Mayer led an overhaul of the methodology it used to measure its audience across desktop computers and mobile devices, according to people involved in the project.

The CEO weighed in on debates about different techniques, and she often leaned on the method that produced the larger number, said one of the people.

In October 2014, more than a year after Ms. Mayer’s prePlease see YAHOO page B3

U.S. Companies Wrestle a Strong Dollar

BY EMILY CHASAN Companies talk about their financials differently during periods of intense foreign-exchange volatility.

On conference calls this earnings season, corporate executives in the CFO U.S. harped JOURNAL about how well the business performed excluding currency effects and about increasing revenue on a “currency-neutral basis.”

That is causing consternation with analysts, who are working to get a clear picture of the underlying health of businesses.

“The reality is we’re getting a positively biased perspective,” said George Sutton, a stock analyst and co-director of research at Craig-Hallum Capital Group LLC in Minneapolis.

“A few years ago, when the dollar was weak, it was fairly rare for companies to point out that they were doing so well because of the currency.”

For companies reporting a currency impact on quarterly calls, about 48% fielded questions from analysts about their foreign-exchange strategy in the past six quarters, according to FiREapps, a currency risk consulting firm. That is up from about 26% in the prior six quarters.

A strong dollar makes U.S. products more expensive to consumers abroad. The WSJ Dollar Index, which measures the dollar against a basket of currencies, is up about 9% so far this year.

Much of the rise came in the third quarter, on the back of China’s devaluation of the yuan. A robust U.S. currency also has a negative impact on financial results when businesses convert overseas earnings back into dollars.

“This quarter isn’t an outlier—this is the new market we need to deal with,” said Wolfgang Koester, chief executive of FiREapps.

The details companies re-

lease about which currencies are troublesome or where sales are affected vary from quarter to quarter.

So it is often up to Wall Street to press for additional information to determine how their forecasts could be affected by foreign-exchange volatility.

Analysts, and some finance chiefs, argue that stripping out the impact of currency doesn’t tell a full nor consistent story.

“When the dollar is weak, you rarely hear companies point out the benefits,” said Carol Tomé, finance chief of Home Depot Inc. Ms. Tomé said companies should lead Please see CFO page B4

BLUE ORIGIN

Shareholders Snub Tycoon

Blue Origin, which is backed by Amazon.com’s Jeff Bezos, on Monday successfully landed a spent rocket back on Earth.

Blue Origin Lands Reusable Rocket

BY ANDY PASZTOR The privately funded space company backed by Jeff Bezos, Amazon.com Inc.’s founder and chief executive, announced a historic coup with the test flight of a fully reusable rocket, which could usher in a new era for space transportation.

Blue Origin LLC said it successfully landed a spent rocket back on Earth after an unmanned flight to the edge of space. The company’s reusable New Shepard vehicle flew a suborbital test mission to 333,000 feet on Monday reaching nearly four times the speed of sound, and then both the capsule and its BE-3 liquidfueled rocket separately landed safely back on earth— ready for another flight.

Buoyed by the flawless mission, Mr. Bezos for the first time sketched out an ambitious timetable that envisions starting commercial suborbital flights carrying paying passengers potentially in less than two years. “We’ll fly humans when we’re ready, he said in an interview Tuesday. But if all goes well, he added, “I’m thinking it could be sometime in 2017.”

Reusing boosters promises a possible breakthrough for space travel and commerce, because it would dramatically reduce launch costs.

The company and Mr. Be-

zos, both renowned for secrecy, in the past have steadfastly refused to sketch out even a rough timetable for such service. But since the test flight went smoothly and “validated the architecture” of the fully automated New Shepard system, according to Mr. Bezos, he now feels comfortable projecting the beginning of routine operations.

Blue Origin plans to conduct about two dozen additional test missions, including validation flights demonstrating that the capsule containing passengers can safely separate from the first stage in case of a rocket malfunction during ascent. The vehicle is designed to operate autonomously, without any pilots on board.

“You should have seen all the tears of joy” after the booster touched down Monday before noon Texas time, Mr. Bezos said.

According to a company statement issued some 18 hours after the test flight, the rocket made a flawless return through stiff winds and touched down gently at the company’s launch facility in West Texas.

The ability to reuse such a large rocket has been a longstanding goal of the global aerospace industry, and until now the efforts of Elon Musk’s closely held Space Exploration Technology Corp. have garnered the most attention.

Alibaba Seeks to Buy Control of Newspaper

BY WEI GU AND GILLIAN WONG HONG KONG—Internet company Alibaba Group Holding Ltd. is in discussions to buy a controlling stake in SCMP Group Ltd. of Hong Kong, according to a person familiar with the situation, in a deal that would put the largest local English-language newspaper in the hands of a mainland Chinese company.

The potential deal between Malaysian tycoon Robert Kuok and Alibaba would mark a push by the Internet company to deepen its reach into the media world beyond its current interest in film assets and domestic Chinese media. Alibaba has feuded with the South China Morning Post in the past, most notably over an interview in which Alibaba founder and Executive Chairman Jack Ma made controversial comments about the Tiananmen Square uprising.

The financial terms of any deal are still being discussed, and recent media reports about a potential purchase of SCMP Group by Alibaba and Mr. Ma could negatively affect the likelihood of a deal being completed, the person familiar with the situation said. The deal has been under discussion for months, the person said.

Mr. Ma, during an interview with Bloomberg TV earlier this month related to the Nov. 11 Singles’ Day shopping event, had been coy about his inter-

est in the newspaper, but suggested such a deal would benefit both sides.

“We need media to help our small [and] medium-size companies to promote,” Mr. Ma said in the interview. He added that a media company could benefit from tapping into Alibaba’s troves of data for “more accurate” economic indicators.

Asked directly if he was buying the newspaper, Mr. Ma said: “I did not say that. I’m, we’re, watching a lot of companies right now.”

A deal could feed into Alibaba’s overall international growth strategy.

SCMP Group and Alibaba declined to comment.

If a deal was completed, Mr. Ma would join Amazon.com founder Jeff Bezos as an Internet entrepreneur who embraced the traditional news media. Mr. Bezos acquired the Washington Post in 2013.

The South China Morning Post is profitable, taking in pages of ads from Hong Kong’s luxury-goods sellers and realestate developers. SCMP Group’s annual revenue topped one billion Hong Kong dollars (US$129 million) for three straight years to 2014, with adjusted operating profit of HK$167.7 million last year, acPlease see ALIBABA page B2

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THE WALL STREET JOURNAL.

B2 | Wednesday, November 25, 2015

INDEX TO BUSINESSES These indexes cite notable references to most parent companies and businesspeople in today’s edition. Articles on regional page inserts aren’t cited in these indexes.

A

D

Alcoa..........................B10 Alibaba Group........A2,B1 Alibaba Group Holding .....................................B1 Allergan.......................B2 Amazon.com ............... B1 American International Group.........................B5 Apple...........................A1 Audi.............................B2

Delhaize Group...........A6

B Berkshire Hathaway.B10 BHP Billiton................B6 BlackRock....................B2 Brinker International..B4

C Carrefour.....................A6 CGN Meiya Power Holdings....................A3 Cheung Kong Infrastructure Holdings .....................................B1 China Orient Asset Management.............B9 Chow Tai Fook Jewellery Group.........................B3 CK Hutchison Holdings .....................................B2 CoStar Group .............. B7

E Elliott Management . B10

F Fortescue Metals Group .....................................B6 Freeport-McMoRan.....B5

G GameStop............B3,B10 Glencore ...................... B6 Gramercy Funds Management.............B5

J Jaguar Land Rover......B3 JEMB Realty...............B7

K Khazanah Nasional.....A3 Kickstarter .................. B7

L Levi Strauss................A1

M MasterCard.................A2 Microsoft...................B10 MMG............................B5

O-P 1Malaysia Development .....................................A3

Pfizer...........................B2 Power Assets Holdings .....................................B1 Precision Castparts .. B10

R Rio Tinto ..................... B6 Rolls-Royce Holdings..B2

S SCMP Group................B1 Shanghai Media Group .....................................B2 SoftBank Group..........B2 SoftWear Automation .....................................A8 Southern Copper.........B5

T Tata Motors................B3 Teck Resources...........B6 Tenaga Nasional.........A3 Tencent Holdings........A2 Tiffany.........................B3 Timken.........................B5 Tudor Investment.....B10

V-Y Vanguard Group..........B2 Visa.............................A2 Volkswagen.................B2 Wet Seal.....................B7 Yahoo ..................... B1,B2 Youku Tudou ............... B2

INDEX TO PEOPLE A

E-G

Adkerson, Richard ...... B6

East, Warren...............B2 Glendon, Sarah ........... B5

Aluestia, Diego...........B6

B

I-L

Bezos, Jeff..................B1

Icahn, Carl...................B5 Kuok, Robert...............B1 Lacroix, Joelle.............A6 Lam, Willy...................B2 Li Keqiang...................A3

Buffett, Warren........B10 Burstow, Clive ............ B6

C Chiang, Alvin...............B2 Collinson, Eric.............A6 Cook, Tim....................A2

D Davis, Dane.................B6 Dekelver, Roel.............A6

Murcio, Javier.............B6 Netanyahu, Benjamin.A3

P Porter, Lee .................. B9 Pua, Tony....................A3

R-S Reyes, Rick de los......B6 Seel, Birgit..................B2 Snackers, Henri..........A6

M-N

V-X

Ma, Jack ................ A2,B1 Mayer, Marissa...........B1 Mayeur, Yvan..............A6 Merino, Renzo.............B6 Müller, Matthias.........B2

Vanbelle, Cedric..........A6 Van Outryve, Baptiste .....................................A6 Vervoort, Rudi ............ A6 Xu, Zhou......................B6

BUSINESS NEWS

Pfizer’s Next Step: Break Up The dealwith Allergan Potential Offspring sets a path to create The combination of Pfizer and Allergan’s brands could be split into two new businesses. Some brands and their sales for 2015*: two new companies Allergan Pfizer based on drug portfolio

BY JONATHAN D. ROCKOFF The $155 billion agreement to combine Pfizer Inc. with Allergan PLC would create a drug behemoth so big that Pfizer is already thinking of breaking it up.

The deal, which was announced Monday, brings together a diverse stable of drugs, from Pfizer’s cancer medicines and vaccines, to Allergan’s skin-care treatments and eye drugs.

The companies expect to achieve $2 billion in cost savings as well as significant tax benefits from the deal, under which Pfizer’s tax base would shift to Allergan’s home base in Ireland in a so-called inversion. As a result of the move, Pfizer expects to cut its tax rate to 17% or 18%, from its roughly 25% rate currently, because corporate taxes in Ireland are lower than in the U.S. The new drug company would be the world’s biggest with $63.5 billion in yearly sales, 110,000 employees and $9 billion in annual research spending.

Pfizer executives have for years considered splitting the company, but they have been deterred by concerns that its businesses may not be large enough to stand alone. Now, with Allergan, the company would have strength in both high-cost, high-growth drugs as well as older, lower-cost

Innovative products

Established products

(Newer, patent-protected drugs)

(Older, often off-patent medicines)

Prevnar (pneumonia vaccine) $4.3B

Lipitor (anticholesterol) $1.4B

Botox (wrinkles and muscle disorders) $1.3B

Zyvox (antibiotic) $696M

Restasis (dry eye) $683M Ibrance (breast cancer) $408M Xeljanz (rheumatoid arthritis) $351M Linzess (irritable bowel syndrome) $326M Sources: the companies

drugs to make such a split.

On Monday, executives said they would consider splitting the combined company into two by 2018.

One business would focus on newer products, such as Pfizer’s breast-cancer drug Ibrance and Allergan’s blockbuster Botox, and have sales the companies project will grow in the double digits.

The other, with a potentially mid-single-digit growth rate, would consist of drugs that have lost patent protection or are about to, such as Pfizer’s Celebrex arthritis drug and Allergan’s Teflaro antibiotic.

The two businesses “may or may not fit” together, Pfizer Chief Executive Ian Read said in an interview.

Shareholders would have preferred more certainty on a

rate America to a foreign country.

However, despite new rules issued by the U.S. Treasury Department last week to deter “inversion” deals, it is unlikely that any significant changes to the corporate tax code are in the offing without action by Congress. Pfizer structured the deal—under which smaller Allergan is taking it over and Allergan shareholders will control 44% of the combined company—to help bypass Treasury’s efforts.

Mr. Read said the tax-restructuring would free up billions of dollars in cash for use on drug research and other programs. That cash was trapped overseas, because bringing it back to the U.S. would have generated a huge tax tab.

“This just enables us to invest more in the U.S.,” he said.

At the end of September, Pfizer had $37.6 billion in cash and equivalents, most of that overseas, Pfizer Chief Financial Officer Frank D’Amelio said.

For its part, the Irish government is sanguine about the deal, since both pharmaceutical companies already employ thousands of people in the country.

The deal values each Allergan share at $363.63, more than a 30% premium to the price before The Wall Street Journal reported the deal talks late last month. Allergan shareholders would get 11.3 shares in the combined company for each of their own, and Pfizer stockholders could exchange some of their shares for cash.

—Denise Roland contributed to this article.

Celebrex (arthritis) $640M Lo Loestrin (birth control) $253M Detrol LA† (overactive bladder) Dalvance† (skin infections) Teflaro† (antibiotic) *First nine months †Sales not available

THE WALL STREET JOURNAL.

split, according to analysts, because a breakup could increase the value of their holdings.

They were also disappointed, analysts said, because Pfizer pushed back the timeline for making a decision by two years, saying it wanted to first focus on properly digesting Allergan.

The companies didn’t want to drop the neutral tone Pfizer has used to describe its deliberations because the drug maker doesn’t want to hurt employee morale, according to a person familiar with the matter.

Shares in Pfizer fell 2.7%, while Allergan lost 3.4% Monday. Both were slightly higher in midday trading Tuesday.

Another drag on the stocks: concern that the U.S. government could try to thwart a combination that would move one of the top names in corpo-

Volkswagen Faces German Tax Probe Rolls-RoycePlansJobCutsinReview BERLIN—German prosecutors have launched an investigation into possible tax evasion related to Volkswagen AG’s emission-cheating scandal, the latest in a growing list of official probes into alleged misconduct at the auto maker.

The prosecutors’ office in Braunschweig said on Tuesday that they were investigating five Volkswagen employees following the company’s admission earlier this month that it understated carbon-dioxide and fuel-consumption data in about 800,000 Volkswagen vehicles.

The investigation of employees adds to a list tied to the emissions scandal.

Understating CO2 emissions wouldn’t have had an impact on Volkswagen’s tax bill, but owners of the cars involved would have paid lower motorvehicle taxes in Germany than they should have, Braunschweig prosecutor Birgit Seel said.

Under German law, a company as a rule cannot be held liable for criminal wrongdoing.

Instead, prosecutors have to investigate the individuals suspected of being responsible.

Volkswagen itself has launched an internal investigation to identify those responsible for manipulating emissions testing at the company, and instituted a whistleblower program asking employees to share information to uncover the culprits.

ALIBABA Continued from the prior page cording to company filings.

The deal could feed into Alibaba’s overall international growth strategy and media ambitions. A former Alibaba executive, Alvin Chiang, said an acquisition of the South China Morning Post could be in line with Alibaba’s moves to expand abroad. Hong Kong, a former British colony, is a special administrative region of China that operates with a different political and legal system than other parts of China.

The Hong Kong newspaper is also well known in Southeast Asia, a market where Alibaba is trying to grow.

“Jack Ma and his manage-

Chief Executive Matthias Müller said on Monday the company plans to give an update on its own investigation of the emissions scandal in mid-December, but that it will still take several more months until it will be able to present final findings.

The investigation announced Tuesday is separate from another investigation of employees, related in this instance to Volkswagen’s admission that it installed defeat devices in nearly 11 million diesel-powered vehicles that let the vehicles sidestep nitrogen-oxide emissions standards.

The global emissions scandal could potentially cost Volkswagen tens of billions of euros in fines and litigation, in addition to the expense of installing new software and hardware.

A Volkswagen spokesman didn’t respond to a request for comment.

Separately, Audi AG, Volkswagen’s premium brand, said on Tuesday that it expects to pay an amount in the “middouble-digit million euros” for updating software installed in 3.0-liter diesel engines of the Audi V6 TDI U.S. models and seeking approval by U.S. authorities.

It also acknowledged that three auxiliary emission-control devices in the engines weren’t declared when it previously sought U.S. approval.

One of them—the software for controlling the temperature for the exhaust-gas cleaning system—can be considered a defeat device under U.S. law, according to a company statement late Monday.

—Ulrike Dauer in Frankfurt contributed to this article. ment have been making efforts in preparing to enter more overseas markets,” Mr. Chiang said. “SCMP can be an important window facing Southeast Asia.”

Such an investment also could reflect Mr. Ma’s interest in media and culture-related businesses, Mr. Chiang said.

Alibaba’s earlier investments in this sector include paying $200 million for a 30% stake in China Business News, a financial-media company, in June, and recently buying the fourfifths of Chinese online video provider Youku Tudou Inc. it didn’t already own. The investments follow an alliance made between Alibaba and Shanghai Media Group last November to work together on financial services and business news.

An investment by Mr. Ma or

BY ROBERT WALL

come Rolls-Royce’s largest shareholder and is seeking a seat on the company’s board, Rolls-Royce has said. The London-based company last week disclosed ValueAct now holds more than 10% of its shares.

The maker of engines for Boeing Co. and Airbus Group SE airliners said its mediumto long-term outlook remained strong and included a “focused power systems portfolio” that would deliver growth and cash

generation.

Mr. East said there were opportunities, though, to “adjust the portfolio” in its land and sea turbines activities.

Rolls-Royce said earlier this month that its earnings outlook for next year had worsened and it may cut its dividend, prompting the worst selloff in the company’s stock in 15 years. The company has struggled to deliver on costcutting efforts and been hit by

weakening demand for some civil aircraft engines, its largest profit contributor.

Mr. East also played down expectations that Rolls-Royce would make a push to re-entering the market to power narrowbody jets, the backbone of global airline fleets.

The company doesn’t have to be in that segment, he told investors. Mr. East’s predecessor signaled Rolls-Royce was keen on re-entering the market, possibly through a partnership with Pratt & Whitney, the engine unit of United Technology Corp.

He also said the company should “harvest” earnings in its declining market to power regional jets, where an opportunity to power new models also is lacking. Those sales could fall by a third over the next five years, he said.

Ian Davis, Rolls-Royce’s chairman, said the new chief executive “is recommending clear and decisive actions which we fully support and we are committed to ensuring he has the right resources at the highest level to deliver these changes.”

Continued from the prior page Chairman Canning Fok, about the deal. Mr. Fok was visibly agitated as he was asked repeatedly about whether the merger was in the best interests of shareholders, according to three people who attended the meeting.

Several investors criticized the way the value of Power Assets was calculated and another asked if the utility com-

pany would broaden its mandate to invest in nonpower-related assets if the merger failed, the people said.

A representative from the independent financial adviser tasked with reviewing the deal told the audience twice that CKI’s offer was final, they said.

CKI first proposed buying the 61% stake of Power Assets it didn’t already own by offering shares in the combined company and a special dividend. One month later, CKI raised the ratio of shares it was offering to 1.066 from

1.04. It also raised the dividend to 7.5 Hong Kong dollars, or about 97 U.S. cents, from HK$5 a share.

Shareholder-proxy firms Institutional Shareholder Services Inc. and Glass, Lewis & Co. both recommended that their clients vote against the deal. The two proxy firms are watched closely by large money managers and institutional investors, who typically use them as guides on how to vote on corporate ballot items.

About one-fifth of Power Assets’ shareholders are insti-

tutional investors such as BlackRock Inc., Vanguard Group, State Street Corp. and Schroders PLC. The proposed merger was the latest attempt by the senior Mr. Li to restructure his businesses to pursue new growth strategies. Earlier this year, the tycoon reorganized his two flagship companies, Cheung Kong Holdings Ltd. and Hutchison Whampoa Ltd., to separate his property business from his conglomerate, whose operations include ports and telecom businesses.

his company in a newspaper in Hong Kong would likely be viewed favorably by the Chinese government and might help the businessman gain more political capital, said Willy Lam, an expert in elite Chinese politics at the Chinese University of Hong Kong.

“I’m sure that Alibaba would enjoy Beijing’s blessings because Beijing’s policy toward Hong Kong has been hardened. They’re turning the screws on Hong Jack Kong and they want tighter control of the media,” Mr. Lam said. “Encouraging Chinese businesses to acquire Chinese media would be one way to ensure control.”

Beijing has been increasing its control over Hong Kong since last year’s Occupy movement shut down portions of the city. After the protests, SCMP’s website was blocked in China for about a year. The impediments to the site were lifted recently.

Alibaba and Mr. Ma had a high-profile dispute with the South China Morning Post in 2013 when Alibaba said Mr. Ma’s quotes were misinterpreted because some words were omitted from an Ma interview transcript, in which Mr. Ma reportedly referred to the 1989 crackdown on protesters in Tiananmen Square as the “most correct decision” at the time.

“I was trying to describe the circumstances under which I made tough decisions when I was [chief executive] of the company,” Mr. Ma said in a written statement at the time.

“Regrettably my remarks as reported [by the Morning Post] did not reflect what I told the reporter, and caused a terrible misunderstanding.”

Wang Xiangwei, who recently stepped down as the South China Morning Post’s editor in chief, stood by the article at the time of the dispute with Alibaba.

The South China Morning Post has been considered an independent voice in a region heavy with state-controlled media, though critics have said the newspaper has softened its stance on mainland China in recent years. A front-page

headline in September, the day after China held a huge military parade to mark the end of World War II, said “Awe and Peace.”

Alibaba has over the years built and maintained strong relations with the Chinese government by positioning its ecommerce businesses as aiding Beijing in achieving its economic goals of creating jobs and helping businesses.

It became embroiled in a rare dispute in late January with China’s State Administration for Industry and Commerce over counterfeit goods being sold on its platforms.

But such public conflicts are rare for the e-commerce company, and Alibaba claimed vindication when a report on it disappeared from the regulator’s website.

L O N D O N — R o l l s - R o yc e Holdings PLC on Tuesday signaled its commitment to remain a diversified engine maker ahead of an investor briefing to outline restructuring measures after a series of profit warnings.

Chief Executive Warren East, who took over as head of Rolls-Royce in July, said the operation would lead to job cuts, though he didn’t disclose their scale.

The review “highlighted a number of areas where we can simplify the way we work, inject pace into our decisionmaking and responsiveness, and improve our operational gearing and operational effectiveness,” Mr. East said.

He has repeatedly stressed the review was focused on operations. Strategic decisions, such as whether to divest business lines, weren’t on the agenda, he has said, after concerns were raised its land and sea engines business is a drag on its aerospace activities. U.S. activist investor ValueAct Capital Management LP has be-

LI

CHRIS RATCLIFFE/BLOOMBERG NEWS

BY FRIEDRICH GEIGER

An aircraft engine-making unit of Rolls-Royce in the U.K.

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Wednesday, November 25, 2015 | B3

TECHNOLOGY Continued from page B1 diction, Yahoo said it crossed one billion monthly users, more than half of whom were on mobile devices. That was also the first time Yahoo relied on a new methodology to track users, the people said. On a call with analysts, Ms. Mayer said Yahoo used a different metric but didn’t disclose the methodology.

As her strategy has shifted, Ms. Mayer has variously cast Yahoo as a challenger to Netflix Inc. in online video content and as a threat to Google Inc. in Web search, but has made little progress toward either goal. Yahoo spent more than $100 million over the past two years producing original video content, excluding the cost of employees, according to people familiar with the matter.

Yahoo Screen, a portal for professional content from media partners such as Walt Disney Co.’s ABC and The Wall Street Journal as well as Yahoo-produced content, had 25 million unique video viewers, about the same number it had early 2014, according to comScore, whose data excludes mobile users. Yahoo wrote off a $42 million expense for the cost of online shows including “Community” in the third quarter.

Yahoo’s focus and investments appear to be shifting to search. An internal project called Yahoo Index aims to build a new search engine geared toward mobile phones, people familiar with the company have said. Yahoo relies on partners to generate search queries, sell ads and to capture users. Perhaps the most significant partner for Yahoo to secure in search, Apple Inc., appears to be elusive. Though Ms. Mayer has stated she is open to negotiating with the iPhone maker to become the default search provider for Apple’s mobile Safari browser, no discussions have occurred, according to people familiar with the matter.

Business Watch TIFFANY

Firm Cuts Outlook, Misses Expectations

Parent Alphabet plans to charge subsidiaries to make sure they can be self-sustaining

BY ALISTAIR BARR Google parent Alphabet Inc. is moving to make its disparate parts more accountable internally for spending, according to people familiar with the matter, in an effort to ensure that its more speculative projects are self-sustaining.

Under the new system, “bet” companies such as Google X, Google Fiber and Google Life Sciences will be charged for using corporate services such as computing, recruiting and marketing, the people familiar with the matter said.

The changes are part of Google’s transformation into a conglomerate, which took effect in August but won’t be reflected in financial statements until next year. The people familiar with the matter said executives hope to make the bet companies more accountable for their costs, which may lead to more caution on spending.

The reorganization has two goals. Alphabet Chief Executive Larry Page wants to boost spending on new technologies that will take the company into areas such as transportation, communications and health care. At the same time, Mr. Page and other executives want to assure Wall Street that Alphabet is spending responsibly.

“After a period of big expense build up, there was an appreciation that we needed to manage the cadence of spend,” Chief Financial Officer Ruth Porat told investors in an October earnings call. Ms. Porat has been instrumental in efforts to curb spending since joining the company in May. There is little consistency in sales, according to Thomson Reuters.

The company said foreign tourists’ spending in the U.S. was sharply lower during the third quarter and pushed sales in the Americas lower by 7%, or 5% lower when currency rates are smoothed out.

Sales declined in most of Tiffany’s geographic regions except in Japan, where revenue rose 17% from a year earlier, or 34% on an adjusted basis, as that country saw higher tourism.

—Lisa Beilfuss GAMESTOP

Videogame Retailer Reports Weak Sales

GameStop Corp. reported weak third-quarter sales on Monday, but with the holiday-shopping season approaching the videogame retailer held to its full-year outlook.

For the period ended Oct. 31, sales fell 1.1% based on retail stores open at least 12 months and online sales.

The company’s technology segment, which includes its business selling smartphones, tablets and other devices, isn’t accounted for in the figure.

Overall revenue, aided by store additions, increased 3.6% to $2.02 billion. GameStop, which had projected sales of $2.09 billion to $2.18 billion, said new software and hardware sales were lower than expected, and also cited delayed store openings.

Chief Executive Paul Raines said earnings expectations for the full year—in the range of $3.66 to $3.86 a share on an adjusted basis—haven’t changed. He pointed to the solid slate of new video-

MICHAEL NAGLE/BLOOMBERG NEWS

Tiffany & Co. said earnings this year would fall more than the luxury jeweler had previously anticipated, as adverse exchange rates continue to crimp tourists’ spending and diminish repatriated profit.

Chief Executive Frédéric Cumenal said that in addition to the effects of the stronger dollar, uncertain economic and market conditions in the U.S. and other regions are affecting consumer spending.

The latest retailer to caution ahead of the holiday shopping season, Tiffany said profit is now expected to drop between 5% and 10% from a year earlier, translating to per-share earnings of $3.78 to $3.99, far short of the $4.05 analysts have projected. In August, the company had guided for a 2%to-5% profit decline.

Like many companies that do significant business globally, the strong dollar makes Tiffany’s products more expensive abroad and diminishes the revenue when it is brought back to the U.S. Overall, Tiffany reported a profit of $91 million, or 70 cents a share, up from $38.3 million, or 29 cents, a year earlier. Revenue slipped 2.2% to $938.2 million.

Analysts projected 75 cents in earnings per share on $971 million

Google Startups to Pay for Services

Shoppers browse videogames at a GameStop store in New York.

STEPHEN LAM/REUTERS

YAHOO

@wsjd | wsjd.com

Google’s parent is looking at a system to make its ‘bet’ companies more accountable on spending. in how other conglomerates handle such issues. Subsidiaries of Berkshire Hathaway Inc., in businesses such as insurance, transportation, retail and manufacturing, largely run independently. Berkshire itself provides very limited centralized services. games coupled with contributions from AT&T, Apple and ThinkGeek businesses, as well as in-store collectibles offerings expected to drive fourth-quarter results.

—Anne Steele JAGUAR LAND ROVER

Tata Motors Unit Invests in U.K. Plant

Jaguar Land Rover, a unit of India’s Tata Motors Ltd., said on Tuesday that it would invest £450 million ($680.6 million) to double the capacity at its engine-manufacturing facility in Solihull, England.

The expansion is driven by global demand for current and future models, Tata Motors said in a filing to local exchanges.

The move likely reflects bets by the Indian truck and car maker that its British luxury car manufacturing unit will continue to drive sales and contribute to a bulk of its profit. Tata Motors has seen sales fall in its home market, although Jaguar Land Rover sales have been rising.

The investment will create several hundred new jobs, increasing Jaguar Land Rover’s global workforce to 40,000 by next year, the company said.

—Debiprasad Nayak and Kenan Machado CHOW TAI FOOK

Jewelry Retailer Posts Profit Decline Chow Tai Fook Jewellery Group Ltd. said Tuesday its net profit for the first half ended September plummeted 42.2%, as China’s economic slowdown took a toll on retail spending.

The Hong Kong-listed jewelry retailer’s first-half net profit fell to 1.56 billion Hong Kong dollars ($201.2 million) from HK$2.69 billion a year earlier.

Its revenue dropped by 4.1% to HK$28.12 billion from HK$29.32 billion in the same period last year, as weak consumer sentiment in Hong Kong and Macau weighed on revenue.

The company’s overall samestore sales fell 8.7%, while sales from Hong Kong & Macau were down 18.2%, it said.

It declared an interim dividend of 8 Hong Kong cents a share and a special dividend of 42 Hong Kong cents a share, as it seeks to return excess cash to shareholders after considering its working capital requirements and business growth outlook in the near term.

—Joanne Chiu

By contrast, General Electric Co. in recent years has built a 6,000-person “shared services” organization to handle functions like sourcing, finance and legal work across businesses such as jet engines, power turbines, locomotives, medical scanners and light-

bulbs.

Under Alphabet’s new system, leaders of the bet companies will have more freedom to develop their own services in areas like recruiting and marketing. The companies will still be able to tap Alphabet’s services, but they will have to

bear the cost internally.

Google’s recruiting operation, for example, employs hundreds of recruiters and handles millions of job applications a year. It also manages an internal-transfer system.

For bet companies looking to expand and hire, access to this service may be important. If companies choose to use their own recruiting team and try to hire from elsewhere at Alphabet, they won’t get access to the internal-transfer network, according to one of the people familiar with the plan.

Alphabet may want the bet companies to use its computer network, because it is likely more efficient than anything the companies could create on their own, one of the people said. Alphabet will charge bet companies based on an estimate of what they would pay to buy the service elsewhere.

Another goal is to create financial statements that can be audited for each business, making it easier for them to be spun off or separated from Alphabet in the future, one of the people said.

Long term, Alphabet hopes to be a family of companies that offers efficient, centralized services to help entrepreneurs grow businesses faster, another person familiar with Google’s thinking said.

Some bet companies have established considerable independence. For example, Nest, which makes Internet-connected home devices, has its own legal and marketing teams and rents computer services from Google rival Amazon.com Inc. Other new businesses, such as Google Life Sciences, the self-driving car project and Sidewalk Labs, a municipal communications effort, have been hiring aggressively with long-term goals of becoming independent. “We are very much thinking they will continue to grow and be independent entities,” Ms. Porat said in October.

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B4 | Wednesday, November 25, 2015

BUSINESS NEWS

Downturn’s Pain Spreads Beyond Oil Patch

BY CHESTER DAWSON

The prolonged slump in crude prices is rippling beyond the oil industry into areas of the North American economy that, until recently, had managed to avoid the worst of the downturn.

With the crude-market decline in its 17th month and nearly a year after OPEC dealt prices a sharp blow by refusing to rein in output, lower profits and mounting losses are crimping budgets, spurring multiple rounds of job cuts and driving some energy companies to seek bankruptcy protection.

Signs of that distress are spreading throughout oncebooming oil-producing regions across North America. Sales of single-family homes in Houston fell 10% on the year in Oc-

tober, the first double-digit decline this year, according to the local association of realestate agents. Restaurants in Texas and the Southwest have experienced a drop in revenue and customer traffic, industry tracker Black Box Intelligence said in a recent report.

Chili’s Grill & Bar operator Brinker International Inc. blamed low oil prices for weak results in some states that rely heavily on the energy industry.

“While we have been seeing pockets of softness within those regions for a while, the top-line challenges expanded during the quarter across Texas, Oklahoma, Arkansas, Louisiana,” Chief Executive Wyman Roberts said on a conference call last month.

The gloom is deepest in and around pockets of the industry

where costs are highest: shale oil, oil sands and the offshore Arctic. Tapping those fields made sense when oil was $100 a barrel, but less so below $50. From plunging car sales in Calgary, Alberta, to higher hotel-room vacancies in Williston, N.D., and weakening restaurant traffic in Texas, the ripple effects of the downturn are spreading.

North Dakota earlier this month said output from the Bakken Shale, once one of the hottest growth areas in the industry, marked the first yearover-year decline since 2004 in September. That came as some producers gave up on the Bakken, where profit margins are thin due to higher production and transportation costs than many other oil-producing areas.

Houston-based Occidental

Petroleum Corp. bowed out of the Bakken last month, selling its North Dakota assets to an undisclosed buyer for $600 million. Two other Bakken players, Littleton, Colo.-based American Eagle Energy Corp. and Samson Resources Corp. of Tulsa, Okla., both sought chapter 11 bankruptcy protection and are selling off assets.

“We actually are anticipating that some of the stressed companies are going to be looking to liquidate assets or that we will see some additional bankruptcies,” Lynn Helms, director of the state’s Department of Mineral Resources said at a news conference.

The slowdown is being felt acutely by towns in western North Dakota, the heart of the Bakken formation. Newly built apartment complexes and ho-

tels in the regional hub of Williston stand half-empty, victims of disappearing oil field work crews. Williston rents have fallen by half from their peak in 2013, according to a survey by a local apartment management association.

John Sessions, who coowns a real-estate developer called Bakken Housing Co., said his Eagle Crest multifamily apartment complex in Williston opened in February, but is still at 65% capacity. “Two years ago, it’d have been full up in two months,” he said.

“Back then, you could write a business plan with premium rents more akin to Seattle or parts of New York City due to the dearth of housing and seemingly endless flow of inbound potential employees in the oil patch.”

Alaska also is also reeling

from the prolonged oil-price slump. A steady decline in output in recent years has pushed it behind North Dakota in production, but the state still relies on royalties and taxes on oil for 90% of its discretionary spending budget. Far northern coastal communities are bracing for hard times as companies curtail Arctic offshore oil development.

In Canada’s oil patch, the slide in prices has led to a reassessment of the viability of new oil-sands projects, which are among the highest cost crude-extraction operations in the world. Nearly 20 oil-sands projects in northern Alberta have been canceled or postponed so far this year, the production equivalent of 1.3 million barrels a day, according to ARC Financial Corp. in Calgary.

bigger role in future quarters.

If the Federal Reserve raises interest rates in December, the move could strengthen the dollar, continuing the hit to revenues.

“Every multinational company is kind of dealing with the

same issues,” said William Zerella, chief financial officer of Fitbit Inc. The strong dollar is making the company’s fitnesstracking devices more expensive in places including Europe and Australia.

Third-quarter revenue would have been $20 million more than the $409 million reported, if adjusted for “a very challenging foreign-exchange environment,” said Mr. Zerella on a call with analysts earlier this month.

Highlighting currency-neutral numbers may be advantageous to companies concerned that it will be harder to hedge their exposure, or offset the risk of negative foreign-exchange-rate volatility next year.

Ironically, sharp swings in currency markets this year meant that hedges actually paid off for many companies, minimizing potential losses.

But many businesses don’t expect to repeat that.

“We do have some hedging benefit that we experienced pretty much throughout the year—this year—that we’ll be up against next year,” Joanne

Crevoiserat, finance chief of retailer Abercrombie & Fitch Co., said on the company’s third-quarter earnings call last week.

At software company Adobe Systems Inc., finance chief Mark Garrett told investors last month to expect a $200 million hit from foreign exchange in 2016, despite a “really successful” hedging program.

Over the past several years, he said the company’s hedging program worked so well that it contributed about $140 million to revenue.

Typically, hedges can only be implemented a year or two in advance, so it will be pricier to put on new hedges at current foreign-exchange levels.

Therefore, companies are spending more time contemplating their hedging and pricing strategies, as currency markets are stabilizing.

“Companies just made all that money [in 2015], and now they probably have to spend it to put their hedges back on,” Mr. Koester said.

—Maxwell Murphy contributed to this article.

Continued from page B1 with their results under U.S. Generally Accepted Accounting Principles, or GAAP, and explain the effects of currency fluctuations afterward.

While companies routinely report revenue without adjusting for currency, there are few rules on reporting currency effects. Yet regulators say giving too much weight to results calculated differently from generally accepted principles can be misleading to investors and analysts.

Under GAAP rules, that impact is clear because a business must measure and report its real revenue comparable to the same quarter a year prior.

Currency-neutral figures are non-GAAP metrics. Securities regulators say they are concerned when such adjusted figures overshadow traditional results.

“It is sometimes really difficult [for investors] to understand what is going on with those non-GAAP measures,”

BRUNO MALLART

CFO

said Mark Kronforst, chief accountant at for the Securities and Exchange Commission’s Division of Corporation Finance.

While the unit isn’t taking special action against companies, Mr. Kronforst told finan-

cial executives at a conference in New York last week that it frequently sends comments to companies questioning the importance firms are putting on certain data points, such as currency-neutral results.

Currency could play an even

Punit Renjen. Deloitte Global CEO and Wall Street Journal reader.

Photography by Craig LaCourt

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TUESDAY’S MARKETS B6 | MARKETS DIGEST B8 | HEARD ON THE STREET B10 | FINANCE WATCH B10

U.S. Looks at Brakes For Rapid-Fire Traders

The Ground Shifts For U.S. Malls

REGULATION | B9

THE PROPERTY REPORT | B7

THE WALL STREET JOURNAL.

© 2015 Dow Jones & Company. All Rights Reserved.

EUR/GBP 0.7076 À 0.63%

As of 12 p.m. ET

YEN ¥122.43 g 0.33%

GOLD 1074.50 À 0.72%

OIL 43.09 À 3.21%

Beijing Lifts Stock Curbs Brokerages get relief from a restriction that forced them to buy more than they sold

BY SHEN HONG SHANGHAI—Chinese brokerage firms no longer have to buy more shares than they sell in daily proprietary trading, as the government continues to ease restrictions imposed during the summer stock-market selloff.

The latest move was outlined in an official document

reviewed by The Wall Street Journal and is a fresh sign of growing confidence among Chinese leaders in the market, which has been recovering gradually since late August.

Earlier this month, regulators lifted a ban on initial public offerings that, like the selling curb, dated to early July.

The two restrictions were part of Beijing’s effort to stop an unprecedented plunge that wiped out roughly $3 trillion in market value in just three weeks beginning in mid-June.

The market steadied for several weeks before a devalua-

tion of the yuan pushed it off another cliff in August, with market value dropping more than 40%. Since hitting its low for the year late that month, the main Shanghai index has rebounded 24%.

“Given that the market has gradually stabilized, the requirement is removed so that the market can use its own self-adjustment mechanism and regulatory oversight can be normalized,” the China Securities Regulatory Commission wrote in an internally circulated notice titled Directive No. 83.

The lifting of the curb “clearly shows that the authorities have become satisfied with their recent marketbailout effort and that they are getting confident in the market’s outlook,” said Shen Meng, executive director of Chanson Capital, a boutique investment bank.

In addition to the sales curb on brokerages and the IPO ban, Beijing’s raft of rescue measures included a stockpurchase program financed by the central bank and commercial banks, a six-month ban on Please see CURBS page B6

High Wire

Emerging-market dollar debt performance for selected countries, Sept. 30-Nov. 18

10.2

Ecuador

9.6

Zambia

9.0

Kazakhstan

8.2

Ecuador’s exports* Petroleum Nonpetroleum

$10 billion 8 6 4

GUILLERMO GRANJA/REUTERS

2 0 2012

’13

’14

Miners are bringing on more efficient facilities that could make money at lower prices but deepen a glut.

Global copper-mine supply forecasts

High-grade copper futures Continuous front-month contract

24 million metric tons

$4.00 a pound

22

3.50

20

3.00

18

2.50

16

2.00

14

1.50

2013 ’14 ’15 ’16 ’17 ’18 ’19 ’20

*Data are through August of each year Sources: J.P. Morgan (performance); Banco Central del Ecuador (exports)

THE WALL STREET JOURNAL.

Oil, Dollar Put Squeeze on Ecuador Two of the most punishing trends in emerging markets are the rising dollar and falling oil. And caught between them is Ecuador.

The South American country has the misfortune to be an oil producer with a “dollar-

ized” economy that uses the U.S. currency as legal tender.

Dollarization helped officials rein in inflation in 2000.

Now, it is depriving them of the relief valve a depreciating local currency can provide at a time when the drop in oil prices is hurting its exports.

Investors could get caught in the squeeze. Ecuador’s

bonds have rallied recently in part on the expectation the government will repay a $650 million bond due in December.

But the country has billions of dollars more in debt—including bonds due in 2020, 2024 and 2025—and the outlook for those is less certain.

Sarah Glendon, head of sovereign research at Gramercy

Icahn Plans Rare Moves on AIG ADAM JEFFERY/CNBC/GETTY IMAGES

BY DAVID BENOIT Carl Icahn’s plan to solicit votes to split up American International Group Inc. would be an unusual move for an activist, despite the success two years ago of a similar campaign that many had heralded as a harbinger of more to come.

Only five so-called precatory proposals—shareholder suggestions MONEYBEAT on strategy put up for a vote—to break up a company have been put forward since 2009, according to FactSet. Only three of them followed the successful campaign to break up Timken Co. in 2013.

Mr. Icahn is adding an additional wrinkle by deciding against waiting for the AIG annual meeting in the spring, saying he plans to solicit the votes soon instead. Solicitation by “written consents” outside of scheduled meetings is also rare, with only 26 in the past five years, according to FactSet. (There have been more than 1,600 activist campaigns since 2009.)

In fact, it may be the first time anyone has combined

’14

’15

lower-cost ventures will help them weather the rout.

Once up and running, the new mines will be profitable even if copper prices drop below $2 a pound, a level last hit in May 2009. The cost of producing a pound of copper at Freeport’s Grasberg mine in Indonesia will drop to 61 cents next year, from an estimated $1.05 in 2015, according to BMO. On Monday, copper prices hit a 6½-year low, with December futures down 1.7% at $2.0210 a pound in New York.

Year to date, copper is off 28%.

Tuesday morning, copper was trading at $2.0625 a pound.

The supply growth is anPlease see COPPER page B6

S&P May Downgrade Noble’s Debt to Junk

’15

BY CAROLYN CUI AND MANUELA BADAWY

2013

Note: Estimates (2013-14) and forecasts are by Barclays, BMO Capital Markets, Citigroup, Credit Suisse, Goldman Sachs, J.P. Morgan Chase, Société Générale, TD Securities THE WALL STREET JOURNAL. Sources: the companies; SIX Financial (futures)

Mining companies are digging up record amounts of copper even as prices plumb new lows, a strategy that threatens to deepen a fouryear bust.

Global copper production is on track to hit a record high of 18.7 million metric tons this year, according to BMO Capital Markets, and many analysts predict it will expand until at least 2019.

The reason: Companies such as Freeport McMoRan Inc., MMG Ltd. and Southern Copper Co. that have sunk billions of dollars into new projects are pushing them to completion in a bet that the larger,

22.7

Argentina

10-YR TREAS À 5/32 yield 2.234%

Still Going

BY TATYANA SHUMSKY

3.0%

Venezuela

3 MONTH LIBOR 0.40230%

Copper’s Fall Isn’t Impeding Output

Ecuador's bonds have rallied, but many investors are concerned about the outlook for oil export revenue as the U.S. dollar rises.

EMBI Global Diversified

Wednesday, November 25, 2015 | B5

Activist investor Carl Icahn the two. FactSet hasn’t found a single example of a shareholder proposal being run as a written-consent campaign.

AIG said Monday it would update investors soon about its strategy. It reiterated that Mr. Icahn’s proposed split, as presented, doesn’t make financial sense for the company.

A shareholder proposal to split AIG up would be nonbinding, though a clear victory would be hard for its board to ignore. Proxy-advisory firms can in the subsequent year withhold support for directors who reject nonbinding votes, adding to the pressure to seriously review such proposals.

Any shareholder proposal outside of an annual meeting requires a majority of shares outstanding, a higher bar than the majority of shares that are voted at a meeting.

Many expected Timken’s breakup to set off a wave of shareholder-proposal votes.

Relational Investors LLC and the California State Teachers’ Retirement System in 2013 successfully led a shareholder vote to urge the company to spin off its steel business.

The company, which had resisted a split, later initiated a review that led to a breakup.

Mr. Icahn proposed a motion to break up eBay Inc. last year, but later dropped the idea. This year, eBay and PayPal Holdings Inc. separated, and Mr. Icahn has board representation at PayPal. Campaigns to split up General Electric Co. and National Fuel Gas Co. failed at the vote in recent years.

MONEYBEAT Read the continuously updated look .COM inside the markets, free online at wsj.com/moneybeat

WSJ

Funds Management, an emerging-market manager with $6 billion in assets, has doubts that Ecuador will be able to manage its debt load after this year.

“I’m convinced that they have the willingness to pay, but what I’m more concerned about now is their ability to Please see ECUADOR page B6

BY JAKE MAXWELL WATTS AND ANJANI TRIVEDI SINGAPORE—Commodities trader Noble Group Ltd. is facing the threat of its debt being downgraded to junk status—a move that could raise its borrowing costs sharply— as Standard & Poor’s became the latest ratings company to place its credit on negative watch, late Monday.

S&P said it could lower its BBB- rating on Noble’s debt in the next three months if the company doesn’t improve its

liquidity position. Its move follows a similar step taken by Moody’s Investors Service last week, which put its Baa3 rating on review for a downgrade citing Noble’s “weaker-thanexpected liquidity profile.”

Any downgrade to junk status would be a significant blow to Noble, which has been under fire all year after an anonymous blogger called Iceberg Research published the first of three research reports accusing the company of irregular accounting in February.

Please see NOBLE page B6

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THE WALL STREET JOURNAL.

B6 | Wednesday, November 25, 2015

MONEY & INVESTING

Airline shares take hit after Turkey shoots down Russian plane; Miners decline in Asia

Global stock markets slipped Tuesday after the Turkish military shot down a Russian jet fighter along the Syrian border, sparking fears of a confrontation between the two countries.

After initially falling as much as 109 points, U.S. stocks pared earlier losses as energy stocks TUESDAY’S posted strong MARKETS gains.

The Dow Jones Industrial Average fell 2.4 points to 17790. The S&P 500 declined 0.2% and the Nasdaq Composite traded down 0.4%.

The Stoxx Europe 600 index dropped 1.2%.

“We saw a knee-jerk reaction this morning after the news about the jet, but now we’re in a little bit of a lull,” said Ryan Larson, head of U.S. equity trading for RBC Global Asset Management, adding that the magnitude of Tuesday’s initial declines were likely exaggerated by light holiday-week trading volumes.

Shares of airlines tumbled on renewed worries about flying. The State Department issued a world-wide travel alert late Monday, citing increased terrorism threat risks. The U.S. Global Jets ETF fell 2.5%.

United Continental Holdings dropped 3.3%, and American Airlines Group declined 2.8%.

Internationally, Air FranceKLM dropped 3.9%, and Deutsche Lufthansa fell 4%.

Energy stocks helped offset losses in the broader index.

Oil prices rose following news that the jet had been downed, with U.S.-traded

RALPH ORLOWSKI/REUTERS

BY CORRIE DRIEBUSCH AND TOMMY STUBBINGTON

Shares in Deutsche Lufthansa dropped 4% in Frankfurt. crude 3.1% higher at $43.03 a barrel, amid concerns over the impact of further turmoil in the Middle East, the world’s most prolific oil-producing region. The uptick in the price of oil helped boost energy companies in the S&P 500, which rose 2.1%, by far the best-performing sector in the index.

Russian President Vladimir Putin described the incident as a “stab in the back” that will have serious consequences for relations with Turkey.

“There was an uptick in market volatility once Putin started speaking,” said John Brady, managing director at futures brokerage R.J. O’Brien.

“The market has a bit of the yips with geopolitical issues.

Gold is going up. Crude is going up. There’s concern.”

Government bonds in the U.S. and Europe benefited from demand for assets seen as relatively safe. The 10-year Treasury yield fell to 2.233%.

Germany’s 10-year yield was down 0.03 percentage point at

0.50%. Yields fall as bond prices rise.

Investors also moved money into gold, another asset viewed as a haven. The price of gold rose 0.9% to $1076.60 an ounce. In currency markets, the Turkish lira weakened against the dollar. The greenback was up 1% at 2.877 lira.

Earlier, mining companies dragged on Asian indexes as prices for base metals such as copper remained near multiyear lows, hit by the headwinds of a stronger dollar and fears of lower demand.

Australia’s S&P/ASX 200 fell 1% to finish at 5226.40 and Hong Kong’s Hang Seng Index slipped 0.4% to 22587.63 as a slide in commodities prices pressured resources shares in both markets.

Elsewhere in the region, investors tried to navigate global central banks’ split approaches to monetary policy.

Expectations are firming that the U.S. Federal Reserve will raise interest rates at its

December meeting, while the European Central Bank has hinted it stands prepared to boost stimulus next month.

Meanwhile, Japan’s Nikkei Stock Average rose 0.2% as it reopened after a holiday, and South Korea’s Kospi gained 0.6%. The Shanghai Composite Index rose 0.2%, even as authorities scrapped brokerages’ selling restrictions, put in place in the throes of the summer selloff.

Among mining stocks, BHP Billiton and Rio Tinto fell 1.8% and 1.5%, respectively.

South32 fell 2.5% and iron-ore producer Fortescue Metals Group shed 3.2%.

In Singapore, shares of commodities trader Noble Group fell 1.2% after Standard & Poor’s put the firm’s investment-grade rating on a negative credit watch. The move means the rating agency could downgrade the company in the next three months.

—Chao Deng contributed to this article.

GUILLERMO GRANJA/REUTERS

COPPER

Ecuador is trying to boost exports of items such as flowers, like these at a Tabacundo plantation.

ECUADOR

Continued from the prior page pay,” she said.

“Beyond 2015, I’m more skeptical. We’ll see additional weakness thereafter because of the challenges the economy faces,” Ms. Glendon added.

Ecuador’s position makes it a vulnerable case in the precarious world of emergingmarket debt. Much of Ecuador’s income derives from oil exports, and a plunge of energy prices this year created a shortfall in the country’s budget and put pressure on its bonds. Yields on Ecuadorean debt soared to 16% by the end of September amid a broad selloff in emerging markets, making it nearly impossible for the country to tap the markets again.

As a result, prices on Ecuador’s government debt have been volatile: They were down 19% in the third quarter before rebounding 10% since Oct. 1, outpacing all sovereign bonds except those issued by Venezuela, according to J.P. Morgan Chase. An emergingmarket dollar debt index was up 2.2% during the same period.

To be sure, the Ecuadorean government has been trying to lessen its dependence on oil revenues, with this year’s creation of the Ministry of Inter-

national Trade to help foster nonoil exports.

But the surging dollar has stymied these efforts, as it has made Ecuador’s products less competitive than those from its neighbors such as Colombia and Brazil whose currencies have depreciated markedly.

During the first eight months of this year, Ecuador’s nonoil exports, such as bananas, flowers and shrimp, fell 4% from the year-ago period, largely due to a gain in the value of the dollar, according to official data. That came as oil-export revenue plunged 48%.

Dollarization is preventing Ecuador of benefiting from devaluation.

In an interview with The Wall Street Journal last month, Diego Aluestia, Ecuador’s trade minister, said he wasn’t alarmed by the decline in nonoil exports, but is focusing on medium- to long-term efforts such as tax overhauls, education and bilateral commercial agreements to help promote exports and solicit foreign investment.

Such moves have won plaudits from credit-rating firms.

In late October, Moody’s confirmed Ecuador’s credit rating at B3, which is in junk territory. “This rating incorporates the stress that Ecuador is currently facing because of the lower oil price and the government’s pragmatic and proactive policies that stand to face the challenges,” said Renzo Merino, a sovereign analyst at Moody’s Investors Service.

But many investors aren’t convinced.

“This is not an improving economy,” said Javier Murcio, an emerging-market portfolio manager at Standish Mellon Asset Management, which has $170 billion in assets. Lower oil prices, use of the dollar and political uncertainties put the country at a disadvantage, Mr. Murcio added.

Also keeping some bond investors away from Ecuador is the country’s checkered borrowing history. Ecuador has defaulted twice during the past 25 years when its foreign reserves were able to cover the debt.

The country had been shut out of the capital markets since 2008, and just regained access last year.

Since then, it has made a foray back into the markets by issuing billions of dollars in debt. Total external debt has increased 45% since late 2013 to $27 billion this year, according to Moody’s.

Continued from the prior page other sign the downdraft in commodities could last much longer than many investors expect. It also will likely complicate plans by miners such as Glencore PLC, Freeport and Teck Resources to pay down heavy debt burdens and shore up their financial health.

“It’s a classic prisoner’s dilemma: It makes sense for them as a group to have lower copper production, but individually nobody wants to cut back and give up market share and profits,” said Dane Davis, a metals analyst with Barclays.

The metal is used in products from cellphones to laptops to farm equipment.

Copper prices have been declining since 2011, and predictions for an upturn have been proved wrong again and again. In October 2013, Credit Suisse analysts forecast that prices would bottom at $3 a pound sometime in 2014. Now, they predict that prices won’t return to $3 until after 2019.

Next year, four new mines will increase the world’s copper production by 5.1%, says Barclays.

These and other projects nearing completion in coming years were approved at the peak of the commodities boom, when analysts were projecting a prolonged copper shortage. It takes from seven to nine years to build a new copper mine.

“If you had to remake that decision today from the beginning, and you haven’t spent any money at all, would you build the mine? The answer in

CURBS Continued from the prior page sales by shareholders who own more than 5% of a company’s stock, and pledges by the biggest state-controlled securities firms, mutual funds and China’s giant sovereignwealth fund to buy, buy, buy.

Around the same time, the restriction on proprietary trading was imposed. Chinese’s top 21 brokerage firms collectively pledged not to reduce investments in the stock market as long as the Shanghai Composite Index remained below 4500. The market is still far below that goal—the index

NOBLE Continued from the prior page The company’s Singaporelisted shares fell 1.2% to 40.5 Singapore cents (28.6 U.S. cents) on Tuesday, and are down 64% this year, near their lowest level since the global financial crisis.

Noble has denied any wrongdoing and commissioned an independent review of its accounting by PricewaterhouseCoopers LLP, which found that the firm complied with industry and regulatory standards.

S&P said its decision to put the company on negative watch “reflects our view that Noble’s liquidity and financial leverage have weakened and breached levels that we consider appropriate for the current rating.”

A downgrade to junk status would likely increase Noble’s interest costs and could make it harder for it to raise fresh debt funding. Traders like Noble, which act as the middlemen shipping vast amounts of commodities from oil to copper around the world, rely on a steady flow of reasonably priced financing from banks to fund the inventories they hold.

Noble’s large uncommitted bank-lending facilities—which amounted to US$11.1 billion at the end of the third quarter, 72% of its available borrowings—could be placed in jeopardy by a downgrade. It is common for banks offering uncommitted facilities to include a contractual clause that allows the bank to withdraw the facility in the event of a ratings downgrade.

“We are committed to raising capital through various funding options, including asset disposals and partnerships with strategic investors, to strengthen our balance sheet and enhance liquidity,” a Noble spokesman said in response to the S&P statement.

“We are confident that these transactions will result in us retaining our investment some of these cases is no,” said Rick de los Reyes, who helps manage $1.4 billion at T. Rowe Price. “That’s why commodity down cycles last so long, because you have all these long-dated projects started during the boom times and, by the time that supply comes on, it’s too late.”

Freeport McMoRan, the world’s largest listed copper miner, expects to add 1.1 billion pounds of copper output to the roughly 46-billionpound global market in 2016.

This will chiefly come by expanding two mines: Grasberg and Peru’s Cerro Verde.

At Grasberg, the world’s third-largest open-pit copper mine, Freeport spent $5.5 billion over the past decade to build an extensive tunnel network and add two underground mines, with plans for more. BMO analysts predict the Grasberg expansion will add 847 million pounds of copper to the market next year, raising global supply by 2.1% in 2016.

One of the few new mines starting next year is Las Bam-

bas in Peru. China-backed MMG bought it for $5.85 billion in 2011 and expects to invest a further $1.9 billion to complete the project. Goldman Sachs predicts Las Bambas will increase global copper supply by 1.2% next year.

Mining-company shares have been hurt amid the weak copper prices. Miners have tapped the stock market to raise cash and sold assets to shore up their balance sheets.

“We’re in an environment where the company with the lowest debt wins,” said Clive Burstow, who helps manage $600 million at Baring Asset Management. Mr. Burstow said his fund had been cutting its Glencore stake since start of 2015 on concerns about the company’s debt and sold its position in the third quarter.

Executives are swearing off new investments. In September, Freeport McMoRan Chief Executive Richard Adkerson said the company responded to weak copper prices by cutting spending on new mine projects by 25%.

SEONGJOON CHO/BLOOMBERG NEWS

U.S., Europe Markets Fall

grade rating.”

Noble looks to have few options to satisfy ratings firms aside from a significant improvement in financial performance near term, or a fundraising transaction that could bolster its balance sheet. During its third-quarter earnings call two weeks ago, Noble’s chief executive, Yusuf Alireza, said the company intends to raise as much as US$500 million and added that it had cut costs and lowered capital expenditure.

Noble’s total debt stood at US$5.5 billion as of the end of September, around US$3 billion of which is due in the coming 12 months. In its thirdquarter report, the company said it has US$1.9 billion of what it calls “liquidity headroom”—cash and committed bank facilities, as well as another US$1.7 billion of commodity inventories it could readily liquidate for cash.

S&P said it was concerned that the firm’s inventory had fallen 27% in the three months to the end of September, while its available unused committed credit lines fell almost 50% during the period to around $1 billion.

Last month Noble raised US$1.1 billion via a borrowing base facility, a form of shortterm lending typically used by commodity traders.

To date, lenders have mostly stood by Noble, hoping for a recovery in its fortunes.

Analysts say Noble’s ability to raise cash is crucial amid the prolonged bear market for commodities in the past few years. “Half a billion dollars is not a small amount,” said Conrad Werner, an analyst at Macquarie who covers Noble.

“That sounds like a number that will assuage the rating agencies.”

Still, Mr. Werner and other analysts aren’t sure how Noble might be able to raise such a sum. Some have pointed to Noble’s valuable North American energy solutions business and its remaining stake in agricultural arm Noble Agri Ltd., as assets it could sell.

Copper production is on track to hit a record high this year. hit 3616.11 on Tuesday, up 0.2% for the day—and even further below the seven-yearhigh of 5178.19 it hit as the bull wave crested on June 12.

“The authorities seem to think that there’s not that much of a bubble in the market anymore, and it’s time to inject more vigor into trading,” said Mr. Shen.

The first sign of such confidence emerged on Nov. 6, when the CSRC announced an end to its IPO ban. A first batch of 28 firms will complete their share sales by the end of this year, while the 600 more awaiting approval will do so after the regulator announces a muchanticipated overhaul of the IPO-policy framework. Ex-

pected no sooner than March— after China’s annual legislative meetings—the new rules will give control over IPO size and timing to investors and companies, rather than the government.

Another reason for lifting the trading curb, said a person with direct knowledge of the matter, is that brokerage firms “have made a lot of sacrifice” in the market-rescue campaign, and their financial performance is coming under more pressure.

“As the year-end approaches, we also need to boost our financial results, so the policy relaxation is definitely good news for us,” the person said.

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THE WALL STREET JOURNAL.

Wednesday, November 25, 2015 | B7

THE PROPERTY REPORT

Shrinking U.S. Malls Get Makeovers FREW DEVELOPMENT GROUP (LEFT); AUSTIN COMMUNITY COLLEGE

Overbuilding, online sales force landlords to get creative with new developments

BY LIAM PLEVEN Visitors used to flock to the Highland Mall in Austin, Texas, around the holidays to stroll through the city’s first enclosed shopping complex and admire the giant Christmas tree crafted from poinsettia plants.

But this holiday season, no shopping will be done there.

Workers are converting the 600,000-square-foot structure into a campus for Austin Community College with classrooms, lab space and a culinary arts center.

Austin’s economy is strong and its population swelling, but Highland couldn’t attract enough shoppers to stay afloat. “Competition came up and killed it,� said Matt Whelan, principal at developer Red Leaf Properties LLC, which is working with the college on the project.

An era of relentless expansion for American shopping centers is coming to an end as a toxic brew of overbuilding, the rise of e-commerce and a wave of retailer bankruptcies force landlords to reimagine once-lucrative properties.

Some owners are converting struggling malls into apartments, offices and industrial space, while others are turning big chunks of retail space into parks and playgrounds to keep shoppers interested. “You have to create an environment that people want to come to,� said Tony Ruggeri, who eliminated about 50,000 square feet of retail space to

The main building of an Iowa mall, left, was demolished this year.

Above, a once-popular Texas mall will be a community college.

create an open-air plaza at West Manchester Town Center in York, Pa., which reopened last year.

By year end, there will be 48.3 square feet of retail space per person in the U.S., down from the record of 49.8 set in 2009, according to real-estate data firm CoStar Group Inc. This year marks the sixth consecutive annual drop, and CoStar forecasts declines through at least 2020.

The decline has affected most categories of retail real estate, including strip centers and convenience stores, local shopping centers and large malls, according to data from the International Council of Shopping Centers, a trade group. It comes after decades of aggressive expansion. In all, the amount of retail square footage per person swelled by 54% between 1970 and 2009,

according to the ICSC. “The fact is that we built far too much,� said Suzanne Mulvee, a research director at CoStar.

The recession of 2007-09 left many retailers vulnerable as shoppers reined in spending sharply and then only slowly loosened their purse strings in the years since. Only one mall with at least a million square feet of leasable space has opened in the U.S. since 2008, according to Green Street Advisors, which tracks retail real estate. By contrast, over the decade ending in 2005, 54 such properties were built. “We woke up one day and Circuit City [Stores Inc.] was gone,� said Greg Maloney, chief executive for retail in the Americas at real-estate firm Jones Lang LaSalle. The pain has continued through this

Brooklyn’s Offices Boom

BY ELIOT BROWN

season people would fight to get into them.�

The mall closed during the recession amid increased competition from newer properties in the area. This year, developer Stuart Lichter and a partner tore down the mall, which they plan to replace with manufacturing sites and warehouse spaces for industrial customers. “The country is just littered� with obsolete retail space, Mr. Lichter said.

John Frew, a developer based in Denver, is aiming to eliminate at least some of the excess. Mr. Frew took over the struggling Westdale Mall in Cedar Rapids, Iowa, in 2014 and the main mall building was demolished earlier this year.

The new Westdale will include a hotel and offices, as well as space for people to walk around the property, said Mr. Frew. New stores have already started to open at the mall, and when the project is complete there will be about a third less retail space than there was before. “We think it fits the market,� said Mr. Frew.

ADVERTISEMENT

Business Real Estate & Auctions

MICHAEL NAGLE/BLOOMBERG NEWS

AUSTRALIA

The Dumbo Heights project is attracting tech and media tenants.

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which still tend to be more attracted to skyscrapers and marquee addresses—are growing slowly.

In their place are tech startups and countless digital advertising companies that have grown substantially in the past few years, and eventually will run out of large spaces that appeal to them in Manhattan, should trends continue. “The whole structure of the city’s economy has changed, and there’s this growing creative and entrepreneurial sector,� said Seth Pinsky, a top economic development official for the city under Mayor Michael Bloomberg and now an executive vice president at RXR Realty, which recently began investing in Brooklyn.

The Dumbo Heights project highlights some of these changes and risks. A 1.2 million square foot collection of old warehouse-style buildings formerly occupied by the Jehovah’s Witnesses, it is now being renovated by a venture of developers including Kushner Cos., RFR Realty and Livwrk.

The venture has done some large leases including a 200,000 square foot one to craft website Etsy Inc., and leased a 90,000 square foot building to co-working giant WeWork Companies Inc. Etsy grew out of one of Mr. Walentas’ buildings, while WeWork tends to fill its spaces with startups and other small companies. “A lot of companies that maybe started out as a 1,000 square foot media and ad company grew and mushroomed,� said Asher Abehsera, chief executive of Livwrk.

starter, a crowdfunding website for creative projects that moved into its own building in the Greenpoint neighborhood in Brooklyn early last year.

About 80% of its 120 employees live in Brooklyn, said Shannon Ferguson, Kickstarter’s director of human resources, and its building is far more spacious than the company could have afforded in Manhattan. “It was kind of an obvious fit,� Ms. Ferguson said. “We have a huge green roof, and during the summer people are able to just go outside and pick tomatoes.�

Thus far, the main beneficiary of such trends has been Two Trees Management, the family-owned developer that in the 1980s and 1990s converted a large set of warehouses to offices in the neighborhood known as Dumbo. As the neighborhood and borough’s appeal has grown, rents have gone from $8 a square foot to $40 a square foot in 15 years, said Two Trees principal Jed Walentas. “When we started there‌it was all driven by cost, there was nobody who was like, “Yea, I really, really want to move my office to Brooklyn,â€?

Mr. Walentas said. “Then, when you create a place that people want to be, it inverts that relationship.�

But Mr. Walentas’ success has largely come from companies that have started and grown in Brooklyn, and for the set of developers working on projects to succeed, they acknowledge they will need to poach from Manhattan.

Their confidence comes amid economic changes within the city. Financial firms—

For decades, New York officials struggled to spur development of office space in Brooklyn, which they had hoped would become a lowcost alternative for Manhattan-based financial firms.

But now the city borough is finally receiving a wave of investment from developers that once avoided it, thanks to a big wager on another set of tenants: technology, media and advertising firms.

Developers are planning to bring to market more than two million square feet of office space in the downtown Brooklyn area in the next few years, including new and renovated buildings. By contrast, just 200,000 square feet of new office space was built in downtown Brooklyn in the past 10 years, according to real-estate data firm CoStar Group Inc. Driving this boom—ranging from a renovation of a former complex housing the Jehovah’s Witnesses’ headquarters to a planned 400,000-square-foot office tower announced earlier this month by JEMB Realty— are forces that extend well beyond Brooklyn’s borders.

Nationally, winds are shifting in the office market, as many companies in the tech and media sectors are showing an increasing preference for converted warehouses over traditional skyscrapers. The appeal of a neighborhood has become more important for these companies than a prime address and corner office view.

The beneficiaries have been areas such as San Francisco’s Mid-Market neighborhood, and recently downtown Oakland, where Uber Technologies Inc. in September bought a building. In Pittsburgh, Google Inc.’s offices are in a former Nabisco cookie factory.

In Manhattan, renovated 1920s brick buildings in the Union Square area are fetching rents of $80 a square foot while many 1960s and 1970s skyscrapers in Midtown seek closer to $60 a square foot.

In Brooklyn, though, few office tenants have made the jump from Manhattan yet, adding to the risks.

But the developers pouring into the borough are chasing companies akin to Kick-

year, with RadioShack Corp., American Apparel Inc. and Wet Seal Inc. all seeking bankruptcy protection.

Online shopping, meanwhile, has more than doubled its share of all sales, from 3.6% in the third quarter of 2008 to 7.4% in the same period this year, according to Census Bureau figures.

E-commerce is growing at a 15% annual clip, the most recent government data show, taking another bite out of the property market.

The weak bricks-and-mortar shopping climate is forcing landlords to think outside the big box. Terry Montesi, founder of Trademark Property Co., left a grove of oak trees in the middle of a development called Waterside he is building in Fort Worth, Texas, which will include a Whole Foods Market and an REI

store, as well as apartments and office space.

The decision meant giving up about 20,000 square feet of retail space, but allowed him to link a public area around the oak trees to a trail along the nearby Trinity River.

Retailers are drawn to that kind of attraction, Mr. Montesi said. “People will pay for the experience,� he said.

The shrinkage could pose problems for retailers as well by pushing up rents for existing space, sparking increased competition for prime locations and forcing retailers to become more efficient about the space they use, analysts said. “At some point, retailers will throw up their hands and say, ‘We can’t pay these rents,’� said Jesse Tron, a spokesman for ICSC. Even huge shopping centers such as Randall Park Mall in North Randall, Ohio, are being reimagined. “People would come here from all over,� said Charles Horvath, the village’s building commissioner. “There were more than 8,000 parking places, and during the holiday

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THE WALL STREET JOURNAL.

B8 | Wednesday, November 25, 2015

MARKETS DIGEST Nikkei 225 Index

STOXX 600 Index

Year-to-date 19924.89 s 45.08, or 0.23% s 14.18% 52-wk high/low20868.03 16755.32 High, low, open and close for each trading day of the past three months. All-time high 38915.87 12/29/89

375.64 t 4.73, or 1.24% High, low, open and close for each trading day of the past three months.

65-day moving average

S&P 500 Index

420

20000

400

Last

2084.26 t 2.33, or 0.11% High, low, open and close for each trading day of the past three months.

Year-to-date s 9.66% 52-wk high/low 414.06 323.29 All-time high 414.06 4/15/15

20800

Data as of 12 p.m. New York time Year ago

Trailing P/E ratio * 23.12 19.27 P/E estimate * 17.48 17.05 Dividend yield 2.11 1.89 All-time high: 2130.82, 05/21/15

2150

2100 65-day moving average

65-day moving average 19200

380

2050

18400

360

2000

17600

340

1950

16800

320

1900

Session high UP Close

t

DOWN Session open

Open

t

Close Bars measure the point change from session's open

Session low 16000

Aug.

Sept.

Oct.

300

Nov.

Aug.

International Stock Indexes Region/Country Index

World

The Global Dow MSCI EAFE MSCI EM USD

Close

2403.96 1734.79 839.75

–5.01 –8.95 –1.36

–0.21 –0.51 –0.16

2203.10 1611.53 769.36

–0.06 –0.27

454.29 42749.23 12705.17 39256.58 2844.37

DJ Americas Sao Paulo Bovespa S&P/TSX Comp IPC All-Share Santiago IPSA

500.18 –0.28 48018.65 –131.62 13424.90 42.52 44624.50 –154.64 3018.19 –31.22

U.S.

DJIA Nasdaq Composite S&P 500 CBOE Volatility

17802.03 9.35 5088.60 –13.88 2084.26 –2.33 16.03 0.41

% chg

Low

0.32 –0.35 –1.02

15370.33 4292.14 1867.01 10.88

0.05 –0.27 –0.11 2.62

Stoxx Europe 600 Stoxx Europe 50 France CAC 40 Germany DAX Israel Tel Aviv Italy FTSE MIB Netherlands AEX Russia RTS Index Spain IBEX 35 Switzerland Swiss Market South Africa Johannesburg All Share Turkey BIST 100 U.K. FTSE 100

375.64 –4.73 –1.24 3225.47 –33.82 –1.04 4820.28 –68.84 –1.41 10933.99 –158.32 –1.43 1562.28 –11.40 –0.72 21948.14 –346.55 –1.55 461.29 –4.89 –1.05 867.54 –30.02 –3.34 10207.20 –70.20 –0.68 8808.53 –115.88 –1.30 51817.84 –378.14 –0.72 76242.98 –3501.81 –4.39 6277.23 –28.26 –0.45

Asia-Pacific Australia China Hong Kong India Indonesia Japan Malaysia New Zealand Pakistan Philippines Singapore South Korea Taiwan Thailand

1411.54 3.37 5226.40 –50.00 3616.11 5.80 22587.63 –78.27 25775.74 –43.60 4545.38 4.31 19924.89 45.08 1677.03 6.13 6101.27 23.65 33571.59 –161.32 6992.60 –3.59 2923.49 20.00 2016.29 12.59 8400.14 –85.59 1384.92 –9.30

DJ Asia-Pacific TSM S&P/ASX 200 Shanghai Composite Hang Seng S&P BSE Sensex Jakarta Composite Nikkei Stock Avg Kuala Lumpur Composite NZSX-50 KSE 100 PSEi Straits Times Kospi Weighted SET

Oct.

323.29 2796.71 3926.34 9219.05 1439.22 17729.07 389.31 578.21 9231.30 7852.83 46530.87 69797.40 5768.22 1269.24 4918.40 2567.60 20556.60 24893.81 4120.50 16755.32 1532.14 5424.45 28927.04 6772.92 2787.94 1829.81 7410.34 1301.06

0.24 –0.95 0.16 –0.35 –0.17 0.09 0.23 0.37 0.39 –0.48 –0.05 0.69 0.63 –1.01 –0.67

52-Week Range Close

• • •

• •

•

• • •

•

• • • • • • • • • • • • • • • • • • • • • •

• •

525.25 58574.79 15524.75 46078.07 3361.36

Coupon

–1.3 –4.0 –8.3 3.4 –4.6

414.06 9.7 3602.76 7.4 5283.71 12.8 12390.75 11.5 1728.89 6.6 24157.39 15.4 510.55 8.7 1092.52 9.7 11884.60 –0.7 9537.90 –1.9 55355.12 4.1 91805.74 –11.1 7122.74 –4.4

•

1621.10 –1.0 5982.70 –3.4 5166.35 11.8 28442.75 –4.3 29681.77 –6.3 5523.29 –13.0 20868.03 14.2 1862.80 –4.8 6101.27 9.6 36228.88 4.5 8127.48 –3.3 3539.95 –13.1 2173.41 5.3 9973.12 –9.7 1615.89 –7.5

Commodities

20% 15 10 5 0 –5 –10 –15 –20 –25

US$vs, YTDchg Tue in US$ per US$ (%)

Country/currency

Europe s WSJ Dollar index s Yen s Euro

2014 2015

Country/currency

US$vs, YTDchg Tue in US$ per US$ (%)

Americas Argentina peso-a 0.1034 9.6730 14.3 Brazil real 0.2699 3.7046 39.4 Canada dollar 0.7526 1.3288 14.3 Chile peso 0.001407 710.90 17.1 Colombia peso 0.0003239 3087.15 29.9 Ecuador US dollar-f 1 1 unch Mexico peso-a 0.0608 16.4541 11.6 Peru sol 0.2963 3.3750 13.1 Uruguay peso-e 0.0339 29.500 22.9 Venezuela bolivar 0.158533 6.31 0.2

Asia-Pacific Australia dollar China yuan

0.7245 1.3803 12.8 0.1564 6.3922 3.0

Key Rates

Country/currency Hong Kong dollar India rupee Indonesia rupiah Japan yen Kazakhstan tenge Macau pataca Malaysia ringgit-c New Zealand dollar Pakistan rupee Philippines peso Singapore dollar South Korea won Sri Lanka rupee Taiwan dollar Thailand baht

7.7501 66.3175 13635 122.43 306.99 7.9806 4.2238 1.5284 105.425 47.048 1.4109 1149.01 142.94 32.519 35.760

52 wks ago

Cur Stock

Libor One month Three month Six month One year

0.22500% 0.40230 0.64075 0.96660

0.15625% 0.23560 0.32870 0.56460

Euro Libor One month Three month Six month One year

-0.15857% -0.11286 -0.04286 0.05286

0.00500% 0.06214 0.15214 0.30000

Euribor One month Three month Six month One year

-0.15700% -0.10400 -0.03300 0.05800

0.00900% 0.08100 0.18100 0.33200

0.19286% 0.37486 0.55000 0.85083 Offer

0.22884% 0.37286 0.53857 0.84214

0.3000% 0.4000 0.7000 1.0500 Latest

0.2000% 0.3000 0.6000 0.9500 52 wks ago

Prime rates U.S. Canada Japan Hong Kong

3.25% 2.70 1.475 5.00

3.25% 3.00 1.475 5.00

Policy rates ECB Britain Switzerland Australia U.S. discount Fed-funds target Call money

0.05% 0.50 0.50 2.00 0.75 0.00 2.00

0.05% 0.50 0.50 2.50 0.75 0.00 2.00

Overnight repurchase rates U.S. 0.09% Euro zone n.a.

0.13% n.a.

Eurodollars One month Three month Six month One year

0.1290 0.0151 0.0000733 0.008168 0.003257 0.1253 0.2368 0.6543 0.0095 0.0213 0.7088 0.0008703 0.0069959 0.03075 0.02796

–0.1 5.2 9.7 2.3 67.9 –0.1 20.5 19.1 4.6 5.2 6.5 5.0 8.9 2.8 8.7

Bulgaria lev 0.5445 1.8367 13.6 Croatia kuna 0.1397 7.161 13.1 Euro zone euro 1.0662 0.9380 13.5 Czech Rep. koruna-b 0.0395 25.348 10.9 Denmark krone 0.1429 6.9981 13.7 Hungary forint 0.003416 292.74 11.9 Iceland krona 0.007573 132.04 3.5 Norway krone 0.1158 8.6370 15.9 Poland zloty 0.2501 3.9978 12.8 Russia ruble-d 0.01533 65.238 7.8 Sweden krona 0.1150 8.6985 11.4 Switzerland franc 0.9849 1.0153 2.1 Turkey lira 0.3486 2.8689 22.9 Ukraine hryvnia 0.0417 24.0050 51.7 U.K. pound 1.5067 0.6637 3.4 2.6510 0.1277 0.2588 3.2865 2.5972 0.2746 0.2662 0.0715

2.050 2.928 -0.299 0.814 -0.285 0.845 -0.371 0.513 0.048 1.407 -0.001 0.318 -0.363 0.666 0.176 2.526 0.028 1.633 -0.472 0.827 0.616 1.864 0.934 2.231

111.6 69.7 -123.3 -141.6 -121.9 -138.6 -130.5 -171.7 -88.6 -82.3 -93.5 -191.3 -129.7 -156.5 -75.8 29.5 -90.6 -59.8 -140.6 -140.4 -31.8 -36.7 ... ...

Spread Over Treasurys, in basis points Previous Month Ago Year ago

114.7 53.2 -90.1 -128.7 -89.9 -123.8 -95.4 -157.3 -54.4 -59.8 -63.2 -178.4 -95.1 -141.8 -42.7 28.1 -62.2 -45.2 -111.2 -140.5 -6.7 -33.1 ... ...

116.5 70.5 -121.6 -140.3 -121.7 -136.8 -130.1 -171.1 -85.2 -80.4 -93.9 -192.3 -128.9 -154.1 -75.0 29.8 -86.8 -57.7 -135.7 -137.5 -29.6 -36.2 ... ...

203.7 94.9 -50.2 -126.1 -47.7 -119.3 -51.3 -156.9 -0.6 -15.3 -48.9 -184.9 -49.8 -139.0 -2.4 65.1 -11.6 -33.5 -46.2 -121.0 -0.4 -26.0 ... ...

Previous

Yield Month ago

2.078 2.944 -0.302 0.836 -0.303 0.871 -0.388 0.528 0.061 1.434 -0.026 0.315 -0.376 0.697 0.164 2.536 0.046 1.662 -0.443 0.863 0.618 1.877 0.913 2.239

1.788 2.620 -0.260 0.800 -0.258 0.849 -0.313 0.515 0.097 1.490 0.010 0.304 -0.309 0.670 0.215 2.368 0.020 1.636 -0.471 0.683 0.574 1.757 0.641 2.088

Prices of futures contracts with the most open interest

Sources: WSJ Market Data Group, SIX Financial Information, Tullett

Sym

Close

AIAGroup AstellasPharma AustNZBk BHP BankofChina CKHutchison CNOOC Canon CentralJapanRwy ChinaConstructnBk ChinaLifeInsurance ChinaMobile CmwlthBkAust EastJapanRailway Fanuc Hitachi Hon Hai Precisn HondaMotor HyundaiMtr Ind&Comml JapanTobacco KDDI Mitsubishi MitsuUFJFin Mitsui Mizuho Fin NTTDoCoMo NatAustBnk NipponStl&SmtmoMtl NipponTeleg NissanMotor NomuraHldgs Panasonic PetroChina PingAnInsofChina RelianceIndsGDR RioTinto SamsungElectronics Seven&I Hldgs SoftBankGroup Sumitomo Mitsui SunHngKaiPrp TaiwanSemiMfg

1299 4503 ANZ BHP 3988 0001 0883 7751 9022 0939 2628 0941 CBA 9020 6954 6501 2317 7267 005380 1398 2914 9433 8058 8306 8031 8411 9437 NAB 5401 9432 7201 8604 6752 0857 2318 RIGD RIO 005930 3382 9984 8316 0016 2330

47.80 1748.00 27.77 19.71 3.51 104.00 8.53 3730.00 22755 5.48 28.10 91.55 79.64 12175 22000 731.50 84.30 4050.00 155000 4.79 4557.00 2962.50 2105.00 821.80 1548.50 258.40 2380.50 29.82 2465.00 4668.00 1293.00 768.20 1428.00 5.71 44.55 28.85 47.42 1299000 5830.00 6541.00 4898.00 98.30 139.50

-0.31 0.43 -0.29 -1.79 -0.85 ...

0.47 -0.85 -0.18 -1.08 -0.88 0.11 -0.95 -0.16 -0.90 0.30 -1.40 0.35 -1.27 -1.44 0.51 -1.61 0.41 -0.90 0.81 -1.03 -1.33 -1.32 -0.72 -0.26 -0.88 -0.04 ...

1.06 -0.11 1.05 -1.48 1.33 0.14 -1.62 -0.33 -0.61 -1.06

2.534 3.258 -0.005 1.048 0.020 1.116 -0.016 0.740 0.491 2.156 0.009 0.460 -0.001 0.919 0.473 2.960 0.381 1.974 0.036 1.099 0.493 2.049 0.497 2.309

ICE-EU

-2.50 1.00 -6.25 -1.650 32 2.65 -0.07 0.27 9.00

COMEX Copper ($/lb.)

COMEX Gold ($/troy oz.)

COMEX Silver ($/troy oz.)

LME Aluminum ($/ton)* LME Tin ($/ton)* LME Copper ($/ton)* LME Lead ($/ton)* LME Zinc ($/ton)* LME Nickel ($/ton)* TCE Rubber (Y.01/ton)

2.0760 1074.90 14.240 1435.00 14500.00 4500.00 1562.00 1,526.00 8200.00 156.00

0.0545 8.30 0.179 -52.50 -250.00 -155.00 -63.00 -66.50 -735.00 1.30

MDEX Palm oil ($/bbl.)

NYMEX Crude oil ($/bbl.)

NY Harbor ULSD ($/gal.) NYMEX RBOB gasoline ($/gal.) NYMEX Natural gas ($/mmBtu) NYMEX Brent crude ($/bbl.) ICE-EU ICE-EU Gas oil ($/ton)

2366.00 43.07 1.4338 1.3573 2.307 46.28 438.75

-6.00 1.32 0.0333 0.0709 -0.036 1.45 3.00

CBOT CBOT CBOT CME ICE-US ICE-US ICE-US ICE-US

464.00 1,050.25 629.50 157.000 3,420 194.60 17.40 67.90 2,100.00

364.25 844.25 472.00 127.700 2,650 115.30 11.28 59.45 1,494.00

2.9555 1,295.90 18.090 1,937.50 19,750.00 6,445.00 2,137.00 2,377.00 15,540.00 165.20

2.0020 1,062.40 13.890 1,435.00 13,850.00 4,500.00 1,562.00 1,504.50 8,200.00 154.30

2,525.00 65.60 2.1281 1.8374 3.6400 72.68 643.50

2,070.00 39.97 1.3715 1.1763 2.2290 43.15 419.25

-0.67% 0.12% -1.26 -1.23 0.97 2.16 -0.45 0.44 0.58 2.70 0.78 1.27 -3.53 -1.69 -3.33 -3.88 -4.18 -8.23 0.84

Year low

-0.25 3.16 2.38 5.51 -1.54 3.23 0.69

Australia

USD 1.3803

GBP 2.0797

CHF 1.3594

JPY 0.0113

HKD 0.1781

EUR 1.4717

Canada

1.3288

2.0023

1.3089

0.0109

0.1715

Euro

0.9380

1.4134

0.9239

0.0077

0.1210

Hong Kong

7.7501

11.6778

7.6325

0.0633

CDN 1.0389

AUD ...

1.4167

...

0.9626

...

0.7059

0.6794

...

8.2640

5.8321

5.6149 88.7000

122.4270

184.4700

120.5800

...

15.7970

130.5300

92.1323

Switzerland

1.0153

1.5299

...

0.0083

0.1310

1.0824

0.7640

0.7356

U.K.

0.6637

...

0.6536

0.0054

0.0856

0.7076

0.4994

0.4808

U.S.

...

1.5067

0.9849

0.0082

0.1290

1.0662

0.7526

0.7245

Japan

8.71

London close on Nov 24

Source: Tullett Prebon

Sources: Tullett Prebon, WSJ Market Data Group

12 p.m. New York time

% YTD% Chg Chg

Asia Titans HK$ ¥ AU$ AU$ HK$ HK$ HK$ ¥ ¥ HK$ HK$ HK$ AU$ ¥ ¥ ¥ TW$ ¥ KRW HK$ ¥ ¥ ¥ ¥ ¥ ¥ ¥ AU$ ¥ ¥ ¥ ¥ ¥ HK$ HK$ $ AU$ KRW ¥ ¥ ¥ HK$ TW$

Year ago

12 p.m. New York time

Cross rates

0.3772 0.1 7.8301 9.5 3.8639 –0.8 0.3043 3.9 0.3850 –0.01 3.642 0.02 3.7565 0.1 13.9946 21.1

90.25 –0.26 –0.28

Nov.

Sources: SIX Financial Information; WSJ Market Data Group

Close Net Chg % Chg YTD % Chg

WSJ Dollar Index

Latest

370.50 865.25 491.50 132.550 3,338 125.10 15.34 61.87 1548.00

Middle East/Africa Bahrain dinar Egypt pound-a Israel shekel Kuwait dinar Oman sul rial Qatar rial Saudi Arabia riyal South Africa rand

Oct.

Top Stock Listings Latest

Yen Libor One month Three month Six month One year

US$vs, YTDchg Tue in US$ per US$ (%)

Yield

Corn (cents/bu.)

Soybeans (cents/bu.)

Wheat (cents/bu.)

Live cattle (cents/lb.)

Cocoa ($/ton) Coffee (cents/lb.)

Sugar (cents/lb.)

Cotton (cents/lb.)

Robusta coffee ($/ton)

London close on Nov. 24

Yen, euro vs. dollar; dollar vs. major U.S. trading partners

Sept.

EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.; MDEX: Bursa Malaysia Derivatives Berhad; TCE: Tokyo Commodity Exchange; COMEX: Commodity Exchange; LME: London Metal Exchange; NYMEX: New York Mercantile Exchange; ICE-EU: ICE Futures Europe. *Data as of 11/23/2015.

Year One-Day Change Commodity Exchange Last price Net Percentage high

Source: SIX Financial Information;WSJ Market Data Group

Currencies

Country/ Maturity, in years

4.250 Australia 2 3.250 10 3.500 Belgium 2 0.800 10 4.250 France 2 1.000 10 0.500 Germany 2 1.000 10 4.500 Italy 2 1.500 10 0.100 Japan 2 0.400 10 0.500 Netherlands 2 0.250 10 4.350 Portugal 2 2.875 10 0.500 Spain 2 2.150 10 3.750 Sweden 2 2.500 10 1.000 U.K. 2 2.000 10 0.875 U.S. 2 2.250 10

18351.36 –0.1 5231.94 7.4 2134.72 1.2 53.29 –16.5

•

Aug.

Latest, month-ago and year-ago yields and spreads over or under U.S. Treasurys on benchmark two-year and 10-year government bonds around the world. Data as of 12 p.m. ET

YTD % chg

2643.78 –3.9 1956.39 –2.3 1067.74 –12.2

• •

• •

High

1850

Nov.

Global government bonds

Data as of 12 p.m. New York time Latest NetChg

Americas Brazil Canada Mexico Chile

EMEA

Sept.

11.16 3.65 -13.46 -28.18 -19.68 38.35 -18.30 -2.88 25.44 -13.70 -7.26 0.94 -7.02 33.45 10.30 -18.79 0.70 14.86 -8.28 -15.37 36.93 16.37 -5.05 23.67 -4.50 27.60 34.64 -11.25 -18.08 50.31 22.33 11.30 0.07 -33.45 12.78 2.30 -18.24 -2.11 33.76 -9.28 11.95 -16.91 -1.06

Cur Stock

Sym

Close

¥ HK$ ¥ ¥ AU$ AU$ AU$

4502 0700 8766 7203 WES WBC WOW

6219.00 156.10 4758.00 7636.00 39.18 31.71 24.05

TakedaPharm TencentHoldings TokioMarineHldg ToyotaMtr Wesfarmers WestpacBanking Woolworths

Stoxx 50 CHF € € € £ € £ € £ € € £ € £ £ CHF CHF € € € £ € £ £ € £ € € € £ £ CHF CHF DKK £ £

ABB AXA Allianz Anheuser Busch AstraZeneca BASF BGGroup BNP Paribas BT Group BancoBilVizAr BancoSantander Barclays Bayer BP BritishAmTob FinRichemont CreditSuisse Daimler Deutsche Bank DeutscheTelekom Diageo ENI GlaxoSmithKline HSBC Hldgs INGGroep ImpTobaccoGrp IntesaSanpaolo L'AirLiquide LVMHMoetHennessy LloydsBankingGroup NationalGrid Nestle Novartis NovoNordiskB Prudential ReckittBenckiser

ABBN CS ALV ABI AZN BAS BG. BNP BT.A BBVA SAN BARC BAYN BP. BATS CFR CSGN DAI DBK DTE DGE ENI GSK HSBA INGA IMT ISP AI MC LLOY NG. NESN NOVN NOVO-B PRU RB.

18.95 24.48 161.75 120.00 4463.50 76.52 1003.00 54.96 485.20 7.76 5.19 220.05 122.90 385.90 3850.00 74.60 21.20 78.45 23.70 16.96 1894.00 15.05 1343.00 530.10 13.00 3530.00 3.11 114.15 154.95 71.60 940.50 74.80 88.00 375.60 1510.50 6254.00

% YTD% Chg Chg Cur Stock 0.44 24.47 0.39 38.76 -0.69 20.96 0.70 1.03 -0.61 -6.09 -0.56 -4.37 -2.35 -21.61

-0.16 -1.77 -0.89 0.80 -0.50 -1.58 -0.89 -0.72 -1.12 -0.15 0.33 -0.23 -1.95 1.35 -0.49 -3.12 -1.44 -0.63 -1.86 -1.40 -0.99 0.53 -0.11 -0.90 -0.34 -0.76 -1.27 -1.68 -4.29 -0.25 -0.10 -1.25 -1.01 -1.62 -0.40 -1.08

-10.36 27.49 17.76 27.85 -2.02 9.50 15.95 11.57 20.85 0.83 -23.54 -9.63 8.76 -6.11 10.00 -15.99 -14.63 13.75 -5.14 29.28 2.46 3.72 -2.40 -12.90 20.04 24.47 28.32 10.99 17.16 -5.57 2.44 2.54 -4.71 44.30 1.24 20.04

£ CHF £ € € € € € € CHF € £ £ CHF

RioTinto RocheHldgctf RoyDtchShell A SAP Sanofi SchneiderElectric Siemens Telefonica Total UBSGroup Unilever Unilever VodafoneGroup ZurichInsurance

Sym

Close

RIO ROG RDSA SAP SAN SU SIE TEF FP UBSG UNA ULVR VOD ZURN

2274.00 266.90 1650.00 73.59 81.78 57.53 94.54 11.48 46.09 19.43 41.27 2833.00 219.30 263.40

DJIA $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

AmericanExpress Apple Boeing Caterpillar Chevron CiscoSys CocaCola Disney DuPont ExxonMobil GenElec GoldmanSachs HomeDepot Intel IBM JPMorganChase JohnsJohns McDonalds Merck Microsoft NikeClB Pfizer Procter&Gamble 3M TravelersCos UnitedTech UnitedHealthGroup VISAClA Verizon WalMart

AXP AAPL BA CAT CVX CSCO KO DIS DD XOM GE GS HD INTC IBM JPM JNJ MCD MRK MSFT NKE PFE PG MMM TRV UTX UNH V VZ WMT

71.49 118.73 148.46 71.22 91.76 27.24 43.21 118.43 66.92 81.81 30.54 187.81 133.54 34.14 138.52 66.46 102.23 114.14 53.22 54.15 132.27 31.65 76.32 157.73 115.29 96.95 112.42 79.98 45.05 60.11

% YTD% Chg Chg -0.26 -24.20 -1.77 -1.11 1.44 -23.38 -0.98 26.31 -1.43 8.09 -0.90 -5.08 -1.34 0.84 -0.30 -2.69 0.70 10.56 -1.27 13.69 -1.50 26.46 -0.63 7.80 -1.31 -1.50 -2.12 -15.50 -1.04 0.83 0.08 0.28 1.94 -0.69 0.58 -0.83 0.60 1.91 -0.18 -0.73 0.78 -0.99 0.04 -0.63 -0.53 -0.29 -1.46 -0.08 -0.14 1.02 0.46 -0.58 -0.29 -1.16 0.23 -0.16 0.12 -0.25

-23.16 7.56 14.22 -22.19 -18.20 -2.07 2.34 25.74 -4.73 -11.51 20.83 -3.11 27.22 -5.92 -13.66 6.20 -2.24 21.81 -6.29 16.57 37.57 1.61 -16.21 -4.01 8.92 -15.70 11.21 22.01 -3.71 -30.01

Asia Titans 50 Last: 138.08 t 0.09, or 0.06%

YTD t 2.9% 150 140 130 120 110 100

50–day moving average t High Close Low 28

4 Sept.

11

18

25

2 9 Oct.

16

23

30 6 Nov.

13

20

Stoxx 50 Last: 3225.47 t 33.82, or 1.04%

YTD s 7.4% 3600 3400 3200 3000 2800 2600

28

4 Sept.

11

18

25

2 9 Oct.

16

23

30 6 Nov.

13

20

Dow Jones Industrial Average

P/E: 17

Last: 17802.03 s 9.35, or 0.05%

YTD t 0.1% 19000 18000 17000 16000 15000 14000

28

4 11 Sept.

18

25

2 9 Oct.

16

Note: Price-to-earnings ratios are for trailing 12 months Sources: WSJ Market Data Group; Birinyi Associates

23

30 6 Nov.

13

20

For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.

To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com

THE WALL STREET JOURNAL.

Wednesday, November 25, 2015 | B9

MONEY & INVESTING

Hong Kong Tightens Up on ‘Dark Pools’ Anonymous trading venues, which have made limited inroads, to face more scrutiny

Total trading values in trillions

Automated trading services (ATS), in billions

Automated services’ share

BY GREGOR STUART HUNTER

HK$4

HK$40

4%

3

30

3

2

20

2

1

10

1

Hong Kong is joining the list of global regulators to ramp up scrutiny over the anonymous trading forums known as dark pools.

On Dec. 1, the city’s securities regulator will implement new rules, announced earlier this year, intended to strengthen its oversight of what it calls “alternative liquidity pools.”

Dark pools are electronic private trading venues—typically operated by big banks— that are designed to let investors buy and sell shares anonymously. Proponents say they allow big investors to make large trades more easily and cheaply, without tipping the market to their intentions.

But recently global regulators have cracked down on these opaque trading venues, amid criticism that some operators offered professional traders unfair advantages over pension funds and other institutional investors. Last week,

from gaining an information advantage by keeping prices private.

Some analysts say regulators’ moves could force more trading out of dark pools and back onto public exchanges.

“I would be very surprised if we see any new entrants into the dark space in Hong Kong, or anywhere else, in the next little while,” said Lee Porter, managing director for Asia-Pacific at Liquidnet, an institutional trading network.

“If anything, we’re going to see a lot of people stepping back, saying it isn’t worth it,” he said, adding that the effort of managing risks and regulatory scrutiny tied to dark pools was becoming harder to justify for some.

So-called automated trading services, the Hong Kong Securities and Futures Commission’s catchall term that includes dark pools, have accounted for a maximum of 2.8% of total market turnover during the past three years.

Even as China’s opening of its capital markets drove volume on Hong Kong’s stock exchange to record levels earlier this year, volumes of dark pools barely budged, except for a brief pickup during the heat of a mainland rally in

It's Dark and Nobody's Home Dark-pool trading in Hong Kong remains a sliver of total turnover on the city's exchange.

0 2012 ’13

0 ’14

’15

2012 ’13

0 ’14

’15

’12 ’13

’14

’15

Note: Automated Trading Services definition includes dark pools

the U.S. Securities and Exchange Commission also proposed new rules to improve oversight of the sector.

Hong Kong’s new regulation would ban brokerages from offering dark-pool trading to their retail investors and requires greater transparency of trading activities. It also clarifies the status of certain trades by brokers to ensure that their proprietary trades aren’t executed ahead of their clients’ trades.

Trading on Hong Kong’s 16 active dark pools has hovered at around 2% of total trading volume in the past few years, though it has dropped off recently. In October, trading totaled 22 billion Hong Kong dollars (US$2.84 billion), or 1.4% of total market turnover of HK$1.592 trillion, according to data from Hong Kong Exchanges & Clearing Ltd. By comparison, around 15% to 18% of equity-market turnover in the U.S. takes place on

dark pools, according to data from Rosenblatt Securities Inc. Dark-pool trading never really took off in Hong Kong, despite picking up in other Asian markets including Japan and Australia.

Part of the reason is that trading fees make high-frequency trading on Hong Kong’s stock exchange largely unprofitable. That knocks out a key selling point for darkpool operators: the ability to prevent automated traders

April.

Meanwhile, brokerages say retail investors in Hong Kong have taken a bigger share of trading over the past year, while the proportion of institutional investors has receded.

Dark-pool usage has dwindled as institutional flows have fallen, because retail investors haven’t been able to use dark pools and will be explicitly banned from doing so by the latest rule change.

Hong Kong’s moves come as global regulators have made strides to shine a light on dark pools in recent months. Just last week, the U.S. SEC proposed rules requiring dark pools and other alternative trading systems to make public detailed information about their operations and activities.

European regulators are also studying how best to regulate dark-pool activity.

U.S. regulators have extracted settlements worth tens of millions of dollars from brokerages including UBS Securities LLC and ITG Inc. after alleging improper practices, and pursued regulatory actions against Barclays PLC and Credit Suisse Group AG. The two banks have entered settlement talks with the New York attorney general and the SEC.

ANDREW HARRER/BLOOMBERG NEWS

China Sees More Bad Debt

CFTC Chairman Timothy Massad says the plan ‘contains a number of common-sense risk controls.’

CFTC Plan Targets Fast Traders

BY ANDREW ACKERMAN WASHINGTON—The Commodity Futures Trading Commission took its first concrete step toward boosting oversight of rapid-fire traders, advancing plans to increase controls of computerized trading after a series of market glitches.

The CFTC on Tuesday voted, 3-0, to propose requiring about 100 trading firms to register with the agency and adhere to a series of risk controls aimed at ensuring their computer systems are less susceptible to disruptive breakdowns.

While some aspects of the plan are expected to generate industry resistance, particularly one provision that would allow officials to review a firm’s proprietary computer source code, regulators said many of the requirements merely codify existing industry practices.

“It contains a number of common-sense risk controls that I believe recognize the benefits that automated trading has brought to our mar-

kets, while also seeking to protect against the possibility of breakdowns,” CFTC Chairman Timothy Massad said in prepared remarks ahead of Tuesday’s vote.

Tuesday’s measure, aimed at firms that trade in the futures markets, is the latest indication regulators plan to increase scrutiny of highfrequency and other trading firms. It comes two years after the CFTC floated a road map on algorithmic trading and months after the Securities and Exchange Commission proposed a related measure to require certain high-speed firms to register with a Wall Street watchdog.

Automated trading comprises about 70% of the trading in markets overseen by the CFTC, and firms targeted for registration by the proposal engage in about half that volume, the agency said.

The expansion of electronic trading has been accompanied by a series of market disruptions that have raised concerns about the fragility of the technological systems that underpin financial markets.

These include the May 2010 “flash crash” that sent markets plunging lower in a matter of minutes and multiple exchange outages, such as a glitch this summer that forced the New York Stock Exchange to halt trading for nearly four hours.

Under the proposal, firms would have to implement pretrade risk controls, such as a cap on the number of trades their computers could enter into in a given period, as well as “order cancellation systems,” according to a CFTC fact sheet. Firms would have to test their algorithms before implementation as well as file annual compliance reports on their risk controls.

Another aspect of the proposal aims to discourage incidents of self-trading, in which a fast-trading firm takes both sides of a trade. CFTC members and other Obama administration officials have raised concerns about the fairness of such activity.

The CFTC will collect comments on the proposal and must vote on it a second time before it can go into effect.

Silk Road Fund Backs CEEC IPO

BY KANE WU HONG KONG—China’s US$40 billion Silk Road Fund, which the country set up in November 2014 to finance its “one belt, one road” development plan, has once again shown support to the listing plans of state-owned companies.

The fund is the largest cornerstone investor in China Energy Engineering Corp.’s initial public offering to raise as much as US$1.96 billion in Hong Kong, according to a person with direct knowledge of the matter.

CEEC, controlled by power conglomerate China Energy Engineering Group Co., is offering 8.8 billion shares at 1.59 Hong Kong dollars to HK$1.73 (20.5 to 22.3 U.S. cents) a share, and has locked up more than half of the shares from 20 cornerstone investors, the

person said.

CEEC declined to comment.

Cornerstone investors in Hong Kong commit funds to support an IPO and agree to buy at the float price, but are tied to holding the stock for a certain period, usually six months, after the shares start trading.

The participation of such investors can help give other investors confidence to invest in an IPO. Chinese state-owned companies have increasingly relied on cornerstone investors since China’s market turmoil began in June, an indication that ordinary IPO investors are becoming difficult to attract.

The Silk Road Fund made its maiden IPO investment in October when it chipped in US$100 million to become the largest cornerstone investor in Chinese investment bank China International Capital

Corp.’s US$811 million float.

CICC’s share offer was oversubscribed, and the deal was priced at the top of the range.

China set up the Silk Road Fund to better connect to the rest of Asia, Africa, the Middle East and Europe, where Chinese companies are seeking to push through various development projects.

CEEC is engaged in the design and construction of power plants, with projects across China and in more than 80 countries overseas, according to its filing to the Hong Kong stock exchange.

CEEC recorded a net profit of 2 billion yuan (US$313 million) in the first five months of the year, according to the filing.

The company will price the deal on Dec. 2 and start trading on Dec. 10. CICC and Citic CLSA are sponsors, or banks responsible for the IPO.

BEIJING—China’s slowing growth will lead to more bad loans for banks, according to a new estimate from one of China’s official bad-loan buyers, putting further strains on the country’s financial system.

Soured loans could make up 1.67% of Chinese bank-loan portfolios by the end of this year, according to China Orient Asset Management Corp., one of the country’s four asset-management companies, which are widely called “bad banks.” That compares with 1.59%, or 1.19 trillion yuan ($186.3 billion), as of the end of September, according to official data, the highest level in six years.

Bad loans could rise to 1.94% of bank-loan portfolios by the end of 2016, China Orient said in its annual report on bad loans, released Tues-

accounting for nearly 3.8% of total lending, according to data from China’s banking regulator. China’s asset-management companies were set up

by Beijing more than a decade ago to buy nonperforming loans. They buy bad debts at a discount from banks and other companies and then restructure the debt or recover cash from the borrowers.

China Orient said in its report that the growth slowdown will prompt lenders to put more soured debt up for sale. The manufacturing and property sectors are the two major sources of nonperforming loans, the report said.

The company said in its latest report that its expected return from buying bad assets, while declining this year, stood above 10%.

—Grace Zhu

day. “Nonperforming loans at China’s banking system will continue to rise in the next four to six quarters,” it said, citing its poll of commercial banks and asset-management companies.

Observers widely doubt China’s bad-loan figures, which are low compared with lenders in other parts of the world, because lenders will often extend loans to keep them from souring. Still, the figures suggest the strains on Chinese banks could worsen should economic growth continue to ebb. In the third quarter, Chinese economic growth decelerated to 6.9%, its slowest pace since the financial crisis.

Special mention loans, which are loans that are overdue but not yet considered impaired, stood at 2.8 trillion yuan at the end of September,

INTERNATIONAL INVESTMENT FUNDS

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All performance figures are calculated using the most recent prices available.

FUND NAME

NAV GF AT LB DATE CR

NAV

—%RETURN— YTD 12-MO 2-YR

n Chartered Asset Management Pte Ltd - Tel No: 65-6835-8866 Fax No: 65-6835 8865, Website: www.cam.com.sg, Email: cam@cam.com.sg CAM-GTF Limited

OT

OT MUS 11/20 USD 282634.55

n Cp Capital Asset Management Limited www.cpgbl.com CP Global Alpha Fund OT CP Multi-Strategy Currency Fund OT CPS-Master Priv Fund GL

OT WSM 11/24 USD OT CYM 11/17 USD OT WSM 11/24 USD

n Manulife Global Fund Tel:(852)2108 1110 Internet:http://www.manulifefunds.com.hk American Growth Fund A American Growth Fund AA American Growth Fund AA (HKD) Asia Total Return Fund AA Inc Asia Total Return Fund AA Asia Total Return Fund AA (HKD) Inc Asia Value Dividend Equity Fund AA Asia Value Dividend Equity Fund AA Inc Asian Equity Fund A Asian Equity Fund AA Asian Sm Cap Equity Fund AA Asian Small Cap Equity Fund AA (HKD) China Value Fund A China Value Fund AA Dragon Growth Fund A Dragon Growth Fund AA (HKD) Emg Eastrn Europe Fund A Emg Eastrn Europe Fund AA European Growth Fund A European Growth Fund AA Global Contrarain Fund AA Global Property Fund AA Global Property Fund AA (HKD) Global Resources Fund AA Greater China Opportunities Fund AA Healthcare Fund AA India Equity Fund AA International Growth Fund A International Growth Fund AA Japanese Growth Fund A Japanese Growth Fund AA Latin America Equity Fund AA Russia Equity Fund AA Strategic Income Fund AA Taiwan Equity Fund AA Turkey Equity Fund AA U.S. Bond Fund AA U.S. Bond Fund AA (HKD) U.S. Bond Fund AA (HKD) Inc U.S. Bond Fund AA Inc U.S. Sm Cap Equity Fund AA U.S. Special Opportunities Fund AA U.S.SpecialOpportunitiesFundAA(HKD) U.S. Special Opportunities Fund AA Inc U.S. Tsy Inf-ProtSec Fund AA

US US US AS AS AS OT OT OT OT AS AS AS AS AS AS EU EU EU EU GL OT OT GL AS OT EA GL GL JP JP GL EE OT AS OT US US US US US US US US OT

EQ EQ EQ BD BD BD OT OT OT OT EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ OT EQ OT BD BD BD BD EQ BD BD BD OT

LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX LUX

11/23 USD 11/23 USD 11/23 HKD 11/23 USD 11/23 USD 11/23 HKD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 HKD 11/23 USD 11/23 USD 11/23 USD 11/23 HKD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 HKD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 HKD 11/23 HKD 11/23 USD 11/23 USD 11/23 USD 04/09 HKD 11/23 USD 11/23 USD

-16.9

-19.5

-7.4

133.82 116.78 163.97

13.5 NS 11.6

17.7 19.9 NS

NS 12.0 13.8

31.53 1.79 11.30 0.92 0.95 9.61 1.59 0.96 2.93 0.94 2.00 8.15 8.12 2.55 1.95 9.43 3.13 1.36 10.25 0.75 0.91 0.99 9.28 0.65 0.97 1.87 1.28 4.52 1.04 3.43 0.88 0.75 0.43 1.04 1.53 0.73 1.16 9.79 9.63 0.97 1.12 0.82 9.60 0.86 1.26

8.6 8.4 9.1 -1.7 -1.6 NS -3.1 -2.2 -5.0 -5.3 -4.2 -4.3 -4.0 -4.2 0.2 -0.1 0.0 -0.1 -0.9 -1.1 -2.6 -2.7 NS -19.5 -2.3 0.1 -5.0 -2.3 -2.5 12.8 12.6 -21.5 20.6 -0.1 1.8 -22.7 -0.3 NS -0.3 -0.3 -0.3 -3.1 2.4 -3.1 -2.0

8.6 8.3 9.0 -2.4 -2.4 NS -1.4 NS -5.4 -5.6 -11.3 -11.3 -0.6 -0.8 0.6 0.2 -18.3 -18.4 -3.4 -3.6 -3.8 -1.0 NS -28.5 -2.8 2.1 -8.4 -2.4 -2.7 11.8 11.5 -30.2 -8.3 0.0 -0.1 -25.0 -0.3 NS -0.3 -0.3 0.8 -6.2 NS -6.2 -3.0

10.0 9.8 NS 1.0 NS NS 1.4 NS -2.3 -2.5 -2.8 NS 2.0 1.7 3.5 3.2 -19.4 -19.5 -3.3 -3.5 0.4 5.9 NS -17.8 NS 10.0 17.1 2.3 2.0 2.6 2.3 -16.4 -17.3 1.2 4.6 -13.1 2.0 NS NS NS 1.0 -1.7 NS NS -0.9

n Website: Www.Valuepartners.Com.Hk, Tel: (852) 2880 9263 China A-Share Fund Cls A AUD H China A-Share Fund Cls A AUD UnH China A-Share Fund Cls A CAD H China A-Share Fund Cls A EUR H China A-Share Fund Cls A GBP H China A-Share Fund Cls A GBP UnH China A-Share Fund Cls A HKD H China A-Share Fund Cls A HKD UnH China A-Share Fund Cls A NZD H China A-Share Fund Cls A NZD UnH

OT OT OT OT OT OT OT OT OT OT

OT OT OT OT OT OT OT OT OT OT

HKG HKG HKG HKG HKG HKG HKG HKG HKG HKG

11/23 AUD 11/23 AUD 11/23 CAD 11/23 EUR 11/23 GBP 11/23 GBP 11/23 HKD 11/23 HKD 11/23 NZD 11/23 NZD

12.17 12.00 11.44 12.14 11.75 11.87 12.23 12.17 11.88 11.57

5.1 NS 4.6 5.7 1.9 11.7 5.1 5.5 3.0 NS

21.7 NS 14.4 21.4 17.7 NS 22.2 21.6 18.8 NS

NS NS NS NS NS NS NS NS NS NS

FUND NAME

NAV GF AT LB DATE CR

China A-Share Fund Cls A RMB (CNH) China A-Share Fund Cls A USD China A-Share Fund Cls A USD H China Greenchip-A Units China Greenchip-A Units AUD H China Greenchip-A Units CAD H China Greenchip-A Units NZD H China Greenchip-A Units USD China Greenchip-A2 QDIs Units GC Hi Yield Inc - Cls A MDIs GBP H GC Hi Yield Inc-Cls A MDIs AUD H GC Hi Yield Inc-Cls A MDIs CAD H GC Hi Yield Inc-Cls A MDIs NZD H GC Hi Yield Inc-Cls P HKD Acc sh GC Hi Yield Inc-Cls P HKD MDIs sh GC Hi Yield Inc-Cls P MDIs SGD H GC Hi Yield Inc-Cls P USD Acc sh GC Hi Yield Inc-Cls P USD MDIs sh GC Hi Yield Inc-ClsA MDIs EUR H Hi-Div Stk Cls A1 Hi-Div Stk Cls A2 MDIs Hi-Div Stk Cls A2 MDIs AUD H Hi-Div Stk Cls A2 MDIs CAD H Hi-Div Stk Cls A2 MDIs GBP H Hi-Div Stk Cls A2 MDIs HKD Hi-Div Stk Cls A2 MDIs NZD H Intel-China Converg Fund-A AUD H Intel-China Converg Fund-A Units Intel-Chinese Mainland Foc Fund VP Classic-A Units VP Classic-B Units VP Classic-C Units VP Classic-C Units AUD H VP Classic-C Units CAD H VP Classic-C Units NZD H VP Classic-C Units RMB H VP Multi-Asset Fund Cls A USD VP Taiwan Fund

OT OT OT AS AS AS AS AS AS OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT AS AS AS AS AS AS AS AS AS AS OT AS

OT HKG OT HKG OT HKG EQ CYM EQ CYM EQ CYM EQ CYM EQ CYM EQ CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM OT CYM EQ CYM EQ CYM EQ CYM EQ HKG EQ HKG EQ HKG EQ HKG EQ HKG EQ HKG EQ HKG OT NA EQ CYM

11/23 CNH 11/23 USD 11/23 USD 11/23 HKD 11/23 AUD 11/23 CAD 11/23 NZD 11/23 USD 11/23 HKD 11/23 GBP 11/23 AUD 11/23 CAD 11/23 NZD 11/23 HKD 11/23 HKD 11/23 SGD 11/23 USD 11/23 USD 11/23 EUR 11/23 USD 11/23 USD 11/23 AUD 11/23 CAD 11/23 GBP 11/23 HKD 11/23 NZD 11/23 AUD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 USD 11/23 AUD 11/23 CAD 11/23 NZD 11/23 CNH NS NS 11/23 USD

NAV 12.65 12.16 12.10 53.86 9.03 8.92 9.20 8.92 9.81 9.48 9.04 9.06 9.26 12.31 8.82 9.58 12.42 8.87 9.91 72.86 10.81 9.78 9.82 9.26 9.84 9.93 9.64 147.31 41.69 263.22 119.12 15.02 12.28 12.01 12.39 9.79 NS 14.63

—%RETURN— YTD 12-MO 2-YR 7.1 6.0 4.4 -11.6 -12.9 -13.8 -11.5 -13.1 -11.7 NS 9.3 7.7 10.8 7.4 7.4 8.2 7.5 7.5 NS -2.4 -2.4 -1.7 -2.9 NS -2.7 -0.3 NS 0.3 2.6 -1.4 -1.9 -1.9 -1.1 -1.9 0.9 NS NS -5.1

25.5 22.1 20.9 -10.6 -11.6 -12.8 -10.2 -12.0 -10.7 NS 6.9 5.1 8.3 4.8 4.8 5.5 4.9 4.8 NS 0.7 0.9 1.9 0.4 NS 0.7 3.5 NS 8.9 12.2 5.9 5.4 5.6 7.6 6.4 9.2 NS NS -4.8

NS NS NS -3.7 NS NS NS NS -4.0 NS 6.6 4.9 7.7 4.5 4.5 NS 4.5 4.5 NS 3.0 2.9 4.4 3.1 NS 2.7 5.1 NS 7.5 6.3 7.1 6.6 6.7 NS NS NS NS NS 0.9

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THE WALL STREET JOURNAL.

B10 | Wednesday, November 25, 2015

HEARD ON THE STREET FINANCIAL ANALYSIS & COMMENTARY

Email: heard@wsj.com

China Taps the Brakes on Yuan

Why fix what ain’t broken? It is an apt question after activist investor Elliott Management disclosed a nearly 6.5% stake in Alcoa.

The aluminum producer announced in September, much to the market’s delight, that it would split in two. The stock rallied by as much as one-fifth within several days, but had since given up all of those gains and then some by Friday.

The fact that Elliott’s securities filing sent the stock up by more than 4% Monday might suggest the fund sees alternatives, or additional steps, that Alcoa’s management could take to create value. The explanation may be less exciting, but for analysts who believe in Elliott’s analysis, no less reason to stick around.

Elliott thinks the stock is “dramatically undervalued” and supports the split. In theory, the downstream “Value Add Co.,” with about half of revenue, is more valuable than the market realizes, dragged down by “Upstream Co.’s” exposure to sagging industrial metals.

While that could continue, Upstream Co. is now being valued at less than zero on some measures. A look at the multiple of earnings that Warren Buffett’s Berkshire Hathaway agreed to pay for Precision Castparts, a similar business to Value Add Co., suggests as much.

The most likely reason Elliott has appeared on the scene, then, is that it already played its activist role silently by encouraging the split. With the stock having given up all of the gains following that announcement, it was trading like the old, broken Alcoa again.

—Spencer Jakab

Now that’s more like it.

China’s currency is once again on a downward path, trading near its weakest point of the year at around 6.38 yuan per dollar. But unlike the plunge that scrambled world markets over the summer, Beijing is letting the air out just a little bit at a time.

The August move was hastily ordered and just as quickly pulled back with massive central-bank interventions. The episode was uncharacteristically chaotic for investors accustomed to Beijing’s usually cautious policy making.

This time around, the currency is moving more like investors are used to, in a gradual way heavily managed by Beijing. In the first 17 trading days this month, the yuan’s onshore fixing rate has weakened in 14 of them, though not by much in any single day. From its post-August strong point on Nov. 2, it has weakened 1.2%.

This reflects the reality of

Redback Rising An index of China’s currency on an inflation-adjusted, trade-weighted basis 140 130 120 110 100 90 80 2005

’07

’09

’11

’13

’15

Sources: CEIC; Bank for International Settlements

THE WALL STREET JOURNAL.

the strong dollar, with expectations running high for a U.S. Federal Reserve rate increase next month. The yuan can’t stay pegged to the dollar without rising against other global currencies.

The International Monetary Fund is also set to decide on Nov. 30 whether to include the yuan in the bas-

There is an old political maxim: “If you’re explaining, you’re losing.”

GameStop’s business isn’t politics. But the videogame retailer’s future with investors may hinge on its persuasive abilities. And, lately, it has been pretty unpersuasive. This was apparent Monday when it posted disappointing fiscal third-quarter results. At the same time, it was working to convince investors that its business isn’t being destroyed by digital downloads.

That has weighed heavily on the stock, which has shed more than $800 million in market value since Nov. 12.

That is when NPD’s monthly game-sales report led many

to conclude that Microsoft’s “Halo 5: Guardians” sold a much higher percentage of digital copies than previous games of that caliber.

Digital downloads hurt GameStop’s new software sales, which accounted for one-third of total revenue in the period ended Oct. 31.

Finance Watch IDBI BANK

Green-Bond Offering Raises $350 Million

India-based IDBI Bank Ltd. raised US$350 million from a socalled green-bond offering, according to a term sheet reviewed Tuesday by The Wall Street Journal.

The five-year, U.S. dollar-denominated bond carries a coupon of 4.25%.

More worrisome, they eventually challenge the company’s used-game business, which accounts for nearly half of gross profit.

For its part, GameStop claimed downloads of “Halo

struggled for returns in recent years as rates have stayed low.

Tudor has been running bets that short-term U.S. Treasury yields will rise and that the dollar will gain against the euro and the yen, another person who knows the fund said. Tudor declined to comment.

News earlier this month that U.S. employers added 271,000 jobs in October, well above economists’ expectations of 183,000, gave more credence to the prospect of a rate increase next month.

It helped lift the dollar, which is up 3% against the euro this month, and the 10year Treasury yield, which is up 0.06 percentage point since Nov. 2.

“November has been good for macro in general,” said Nicolas Rousselet, head of hedge funds at Switzerland-based investment firm Unigestion. “Everyone is expecting a rate increase. It’s a big hedge-fund play to benefit from a rate increase” and expectations of an increase.

Also gaining is Dymon Asia Capital Ltd., which runs $4.5 billion in assets and which posted double-digit losses this year through the end of last month. Its Dymon Asia Plus

fund gained 3.9% this month through Nov. 13. Dymon didn’t respond to requests for comment.

Computer-driven macro funds betting on market trends also profited. Two Sigma Investments LLC, which oversees $29 billion in assets, saw its Absolute Return Macro fund return 2.8% this month, another person familiar with the matter said. Secor Asset Management LP, which runs $30 billion, saw its $260 million Alpha fund gain 2.2% this month to Nov. 13, according to numbers sent to investors. The firm declined to comment.

Macro funds on average are up 2.1% this month through Nov. 18, according to Hedge Fund Research. That has pared their losses in 2015 to 0.4%.

Most funds hold similar bets on U.S. Treasury yields moving higher, according to industry insiders.

Funds have also been increasing bets on the dollar rising against the euro in recent months, said Kevin Arenson, chief investment officer at Stenham Advisors PLC, which oversees $3.4 billion in assets.

“A lot of hedge funds are seeing opportunities in currencies,” he said.

Green bonds, which go toward funding environmentally friendly projects, are a fast-growing corner of the fixed-income market.

IDBI Bank’s green bonds are expected to be rated Baa3 by Moody’s Investors Service and BBB- by Fitch Ratings.

The deal received nearly US$1 billion in orders, according to a sales memo.

—Carol Chan

Commission said.

The idea has already encountered strong resistance from Germany and its powerful savings and cooperative banks.

The commission, the European Union’s executive branch, says centralizing deposit insurance is a necessary step for the eurozone and completes the bloc’s banking union, which has pooled responsibility for bank supervision and resolution to shield governments from the fallout of banking crises.

“We must weaken the link between banks and sovereigns,” said Valdis Dombrovskis, the commission’s vice president for the euro.

—Gabriele Steinhauser

DEPOSIT INSURANCE

Pooling of Funds Is Proposed in Europe

Eurozone countries should gradually pool their national deposit-insurance funds over the next nine years, the European

5” are actually in line with previous big game launches.

On its earnings call, the company said the discrepancy between reports from Microsoft and NPD could be chalked up to a number of factors—including the fact that NPD only tracks retail sales in the U.S.

GameStop needs to make the case about its prospects. It has been unpersuasive lately.

Prospect of Higher Rates Lifts Macro Hedge Funds Tudor Investment Corp. is among a group of hedge funds whose bets on a U.S. interest rate increase are making millions of dollars in profit this month.

The firm’s flagship $8.3 billion BVI Global fund gained 1.8% this month through Nov. 13, according to figures sent to investors and reviewed by The Wall Street Journal. Its $1.8 billion Discretionary Macro fund gained 1.7%, said a person who had seen the numbers.

Together that equates to a profit of around $180 million.

Both funds were roughly flat for the year before November’s gains.

Like many so-called macro funds, which bet on bonds, currencies and stocks, Tudor—set up by billionaire trader Paul Tudor Jones—is profiting from market expectations that the U.S. Federal Reserve will raise interest rates in December after seven years of leaving them at near zero.

Such funds, made famous by the likes of billionaire trader George Soros, are among the hedge funds most able to profit from interestrate changes. Many have

ket that makes up its pseudocurrency, called Special Drawing Rights. Inclusion seems likely, which yuan bulls hope will lend support to the currency. But it is unlikely to have any immediate impact, because any SDR-related buying won’t happen for some time and will be limited. At the maximum, it might spur

$43 billion worth of buying, according to Moody’s, a modest amount in China’s currency market.

So how far will Beijing be willing to let the yuan weaken in the months ahead?

Some think 6.40 is a round number that it doesn’t want to cross, for fear of sparking a fresh bout of capital outflows. It also happens to be 3% weaker than the start of the year, a reasonably cautious move in the grand scheme of things. The Brazilian real is down nearly 30% this year.

The trouble is, 3% doesn’t get China much economic bang for its buck. With the euro, yen and many emerging-markets currencies falling faster, China’s trade-weighted real effective exchange rate is 7% stronger than it was at the start of the year. With other policy levers having only a muted effect on the economy, investors should be prepared for a bit more air to leak out of the yuan.

—Alex Frangos

GameStop’s Future Is Hung Up on Downloads

MONEY & INVESTING

BY LAURENCE FLETCHER

EUROPEAN PRESSPHOTO AGENCY

Activist Not Rocking Alcoa’s Boat

Investors aren’t buying it.

The heavily shorted stock still was off sharply after the call and has lost more than 18% since the NPD report.

GameStop’s shares have given up most gains this

year, and now trade about 8.3 times forward earnings— or about half the multiple of the S&P 500.

A dividend yield in the 4% range and a low valuation could argue for hitting the pause button on the selloff.

But GameStop will struggle to move higher in the near term. The company is quickly building up alternative businesses in the sale of phones, electronics and other merchandise. These still account for just 15% of total sales, though.

For now, GameStop’s business will hinge on the task of getting gamers off their chairs and into stores. And that will only grow more difficult.

—Dan Gallagher

WSJ.com/Heard

OVERHEARD Noble Group has to build an even higher capital wall.

A week after credit-rating company Moody’s said it would review the beleaguered commodities trader’s rating for a possible downgrade to junk status, Standard & Poor’s said it would place it on “creditwatch negative.”

That is a step closer to a downgrade. Both ratings companies said that shrinking liquidity at Noble is the top concern and they gave the company three months to improve on this front.

S&P is anxious about a specific metric of leverage, which The Wall Street Journal reported in a Heard on the Street column Monday. In its latest warning, S&P says Noble’s funds from operations—a number similar to operating cash flow—stood at 19.8% of total debt in September. That was below the 24% level in March and was much lower than the 25% that the credit-rating company is content with.

The simplest way to improve this ratio is for Noble to raise money. The company has touted plans to raise at least $500 million by selling assets or shares. But reducing debt by $500 million would only boost this ratio to 22%.

To get up to the 25% mark would require that Noble raise $1.13 billion, according to Wall Street Journal calculations. That is compared with the north of $700 million figure that S&P tipped previously. This assumes funds from operations stay constant. Noble could always raise operating profits to improve the ratio.

The problem: The commodities downturn caps this effort.

Noble should be prepared to raise twice as much fresh capital as the minimum number it has penciled in.