Financial Mirror22 August 2012
Financial Mirror Digital Edition - 22 August 2012
August 22 - 28, 2012 FinancialMirror.com 2 | NEWS Standards for Non-Standard Monetary Policy The widespread introduction of unconventional monetarypolicy measures by major central banks has been a defining characteristic of the global financial crisis. We have seen enhanced credit support, credit easing, quantitative easing, interventions in currency and securities markets, and the provision of liquidity in foreign currency � to name but a few of the measures taken. Some view these measures as a continuation of standard policy by other means. Once nominal interest rates cannot be lowered further, central banks use other tools to determine the monetary-policy stance. They have reached the end of the road, so they shift into four-wheel drive: they expand their balance sheets and inject liquidity to influence the structure of yields and returns and thereby stimulate aggregate demand. But when central banks return to the road � that is, exit from the non-standard measures � they must retrace their path, first unwinding unconventional policy, and only then raising interest rates. Let me suggest a different view. Say that key interest rates are to be set at levels considered appropriate to maintain price stability, drawing on regular, comprehensive assessment of economic and monetary conditions. Following standard practice, interest rates can be more or less significantly positive, very close to zero, or at zero. But, whatever the level of nominal interest rates, the monetary-policy stance established in this way has often been poorly transmitted to the economy, particularly in times of acute crisis. During the financial crisis, market functioning was impaired, at times very profoundly. Non-standard measures helped to clear standard measures' transmission path. By this logic, if the transmission of standard measures is impeded in a significant way, non-standard measures can offer support. And, as for the exit, standard and non-standard measures can be determined largely independently. Policymakers are not obliged to unwind non-standard measures before considering interest-rate increases, or to push interest rates to the zero lower bound before considering unconventional measures. Standard measures depend on the medium- and longterm outlook for price stability, whereas non-standard measures depend on the degree of dysfunction of the monetary-policy transmission mechanism. This second view has characterized the European Central Bank's approach to monetary policy since the start of the financial crisis. The ECB's first non-standard measure � unlimited supply of liquidity at fixed rates against appropriate collateral � was introduced in August 2007, when the minimum bid rate of its main refinancing operation was 4.25% � nowhere near the zero bound. Non-standard measures were required to ensure that the monetary-policy stance would be more effectively transmitted to the broader economy, notwithstanding the dislocations observed in some financial markets. Obvious, unconventional measures, if not carefully moniconcerned. When non-standard measures are required because of loss of confidence in sovereign debt, such messages must seek to avoid the measures' failure by highlighting the risk of major additional difficulties in the future. Fourth, in the case of Europe, the European Union institutions, as well as the member states, must be urged to strengthen economic governance, including through close monitoring of individual countries' economic and budgetary policies. The ECB's governing council has been highly vocal on this issue since the start of the crisis. Finally, to the extent that the combined non-standard measures of the advanced economies' central banks are creating a very substantial structural change in the global economy's monetary and financial environment, it seems necessary to call for the appropriate reinforcement of global governance. As long as these central banks consider non-standard measures necessary, they are entitled to be vocal advocates of the necessary reforms of global finance; the necessary adjustment of global imbalances within the framework of the G-20; and the decisive contribution of multilateral lenders. The ECB's decision in December 2011 to launch its longterm refinancing operation, which supplies low-cost three-year financing to commercial banks, meets these five conditions. The LTRO's duration, in particular, is appropriate, given the growing threat of major dysfunction in the European banking sector in October, November, and at the beginning of December last year. Moreover, ECB President Mario Draghi, my successor, made loud and clear the importance of reinforcing banks' balance sheets, adjusting individual countries' strategies, and improving governance in the eurozone and the EU as a whole. In all of these domains, as well as at the global level, where reform is equally urgent, there is no longer any room for complacency. Jean-Claude Trichet, a member of the Board of Directors of the Bank for International Settlements, was President of the European Central Bank (2003-2011) and President of the Bank of France (1993-2003). � Project Syndicate, 2012. www.project-syndicate.org By JEAN-CLAUDE TRICHET tored, might have the unintended consequence of creating an abnormally benign financial environment for markets, commercial banks, and sovereigns. This, in turn, could delay needed improvements in financial regulation, balance-sheet repair by banks, structural economic reform, and fiscal adjustment. As a result, non-standard measures must satisfy five conditions. First, they must be as commensurate as possible with the degree of market dislocation and disruption of market that they aim to counter, which is always a matter of judgment. In most cases, the measures must be tailored to avoid the total disruption of markets. The ECB has never hesitated to increase or decrease the scope of its non-standard tools � in particular, the duration of the non-standard supply of liquidity � depending on the abnormality in the functioning of the financial system. Second, the measures must be accompanied by forceful messages to commercial banks to address their medium-term recapitalization and balance-sheet-repair issues. To the extent that banks are, by far, the ECB's main instrument for "nonstandard" refinancing, this message is particularly important in Europe. Third, the measures must be accompanied by equally forceful messages, when and where needed, to the governments Eurozone shuttle diplomacy to pick up pace before critical month After a brief summer lull, euro zone leaders are gearing up for a round of shuttle diplomacy in the run-up to what could be a crucial month in the 2-1/2-year debt crisis. Greek Prime Minister Antonis Samaras will fly this week to meet German Chancellor Angela Merkel and French President Francois Hollande. Earlier in the week, he will see Jean-Claude Juncker, who heads the group of euro zone finance ministers. Merkel and Hollande will meet on Thursday, a day before the Greek premier arrives in Berlin, German government sources said, and the round of talks will extend well beyond Greece. Merkel, who was in Canada over the weekend, will visit Spain's Mariano Rajoy early in September, and Italy's technocrat leader Mario Monti has said he would travel to Berlin before August is out. The flurry of activity presages a crucial period for the euro zone after European Central Bank President Mario Draghi bought a measure of calm by announcing he would do whatever it took to shore up the bloc, including tackling high Spanish and Italian borrowing costs. On September 6, the ECB may spell out at its monthly policy meeting exactly how it could intervene in the bond market if asked. Markets will be on red alert for ongoing signs of internal opposition after Bundesbank chief Jens Weidmann made clear his reservations about the plan. Six days later, Germany's constitutional court will deliver a ruling on the euro zone's permanent ESM rescue fund before which Berlin cannot ratify it. Dutch elections are held on the same day. The expectation is that the court will not block the fund's inception but it could demand greater political oversight. Draghi has said the ECB could only intervene to lower borrowing costs if a euro zone sovereign had first asked for similar help from the bloc's bailout funds, to which conditions would be attached. On September 14/15, European Union finance ministers meet in Nicosia. By then, the troika of EU, IMF and ECB inspectors may have delivered a verdict on Greece's debt-cutting progress. Rajoy and Monti, who have consistently urged the ECB to act, are expected to put their heads together later in September. Financial markets are stuck in a rut, knowing that next month could see fireworks. "Everything depends on the data and ECB policy signals, what exactly they will do and when they will do it. Will Spain request aid?" said Nordea rate strategist Niels From. GREEK PROGRESS Spain remains the biggest concern for euro zone leaders since a full bailout would stretch its resources to the limit. Having insisted that Madrid needed no sovereign aid, Rajoy has now said he would consider seeking further help on top of a bank bailout of up to 100 bln euros but says he needs to see the ECB's cards first. In three weeks time, he might. "Until we know what decision the ECB has taken on this matter, we aren't going to take one either," Rajoy said. Samaras will meet Merkel on August 24 and will insist he can ram through an austerity package worth about 11.5 bln euros -- a key condition to continue receiving EU/IMF bailout funds and avoid default and a possible exit from the currency club. "Our key priority is to regain our credibility by showing our determination," a Greek government official said. Samaras will also raise a long-standing proposal that the austerity measures be spread over four instead of two years, to soften their impact on the Greek economy. No formal request will be made but the proposal will be broached as part of exploratory talks, the official said. Berlin insists that Athens honour its pledges but will listen to what Samaras has to say, government spokesman Steffan Seibert said. Iran war could cost Israel economy $42 bln Israel's economy would incur damages of as much as 167 bln shekels ($42 bln) should Israel attack Iran over its nuclear programme, business information group BDI-Coface has projected. Direct economic damage would reach 47 bln shekels, the respected research group said. That would be equivalent to 5.4% of Israel's GDP last year. Indirect damages would amount to 24 bln shekels a year for three to five years due to the collapse of businesses, it said. There has been an upsurge in rhetoric from Israeli politicians this month suggesting the country might attack Iran's nuclear facilities ahead of U.S. presidential elections in November. Israel, widely believed to be the only atomic power in the Middle East, views Iran's nuclear programme as an existential threat, citing threats made by leaders of Islamist Iran to destroy the Jewish state. BDI noted that 32 days of war with Lebanon in 2006 led to a 0.5% reduction in Israel's economic growth. Direct costs such as civil property and infrastructure damage cost the economy another 1.3%. "In the event of a war of the same magnitude, duration and damage, it is possible to expect damage of 16 bln shekels," it said. The war with Lebanon took place mainly in Israel's north, which produces just 20% of the country's output. FinancialMirror.com August 22 - 28, 2012 NEWS | 3 It's show-time for Samaras G Greek PM to plead for longer repayment of debt European shares rose early on Tuesday in low volumes, rebounding after falls in the previous session as investors awaited a meeting on Greece's future and possible anti-crisis action by European policymakers. Investors will keep a close eye on Greek Prime Minister Antonis Samaras's meeting with German Chancellor Angela Merkel, French President Francois Hollande and Eurogroup chief Jean-Claude Juncker on Friday as he tries to secure more funding from the EU, the IMF and ECB, despite Greece falling behind on its reform targets. Markets have enjoyed a strong run over the last few weeks on hopes that the new urgency in Europe to overcome its 2-1/2 year debt crisis may allow Greece to remain in the euro zone and keep the bloc from unravelling. Investors are primarily looking for any clues on plans the European Central Bank is due to detail at the start of December, expected to involve heavy Spanish and Italian bond buying if Madrid and Rome admit themselves into bailout programmes. The ECB poured cold water on a report over the weekend that it was considering capping inflamed borrowing costs by buying the impacted countries' bonds if they breached a certain level. Nevertheless hopes for the plans remain high. Samaras is also expected to meet ECB President Mario Draghi and IMF chief Christine Lagarde. Having a complete draft list of measures ready would help the Greek Prime Minister in his effort to re-establish his country's battered credibility in his meetings with the EU partners. Samaras is expected in those meetings to informally float a long-standing proposal that the measures be spread over four instead of two years to soften their impact on Greece that is enduring record unemployment amid the country's worst downturn since World War Two. Twice bailed-out Greece is dependent on a second, 130-bln-euro rescue deal agreed in March to give it the funds to keep paying public sector wages, pensions and bills. With opposition growing among hawks such as German Finance Minister Wolfgang Schaeuble who said the crisis-stricken country should not expect to be granted another programme, Eurogroup head Juncker said over the weekend that Greece will not leave the euro zone unless the country "totally refuses" to fulfil any of its reform targets, adding he expected Athens to double its efforts to meet these goals. Greece hopes to obtain its lenders' approval for a new wave of austerity measures worth about 11.5 bln euros by the middle of next month. Winning approval for the savings due in 2013-14 is key to a positive review from the "troika" of the EU, ECB and the IMF, who are expected back in Athens on September 5 for a verdict on whether they will keep funds flowing to the austerity-bound country. The bulk of the measures will include cuts in pensions, public sector wages, welfare benefits and health expenses, as well as laying off 40,000 civil servants over the next years. Meanwhile, finance ministry officials in Athens have calculated that the economy will recover faster and its debt be more sustainable if it is given two more years to reduce its budget deficit. Under the terms of its EU/IMF bailout, Greece is bound to implement painful austerity measures to bring its budget deficit below 3% of GDP by the end of 2014, from 9.3% of GDP last year. The latest estimate cited calculations by finance ministry officials that a twoyear extension would help the economy shrink at a slower pace in 2013 and rebound quicker from 2014. Under such a scenario, the economy would shrink by 1.5% in 2013 and grow by 2% in 2014. If no extension was granted, the economy would contract by up to 4.5% next year and not recover before 2015. SEE RELATED STORIES � PAGE 29 BOCY considers loan book swap with Greek bank, possibly Alpha G Laiki denies talks with Vgenopoulos Bank of Cyprus is looking into swapping part of its loan book with a Greek bank operating on the island as part of moves to strengthen its capital base, it said in a stock exchange filing on Monday. Cypriot banks operating in Greece have been battered by the country's debt crisis and deep recession which have caused losses in the sovereign debt restructuring and a rise in non-performing loans and as a result Cyprus sought emergency financial aid from its EU partners on June 25. The Bank of Cyprus filing came in response to a report in Sunday's Kathimerini that it is in talks with Greek lender Alpha Bank on swapping part of its loan book with Alpha's loans in Cyprus. "In the context of planning to strengthen its capital position and shield its balance sheet, the bank is looking into a number of options. One such option is exchanging ... assets and liabilities with one of the Greek banks active in Cyprus," the Bank of Cyprus said in the filing. "At this stage there is nothing specific to announce," it said, without naming any Greek bank. Alpha Bank, which declined to comment, is one of Greece's three largest lenders which have offered to buy Credit Agricole's struggling Greek unit Emporiki Bank, put up for sale by the French lender to limit its exposure to Greece. The newspaper report said Alpha Bank's impaired loans in Cyprus were smaller than the Bank of Cyprus's non-performing credit in Greece and that the difference would be made up in some form including shares. LAIKI: NO BREAK UP Meanwhile, the Cyprus Popular Bank denied media reports that it was in talks with the Marfin Investment Grooup (MIG) or its boss and former Popular chairman Andreas Vgenopoulos to sell the Greek arm of the bank, primarily Marfin Egnatia Bank and the Investment Bank of Greece. Popular said in a stock exchange filing that the report probably arose from the bank's restructuring and cost-cutting measures, as part of a 1.79 bln euro bailout pledged by the Cyprus government, which has effectively nationalised the bank. Reports have suggested that the bank may shut down as many as 65 branches and restructuring its franchise network, while a further 180 management and senior staff may opt for voluntary redundancies. Past efforts by the government to offload its 88% stake in the bank have failed, despite efforts by Trade Minister Neoclis Sylikiotis and former chairman Michalis Sarris to find investors in China. The Popular Bank (Laiki) issued a profit warning last week saying that it expected to report reduced profits for the first half of the year. Laiki said that "the amount of total provisions and further writedowns is expected to be higher compared to the first half results of the previous year." Veteran banker Andreas Philippou has been recalled from retirement to take over as non-executive chairman of the nationalized Popular Bank, replacing former Finance Minister Sarris who suggested in his resignation letter that the communist-led government wanted him out just eight months into the job. Sarris had been recruited last December to help rebuild the tarnished image of the island's second largest lender due to its colossal exposure to Greek government bonds that in turn accumulated losses of nearly 2 bln euros after their writedown last year. His appointment had been approved by the current government and the then-board, that has since been replaced by government appointees. ANNOUNCEMENT Oneworld ltd and George Philippides have filed a lawsuit in the Limassol district court for defamation and mendacity against the Bank of Moscow and its president Mikhail Kuzovlev. The Plaintiffs are one of the biggest professional firms representing and managing international companies in Cyprus. In accordance with the writ of summons the Plaintiffs are seeking in excess of 2.000.000 in compensation for damage to their reputation due to events which occurred in February 2012 in Limassol. Mr Kuzovlev, president of the Bank of Moscow has caused injury to the Plaintiffs with his speech at the Business Forum for Russian- Cyprus investments which took place at the Meridien Hotel. The Forum was attended by the President of the Republic, prominent personalities, other professionals and business people from Russia and Cyprus. It is well known that there was a change of management in the Bank of Moscow in 2011. The new management accused the former president and former vice-president of the Bank of wrongdoing. As the new president of the Bank of Moscow has attempted to embroil the Plaintiffs in this matter, the Plaintiffs have proceeded with the filing of the lawsuit. It is expected that other lawsuits will soon be filed on relevant issues. It is worth noting that the Cyprus companies have transferred to Bank of Moscow all the assets which they have acquired through their loans, thus repaying all their debt obligations to the Bank. The former management of the Bank of Moscow accuses the board of management of waging a politically motivated persecution which is linked with the ousting by the Kremlin of the Moscow ex-mayor, Mr Luzkov. 3 August 2012 Nicosia August 22 - 28, 2012 FinancialMirror.com 4 | CYPRUS Nadir theft trial jury still out The jury in the London trial of former fugitive tycoon Asil Nadir has been sent home after an eighth day of deliberations over theft charges, according to the Press Association. On Monday the ten jurors found Nadir, 71, guilty of three counts amounting to GBP 5.5 mln, and cleared him of a fourth count. Nadir is accused of plundering millions from his Polly Peck International business empire between 1987 and 1990. The Turkish Cypriot rags-to-riches-to-rags tycoon was found guilty of stealing GBP 1.3 mln to secretly buy Polly Peck shares to bolster its stock exchange price. He was also found guilty of stealing 1 mln spent on antiques and 3.25 mln which went to 19 different destinations. He was cleared of a fourth count of stealing GBP 2.5 mln and using it to pay his income tax bill. Nadir denied 13 counts of theft of GBP 34 mln. The prosecution says these are sample charges representing theft of GBP 150 mln from the company. During the seven month Old Bailey trial, two of the original jurors were discharged through ill health. The court heard that Nadir fled Britain in 1993 for his native northern Cyprus before he could be tried and returned voluntarily in 2010. He told the court he left because he was "a broken man without hope" and complained about the Serious Fraud Office investigation. government - since it had received donations from Nadir. Wearing a dark suit, green tie and matching handkerchief in his top pocket, Nadir appeared shocked when the jury returned the guilty verdicts. Second wife Nur, 42 years his younger, left the court in tears and was taken away in a chauffeur-driven Jaguar. STELLAR RISE Philip Shears, prosecuting, said Nadir had transferred millions of pounds abroad through a complicated network of companies and banks. He had used some of the money to buy antiques, pay off debts and to prop up the price of Polly Peck shares, he said. A Conservative minister resigned over his links to Nadir after it emerged he had given the businessman a watch engraved with the message: "Don't let the bastards grind you down." Born in Cyprus in 1941, Nadir sold newspapers at the age of six before moving with his family to London in the 1950s. He bought the Polly Peck textiles company in the late 1970s and set about turning it into one of the biggest companies on the stock exchange. Its divisions ranged from consumer electronics to hotels and the Del Monte canned fruit business. He bankrolled Turkish Cypriot leader Rauf Denktash and the occupation regime in the north, operated the Jasmin hotel and casino and started the Kibris newspaper and TV station, until funds ran dry and was subsequently targeted by the regime. SFO officers and other investigators could not extradite Nadir from occupied northern Cyprus because it is an illegal state with no sovereignty. Investigators were said to have found a "black hole" after going to northern Cyprus, where the money had been transferred, the court heard. Polly Peck International, a conglomerate dealing in fruit, leisure, textiles and electronics, was one of the success stories of the Thatcher era and one of the best-performing companies on the London Stock Exchange - but it collapsed in 1990 with debts of GBP 550 mln. Polly peck's demise was one of Britain's biggest corporate failures and was a huge embarrassment to the Conservative Party - which is now the senior partner in a two-party coalition Trade deficit (prelim) shrinks to 2.1 bln in H1 The trade deficit shrank to EUR 2.1 bln in January-June 2012 from according to preliminary data, from EUR 2.5 bln in the same period of 2011. Imports/arrivals reached EUR 462.7 mln in June alone of which EUR 306.5 mln constituted arrivals from other member states of the EU and EUR 156.2 mln imports from third countries. Total exports/dispatches reached EUR 125.6 mln, of which EUR 77.4 mln were dispatches to other EU member states and EUR 48.2 mln exports to third countries. Meanwhile, according to full data for May total imports in January-May 2012 amounted to EUR 2,389.8 mln (EUR 2.4 bln) compared with EUR 2,643.2 mln in January-May 2011. Total exports/dispatches reached EUR 597.4mln compared with EUR 594.3 mln in January-May 2011. The trade deficit for JanuaryMay was EUR 1,792.4mln in January-May 2012 compared with EUR 2,048.8 mln in the corresponding period of 2011. Cyprus ELA shoots to EUR 9.6 bln in July The absence of a government deal with the troika is leading to a growing liquidity crisis for one or more Cypriot banks, judging from the latest Central Bank data. "Other claims on euro area credit institutions denominated in euro", the proxy for Emergency Liquidity Assistance (ELA), shot up to EUR 9.6 bln in July, from EUR 8 bln in June, EUR 5 bln in May and only EUR 130,563 in July 2011. Moreover, the increase is not entirely explained by the reduction in borrowing from the European Central Bank (ECB) after it refused to accept Republic of Cyprus bonds as collateral. "Lending to euro area credit institutions related to monetary policy operations denominated in euro", the proxy for ECB liquidity assistance, did fall to EUR 3.7 bln in July from EUR 5.2 bln in June. However, the sum of assistance provided by the ELA and ECB rose to EUR 13.3 bln in July from EUR 13.2 bln in June and EUR 10.8 bln in May. In May 2011 this total was only EUR 5.5 bln. Banks cannot access ECB assistance again until the deal with the troika (the ECB, European Commission and IMF) has been signed. However, since applying for the European Financial Stability Facility (EFSF) on June 29th the government has not put forward any reforms. Instead it has concentrated efforts on removing the heads of the two largest banks in order to place the blame on the crisis on the banking sector. Minutes leaked last week from the troika's meeting with the House Finance Committee cited a European Commission official saying that the economic challenges stemmed both from fiscal imbalances and the banking sector and that the public finances "were in a worse shape than expected". Fiona Mullen www.sapientaeconomics.com Tourism arrivals up 3.4% y/y in July G Fewer from Mideast Tourism arrivals rose over the year earlier by 3.4% in July to reach 371,453 compared with 359,104 in July 2011. The Russian market continued to surge ahead, with an increase of 40.7% to 79,278. Arrivals from Germany, the third largest market, rose by 13.5% to 12,785, while arrivals from Norway rose by 9.3% to 14,056. The UK market, which remains the largest, remained weak, however, with a drop of 9.1% to 141,782. There was also a 5.1% decrease from Sweden to 18,405 and a 3.4% fall from Greece to 15,355. Arrivals from the Middle East saw a big drop due to the escalating violence in the Middle East region: down 74.2% from Syria, 54,7% from Lebanon, -34,9% from Egypt and -6.6% from Israel. Cyprus falls deeper into recession in Q2 G Fourth straight q/q decline GDP growth, seasonally adjusted Retail trade down prov 3.1% in Jan-May Retail trade declined by a provisional 3.1% compared with the year earlier in May according to preliminary figures, having dropped by 6.5% in April. Compared with the previous month, retail trade in May rose by a provisional 2.9%. In the period January-May 2012, retail trade volumes are provisionally estimated to have decreased by 2.7% compared with the corresponding period of 2011. The value index in January-May is provisionally estimated to have declined by 0.7%. As expected, the Cyprus economy fell deeper into recession in the second quarter, with real GDP declining on a seasonally adjusted basis by 2.4% compared with the same period of the previous year, after a drop of 1.5% in the first quarter. On a non-seasonally adjusted basis GDP fell by 2.3%, from 1.5% in Q1. On a quarterly basis, the economy has now recorded its fourth quarter of contraction, with GDP declining compared with the previous quarter by 0.8% on a seasonally adjusted basis, from 0.4% n the first quarter. A technical recession is recorded after two straight quarters of q/q decline. Full data will be released in about four weeks. The Statistical Service indicated that that decline was broadbased, with declines in construction, manufacturing, electricity, wholesale and retail trade, and transport. On the other hand, there were positive growth rates for tourism and, despite the capitalisation crisis that has hit business confidence, banking. Cyprus applied for financial support from the European Financial Stability Facility (EFSF) on June 29, having been locked out of financial markets since May 2011. r However, the government has yet to agree to the terms. The EFSF is needed partly to shore up the capital of its two largest banks, which were badly hit by the writedown of Greek sovereign debt, but also cover some EUR 4.5 bln of government financing needs to the end of 2014. Estimates for the total amount required range from EUR 11 bln to EUR 15 bln (around 60% to 80% of GDP). www.sapientaeconomics.com FinancialMirror.com August 22 - 28, 2012 CYPRUS | 5 Meeting the challenges... G Limassol tries to cope with major projects and lack of funds By CHRISSIE FLINT wrecks that will be sunk this summer off the coast between Debenhams and Dassoudi. These will attract plenty of marine life which will make them popular with divers of all levels. To streamline expenditure, Christou is taking measures to ensure that a number of elements of infrastructure are now being undertaken by the various municipalities working in unison rather than independently. The most important of these projects are the rubbish treatment facility at Pentakomo and the development of one sizeable new dog pound that will be used by all municipalities, rather than each authority trying to run and fund its own. The town has certainly been hit by the economic recession which has seen several businesses - especially restaurants- close down, but Mayor Christou feels optimistic that with the renaissance of the old town centre fuelled by Tepak ( the Technology University of Cyprus) and the restoration of roads and buildings, that business confidence will be restored. "I believe that even in difficult times, good businesses will survive but I think owners must analyse their customers - who they are and what they want, for example the style of the menu and the prices. Sometimes people complain about the prices charged but the Cyprus Tourism Organisation has inspectors who are continually assessing prices and quality which I think is essential." "I think the wonderful thing about Limassol is that we have restaurants serving every imaginable cuisine, we have a rich and varied cultural scene and for those who enjoy the simple things in life there are wonderful walks to be enjoyed along the promenade. Challenging times yes, but Limassol is meeting these challenges with great confidence... Arriving at his office for a series of evening meetings, Andreas Christou, the charismatic and dynamic Mayor of Limassol knows better than to think he can slip into the building unnoticed! He warmly welcomes a group of teenage runners before pausing to talk with an elderly resident who has problems with the pavements near her home. It is this warm empathy with people of all ages and backgrounds that have ensured him a second term in office. The paperwork and plans on the main table in his office reveal some of the projects that are currently in progress. Many of these projects began in the last five years but have been progressing at a slower rate because of lack of funds and several plans including the huge new conference centre cannot be started until the necessary funds are available. Mayor Christou is the captain at the helm that will maintain the town's position as a vibrant and exciting European town with something for all members of the community. Current projects include the new municipal theatre, the creation of the Garylis linear park, the development of the coastal promenade and the careful renovation of the old library building in Ayios Andreas. The flagship of projects however is the town's beautiful new marina for 1,000 yachts and boats. The first phase of this exciting new project will be completed at the end of the year and it is hoped will bring a welcome boost to the town's economy and employment. As well as these important high profile projects, the Municipality is involved in the completion of the construction of the town's sewerage and water system - with as little impact as possible on houses, businesses and roads. Andreas Christou is hoping that a number of new projects can begin in 2012 including the proposed new sports centre that will attract teams from overseas, the three phase renovation of Ayias Fylaxeos street between Ayia Fyla roundabout and the old Caf� Paris and the much-needed new underground parking facilities near Anexartisias str. He is hoping that work will begin on the new facility for senior citizens which is currently located behind the Old Hospital but will be relocated. The new centre is to be built at a cost of 2 million - funded by the Co-Operative Bank of Limassol. If life wasn't busy enough for Christou and his ministers, there are plenty of issues that he must consider that are linked with the economy and changing lifestyle of Cyprus... Over the years, Limassol has attracted large numbers of residents from countries such as Germany, Lebanon, Israel and more recently, Russia, which is a fact that the Mayor finds very pleasing as he believes that it enhances the culture of the town for many aspects as businessmen and their companies are accompanied by their families needing housing and education. Christou regularly meets Russian residents and explains: "They do a tremendous amount for the town both in the commercial sector but with education and they find Limassol the ideal home for them as they enjoy the security the town offers, its lifestyle and the comfort of sharing the Orthodox religion which are all important considerations for families when they choose to relocate." He admits that the crime rate has increased in the town but is quick to point out that compared to many other European towns it is much lower and because Cyprus is still comparatively small, the police usually `get their man'. In the current economic climate many have suggested that Limassol should abandon its image as a traditional tourist destination with just hotels and beaches as surely modern tourists are discerning and require much more. But Christou is quick to explain that the town's tourism is an important commercial foundation and that he is keen to build on this, well aware that in order to attract high class tourists a town must offer more and also must attract specialist tourist groups. At present there is an imbalance between the amount of development that has taken place east of the town, but he explains this is now changing. "Recently, we have turned our attention to the west of Limassol, not least of all because we have the marvellous natural attraction of the Akrotiri Salt Lake, the attractive citrus groves and the popular My Mall shopping centre with its planned development. The Lanitis Company is currently waiting for its permit to start work on the new golf course there and in due course our new athletic stadium including excellent football pitches and facilities will also be located to the west of the town and all of these will only serve to enhance our quality tourist product." "I would like to see our top hotels developed further, why can't we have a six or seven star hotel like Dubai? This will attract those with serious amounts of money to spend," adds Christou. Other planned attractions for the town include the two ship- 15% of small shops in Limassol have closed Limassol has been hard hit by the economic crisis, with some 375 shops closing down in the past few months, representing 15% of the 2,500 retailers, restaurants and small shops in the town's centre. Christis Demetriou, president of the Limassol commercial centre's shopkeepers association, said that construction work has added to the negative atmosphere, but was confident that with some major projects being delivered in the near future, 2013 will bode better. However, he said that the arrival of the Limassol Marina project, road works around town, the Technical University TEPAK and other projects will not bring back the shopkeepers that closed down and left. But we should learn from past mistakes, he said, adding that problems to be avoided include the high rents, oversupply in the market, and rivalry from larger chain operators. Is Ayios Dhometios broke? G Mavrou reassures local authorities of state support Interior Minister Eleni Mavrou said over the weekend that the government would continue to stand by local authorities despite the difficult economic climate. Mavrou, the former mayor of Nicosia, said that local administration was capable of facing the challenges. However, in earlier statements she said that the government had no more funds to hand out beyond the state subsidies to municipalities and village councils. Press reports have suggested that three municipalities in the greater Nicosia area are on the verge of bankruptcy, with halfoccupied Ayios Dhometios fearful of not finding the money in time to pay its 79 staff who could be laid off. The Mayor of Lakatamia has said that in order to pay its staff it would have to suspend nearly 300,000 euros in payments to third parties, while Aghlandjia is barely surviving, hoping to get the third tranche of its state subsidy in October. Meanwhile, government spokesman Stefanos Stefanou said the announcement on Friday that some development projects were being mothballed concerned works that had not yet seen groundbreaking, and others that were no longer deemed necessary. Mavrou announced on Friday that the state was freezing some public projects with a view to saving 140 mln euros by revoking land expropriations now considered surplus to the state's needs. Some of these projects include motorways, while the Centre for the Arts in Nicosia has probably been shelved. Projects such as the urban waste management units, the Larnaca marina and the archaeological museum are some of the projects which will continue, as they have already begun, said Stefanou. August 22 - 28, 2012 FinancialMirror.com 6 | COMMENT We're Poles apart when it comes to Entrepreneurship EDITORIAL In the current economic turmoil where a mood of doom and gloom seems to prevail, the only uplifting signs of achievement and success ought to come from the private sector, primarily from self-funded projects or cash-rich enterprises, often referred to as the "backbone of the Cyprus economy". But in order to succeed or at least enjoy a brief moment of a commercial fame, all that our SMEs need is the occasional pat on the back, recognition or an award. It is unfortunate that Cyprus is limited to the oftrecycled `export' or `services' awards ceremony that has become an excuse for employer organisations and government officials to get together for cocktails and have their photos taken with budding entrepreneurs who are more in need of moral and financial support in order to keep on working, or at least to stay afloat. Perhaps Poland is an example to follow. For five consecutive years, a total of 117 projects have taken part in the national edition of the European Enterprise Awards, of which ten were submitted to the European Commission for international awards � these ranged from rural development to academic business incubators. The Commission's aim to support the EEA was to inspire potential entrepreneurs and promote the best examples of policies and practices, hopefully as examples for other projects in EU member states to follow. In Cyprus, we have a president who spares no occasion to demonise the banks (that in turn close the tap on SME funding), an administration that blasts small businesses (in the name of "workers' rights") and a rigid civil service that couldn't care less if a small exporter of frozen foods or a mega manufacturer of solar panels has the necessary tools to promote Cyprus goods and services that will, eventually, generate revenue and taxes to pay for the public sector salaries. Instead of wasting millions to promote Cyprus as a benchmark business centre with no result to show for, why not hire the Polish Ministry of Economy to the work for us. It would cost us less and would achieve better results. PhoenixGate: Symptoms of an ailing value system? "We have not heard neither about the details nor about the process of evaluating a business and investment deal of national proportions" As smoke and mirrors continue to distort the truth around the most recent scandal, our judgment is impaired. Or is it? We are referring to the imbroglio involving Chinese investor Yang Qi, a Cyprus domiciled company named Far East Phoenix, the former Ambassador of Cyprus to China and until recently head of the Diplomatic Office at the Presidential Palace in Cyprus, Mr. Ieronymides, his wife, the Cyprus Investment Promotion Agency (CIPA), tight friendships and last, but certainly not least, the Cypriot taxpayer. Our eyes may be stinging from smoke and our judgment distorted, but looking at the Cyprus political and business world, we see the symptoms of an ailing value system: lack of transparency, muddling of personal friendships and national interest business deals and conflict of interest. Transparency International (www.transparency.org) defines corruption as the abuse of entrusted power for private gain. In 2012, Cyprus is ranked 30th out of 183 countries for transparency with a score of 6.3 out of 10 (being the best). Cyprus also has a Very High Human Development Index, ranked 31 out of 187 countries. Countries with VHHDI typically have low corruption rankings. As of today, citizens have not heard neither about the details nor about the process of evaluating a business and investment deal of national proportions. Cyprus is the only country in the investors look not just at the country itself but also at peer countries that share similarities such as geographical location, tax regime and education levels. A peer country to Cyprus is Malta. Also a small, island country economy in the Mediterranean, Malta entered the EU and the Eurozone the same dates as Cyprus. In 2010 the Malta Financial Services Authority (MFSA), signed Memoranda of Understanding with the China Banking Regulatory Commission (CBRC) and the China Securities Regulatory Commission (CSRC), the two main financial services regulators in China to allow Chinese banks and financial services firms to invest into regulated funds based in Malta. In 2011, Malta attracted 86 msn euros in FDIs from China. Cyprus shows 11 mln euros. Could it be that CIPA has evolved into one more bureaucratic government outfit, which requires strategic vision, leadership and results? Of course, foreign direct investment is welcome to Cyprus. At the writing of this article, Ambassador Ieronymides has resigned and returned to his post at the Ministry of Foreign Affairs. Has that resolved the quagmire? Probably not. So, where do we go from here? Back to basics: Strengthen transparency with an access to information law; eliminate conflict of interest by reinforcing firewalls and good governance; refresh leadership at key decision and policy making posts with the new generation of young and business savvy technocrats. Several citizen initiatives has been formed in Cyprus recently, actively conducting whistleblowing and proposing new paths for change. This comes as proof that a new breed of empowered citizens exists in Cyprus and seeks a way through smoke and mirrors. Marina A.Theodotou is an economist and entrepreneur, founder and curator of TEDxNicosia (www.TEDxNicosia.com). She owns of Curveball Ltd (www.curveballlimited.com) an economic intelligence services provider. Previous roles include Director of Business Development and Operations at CIPA. Stavros A. Zenios is a professor of finance and management science at University of Cyprus, a Senior Fellow at the Wharton School of the University of Pennsylvania, and the President of UNICA-Universities of the European Capitals. Most recently he was the Rector of the University of Cyprus. You can reach him at about.me/Zenios. Dr. Zenios and M.Theodotou are founding board members of the Citizens Political Action Group : Eleftheria http://www.politicalportal.org/ProfileDetails.aspx?id=3 By MARINA A. THEODOTOU and STAVROS A. ZENIOS FinancialMirror Financial Mirror Published every Wednesday by Financial Mirror Ltd. Tel. 22 678 666 Fax. 22 678 664 www.financialmirror.com P.O. Box 16077, CY2085 Nicosia Publisher/Managing Editor Masis der Parthogh firstname.lastname@example.org Greek Section Editor Angela Komodromou email@example.com Editorial submissions: firstname.lastname@example.org Advertising inquiries: email@example.com Subscriptions: http://www.financialmirror.com/signup/index.html European Union without an Access to Information Law. CIPA, the country's agency for the promotion of Cyprus as an investment destination, operates since 2008 without a single success story of a greenfield investment. Apart from a few promotional events lacking strategic follow up in various countries, and a couple of legal and regulatory reforms, CIPA has yet to show any greenfield investment. Touting sales of villas to foreigners simply does not count. Not by international standards anyway. According to Investopedia.com, a greenfield investment is a form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up and creating new jobs in that country. The Organisation for Economic Cooperation and Development (OECD) defines Foreign Direct Investment (FDI) as "an incorporated or unincorporated enterprise in which a single foreign investor either owns 10% or more of the ordinary shares or voting power of an enterprise or owns less than 10%, yet still maintains an effective voice in management". In addition, the United Nations Conference for Trade and Development definition of FDI does not include sales of villas either. CIPA is funded by the Cyprus taxpayer who is now also largely unemployed. It is not uncommon for investment promotion agencies to hire local expertise to further business development in that country. CIPA hired Mr. Qi to represent the investment interests of Cyprus in China for 1,000 euros per month. It appears that Mr. Qi may have also used this relationship to further his own business interests in Cyprus. He is a Director of the Phoenix Far East company, where the Cyprus Ambassador's spouse, a business executive, was also a director until her recent resignation. Incidentally, the registered capital of Phoenix Far East was also 1,000 euros. Now, let's take a different angle. Let's give ample benefit of doubt to all the protagonists and situations described above, and let's look at investing in Cyprus from the outside. Foreign companies scouting for greenfield investment locations look at key factors, both qualitative and quantitative. The first level of due diligence includes desk reviews of key reports from the World Bank, The World Economic Forum, Transparency International, UNCTAD, etc. In addition, � Copyright No part of the Financial Mirror newspaper, the Greeklanguage X�<̷ & A��ڿ, the daily Xpress-OIKONOMIKH electronic PDF edition or any of the contents of the website www.financialmirror.com, may be reproduced, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical photocopying, recording or otherwise) without prior permission of the publishers. Any person or company found in violation will be prosecuted and financial damages will be sought as this implies theft of the intellectual property rights of the publishers, their associates and contributing services or agencies. FinancialMirror.com August 22 - 28, 2012 COMMENT | 7 Threats faced by services sector in Cyprus By JOHN MAVROKORDATOS Chartered Accountant As a direct result of the vision and initiative of the accountancy and legal profession, and the continuing support of past governments, the Cyprus international business services sector has experienced rapid growth during the past 20 years, firmly establishing the island as a viable and credible financial centre and direct foreign investment jurisdiction. The direct benefits of this successful drive are numerous and substantial: billions of Euros collected from VAT, income and defence taxes have bolstered state finances over this period, whilst the large cash deposits placed in the Cyprus banks by these international companies (estimated at over 30 bln euros at present) have provided local banks with much needed liquidity and shielded them from the financial crisis experienced over the past five years. In addition, and during a time when the rest of the business sectors of the Cyprus economy have been shrinking, or at best, stagnating, pushing the unemployment to historic highs of almost 11%, this services sector has created thousands of new, high quality jobs. The key success factor for these achievements in the past, besides the professional and skilled services provided to clients, was the certainty and comfort provided to these foreign clients that Cyprus had the necessary legislation and independent institutions to ensure absolute confidentiality when it came to their financial affairs and status here. The most notable example of this took place in 2003 when tremendous pressure was brought upon the Cyprus government at the time by the Russian authorities to disclose confidential information relating to the well known Yukos- Khodorskovsky case for alleged tax evasion and money laundering. The Cyprus government of the day as well as the Central Bank steadfastly refused to do so citing perfectly legitimate reasons. This stance won Cyprus much respect and proved a significant catalyst in the increase of international business to date. Any sensible, progressive government would encourage and promote such an industry. Unfortunately, this is not the case with the current government, led by the self-professed communist President, D. Chistofias, and AKEL, who are actively following an opposite direction to that adopted in 2003 as described above, no matter what the economic cost to the local economy. It appears that with the forthcoming presidential elections in February 2013 in mind, which they have conceded that they cannot win, they have decided to adopt a deliberate `scorched earth' policy and leave behind a barren economic desert for the new government. Christofias views the EU with huge suspicion and scepticism, whilst his anachronistic communist ideology and loyalty has made him a puppet of Russia and more specifically the Kremlin. He regards the `Troika', which he himself called in to provide financial support, as the enemy which will impose onerous conditions on the government requiring structural changes to the over-privileged, bloated and unproductive government sector. It is for these reasons that he has requested a ?5 bln loan from Russia, irrespective of the terms and (certainly the nontransparent) conditions that will be imposed for such a loan. With this loan, he believes that he can meet the government's funding requirements until the expiration of his term, without having to make any cuts to spending, and especially to government employee salaries and pensions, which will please the government sector trade unions, his perceived biggest supporters. This `strategy', is highly dangerous and will push the economy to complete destruction since our budget deficit and external loans will balloon to unsustainable levels. Furthermore, his blind subservience and attempts at the ingratiation of the Kremlin in order to obtain this loan, will make Cyprus a protectorate of Russia. Already, requests for confidential and personal information from the Russian authorities are granted by the Cypriot authorities and enforced by the Cyprus anti-money laundering units without a problem and recourse to Cypriot law, especially the one relating to confidentiality and non-disclosure as enshrined in the Cyprus constitution. There is no doubt that once this government `policy' becomes known amongst Russian (and non- Russian) clients, the services sector will experience a huge flight of clients, together with their capital to more secure jurisdictions. This will be a devastating blow and cause irreparable damage to this vital sector and the economy at large, creating huge liquidity problems for the local banks. Cyprus's international credibility is being gravely undermined and will be totally destroyed under the present government. MANAGEMENT TIP OF THE WEEK Your employees' career paths Managers need to stop being so self-interested and instead think about what they can do to help their star employees find that next level of growth, says Harvard Business Review (http://www.hbr.org). No boss likes to think about losing star employees. But it's your job as a manager to help people find the next level of growth. Here are three things you can do to support your direct reports' development: 1. Redefine current roles. Make sure job descriptions match people's interests, values, and skills. This will help ensure that they'll face new challenges as they grow. 2. Help them network. Identify people in the company who can provide opportunities, guidance, insight, or access to a different network. 3. Evaluate options. Help your direct reports determine which opportunities have the greatest potential for learning. Put the company's needs before your own when discussing options that may include someone leaving your team. - This week's management tip was adapted from the Harvard ManageMentor Online Module: Career Management. Greece deserves a break, but what about Cyprus? Greek Premier Antonis Samaras is traveling to Berlin and Paris on August 24 and 25 to meet German Chancellor Angela Merkel and French President Francois Hollande to request a two-year extension for the country's fiscal adjustment programme. The Samaras government is seeking to hammer out EUR 11.5 bln in budget cuts for 2013 and 2014 but may need as much as EUR 14 bln in new and additional aid over the next two years to meet its deficit targets due to setbacks in planned privatisations and lower revenue from income tax as the recession in the country is deeper than earlier thought at 7%. I was holidaying on a Greek island last week and was impressed at how eagerly Greeks were chasing customers to issue receipts even for the purchase of a bottle of water costing 50 cents on an excursion boat trip! While tax revenue is missing targets because of the slowdown in the economy, for the first time I felt that people were afraid of the authorities and were keen to report their revenue and pay the relevant taxes. For sure, Greece has been promising a lot and delivering little, especially with respect to privatisations and dismantling of various unnecessary organisations and cutting red tape which breeds corruption, but perhaps Samaras could be given an extension, the last perhaps, as he fights to bring order to a chaotic country. Press reports citing European sources suggest that Samaras will be given a chance to present his plan, which will be discussed between European leaders and the IMF and hopefully an extension will be granted. But I doubt if the same reception will be given to Cyprus. Most of August was wasted as our policy-makers decided to take their summer holidays, instead of agreeing on new measures to overhaul the economy and put state finances in order. All that the Christofias government has done is point zone government bonds so that it would buy such bonds if their interest rates exceeded a certain premium over German bonds. Spain, Italy, Ireland and Portugal would certainly qualify for such action because their governments have and are pursuing painful but necessary cuts and measures to reduce debt, lower deficits and help their growth rates. All that Cyprus is doing is saying, we have found gas and we need to be treated differently and offered unlimited loans on the promise that somehow the money that we shall receive from the offshore gas proceeds in the future will cover all our needs and some will be left to pay off the loans that the country is taking on now. Unfortunately, the country has no choice but to wait until the current government leaves office in February and a new President shows the seriousness to confront the massive problems facing this country and comes up with realistic solutions. firstname.lastname@example.org (Eurivex Ltd. is a Cyprus Investment Firm, authorized and regulated by CySEC, license #114/10 and approved by the Cyprus Stock Exchange to act as Nomad for listings on the Emerging Companies Market. The views expressed above are personal and do not bind the company and are subject to change without notice) By SHAVASB BOHDJALIAN Investment Advisor and CEO of Eurivex Ltd. to the Troika representatives that sometime from 2018 and beyond, some kind of revenue will be generated from the recent offshore gas find in Block 12. We are all awaiting with interest to find out details about the fiscal discipline plan that the Cyprus government will table during its negotiations with the Troika as it struggles to secure the loan to cover the government funding needs and inject capital into the island's two largest banks. The total rescue package is seen by some analysts at EUR 15 bln. I'm not sure whether Cyprus will qualify to be included in future ECB support schemes. The German Der Spiegel reported over the weekend that the ECB is considering setting interest rate caps for any purchases of struggling euro- August 22 - 28, 2012 FinancialMirror.com 8 | C Fran�ois Hollande's Wrong Idea of France France's new president, Fran�ois Hollande, has achieved a remarkable series of political victories � at home and in Europe � since his election in May. Unfortunately, his streak of success will inevitably call forth an economic reckoning that will shock France's apparently unsuspecting citizens and doom the French elite's approach to the "construction of Europe." Since winning the presidency, Hollande has won a parliamentary majority and pushed Germany toward accepting joint liability for eurozone countries' debts. But forebodings of crisis have become widespread in French business and economic circles. But the real danger � which even Hollande's sternest critics may be underestimating � is not so much his individual policy failings (serious though they may be) as his approach to the twin challenges posed by France's economic imbalances and the eurozone crisis. On each front separately, he might manage to muddle through; together, they look likely to cement France's loss of competitiveness. Declining competitiveness is best captured in a single indicator: unit labor costs, which measure the average cost of labor per unit of output. In a monetary union, discrepancies in wage growth relative to productivity gains � that is, unit labor costs � will result in a chronic accumulation of trade surpluses or deficits. Since the euro's introduction, unit labor costs have risen dramatically faster in France than they have in Germany. According to Eurostat data published in April 2011, the hourly labor cost in France was 34.2, compared to 30.1 in Germany - and nearly 20% higher than the eurozone average of 27.6. France's current-account deficit has risen to more than 2% of GDP, even as its economic growth has ground to a halt. The high cost of employing workers in France is due not so much to wages and benefits as it is to payroll taxes levied on employers. The entire French political class has long delighted in taxing labor to finance the country's generous welfare provisions, thus avoiding excessively high taxation of individuals' income and consumption � though that is about to come to an end as Hollande intends to slap a 75% tax on incomes above ?1 million. This is a version of the fallacy that taxing companies (?capital?) spares ordinary people (?workers?). Of course, such taxes on firms are always passed on to households � usually through straightforward price hikes, and, in France, also through unemployment. High tax rates on labor � together with rigid regulation of hiring and firing � make employers extremely reluctant to recruit workers. As a result, France has had chronic long-term unemployment � forecast to reach 10.5% by 2013 � for many years. Hollande's predecessor, Nicolas Sarkozy, tried to address this problem. He exempted voluntary overtime pay from employment tax and shifted some of the burden of labor taxation onto consumption (via a hike in VAT). But Hollande quickly reversed both of these reforms. invest and hire outside France. Hollande's apologists praise his gradualist and consensual approach to addressing the economy's structural distortions. They argue that his penchant for setting up consultative commissions is the best way to forge the consensus required for structural reform, whereas Sarkozy's combative style was counterproductive. Even banishing skepticism and assuming that Hollande could over time persuade his supporters to embrace competitiveness-boosting policies, the eurozone crisis is denying France the time that such gradualism requires. A simple, effective way to buy time would be to abandon the euro and restore competitiveness through a devalued national currency. But this expedient is incompatible with mainstream French politicians' devotion to the "European project," which amounts to a projection of French soft power; indeed, building Europe lies at the heart of the French establishment's version of what Charles de Gaulle used to call "a certain idea of France." For mainstream French politicians, renouncing the European project to buy the time required to restore competitiveness is as unthinkable as is the logical alternative: an allout push for full European political union. This would reestablish monetary sovereignty and create a normal central bank (like the Federal Reserve or the Bank of England) at the European level. But it would also mean abandoning France's republic in favor of a federal European government � anathema to that "certain idea of France." The combination of gradualism (on the most generous interpretation) in domestic economic reform and the paralyzing effect of the eurozone crisis will lead to a massive shock. Remaining in a currency union with the much more competitive German economy will require wrenching and rapid reforms, for which Hollande's tepid approach will fail to prepare the complacent French. The result will be even more support than was seen in last April's presidential election for extremist political parties that reject both Europe and competitive market capitalism. � Project Syndicate, 2012. www.project-syndicate.org By BRIGITTE GRANVILLE Professor of International Economics and Economic Policy at Queen Mary, University of London, and the author of the forthcoming book Remembering Inflation The repeal of the tax break on overtime reflects another economic fallacy to which French Socialist politicians are deeply attached: the "lump of labor" notion that underlay the most disastrous of their economic policies � the 35-hour workweek, introduced in 2000. The idea behind the policy is that demand for labor is a constant, and that this fixed number of aggregate working hours required by employers to meet final demand can be spread more evenly among workers to reduce unemployment. Such measures, designed to create jobs by freeing up work hours, are futile at best, and are often detrimental. French Socialists should recall their school physics lesson about communicating vessels: when a homogeneous liquid is poured into a set of connected containers, it settles at the same level in all of them, regardless of their shape and volume. Generating more "liquid" (jobs) requires not discouraging the entrepreneurs on whose activities sustainable job creation ultimately depends. The effect of fiscal and regulatory pressure on employment is to encourage French firms to How Long for Low Rates? How long can today's record-low, major-currency interest rates persist? Ten-year interest rates in the United States, the United Kingdom, and Germany have all been hovering around the once unthinkable 1.5% mark. In Japan, the ten-year rate has drifted to below 0.8%. Global investors are apparently willing to accept these extraordinarily low rates, even though they do not appear to compensate for expected inflation. Indeed, the rate on inflation-adjusted US Treasury bills (so-called "TIPS") is now negative up to 15 years. Is this extraordinary situation stable? In the very near term, certainly; indeed, interest rates could still fall further. Over the longer term, however, this situation is definitely not stable. Three major factors underlie today's low yields. First and foremost, there is the "global savings glut," an idea popularized by current Federal Reserve Chairman Ben Bernanke in a 2005 speech. For various reasons, savers have become ascendant across many regions. In Germany and Japan, aging populations need to save for retirement. In China, the government holds safe bonds as a hedge against a future banking crisis and, of course, as a byproduct of efforts to stabilize the exchange rate. Similar motives dictate reserve accumulation in other emerging markets. Finally, oil exporters such as Saudi Arabia and the United Arab Emirates seek to set aside wealth during the boom years. Second, in their efforts to combat the financial crisis, the major central banks have all brought down very short-term policy interest rates to close to zero, with no clear exit in sight. In normal times, any effort by a central bank to take shortterm interest rates too low for too long will boomerang. Shortterm market interest rates will fall, but, as investors begin to recognize the ultimate inflationary consequences of very loose monetary policy, longer-term interest rates will rise. This has not yet happened, as central banks have been careful to repeat their mantra of low long-term inflation. That has been sufficient to convince markets that any stimulus will be withdrawn before significant inflationary forces gather. But a third factor has become manifest recently. Investors are increasingly wary of a global financial meltdown, most likely emanating from Europe, but with the US fiscal cliff, political instability in the Middle East, and a slowdown in China all coming into play. Meltdown fears, even if remote, directly raise the premium that savers are willing to pay for bonds that they Germany will soon be in the same situation. Meanwhile, new energy-extraction technologies, combined with a softer trajectory for global growth, are having a marked impact on commodity prices, cutting deeply into the surpluses of commodity exporters from Argentina to Saudi Arabia. Second, many (if not necessarily all) central banks will eventually figure out how to generate higher inflation expectations. They will be driven to tolerate higher inflation as a means of forcing investors into real assets, to accelerate deleveraging, and as a mechanism for facilitating downward adjustment in real wages and home prices. It is nonsense to argue that central banks are impotent and completely unable to raise inflation expectations, no matter how hard they try. In the extreme, governments can appoint central bank leaders who have a long-standing record of stating a tolerance for moderate inflation � an exact parallel to the idea of appointing "conservative" central bankers as a means of combating high inflation. Third, eventually the clouds over Europe will be resolved, though I admit that this does not seem likely to happen anytime soon. Indeed, things will likely get worse before they get better, and it is not at all difficult to imagine a profound restructuring of the eurozone. Nevertheless, whichever direction the euro crisis takes, its ultimate resolution will end the extreme existential uncertainty that clouds the outlook today. Ultra-low interest rates may persist for some time. Certainly Japan's rates have remained stable at an extraordinarily low level for a considerable period, at times falling further even as it seemed that they could only rise. But today's low interestrate dynamic is not an entirely stable one. It could unwind remarkably quickly. � Project Syndicate, 2012. www.project-syndicate.org By KENNETH ROGOFF Former chief economist of the IMF, Professor of Economics and Public Policy at Harvard University perceive as the most reliable, much as the premium for gold rises. These same fears are also restraining business investment, which has remained muted, despite extremely low interest rates for many companies. It is the combination of all three of these factors that has created a "perfect storm" for super low interest rates. But how long can the storm last? Although highly unpredictable, it is easy to imagine how the process could be reversed. For starters, the same forces that led to an upward shift in the global savings curve will soon enough begin operating in the other direction. Japan, for example, is starting to experience a huge retirement bulge, implying a sharp reduction in savings as the elderly start to draw down lifetime reserves. Japan's past predilection toward saving has long implied a large trade and current-account surplus, but now these surpluses are starting to swing the other way. FinancialMirror.com August 22 - 28, 2012 COMMENT | 9 Who Are Tomorrow's Consumers? Luxury-brand companies' stock prices plunged in July, after their financial results disappointed investors, owing largely to slower sales in emerging markets, especially in China. Meanwhile, news reports indicate that high-end shopping malls in India and China are increasingly empty. What is going on? Many analysts had expected emerging markets to generate exponential growth over the next decade. But now there is talk of how the global crisis is slowing down these economies and killing off discretionary spending. But a slowdown in China's economic growth cannot really be blamed for slower sales of luxury goods or empty malls. The annual growth rate of China's $7.5 trillion economy decelerated to 7.6% in the second quarter, from 8.1% in January-March � hardly a cause for panic. Moreover, two-thirds of the decline is attributable to slower investment rather than slower consumption. For all of China's long-term structural problems, it is not exactly slipping into recession. The real problem is that many analysts had exaggerated the size of the luxury-goods segment in emerging markets. China is by far the largest emerging-market economy, with 1.6 million households that can be called "rich" (defined as having annual disposable income of more than $150,000). But this is still smaller than Japan's 4.6 million and a fraction of the 19.2 million rich households in the United States. The number of rich households amounts to barely 0.7 million in India and one million in Brazil. The point is that developed countries still dominate the income bracket that can afford luxury goods. The explosive growth recorded by this segment in emerging markets in recent years reflected entry into previously untapped markets, with the subsequent slowdown resulting from saturation. The number of high-income households is still growing, but not enough to justify the 30-40% compounded growth rates expected by some. This does not mean that growth opportunities in emerging markets have disappeared, but expectations do need to be recalibrated. Despite the economic boom of the last decade, China still has 164 million households that can be called "poor" (with annual disposable income of less than $5,000) and another 172 million that are "aspirant" (between $5,000$15,000). Similarly, India has 104 million poor households and 107 million aspirant households. the latest data show that emerging markets are aging at an even faster pace. China's median age is today 34.5 years, compared to 36.9 years for the US. However, the average Chinese will be 42.5 years old by 2030, compared to 39.1 for the average American. The median Russian will be even older, at 43.3 years. The impact of aging is already being felt in these countries' education systems. The number of students enrolled in primary schools in China has fallen by 18% since 1990, and by an astonishing 33% in South Korea. At the other end of the demographic scale, the share of the aged is growing explosively. Meanwhile, the nature of the basic consuming unit � the household � is also changing rapidly. In most developed countries, the traditional nuclear family is in severe decline and is being replaced by single-individual households. In Germany, for example, 39% of households consist of just one person. Couples with children now account for barely 19% and 22% of households in the United Kingdom and the US, respectively. Nevertheless, it is not all about consumer atomization. We are simultaneously witnessing the re-emergence of the multigenerational extended family, with as many as 22% of American adults in the 25-35 age group living with parents or relatives. By contrast, the extended family is giving way in India to nuclear families, which now account for 64% of households. All of these changes will profoundly affect the future of consumer markets. For example, we need to revise our mental image of the nuclear family from American suburbia to fit the rapidly expanding cities of India. By the same token, our mental image of the multigenerational extended family needs to include those in the West. An aging but increasingly middleclass Asia will be at the core of this new consumer landscape. � Project Syndicate, 2012. www.project-syndicate.org By SANJEEV SANYAL Deutsche Bank's Global Strategist The real story for the next two decades will be these countries' shift to middle-class status. Although other emerging regions will undergo a similar shift, Asia will dominate this transformation. A study by the economist Homi Kharas of the Brookings Institution gives us a sense of the scale of this change. He estimates that 18% of the world's middle class lived in North America in 2009, while another 36% lived in Europe. Asia's share was 28% (after including Japan). But Kharas's projections suggest that Asia will account for two-thirds of the world's middle class by 2030. In other words, Asia will displace not just the West, but even other emerging regions. This is the real business opportunity. Of course, the rise of Asia's middle class is not the only change we should expect. We are in the middle of a social and demographic shift that will both destroy and create consumer markets. The aging of developed markets is well known, but China's Next Transformation During three decades of favorable global economic conditions, China created an integrated global production system unprecedented in scale and complexity. But now its policymakers must deal with the triple challenges of the unfolding European debt crisis, slow recovery in the United States, and a secular growth slowdown in China's economy. All three challenges are interconnected, and mistakes by any of the parties could plunge the global economy into another recession. To assess the risks and options for China and the world, one must understand China's "Made in the World" production system, which rests on four distinct but mutually dependent pillars. The first of these pillars, the China-based "world factory," was largely created by foreign multinational corporations and their associated suppliers and subcontractors, with labor-intensive processing and assembly carried out by small and medium-size enterprises (SMEs) that have direct access to global markets through a complex web of contracts. Starting modestly in coastal areas and special economic zones, the "world factory" supply chain has spread throughout China, producing everything from stuffed animals to iPads. The "world factory" could not have been built without the second pillar: the "China infrastructure network," installed and operated mostly by vertically integrated state-owned enterprises in logistics, energy, roads, telecoms, shipping, and ports. This pillar relies heavily on planning, large-scale fixed investment, and administrative controls, and its quality, scale, and relative efficiency were strategic to Chinese competitiveness and productivity. The third pillar is the "Chinese financial supply chain," which provided the financing needed to construct and maintain the infrastructure network. This supply chain is characterized by the dominance of the state-owned banks, high domestic savings, relatively under-developed financial markets, and a closed capital account. The final pillar is the "government services supply chain," by which central and local officials affect every link of production, logistics, and financial networks through regulations, taxes, or permits. Most foreign observers miss the scale and depth of institutional and process innovation in this supply chain, which has managed (mostly) to protect property rights, reduce transaction costs, and minimize risks by aligning government services with market interests. For example, Chinese local governments became highly adept at attracting foreign direct investment (FDI) by providing attractive infrastructure and supporting services that facilitate the expansion of global production chains. With the onset of the current global crisis, and given dramatic changes in social media, demographics, urbanization, and resource constraints, all four pillars are now under stress. Production chains are facing labor shortages, wage increases, and threats of relocation to lower-cost countries. Meanwhile, global investors are questioning local governments' solvency. Last but not least, the three pillars could not have remained standing without the anchor provided by the fourth. Until now, its success was based on positive competition between local governments and different ministries, benchmarked according to performance indicators such as GDP and fiscal revenues. Unfortunately, this has led to problems of social equity and environmental sustainability, which require complex coordination of bureaucratic silos in order to overcome the resistance of powerful vested interests. There is general recognition and consensus that the path of reform requires profound re-engineering of all four pillars. First, the production chain must shift from export dependence toward domestic consumption. Realigning China's infrastructure means emphasizing quality over quantity, and reducing state ownership and controlled prices in favor of market forces. State orchestration should instead be focused on fighting corruption, reducing transaction costs, promoting competition, lowering entry barriers, and removing excess capacity. For the financial supply chain, the key is to address systemic risks and realign incentives in order to induce investors to support the engines of real economic growth, rather than the creation of asset bubbles. The Chinese miracle was engineered by institutional and process innovation at all levels of the government services supply chain. China requires nothing less than another radical reengineering to become a more balanced, socially equitable, and sustainable economy. That process has already begun with another round of experimentation through three new Special Economic Zones in Hengqin, Qianhai, and Nansha to pilot the emergence of a creative, knowledge-based services economy. Of course, such an economy relies crucially on the quality of governance. The real challenge for Chinese officials is how to balance creativity and institutional innovation with order, thereby ensuring the integrity of all four of its economy's pillars. Andrew Sheng, President of the Fung Global Institute, is a former chairman of the Hong Kong Securities and Futures Commission and is currently an adjunct professor at Tsinghua University, Beijing. Xiao Geng is Director of Research at the Fung Global Institute. � Project Syndicate, 2012. www.project-syndicate.org By ANDREW SHENG and XIAO GENG Chinese experts are now debating a key governance question: which top-level architecture would enable the country to adopt the reforms needed to meet global and domestic pressures? Investors are concerned about Chinese equities' erratic performance, regulatory risks, and policy surprises, as well as the uncertainties stemming from greater volatility in asset prices, including property prices, interest rates, and the exchange rate. What makes the Chinese economy more difficult to read is the increasingly complex interaction of all four of its production system's components, with each other and the rest of the world. First, favorable conditions for the growth of the "world factory" have begun to dissipate. Production costs � in terms of labor, resources, regulation, and infrastructure � have been rising domestically, while consumption bubbles in the West have burst. Second, the early success of "China infrastructure" was built on cheap land, capital, and labor. But, despite modern infrastructure, logistical costs within China are 18% of production costs, compared with 10% in the US, owing to various internal inefficiencies. Third, the success of China's financial system was built on state-owned banks' financing of large infrastructure projects and foreign financing of export production through FDI and trade. The financial system has yet to address adequately the challenges of financial inclusivity, particularly funding of SMEs and rural areas, and exposure to excess capacity in selected industries. FinancialMirror.com August 22 - 28, 2012 PROPERTY NEWS | 11 Dutch damned by homeowner debt The euro zone crisis is washing over the walls of one of the region's safest havens. So far, the Netherlands, a founding member of the European Union and fiscal hawk along with neighbouring Germany, has been spared the dramatic collapse of property prices associated with southern European countries such as Spain. Housing prices have fallen 15% since 2008, compared with up to 30% in Spain since the crisis began. Now, though, four years after the global financial crisis first hit, the economy is on the brink of another recession. And steadily sinking property prices are exposing a deep Dutch weakness: unpaid mortgages. The Dutch, who have been able to borrow up to 12 times their income to buy homes, are leveraged to the hilt. By some measures, the Netherlands has the highest per capita mortgage debt in the EU. ING, one of the country's largest lenders, forecast earlier this month that by next year, the debt on one in four mortgaged homes will exceed their value. The Dutch expression is graphic - they say such homes are under water. In the low-lying Netherlands, that's evocative enough. The problem is also bigger than the economy. Collective Dutch mortgage debt rose from 140 bln euros in 1995 to 640 bln euros last year - or from 46% to 105% of GDP. On top of that, the central bank predicts economic growth in the seven years to 2014 will be the lowest since World War Two. The European Commission in May forecast the Dutch economy would shrink by almost 1% this year. In July, Moody's said it might downgrade its rating on Dutch government debt. "This dynamic creates additional fiscal headwinds and means that the Dutch government's debt burden will begin to fall later and from a higher level," it said. If housing prices fall another 10%, the central bank projected last year, 30% of all mortgages would no longer be covered by the home value. That would lead to losses at the four Dutch commercial banks, where about one third of lending comes from mortgages and which are already reporting rising mortgage delinquency. ried that the risk is being underestimated." Where Dutch households had since the 1990s been able to borrow up to 12 times gross salary, since the Lehman crisis new guidelines have lowered that to around five times. The Dutch used excess value to move to larger homes or as consumer credit. The cash bought new kitchens and bathrooms, cars, luxury holidays and recreational boats. Interest on mortgages remains tax deductible. In half of all mortgages, repayment of the principal is deferred for up to 30 years. Van Vliet said the Dutch face a "poisonous cocktail". As recession pops a real estate bubble and the housing market seizes up, there's uncertainty about a political agreement to end such cheap credit. Lansingerland has joined an increasing number of Dutch municipalities that are on the verge of turning to central government for help. The number doubled in 2010 to 35, or nearly one in 10 of 415 municipalities, consultancy Deloitte found. The Deloitte report found municipalities have largely not taken into account billions of euros in potential losses on property investments. DOWN, DOWN House prices could have a lot further to fall. By 2013, mortgage leader Rabobank has forecast, the price decline from 2008 peaks will have reached nearly 18%. That compares with a slide of 34% in the previous housing crisis in the late 1970s and early 1980s. "We're talking about serious money; billions in potential collective write-downs by Dutch municipalities," says Van Vliet. The Dutch central bank expects a moderate recovery in 2013 and 2014, assuming the euro zone problems don't worsen. The country is headed for elections on September 12. No party will win an outright majority in a election largely focused on the future of the euro, but polls indicate the far-left Socialist Party is in the lead, slightly ahead of the pro-business Liberals. Besides implementing billions in spending cuts and halting economic decline, a new government will be tasked with working out how to phase out more than a century of the subsidies that encouraged high indebtedness. "POISONOUS COCKTAIL" Dutchman Nico van Os's experience shows how the problem runs from the countryside to the heart of the state's finances. He and his father tended greenhouse flowers in the western Netherlands for decades, trading overseas and hiring locally. In 2003, as the property bubble was inflating, the local authorities persuaded them to cash out the family business and sell their land to a multi-billion-euro property development. "They acted as if the trees could grow to the heavens," said Van Os, recalling how bitter he was at the pressure to sell. A decade later, the land his family and six neighbouring farms sold to the government is an overgrown field. A plan to build 2,800 houses has been scrapped. The defunct Van Os business is just one headache for the municipality of Lansingerland, a sprawling new residential development with 56,000 residents just north of Rotterdam. Lansingerland bought land from owners like Van Os and ran up debts almost double its income. Until recently, it was among the country's fastest growing regions, building 1,000 homes in 2008. This year, 300 looks optimistic. Scores of projects have been cancelled and this year it wrote off 45 mln euros in losses. But mayor Ewald van Vliet's worries extend beyond his region. "Of the Europeans, the Dutch spend the most on housing and that's where there is a large risk," he said. "I am wor- Must property owners turn vigilantes? The state, intentionally or unintentionally, is persecuting property owners with its policies. Many of the laws regarding real estate are unjust, to say the least, against property owners (i.e. Rent Control Law). At the same time, the laws in place to supposedly protect the owners are time-consuming, rendering them practically useless. Let me give an example. Someone assumes tenancy of a property, having paid a deposit and the first month's rent. This person can stop paying rent for the next 18 months, at which time the owner will launch a procedure for eviction and secure one, if lucky. Freebie To put it simply, any sleek individual can take advantage of the delay and continue to enjoy free stay in a property for 18 months. It is also possible that the owner has in the meantime to repay a bank for a loan on the property, with the financial By GEORGE MOUSKIDES President, Association for the Promotion of Property Development and Manager, FOX Smart Estate Agency institution putting the pressure and imposing heavy penalties on someone not collecting any rent for months. So, what must the owner do? Take the law into his or her own hands? Wrong procedures Let's refer to another unjust procedure. When the Electricity Authority of Cyprus (EAC) is asked, following a court decision for eviction, to stop the electricity supply to the property, they refuse to do so citing humanitarian reasons. It's not only that. When the tenant leaves the property, leaving behind unpaid electricity bills, the EAC demands payment from the owner who has not received a single rent for months on end. It is well-known that securing a court order for eviction in Cyprus can be a long and arduous procedure. Even when the premises are vacated, usually the money owed is never paid to the owner, they fly far and away together with the tenant. Taking Greece as an example, a country often viewed as a place where many things go wrong, we learn that authorities evict bad payers in three months, at the most. Not to mention Britain, where procedures are even swifter. We honestly ask ourselves � what are property owners supposed to do to deal with all these unjust and cumbersome procedures? Must they, as indicated in the headline, assume the role of the punisher? Kanika gets new website Kanika Developments has launch a newly designed website, www.kanikadevelopments.com which has a plethora of features to assist users in property selection in a user-friendly format. The new website's property list is divided into three main sections: Properties For Sale, Resale Properties and Properties For Rent. It is designed to allow users to quickly find the property they are looking for. The new site allows visitors to access information based on their own choice rather than going through an extensive database to decide what is of interest to them. With improvements throughout, the new website has a greater emphasis on a range of properties and services. Leptos Kings Palace sold out All properties at the Leptos Kings Palace project next to the west coast of Kato Paphos have been sold out beginning of this month, according to a company announcement. This is the second sold-out project for the Leptos Group this year. Investors and other buyers are mainly from Russia, China and Scandinavia, as well as locals buyers from the capital. Leptos Kings Palace is located in an exclusive coastal area, within walking distance of the shops and nightlife, on a gently sloping hillside overlooking the sea. There is a large swimming pool with relaxing sun terraces and landscaped gardens. High quality interior finishes with Euro-style kitchens and large living and dining areas make these luxurious properties an irresistible opportunity. August 22 - 28, 2012 FinancialMirror.com 12 | WORLD Fading growth miracle pressures Polish fiscal rigour G Economy slowing rapidly after years of robust growth ANALYSIS Stung by the end of an economic miracle which let him sell Poland as a green island of growth in a barren continent, Prime Minister Donald Tusk is under increasing pressure to give a little ground on his tough line on budgets. A stream of indicators show the only country in Europe to avoid recession throughout four years of financial turmoil is finally succumbing, helped by the end of the huge cash injections for the Euro 2012 football tournament. For a nation conditioned by 20 years of almost uninterrupted growth since the overthrow of the Communist system, it is coming as something of a shock. Tusk has said he will announce a contingency plan next month to be launched if the outlook worsens for the EU's biggest eastern economy. There are signs that could yet include easing back on deficit targets for later years which seem excessive to some at a time when the euro zone is slipping into recession. But similarly to the UK, where thousands of Poles earn their daily bread, both Tusk and Finance Minister Jacek Rostowski are reluctant to give much ground for fear of undermining their credit rating and appeal to financial investors. "The pace of the reduction could be slower," Rostowski said last week, giving the first cautious official hint that he could tweak plans to reduce the deficit to 2.2% of national output next year and below 1% in 2015. Two government officials have told Reuters that the cabinet could consider instead keeping the deficit stable at 2.9% of GDP next year. But the worry among economists is that backing off the previous targets, among the most rigorous anywhere in Europe, will be too little, too late. VACANT LOTS There are signs everywhere that what some people dubbed Poland's "economic miracle" is losing its magic. To the south of Warsaw, office blocks and shopping malls that sprung up in what, until just months ago, were farmers' fields, now have signs on them which read: "Do Wynajecia" To Let - a good indicator that demand is lagging behind supply. Where ministers would previously hold news conferences in front of a map that showed Poland in green and the rest of the world in red, the "green island" phrase has now been dropped from officials' vocabulary. But Tusk and his economic team have made getting the deficit below the European Union's 3% of GDP ceiling by the end of this year a cornerstone of policy and he and Rostowski have staked their reputations on the idea. "The government's in a tight spot," said Janusz Jankowiak, a former advisor to the government. "On the one hand it must find ways to help growth, on the other, it cannot afford to drop its debt and deficit plans as that would scare off markets and ratings agencies." At least as long as the economy was generating growth, responsible fiscal policy kept the zloty currency healthy, and borrowing costs for Polish companies, consumers and government relatively low for a still developing economy. But cutting another two percentage points off the deficit over the next two years would seem a step too far if, as some analysts say, the economy is slowly in danger of contracting. The central bank predicts growth will slow to 2.9% this year and 2.1% next, from 4.3% in 2011. A majority of analysts polled by Reuters predict higher growth next year, at 2.6%, but others are more pessimistic. A source close to the government told Reuters that the government forecasts were too optimistic and that growth in the first few months of next year may fall below 1% year-onyear. Michal Dybula, an economist at BNP Paribas, went further. "There is a growing risk that we will soon have a technical recession," he said. LIBERAL TRADITION Poland's approach has looked increasingly rigid at a time when leaders in other parts of Europe, particularly French President Francois Hollande and Italian Prime Minister Mario Monti, have been questioning if fiscal discipline is still the right response to the slowdown. But Tusk and Rostowski both come from a neo-liberal tradition that has its roots in the Polish economists, led by Leszek Balcerowicz, who designed the shock therapy transition from communism. Rostowski, born in London to a family of Polish exiles, has been in his job since 2007 and is the combative architect of the policy of fiscal discipline. When EU commissioner Olli Rehn expressed concern about whether Poland and some other EU states were on track to cut their deficits, Rostowski wrote a blistering reply saying Poland was doing better on deficit reduction than most other members of the bloc. After expending so much capital championing his policy of fiscal discipline, departing from it now would mean an embarrassing loss of political face. The other classic response to a slowdown is to cut interest rates. The central bank is likely to do that, but only modestly. It raised rates only three months ago, and may not want to be seen performing a dramatic U-turn now. Ultimately, compromising on its cherished deficit target may be the price Poland's government has to pay for keeping the economy out of recession. EU considers extra aid for poor nations The European Union plans to create an aid buffer for poor countries that are vulnerable to international financial and other shocks. Many low-income countries depend economically on commodity exports, which are highly sensitive to factors such as financial market shocks, and to the weather. To help them survive such changes, a special EU fund could be ready for 2012-2013, the European Commission said. "The vulnerability of low-income countries to external shocks remains high," the Commission said in a statement. "In 2012, the Commission will examine the feasibility of developing a proposal for a shock-absorbing mechanism to be implemented as necessary during 2012-13, prioritising rapid and effective disbursement." In its annual aid report, the Commission also said the EU remained committed to achieving the UN Millennium Development Goals, a set of targets for reducing global poverty, by 2015. "European taxpayers can be proud that the EU is delivering on its commitments, helping to improve the lives of those who most need our help and respecting our aim of spending 0.7% GNI on development by 2015," EU Aid Commissioner Andris Piebalgs said in a statement. GNI, or gross national income, is a measure of a country's total economic activity, calculated slightly differently from GDP, or gross domestic product. After last year's Arab Spring, the EU altered some of its development priorities to focus more on governance, employment and youth, the report said. Up to 1 bln euros of additional funding was also pledged to North African countries for the period of 20112013 in response to the protests, bringing their aid total to 4.5 bln euros. North European wage Yukos investors win $2 mln hikes no fix for euro zone in damages from Russia The Dutch central bank has warned that wage hikes or budget stimulus in the highly productive economies of northern Europe would do little to help reduce indebted southern countries' trade deficits and could cost jobs in the north. The central bank's research follows a round of generous wage hikes in Germany, which economists said could be the key to a less painful recovery for the crisis-hit euro zone periphery. The Netherlands and its central bank have the reputation of being among Europe's toughest fiscal hawks. But polls suggest a populist left-wing party that wants a looser fiscal policy could become the largest party in the Dutch parliament following a general election on September 12, as sluggish growth and rising employment are leading many to demand the government undertake more stimulus. In May, members of IG Metall, Germany's largest industrial union, won a 4.3% pay rise, the largest hike in 20 years. Economists have argued that higher wages in the north would stimulate demand for exports from struggling peripheral economies such as Greece, helping ease the impact of the painful austerity measures demanded by the European Union as the price for offering financial support. But the Dutch central bank said the goods exported by the northern and southern countries were so different that higher wages in the north would not itself improve the southern countries' relative competitiveness. "In order to narrow their trade deficits, peripheral countries must improve their competitive position vis-�-vis the rest of the world - including the world beyond the euro area," the central bank wrote. "Besides wage restraint, structural reforms are also needed to make their economies more competitive." Dutch imports from Greece were valued at 487 mln euros in 2011, making up only a modest share of total Greek exports that were valued at over 20 bln euros, data from the Dutch and Greek statistics offices showed. Investors in Yukos Oil Co., once Russia's largest oil company, scored a small but symbolic victory over the Russian state recently, after an international tribunal awarded Spanish minority shareholders in the company more than $2 mln in damages from Russia. Yukos was liquidated in 2007 and auctioned off, mostly to state oil company Rosneft to cover back taxes, after its owner Mikhail Khodorkovsky was jailed on charges of fraud and tax evasion. He claims it was an attempt to crush political opposition and renationalise his assets. The Stockholm Chamber of Commerce's Arbitration Institute ruled that "Yukos' tax delinquency was indeed a pretext for seizing Yukos assets and transferring them to Rosneft," according to the tribunal's ruling. "This ruling vindicates the rights of Spanish investors, and indeed, all investors in Yukos," said Marney Cheek, a partner at Covington & Burling, which represented the shareholders. In September 2011, the European Court of Human Rights dismissed Yukos' arguments that the tax claims and breakup of the company were driven by politics, while finding that Russian authorities had violated the company's rights. The Stockholm tribunal awarded the Spanish shareholders $2 mln plus interest since November 2007, when the company was liquidated. This puts the value of Yukos at the time at $62.1 bln, which would be $83 bln with interest added. GML, previously known as Menatep, the main shareholder in Yukos, is suing Russia for more than $100 bln in an international arbitration case under the European Energy Charter Treaty. The hearing will start in October. 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' � 2012, � � � �� � �, � 472.506.240 979.650 . � 2.741, � 30. , � � � , � 2012, 7.425 1.162.940.195 , 4.863 , 762.559.993 . , 26.021 . � �, � � . �, �, � . � . , , . � � � � . �, � � � � 2000 �, . � � � � 2000 � . ���̤��~� �� ȷ���>���~ � 2012 � 15 . MMC Media Monitoring �, , � � . � � � �� � , . �� � � , � . -10 808 790 -12 694 -1 472 150 -12 336 738 -47 138 -7 018 628 4 999 062 31 512 1 213 436 . � �� . � �� � - 2012 2011 32 372 135 27 373 073 703 680 672 168 20 569 172 19 355 736 & 22 OY, 2012 | 3/15 �^�<���~ ����<�^� η� ��ȷ�< ��>ӷ �����fi̷��� ������> ̷~ �ӷ������~ �� ��>�� ȷ���� η� �� �� ��̷ ��fi ��~ ��Ϸ��ȿ~� ��ۤ�����~ �ȷ ^�<���~ ����<�^�, i� i�Ϸ�� ӷ ʤ���� ��~ ����� ۷~ �� ���ٷ���fi ��^���fi fi�� �the way to a man's heart is through his stomach� = � ��fi�~ ��ۤ�����~ ��~ ����~ �>ӷ� ̤�^ �� ʷ���� (���i��� ��ٿ�ڷ��) ���TM �� �����~ ��>� F.R.I.C.S. & TM�������~ ��, �����٤~ ���<�^� & �ȷ������٤~ OE��^� ӿ���~ , , � . � � � ( ) � �� � . � � �/ � � �/ . - , � � "" � . � ?killer? 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IKEA, � � � , � � � � � . �, � � 100 . � 2014 (� ) � , , � , . � � � �, , Inter Ikea ( , � � IKEA � ). �, , � IKEA, � , � IKEA � � � (� ). � , � ��, . � 100 � IKEA. � , , �. � � ( ), � � , , check-in �, � . , � , , � 700.000. � � 1.200 , , � � � 100.000 � � . � � , � 1 � � . Ikea � . � 750 . . � project � . TM�. TMٷ�� Ӥ�~ �fi���~ �^� � � � �� , � � � � . � , � , , , . � � . , �, � � , �� � � , . � � � 15. . , � � , , , � , � , ��� , . �, , � � � , , , � . B � , � � � 31.330.000 . , � � , 15 . . � � � � � 15 . 31.330.000 . 12 , . � : ������> ��i���~ ηٿ ��~ �ԯ��fi��ٷ~ � � �, � . � (). , � � � �� , � � . � �, � � . � � � � , � . � � , � �. , � , � , � � , � � �. � � � � � � � � , Eurocypria. �, � � � ��, . � � � � � � � . � � . � , � . � � �, . ����<: ͷ���ȷ>� ���~ 28 ����� Cyprus Popular Bank Public Co Ltd � 28 , 2012 , � , � � � 2012. profit warning , � � � � � . , � � , � 196 . � � . � . BOC: 30 ����� ٷ �ͷ���ȷ>� � � � 30 2012 � � � � 30 2012 (' � 2012). �, � � , � � TM��~ 30/8 ٷ �ͷ���ȷ>� ��~ Alpha Bank � Alpha Bank Cyprus Ltd � 30 2012 , � , � � � � 30 2012. � � , � � Alpha Bank Cyprus Ltd. & 22 A , 2012 | 5/17 TM�٤�,��� � ηٷ�ڷ�< �^� �����^� ���� �� � ����<�ȷ � ηifi���� �� ������fi TM�,���� ������ ������~ �ڷ� �^� 50 �η�����>^� � � � CIPA ( � ) � � � � , � , � . � � � . " � � � , � . � � , . � . � . . � � , . � � , � � � , � � � � � , � � , , � � � � � �, � � � ��, � , , � � � � � . " � � � , � �, � � � �", �. � , , . � . � � � � . �� � . � ; �, , , � , � � � � . � , � � � � � � � . , ' � . , � � � �, . , , � � , � , �� , �, � � CIPA � � � � � . � � � . � . � � � CIPA � � � . � �, � �� ad hoc, . � � � � 50 �� , � � �. � � �� . � � � � �, �. ������< ��fiڷ�� �� Louis House � � � � Louis � . Louis House � 6 � , . � 21 . � � � � . , � Hilton Park , 6 .�. Louis House � � Louis. � ClinCo (Clin Company Ltd) � . � � ( ) � � 21.000.000 Clin Company Ltd. � . � . . � . , 13 2012 Louis plc � : � . 11, 2112, . T , � � � : . 22?588000 22?588001 .. 21301, 1506 � , � � , . Louis plc � 30 , 2012 � � 2012. TM�� ��^�fi�� ������ ٷ ������ο ��~ Louis Louis plc � Louis Hotels Hilton Park Nicosia � Louis Cruises . �� Louis House � 51 ��. ��>ڷ�� � �� ���� �� �� 1� �Ϳ���� � � � 2012. � 50.962.940,98 85.290.538,25 . � � , � � . � � � � . , � � �, � . � � � , � , � , � . ���fi��ڷ ٷ�>ȷ �ȷ ��~ ���~ ��� ���� 2012 � � 3,2% � 131.096 � 135.397 2011, � � . , 2012 � � 1,9% - � (29.852 2012 � 30.441 2011), 3,1% � - (53.933 ). � , � � (88 � , -74,2%), (864 �, -54,7%), (627 �, -34,9%). (6,6%) � (2.565 �). � 22,4% - (3.765). , � � , 528 443 � 522 647 �. , 393.705 , 22.252 � (�� � ) 371.453 . � ���� �ڷ,�� ��� ������fi � 2012 371.453 � 359.104 2011, � 3,4%. � 40,7% ( 56.361 2011 79.278 2012), 9,3% ( 12.856 14.056) 13,5% � ( 11.266 12.785 ). � 9,1% � � (141.782 2012 � 156.051 2011), 5,1% � (18.405 � 19.385) 3,4% � (15.355 � 15.889 ). 22 OY, 2012 & 6/18 | �����<,,��~ ���� �fi�^ ��~ ��>��~ �ڤ�~ () � , , � � . � 40 , , � � � "Die Welt". IPSO, � � , � 40% , . � � � � � " ". " ( ) � � ", . , � � � � " �" . � � , IPSO , � 80,1% � " " 74,4% � "� �" . � � 715 , � � . � 2.600 �, � 1.200 � � . T� 8% ��~ Manchester United ���� Soros �� George Soros, 8% � Manchester United � � club. Soros � � � � Glazers, � � MAN UTD � . � � � , � � 14 � 13,06 . � � 6,7%. ���ٿ��� ���� ���ӷ η� ��� �ӿ��� � � , � � . � � 4% 2012 - 2014, � � . � , � � . � 11% , � . � � � , � � � � , � � � , Maire GeogheganQuinn, �� � � � �, �� 2020. �ٷ��Τ~ ·ʤ~ �^� ��^�>^� ������ � � �� � � . � Eurogroup Jean Claude Juncker � 22 � � � �� � � . � � 24 25 , � � � , � 23 . �, � � � � �. �^�>�~ ��>��~ ����> ӷ �� �� ����� �� 9 � � � � � 9 , 2012, � . 0,8% � � � . http://ec.europa.eu/your-rights-your-future, � : � , � � � � � � � , � � � � . � � , � � , � . � � � � 2013, 9 2013, � � . � � , 9 , 5000 � �� � . �� � (11,3 % , 10,5 % , 9 % , 8,9 % �, 6,1% , 1,9% � 0,8% . � 0,5%. � � � � � . � �Ϸ��> ���� �� ,,��fi���� ηٿ ��ʷ�< �ڤ�~ � , � . � � 15% ( 30% ) �. � 2008-2014 � � � �. ING � � � � . � � � , � 12 � �. �, � .. , � � ��, . ��� ̤�ڷ ���ٿ�� � ۷�>� � . � � � �� 6,3% � , � � � � � . � � � . O � � � � � � � � , � . , , , � �� � . & 22 OY, 2012 | 7/19 �η�fi~� TM�٤�,���~ �^� ��������� �ڷ��� Emporiki Bank � � � � � � � 15 � , �. � � � � ��� 27 Credit Agricole � � � � . � Emporiki Bank . � � � � � � � . � � � � . � � � � � � � � . �� consolidation � � � . � � � � � . � � � Geniki . � � . , , � � � . � � � . � � . � � � . ����TM � � �. � . � � � �� � � � � . �� � � � � � . � � � minimum . � � , ESM, � . � , � Standard & Poor's, , � . � � , , � � �� � . �����TM , , � , �� � , , � , � � . . Millenium � � � � � . � � � � FBB, Probank �. � � funds � � � boutiques � � � � � . � �� ' �� � � ���TM TMTM �TM �TM � � . � � � � � � , � �. , Societe Generale � Geniki Bank � . � � � � - �fi�� � �����������< ��۷����< i� ����� ��� �Ͽ� � � , , Eurogroup � , - , , ( � � ) �� , , � �� , . . , � , � � . , , � � �, � � � , � . , , , � � . . � � � � � � ��, � , � � � . �OEȷ�» ٷ 2 � ,��>�� ���� �Ͽ� � 2 � � . , � �. �, � � � � � � � � � � . , , � �, � � � � � ... 2 . � . � 1,999 , �... 2 . , � 1,995 , � � 1,992 . � , � , � � �. , ... �. � � , � .. . , � � � , � � , 1,812 1,781 � 11 � . � 3,1 . � 2 , � 15 . ��>^�� �^~ η� 50% ���~ fi���~ �^� ����������� , � � . , , � � 30% � 25% � �, � . , � � � � 40 � 90 , � � � 50% � . � �, . , � � . � � � , . , `' '' � � � `' '' 15%, � . & 22 OY, 2012 8/20 | Alpha Bank ���ٿ ���~ ��������~ , Alpha Bank Cyprus Ltd . � , � � , Alpha Bank Cyprus Ltd, � , � � � , � . � 19 2012, , . , � . �, Alpha Bank Cyprus Ltd, , . ���: �����fi~ ��^ٷi�<̷��~ Beach Volley � � � Beach Volley 19 . � � , � � , � 11-14 , , . � � � ' � . . � �� 64 200 , � � . . ��^�ȿ�� �� Leptos "Aphrodite" �ٷ ÷�ȿ � � � " Aphrodite Sea-front" . � � � �� �. "Aphrodite" � , � � . � 50 � � � . Leptos "Aphrodite" � � � , ��, , �. Leptos Estates � , . www.leptosgreece.com PrimeTel ��<���� ��~ ����~ �Quaker fit X Level� � � Cyprus Beach Challenge � � �Quaker fit X Level� . PrimeTel � � � . �� � � . � � �� 2012� 30 , � 30 � . PrimeTel � � � � �� , , , , � , . � PrimeTel , 133 www.primetel.com.cy Hi-tech �����>� �ٷ Ӥ� �� Stores � � , � � � Stores . Stores, 116 � 25 , , � � , smartphones, tablets, laptops, notebooks, accessories. � � � . MTN Stores � � � � � � � . � , � , . ��� �������>� �>�� ����ԯ�>^� Sunrise �� � Sunrise, � www.sunrise.com.cy. , , � Sunrise Pearl Hotel & Spa, Sunrise Beach Hotel, Brilliant Hotel Apartments Sandra Hotel Apartments, � . � online . � � � Sunrise, � � � . UiBS (http://www.uibs.net/). Arla Apetina: ���� ��> ���̤�� �� �,�~ � 100% , , � Arla Apetina , � � � ! Arla Foods amba, Apetina � . �� 200g � ��- � �. , � � ! , "" � � � � ! , � Arla Apetina Iakovos Photiades Foodstuff Suppliers Ltd. FinancialMirror.com August 22 - 28, 2012 INVESTOR NEWS | 21 Understanding Debt Instruments Given the current local and global crisis in the last few years, the general public has been constantly bombarded by various media outlets (papers, TV, radio) with "fancy" finance terms, which I don't think everyone can comprehend what they represent. Furthermore, given the recent unfortunate episode with the "CoCo" bonds issued by the two largest banks and the substantial loss of wealth from a number of our fellow citizens, I think is about time all of us start to educate ourselves better and become more finance literate. The aim of this article is to explain the basic features of debt instruments, starting from the simplest form and moving on to more complex securities. The most basic type of debt instrument is a "plain vanilla" fixed-rate bond. Essentially, this is a contract between the holder (buyer) and issuer (seller) where the holder lends money and in exchange receives equal periodic payments (coupons) as well as the original amount (principal) at the maturity of the contract. The interest payments are usually made semi-annually and the issuer (borrower) can be the government, banks, other corporations, or agencies. Bonds can have short-term duration of 1-, 3-, 6-, or 12-months (bills), intermediate-term of 2-, 5-, and 10-years (notes), or even longer duration of more than 10-years (bonds). The frequency and the duration of issuance will depend on the financing needs that the issuer has. The trend (but not always) is that long-term issues will provide a higher annual return than short-term issues from the same organization, since they tend to carry more risk. Remember, one of the most basic concepts in finance is that if a security provides a higher return, is because you will be exposed to more risk! In a developed, efficient market, there is no free "lunch"! Issues can be unsecured, secured by some form of collateral, or guaranteed by a third-party. For example, in the recent past Orfanides Supermarkets issued bonds guaranteed by Laiki bank. Note that the risk of the issue will depend on who is the issuer, what is its duration, if it is securitized or not, or if it has any other specific features that can create extra risk. This is where the rating agencies can prove useful as their job is to protect the investors by assigning the corresponding rating based on the risk that the issue carries (and monitor this throughout the life of the contract). But, as we painfully found out in a number of occasions in the past, they are not always right (or are too late to react) and sometimes the market gets it better than them. A prime example is the default of the US oil giant Enron in December of 2001. The bonds of Enron, as well as the spreads on insurance products covering the loss in case of Enron's default (CDS contracts) were already indicating from months before that the company was already in default. But the rating agencies failed to act promptly, causing the loss of substantial wealth for many investors. bond. A popular debt instrument that corporations tend to issue is a callable bond, i.e. a bond that gives the right to the issuer to redeem (call) back the bond from the holder prior to maturity. This can occur at a pre-specified time in the future, and at a pre-specified callable price. Why would a company be interested in issuing these bonds? Well, if they expect in the future that interest rates will fall, then they would have the chance to call (buy) the bonds back and refinance their debt at a lower interest rate. Obviously there is extra risk to the holder of the bond, but he is being compensated for that through a higher callable price than the original amount. The opposite of a callable security is a puttable bond. This issue gives the right to the holder to put back (sell) the bond to the issuer at a pre-specified period in the future, and at a prespecified puttable price. Naturally this can happen when interest rates rise, so that an investor can sell the bond back and invest their money into newly-issued securities that offer higher coupon rates. The advantage here is to the holder and again this should be priced accordingly in the puttable price. As with any other type of investment, debt securities are exposed to inflation. The interest payments and the principal that will be received in the future will not have the same purchasing power. To protect the investor from inflation risk, some governments (e.g. US and UK) issue index-linked bonds where the interest payments and principal are adjusted each period with the corresponding inflation rate. Finally, another important characteristic is a sinking fund provision placed on some bonds. This implies that part of the original amount is periodically retired prior to the maturity date, which adds another layer of protection to the holder (does not have to wait until the maturity date to receive back the principal). As noted in the beginning, this article is an attempt to explain some of the basic features of debt instruments. I believe, given the crisis we are experiencing and the recent unfortunate episode with the CoCo bonds, is important for ordinary people to fully understand the key characteristics of these type of instruments to avoid such unwelcome incidences in the future. By Dr GEORGE THEOCHARIDES Associate Professor of Finance at the Cyprus International Institute of Management and Director of MSc in Finance & Banking Programme Another type of debt instrument is a floating-rate bond. As the name suggests, the interest rate received is not fixed, but is based on a general floating-rate, e.g. the 6-month LIBOR or EURIBOR. Obviously, this creates another source of risk as the interest payments in the future will depend on the current level of this floating rate. Some bonds are also issued without coupon payments (zero-coupon bonds) but offered though at a discount to their nominal value. Usually, this is the practice used for short-term securities. Organizations can also issue convertible bonds. These bonds provide an option to the holder to convert them to ordinary shares of the company at a pre-specified period in the future, using a pre-specified conversion ratio (number of shares per 100 or 1,000 euros of nominal value of the bond). So there is an advantage to the holder of the contract, but again, this advantage is usually priced by providing a lower return (yield) than an otherwise-identical non-convertible Facebook director sold 20 mln shares after lockup Facebook Inc director Peter Thiel sold $400 mln worth of shares in the Internet social networking company last week, cashing out most of his stake, according to a regulatory filing. Thiel sold 20 mln shares at average prices ranging between $19.27 and $20.69 per share after the end of the first lockup, which barred early investors and insiders from selling shares following the IPO. Thiel, who co-founded PayPal and was among Facebook's earliest backers, still owns 5.6 mln shares of Facebook. Accel Partners, a Silicon Valley venture capital firm that was also an early backer of Facebook, distributed 57.8 mln shares to the limited partners and general partners of its various funds on Thursday. Facebook, founded by Mark Zuckerberg in his Harvard University dorm room, became the only U.S. company to debut with a market value of more than $100 bln. But investors have grown disillusioned with the No. 1 social network's inability to articulate a plan to reverse slowing revenue growth. Shares of Facebook finished Monday's regular trading session at $20.01, down nearly 50% from their $38 offering price in May after Capstone upgraded the company's stock to buy from hold. Apple exceeds Microsoft's 1999 value G Some expect a mini-iPad, larger iPhone Apple Inc's market value climbed past $623 bln on Monday, surpassing the record set by Microsoft during the heyday of technology stocks in 1999. Apple shares rose 2.6%, bringing its gains this month to almost 9% as Wall Street bets on the September 12 rollout of the latest version of the iPhone, the company's biggest product, yielding half or more of its sales. Analysts expect the company will take the wraps off a larger version of its iPhone next month and announce a smaller iPad to safeguard its market share, as rivals from Google to Amazon.com begin selling cheaper, seven-inch tablets. But Bernstein Research's Toni Sacconaghi warned that questions remain about the availability of components for both the iPhone and the iPad, which in the past has constrained Apple's product shipments. Apple's shares have risen 64% in 2012. On Monday, they closed at a session high of $665.15, conferring on the Silicon Valley giant a capitalization of $623.5 bln, exceeding Microsoft's 1999 value of $620.8 bln, according to data provided by S&P Dow Jones Indices. Apple overtook Exxon Mobil to reach the No. 1 spot last year as the biggest company ever, in terms of market value. Soros reveals stake in Man United Billionaire money manager George Soros reported a nearly 2% stake in Manchester United Plc on Monday, in one of the first revelations of investors in the British soccer club's controversial IPO earlier this month that raised just over $233 mln on the New York Stock Exchange. The veteran investor's eponymous hedge fund, Soros Fund Management LLC, owns 7.85% of Manchester United's Class A shares, or about 1.9% of the entire club. The club is owned by the Glazer family, which has interests ranging from shopping malls to the Tampa Bay Buccaneers football team. Soros was likely drawn to Manchester United because of the team's lucrative media rights deals, said Philip Hall, a partner at New York-based investment bank Inner Circle Sports which has advised on high-profile English Premier League takeovers including Fenway Sports Group's acquisition of Liverpool. "The domestic rights are set to increase 70% for the `13/'14 season and the international media rights, set to be announced in late October or early November, are also expected to come in at a very robust uplift." Shares of Manchester United closed down 2.7% at $13.06 on Monday, after hitting a new low of $12.91 earlier in the day. They priced at $14 per share in the IPO. August 22 - 28, 2012 FinancialMirror.com 24 | MARKETS Brent steadies below $114 Brent crude inched up on yesterday, but prices stayed below $114 a barrel as investors sought clarity on policies to help the euro zone after the European Central Bank quashed speculation about further steps to contain the debt crisis. Brent crude for October delivery rose 21 cents to $113.91 per barrel, after swinging in an almost two-dollar range on Monday. U.S. crude added 18 cents to $95.97 per barrel. Oil prices remained underpinned by supply concerns triggered by escalating conflicts in Syria and Yemen as well as Iran's dispute with the United States and Europe which has led to an embargo on Tehran's crude shipments. Forces loyal to Syrian leader Bashar al-Assad attacked a rebel-held town near the Turkish border, while U.S. President Barack Obama warned that U.S. forces could move against Assad if he deploys his chemical weapons against rebels trying to overthrow him. Iran's crude exports dropped to about 1.1 million barrels per day in June and July from more than 2 million bpd at the start of the year, sources have said. Adding to worries, production from key North Sea oilfields is expected to fall by about 17 percent in September after Britain's largest oilfield Buzzard shut and suspended output until mid-October. "The recovery in North Sea production volumes from the impact of strike action and planned maintenance continues to underwhelm the market," J.P. Morgan analysts, led by Colin Fenton, said in a report. "Looking forward toward September, the seasonal weakening of refinery demand will likely outpace the lower than expected crude output due to field maintenance." FOREX COMMENTARY TECHNICAL ANALYSIS The euro held steady on Tuesday but appeared increasingly vulnerable to a reverse amid doubts whether policymakers could agree a viable plan of action by next month to take some of the pressure off debt-stricken euro zone countries. The euro stood little changed in Asian trade at $1.2358, off its peak of $1.2440 hit on August 6, just after European Central Bank President Mario Draghi signaled the bank would revive its bond buying scheme to lower borrowing costs of Italy and Spain. Hopes that the ECB would start buying bonds of struggling euro zone members in September had underpinned the euro since late last month, but market players said a reality check was due. On Monday, the European Central Bank brushed aside a report by German magazine Der Spiegel that it was considering setting yield thresholds for any moves to buy bonds, saying it was misleading to report on decisions that had not yet been taken. Germany's Bundesbank also stepped up its resistance on Monday to a ECB plan to buy billions of euros worth of Spanish and Italian government bonds. Traders said the market is likely to shift its focus back to the problems euro zone policymakers face reaching agreement as they resume talks after summer holidays. French President Francois Hollande and German Chancellor Angela Merkel will meet on Thursday, a day before Greek Prime Minister Antonis Samaras arrives in Berlin. Samaras is expected to lobby for a two-year extension of austerity measures to soften their negative economic impact, though he is unlikely to win major concessions. "If Greece and the EU cannot reach an agreement, that could rekindle speculation about Greece's exit from the euro zone," SMBC's Uno added. The dollar eased slightly against the yen to 79.29 yen, off a fiveweek high of 79.66 yen hit on Monday, with selling from Japanese exporters seen capping the currency for now. On the other hand, the Australian dollar gained a tad after the minutes of the central bank's latest meeting gave no hint of further easing. That helped the Aussie stay above a key channel line support just above $1.04. It was changing hands at $1.0479, up 0.3 percent on the day, and up further from its three-week low of $1.0411 hit last Friday. Still, the Aussie has underperformed other risk-sensitive currencies in recent weeks, to stand 0.2 percent down so far this month, compared to a 1.5 percent gain in the Canadian dollar. Disclaimer: The commentary appearing on this page is for indication purposes only and Eurivex does not take any responsibility for investment action taken. Nothing in this report should be considered to constitute investment advice. It is not intended, and should not be considered, as an offer, invitation, solicitation or recommendation to buy or sell any of the financial instruments described herein. Trading on leverage is very risky and may lead to losses. LME copper inches up on weak dollar London copper inched up yesterday on a slightly weaker dollar and a rise in Asian equities, although prices look set to stay in a tight range as investors wait for more trading cues. Any gains are likely to be limited by nagging worries over the global economy, as the euro zone debt crisis continues to ferment, growth slows in top metal consumer China, and recovery stutters in the United States, the world's largest economy. Three-month copper on the London Metal Exchange had edged up $2.25 to $7,458.75 per tonne, after dropping 1.1 percent in the previous session. "For now, with no clear trading direction, LME copper will be stuck within a range of $7,200-$7,800. But downside risks will increase over the longer term as Chinese consumer demand remains weak with no sign of improvement in global economics," said Andy Du, derivatives director at Orient Futures. The most active December copper contract on the Shanghai Futures Exchange edged down 0.1 percent to 54,570 yuan ($8,600) per tonne by its midday close, after ending Monday's session 0.1 percent lower. Shanghai's prompt September copper is trading at a premium to forward months, with traders reporting some tightness in the spot markets. "Some people are buying up copper in anticipation of Chinese smelters exporting to take advantage of the new export tax incentives. But copper's outlook looks bearish as downstream industries are still not doing well," Du added. Leaders of Germany, France, the Euro zone and Greece are meeting bilaterally this week, with German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras holding a dialogue on Friday over Greece's rescue plans. "The euro zone crisis is not going away and we've known that for quite a while. I doubt these meetings will produce any resolutions that will decisively lift base metals' bearish outlook," said an analyst with an international trading house. CHINA PHYSICAL ALUMINIUM MARKET WEAK Although the latest aluminum production figures point to falling daily output in China, physical traders said the market still feels sluggish. "There have been some aluminum imports for financing deals recently after the spreads narrowed, lowering losses for importers," said a Shanghai-based trader. "But the imports don't indicate improving consumer aluminum demand, which is still weak. Imported spot premia are about $230-$280, while in domestic trades, you get zero premium." In industry news, major minerals exporter Peru said on Monday its copper, zinc and lead output rose more than 9 percent in June over the same month a year ago. FinancialMirror.com August 22 - 28, 2012 MARKETS | 25 US vs EM Equities: When Bad Is Good Marcuard's Market update by GaveKal Research The globalization of communications and supply chains has become a globalization of profits. As we have highlighted in numerous notes, US multinationals have been adept at riding this wave of structural change and now earn 40% of their profit overseas, much of it from vibrant emerging markets. This has enabled US corporate earnings to keep growing smartly despite a sluggish American economy. With US companies ever more dependent on emerging markets for their profits, one might expect that US and emerging-market equity prices would become ever more correlated. Yet over the past 12 months exactly the opposite has occurred: the S&P 500 is up more than 25% while the MSCI EM index gained just 0.1%. What explains this divergence, and can it continue? On a long-run structural basis, we believe US equities will outperform, for two big reasons. One is the huge reduction in US energy prices thanks to The Next American Revolution in shale gas. In the last decade, the game-changing variable was the emergence of cheap labor in China; over the next decade, the game-changing variable will be cheap energy in the US. Second, step-changes in automation will enable a partial reindustrialization of America, focused on high-technology and high-value activities. Over the next year or two, however, the spread between US and EM equities is more likely a function of the global economic environment. With most of their revenue and profit growth coming from emerging markets, US companies are highly exposed to what now appears to be a deep and sustained EM slowdown. Brazil has virtually stalled, India recorded its weakest performance since 2004, and even China reported its slowest growth in three years. The rest of export-oriented Asia (a key source of demand for US companies' goods and services) has also experienced a much sharper than expected slowdown. This dismal record underscores a crucial fact about the new globalized economy: even as US corporations have reduced their direct reliance on the US economy in favor of emerging growth markets, those emerging growth markets have not been able to free themselves from dependence on US demand to fuel their economies. Fundamentally, emerging market economies remain a high-beta play on developed economies. When the US and Europe are robust, emerging economies benefit disproportionately. But when the US and Europe are weak, emerging markets get a double whammy: exports tumble, and domestic demand (a derivative of the export economy) softens. Yet US firms, which are structurally picking up market share in emerging markets, can ride out the storm more easily than their local competitors. This explains the recent outperformance of US equities: in a weak global growth environment, the high diversification of US corporate profits is an effective hedge. On this basis, we can predict that if the global economy continues stumbling along its current path (2% or so growth in the US, stagnation in Europe), then US equities should continue to outperform their EM rivals. If the growth outlook worsens (slowdown in the US, bad recession in Europe), US firms will suffer but EM companies will likely do even worse. Only if the global economy stages a sharp acceleration � which must come from a sharp uptick in US growth � will EM equities start to outperform again. So ironically, the weaker the US economy, the more one should bet on a divergence trade favoring US firms. A powerful US recovery would help US companies but boost emerging market ones even more, and bring the short-term divergence trade to an end. www.marcuardheritage.com Shadoks & Stock Markets Marcuard's Market update by GaveKal Research In the 1970s, French TV ran a hilarious animated series based on bird-like cartoon characters, Les Shadoks, whose ruthlessness was matched only by their stupidity. Every time there was a problem in the Shadok community, these strange creatures went to the town pumps and started pumping furiously. No-one was certain why, but this was the tradition. If the pumping did not solve the problem at hand, then the grand priest explained this was because they did not pump enough. The fear was that if they stopped, something very nasty would happen. In a recent article Jean Claude Robin, a semi-retired economic journalist in Le Figaro, compared the central bankers and the governments of the world to the Shadoks, going to the pumps at the end of every episode of their saga. It is obvious that many of our global and economic leaders have a PHD in Shadokian studies! There is reason to fear, however, that France is currently the most Shadokian country of them all. This is why it is best to avoid French equities--despite the fact that, on the surface, they would appear to be a good deal at the moment. The chart is one that has been in my library for a long time. It shows the price of French equities vis-a-vis the US market. In the past, this indicator has been a useful one for identifying times to buy French/European equities and downplay the US. Under current conditions, however, it is risky to buy anything in France other than, perhaps, the exporters. We think the correlation has to move to extreme levels (what we call "stop thinking, just do it" levels) before investors should move. This is because: - We have now a very leftist government in France. In light of the massive fiscal burdens in Europe, a spend-and-tax government translates into a deadly risk for French companies. In the short time since his election, Francois Hollande has extended The Financial Markets Interest Rates Base Rates CCY USD GBP EUR JPY CHF 0-0,25% 0.50% 0.75% 0-0,1% 0-0,25% CCY/Period USD GBP EUR JPY CHF 1mth 0.24 0.54 0.08 0.14 0.01 LIBOR rates 2mth 0.33 0.59 0.13 0.16 0.03 3mth 0.43 0.70 0.20 0.19 0.05 6mth 0.72 0.95 0.49 0.33 0.16 1yr 1.04 1.43 0.81 0.55 0.36 CCY/Period USD GBP EUR JPY CHF 2yr 0.49 0.85 0.52 0.28 0.06 Swap Rates 3yr 0.59 0.90 0.64 0.29 0.11 4yr 0.76 1.01 0.82 0.31 0.18 5yr 0.98 1.17 1.03 0.36 0.28 7yr 1.41 1.53 1.42 0.51 0.56 10yr 1.90 2.05 1.84 0.81 0.93 the retirement age for some civil servants, raised the minimum wage, and hit the wealthy with major new taxes. - As we get closer to the US presidential election, there is a fair chance that we could have a pro-business, supply-side reform government in the US. In the first few years of the 1980s we also had a Keynesian government in France against a supply-side government in the US, and this was not a time to jump on the "buy France" signal in our indicator. - The fundamentals of the US (housing, banks, corporate profits) have improved, while the fundamentals in France are terrible and getting worse under an asinine policy mix (wrong monetary policy, wrong exchange rate, wrong budgetary policy, wrong tax policy). - It would be an understatement to say foreign investors in the French market are unlikely to feel the wind of currency gains at their backs. Either the ECB will have to devalue massively to support the euro, or the euro experiment will end which, at least temporarily, will scare many investors from the market (at which time we would start recommending French equities big time). So for now, ignore the "value" in France. Stay away until the valuation differentials are more extreme--or until the Shadoks are forcibly removed from their pumps. www.marcuardheritage.com Disclaimer: This information may not be construed as advice and in particular not as investment, legal or tax advice. Depending on your particular circumstances you must obtain advice from your respective professional advisors. Investment involves risk. The value of investments may go down as well as up. Past performance is no guarantee for future performance. Investments in foreign currencies are subject to exchange rate fluctuations. Marcuard Cyprus Ltd is regulated by the Cyprus Securities and Exchange Commission (CySec) under License no. 131/11. Disclaimer: This information may not be construed as advice and in particular not as investment, legal or tax advice. Depending on your particular circumstances you must obtain advice from your respective professional advisors. Investment involves risk. The value of investments may go down as well as up. Past performance is no guarantee for future performance. Investments in foreign currencies are subject to exchange rate fluctuations. Marcuard Cyprus Ltd is regulated by the Cyprus Securities and Exchange Commission (CySec) under License no. 131/11. WORLD CURRENCIES PER US DOLLAR CURRENCY EUROPEAN Belarussian Ruble British Pound * Bulgarian Lev Czech Koruna Danish Krone Estonian Kroon Euro * Georgian Lari Hungarian Forint Latvian Lats Lithuanian Litas Maltese Pound * Moldavan Leu Norwegian Krone Polish Zloty Romanian Leu Russian Rouble Swedish Krona Swiss Franc Ukrainian Hryvnia AMERICAS & PACIFIC Australian Dollar * Canadian Dollar Hong Kong Dollar Indian Rupee Japanese Yen Korean Won New Zeland Dollar * Singapore Dollar MIDDLE EAST & AFRICA Bahrain Dinar Egyptian Pound Iranian Rial Israeli Shekel Jordanian Dinar Kuwait Dinar Lebanese Pound Omani Rial Qatar Rial Saudi Arabian Riyal South African Rand U.A.E. Dirham ASIA BHD EGP IRR ILS JOD KWD LBP OMR QAR SAR ZAR AED 0.3746 6.0732 12057.90 4.0221 0.7085 0.2819 1501.00 0.3840 3.6405 3.7502 8.3127 3.6719 AUD CAD HKD INR JPY KRW NZD SGD 1.0478 0.9872 7.7566 55.58 79.3 1131.3 1.2333 1.2511 BYR GBP BGN CZK DKK EEK EUR GEL HUF LVL LTL MTL MDL NOK PLN RON RUB SEK CHF UAH 8310 1.5726 1.5822 20.082 6.0247 12.6604 1.2358 1.634 223.62 0.5627 2.7936 0.3474 12.44 5.9079 3.2868 3.6351 31.985 6.669 0.9719 8.0937 CODE RATE Exchange Rates Major Cross Rates CCY1\CCY2 USD EUR GBP CHF JPY 1 USD 1 EUR 1 GBP 1.2358 0.8092 0.6359 0.9719 79.30 0.7858 1.2011 98.00 1.5284 124.71 81.59 1.5726 1.2725 Opening Rates 1 CHF 1.0289 0.8326 0.6543 Weekly movement of USD 21.08 1.2323 0.7836 97.65 1.1963 100 JPY 1.2610 1.0204 0.8019 1.2256 CCY\Date 24.07 1.2094 0.7787 94.54 1.1962 31.07 1.2248 0.7792 95.68 1.1964 07.08 1.2359 0.7928 96.61 1.1966 14.08 1.2325 0.7853 96.57 1.1964 CCY GBP EUR JPY CHF Today 1.5726 1.2358 79.30 0.9719 Last Week %Change 1.5692 1.2366 78.54 0.9713 -0.22 +0.06 +0.97 +0.06 USD GBP JPY CHF Azerbaijanian Manat Kazakhstan Tenge Turkish Lira AZN KZT TRY 0.7834 149.36 1.7990 Note: * USD per National Currency August 22 - 28, 2012 FinancialMirror.com 26 | WORLD MARKETS CME muscles into Europe with futures exchange plan Waiting for technical signals WALL ST WEEKAHEAD In the absence of data or policy catalysts and with the S&P 500 near four-year highs, market participants are hoping technical indicators hold the clues on whether stocks will sell off into September following a slow-speed rally. The S&P 500 is a scant 0.06% away from closing at highs last seen in the pre-crisis days of June 2008, even as an unimpressive earnings season draws to a close. The looming U.S. presidential election adds to the uncertainty, and inconclusive economic data makes any bet on further economic stimulus from the Federal Reserve a risky gamble. "I'm not laying out any new shorting strategies on fear the Fed could come in," said Brian Amidei, managing director at HighTower Advisors based in Palm Desert, California. True to form, market volumes have dried up in August. To some, the lack of volume is a clear signal of the relative weakness of the recent rally. Wall Street last week posted its two lowest volume days of the year, not counting half days. What has some other strategists nervous is what they see as relative complacency among investors. Volatility levels as implied by the CBOE Volatility index, or VIX, are at their lowest since June 2007. "We implore you to raise cash into strength ahead of a sharp and swift late summer squall," Richard Ross, a global technical strategist at Auerbach Grayson in New York, said in his latest note. "With both volume and volatility absent from the advance ... conditions are ripe for a rapid risk reversion to the mean." The VIX closed Friday at its lowest level in more than five years, a time when the S&P 500 was hovering near 1,500 - a level it has failed to approach since the 2007-2009 selloff. The S&P 500 chart is slightly more bullish than the VIX. After a steep rise to break through 1,400, the index seesawed around that level for about seven sessions in a pattern known as a flag formation. (Why? It kind of looks like a flag.) Thursday's advance to four-month highs and Friday's confirmation of the new highs indicate 1,400 could become technical support. FED MINUTES AND BEYOND The minutes of the latest Federal Reserve policy committee meeting, due Wednesday, could be the week's highlight in terms of calendar events as bets on intervention in support of the economy are partly to blame for the recent melt-up. But with the Fed's annual economic symposium starting the following week at Jackson Hole, Wyoming, the Fed minutes could prove to be an insufficient market driver. "The minutes are useful because they reveal some of the granularity of the discussions," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors in Rochester, New York. "If the Fed had some sort of magic elixir to fix our economy woes," he said, "you would have already seen it." The back end of the week is heavy in housing sector data with home resales on Wednesday, new sales on Thursday and building permits on Friday. Housing data has been a beacon of hope for the recovery, and market participants will focus on any improvement as a sign the economy will continue to grow, albeit slowly. "There's been a lot of talk about a turn in real estate and that it has bottomed," said HighTower's Amidei. "I don't know if I see the turn just yet." Just more than a dozen S&P 500 companies report earnings in the coming week, with the highlight Tuesday as Dell and Best Buy post their scorecards. Lowe's reports on Monday and Hewlett Packard on Wednesday. Of the 475 companies in the S&P 500 that have reported earnings this season, 68% have beat analyst expectations. That is higher than the long-term average of 62% and matches the average over the past four quarters. G Will look to launch other products CME Group Inc, the main U.S. futures market operator, plans to launch its first European exchange in a move that could break the duopoly of NYSE Euronext and Deutsche Boerse and offset dwindling market share at home. The CME, which runs the Chicago Mercantile Exchange, said on Monday it was applying to Britain's Financial Services Authority for approval to open a London-based market trading currency futures in mid-2013. It plans to add other types of futures at a later date, Chief Executive Phupinder Gill said. The CME's plan is a direct challenge to NYSE and Deutsche Boerse, whose Liffe and Eurex exchanges dominate trading in European futures, contracts to buy or sell assets such as bonds, currencies or commodities for a set price at a future date. NYSE's Liffe and Deutsche Boerse's Eurex have over 90% of trading in some European contracts and the threat of a monopoly forced competition authorities to block the planned merger between those exchanges earlier this year. The CME's proposal is a major step up in its European expansion ambitions and follows a challenging two years in which the exchange known as `the Merc' has seen its flagship West Texas Intermediate (WTI) oil contract lose share to a London rival. The IntercontinentalExchange Inc saw trading volumes of its Brent contract in London surpass the CME for the first quarter on record between April and June of this year. CME already runs a London-based European clearing house for swaps, which serves to deal with some of the risks of trading these complex derivatives. In May it lost a year-long takeover battle for the London Metal Exchange. FUTURES REFORM The CME's move is timed to benefit from regulators' moves to overhaul the region's derivatives business by encouraging competition in futures trading and standardising the vast and largely unregulated over-the-counter (OTC) derivatives market. European policymakers have proposed technical changes in areas such as clearing and the licensing of indices to ensure that new entrants such as CME Europe can compete more effectively with incumbents. Regulators also want to make large chunks of the $700 trln OTC derivatives market, which is traded privately between banks and hedge funds, operate more like exchange-based products such as shares. "There could be opportunities for the CME as the provider of clearing and trading services as regulators seek to push the market away from its current largely uncleared, largely bilateral, and largely voice-brokered model," said Richard Perrott, an exchange analyst at Berenberg Bank. Regulators are keen to shake up OTC derivatives to tackle some systemic problems that arose after the collapse five years ago of Lehman Brothers, a big OTC trading bank. The CME, which also runs the Chicago Board of Trade and the New York Mercantile Exchange, has also been canvassing metals traders about the viability of an aluminium contract to rival that of the London Metal Exchange, which has dominated the $80 bln market for decades. New investor body doomed without SWF support G Foreign investors crucial Polish prosecutors charge head of collapsed gold fund Polish prosecutors brought criminal charges against the 28-year-old head of a collapsed investment firm, Amber Gold, accusing him of running a pyramid scheme that defrauded thousands of Poles by promising guaranteed profits from gold. The prosecutor's office in the Baltic coast city of Gdansk, where the firm was based, filed six charges related to its activities against Chief Executive Marcin Plichta. He said Plichta faced five years in prison and a 5 mln zloty ($1.5 mln) fine if convicted of the charges, which include offering banking services without a licence and using forged documents to register a new business. The case has dominated news coverage in recent weeks, with television news broadcasts showing queues of worried customers at branches across Poland demanding the return of their savings. The firm announced on Monday that it would seek liquidation. Amber Gold, which promised high returns on investments in gold even as the precious metal's price on the market stagnated, is reported by Polish media to owe 80 mln zlotys ($24 mln) to 7,000 Poles. At its peak, the group had 50,000 investors. for shareholder engagement Some of Britain's largest investors say plans for a new investor body to improve relationships between shareholders and UK companies are doomed unless "notoriously low-profile" sovereign wealth funds (SWF) including Norway and Qatar take part. Economist John Kay is leading calls for the creation of a new institutional investors' forum to kill off a `get rich quick' investment culture and help shareholders engage with companies more effectively. Tensions between big companies and their shareholders have intensified in recent months, as investors voted down pay proposals in big companies including WPP, Aviva, Cairn Energy and Pendragon. The backlash, dubbed the "shareholder spring", has cost the jobs of executives such as Aviva boss Andrew Moss, and Sly Bailey, head of newspaper group Trinity Mirror. Kay wants the new independent body to encourage non-UK investors such as SWFs to engage in collective action with other large investors to boost their influence over company strategy. But participants are sceptical that these secretive funds will lend their support to such proposals, rendering the initiative next to useless in a sector already teeming with lobby groups and committees. "I am unconvinced any new forum will see government agencies and SWFs joining together," said Robert Talbut, chief investment officer of Royal London Asset Management and chairman of the Association of British Insurers' (ABI) Investment Committee, whose members account for about a fifth of the UK stock market FinancialMirror.com August 22 - 28, 2012 WORLD MARKETS | 27 August 22 - 28, 2012 FinancialMirror.com 28 | WORLD MARKETS Next hurdles for Brazil: sticky fingers, red tape G New railway, highway plan seen as too optimistic, as Rousseff projects $50 bln in building in 5 years ANALYSIS The ministry overseeing Brazil's new $66 bln infrastructure plan was also ground zero for a spectacular corruption scandal last year in which officials allegedly demanded 5% kickbacks on highway construction projects and then pushed carts down the hallways to hand out the cash. The transport minister and most of his staff resigned or were fired in July of last year, and a new, supposedly more scrupulous group is now in charge. Yet the incident helps illustrate why President Dilma Rousseff's plan to involve the private sector in more public works projects is not a cure-all - and why she still must make major inroads against graft, red tape and other obstacles in order to succeed. Senior officials told Reuters they realize deep changes are needed in order to attract foreign capital - especially from companies that were scared off in the past by corruption and cost overruns. While there do not seem to be any truly game-changing reforms in the pipeline, the officials did outline some initiatives aimed at increasing transparency and efficiency - and making the Brazilian government a less onerous partner. "I think this government, of Dilma Rousseff, has clearly shown that it is not going to tolerate corruption," Transport Minister Paulo Passos, a bespectacled career technocrat who assumed the job after last year's purge, said in an interview. Rousseff hopes the infrastructure plan will revolutionise Brazil's decrepit highway and railway system. She is also betting it will provide a boost to an economy that has barely grown during the past year, and is struggling to upgrade its infrastructure before hosting the 2014 World Cup and the 2016 Summer Olympics. The initiative marks a major shift from practices over the past decade in which successive left-leaning governments oversaw planning, execution and maintenance of most infrastructure projects. Under the new scheme, which some have labelled a privatisation, businesses will be responsible for most aspects of building or improving about 7,500 km of highways and 10,000 km of railroads. Rousseff said she will outline similar initiatives for sea ports and airports in coming weeks. Observers generally praised the spirit of the plan, but pointed out that it does not remove the state entirely from the equation. Brazil's notoriously slow environmental licensing process, a legal system that allows projects to be halted for tenuous reasons, and continued problems with graft mean that the plan is likely to fall short of Rousseff's expectation of $50 bln in investments in just five years. Richard Dubois, a partner at PwC Consulting, said private companies usually build construction projects in Brazil in half the time and at 60% of the cost of the public sector. But once mandatory public hearings and other formalities of the tender process are taken into account, the time from start to finish sometimes ends up being "about the same," he said. As an example, Dubois said his firm was recently hired by Sao Paulo's city hall to design plans for a 5,000-space parking garage - under a system that, like Rousseff's, put the private sector in charge. The plans themselves were completed in eight months, but another 14 months passed before the auction could proceed because of Brazilian bureaucracy, he said. `SUPERPOWERS' FOR NEW COMPANY One pillar of Rousseff's strategy to avoid such delays is the creation of a new state-run company that will have "superpowers" to cut through red tape across multiple ministries and government agencies, officials say. While technically part of the transport ministry, the Planning and Logistics Company will in practice be more powerful - and its creation represents a clear attempt by Rousseff to circumvent troubled or inefficient areas of the government. The company will be headed by Bernardo Figueiredo, a relatively apolitical public servant who has been working in Brazil's transport sector since the 1970s and is one of Rousseff's most trusted aides. He also has good ties in Brazil's business community, which he says was consulted extensively for months to help design the new plan. Figueiredo said Rousseff has "absolute" interest in foreign companies participating in the building plan, and denied speculation that the tender process could favor Brazilian firms. Rousseff's government has mandated high percentages of locally made content in other sectors such as oil. "If we're doing a program where we have to build this much this fast ... if we don't open up (to foreign companies), it's not going to happen," he said. "We want quality." Figueiredo said the average rate of return for the projects will likely be between 5.5 and 6.5% - slightly lower than local media reported, and well below the double-digit returns offered by Brazilian infrastructure projects in the recent past. Still, the offer by the BNDES state development bank to finance up to 80% of the projects should make them attractive, he said. The government is also taking steps, such as guaranteeing the purchase of new railway capacity, to help ensure demand and reduce risk for contractors. The government will create a website that will allow the general public to track "every step" of the auction process and the construction of the new projects - a new idea for Brazil that will lead to greater transparency, and hopefully attract a larger group of companies to the concession, Figueiredo said. He also outlined steps to accelerate the auction process itself. He said the government will try to secure environmental approval for projects prior to the auction - a break from the typical Brazilian practice of consulting the environmental agency only when blueprints are advanced. Some business leaders think such efforts will not be enough, and have called for Rousseff to make more dramatic reforms to the judicial system that would make it harder for government auditors and rival companies to freeze projects. Pressed on such issues, Passos, the transport minister, demurred, saying that "good management" by the public sector - and the injection of efficiency by business - would be enough. "The government is tied to a series of rules, and there's no question that by doing these concessions, things will move much faster," Passos said. Emerging countries will not match China metals appetite G Same intensity of metals use not likely in India, Indonesia ANALYSIS The next group of emerging countries to urbanise will probably not sustain the voracious demand for metals demonstrated by China over the last decade, but could match its thirst for oil, commodities experts say. China's huge appetite for metals over the last decade to build skyscrapers and infrastructure has sent metals prices surging, including copper over 600%, and sparked a wave of fund investment in the sector. As China's growth slows and it shifts towards a consumerled economy, some investors are hoping for a wave of urbanisation in countries like India, Indonesia and Pakistan to keep fuelling demand for iron ore, copper and oil. The massive numbers of people in emerging countries moving to cities will extend demand for metals, but probably over a long period and not in the sharp burst seen from China. Oil demand may do better at keeping pace since it is not as linked to construction and industrialisation. "It's going to be challenging to replicate what happened in China. Emerging markets will contribute to growth, but the same type of explosion that we've had in China is unlikely," said Michael Widmer, metals strategist at Bank of America Merrill Lynch in London. "You have two factors, the population size and manufacturing intensity which was very supportive in China. You don't have that combination to the same extent in other countries." Commodity strategist Nikos Kavalis at RBS said: "Our pro- jections for other emerging Asian countries see healthy growth over the next few years, but we do not see any of them really becoming another China. This is the case in terms of growth rates, volume and intensity of demand." The biggest country on the brink of rapid urbanisation is India, with a vast, surging population, but it is no China, with an economy focused more on services than heavy industry. India's population is expected to grow by nearly a fifth to 1.46 bln by 2025, when it is forecast to overtake China as the world's most populous nation, according the to U.N. Population Fund. Demand for commodities will grow, but without a strong central government to push through infrastructure development, it is unlikely to approach China's intensive demand for metals. Use of crude steel per capita in India was just 56.3 kg in 2010 compared to 445.2 kg in China, according to the World Steel Association. In India, land acquisition issues and complicated regulatory procedures curb big projects and hamper demand for steel, a report by accountancy and consultancy group Ernst & Young said. "While issues around social licences to operate and growing resource nationalism are visible in most developing economies, and many developed countries as well, their impact on the growth of the Indian steel sector is more profound at current times," the report said. A less concentrated pattern of residential construction is also a factor, said Chief Executive Marius Kloppers of the world's biggest mining group BHP Billiton . "The pattern of buildings is quite significantly different in terms of low rise (in India) versus high rise (in China) and less steel intensive," he told Reuters earlier this year. Indonesia and other fast growing southeast Asian countries, with a combined population of 700 mln, also have economies that require only a fraction of the metal consumption as China. In terms of copper, mainly used in construction and power sectors, consumption by all emerging east Asian nations excluding China was 2 mln tonnes last year, and Latin American demand was 685,000 tonnes. Altogether the total was just over a third of the Chinese appetite of 7.6 mln tonnes. GROWING POPULATION Oil demand, however, is less dependent on industrialisation, and may have more impact from pure population growth. India is expected to see an average of 3.5% annual growth in oil demand between 2008 and 2035, outpacing China's 2.9% and compared to a weak 0.2% for industrialised nations, according to forecasts by the U.S. Energy Information Administration. Christopher Wheaton, manager of the Allianz RCM Energy fund, which has some 190 mln euros under management, has coined the term New Economic Dynamos (NEDS), to describe countries that are neither part of the industrialised OECD grouping nor the advanced emerging BRIC nations. The NEDS - including Indonesia, Philippines, Nigeria, Vietnam and Bangladesh - account for 45% of the world's population and half of global oil demand growth. FinancialMirror.com August 22 - 28, 2012 GREECE | 29 Coke bottler hit by austerity, costs G Sees Italy, Russia as growth markets, praises Italian reforms Coca-Cola Hellenic (CCH), the world's second-largest bottler of Coca-Cola Co. soft drinks, shed 25% of profit in the first half as expected, hurt by austerity in debt-laden Italy, Ireland and Greece and higher commodity costs. The Athens-based company with operations in 27 countries including Russia, Nigeria and Cyprus said comparable net income was 109 mln euros, against the average of 110.1 mln euros forecast in a Reuters poll of analysts. EU-IMF austerity measures have caused sales volumes to drop in Greece and Ireland as well as Italy, where the government is also curbing spending to cope with higher borrowing costs. But the firm stuck to its guidance for free cash flow generation and investments of 1.45 bln euros by the end of 2014. Chief Executive Dimitris Lois is betting on potential growth in markets such as Russia and particularly in Italy, where he said the government was making all the right moves to deal with the euro zone debt crisis. "We are very happy to see the initiatives from (Italian Prime Minister Mario) Monti," Lois told Reuters. "He has taken the right initiatives to balance austerity and growth," he added, referring specifically to his decision to postpone an increase in value-added-tax (VAT) rates. CCH's total sales volumes dropped by 2% year-on-year to 1.01 bln cases. But sales rose for a fourth consecutive quarter by 1% to 3.43 bln euros. The company took commercial and marketing initiatives, such as more creative packaging to squeeze more sales out of each case sold, Lois said. It also expanded into non-sparkling beverages such as tea and health drinks. These moves helped the company maintain or increase its market volume share in sparkling beverages in most of its markets, including Italy, Switzerland, Austria, Russia, Ukraine, Romania and Bulgaria. Some analysts, however, remain sceptical. future of the company's base in Greece, particularly its listing on the Athens Stock Exchange. But Lois dismissed the concerns, saying that any possible downgrade of the local stock market would not take place before the middle of next year and that he would try to make use of the company's other parallel listings in New York and London to make life easier for its investors. "Overall, 2Q12 results were weak especially in relation to the profitability lines but broadly in line with consensus estimates," said Dimitris Birbos, analyst at the Investment Bank of Greece, a Laiki Bank subsidiary. "Against our numbers, sales volume and revenue were in line but there was a positive surprise regarding comparable EBIT (3.6% above our numbers) and comparable net profits (+1.5% above our estimates). On the positive side, we highlight the increase in 2Q12 net sales revenues despite weaker sales volume as a result of the successful implementation of revenue growth initiatives," Birbos concluded. "The company will face adverse conditions in some basic markets under IMF programmes, such as Ukraine, Hungary and Greece," said Iakovos Kourtesis, an analyst with National Securities who earlier this month downgraded his recommendation on the stock to "neutral". CCH shares were flat at 14.65 euros in Athens, giving it a market cap of 5.37 bln euros. An expected rise of the U.S. dollar versus the euro and the currencies of other crisis-hit European countries will likely offset any benefits from an easing in raw material costs, the company said. Prices of PET, a key raw material for plastic bottles, will rise in mid-single digits instead of high-single digits as previously forecast, according to Lois. In an effort to improve profitability, the company will slash personnel and management costs, doubling its restructuring expenses to 100 mln euros this year, up from the 50 mln euros it stated earlier in 2012. Greece's debt crisis has also fuelled speculation about the Eurobank launches Budget breather would spur economic recovery contactless payment Finance ministry officials in Greece have calculated that the debt-stricken country's economy will recover faster and its debt be more sustainable if it is given two more years to reduce its budget deficit, a newspaper reported on Saturday. The estimate chimes with the view of Prime Minister Antonis Samaras who is expected to float the extension proposal this week with the leaders of France and Germany as well as with Jean-Claude Juncker, the Eurogroup chief. Under the terms of its EU/IMF bailout, Greece is bound to implement painful austerity measures to bring its budget deficit below 3% of GDP by the end of 2014, from 9.3% of GDP last year. But with the country in its fifth consecutive year of recession and social and political discontent rising, Samaras is keen to soften the impact of budget cuts on society by extending the deadline international lenders set it. The latest estimate, reported by the Imerisia newspaper, cited calculations by finance ministry officials, saying they had worked out that a two-year extension would help the economy shrink at a slower pace in 2013 and rebound quicker from 2014. Under such a scenario, the economy would shrink by 1.5% in 2013 and grow by 2% in 2014, the newspaper said. If no extension was granted, the economy would contract by up to 4.5% next year and not recover before 2015, it said. Greece's ability to service its debt is seen by its politicians as something that can only be facilitated by growth as its lenders will only continue bankrolling it if it makes all the necessary budget cuts and reform measures to reduce its debt to 120% of GDP by 2020 from 165% in 2013. There is already a clause in the 130-bln-euro bailout deal that says the deficit adjustment period could be extended if its recession is deeper than expected. The economy contracted at an annual rate of 6.35% in the first half of this year, compared with an EU/IMF forecast for a 4.7% contraction for the full year. Samaras said last month that the economy would shrink by more than 7% in 2012. Mellon Technologies, a leading IT integrator in SE Europe, announced the implementation of the first largescale contactless EMV project in Greece together with Eurobank, with the first contactless credit cards already available for customers. With the contactless technology, cardholders can pay for goods of up to 25 euros with no need to enter a PIN or sign the payment slip, whereas for larger amounts the transaction may still be contactless but the cardholder will need to either enter a PIN or sign the slip. The same card (based on dual interface technology) also bears a magnetic stripe and an embedded chip so that it can also be used on all the standard card acceptance devices (eftPOS terminals and ATMs). The biggest advantage of contactless payments is the transaction speed � by simply holding a contactless-enabled card over a reader, without entering a pin or signing a slip. While a typical card payment needs approximately 12 seconds to conclude, the contactless payment takes less than a second. "This project marks the beginning of a new era for payments in Greece. We do not however expect to see a widespread adoption before the middle of 2013, mainly due to the large number of small retailers that are dispersed even at the most remote areas of the country. What is certain with this project, is that Eurobank sets the pace for the deployment of contactless payments in Greece, bringing the market one step closer to NFC (Near Field Communication) mobile payments," said Despina Kontou, Banking Cards Solutions Product Unit Manager, at Mellon Technologies. For this project Mellon Technologies cooperated with Gemalto who has already delivered more than 200 million dual interface contactless cards globally and which Mellon represents for over 15 years. The Mellon Group of Companies also operates in Albania, Bulgaria, Cyprus, Egypt, FYROM, Poland, Romania, Serbia, Egypt, Ukraine and Turkey. Gov't eyes troika approval on cuts by mid-Sept Greece hopes to obtain its lenders' approval for a new wave of austerity measures worth about 11.5 bln euros by the middle of next month. Winning approval for the savings due in 2013-14 is key to a positive review from the "troika" of the EU, ECB and the IMF, who are expected back in Athens next month for a verdict on whether they will keep funds flowing. "Our aim is to have agreed with our partners by September 14," a senior finance ministry official told reporters. An informal Eurogroup finance ministers' meeting has also been scheduled in Nicosia for the same date. The chiefs of the troika mission, who completed a preliminary visit to Athens earlier this month, are expected to return around September 5, the official said. The Greek government has so far worked out a draft list of measures worth 10.8 bln euros, another senior ministry official told Reuters last week. Talks between ministers to identify the remaining 700 mln euros were continuing on Monday and Greece plans to wrap them up "as soon as possible", the official said. The bulk of the measures will include cuts in pensions, public sector wages, welfare benefits and health expenses. The government is also working on a plan to dismiss up to 40,000 civil servants over the next years. Germany's Der Spiegel magazine on Saturday cited an interim troika report as saying Greece will likely need 2.5 bln euros in spending cuts over the next two years beyond the 11.5 bln figure to meet international lenders' demands for cutting its deficit. German Finance Minister Wolfgang Schaeuble said on Saturday there were limits to the aid that could be granted to Greece and said the crisis-stricken country should not expect to be granted another programme. However, Eurogroup head Jean-Claude Juncker was quoted in Austria's Tiroler Tageszeitung newspaper as saying Greece will not leave the euro zone unless the country "totally refuses" to fulfil any of its reform targets, adding he expected Athens to double its efforts to meet these goals. August 22 - 28, 2012 FinancialMirror.com 30 | CSE PRICES CSE CODE OASIS Index performance CSE General Index FTSE/CySE 20 FTSE/XA & XAK Banking MAIN MARKET MAIN MARKET INDEX BANK OF CYPRUS CYPRUS POPULAR BANK HELLENIC BANK LOGICOM LOUIS LTD A. TSOKKOS HOTELS ORPHANIDES SECTOR TOTAL / OIKO PARALLEL MARKET PARALLEL MARKET INDEX WOOLWORTH (CYPRUS) PROP VASSILIKO CEMENT ERMES DEPARTMENT STORES A&P (ANDREOU&PARASKEV.) LAIKI CAPITAL PUBLIC CO K. ATHIENITIS CONTR. - DEV. G.A.P VASSILOPOULOS MITSIDES LIBERTY LIFE INSURANCE PHIL. ANDREOU LORDOS HOTELS HOLDINGS LORDOS UNITED PLASTIC SECTOR TOTAL / OIKO ALTERNATIVE MARKET ALTERNATIVE INDEX A. PANAYIDES CONTRACTING AD SHOPPING GALLERIES ALKIS HADJ. (FROU-FROU) A.L. PROCHOICE FIN. SERV. AMATHUS PUBLIC LTD ASTARTI DEVELOPMENT ATLANTIC INSURANCE FIRSTDELOS GROUP BLUE ISLAND FISH FARMING CCC TOURIST ENT. CHARILAOS APOSTOLIDES CHRIS JOANNOU LTD CLARIDGE INVESTMENTS CLR INVESTMENT FUND CONSTANTINOU BROS. CPI ENTER. DEVELOPMENT C.T.O. PUBLIC CO CYPRINT LTD. CYPRUS CEMENT CYPRUS FOREST IND. CYPRUS TRADING CORP. CYVENTURE CAPITAL DIMCO PLC DISPLAY ART LTD ELLINAS FINANCE ELMA HOLDINGS EMPIRE CAPITAL INV. EUROPROFIT CAPITAL EXELIXIS INVESTMENT FILOKTIMATIKI K & G COMPLEX KARAOLIS GROUP KARKOTIS MANUFACTURING KEO LTD KOSMOS INSURANCE KRONOS PRESS DIST. JUPITER PORTFOLIO INV. L.P. TRANSBETON LEPTOS CALYPSO HOTELS MALLOUPAS & PAPACOSTAS MINERVA INSURANCE MODESTOU SOUND & VISION NEMESIS CONSTRUCTIONS O.C. OPTIONS CHOICE PANDORA INVESTMENTS PIPIS FARM PETROLINA HOLDINGS PIERIDES HOLDINGS PRIMETEL PLC PROODOS AGROS RENOS HADJIOANNOU FARMS ROYAL HIGHGATE LTD SALAMIS TOURS SFS GROUP PUBLIC CO. STADEMOS HOTELS STARIO INVESTMENTS TOP KINISIS TRAVEL TOXOTIS INVESTMENTS UNIFAST FIN. & INV. VISION INTL PEOPLE GROUP SECTOR TOTAL / OIKO Number Shares ('000) A� � Nominal Value euro A EUR Market Cap. ('000) K. EUR Book Value Per Share euro Price to Profit/(Loss) K. Book Value 2010 Times EUR ('000) T� � . . . 6M 2011 EUR ('000) K 2011 6M 2012 EUR ('000) K 2012 Profit/(Loss) 2011 EUR ('000) � . P/E ratio 2011 Results Earnings Per Share 2011 Cents Dividend Per Share 2011 Cents Dividend Yield % 2012 High Low EUR EUR A K Last Close EUR K� Price 31/12/2011 EUR T� 31/12/2011 295.94 104.60 196.84 286.83 0.61 0.30 0.36 0.27 0.04 0.05 0.12 % Change since 31/12/2011 . . 31/12/2011 385.85 134.85 365.45 104.35 41.12 116.68 94.97 0.20 0.06 0.17 0.26 0.02 0.05 0.07 107.51 42.06 166.79 98.11 0.20 0.06 0.19 0.26 0.02 0.07 0.08 -63.67 -59.79 -15.27 -65.80 -66.89 -80.13 -48.48 -2.97 -40.54 37.25 -37.19 2010 BOCY CPB HB LOG LUI TSH ORF 1 795 141 3 411 086 579 914 74 080 460 547 246 214 80 966 1.00 0.10 0.43 0.35 0.17 0.35 0.35 362 618 201 254 107 864 19 335 10 132 17 235 6 153 724 592 1.54 0.38 1.45 0.76 0.25 0.53 1.72 0.95 0.13 0.16 0.13 0.34 0.09 0.13 0.04 0.15 306 000 87 100 8 889 3 274 -10 243 -17 397 3 328 380 951 6M '11 6M '12 2011 -1 371 000 -3 650 380 -100 658 3 585 -82 674 -6 894 -8 648 -5 216 669 n/a n/a n/a 5.39 n/a n/a n/a 0.14 2 904 2 697 Cents -76.37 -107.02 -17.36 4.84 -17.95 -2.80 -10.68 Cents % 2.50 9.58 377.70 0.76 0.39 0.36 0.34 0.04 0.08 0.12 2 904 2 697 2010 FWW VCW ERME APE LI ACD GAP MIT LIB PHIL LHH LPL 114 252 71 936 175 000 182 725 285 713 13 416 38 750 8 200 90 804 45 000 35 000 48 006 0.34 0.43 0.34 0.17 0.27 0.35 0.17 1.03 0.10 0.17 0.35 0.35 114 320 32 587 21 000 29 236 16 857 4 468 5 115 4 756 3 541 4 365 3 360 2 640 242 245 1.75 3.07 0.45 0.26 0.27 4.39 0.33 3.50 0.09 0.12 1.69 0.56 1.37 0.15 0.15 0.27 0.62 0.22 0.08 0.40 0.17 0.44 0.80 0.06 0.10 0.29 8 848 1 310 6 309 4 108 -47 25 987 -1 903 2 574 -8 419 -1 453 456 71 37 841 6M '11 1 038 6M '12 1 906 2011 6 674 -1 174 245 4 122 -1 734 2 133 -1 600 -947 -2 667 -1 333 759 -1 302 3 176 4.43 n/a 85.71 7.09 n/a 2.09 n/a n/a n/a n/a 4.43 n/a 9.09 Cents 5.84 -1.63 0.14 2.26 -0.61 15.90 -4.13 -11.55 -2.94 -2.96 2.17 -2.71 Cents 5.80 % 22.39 704.24 0.34 0.57 0.17 0.20 0.07 1.10 0.18 0.65 0.05 0.10 0.12 0.07 573.37 0.26 0.35 0.12 0.16 0.05 0.28 0.13 0.58 0.03 0.09 0.08 0.05 583.07 0.26 0.45 0.12 0.16 0.06 0.33 0.13 0.58 0.04 0.10 0.10 0.06 656.6 0.32 0.35 0.167 0.18 0.06 1.00 0.18 0.63 0.05 0.10 0.08 0.06 -11.20 -18.81 31.30 -28.14 -10.61 -6.35 -66.70 -26.67 -7.94 -17.02 -1.02 15.66 -8.33 1 038 1 906 2010 APC AD FBI PROP ANC AST ATL ACS BLUE CCCT CHAP CJ CLA CLL CBH CPIH CTO CYP CCC CFI CTC EXE DES DISP ELF ELMA EMP ERP EXIN PES KG KARA KARK KEO COS KRO ARI TRB LCH MPT MINE MSV NEM OPT PND PIPF PHL PGE PTL AGRO FRH ROY SAL SFS SHL STAR TOP COV UFI VIP 36 572 128 936 98 861 158 660 107 226 99 925 39 109 72 562 15 438 141 692 50 000 10 070 108 163 288 141 160 714 24 379 208 700 5 140 137 611 3 059 92 079 14 973 80 999 13 506 16 000 348 333 47 853 31 344 34 000 4 805 100 000 22 343 7 967 30 978 17 985 20 400 62 446 8 571 101 683 43 211 78 415 14 900 61 056 46 355 424 435 9 660 87 500 22 100 382 440 3 590 297 915 33 000 36 529 66 520 32 500 38 581 12 212 20 700 9 988 75 000 0.35 0.17 0.26 0.09 0.35 0.35 0.35 0.34 0.17 0.43 0.35 0.35 0.35 0.08 0.35 0.17 0.87 0.43 0.43 1.73 0.85 0.43 0.09 0.35 0.62 0.09 0.87 0.09 0.29 0.87 0.17 0.34 0.35 0.43 0.31 0.43 0.20 0.35 0.35 0.35 0.17 0.14 0.17 0.17 0.17 0.35 0.35 0.34 0.17 1.73 0.03 0.17 0.43 1.00 0.69 0.17 0.34 0.03 0.05 $ 0.10 6 217 11 604 15 818 3 173 8 578 4 996 24 639 9 433 2 779 7 085 3 000 201 5 408 2 881 11 250 7 314 6 261 1 336 20 642 3 824 27 624 2 096 7 290 810 5 600 6 967 39 239 627 4 760 1 778 12 000 447 956 13 630 1 799 12 036 4 371 1 971 7 118 8 210 1 568 149 15 875 464 33 955 773 63 000 1 547 22 946 5 421 2 979 1 650 2 192 4 656 6 825 386 3 175 414 200 75 000 558 943 0.90 0.06 0.49 0.02 0.52 0.02 0.73 0.29 0.77 0.49 0.25 0.46 0.44 0.07 0.75 0.65 0.12 0.36 1.66 6.13 1.82 0.47 0.23 0.35 0.67 0.06 0.05 0.20 0.79 2.47 0.62 0.07 0.12 3.71 0.48 0.74 0.36 0.41 0.94 0.62 0.14 0.02 0.50 0.22 0.24 0.36 1.29 0.42 0.01 3.43 0.04 0.16 0.48 1.89 2.34 0.05 0.41 0.04 0.12 0.15 0.71 0.19 1.50 0.32 1.11 0.15 2.27 0.86 0.44 0.23 0.10 0.24 0.04 0.11 0.14 0.09 0.46 0.26 0.73 0.09 0.20 0.16 0.30 0.39 0.17 0.52 0.33 16.40 0.10 0.18 0.15 0.19 0.27 1.04 0.12 0.21 0.80 0.20 0.56 0.07 0.30 0.14 0.43 0.52 0.04 0.33 0.22 0.56 0.17 4.88 0.44 0.25 0.32 0.13 0.04 0.09 0.64 0.50 0.17 6.61 0.81 1 767 -3 960 4 363 -5 724 -1 339 -11 422 4 108 -2 203 257 -6 512 1 542 -622 -3 641 -7 007 440 -157 1 211 -1 031 -6 432 568 13 270 1 157 2 183 -380 575 -5 602 -504 -980 1 048 614 -1 668 -844 -738 -3 358 -760 969 -2 094 -501 -3 469 -1 746 -4 952 -594 5 981 -9 573 -9 238 313 8 617 11 -5 231 362 14 344 131 -9 983 1 165 -1 062 -181 -25 -43 -330 -62 896 6M '11 6M '12 2011 373 -12 265 2 334 -2 594 -2 121 -6 400 2 306 -2 754 570 -3 519 -7 900 -375 -3 942 -7 654 -4 006 -65 -3 921 -513 -4 630 -4 127 5 693 1 104 1 604 -526 -257 -551 -212 -15 562 1 608 5 130 -2 198 -110 -3 948 -804 100 -1 392 -438 -6 299 1 345 -3 185 -281 2 076 -2 192 -16 880 -1 314 10 753 -868 -6 352 73 151 546 964 -19 100 1 577 -1 737 -689 11 -37 2 753 -110 647 1 121 -332 -5 391 2 240 -3 664 887 -325 -16 719 1 457 -2 768 -2 739 -6 -2 043 -6 -463 1 239 215 -1 653 43 -684 -111 -75 -1 396 -840 1 121 888 -2 464 -347 1 094 -2 165 -372 -1 506 -151 -16 -10 050 -132 -133 -26 146 Cents 1.02 -9.51 2.36 -1.63 -1.98 -6.40 5.90 -3.80 3.69 -2.48 -15.80 -3.72 -3.64 -2.66 -2.49 -0.27 -1.88 -9.98 -3.36 -134.91 6.18 7.37 1.98 -3.89 -1.61 -1.15 -0.68 -45.77 33.47 5.13 -9.84 -1.38 -12.74 -4.47 0.49 -2.23 -5.11 -6.19 3.11 -4.06 -1.89 3.40 -4.73 -3.98 -13.60 12.29 -3.93 -1.66 2.03 0.05 1.65 2.64 -28.71 4.85 -4.50 -5.64 0.05 -0.37 3.67 Cents % 740.44 660.99 0.91 5.69 7.00 1.20 11.11 6.67 4.00 15.38 8.50 11.81 2.00 9.52 673.79 0.17 0.09 0.16 0.02 0.08 0.05 0.63 0.13 0.18 0.05 0.06 0.02 0.05 0.01 0.07 0.30 0.03 0.26 0.15 1.25 0.30 0.14 0.09 0.06 0.35 0.02 0.82 0.02 0.14 0.37 0.12 0.02 0.12 0.44 0.10 0.59 0.07 0.23 0.07 0.19 0.02 0.01 0.26 0.01 0.08 0.08 0.72 0.07 0.06 1.51 0.01 0.05 0.06 0.07 0.21 0.01 0.26 0.02 0.02 1.00 738.87 0.17 0.11 0.16 0.02 0.10 0.05 0.83 0.16 0.21 0.07 0.06 0.02 0.05 0.01 0.09 0.31 0.05 0.32 0.18 3.20 0.32 0.17 0.09 0.06 0.38 0.02 0.62 0.03 0.15 0.48 0.12 0.03 0.14 0.70 0.09 0.65 0.09 0.23 0.08 0.19 0.04 0.01 0.21 0.01 0.11 0.08 0.52 0.06 0.06 1.62 0.01 0.08 0.09 0.10 0.23 0.01 0.26 0.02 0.02 1.00 -8.81 0.00 -18.18 0.00 0.00 -20.00 0.00 -24.10 -18.75 -14.29 -28.57 0.00 0.00 0.00 0.00 -22.22 -3.23 -40.00 -18.75 -16.67 -60.94 -6.25 -17.65 0.00 0.00 -7.89 0.00 32.26 -33.33 -6.67 -22.92 0.00 -33.33 -14.29 -37.14 11.11 -9.23 -22.22 0.00 -12.50 0.00 -50.00 0.00 23.81 0.00 -27.27 0.00 38.46 16.67 0.00 -6.79 0.00 -37.50 -33.33 -30.00 -8.70 0.00 0.00 0.00 0.00 0.00 FinancialMirror.com August 22 - 28, 2012 CSE PRICES | 31 CSE CODE OASIS Number Shares ('000) A� � Nominal Value euro A EUR Market Cap. ('000) K. EUR Book Value Per Share euro Price to Profit/(Loss) K. 2010 Book Value Times EUR ('000) T� � . . . 6M 2011 EUR ('000) K 2011 6M 2012 EUR ('000) K 2012 Profit/(Loss) 2011 EUR ('000) � . P/E ratio 2011 Results Earnings Per Share Cents Dividend Per Share 2011 Cents Dividend Yield % 2012 High Low EUR EUR A K Last Close EUR K� Price 31/12/2011 EUR T� 31/12/2011 % Change since 31/12/2011 . . 31/12/2011 APPROVED INVESTMENTS / EENYTIKOI OPAN. INVESTMENT INDEX ACTIBOND GROWTH FUND ACT APOLLO INVESTMENT FUND APOL FINIKAS AMMOCHOSTOU CONF CYTRUSTEES INV. PUBLIC CO CYTR DEMETRA INV. PUBLIC CO. DEM DODONI PORTFOLIO DOD HARVEST CAPITAL HCM INTERFUND INVESTMENTS INF ISCHIS INVESTMENT ISXI REGALLIA HOLD. & INV. REG TRIENA INV. INCOME TINC TRIENA INV. CAPITAL TCAP TRIENA INTERNATIONAL TINT UNIGROWTH INVESTMENTS UNI SECTOR TOTAL / OIKO SHIPPING COMPANIES SECTOR SPECIAL CATEGORY / AIANTAS INVESTMENTS A. ZORBAS & SONS CEILFLOOR CYPRUS AIRWAYS D.H. CYPROTELS D&M TELEMARKETING DOME INVESTMENTS EFREMICO HOLDINGS KANIKA HOTELS KARYES INVESTMENTS KNOSSOS INV. K. KYTHREOTIS HOLDINGS LASER INVESTMENT GROUP LIBRA GROUP OCEAN TANKERS ROLANDOS ENTERPRISES SAFS HOLDINGS SEA STAR CAPITAL SUPHIRE HOLDINGS USB BANK SECTOR TOTAL / OIKO MARKET TOTAL / OIKO AOPA AIAS ZRP CFL CAIR DHH TLM DOME EFR KAN KAR KNO KYTH LAS LHG OCT ROL SAFS SEAS SUP USB NAV 58 430 56 147 49 385 44 494 200 000 282 483 14 000 56 545 11 000 20 247 2 729 2 729 1 364 13 468 0.17 0.27 0.10 0.30 0.87 0.02 0.17 0.51 0.51 0.09 0.85 0.85 0.85 0.17 1 169 6 176 988 4 004 48 000 2 825 1 260 2 827 440 405 2 183 5 458 818 3 906 80 459 0.0379 0.2721 0.0048 0.2741 0.7502 0.0174 0.0674 0.1633 0.0734 0.0320 1.0430 2.1427 0.6125 0.2500 Disc/Prem 2010 -47.23 -59.57 316.67 -67.17 -68.01 -42.53 33.53 -69.38 -45.50 -37.50 -23.30 -6.66 -2.04 16.00 -760 -3 213 -2 533 -10 875 -15 581 -5 227 -6 -12 850 -112 -195 389 -446 -7 -127 -51 543 6M '11 -59 -1 207 -284 -2 488 -3 619 6M '12 -43 -316 -705 -1 489 -873 2011 -737 -4 301 -1 465 -10 771 -14 687 -6 357 -255 -9 493 -165 -150 331 -136 -36 -303 -48 525 -43 -7 700 -241 -3 667 Cents -1.26 -7.66 -2.97 -24.21 -7.34 -2.25 -1.82 -16.79 -1.50 -0.74 12.13 -4.98 -2.64 -2.25 0.00 Cents % 555.14 441.63 11.00 13.75 525.66 0.02 0.11 0.02 0.09 0.24 0.01 0.09 0.05 0.04 0.02 0.80 2.00 0.60 0.29 454.51 0.02 0.09 0.03 0.14 0.19 0.01 0.10 0.10 0.04 0.02 0.80 2.00 0.60 0.25 15.65 0.00 22.22 -33.33 -35.71 26.32 0.00 -10.00 -50.00 0.00 0.00 0.00 0.00 0.00 16.00 6M '11 6M '12 2010 81 202 15 296 5 055 391 155 157 138 7 700 25 000 11 385 60 250 2 000 21 827 42 450 61 739 189 377 296 665 54 166 70 220 629 785 124 009 60 674 0.21 0.34 0.03 0.086 0.17 0.12 0.43 0.43 0.35 0.43 0.17 0.17 0.06 0.01 $0.20 0.17 0.17 0.04 0.09 0.57 812 8 872 202 23 469 1 571 385 16 250 228 8 435 540 218 5 519 8 643 1 894 5 933 5 417 702 6 298 1 240 36 404 133 033 1 739 272 0.1769 2.40 -0.61 -0.06 -0.20 -0.01 1.35 0.086 0.68 0.2224 0.11 0.45 0.06 -0.38 -0.27 0.29 0.000 -0.04 -0.1180 0.43 -94.35 0.24 -0.07 -1.05 -0.05 -5.00 0.48 0.23 0.21 1.21 0.09 0.29 2.47 -0.03 -0.07 0.35 33.33 -0.26 -0.08 1.40 -214 1 846 -1 353 232 -31 800 -335 -1 938 221 -703 -180 774 999 -2 378 -7 100 -50 257 93 -173 -50 598 -764 -6 534 -150 162 154 191 ` 2011 -27 989 -1 856 -18 954 -9 100 -245 -701 35 -77 -180 87 612 -2 656 -11 700 -32 272 -328 -320 -16 501 -60 -6 248 -99 502 -5 472 167 PAT:Profit After Tax 8.97 -0.03 6.47 -36.72 -4.85 -5.79 -3.18 -2.80 0.31 -0.13 -9.00 0.40 1.44 -4.30 -6.18 -10.88 -0.61 -0.46 -2.62 -0.05 -10.30 0.80 0.06 1.12 1.72 0.14 0.10 0.46 0.03 0.01 0.58 0.04 0.06 0.01 0.05 0.65 0.02 0.14 0.27 0.01 0.13 0.14 0.01 0.02 0.10 0.01 0.01 0.01 0.60 0.01 0.65 0.04 0.06 0.01 0.05 0.65 0.02 0.11 0.27 0.01 0.13 0.14 0.01 0.02 0.10 0.01 0.01 0.01 0.60 -4 033 -4 345 n/a -75 369 -2 708 -57 -919 -2 452 -3 801 -10 248 -24 056 616 -7 157 -32 367 -10.49 0.00 27.27 - source: Eurivex Ltd. NAV: Net Asset Value Bold: Final results EPS: Earnings per Share based on existing number of shares. P/E: Price to Earnings ratio. Weighted P/E ratio: Calculated based on market cap weighting of profit reporting companies, Book Value: According to our estimates. N/A Indicates Not Applicable, Price 31/12/2009 is the closing price or in case of New Listings the opening price. Ignores weighted number of shares in circulation Forecasted profits are liable to change without notice and responsibility EMERGING MARKET (N.E.A.) FOCUS FINANCIAL SERVICES CONSTANTINOU BROS PROPERTIES CYPRUS LIMNI RESORTS & GOLF PHONE MARKETING S.A. ITTL TRADE TOURIST & LEISURE INT'L LIFE GENERAL INSURANCE SA ORCA INVESTMENT PLC P.C. SPLASH WATER PUBLIC CO. WARGAMING PUBLIC CO. ECHMI S.A. INVESTMENT CONSULTANTS EPILEKTOS ENERGY S.A. KERVERUS IT (CYPRUS) LTD C.O. CYPRUS OPPORTUNITY ENERGY TOTAL CSE Code EXTE/EXTE /CBAM /LIMNI PHONE/PHONE /ITTL INLE /ORCA /PCSW /WG EXMI/ /EPIEN /KERV /GAS No. of Shares (000) 1 690 1 950 300 000 1 575 100 000 8 057 1 200 35 052 3 400 321 10 906 1 810 8 390 Market Cap EUR (000) 11 830 36 855 300 000 5 513 75 000 21 834 14 280 42 062 3 400 1 611 43 624 2 552 14 263 572 825 Latest price EUR 7.00 18.90 1.00 3.50 0.75 2.71 11.90 1.20 1.00 5.02 4.00 1.41 1.70 Nominal Value EUR 0.30 0.01 0.10 0.30 0.50 1.00 0.01 0.25 0.10 1.00 0.32 1.00 0.01 Listing Date 29/3/10 29/3/10 29/3/10 29/3/10 06/8/10 21/7/11 10/9/10 10/10/11 2/11/11 10/04/12 28/06/12 29/06/12 17/07/12 WARRANTS EUROPROFIT (WAR. 2005/2012) ALKIS HADJ. FROU-FROU (WAR. 2015) AMATHUS NAVIGATION (WAR.07-2013) UNIGROWTH INV (WAR.10/12) TOTAL EMERGING MARKET (N.E.A.) GreenTea SA Kappasquare Ltd Nugreat Ltd Zetadynamic Ltd No. of warrants (000) 893 24831 17606 2218 Mkt Cap (00) 1 25 176 22 224 Exercise Period 41212 20-30 Jun 2001-2015 1-15 May & 1-15 Nov 07-13 1-15 Nov 2010 and 2012 Exercise Price euro cents 8.67 173 20c or EUR 35c 29 Expiry Date 30-10-2012 30-06-2005 15-11-2013 15/11/2012 Latest Close 0.001 0.001 0.010 0.010 CSE Code No. of Bonds GRTEA KPSQ NGRT ZETA 1 040 17 000 23 000 9 000 Market Cap EUR 104 000 000 1 700 000 2 300 000 900 000 Latest price EUR 100 000 100 100 100 Listing Date 8 Nov 2011 30 Mar 2012 30 Mar 2012 30 Mar 2012 Latest NAV N/A N/A N/A N/A Akcern Ltd AKCN 2 001 200 100 100 9 May 2012 N/A DISCLAIMER: The information, comments, analyses and financial data published in this newspaper were obtained from sources believed to be reliable, but their accuracy or completeness cannot be guaranteed and may change without notice. Any of the information or opinions published herein should not be construed as an offer or solicitation to buy or sell investments. No liability is accepted whatsoever for any direct or consequential loss arising from the use of this publication. August 22 - 28, 2012 FinancialMirror.com 32 | BACK PAGE The volatility puzzle GLOBAL MARKETS WEEKAHEAD As markets' summer doldrums leave financial volatility and trading volumes at their lowest in years, investors are puzzling over what appears to be complacency about the potential for renewed market tensions during an event-packed September. And on the face of it at least, stock market pricing looks out of whack. Heading into a period that is likely to see fresh debate over how to solve the euro zone crisis and a heated U.S. election race, with the world economy still shaky and markets second-guessing central banks on extraordinary policy moves, you'd expect volatility to be pumped up. On the contrary. Wall St's measure of implied one-month volatility in the S&P 500 - the so-called `Fear Index' or VIX - typically acts like a seismograph for world markets but fell last week to its lowest level since before the credit crisis exploded five years ago this month. On one level, that shouldn't be a big shock. Year-to-date gains for U.S. equities are the second best since 1998, and the past fortnight has seen some of the narrowest trading ranges in decades. Volumes are way below historical averages and U.S. economic data and earnings are mixed at worst. European stocks, meanwhile, are set for an 11th week of gains, their longest winning streak since 2005. Add to that implied "policy puts" from the U.S. Federal Reserve and European Central Bank that promise intervention through more quantitative easing if the situation deteriorates again and you get a sense of what is beneath the relative calm. The tentative re-emergence from safe-haven bunkers such as U.S. Treasury or German government bonds over the past two weeks underlines the shift in behaviour. Given that the VIX and other volatility signals are used in investment models around the world as proxies for risk, their steady decline acts as green light for risk assets everywhere. But if markets are supposed to discount future risks, many say potential ructions in September - evident from even a glimpse at next month's event diary - should imply more caution than we are now seeing. And if this is just a market anomaly, then investors should be exploiting it by buying what looks like relatively cheap insurance for the bumpy road ahead. "In this period of relative summer calm, risk assets continue to be well-supported as the market appears to enjoy the "thrill of the chase" in the expectation of additional central bank easing," said Ian Stealey, portfolio manager in the International Fixed Income Group at JP Morgan Asset Management. Stealey reckons room for policy disappointment is high, however, and that the market is not adequately priced for surprises. "As we move into September and possible headline risk on both sides of the Atlantic, it is worth remembering that since 2010 the VIX has only dipped below 15 twice. In both instances the subsequent two-month performance for the S&P 500 was negative." `KURTOSIS' AND POLICY DOMINANCE However, there is another view of what's happening at the market coalface and options pricing that suggests the current environment could persist for much longer. Gerry Fowler, BNP Paribas' Global Head of Equity and Derivative Strategy, says world equity volatility pricing is not all it seems. Firstly, he stresses that the VIX measures implied volatility for just one month. And while this is now at five-year lows of about 14% despite September's noisy calendar, longer-term gauges out to one year remain sticky above 20%, and the gap between short and long-term volatility is as wide as at any point in the last three years. This suggests the short-term lull is temporary, related to the holiday season and that anxiety about the longer term is really as high as ever. But that's not the full picture either. Fowler says his analysis of four years of the crisis shows that while days of outsize price swings in equities are still common, volatility on routine "non-event" days has more than halved, to 0.4% from 1% in 2008. Given that non-event days still vastly outnumber the swing days, that decline is swamping gauges of median volatility such as the VIX. There are many theories on what's driving what statistical wonks call "kurtosis", or infrequent but extreme moves in a data series. But the huge potential impact of central bank and government policy intervention is the biggest factor. Fowler posits that, because fundamental market analysis based on relative value models, earnings or economic trends is almost pointless when faced with the overwhelming effects of QE or euro zone developments, investors simply avoid trading on days except those when policy changes are driving market. Trading turnover thus evaporates on "non-event" days, further deterring investors from transacting for fear of moving the market in such thin volumes. The net effect is to cut median volatility despite the same number of days with big gyrations. So if one of the aims of policy intervention is to dampen market volatility, it may well be succeeding - even if not for all the intended reasons and with uncertain consequences. "Policy intervention has become so variable and so frequent it is stopping people becoming involved in the market on a daily basis, and they then simply have to act very, very quickly when there's an intervention catalyst," said Fowler. "As a result, it may not be as attractive to buy volatility as you might think, even if one-month is probably about as low as it's going to go here," he said. His "best guess" on reactions to the many Fed, ECB, euro policy and U.S. election events over the coming weeks is that they are unlikely to produce the sort of daily swing needed to justify buying indexes like the VIX current levels. This week certainly looks too quiet to change things, even if Fed policy minutes will be of interest. Flash August business polls from around the world are set to be watched closely, as will revised figures for second quarter UK gross domestic product and an auction of German two-year bonds that are still currently offering a negative yield.