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Team IBS Times Shilpam Dubey (Editor in Chief) Sneha Tibrewal (Managing Editor) Antra Bharti Debanjan Paul Dixita Reddy Gagan Kapoor Radhika Gupta Shreya Rani Smriti Patodia Srujana Naik Utsav Changoiwala Aarushi Jandrotia Aishwarya Siram Amit Shovan Mandal Ayush Thalia Ishaan Sengupta Kartik Grover  Naman Shah Nishika Tatiya Noel Mathew Sambhav Jain Srivatsasa Sripujitha Tanay Sood Designed By : Gagan Kapoor & Sneha Tibrewal 2
Too much to Cover.. It’s December 2017, almost a decade since Global Financial Crisis staggered the whole world. It followed major radical financial regulatory reforms across the globe. Has the World become more stable financially following those reforms? The answer is yes for at least the G20 countries. According to Financial Stability Board’s Third Annual Report on “Implementation and Effects of the G20 Financial Regulatory Reforms”, G20 reforms are building a safer, simpler, fairer financial system. That’s a good news. Yet, it has a long list of unfinished goals, including urgent implementation of Basel III. We cover, in this edition, failures in the banking systems and their bailouts, piling sovereign debts, economic crises, hyperinflations, proxy-conflicts, scandals and disclosures of tax havens in the wake of Paradise Papers leak. Also, we cover, what makes New-Zealand the easiest country to do business — one positive news among the rest negative ones... Please write to us and become of part of these discussions. Email id : editor.ibstimes@gmail.com Shilpam Dubey Team IBS Times 3
CONTENT
06 COVER STORY - Taming the Dragon: China’s Growing Financial Risk 09 Paradise Papers - The Pandora's Box of Rich 12 Stumble Less, Transmit More 15 Cold War II - Mayhem in the Middle East 18 There’s a lot more there - Trump - Russia Scandal 21 Is Recapitalization End of the Beginning or Beginning of the End? 23 Scavenging to Survive in Venezuela 26 New Zealand - 1st Among 190 29 Trump Policies - Make America Great or Weak again.?! 32 Debtors Prison - Greece 35 ASIA MARKET WATCH - The Asian Rialto
Taming the Dragon: China’s Growing Financial Risk - Ishaan Sengupta Déjà vu, is what I’d like to use to describe my feeling when I was apprised of the fact that I’d have to write about China. I had been attending lectures on Leverage and Capital Structure for the past week and China’s issues can very well be understood on the same premise’. It is important to mention the fact that although China’s GDP has been impressive, almost accounting to one-seventh of the world’s GDP, its debt obligations have been rising unprecedently and alarmingly. See, when we talk about China, it is important to understand that China is its industry, and the industry is China. What I mean by this is the fact that, the country, has been a ‘pseudo-communist’ economy, rapidly integrating private investment, but is still heavily dependent on its state-owned enterprises. China's local governments and state-owned companies borrowed heavily to build cities and roads, invest in businesses and bolster financial markets.
catered to – accounting for the huge trade surplus the country has. – 38.17 billion USD. However, to channelize the production process and keep a consistent amount of produce, the Chinese state had to ensure that it funded these state-owned institutions consistently and recurrently. As the years passed, the country had to bank on both private investment and debt from other countries. Increasing the national as well as the debt quotient in the capital structure of every state-owned enterprise. These economic and philosophical decisions have led the country to a point that its Debt to GDP ratio increase to 4:1 in 2016 from 1.3:1 in 2001. This literally means, that for every 4 dollars it takes as debt, its GDP increases by 1 dollar. From a macroeconomic standpoint, the statistic does not look good for the economy in the long run.
China did not become the world’s biggest exporter by windfall, but it assured that enough workers were employed and the factories owned by the state were run diligently to both create a self-sufficient demand and supply economy. These factories produce primarily goods meant for export after national demand is
The theory of leverage suggests to us that more the debt quotient in the capital structure of a company, the more financial leverage there is - the more is the earning per share, due to a reduced cost of capital in comparison to an equity weighed capital structure. Because
The Theory of Leverage – Reduction in Bond Ratings
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interest rates are generally lesser than the return on equity shares, the companies bank on debentures to increase investor confidence and EPS. The same theory, coincides with the national accounts. The more debt in terms of bonds are issued by the state, the more is the chance of reducing current obligations and facilitating developmental as well as production activities in the economy. However, if the debt quotient increases above a certain level, investors demand a premium on the money they lend to the Government. And if the economy is unable to repay the debts owed to investors, there is a trust deficit that starts to mount up. Recently, Moody’s the financial instrument’s rating agency, downgraded China’s debt instruments and the country as a whole. This is the product of a rising corporate debt of around 170% of GDP. The Government debt is currently 55% of the GDP. And if things are not given due cognizance, a financial crisis can emerge, crashing the world markets. The current Moody’s rating leaves the country at par with Japan which has a very high Government Debt load. One thing is for certain, that if the Central Planning Authority decides to go for more debt, the debt would not be accorded cheap. The Upside While we are discussing about what China should do to reduce its credit inefficiencies and the volatilities associated with them, the country has taken due cognizance of the issue and there are various macroeconomic factors that are assisting it in achieving some
relief. The primary goal would be to reduce excess capacity and corporate debt, and it is doing so by shutting down factories and sick units and encouraging more private Chinese players like Alibaba and Tencent to counter the insecurities related to debt. Private sector growth is a positive phenomenon. Rural growth is another macroeconomic phenomenon that is assisting the economy to de-leverage as much as possible. over the past decade, China has promoted the transfer of agricultural land usage rights among farmers, resulting in bigger farms, increased investment and higher returns. However, the change is not likely to be swift. This is because, a complete revamp or shock, immediate in nature, could completely destroy the financial market in the country. Why hasn’t the country gone to the dogs yet? The country’s thriving exports has kept the Dragon from sleeping with the fishes. There is a current account surplus, which is highly unlikely in developing economies and it has supported the economy from complete mayhem. A very high savings rate has ensured that the country - men and women - have literally deposited a major chunk of whatever they have earned and hence there is a fair amount of investment capacity. On the contrary there has been huge savings into asset backed securities which is worrying given the fact that the debt my fail indirectly bringing down the whole financial market in China as well as the world. Adding to the debt crisis is an all-time high import of goods which has significantly reduced the trade surplus. If this is the trend, the country might not have the insurance it 7
had to carry out more populist movements combined with developmental activities to facilitate development. The verdict on China’s debt issues is pretty much same for anyone who has an unbiased opinion about the country. Economists both in the developmental as well as market fields although agreeing and disagreeing with their developmental policies respectively agree upon the fact that, the debt trap is quite evident and in the long run, measures like monetary injections wouldn’t be a successful strategy to aid demand requirements as well as stability of the economy.
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Paradise Papers - The Pandora’s Box of Rich -Srujana Naik What the paradise papers mean?
and the Seychelles.
The data leak of 13 million documents from a law firm and provider of corporate services headquarters called Appleby is named as the Paradise papers. This 119-year-old company helps the blue-chip corporations and wealthy people to reduce their tax burden. Well, the leak is not as big as the known Panama Papers which happened in April 2016, but still, it is one among the biggest leaks of its kind wherein 1.4 terabytes of data have been released.
In many Caribbean nations along with few other nations across the world, it is important to underscore that tax minimization strategies are legal. These revelations have caused a considerable outcry and will have a significant impact but there is no suggestion on the facts that any of the clients named in the Paradise papers have broken the law. Such offshore banking practises may be objectionable but, at present, are legal. Britain’s and Tax Havens
So, these documents uncover the details of how some of the world’s most opulent, the cash-rich investors and businesses have minimised their tax through offshore banking and other financial structures. These offshore account holders and companies are engaged in tax evasion, if at all they are paying the tax they avoid to pay it at a regular rate. The story has relevance for nations and regions around the globe but it has a special implication to the Caribbean given Appleby’s offices in the key offshore jurisdictions of Bermuda, the Cayman Islands, Guernsey the British Virgin Islands, the Isle of Man, Jersey, Mauritius
Tax haven is defined as, a country that offers investors and corporations basically the foreign clients, a minimum tax liability in an economically and politically stable environment, with little or no financial information shared with foreign tax authorities. It is thus a financial jurisdiction outside the regulations of your own nation used by companies and individuals to lower their taxes on assets or profits which are usually maintained secretive and stable. They are also often small islands, many of the UK Crown Dependencies or Overseas Territories, but not exclusively so. Nations such as Switzerland, Ireland 9
and the Netherlands have similar tax reducing mechanisms, while the UK and the US are leading nations providing services that facilitate the use of OFCs. The substantial release of offshore tax avoidance structures in the Paradise Papers has put the governments of Britain’s overseas territories like Bermuda and the Cayman Islands, on view. The minister of financial services Tara Rivers, said that Cayman Island is not a place to keep wealth out of sight. Also, the Island’s premier mentioned that one cannot hide wealth or avoid taxes in Bermuda. But according to the experts, the offshore centres potentially face a heavy blow from the sustained efforts to prise open their secrets. Most of them heavily dependent on financial services, like for example more than half of Jersey’s economy is reliant on accounting sector. Due to the reputational damage being caused the banks are now not willing to open accounts for companies in offshore jurisdictions. Moving Forward The greatest impact the Paradise papers will have is in the political arena and this can be observed across the globe as pressure grows for a global response to tax minimization strategies that will diminish the ability for wealthy people and corporations to move profits offshore. This effort was well underway after the leak of Panama papers. Nevertheless, the fallout from the leak will be seen in a select number of countries and add another issue to governments already embattled. The offshore financial proceedings of
thousands of politicians, celebrities, multinationals, and high-net-worth individuals have been released. The papers also throw light on the law firms, financial institutions and accountants working in the sector and on the jurisdictions, that adopt offshore tax rules to attract money. Below are few of the names exposed• Prince Charles persuaded to alter climate-change agreements without disclosing his private estate had an offshore financial interest in what he was promoting • Apple has protected its low-tax regime by using the Channel Island of Jersey • Formula 1 champion Lewis Hamilton avoided tax on his £16.5m luxury jet, the papers suggest • The Queen's private estate invested about £10m offshore including a small amount in the company behind Bright House, a chain accused of irresponsible lending. • One of President Donald Trump's top administration officials kept a financial stake in a firm whose major partners include a Russian company part-owned by President Vladimir Putin's son-in-law • An entrepreneur charged with managing the oil wealth of the struggling African state of Angola was paid more than $41m in just 20 months • A Lithuanian shopping mall partly owned by U2 star Bono is under investigation for potential tax evasion • Millions of pounds from the Queen’s private estate has been invested in a Cayman Islands fund – and some of her money went to a retailer accused of exploiting poor families and vulnerable people. 10
• How Twitter and Facebook received hundreds of millions of dollars in investments that can be traced back to Russian state financial institutions. • The tax-avoiding Cayman Islands trust managed by the Canadian prime minister Justin Trudeau’s chief moneyman The real impact of the Paradise Papers will unfold in the days to come. Though offshore banking may be legal, in such an unstable economy, many corporations and investors need to look at the global tax structures. There is an extensive perception that offshore centres shift the burden of taxes to ordinary taxpayers giving an edge to multinational corporations over smaller competitors. Well, these leaks have raised the temper of many taxpayers across the globe- as the Panama papers did last year and time will answer if the bridge between the rich and poor will be balanced or will the rich become richer again through these tax hacks and continue living in Paradise forever!
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Stumble Less, Transmit More
- Shilpam Dubey The biggest problem with the regulatory bodies is that no one regulates them! We have seen the government of one of the most capitalistic economies, USA, turning to socialist and bailing out its stumbling banking system in the wake of a financial crisis. When Troubled Asset Relief Program (TARP) (a US government program to purchase a whopping $700 billion worth of illiquid mortgage-backed securities and other toxic assets of banks and other financial institutions) was announced in October 2008, it took the whole world by surprise. But, not so much because by then the world was already staggered as America’s most systematic, “to big to fail” banks began to fail. So, what happens when a country’s banking stumbles, should they be bailed out? should they be left unsupported? A central bank can not do that. Not supporting the banking industry directly means leaving the economy go to dogs. That’s one of the reasons why central banks exist. Or, I might have put it wrong. Ideally — and not practically because no one practices it — the job of a central bank is to foresee a crisis and to take necessary steps to curb the crisis, meaning, a central bank’s job is to protect the economy before a crisis is looming,
and not after it has already loomed!
Reforms Needed, Recapitalisation
more
than
We don’t have to go far west to criticise governments bailing out ailing banks, as our own government has very recently announced banks recapitalisation to a tune of Rs 2.11 trillion to the public sector banks. The stressed assets in these banks has topped out and has taken a toll on the credit growth of the country. Almost everything that the government and RBI could do, from all kinds of restructuring methods, bad assets buying programs, implementing Insolvency and Bankruptcy Code, even setting up another committee to review it, stricter asset quality reviews etc. has undoubtedly paid off, yet they were not enough because the asset qualities of the banks kept on worsening because of the 12
twin balance sheet corporate problems, temporary demand and supply shocks due to GST and demonetisation, and other international factors. Indeed, there was no other option other than direct capital infusion into these banks. But, let’s ignore for the macro-economic factors which contributed to the piling up of NPAs. These factors would come and go. Let’s talk about the more systematic changes that we need to bring in our banking industry. Recapitalisation might save us from not falling deeper into the credit problems. But, it can’t prevent us from getting back to the same situation in future.
Recapitalisation is not a prevention, it’s just a cure. It's a temporary makeshift solution rather than a long-run, strategic restructuring which the Indian banking system is in dire need of, starting from the fact itself that it's still 70% of banking activity in the country is contributed by the public sector, while ideally, at this stage of India, enjoying 26 years of privatisation move taken in 1991, should now be more comfortably in the hands of private sector. Though it’s a well known fact that Indian banking regulation is considered among the most effective in the whole world. Reforms during the term of Y.V.Reddy as the RBI Governor, example, his decision
to not allow complex securitisation, decision to raise risk-weightage for bubble-prone, real estate loans and mortgages, and most importantly resisting extensive exposure of Indian banking to foreign banks, all these measures shielded India from getting the brunt of worst of the crisis. The term which followed immediately, that of D.Subbarao, who took the position as RBI Governor in 2008, close to the month of Lehman collapse, was also extremely successful in keeping off the waves of global crisis reaching through the banking channel. The Non-Crisis Periods Crises are the culmination of an economy’s inherent loopholes, they are the ultimate eye-openers to the policy-makers and also ironically the best opportunities for an overhaul in the financial system of the country, which, in the normal times might never be implemented even when they were noticeably required all throughout, for example, better bankruptcy and insolvency codes were long awaited reforms but were not implemented until the NPA problem busted. If these reforms are taken during the non-crisis period, we would be much better-off. Afterall, an efficient system is desirable, not just to avoid a crisis but also for simply being better-off. Something which Indian banking has largely ignored is the fact that inefficient banking takes a serious hit on the transmission of the monetary policy. Also, an efficient banking industry would have more competitive interest rates. When banks compete among 13
themselves, in a healthy manner — “healthy” required to mention because competition in banking also reminds of the global financial crisis — it would naturally put the interest rates down. In regular times, in India, by improving the priority sector lending, by being less opaque about the frauds in the banking industry, by increasing financial inclusion in real terms, and most importantly by not pushing the ultra populistic government schemes through public sector banks, we can create an efficient and healthy banking system which won’t again need a Rs2.11 trillion of recapitalisation. Conclusion When both side of the coins, banks and the central banks would do their job well enough, implying that the Central Banks are alert and are keeping the banks on their toes by performing the timely regulatory practices, and banks are healthy, efficient and specifically wary with the kind of risks they carry in their balance sheets, not to mention the off-balance sheets, we would be successful in avoiding most of the banking failures - from Morgan Stanley in US, to Banca Popolare di Vicenza in Italy and State Bank of India in India.
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Cold War II - Mayhem in the Middle East - Sambhav Jain Why do the countries appoint proxy and not fight with each other directly? Well, this is because a war would cause enormous damage to all its powers. So every country tries to avoid it. Instead they conduct proxy war so as to avoid loss and achieve personal interest at the same time. Same is the case with Saudi Arabia and Iran who are struggling for regional influence in the Middle East. Both of them are responsible for conflicts in Syria, Yemen and Iraq as they are providing financial and military support to the opposing side to fulfil their own interest. History Of The War The conflict between the two countries arose due to the Iranian revolution in 1979, which declared the monarchical State of Iran into Islamic Republic.
sponsored an international Islamic conference in Mecca in 1962 and created the Muslim World League, an organization dedicated to spreading Islam and fostering Islamic religion. This league was extremely effective in promoting Islam.
Saudi Arabia's image was deteriorated in 1979 with the rise of Iran's new government which challenged the legitimacy of the Al Saud dynasty, the ruling royal family of Saudi Arabia in 1979. The First Proxy War 1980-88
Saudi Arabia has built its legitimacy on religion. Iran’s revolution in 1979 threatened that legitimacy. The revolutionaries encouraged all Muslims, especially Saudis to overthrow their rulers. During this period, Saudi Arabia was the leader of the Muslim world and controlled the holy cities of Mecca and Medina. It
In 1980, Saddam Hussein, former President of Iraq invaded Iran in a hope to seize oil-rich territory. Saudi Arabia backed Iraq because they want the Iranian revolution to be stopped. Saudi Arabia gave financial and military support to Iraq. The war witnessed chemical weapon attack and killed millions of people. This war went off for eight years 15 ,
and saw the first Saudi- Iran war through proxies. Apart from this, Iran and Saudi Arabia are supporting opposing groups in the Lebanese Civil War and the Soviet–Afghan War. After the Cold War, Iran and Saudi Arabia continued to support different groups and organizations in Iraq and Yemen. Sunni-Shiite divide The Sunni-Shiite divide between Saudi Arabia and Iran has led to conflicts between the two countries. Sunni and Shiite are the two classes of Muslims. Sunni Muslims are in majority in Saudi Arabia and Shiite Muslims are in majority in Iran. Religious tensions have increased since the 2003 US-led invasion of Iraq that brought the majority Shiites to power in Baghdad, the capital of Iraq. The 2011 Arab Spring saw Iran support its ally, Syrian President Bashar al-Assad and the Saudis backing the opposition after which protest turned into a civil war. Iran felt that the Saudi royal family is not capable to serve as custodian of Mecca and Medina, the holiest cities in Islam after a stampede at the annual hajj pilgrimage in 2015 that left hundreds of Iranians dead. Present Scenario In May 2017, Donald Trump brought changes in US foreign policy favoring Saudi Arabia. This move came after the re-election of Rouhani in Iran, who defeated conservative candidate Ebrahim Raisi. With Rouhani's victory, it was seen that liberal reforms will come in Iran.
Several incidents in mid-2017 further heightened tensions. In May 2017, Saudi’s military forces surrounded the house of Nimr al-Nimr, who was a Shia Sheikh in Saudi Arabia’s Eastern Province. Many Shia civilians were also killed. Residents were not allowed to enter or leave and military indiscriminately shelled the neighborhood with artillery fire and snipers. In June, the Iranian state-owned news agency reported that the president of Quran council and two cousins of Nimr al-Nimr were killed by Saudi security forces in Qatif, a Municipality in Saudi Arabia. In the wake of the June 2017 Tehran attacks done by Islamic State of Iraq and the Levant(ISIL) militants, the Iranian Corps issued a statement blaming Saudi Arabia while Saudi Foreign Minister Adel al-Jubeir pointed that there was no evidence that Saudis were involved. Later Iranian official stated that Saudi Arabia is the prime suspect behind the Tehran attacks. Later on the commander of Islamic Revolutionary Guard Corps(IRGC), claimed that Iran has proof of Saudi Arabia's, Israel's and the United States involvement in the Tehran attack. So, Saudi Arabia has been constantly attacking Iran. Iran's Leader Ayatollah Khamenei has already accused the United States of creating ISIL, joining Saudi Arabia and in funding and directing ISIL in addition to other terrorist organizations. In November 2017, the Saudi’s Air Defense intercepted a ballistic missile over Riyadh International Airport. Foreign Minister of Saudi Arabia asserted that the missile was supplied by Iran and
launched by Hezbollah militants from territory held by Houthi rebels in Yemen. Following the missile attack, Crown Prince of Saudi Arabia, Mohammad bin Salman called it a "direct military aggression by the Iranian regime" and said that it "may be considered as an act of war against the kingdom.
Impact Of The Conflict United States and other Western powers have tried to bring Saudi Arabia and Iran together to discuss a peace deal for Syria. Peace isn't possible in Syria until both Saudi Arabia and Iran back down from supporting their proxy forces there. At the same time, peace talks on Yemen's civil war were scheduled which was seen as a ray of hope for the humanitarian crisis there. But it seems Saudi Arabia and Iran will never come together. So, everything rests on Saudi Arabia and Iran, whether they are willing to accept the peace deal and forget all the incidents in the past. Otherwise countries like Syria and Yemen will keep on witnessing wars and will never progress. Both Saudi Arabia and Iran should stop fighting and move ahead.
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There’s a lot more thereTrump-Russia Scandal - Nishika Tatiya What is the real story of Donald Trump and Russia? The answer is still unclear, and democrats in congress wants to get to the bottom of it through investigation. But there is no doubt that a spider web of connections – some public, some private, some clear, some suspicious exist between Trump, his associates and Russian President Vladimir Putin. In order to understand the scandal surrounding trump and Russia, it’s important to first distinguish the three main storylines. The first centres on Russia’s interference in the US presidential elections. The second revolves around former national security advisor Michael Flynn. And the third concerns the private intelligence report that claims Russian are blackmailing Trump known as the ‘Steele Dossier.’ Let’s start with the first. The department of homeland securities and the office of the director of national intelligence have stated with high confidence that the Russian government sought to influence the outcome of US presidential election favouring Donald trump over Hillary Clinton. They have also stated that Russia’s president, Vladimir Putin, personally oversaw this operation, which actually shouldn’t come as that much of a surprise. The Putin regime has
a history of trying to sway foreign elections. In march 2016, Clinton campaign chairman John Podesta receives a phishing email as an alert from google that another user had tried to access your account. So, Russia was hacking the democratic national committee which they then released to WikiLeaks. In June 2016, WikiLeaks began publishing private emails attacking DNC. Emails from the hack continued to be leaked throughout the summer, always targeting the Clinton campaign. “Russia if you are listening I hope you are able to find the 30000 emails that are missing. I think You will probably be rewarded mightily by our press.” On October 7th, WikiLeaks released the first batch of hacked emails from Clinton campaign manager, john Podesta. On the same day, a joint statement by Obama’s national security advisor and the department of homeland security officially declared that the DNC hacks were intended to interfere with the Us election and that they believe that only Russia senior most officials could have authorised these activities. On December 10th Russia’s deputy foreign minister Sergei Ryabkov, said that there were contacts with Trumps entourage
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throughout the election. And that quite a few have been staying in touch with the Russian representatives. On January 6th, the CIA, FBI NSA together released a report confirming that Putin had ordered the attacks and intended to hurt the Clinton campaign specifically. On February 14th and 15th, phone records reportedly showed that the members of trump’s campaign and other tromp associates make frequent contact with Russian officials during their campaign. While US intelligence is still investigating the Russian interference. The email hack in particular made a significant impact because it created huge imbalance of information. The public had access to all these democratic emails. Now, the second scandal involves trump’s former national security advisor, Michael Flynn. It’s related to the first because it begins on December 29th, when the Obama administration announced a series of new sanctions on Russia as a punishment for its interference in the election. On the same day Michael Flynn called Russian ambassador Sergei Kislyak multiple times. Flynn was not in the office then, but has a long-standing relationship with Russia. On December 30th, Putin announced that they would not retaliate against the sanctions. A move that Trump publicly praised on twitter. Trump tweeted, “Great move on delay (By V. Putin) – I always knew he was smart.” Now this led to suspect that the Trump administration was telling Russia that they would rethink the sanctions once they were in office. On January 12th news of the Flynn calls broke. Sean Spicer press secretary and
vice president Mike Pence, each told the reporters that the calls were not about sanctions. On January 24th Flynn told FBI investigators that he did not discuss sanctions in the phone call. The acting Attorney General Sally Yates told the white house legal counsel that she believes Flynn was lying to the trump administration about what he talked about on the phone call with Kislyak. On February 9th, the Washington post confirmed that Flynn had spoken about sanctions with Kislyak because the FBI had Kislyak’s phone under surveillance. The report said Flynn urged Kislyak to not react to Obama’s sanctions because the incoming Trump administration would be reconsidering them. On February 13th Flynn resigned, saying he had given pence and others incomplete information about his conversation with Kislyak.
Michael Flynn also failed to disclose payments that were made to him by an arm of the Russian government. And failure to disclose such payments is illegal for former military officers. The greater concern is that the day after Trump learned that Flynn lied about 19
discussing sanctions Trump asked FBI director James Comey for “loyalty”. And then the day after Flynn eventually resigned, Trump asked Comey to drop the investigation altogether. This was a significant breach of protocol. And then, few months later Trump fired James Comey. Initially the white house said FBI director was being fired for mishandling of Hillary Clinton’s email case but then Trump acknowledged that it was mostly about the collusion with Russia investigation. A few days later, department of justice appointed a special counsel, Robert Mueller. His task was to build a team to look into collusion or any matters that arise from the investigation.
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Is Recapitalization End of the Beginning or Beginning of the End? - Srivatsasa Sripujitha A stimulus package of Rs. 2.11 lakh crore has been approved by Union government on 24 October to recapitalize the Public Sector Banks. The main aim of the move is to tackle a major drag to economy that is hindering the economic growth of the country. Our country has experienced the growth rate plummet to the lowest in the past three years. Government took various measures by stepping up public spending, but the slowdown has stressed its finances, making it imperative for the private investment to pick up the slack. The decision to recapitalize the banks is meant to clear the bottleneck, because the Government officials struggled to revive the private investment but the attempt was vain. The Public sector banks which provide much of the credit in the economy are saddled with a mountain of bad debt that crimped their ability to offer credit.
crore. It borrowed the amount from banks and issued special non-marketable securities, which were later converted into perpetual bonds. The banks subscribed to these bonds and there was no cash outgo from the budget during the year of recapitalization. The real impact on the budget was only when interest was paid by the Government to banks on securities held by latter. The total interest paid by the Government to the banks on the banks on special securities worked out to be Rs. 7,888 crore or 0.07% of the GDP per annum on average. During this period, however, the banks also paid Rs. 15,222 crore as dividend to the Government working out to 0.04% of GDP on average. So, the net impact on fiscal was only 0.03% of GDP.
Bank recapitalization through special recapitalization bonds is an approach that Government used in the 1980-1990s. During the period of 1985-1999, the Government infused Rs.204 billion into public sector banks via recapitalization bonds. Indian Government used this tool before in FY 1986 to FY2001 period, the Government recapitalized public sector banks with an amount of Rs. 20,446 21
All the requirements like provisioning requirements of PSBs and growth of capital have been addressed at one stroke. The operational details were similar to the bonds of 1990’s.The infusion of 1.35trillion equity capital could be highly dilutive but positive for the FY19 adjusted books. This quantum of this dilution will look high for minority investors, but in most cases public sector bank’s current stock prices are higher than the adjusted book value of FY17, so raising at current prices or higher will have a positive impact on the FY19 adjusted book value. The Common Equity Tier 1 requirement determines if a bank can stand the test of crisis. It is estimated that the Common Equity Tier 1 requirement of all the PSBs is Rs.1.5-1.6 trillion. The balance recapitalization fund can be directed towards growing their business growth capital. Therefore recapitalization takes care of dry powder requirement of stressed assets and future growth capital assuming Common Equity Tier 1 of 9.5%, 60% provisioning on all stress assets and 7% compound annual growth rate ( CAGR) in risk weighted assets over FY18-19. The bank recapitalization would benefit the economy through five main channels. First, presuming that Rs. 700-750 billion is available to banks as growth capital and a leverage ratio (loan-to-equity) for banks of eight to nine times, the available growth capital should enable banks to extend additional loans worth Rs.5.8-6.5 trillion (7.3-8.3%of outstanding credit). Second, the capex cycle recovery has been stuck because of the excess leverage sitting in many companies. In the meantime banks have recognized the bulk of these assets as non-performing
assets (NPA), resolution of which is pending since a long time. Resolution in most of these assets requires a right-sizing of the debt of these leveraged companies, which was only possible with capital in the PSBs. Now, with adequate capital, this resolution process will move forward more quickly, which should set the stage for a capex cycle recovery in the medium term. Third, capital shortage in the face of rising NPAs had resulted in a wider gap between the PSBs’ weighted average lending and deposit rates; so recapitalization should enable more effective transmission. Fourth, recapitalization should improve risk appetite, easing credit conditions at the margin for needy borrowers and finally, higher share prices should enable PSBs to directly raise more capital from markets. The capex weakness is due to excess leverage (which the recapitalization addresses), private investment should pick up over time as capacity utilization improves. In any case, a cyclical recovery is already under way and it is expected that GDP growth to rise from an average of 5.9% to 7.5% in 2018. But the recapitalization bonds will increase the Government’s debt liability by 0.8% of GDP (47.5% in FY17) either directly (if the bonds are issued by the Government) or indirectly via higher contingent liabilities (if the bonds are issued by a Government agency). Despite the adverse impact on debt, this should not have any adverse impact on debt, this should not have any India’s sovereign credit rating because recapitalization improves India’s medium-term growth prospects. Thus the recent capital injection should thought of more as the ‘end of beginning’ rather than the ‘beginning of the end’.
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Scavenging to Survive in Venezuela - Kartik Grover In our age there is no such thing as 'keeping out of governmental issues.' All issues are political issues, and legislative issues itself is a mass of untruths, avoidances, indiscretion, contempt and schizophrenia. This disdain is one of the fundamental motivation behind why Venezuela is in emergency today. Venezuela's emergency has numerous causes, short-, medium-, and long haul. It is on account of a portion of the causes, and potential arrangements, to the emergency are very specialized. The trouble lies, rather, in the test, and maybe difficulty, of unraveling the "inside" and "outside" parts of the emergency. To an excruciatingly huge degree, Venezuela's emergency is of the administration's own making. Rather than facilitating or completion it, the administration's activities—and inactions—in the course of the most recent quite a while have aggravated it far. However, the legislature has not acted in a vacuum, but rather in a threatening residential and global condition. The restriction has transparently and over and again pushed for administration change by any methods vital. Notwithstanding cultivating a politically harmful atmosphere, the resistance's activities in the course of recent years—its refusal to perceive
President Nicolás Maduro's April 2013 triumph, regardless of definitely no proof of constituent extortion; resulting violence that focused on state-run wellbeing facilities and left no less than seven regular folks dead; another influx of savagery starting in February 2014 that left 43 dead, around half of them because of restriction activities; and later and rehashed calls for military and outside intercession—have additionally had an extremely harming monetary impact. A legitimate record of the emergency must incorporate both of these viewpoints: the administration's expensive mistakes, and the destabilizing activities of the restriction and US government. To overlook either is to distort reality and propagate false win big or bust accounts that accuse the emergency, completely, on either "communism" or the "Domain." Such stories may comfort those looking for assertion for assumptions, yet they won't help those trying to know why Venezuela is in emergency and how it may receive in return. In standards accounts, the reason for Venezuela's emergency is clear: an overabundance of "communism." In the first place, Venezuela isn't a fascism. The decision United Socialist 23
Party of Venezuela (PSUV), once in the past the Fifth Republic Movement (MVR), has been over and again confirmed at the surveys, winning twelve of fifteen noteworthy races in the vicinity of 1998 and 2015. The legislature has won these races neatly, and has quickly yielded on the uncommon events when it has endured overcome, including last December's parliamentary decisions. Second, while Venezuela has moved far from free-advertise private enterprise, its economy is not really communist. The private division, not the state (and still less the social economy), controls the greater part of financial movement. In the vicinity of 1999 and 2011, the private area's offer of monetary action expanded, from 65 percent to 71 percent. President Nicolas Maduro confounded financial specialists this month with a promise to keep paying Venezuela's devastating obligation, while additionally trying to rebuild and renegotiate it. Both rebuilding and renegotiating Venezuela's obligation shows up not feasible, be that as it may, because of US sanctions against the emergency stricken country. A default would intensify Venezuela's critical financial emergency. Venezuela faces the progressing problem of whether to keep paying obligation to the detriment of an inexorably ravenous and debilitated populace, or whether to default on loan bosses and sever its ties to the worldwide money related framework. About $300 million in late intrigue installments on three bonds - PDVSA 2027, Venezuela 2019 and Venezuela 2024 - was likewise due on Monday following 30-day elegance periods finished. Markets keep on remaining idealistic that Venezuela will benefit its obligations, taking note of it has
made near $2 billion in installments in the previous two weeks, yet postponed. Bond costs were up in all cases on Monday, with the benchmark 2022 notes issued by state oil firm PDVSA rising 3.3 rate focuses. The monetary implosion has officially taken a severe toll on Venezuelans. Natives are experiencing lack of healthy sustenance and preventable maladies since they can't discover nourishment and medication or can't manage the cost of them due to triple-digit swelling. Seeing poor Venezuelans eating from junk sacks has turned into an effective image of rot. It stands out strongly from the period of Chavez, when high oil costs helped fuel state spending. Stopping obligation administration would free up an extra $1.6 billion in hard money before the year's over. Those assets could be utilized to enhance supplies of staple merchandise as Maduro heads into a presidential race expected for 2018. Be that as it may, the procedure could blowback if met with forceful claims. A default by PDVSA, which issued about portion of the nation's remarkable bonds, could capture the organization's outside resources, for example, refineries in fights in court possibly pleating send out income. Venezuelan bond costs had started to recuperate from the dismay of the default declaration on Tuesday however fell back to exchange at pennies on the dollar. A $2.5bn bond due in October one year from now — one of the bonds now in default — lost just about a fifth of its incentive to exchange at 25.7 pennies on the dollar. Notwithstanding calls by some in Latin America for heightening assents to incorporate travel bans and resource
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solidifies, and in addition a ban on oil trades, Caracas has demonstrated little worry over the global slander. There are likewise trusts the administration and resistance could achieve a political settlement that would encourage a money related safeguard in globally intervened talks. Security default could in principle spare Mr Maduro $1.6bn in the red installments this year. However, default could likewise observe lenders seize Venezuelan oil payloads, intensifying monetary conditions in a nation where subjects progressively experience the ill effects of unhealthiness and preventable illnesses since they can't discover or bear the cost of sustenance or prescription. Now the question is Should Venezuela default on Debt payments? Should Maduro’s dependency move from oil to other economic sectors such as Agricultural and Service sectors which Hugo Chavez fail to move and expand its horizons?
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New Zealand - 1st Among 190
-Noel Mathew How will it feel if someone could start a business without much procedures and barriers? The entrepreneurs in New Zealand can explain that feelings better. Recently, in 2017 New Zealand overtook Singapore as the easiest country to business according to the World Bank. New Zealand always maintained the top positions in ease of doing business since 10 years. Later in 2015 it moved on to the second position and then to the first position in 2017. In a recent report given by World Bank, among 190 countries New Zealand ranks the top in ease of doing business. The report ranks 190 countries by looking at how their regulatory environments support business. The World Bank ranks each country using ten indicators which ranges from how hard it is to start business to paying taxes and getting credit. This ranking shows the effectiveness of New Zealand’s business regulators, which include the speed and efficiency of company registration process. New Zealand has always invited foreign direct investments, incentives, and rewards and stable business environment which helped the country to rank among the top. New Zealand attracts business by its efficient monetary and fiscal incentives, as well as its sound corporate
environment and trade links. There is no payroll tax to pay, no social security tax and no capital gain tax which always attracts the investors and business people. A wide range of free trade agreements and pro competitive regulation makes New Zealand an ideal base for expansion, with free trade agreements (FTAs) in place in many of the major economies.
How It Works Ease of doing business is an index created by World Bank Group in 2003 to rank the countries considering various parameters. Higher ranking indicates better and simpler regulations for business and strong protection of property rights. The ease of doing business index is meant to measure regulations directly affecting the business. 26
A nation's ranking is done mainly on ten sub indices which includes : ● Starting a business ● Dealing with construction permits ● Getting electricity ● Registering property ● Getting credit ● Protecting investors ● Paying taxes ● Trading across borders ● Enforcing contracts ● Resolving insolvency The survey conducted by World Bank covers 190 countries where the procedures, time and cost required for each of these ten parameters are analysed and the ranking is done accordingly. This survey has become the major knowledge product of the World Bank in the field of private sector development and it motivated many developing countries to redesign their regulatory reforms. New Zealand - 1st among 190 New Zealand ranks first in the world for ease of doing business, but having insight to the investment environment and local knowledge of the legal, accounting and taxation framework is essential to succeed. New Zealand also ranks first in corruption perception index and third on the index of economic freedom. New Zealand has the 20th highest GDP per capita in the world, which shows the stability of the economy. Various external links by the government helps to locate the invest opportunities, product and services and it also provide information regarding the export industries. This information’s always acts as a great support for international investors and
business people interested in doing business with New Zealand. For companies looking to start, manage and grow their business, Ministry of Business, Innovation and Employment (MBIE) provide links which will help them to find business resources, tools and information to help develop and maximise the business. There are still various hurdles that need to overcome while doing business in New Zealand. Profitability, succession, cash, regulation and governance are some among them. Proper approach to all these parameters makes things easier to start a business. Starting a Business: The World Bank and IFC rank New Zealand in the top in ease of doing business. Companies are required to register online with Companies office for IRD number and GST registration. This process can be completed in one day. Dealing with construction permits: There are mainly six procedure involved in obtaining construction permits, which takes 89 days to complete. Companies must receive resource consent, building consent and inspection from the district council moreover they must get CCTV approval by Watercare and also must get phone, water and sewer connection. Registering Property: Registering property is done by obtaining a land information memorandum and registering a title through Land Information New Zealand (LINZ). It’s a 2 day process 27
Getting Electricity Electricity is the most important element of setting up a business in New Zealand. It requires five procedures that take 50 days to complete. Dealing with the utility provider may take some time, particularly in the early stages of the procedure. Getting Credit and Protecting Investors Strong financial services sector and regulatory environment of New Zealand give good protection to the investors and make it relatively easy to obtain credit. The World Bank and IFC rank New Zealand fourth in the world for getting credit and first for investor protection. Paying Taxes New Zealand doesn’t have many taxes like payroll taxes and security taxes. However there are certain taxes such as the accident compensation corporation (ACC) levy or VAT returns, which can be time consuming that it may take about 100 days to get the process complete. Trading Across Borders New Zealand has a strong reliance on fast and efficient cross-border trade as it is an island nation. About five documents need to be prepared while exporting and six while importing, taking ten days to complete on average.
attorney amounts to around 22% of the claim and the court costs are substantially lower, which is around 2% of the overall claim. Resolving Insolvency To resolve insolvency, it takes around one and half year, with the average recovery rate around 83 cents on the dollar. Culture In New Zealand there are marked differences between Maori and NZ European (Pakeha) societies, and the businesses are done considering these disparities. Apart from that, companies get a warm and relaxed welcome in the country. Easy accessibility to the resources and less government procedures are the main factors which made New Zealand the best country to do business. The results may change in the upcoming years as each country is trying to reduce the cost and procedures involved in starting a business. Entrepreneurs and various corporate will be looking on to the next index ranking by the World Bank as other countries are coming up with lesser regulations and plans.
Enforcing Contracts There are 30 procedures involved in enforcing contracts which takes about 216 days all together. The cost of the
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Trump PoliciesMake America Great or Weak again.?! -
Ayush Thalia
Donald John Trump took over the office on January 20, 2017 as the 45th President of the United States. Born on 14 June 1946 in the New York city, Trump holds an economics degree from the Wharton School of the University of Pennsylvania. Prior his entry in the world of politics he headed his family business of real estate, The Trump Organisation, headquartered in the Trump Towers of the New York city. The Trump Organization, founded in the late 1923 operates in real estate development, investing, brokerage, sales and marketing, and property management. During the campaign to win the chair, Trump promised to provide presidential leadership with strong diplomacy to restore the respect for the United States across the globe. He encouraged a vigorous national defence. In the first budget proposed by him as president, Trump brought forward a $54 billion (10%) increase in defence spending, to a total of $639 billion for fiscal year 2018. He justified the increase would be needed to fight against terrorism, improve armed forces and build new ships and planes and would be paid for by deep cuts to other agencies, including a 28% cut from the State Department budget. He also affixed an additional amount of $30 billion
for the Defence Department for the remainder of fiscal year 2017. Major Policy Changes after Trump President's inherent economic circumstances, including unemployment rates, which were a lagging indicator while monitoring Trump. Clinton took over the office at the tail end of a modest recession, while Bush entered in at the end of the '90s boom. Obama's term commenced amid the worst economic crisis since The Great Depression. Meanwhile, Donald Trump entered the Oval Office when the economy finally began to show signs of normality, long and slow recovery from The Great Recession but the March’17 unemployment rate could not match the expectations. In course of the campaign trail, he marked hostility to U.S. alliances, free trade agreements, support for human rights and democracy overseas, and alternative longstanding features of American internationalism. Trump cooperates with The North Atlantic Treaty Organization and has affirmed the U.S. alliances with Japan and South Korea amid a growing crisis with North Korea. He has taken a snobbish stance on North 29
American Free Trade Agreement renegotiation and other trade issues which his campaign rhetorically augured. Reports mention Trump accusing the Obama policies to be too timid and accommodating to deal with major threats like Iran, Syria and North Korea. Trump might have mastered the act of posturing, one should not undermine the fact of the global threads given to Kim Jong-un to protect and make his United States greater again. Trump’s first 100 days in the office were far more different from Obama. While the number to law signed were 29 in comparison of 14 by Obama, major bills signed included the one to send humans on Mars. Another major step taken by the Trump political party was to repeal and replace the Affordable Care Act (ObamaCare). After the 2016 election, stock market shot up dramatically as investors anticipated to the incoming administration's presumably a much better business-friendly policies and expected tax cuts. Since Trump's inauguration, stocks have risen, but at a more measured clip. The economy lost 515,000 jobs in the initial six months of George W. Bush's tenure when the country was falling into a recession and to compete with his own records of the first six months of his second term, the economy added 1.5 million jobs, surpassing Trump's six-month total. Clear enough evidence to proof that the Trump policies in respect to immigrations and job creations are certainly affecting the country’s economy and the employment benefits.
Relations with Foreign Countries The United States of America being a superpower and having the highest rated economies, the foreign policies of it affects the entire world without deviation. While every country would wish to be-friends with it, the trade agreements and immigration norms plays a major role to decide. The Canadian Prime Minister, Justin Trudeau met Trump right after the elections in February’17. Matters discussed over were related to some minor changes with respect to NAFTA, as Mexico being a troublemaker in it, violating the immigration and trade norms. In later meetings, the Canadian dollar fell a 14-month low after Trump announced to charge 30-40% on Canadian wood shipments to the USA. Donald Trump has always been keen about the relations between Mexico and the USA. The illegal immigration and the exchange of drugs and crime through the borders, it made the new President order for an immediate construction of a physical wall on the southern border. The meetings of the President at conflict is scheduled and a major change in the NAFTA is expected to take place. Looking up to the relations with Afghanistan, Trump wants to expand America’s presence in the Afghan land and strive to reduce the terror attacks which puts the USA under threat. Reports from The Washington shows another 3000 US militants were sent to the Afghanistan and a total of 14000 army militants are present to fight the war against terrorism.
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Tensions between North Korea and USA started from the mid-April 2017 after Donald Trump suggested Chinese leader Xi Jinping to seize the opportunity and take actions against the nuclear test by Kim Jong-Un in January’16. The relations between these 2 countries are hostile after the six tests of nuclear by North Korea and this resulted into a downfall in the NYSE stock market after the Kim Jong-Un threatened to bomb USA. Following the nuclear test, The United Nations Security Council met in an open emergency meeting and countries like Canada, China Russia and South Korea raised their disharmony regarding the matter.
The Future of the Policies The destination of Trump’s policies remains unknown and the fate of the White House depends upon the level of interest Trump will take in foreign policy. While the country still follows the dilemma whether it was the right decision to appoint Uncle Sam or not, the CEOs of major corporation seems to be less happy with the new immigration norms. Tech giants like Google and Microsoft leverages the benefit of cheaper employees from Asian countries. Every step Trump takes is more likely to affect the stock markets and the overall economy, be it the Paris Agreement or the confront over the ISIS using US air power or ground troops. A fair amount of lessons can be learned from the new President, but the biggest takeaways perhaps lies in the future.
The Indo-American relations continue to flourish as both the leaders, Donald Trump and Prime Minister Narendra Modi share common extensive strategic and economic relations. Key recent progress includes the rapid growth of India's economy, combined growth between the Indian and American industries especially in the Information and communications technology and engineering and medical sectors. Prime Minister Narendra Modi’s tour to the Silicon Valley also embarked great success bringing in a $2 Billion investment to India under Make in India initiative. 31
Debtors Prison - Greece
- Tanay Sood Demonstration of failure of the central banking system and bad governance over 20 years with really bad spending decisions and manipulation and leveraged investments by banks blew up on everybody’s faces, with financial crisis and recession all mixed together in an environment where Greece does not have the traditional ability that most of the sovereign states have to simply inflate their way out by printing money. Germany did not want to do that, because the central bank was not allowed to do that, so as a result Greece is trapped in the monetary cycle where the economy is collapsing and crashed by 25 % which has never happened in the peacetime to any European country. Unemployment among the age group of 30 is 60 % and climbing which is devastating for an entire generation and at the current rate Greece would have to spend 2 % of their Gross Domestic Product (GDP) for the next 30 years which would barely make a dent in their debt, which means country is insolvent and would never be able to pay its debt and would keep getting worse and engulf itself in the debt spiral and the only real solution is to write off the debt which is unpayable. You cannot expect a country to pay it's 2 % of its GDP in debt because if you do that, what is the
average GDP across Europe its 2.5%, you are actually condemning an entire generation towards a no-growth economy. The crisis really took hold of Greece well after the immediate effects of the global financial crisis which were felt as the result of a loss of investor confidence in the economy and government administration with a heightened perception of risk.
Greece fiscal deficit surged in 2008-2010, interest rates on government and private debt rocketed significantly. Handcuffed by the European Central Bank (ECU), Greece was unable to devalue its currency and unable to reduce interest rates to stimulate economic growth. Greece was unable to implement its own monetary policy to match its political and fiscal targets. So, did the bailout of May 2010, February 2012 and July 2015 provide any relief to the debt burden country? The answer is certainly ‘No’. So, how is the bailout announced on 1st November 2017 different? 32
The Greek government has decided an unprecedented debt swap worth 29.7 bn euros aimed at boosting the liquidity and easing the sale of new bonds in the future. A bond swap is a mechanism whereby an investor chooses to sell a bond and simultaneously purchase another bond with the proceeds from the sale. For the country to bailout and resume towards normal financing operations, the government is considering to swap 20 bonds which were issued after a restructuring of Greek debt held by private investors in 2012. The decision is taken after Greece is preparing itself for a life after the end of current bailout program in August 2018. The government is planning to tap the bond market to at least raise 6bn euros to create an adequate buffer to honour debt obligations. A country or a company goes for a debt swap to diversify its portfolio, lowering taxes or taking advantage of anticipated interest rate changes. Is Debt Swap the only Solution? ●
Cut State Expenditure and Cut Taxes: As the history states Greece has been borrowing in huge chunks from European Central Bank, and the International Monetary Fund (commonly referred as “the Troika”) and Troika has been financing Greece with huge chunks of loans in exchange for tax hikes. The government would need to reduce its administrative cost of running the state, which in turn should allow the government to lower the tax burden. Secondly, deregulation increases the overall growth, as there is more wealth available for
debt repayment and future investment. ● Open Markets to Competition and Simplify Investment Decisions: Government should focus on developing and establishing a sound banking system in the country, which will regulate the fiscal and monetary policies, hence opening its doors for the currency to flow and investment decisions to prevail. However, due to cumbersome and incumbent legislation, investors find it difficult to find an optimum path for their investment decisions. ● Proceed with Privatisations: Greek government is in debt since the last decade, since the government is unable to take concrete decisions regarding its economic development, they should develop a Public-Private partnership in undertaking economic and social developments. To this end, the Greek government has agreed to the establishment of an independent Privatization Fund which monitors and manages valuable Greek assets with an aim of monetizing assets worth EUR 50 bn within a short period. Though Greece has accepted austerity measures, these measures would only be beneficial if the bond market develops and other lenders agree. If not, these measures give rise to the contractionary fiscal policy which might create inflation and destroy the standard of living and a possibility of an asset bubble. They slow the economic growth overall. Greece could have averted the economic dilemma if it was not a part of European
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Union. It could have boosted its economy by printing more of its currency, the drachma. This would have made drachma a lower valued currency in the international market, thus empowering Greek exports to be more competitive, encouraging domestic investment and made it easier for Greek debtors to service their debts. Greece problem is insolvency and not liquidity. The government’s financial system has leakage in its pipeline and the government is well aware of this fact, but still, the multi-party system, keeps borrowing and infusing funds into the economy which in return has no intrinsic value, therefore the government is being insolvent and not liquid. If the government is only flushing funds into the economy, without keeping aside a cash reserve, displays the government is falling short of liquid assets and they would tussle to repay its obligations and meet its short-term debt requirements. The aim of the government should not, to focus on borrowing and refinancing the same debt instruments but should find an avenue and a permanent solution for this financial leakage. Next biggest challenge for the government is restoring the trust of the Greek population, and if an appropriate measure is taken by the government before August 2018, the Greece might be able to breathe a sense of financial freedom.
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Market-Watch: The Asian Rialto - Naman Shah There is probably a bit of caution in Asian markets” ahead of the vote on U.S. tax reform. If the bill doesn’t pass by the end of 2017, it would be negative for the U.S. dollar. Dollar also has struggled, as euro retraced post-ECB dip. It could hinder the earnings of companies of Japan as well as global markets to some extent. Trading on the Shanghai Stock Exchange and the Shenzhen Stock Exchange are suspended for the day after stock indices plunged by 6.85%-8.1% respectively, but rising again above 3,000 for the first time in two months on March 21, in the preceding year after the government lifted the restrictions which were imposed on margin trading. In mainland China, stocks continued to be weighed down by worries about de-leveraging in the economy. Weakness was fueled as the commodity market declined, explicitly in copper and other industrial(heavy) metals, as data earlier this week showed Chinese industrial output and fixed-asset investment growth slowing in October. The SHCOMP, 0.10%(-) was off 0.2%, though Shenzhen’s benchmark 399106, 0.23%(+) resurrected some, with a 0.3% rise.
South Korea’s Kospi SEU, 0.6%(+) was up 0.5%, while Singapore’s Straits Times Index STI, -0.81% and Taiwan’s Taiex Y9999, 0.05%(-) were more fragile after opening up with modest gains. Meanwhile, Australia’s S&P/ASX 200 XJO, 0.16%(+) was on course to end the longest losing strand since May, when the market slipped for four straight trading days. The stock index indicated last 0.2%(+), despite softer than expected in terms of October job growth. Among the outperformers, Santos STO, 13%(+) surged 12.7% as investors bet that rival Harbour Energy’s interest in a takeover of the Australian oil & gas company has not cooled down. STO said it knocked back an offer worth AUS$ 4.5 (which is US$3.45) a share in August, and was not currently in talks with Harbour. However, the Australian Financial Review reported that Harbour was readying a new bid of around AUS$5.30 a share in cash. In all, news are not of that good a note from Australia. Hong Kong shares were higher, elevated by a rise(2.1%) in technology heavyweight Tencent 0700, 2.30%(+), which lately reported a nearly 70% jump in third-quarter net profit, surpassing all
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the analytical predictions. The credit goes to continued demand for its online games. The Hang Seng Index HSI, 0.58%(+) was up 0.6%. Another Tencent-related stock, Yixin 2858, 0.00%(+), opened higher(30%) in its Hong Kong market in its early performance, but the gains in China’s largest online car retailer quickly pared to a rise(10%).
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Hyper-easy Monetary Policy, Fiscal Stimulus Structural Reform.
The US $865+ million deal, which was priced at the higher end of an indicative range, was one of the hottest new share listings in the city. It had retail investors bidding more than 550 times the number of shares on offer. Speaking of Japan, the Nikkei 225 closed lower on last week, ending a 16-day win streak. Japanese markets climbed up in the lead up and following the October elections in which PM Shinzo Abe's party recorded an appealing win (well received). The benchmark indices will trade in a range between 20,500-22,500, Nomura analysts have predicted. The Nikkei 225 had been on a tear-down, closing higher for a record-breaking 16th session (in a row) and setting a fresh 21-year high, last week. But that all came to a close in the mid of the last week when the index fell about 0.5%. Still, the share average's win streak had been something of a coup. This time around, the index had climbed in the lead up to Japan's October lower house elections on investor expectations that PM Abe's ruling party would win. Abe's subsequent massive win pointed to the status quo being possessed in terms three arrows of PM's “Abenomics Program”
Critics have long lamented that the last arrow has not taken place at a desired pace. Yet, some analysts said Abe's consolidation of power at the recent election gave rise to good news for equity investors and equity markets. Now Nikkei faces 6th straight decline as Asian markets pull back. Though near-term profit-taking was likely to show up, the election "result is fundamentally positive for the equity market as political stability should be restored," analysts at Bank of America M. Lynch said pointing on the October 23 note. They also said: "The Japanese equity market is backed by solid fundamentals and long-term positioning remains light. We believe the election result reduces one key risk factor of political stability and supports the equity market over the medium term." Other factors that have driven the Nikkei 225's rally include following major points: ● ●
Strength in the US stock markets, Depreciation in the Yen in the beginning and mid-September 36
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Upturn in both the global and domestic economy
Domestic equity markets registered robust opening on November 17th after international rating agency “Moody's Investors Service” upgraded India's local and foreign currency issuer ratings to BAA2 from BAA3 and changed the outlook on the rating to stable from positive. The NSE Nifty index was trading 118 points up at 10,333, while the BSE Sensex was 369 points up at 33,476 around 09:50 am (IST). The Nifty Bank index hit a fresh record high of 25,902.50 in morning trade on 17th November. In a nutshell, Indian market is performing more than expected in the global platform, after having major reasons for glitches of demonetization and roll out of GST. Analysts predict Indian economy to experience a massive steep upward movement on graph by 2030.
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FINANCIAL TRIVIA In Japan, only 13% of the population is 14 years old. Japan's elderly people work out with wooden dumb-bells in the grounds of a temple in Tokyo on September 19, 2016, to celebrate Japan's Respect for the Aged Day. The most important reason for the slowdown in growth is attributed to the population pyramid, which is characterized by aging, since 27% of the population is over the age of 65. .
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