Macau Business Daily September 2, 2015

MOP 6.00

Melco Int’l H1 profit plunges 87.8 pct

Closing editor: Joanne Kuai

New conditions on RMB trades to limit oscillations

Page 6

Page 9

Michael Mecca steps down as COO of Galaxy Macau Page 4

Publisher: Paulo A. Azevedo Number 871 Wednesday September 2, 2015 Year IV

Home prices in Mainland China rise for first time in 2015 Page 8

MSAR Announces Austerity Measures

It was always on the cards. And now it’s time. Due to continuing dwindling gaming revenues the gov’t will cut public spending. A reduction of MOP1.4 bln has been earmarked for fiscal 2015. Daily supplies and third-party services are in the firing line. The administration has reiterated that social welfare - including this year’s wealth-sharing programme and public investment plan - are ring-fenced Page

5

Luck not a lady Gaming revenue plunged 35.5 pct in August y-o-y. To MOP18.6 bln, sliding for fifteen consecutive months. Analysts say numerous persistent headwinds are hamper­ing recovery. Meanwhile, Sands China takes the lion’s share of the market, now five months in a row

China’s official factory gauge. It fell to the lowest reading in three years as monetary easing fails to revive old growth drivers. Weighed down by overcapacity and sliding prices.

The official Purchasing Managers’ Index was 49.7 for August

Page 8

Name

%Day

Hang Lung Properties

+0.91

Link REIT

+0.36

Hengan International

-0.13

Hang Seng Bank Ltd

-0.15

Want Want China Hol

-0.16

China Resources Powe

-4.85

CITIC Ltd

-5.49

BOC Hong Kong Holdin

-5.53

Tingyi Cayman Islands

-5.54

China Mengniu Dairy C

-6.83

I SSN 2226-8294

Autos slowing down Mercedes-Benz is on a roll. With a market share of 23 pct in Macau. The highest penetration rate in the world, apparently. Regardless, Zung Fu Motors (Macau) GM Pawin Sriusvagool says as of July sales of the local automotive market decreased 16 pct

Page 2

Property www.macaubusinessdaily.com

September 1

Source: Bloomberg

Page 4

Factory gauge falters

HSI - Movers

Realtors get real Average high-end residence prices are suffering. Dropping by at least 20 pct from their peak last year.

Local realtors expect a slow Q3 as stimuli have not yet emerged

Page 3

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2 | Business Daily

September 2, 2015

Macau CE meets BOC President Chief Executive Fernando Chui Sai On met with Chen Siqing, the President and Vice Chairman of the Bank of China, yesterday at Government Headquarters. Mr. Chui said that the Bank of China has been an important partner to the SAR, supporting the stability of the financial system here. The Chief Executive praised the performance the Bank of China Macau Branch had achieved under the leadership of the Macau Branch’s former General Manager Ye Yixin. Mr. Chui further voiced his hope that the SAR Government and the bank would continue to co-operate with the new General Manager of the Bank of China Macau Branch, Wang Shaojun.

Mercedes outperforming automotive market Affected by the slowdown in the local economy and the recent stock crashes in Hong Kong and China, the automotive market declined 16 per cent, as of July João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he automotive market is struggling in Macau as sales are affected by the slowdown of the local economy and stock crashes in Hong Kong and China. However, the sales of Mercedes Benz in Macau are outperforming the market, according to the General Manager of Zung Fu Motors (Macau), Pawin Sriusvagool.

“As of July, the sales of the entire market in Macau had decreased 16 per cent.

Basically, this is a very difficult year for everyone

because when the economy is going bad one of the things people tend to cut is luxury items, and cars is one of the items that people tend to cut”, Mr. Sriusvagool said on the sidelines of an event at which Mercedes delivered five limousines to L’Arc Macau.

“In terms of our year-onyear, we’re still performing better than the market.

Our market share in Macau is about 23 per cent. This penetration rate is the highest in the world. But it’s very challenging to continue the

growth momentum going [forward]. The economy at this point is driving down demand; the stock market crash, specially in Hong Kong and Mainland China, is really having a negative impact on our sales”, he said.

However, the General Manager of Zung Fu Motors (Macau), which is the exclusive retailer of Mercedes-Benz automobiles in the territory, is supportive of the approach being adopted by the government to focus the gaming industry on the mass market.

“I’m quite confident about the whole prospect of Macau and how the government wants to move the industry more to the mass market segment rather than just VIP. There will be a lot of jobs and potential for expansion in terms of Macau and also in Hengqin”, he believes.

Three models to be launched

In November the MercedesBenz retailer will launch three models onto the market; namely, the GLC, the B-class

and a facelift for the A-class, which will target different segments of the market.

“The B-class is a people carrier, a seven-seater model and can be for everyone, for VIP customers, for corporate. It can even be used as a commercial vehicle. Concerning the A-class facelift, we’re targeting young professionals. The other one is the GLC model, which is basically a compact mediumsized SUV”, Mr. Sriusvagool said.

Yesterday, as part of the celebrations of its 6th anniversary, L’Arc Macau introduced five Mercedes Benz as luxury hotel limousines, including the E-Class and S-Class models, holding a ‘Mercedes Benz Limousine Delivery Ceremony’ at the hotel entrance on 1 September.

“We are always committed to providing a high-quality hotel service experience to every guest. Although the hospitality industry is in a challenging period, we will still continue to enhance our services through professional employee training and hardware upgrades to offer our guests a luxurious and memorable experience”, Anthony Tam, the General Manager of L’Arc Macau hotel, said of the new limousines.

Exhibition marking 70th anniversary of V-Day opens

T

he exhibition in commemoration of the 70th anniversary of victory of the Chinese people’s resistance against Japanese aggression and world anti-Fascist war was officially opened in Macau on Tuesday.

The exhibition, divided into two parts, featured a collection of 210 historical photos and 80 cultural relics recalling the efforts the Chinese army and people had made in the war of resistance against Japanese aggression in the first part.

Due to the special geographical position and Portugal’s neutrality during the war, Macau was immune to invasion by the Japanese but they did not act as passive observers.

The second part of the exhibition shows how people in Macau donated to the resistance against Japanese aggression.

Chief Executive Chui Sai On of the Macau Special Administrative Region (SAR) expressed the hope in the opening ceremony that the precious pictures displayed this time could remind Macau compatriots, especially the young people, of the history and martyrs, and make them cherish peace more.

The exhibition reflects the tough days Macau people went through in supporting the country in wartime, he said.

Li Gang, Director of the Liaison Office of the Central People’s Government in the Macau SAR, in his address encouraged Macau residents to inherit and carry forward the great national spirit.

The exhibition will last until October 4.

Xinhua

Business Daily | 3

September 2, 2015

Macau

Slow third quarter forecast for home sales Home transactions have grown more sluggishly in the current quarter, with some high-end residences showing an average price drop of at least 20 percent from their peak time last year, estate agencies say Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he city’s property market expects a slow third quarter as no stimuli have yet emerged to turn around the weakened transactions seen so far, and the average home price may even track a slight decrease when compared to the previous quarter, estate agencies Ricacorp (Macau) Properties Ltd. and Midland Realty (Macau) predict.

The average home price here for the third quarter may level off or drop 2-3 percent from the previous quarter, while monthly transactions amount to about just 400 cases, Ricacorp Macau and Midland Macau told Business Daily.

“In the coming months we don’t see any support policies [for home purchase] here,” said senior regional director of Ricacorp Macau Jennifer Un, adding that

home transactions may remain weak in the third quarter.

“There haven’t been any new home projects launched for sale here to stimulate the transaction atmosphere; and the recent big fluctuations in the [China] stock market have also imposed some negative psychological impact upon buyers,” she added.

In the second quarter of this year, the average home price was MOP95,565 per square metre, up 7.2 per cent from the previous quarter but still a drop of 16 per cent compared to a year ago, according to data from the Financial Services Bureau (DSF). The Bureau has also recorded a total of 1,848 home transactions in the second quarter, some 500 fewer than a year ago.

Some of the high-end, big-scale residences here

have already seen their average prices drop by at least 20 per cent from their peak level last year as owners have found it easier to sell their units at a discounted price, Ms. Un and Midland

Macau’s chief executive Ronald Cheung said.

“For some of the big-scale residences in ZAPE district [on the Macau Peninsula] and Taipa, such as Nova Park, their average price has already

dropped by 20 per cent or more,” said Mr. Cheung.

“Some even show a 30 per cent drop when compared to last year. The drop does not really represent a panicky sell-off by homeowners but it’s true it’s been easier to sell their flats at a discounted price.”

“For the rest of this year, I think a monthly 400 to 500 home transactions are still achievable,” Ms. Un remarked.

Macau saw a monthly average of about 444 home transactions from September to December last year, DSF data shows.

“We’ll see how the market reacts or if more purchase sentiment is stimulated if Windsor Arch [a high-end residence near Macau Jockey Club in Taipa] can secure an occupation permit by the fourth quarter,” she said.

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4 | Business Daily

September 2, 2015

Macau

Gaming revenues dip but outperform market consensus In August, gaming revenue amounted to MOP18.62 bln, which was better than the MOP17.9 bln market consensus.

Strong headwinds, however, may buffet the industry in the coming months João Santos Filipe

jsfilipe@macaubusinessdaily.com

G

aming revenues declined 35.5 per cent year-on-year in August to MOP18.62 billion (US$2.33 billion) from MOP28.88 billion (US$3.62 billion) a year ago, according to data released yesterday by the Gaming Inspection and Coordination Bureau (DICJ).

The largest gaming industry in the world has now registered fifteen months of consecutive year-onyear decline. Since the beginning of the year, the sector has generated MOP158.88 billion in revenues, which

represents a 36.5 per cent year-onyear decline from MOP250.38 billion.

While the revenue for August is better than consensus expectations, which stood at around MOP17.9 billion, strong headwinds have to be factored into the mix in the near future affecting revenues further in both the VIP and mass sectors.

Headwinds

In the last days of August the People’s Bank of China and the Monetary Authority of Macau announced a

pact to prevent money-laundering and terrorist financing activities.

Meanwhile, there is an ongoing crackdown of underground banking.

These factors - combined with President’s Xi Jinping crackdown on corruption in Mainland China may contribute to exacerbating the caution of VIP gamblers who have not committed any illegality but prefer to maintain a low profile.

Nevertheless, according to Union Gaming Securities gaming analyst Grant Govertsen there are more

factors to be considered such as the devaluation of the renminbi (RMB) and restrictions on the devices of the Chinese domestic bank card organisation UnionPay operating in Macau.

“Too many headwinds persist, including more recent fears on the China macro story and RMB devaluation, as well as longer-tailed fears on UnionPay restrictions, the spectre of a full smoking ban [in casinos] and the dilutive impact of new supply”, Grant Govertsen wrote in a report released yesterday.

Still, he notes that since February gaming revenues in the industry have been quite ‘stable’, saying, “GGR [Gross Gaming Revenue] has now remained in a fairly tight range for seven consecutive months, with results generally in a range of MOP17 billion to MOP21 billion. August was in the middle of this range”.

Sands sitting on top

In terms of market share, and according to the calculations of Business Daily, Sands China took the largest share with 25.2 per cent in August. Since April, and for five months now, American billionaire Sheldon Adelson’s company has not been challenged at the top of the market.

Also, during August, SJM Holdings managed to stay in front of Galaxy with 21.8 per cent share. This is the first month that the company founded by ‘King of Gambling’ Stanley Ho Hung Sun has managed to stay in front of Galaxy Entertainment Group, with Galaxy Phase II and Broadway Macau operating for a full month.

In August, the market share of the company controlled by Lui Che Woo amounted to 21.2 per cent, the first time since June that the company has recorded a share lower than 22 per cent.

While Melco Crown is preparing to open its new Studio City property, which is scheduled to open in October 27, it grabbed 13.5 per cent of the market in August and is the fourth player.

In the bottom half of the market share table sits Wynn Macau with 9.4 per cent, leading MGM China with 8.9 per cent during August.

July gaming revenues market share October

November

December

January

February

March

April

May

June

July

August

23.5%

22.6%

23.6%

21.9%

23.1%

23.2%

21.7%

21.9%

21.8%

20.3%

21.8%

Sands China 23.7%

22.5%

20.7%

20.4%

23.3%

21.4%

24.1%

26.5%

22.6%

23.8%

25.2%

SJM Galaxy

21.4%

21.5%

20.2%

22.5%

21.5%

20.1%

20.0%

18.5%

22.2%

22.6%

21.2%

MPEL

14.3%

13.4%

14.9%

14.7%

14.4%

13.9%

12.8%

14.2%

14.4%

14.2%

13.5%

MGM

8.2%

11%

10.5%

10.1%

9%

10.2%

9.6%

9.1%

10.2%

9.7%

8.9%

Wynn

8.9%

9%

10.2%

10.4%

8.6%

11.2%

11.8%

9.8%

8.8%

9.4%

9.4%

Total

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

Source: Business Daily

Mecca steps down as COO of GEG, becomes director of SBM

M

ichael Mecca (pictured) is no longer the Chief Operating Officer (COO) of Galaxy Entertainment Group (GEG), he has confirmed to Business Daily, although he will continue to serve as president of the company.

In addition, the Vice President of Corporate Public Relations of the company, Buddy Lam, told us that Mr. Mecca has become a director of SBM, an owner and operator of hotels and casinos in the Principality of Monaco.

“He (Michael Mecca) has also become a director of SBM and will play the role of creating synergy between the two companies,” said Buddy Lam in an emailed reply to the newspaper.

On 25 July 2015, Galaxy

announced a strategic minority investment in Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (‘SBM’) listed on the Euronext Paris.

Galaxy is acquiring ordinary shares equivalent to approximately 5 per cent of the issued share capital of SBM from an independent third party who is unconnected to the company or its connected persons.

In addition, Buddy Lam said “As part of GEG’s growth journey, the company now enters into the next phase of our development. We will continue to lead our Macau business in its current success and to devote more attention towards growth opportunities in realising our regional and global vision. Mr. Michael Mecca, in his capacity as President, GEG,

will continue to pursue regional and global expansion opportunities for the company”, he told Business Daily.

Yesterday, GEG announced the appointment of Kevin Kelley as Chief Operating Officer for Macau.

“Mr. Kevin Kelley, as Chief Operating Officer, Macau, will focus

on our current operations and work on realising GEG’s plans for Galaxy Macau’s Phases III and IV for Macau”, Mr. Lam said of the new appointment.

Mr. Kelley will oversee functions such as Business Development, International Premium and Mass Market Development, Galaxy Macau StarWorld Hotel, Broadway Macau and City Clubs Operations as well as advancing development plans for Phases III & IV. Previously Mr. Kelley held senior executive positions in various wellknown casinos and hotels in Las Vegas and Macau, including the position of Senior Vice President of Las Vegas Sands Corp, and according to Galaxy ‘has in-depth knowledge of Macau’s culture and gaming industry’.

J.S.F / J.K.

Business Daily | 5

September 2, 2015

Macau

Government announces spending cuts amid continuing gaming slump The government says it aims to save about MOP1.4 billion in a series of cost-cutting measures, as monthly gaming revenue has already dipped below the MOP20 billion red line Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he Macau Government announced yesterday the immediate implementation of austerity measures calculated to save some MOP1.4 billion (about US$175 million) for the current fiscal year, as the gross gaming revenue of the city has already fallen below the set monthly target of MOP20 billion for the full year.

For the first eight months of this year, cumulative gross gaming revenue has amounted to MOP158.88 billion, which translates into a monthly average of about MOP19.86 billion, according to the latest data released by the Gaming Inspection and Co-ordination Bureau (DICJ) yesterday.

With the aim of saving about MOP1.4 billion for the full fiscal year, the government announced yesterday a series of cost-cutting measures including that government departments and autonomous organs freeze 5 per cent of the budgeted consumption spending as well as 10 per cent of budgeted ‘investment spending’ - a term referring

to items such as furniture purchase or minor construction.

Autonomous organs here, such as the Monetary Authority of Macau and Social Security Fund, are also required to cut their supplementary expenditure according to yesterday’s government announcement.

‘The MSAR Government has to stress again that the territory’s finances are sound and that its comprehensive fiscal reserve system should suffice to cope with any ad-hoc incidents or economic fluctuations,’ the announcement read.

‘The austerity measures will not affect spending related to social welfare, including the cash-sharing plan for this year,’ the government said. ‘The measures will also not affect the public investment plan (PIDDA).’

The public investment plan refers to the major infrastructure projects here that usually absorb multiple years of government investment.

In March, the government amended the budget for fiscal 2015, downsizing its estimate for average monthly gross

gaming revenue from the original MOP27.5 billion to MOP20 billion.

Speaking to reporters on the sidelines of an event yesterday, the Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, said that with the latest implantation of the cost-cutting measures his departments are cutting non-essential items such as celebratory events, the reception of guests and overseas visits.

However, the government is yet to spend more on education and medical services, the Secretary stressed.

“The scale of the cost-cutting measures is still small, and what the government did is a necessary move, especially as the civil service units and their staff have expanded quite rapidly these years,” remarked Jenny Huang Bi Hong, assistant professor in public finance and taxation at the University of Macau. “But what the government needs to pay more attention to now apart from a continuous monitoring of gaming revenue decline – is the visitor arrivals here as their spending has also shown a drop recently,” Ms. Huang said. “That rings alarm bells that the government needs to hurry in searching for new economy growth points, and to better manage its financial resources to establish a sovereign fund.”

The government’s fiscal surplus was MOP27.2 billion (about US$3.4 billion) in the first seven months of this year, 59.1 per cent less than in the corresponding period a year earlier, the Financial Services Bureau says.

The contraction was mainly due to the decline in revenue from direct taxes on gaming, which have plunged 35.7 per cent year-on-year to MOP51.9 billion.

Corporate

MGM China picks up 2015 ASHRAE Technology Award

Melco Crown Entertainment reinforces responsible gaming culture

MGM China has been recognised by the American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE) for achievements in energy efficiency by being awarded the Regional Technology Award for the Asia Pacific Region for innovative energy conservation projects completed at MGM MACAU. The Award recognises the outstanding achievements

To reinforce and promote responsible gaming, Melco Crown Entertainment Limited (MCE) launched a companywide online quiz and set up game booths in its Heart of House employee facilities to strengthen the knowledge of responsible gaming of its employees.

A total of 9,600 Melco Crown Entertainment employees participated

by members who have successfully applied innovative building design in the areas of indoor environmental quality and energy conservation. Performance is measured through one year’s verified operating data following the design implementation. The ASHRAE Technology Awards presentation ceremony took place in Manila in the Philippines on August 22.

in the quiz. Ms. Serene Chan Ioc Sut, Head of the Research and Investigation Department of the Gaming Inspection and Co-ordination Bureau, said, “Gaming practitioners are at the forefront of identifying problem gaming and we are very supportive of gaming operators in strengthening their employees’ knowledge of responsible gaming.”

6 | Business Daily

September 2, 2015

Macau opinion

Double squeeze

José I. Duarte Economist

T

he Gross Domestic Product figures for the second quarter of the year confirm a severe contraction in the economy.

For the last four full quarters, the real rate of growth has been in negative territory.

For the last half year, the economy shrank by one quarter, give or take a few percentage points, compared with the same period last year. This is not a trivial oscillation. We are dealing with a neat recession.

If we look at the figures for the main driver of the economy, exports of services, the numbers are even starker. Exports of services are essentially gambling and satellite activities. Overall, those exports dropped by almost 36 per cent; in the particular case of gambling, which weights about half of the economy, the fall was greater than 40 per cent.

Growth-wise, if there is a silver lining in these figures, it ‘s hard to spot. Even investment, which was still growing at positive rates, had its homologous rate diving. The growth rate for construction, which stood above 50 per cent in the second quarter of last year, was at 5 per cent in the last quarter. The investment boom seems to have halted, reflecting a reassessment of growth trends by all the operators. Cotai 2.0 investment plans are inevitably under review.

The pressure put on the gambling sector to curtail grey flows of capital is taking a heavy toll; and pressing where it hurts.

The raid on UnionPay machines last week indicates the commitment to sustaining that pressure and does show no signs of relenting. Direct impact aside, the situation will contribute to further reducing the attraction of Macau as a destination, especially in the VIP segment. It is the visibility and excess of publicity for notso-appealing reasons; it is the risk of many enquiring eyes around and of calling for undesired attention.

Other clouds may be forming. Two events occupied much space in the media lately.

Neither is a harbinger of hope. Both the crash on the Shanghai Stock Exchange and the devaluation of the yuan have shown the authorities less self-assured that usual.

And their intervention wasn’t exactly successful. There are growing concerns that the Chinese economy is in less fair fettle than we were led to believe; and that the authorities may be over-stretching their control efforts. Should the next months, if not weeks, confirm these worries, economic confidence will take another blow.

Greater uncertainty about their future income will lead Chinese consumers to start reducing expenses in less essential types of goods and services. That would inevitably affect the number of visitors to Macau and the patterns of their expenditure, placing downward pressure also on the so-called mass market segment. The sector – by extension, the economy – could find itself gripped by a sort of tweezers. The Macau transition may take longer and be more painful than most expected and, indeed, all would desire.

Melco International H1 profit plunges 87.8 pct Acknowledging unfavourable marketing conditions in Macau’s gaming industry, the group nevertheless remains upbeat about the long-term and its strategy of enhancing global presence Joanne Kuai

joannekuai@macaubusinessdaily.com

M

eclo International Development Limited has announced its interim results for the six-month period ended 30 June, saying its profit attributable to owners was HK$111.1 million (US$14.3 million) in a filing with the Hong Kong Stock Exchange on Monday after trading hours. The number represents an 87.8 per cent decline from HK$907.6 million for the same period in 2014.

The company, chaired by Lawrence Ho Yau Lung, reported HK$212.6 million for the first six months of the year, an increase of 137.4 per cent from the same period of last year’s HK$89.6 million.

However, for the period under review, the Group’s attributable profit arising from its 34.29 per cent ownership of Melco Crown Entertainment amounted to approximately HK$220.4 million, which dipped 79.1 per cent from HK$1.06 billion from a year ago.

Unprecedented challenges

According to the unaudited results of Melco Crown Entertainment announced on 6 August 2015, it reported net revenue of US$1,971.0 million for the six-month period ended 30 June 2015 versus US$2,556.9 million in the six-month period ending 30 June 2014.

“The decline in net revenue was primarily attributable to lower rolling chip revenues and mass market table games revenues in Macau, partially offset by the net revenue generated by City of Dreams Manila, which started operations in December 2014,” explained Melco International in the Monday filing.

“In the near future, the gaming industry in Macau anticipates facing strong headwinds with market conditions expected to remain unfavourable,” group chairman and CEO of Meclo, Lawrence Ho, said in a statement. “Further support is expected from the government in line with its strategy to diversify Macau’s economy to non-gaming tourism facilities as part of the city’s evolution into a global tourism and leisure centre.”

Global market

Entertainment Gaming Asia (EGT), the Group’s 64.8 per cent-owned subsidiary, has an established presence in the gaming markets of Cambodia and the Philippines through its slot operations business. It recorded a consolidated revenue of US$15.9 million, up approximately 65.2 per cent yearon-year due to increases in both its gaming chip and plaque sales

and gaming operations revenue.

EGT posted a consolidated net income and Adjusted EBITDA of US$2.0 million and US$5.7 million, respectively.

Beyond Asia, the Group says it is also actively evaluating development opportunities and MelcoLot, a subsidiary of the Group, is looking specifically at a boutique casino project in Tbilisi, Georgia and a premium integrated resort project in Spain, close to Barcelona, as previously announced.

Opportunities from other countries such as Japan have been carefully considered. “Looking ahead, Melco will continue our vision of becoming a global market leader in the gaming, leisure and entertainment industry, striving for diversification and seizing opportunities in offering a wide spectrum of both gaming and nongaming business worldwide,” he said in the Monday filing.

In addition, despite the recent turbulence of the yuan devaluation, the company says it’s their policy that its operating entities operate in their corresponding local currencies to minimise currency risks and as the impact from foreign exchange exposure is minimal no hedging against foreign currency exposure is necessary.

Business Daily | 7

September 2, 2015

Macau

Ageas gets US$1.38 billion from Hong Kong sale to JD Capital Ageas first acquired a stake in the Hong Kong insurer in 2007 from Richard Li, whose Pacific Century Group agreed to pay US$2.14 billion for Amsterdam-based ING Groep’s life insurance units in Hong Kong, Macau and Thailand three years ago

A

geas SA agreed to sell its life insurance unit in Hong Kong to China’s JD Capital in its largest divestiture since the collapse of predecessor Fortis in 2008 as the Belgian insurer targets faster-growing markets in Asia.

JD Capital, also known as Beijing Tongchuang Jiuding Investment Management Co., will pay HK$10.7 billion (US$1.38 billion) for the local life insurance business, Brussels-based Ageas said in a statement Sunday. That’s about 1.27 times book value and will generate a gain of about 450 million euros (US$500 million) upon closing, based on figures at the end of June, the company said.

The sale of the Hong Kong business, its only fully owned unit in Asia, will allow Ageas to expand faster-growing partnerships in the region and generates additional cash for acquisitions or

increased distributions to shareholders. Ageas owns 24.9 per cent of China’s Taiping Life Insurance Co. and holds minority stakes in partnerships in Thailand and Malaysia. The insurer is also about to start operations in Vietnam and the Philippines through joint ventures with local banks.

“A disposal of Hong Kong will help management achieve the return-on-equity target of at least 11 per cent and will improve the balance between life and non-life,” Albert Ploegh, an analyst at ING Groep NV in Amsterdam, wrote in a note last month, when reports of a potential sale first emerged. “Moreover, Ageas doesn’t consider Hong

Kong as part of its emerging markets strategy.”

Ageas first acquired a stake in the Hong Kong insurer in 2007 from Richard Li, whose Pacific Century Group agreed to pay US$2.14 billion for Amsterdam-based ING Groep’s life insurance units in Hong Kong, Macau and Thailand three years ago.

That transaction valued the

businesses at about 1.9 times book value, ING said at the time.

Ageas’s life reserves in Hong Kong decreased to 3.1 billion euros at the end of June from 3.3 billion euros in the prior quarter. Customer inflows fell 3 per cent in local currency in the six months through June.

The transaction, scheduled to be completed in the first half of 2016, is JD Capital’s first insurance acquisition.

The deal will be subject to regulatory approvals, closing adjustments and shareholder approval at JD Capital, which is backed by Singapore’s Temasek Holdings Pte and Germany’s Allianz SE. Citigroup Inc. advised JD Capital on the deal, according to people familiar with the matter. Morgan Stanley worked with Ageas, the people said, asking not to be identified as the information is private.

Bloomberg

8 | Business Daily

September 2, 2015

Greater China

Latest factory and services data point to further slowdown Some analysts believe growth levels are already well below that, putting Beijing’s official target of 7 percent at risk

Surveys showed manufacturers were laying off workers at a faster rate as their order books shrank

A

ctivity in China’s factory sector shrank at its fastest rate in at least three years in August as domestic and export orders tumbled, increasing investors’ fears that the world’s secondlargest economy may be lurching toward a hard landing.

Even more worrying, China’s services sector, which has been one of the lone bright spots in the sputtering economy, also showed signs of cooling, a similar business survey said.

“Capital market turmoil has made Chinese businesses and consumers turn more

cautious,” Bill Adams, a senior economist at PNC Financial Services in Pittsburgh, said in reference to a 40-percent plunge in Chinese shares since mid-June.

Adams said China’s economy could grow around 6.5 percent in the secondhalf of the year, easing to 6.2 percent in 2016.

News of deteriorating business conditions set off fresh selling in Chinese shares, with the blue-chip CSI300 index tumbling 4 percent at one point, dragging down stocks across Asia as well as U.S. stock futures.

Analysts said the bleak readings affirmed bets that China, which has slashed interest rates five times since November, must loosen policy again soon to avert a sharper economic downturn that could weigh on global growth even as the U.S. central bank prepares to raise interest rates.

China’s official manufacturing Purchasing Managers’ Index (PMI) fell to

49.7 in August from 50.0 in July, the National Bureau of Statistics said yesterday. That was in line with a Reuters poll but the lowest since August 2012, and below the 50-point mark separating growth from contraction.

New orders - a proxy for domestic and foreign demand - fell to 49.7 in August from July’s 49.9. New export orders contracted for an 11th straight month.

A private survey by Caixin/Markit focusing on smaller factories pointed to an even sharper cool down, with the PMI dropping to 47.3, the worst reading since March 2009.

Both surveys showed manufacturers were laying off workers at a faster rate as their order books shrank.

Services firms losing steam

China’s services companies are also showing clear signs of fatigue, to the point where growth in that sector may no longer be enough to offset persistent factory weakness.

The official services reading cooled slightly to 53.4, while remaining well in expansion territory, but the private survey PMI fell sharply to 51.5, its lowest level since July 2014.

That dragged a composite PMI combining factory and services readings to below 50 for the first time since April 2014.

In another sign that economic weakness was spreading to the services sector, the Caixin/Markit services PMI showed the labour market deteriorated for the 22nd straight month in August. Employment in the services sector fell to 50.1, barely remaining in expansionary territory.

A flurry of earnings reports from top Chinese banks in the past week showed they were struggling with the slowest profit growth in at least six years and a jump in bad loans, and the slump in stock markets in recent weeks is likely to reduce contributions from the financial sector in coming months.

Reuters

Home prices rise for first time in 2015 Housing market has steadied in recent months after a year-long slump

C

hinese home prices rose in August for the first time this year compared with year ago levels, two private surveys showed yesterday, adding to signs of recovery in the property sector that could take some pressure off the slowing economy.

Prices of new homes in 288 cities rose an average 0.07 percent in August from a year earlier, the first year-on-year rise since November 2014, a poll by property services firm Real Estate Information Corporation (CRIC) showed.

With more supportive policies in place, we expect to see a gradual improvement in fundamentals in the second half of 2015 and maintain our positive view on the sector Barclays’ analysts note

Compared with July, home prices in August were up 0.5 percent, the fourth consecutive rise on a monthly basis, said CRIC, owned by E-House China Holding Ltd. A separate survey by property consultancy China Real Estate Index System(CREIS) showed average prices in the 100 biggest cities rose 0.15 percent from a year earlier, reversing a 10-month falling trend.

China’s housing market has steadied in recent months after a year-long slump, propped up by a barrage of government support

measures since last September, including a series of interest rate cuts and lower downpayment requirements.

Even a modest recovery in a sector that accounts for around 15 percent of GDP would be a welcome boost for an economy heading for its weakest growth in 25 years.

But analysts do not expect a full-blown recovery any time soon, noting a massive overhang of unsold homes will likely discourage fresh investment and new construction well into next year.

China cut downpayments again on Monday for some second home buyers who are funding their purchases with housing provident funds.

A latest Reuters survey showed Chinese home prices are expected to rise modestly this year thanks to government support measures for the sector.

The government is due to publish its August property price data for 70 major Chinese cities on September 18 after reporting its property sales and investment figures on September 13.

Reuters

Business Daily | 9

September 2, 2015

Greater China PBOC to clamp down on forwards trading to curb yuan depreciation

Exports to improve in August China’s economy is growing at a reasonable rate with exports improving in August from the previous month, the country’s top economic planning body said yesterday. Ning Jizhe, Vice Chairman of the National Development and Reform Commission(NDRC), told a briefing that recent pick-up in the housing market would help stabilise investment in the coming months. He suggested that investors should not only focus on China’s GDP growth rate but also should pay attention to China’s reform progress. The softness in China’s economic indicators in July mirrored normal fluctuation in activity as the economy is still stable, Ning added.

Banks will be required to keep the equivalent of 20 percent of their clients’ forex forwards positions in dollar reserves to be held for a year at no interest

C

hina’s central bank plans to tighten rules on trading of currency forwards from October, sources with direct knowledge of the matter told Reuters, in a move to curb speculation and volatility after a shock devaluation of the currency last month.

The People’s Bank of China (PBOC) has repeatedly intervened to stabilise the yuan since the August 11 devaluation - billed as free-market reform - sent shockwaves through global markets and depressed emerging currencies.

“The forwards move is yet another step to cushion unexpected strong expectations of yuan depreciation after the devaluation,” said a senior trader at a major European bank in Shanghai.

“Together with increased frequency of intervention in the spot market, this is another step backward for China’s currency reforms.”

The sources said the PBOC will require banks trading currency forwards to set aside reserves from October 15. Banks will be required to keep the equivalent of 20 percent of their clients’ forex forwards positions in dollar reserves to be held for a year at no interest, theay added.

The base for calculating reserves will be the nominal value of new contracts clients sign with banks to purchase dollars, or banks’ dollar sales to clients, traders said.

Excluding clients’ dollar sales to banks gives a clear signal the move is aimed at curbing the yuan’s depreciation expectations in derivative markets, they said.

The PBOC did not immediately respond to requests for comment.

Funds frozen, costs rise

The cost of betting on the yuan is presently low in the onshore market, traders said.

“Cost to buy dollars in the forward market will increase as banks will have to borrow money in the market to put as reserves in the central bank and they will transfer the cost to clients,” said a trader with a U.S. bank in Hong Kong who has seen the new PBOC document.

In the first seven months of this year, Chinese banks concluded new yuan/ foreign currency forwards contracts in which clients bought dollars totalling 1.175 trillion yuan (US$184 billion), State Administration of Foreign Exchange data showed.

There was recent speculation that China Unicom and China Telecom would merge

Beijing to push mergers by listed firms amid market rout Market speculation about possible mergers between state giants has focussed on energy

C

hina is urging listed companies to merge and restructure, according to an official statement, as the government seeks to avert a stock rout and encourage investors to return to the market.

China will strongly encourage mergers and acquisitions involving

listed firms to help push reform of state companies and inject vitality into the economy, said a joint statement released by four government agencies.

The notice also stressed measures to boost the stock market, including encouraging firms to pay cash

At this pace, roughly US$5.3 billion would be frozen each month once the new rules take effect. There are no such requirements for reserves in China’s local currency markets.

“They were moving towards market-oriented reforms. This is 10 steps back,” said a currency trader in Hong Kong.

The yuan weakened 2.6 percent in August, its worst monthly performance on record, raising concerns it could provoke capital flight even as China’s wider economy stumbles.

Beijing appears to have been surprised by the global reaction to its currency devaluation and has said it sees no reason for further yuan weakness. The PBOC has also tried to restore confidence through a mild public relations campaign explaining the reasoning behind its decision.

Reuters

dividends to optimise investor returns and encourage investors to hold stock for the long-term, and urging companies to buy back their own stock -- which should see prices rise.

Global markets have swung wildly on fears about slowing growth in China, the world’s second-largest economy.

China last year announced a combination of its top two train makers, state-owned China CNR Corp. and CSR Corp., into a single huge conglomerate -- sending their shares soaring.

Market speculation about possible mergers between state giants has since focussed on energy, shipping and telecommunications.

But energy giant Sinopec has denied reports that the government was planning to merge the firm with another domestic energy behemoth, China National Petroleum Corp.

Bloomberg News reported last month that Beijing may merge two of its largest shipping companies, and there was recent speculation that top telecom firms China Unicom and China Telecom would merge as the government swapped the two companies’ chairmen.

China will simplify mergers and acquisition approvals, expand ways for companies to fund deals, and push banks to finance cross-border mergers, the government agencies’ statement said.

State media reported in April that the official Assets Supervision and Administration Commission, which manages state firms under the direct supervision of the central government, was considering merging scores of the biggest such enterprises to create around 40 national champions from the existing 111.

AFP

Foxconn cancels investment in Indonesia Taiwan’s Foxconn Technology Group, the world’s biggest electronic components maker, has cancelled plans to invest in a factory in Indonesia, Kontan daily reported yesterday, citing the head of an Indonesian business chamber. Foxconn said last year it may invest US$1 billion in Southeast Asia’s biggest economy.

But the Apple supplier had decided not to go ahead because of land issues, Indonesian Chamber of Commerce and Industry Chairman Suryo Bambang Sulisto was quoted as telling the business daily, casting doubt on the company’s broader expansion plan in Indonesia.

110 bln yuan lent via medium-term lending facility Central bank said yesterday it had extended 110 billion yuan (US$17.27 billion) of loans to 14 financial institutions under a medium-term lending facility in August. The new loans, with a maturity of six months at an interest rate of 3.35 percent, are intended to ensure liquidity in the banking system. The total outstanding amount of such lending facility loans was 490 billion yuan at end-August, the central bank said.

German food exports to China surge 47 pct German food exports to China rose almost 47 percent in the first half of this year, the Federal Association of German Food and Drink Industries (BVE) said, despite a slowdown in Chinese economic growth.

The surge in food sales contrasted with a less than 1 percent rise in Germany’s total exports to China in January to June - the same as to crisis-burdened Greece - according to figures from the DIHK chambers of commerce. German dairy products are in especially high demand, said trade agency Germany Trade and Invest (GTAI)’s representative in Beijing, Stefanie Schmitt.

C entral bank to set up Latin America investment fund China’s central bank will establish a US$10 billion fund for investment in Latin American countries, it said in a statement on its website yesterday. The fund will be jointly managed by the central bank, policy lender China Development Bank and the country’s foreign exchange regulator. Areas in which the fund will invest include manufacturing, hi-tech, agriculture, energy and mining companies, as well as infrastructure projects.

10 | Business Daily

September 2, 2015

Greater China

Biggest policy bank readies war chest for resource deals Sources say government injected US$48 bln of capital into China Development Bank

T

he collapse in commodity prices has China on the prowl for acquisitions again, with the biggest policy lender joining statebacked oil giants and a gold miner in saying the time is ripe for deals.

Funds backed by the US$1.6 trillion China Development Bank Corp (CDB). are buying assets overseas in industries including energy and minerals, CDB Chief Investment Officer Fan Haibin said in an interview on Friday in Beijing.

Deals are aimed at securing resources rather than profits, he said. CDB isn’t making acquisitions directly, he added.

“The world economy remains in a trough, and some of the asset prices are very good,” Fan said without elaborating. “The timing for acquisitions is very good.”

China, just a few years ago the world’s dominant buyer of assets ranging from oilfields to copper mines, has been on the side-lines as concerns about its economic prospects clobbered commodities in the past year. Recent comments from PetroChina Co., China Petroleum & Chemical Corp. and Zijin Mining Group Co. suggest that could change.

Besides acquisitions through funds, CDB is providing “large” loans for some companies’ deals, Fan said. One objective is to bring new technologies and products to China, he said.

The Bloomberg Commodity Index, a basket of 22 major resource prices, has tumbled almost 30 percent in the past year.

Africa fund

CDB backs the China-Africa Development Fund, an Africafocused equity fund announced in 2006 by then-Chinese President Hu Jintao. Another example of where the policy bank’s money goes: a government-initiated fund to boost

The timing for acquisitions is very good Fan Haibin, Chief Investment Officer, China Development Bank

China Development Bank Tower

China’s integrated circuit industry.

That last venture, set up last year, has done deals abroad recently, according to Fan. Though oil’s plunge to six-year lows has spurred a raft of multibilliondollar acquisitions this year, Chinese companies haven’t featured among

the major buyers, data compiled

by Bloomberg show. Last year’s US$519 billion of energy-related deals announced globally was a record, according to the data.

“Low crude prices are a good opportunity for acquisitions,” Wang Dongjin, PetroChina’s president,

said at a briefing last week. Brent, the benchmark for about half the world’s crude oil, averaged about US$59 a barrel in the first half of the year, down 45 percent from the same period in 2014.

Zijin Mining, China’s most profitable gold producer, will use the slump in metals prices to accelerate overseas acquisitions, Chairman Chen Jinghe told Bloomberg Television in an interview in Shanghai that aired yesterday.

China’s government injected US$48 billion of capital into CDB, people familiar with the matter said in July, strengthening a lender that’s also accelerating domestic loans in support of Premier Li Keqiang’s efforts to arrest an economic slowdown. CDB had 10.3 trillion yuan (US$1.6 trillion) of assets as of December 31.

Fan didn’t provide data on his bank’s spending on overseas acquisitions. CDB bought a 3.1 percent stake in Barclays Plc in 2007 as the London-based company attempted to buy ABN Amro Holding NV. The policy bank’s current holding in Barclays isn’t publicly disclosed.

Bloomberg News

More than US$300 billion for improving power grid Government is aiming to increase the total length of its high-voltage transmission lines to 1.01 million km

C

hina will spend at least 2 trillion yuan (US$315 billion) to improve its power grid infrastructure over the 20152020 period, a report by a government newspaper said on Monday.

Despite falling power consumption growth, China is working to upgrade its crosscountry power transmission capacity in order to reduce coal consumption along the smog-hit eastern coast and provide markets for energy producers in the resource-rich far west, where electricity demand is considerably weaker.

It has already built longdistance ultra-high voltage power lines connecting giant thermal power and hydroelectric stations in the

west to eastern coastal regions like Shanghai.

The 2015-2020 investment is likely to provide a boost for sectors like copper.

Demand from the power sector accounted for nearly half of China’s estimated 8.7 million tonnes of refined copper consumption last year.

In a report published on the website of the National Energy Administration (NEA), China Electric Power News said the country was aiming to increase the total length of its high-voltage transmission lines to 1.01 million km by the end of 2020, more than double the 2014 level.

Citing a new government action plan, it said China would work to make prices more flexible in order to

reflect changes in costs and fluctuations in demand.

Wholesale and retail tariffs are currently set by the state.

Some regions are introducing “differential prices” for industrial consumers that fail to meet environmental targets, while power producers that have installed clean generation technology also receive a subsidy from the government.

The government adjusted tariffs in April this year following a rapid decline in the cost of coal, but it eventually aims to let the market decide, and is setting up spot electricity trading platforms that will allow generators and users to set tariffs themselves.

Reuters

Business Daily | 11

September 2, 2015

Asia

The Bank of Korea's growth forecast for this year is 2.8 percent

South Korea’s exports fall most in 6 years Inflation data out earlier in the day showed the central bank had room to cut its 7-day repurchase agreement rate further Christine Kim

S

outh Korean exports posted their worst fall in six years in August as global demand wobbled, prompting some investment banks to trim this year’s economic growth forecasts and call for another interest rate cut soon.

Exports slumped 14.7 percent on-year to US$39.3 billion, trade ministry data showed yesterday, marking the fastest decline since August 2009 and missing even the most pessimistic forecast in a Reuters survey of 15 analysts.

Australia and New Zealand Banking Group cut its forecast for South Korea’s

2015 economic growth by half a percentage point to 2.2 percent, which would be the slowest growth since 2009.

ING cut its projection to 2.3 percent from the previous 2.5 percent.

“We have been holding a view that the monetary policy stance of the Bank of Korea is data dependent and we believe that the extent of export plummeting is large enough to trigger another interest rate cut in September’s MPC,” ANZ said in a note to clients.

The Bank of Korea’s monetary policy committee next reviews its policy on September 11.

The Bank of Korea’s growth forecast for this year is 2.8 percent while the finance ministry set its goal at 3.1 percent, compared with last year’s 3.3 percent.

Inflation data out earlier in the day showed the central bank had room to cut its 7-day repurchase agreement rate further from the current record-low 1.50 percent, if needed, to shore up Asia’s fourth-largest economy.

The statistics agency said the consumer price index rose 0.7 percent in August from a year earlier, the same as in July and in line with the

market’s expectations. It was the ninth month in a row that annual inflation was below 1 percent.

A Nikkei/Markit survey also found yesterday that South Korea’s manufacturing activity contracted for a sixth consecutive month in August, and export orders received during the month shrank for the sixth month in a row.

Seoul’s financial markets shrugged off the broadly weak indicators as traders focused their attention on developments in the economies and markets of China and the United States.

The trade ministry data showed exports to China fell by 8.8 percent in August in annual terms - the worst since May 2014 - as explosions in Tianjin hobbled export shipments. Exports to the U.S. and EU also fell in August.

South Korea is the world’s first major exporting economy to report August trade figures, providing an early glimpse of the strength of the global demand. It is home to such global vendors such Samsung Electronics and Hyundai Motor.

Reuters

Abenomics fails to boost Japanese firms’ investment Excluding spending on software, capital expenditure fell a seasonally-adjusted 2.7 percent from the previous quarter Leika Kihara

J

apanese companies spent less on plant and equipment in AprilJune than in the previous quarter despite reaping record profits, a sign premier Shinzo Abe’s stimulus policies have failed to spur new investment key to ending nearly two decades of deflation.

Fears of a sharp slowdown in China and the recent market selloff may further dampen companies’ spending appetite and hurt Japan’s fragile recovery, analysts say.

Corporate spending on plant and equipment rose 5.6 percent in AprilJune from a year ago, slowing from a 7.3 percent gain in the first quarter, government data showed yesterday.

Excluding spending on software, capital expenditure fell a seasonallyadjusted 2.7 percent from the previous quarter after jumping 6.0 percent in January-March, marking the biggest fall in three years.

The slower spending by firms maintains pressure on policymakers to top up stimulus as persistent weakness in private consumption and exports add to worrying signs of a worsening slowdown in China, which have sent global markets into a tailspin in recent weeks.

“The corporate sector remains in good shape with falling oil costs and the weak yen driving up profits,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“But companies may postpone spending plans if exports remain weak.

With the economy at a standstill, the Bank of Japan may be forced to ease monetary policy in October,” he said.

Outlook gloomy

Given the slowdown in capital spending, many analysts expect April-June economic growth to be slightly downgraded when revised figures are due September 8.

KEY POINTS Q2 capex up 5.6 pct yr/yr vs +7.3 pct in Q1 Seasonally adjusted capex down 2.7 pct qtr/qtr Recurring profits up 23.8 pct yr/yr Economics Minister say capex recovery weak A preliminary estimate showed the world’s third-largest economy contracted an annualised 1.6 percent in April-June on soft exports and consumption.

Analysts expect any rebound in growth in the current quarter to be modest, partly as sluggish Asian demand weighs on exports.

Policymakers are clinging to hope that capital expenditure will serve as a driver of Japan’s recovery, but some lawmakers are already calling for additional fiscal or monetary measures to stoke growth.

Deploying further stimulus, however, may do little to help with companies continuing to hoard cash instead of spending.

Corporate recurring profits rose 23.8 percent in April-June from a year earlier at 20.3 trillion yen (US$168 billion), the highest level on record, the data showed.

“I think capex is still in recovery, but in light of the record profits that companies have seen, you can say the recovery is still weak,” Economics Minister Akira Amari told reporters after the data’s release.

Reuters

12 | Business Daily

September 2, 2015

Asia

Australia’s central bank keeps rates steady The economy is expected to grow a pedestrian 0.4 percent on the quarter Ian Chua

A

ustralia’s central bank kept interest rates at a record low yesterday in a widely expected decision ahead of GDP data that is likely to show economic growth shifted a gear lower in the second quarter.

The Reserve Bank of Australia (RBA) left the cash rate at 2.0 percent, where it has been since May. It cemented its wait-and-see stance by repeating that it would assess upcoming economic data to judge the impact of past easings.

“In Australia, most of the available information suggests that moderate expansion in the economy continues,” the central bank said in a short postmeeting statement.

The RBA gave no fresh guidance on the rates outlook, as it normally does after a ‘no change’ decision, leaving markets with little to act on.

The RBA appeared comfortable with the level of the Australian dollar, reiterating that it is “adjusting to significant declines in key commodity prices.”

The RBA noted a recent spike in global stock market volatility triggered by “developments in China”, but offered no insights.

“The main surprise is that despite all the volatility in financial markets over the last few weeks and the

KEY POINTS RBA leaves cash rate unchanged at record low 2.0 pct No fresh guidance on rates outlook Net exports to slice 0.6 ppts off Q2 GDP

heightened worries over China, there is not more reference to that,” said Shane Oliver, chief economist at AMP Capital Investors.

GDP next

The rate decision came just hours after data from the Australian Bureau of Statistics (ABS) showed net exports will take a bigger bite out of second quarter gross domestic product (GDP) than initially expected.

But this is mostly offset by a surprisingly solid rise in government spending and investment.

According to the ABS, net exports should detract 0.6 percentage points from GDP as export volumes retraced after the recent boom. The market consensus had been for a smaller 0.3 percent detraction.

“The slowdown in China and the fall-out in Asia should continue to weigh on export volumes,” analysts at Citi wrote in a note to clients.

In contrast, government consumption rose 2.2 percent, driven by defence spending, while investment jumped 4.0 percent.

The strong public sector demand

could have saved GDP from turning negative in the second quarter, a few analysts said. The GDP report is due today.

The economy is expected to grow a pedestrian 0.4 percent on the quarter, taking the annual rate down to 2.2 percent from 2.3 percent - the slowest since third-quarter 2013.

Such an outcome would come as no surprise to the RBA, which is forecasting GDP growth of between 2 and 3 percent over the year to June 2016.

Reuters

Vietnam eases foreign ownership caps on some stocks A decree says full foreign ownership is allowed in areas government has committed in unspecified international agreements to liberalising My Pham

L

ong-awaited new rules allowing foreigners to take bigger stakes in Vietnamese equities took effect yesterday, but confusion over which sectors are eligible could dim their investor appeal.

The move to allow foreign shareholdings of up to 100 percent in some firms, versus the previous 49 percent ceiling, is one of the most liberal measures yet adopted as Vietnam pursues broad economic reform.

Vietnam is also bidding to have its VN Index included in MSCI’s emerging market

index, increasing its appeal to a wider range of investors.

The VN Index is the only Southeast Asia gauge to have gained this year and “stands out in Asia”, investment advisor Marc Faber, writer of the Gloom, Boom & Doom Report, told CNBC recently.

But with the government yet to provide detailed guidance on which sectors are restricted and which will be opened, investors say Vietnam’s “grand opening” is unlikely to raise pulses.

The delay in raising the foreign ownership ceiling has frustrated investors keen to tap Vietnam’s potential.

Now they must contend with rules that appear complex, vague and could cause regulatory overlaps with sector-specific legislation, banking for example.

Except sectors carrying conditions on foreign investments, the decree says full foreign ownership is allowed in areas Vietnam has committed in unspecified international agreements to liberalising - unless subject to other laws.

In a research note, Vietnamese fund Dragon Capital said the easing of restrictions would effectively be staggered while regulators classify

Foreign investors only care when the new rules are actually implemented, not a promise to implement Le Anh Tuan, chief investment officer, Dragon Capital

dozens of sectors, muddied by multilateral trade deals under negotiation.

But where there’s clarity, there have been big gains.

Shares in top insurer BaoViet Holdings soared 65 percent over a twoweek period in July to a high of over three years after the finance minister said insurers would have no foreign ownership ceiling.

Top broker Saigon Securities Incorp climbed 6.64 percent on Friday after the State Securities Commission (SSC) confirmed it could remove foreign limits.

Reuters

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Business Daily | 13

September 2, 2015

Asia India’s slower-than-expected growth boosts rate cut calls While the RBI has not ruled out further monetary easing, it has tied future rate cuts to the inflation outlook Rajesh Kumar Singh

I

ndian growth slowed by more than expected in the quarter to June, a setback for Prime Minister Narendra Modi that will prompt more urgent calls from his aides for interest rate cuts.

Many government officials in New Delhi had been talking of taking the baton of global growth in the wake of a deepening economic crisis in China.

However, government data showed gross domestic product expanded at an annual 7 percent rate in the AprilJune quarter, matching China, but slower than provisional growth of 7.5 percent in the previous quarter.

While doubts still persist over India’s new way of calculating GDP, even though the method gained an endorsement from the World Bank’s chief economist, there is no denying the fact that the economy is still struggling to gather steam.

“There’s a lot of emphasis that’s being put on the opportunities that lie ahead for India and not too much attention is being paid to the challenges that remain today,” Jyotinder Kaur, principal economist at HDFC Bank.

It is also a blow for Modi whose image as the country’s economic saviour has taken a beating after his struggle to pass his legislative agenda.

Modi swept to power last year on a promise of speedier growth creating millions of manufacturing jobs. But just 15 months after that electoral triumph, disenchantment has set in.

Businesses as well as young Indians are getting restless with slow progress on the ground.

“We need to move this (GDP) figure up given the imperative of employment generation,” said Jyotsna Suri, head of a local industry chamber, FICCI. A 22-year-old activist has stirred upheaval in Modi’s home state Gujarat, accusing the Indian leader of breaking the promise to provide jobs.

Rate cut?

The latest data will also strengthen the calls from Modi’s administration for a rate cut. Some bureaucrats are already arguing for an immediate cut of as much as 50 basis points in the Reserve Bank of India’s (RBI) main 7.25 percent policy rate.

The RBI has cut the policy repo rate 75 basis points since January.

But it left the rate on hold at its last policy review early this month.

“In our view, (it) clearly paves the way for two more repo rate cuts before the close of the financial year,” said Kaur of HDFC Bank.

Many in the government are worried that growth could slip below the official target of 8 to 8.5 percent for the year to March, and see the RBI’s caution as worsening the situation.

Warning signals are already visible as infrastructure output grew just 1.1 percent year-onyear in July, its slowest pace three months. The sector accounts for nearly 38 percent of India’s industrial production.

The slowdown in the last quarter was primarily on account of a weak showing from the services sector that accounts for more than half of the US$2 trillion economy. The sector grew an annual 8.3 percent compared with a 10.2 percent rise in the March quarter.

Reuters

Indonesia’s August inflation cools Bank Indonesia sees inflation easing further to around 4 percent in November when a fuel price hike in 2014 affects base comparisons

I

KEY POINTS August CPI +7.18 pct vs +7.43 pct in Reuters poll Core Aug CPI +4.92 pct vs +4.87 pct in Reuters poll

the fragile rupiah, emerging Asia’s second-worst performing currency, which has slumped to 17-year lows.

The rupiah has weakened more than 12 percent against the dollar this year, which Taloputra said was the main cause core inflation rose to 4.92 percent year-on-year in August from 4.86 percent in July.

Thailand’s military government approved yesterday economic measures aiming at boosting spending power in rural areas, as the junta is struggling to lift economic growth, Industry Minister Atchaka Sibunruang told reporters. The government has said the measures to help low-income earners will include soft loans via village funds and speedy disbursement for smaller projects.

Japanese finmin suggests discussion on China at G20 Japanese Finance Minister Taro Aso said yesterday it would be beneficial for this week’s meeting of the Group of 20 major economies to discuss what is going on in China’s economy. China is Japan’s biggest trading partner. Aso, speaking to reporters after a cabinet meeting, did not specify what he wanted to discuss about China, but said any talks should be frank. The minister and Bank of Japan Governor Haruhiko Kuroda will attend the Sept. 4-5 gathering in Ankara. Aso said Japan’s economy was unlikely to suffer any immediate shock from China’s economic slowdown.

Foreign tourist arrivals to Indonesia rise Indonesia’s foreign tourist arrivals rose 4.76 percent in July from a year earlier, after falling 4.27 percent year-on-year in June, the statistics bureau said yesterday. Data showed 814,200 tourists visited Indonesia in July, down from 815,100 in June.

President Joko Widodo wants Southeast Asia’s largest economy to attract 20 million tourists a year by the end of his term in 2019, from 9.44 million in 2014. Widodo has promised to waive visa requirements for visitors from dozens of countries, including Germany, Japan, South Korea, the United States, and Britain.

Philippines electronics body slashes 2015 growth forecast

Nilufar Rizki and Gayatri Suroyo

ndonesia’s inflation rate cooled in August in a rare bit of welcome news for the central bank, but economists say policy uncertainty in China and the United States is likely to keep policymakers from cutting interest rates any time soon.

Annual inflation eased to 7.18 percent in August from 7.26 percent in July, data from the statistics bureau showed yesterday. A Reuters poll had predicted inflation would pick up to 7.43 percent.

“This is a positive development for the central bank, but this won’t change the level of BI’s benchmark rate. Its focus remain on external issues like yuan devaluation, Fed rate hike, and falling commodity prices,” said Aldian Taloputra, an economist with Mandiri Sekuritas in Jakarta.

Bank Indonesia (BI) has said the inflation rate reached its peak in July and would start to decelerate. It sees inflation easing further to around 4 percent in November when a fuel price hike in 2014 affects base comparisons.

But the central bank has signalled there will be no more monetary easing until global financial uncertainty eases.

BI said the current focus of monetary policy was supporting

Thailand approves stimulus measures

Electronic exports this year will probably be weaker than previously thought as demand from major trading partners remain sluggish, an electronics industry group said yesterday. The Semiconductor and Electronics Industries in the Philippines (SEIPI) slashed its 2015 exports growth forecast to 0-4 percent from the 3-5 percent estimate made in July. It originally projected a 5-7 percent growth this year. “(The forecast) is driven by weak global economy led by China. The United States and Japan have not recovered either,” Dan Lachica, president of SEIPI, said in an email.

With inflation still elevated, BI seen unlikely to cut rates

Sri Lanka convenes new parliament

BI has also said it would be difficult to raise its benchmark rate to attract portfolio inflows due to concerns over economic growth, which hit a six-year low in the second quarter.

However, ING Financial Markets said ahead of the inflation data that BI could cut the key policy rate held at 7.50 percent since February - by 25 basis points when inflation actually cools to BI’s target range of 3-5 percent.

“Until then, growth will remain under pressure from tight monetary conditions,” ING said in its research note.

Sri Lanka’s new parliament convened for the first time yesterday after the ruling United National Party (UNP) won a parliamentary election last month. Senior UNP member, Karu Jayasuiya was elected as the speaker of parliament after his name was proposed by Prime Minister Ranil Wickremesinghe and seconded by the opposition Sri Lanka Freedom Party (SLFP) member Nimal Siripala de Silva. The newly-elected 225 members of parliament later took oaths before the new speaker and convened parliamentary sessions. Despite the united government concept, a new cabinet is yet to be sworn in after conflicts have arisen over ministerial portfolios.

Reuters

14 | Business Daily

September 2, 2015

International

Euro zone factory growth eases An earlier PMI from Germany, Europe’s largest economy, jumped to 53.3 from July’s 51.8

Lagarde notes weaker than expected global growth Global economic growth is likely to be weaker than earlier expected, the head of the International Monetary Fund said yesterday, due to a slower recovery in advanced economies and a further slowdown in emerging nations. IMF Managing Director Christine Lagarde also warned emerging economies like Indonesia to “be vigilant for spill overs” from China’s slowdown, tighter global financial conditions, and the prospects of a U.S. interest rate hike. The IMF in July forecast global growth at 3.3 percent this year, slightly below last year’s 3.4 percent.

E

uro zone manufacturing growth eased last month, despite factories barely raising prices, adding to the European Central Bank’s woes as it battles to spur expansion and inflation, a survey showed.

Yesterday’s disappointing readings come almost half a year after the ECB began pumping 60 billion euros a month of fresh cash into the economy and a day after official data showed inflation in the 19-country bloc at just 0.2 percent.

With inflation so far below the ECB’s 2 percent target ceiling there is a growing chance the ECB will have

to extend its stimulus programme beyond the planned completion in September 2016.

Markit’s final manufacturing Purchasing Managers’ Index was 52.3 last month, below an earlier flash reading that suggested it had held steady at July’s 52.4. It has, however, been above the 50 mark that separates growth from contraction for over two years.

An index measuring output that feeds into a composite PMI, due on Thursday and seen as a good guide to growth, rose to 53.9 from 53.6, above the preliminary 53.8 reading.

“By nation, the Netherlands,

Italy and Ireland remained the most impressive performers,” said Rob Dobson, senior economist at Markit. “Although there were signs of manufacturing growth cooling in these countries, this was largely offset by a solid acceleration in Germany, suggesting that the region’s industrial powerhouse is taking on more of the growth strain.”

An earlier PMI from Germany, Europe’s largest economy, jumped to 53.3 from July’s 51.8.

The sub-index covering output prices in the euro zone nudged up to 50.5 from 50.4, below the flash 50.7.

Reuters

Cameron promises tough fines for not paying minimum wage British Prime Minister David Cameron said yesterday he would introduce tough fines for company bosses who fail to pay the so called ‘national living wage’ which will hit 9 pounds (US$13.86) an hour by the end of the decade. The current minimum wage for those aged 21 and over is 6.50 pounds an hour and will rise to 6.70 pounds in October. Osborne said that from April 2016 employers will have to pay a ‘national living wage’ of at least 7.20 pounds to over-25s.

US court backs Argentina in asset seizure appeal A US appeals court supported Argentina’s appeal against an earlier ruling that could have permitted a group of creditors to seize assets of Argentina’s central bank. The US Court of Appeals in Manhattan said the September 2013 ruling by District Judge Thomas Griesa that allowed exceptions to the sovereign immunity claims of the Central Bank of Argentina were in error. Griesa, who has consistently backed New York hedge funds in their 10-year campaign to claim payment on long-defaulted Argentine bonds, had opened the door for them to seize funds of the central bank held in US banks in lieu of payment.

Ex-US special agent pleads guilty to taking US$800k in Bitcoin A former US Secret Service special agent pleaded guilty to taking more than US$800,000 of electronic Bitcoin currency while investigating the “Silk Road” online black market, the Justice Department said. The “Silk Road” was a website where sometimes illegal transactions could be conducted secretly in Bitcoin. The site’s creator was sentenced to life in prison in May for charges including money laundering and drug and drug trafficking. Former Secret Service member Shaun Bridges, 32, pleaded guilty to money laundering and obstruction of justice over taking the Bitcoins while assigned to an electronic financial crime unit during the investigation.

Ivory keeps growth targets and peg to euro The stability from the euro peg has made it easier to keep investors in Ivory Coast

I

vory Coast’s economy has benefited from the stability of a currency pegged to the euro and has so far escaped any fallout from the economic slowdown in China, Prime Minister Daniel Kablan Duncan said.

“There is no fear” about any major pressures being exerted on the CFA franc, the currency used

by Ivory Coast and 13 other smaller African economies, Duncan said in an interview in Abidjan, the commercial capital, on Monday. The common currency “is beneficial for our economies. Those who have tried their own money have had some upsand-downs with some difficulties.”

The stability from the common currency has made it easier to keep investors in Ivory Coast, avoiding the sell-off in emerging market assets sparked by the surprise decision

by China to devalue its yuan in August. The move, which fuelled concern authorities are struggling to combat a slowdown in the world’s second-largest economy, prompted Kazakhstan to abandon its currency

peg and intensified speculation that African nations would do the same.

The CFA franc has depreciated 8 percent against the dollar this year, compared with the 24 percent decline in the Ugandan shilling and 29 percent plunge in the Zambian kwacha, Africa’s worst-performers.

Double-digit growth

Ivory Coast’s economy is forecast to expand 10 percent this year and the next as the nation prepares for presidential elections in October, Duncan said. China is the nation’s third- largest trade partner, after Nigeria and France.

With elections scheduled for October, the government is committed to avoiding the upheaval that rocked the 2010 vote. Then-President Laurent Gbagbo refused to concede defeat to Alassane Ouattara who won the vote. More than 3,000 people were killed over five months and Ivory Coast defaulted on debt before the crisis ended with the capture of Gbagbo, who is facing trial at the International

Criminal Court in The Hague. Ouattara is running for re-election in October.

Investors have shown their confidence in Ivory Coast, where the nation’s bonds are outperforming its peers, said Duncan.

The yields on Ivory Coast’s US$1 billion of international bond due July 2024 have risen 74 basis points to 6.84 percent since the end of April, almost half of the amount of Ghana’s US$1 billion, 2023 Eurobonds. Ivory Coast’s dollar debt has fallen 3.8 percent in that period, compared to a 2.4 percent loss for emerging markets, according to data compiled

by Bloomberg.

“The figures related to the Eurobond speak for themselves,” said Duncan, 72. “I can understand that some people fear for the coming election, but we have taken the necessary steps for that and we’ll have an open, transparent and peaceful election next October.”

Ivory Coast will produce about 1.7 million metric tons of cocoa in the season that ends on September 30, he said. The nation produced 1.74 million tons last season. The regulator will raise farm gate prices paid to farmers above the 850 CFA francs for this season, he said. He declined to say by how much.

The government will make a decision about selling new debt domestically or abroad before the end of the year, he said. Ivory Coast’s budget minister said in an interview in May it was considering selling sukuk and debt on regional markets.

Bloomberg News

Business Daily | 15

September 2, 2015

Opinion Business

wires

Automation, productivity, and growth

Leading reports from Asia’s best business newspapers

Michael Spence

Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution

TAIPEI TIMES Financial Supervisory Commission Chairman William Tseng said that the commission will not rule out lifting a ban on the shortselling of stocks at less than the previous day’s closing prices, as the local stock market is regaining strength.

However, Tseng said that a few more days of observation is needed before scrapping the ban, depending on the TAIEX’s trading prices and turnout. “The ideal turnover is about NT$12 billion per day,” Tseng said. The regulator had imposed a ban on short-selling after the TAIEX fell below the 10-year moving average of 7,800 points on August 21.

THE AGE Australia’s top 200 companies are on track to pay out a record A$81.8 billion this financial year, shrugging off earnings downgrades in the wake of a downbeat profit season to boost their returns to shareholders. The forecast dividend total for 2015-16 represents a 5.4 per cent increase on the A$77.6 billion paid out in 2014-15 which includes the impact of dividend reinvestment plans, according to research by Credit Suisse.

The pace of dividend growth is also accelerating, given 201415 payments were 4.7 per cent ahead of 2013-14’s total.

THE PHNOM PENH POST The Ministry of Commerce has announced a program that will allow approved exporters to use their invoices to selfcertify their products’ origin, removing the need to apply directly to the ministry each time a company needs to ship goods from Cambodia. Under the new self-certification initiative announced on August 13, exporters must meet a range of criteria, including experience in exporting to multiple destinations and a clean record of doing business in the Kingdom, according to a Prakas released by the Commerce Ministry.

PHILSTAR The Philippine property developers including the biggest names in the industry see a slowdown in their business this year because of the stricter guidelines on advertisements issued by the Housing and Land Use Regulatory Board’s (HLURB).

This would be the first year of implementation of the new guidelines, approved in December 2014 and which took effect in February 2015.

“The new rules…it’s killing the industry,” said a ranking executive from a major property player. The executive said the requirements have clipped the marketing efforts of property companies and have slowed down the launch of their new projects.

I

t seems obvious that if a business invests in automation, its workforce – though possibly reduced – will be more productive. So why do the statistics tell a different story?

In advanced economies, where plenty of sectors have both the money and the will to invest in automation, growth in productivity (measured by value added per employee or hours worked) has been low for at least 15 years. And, in the years since the 2008 global financial crisis, these countries’ overall economic growth has been meagre, too – just 4% or less on average.

One explanation is that the advanced economies had taken on too much debt and needed to deleverage, contributing to a pattern of public-sector underinvestment and depressing consumption and private investment as well.

But deleveraging is a temporary process, not one that limits growth indefinitely. In the long term, overall economic growth depends on growth in the labour force and its productivity.

Hence the question on the minds of politicians and economists alike: Is the productivity slowdown a permanent condition and constraint on growth, or is it a transitional phenomenon?

There is no easy answer – not least because of the wide range of factors contributing to the trend. Beyond publicsector underinvestment, there is monetary policy, which, whatever its benefits and costs, has shifted corporate use of cash toward stock buy-backs, while real investment has remained subdued.

Meanwhile, information technology and digital networks have automated a range of white- and blue-collar jobs.

One might have expected this transition, which reached its pivotal year in the United States

Organizations, businesses, and people all have to adapt to the technologically driven shifts in our economies’ structure

in 2000, to cause unemployment (at least until the economy adjusted), accompanied by a rise in productivity. But, in the years leading up to the 2008 crisis, US data show that productivity trended downward; and, until the crisis, unemployment did not rise significantly.

One explanation is that employment in the years before the crisis was being propped up by credit-fuelled demand.

Only when the credit bubble burst – triggering an abrupt adjustment, rather than the gradual adaptation of skills and human capital that would have occurred in more normal times – did millions of workers suddenly find themselves unemployed. The implication is that the economic logic equating automation with increased productivity has not been invalidated; its proof has merely been delayed.

But there is more to the productivity conundrum than the 2008 crisis. In the two decades

that preceded the crisis, the sector of the US economy that produces internationally tradable goods and services – one-third of overall output – failed to generate any increase in jobs, even though it was growing faster than the non-tradable sector in terms of value added.

Most of the job losses in the tradable sector were in manufacturing industries, especially after the year 2000. Although some of the losses may have resulted from productivity gains from information technology and digitization, many occurred when companies shifted segments of their supply chains to other parts of the global economy, particularly China.

By contrast, the US non-tradable sector – two-thirds of the economy – recorded large increases in employment in the years before 2008. However, these jobs – often in domestic services – usually generated lower value added than the manufacturing jobs that had disappeared. This is partly because the tradable sector was shifting toward employees with high levels of skill and education.

In that sense, productivity rose in the tradable sector, although structural shifts in the global economy were surely as important as employees becoming more efficient at doing the same things.

Unfortunately for advanced economies, the gains in per capita value added in the tradable sector were not large enough to overcome the effect of moving labour from manufacturing jobs to nontradable service jobs (many of which existed only because of credit-fuelled domestic demand in the halcyon days before 2008). Hence the muted overall productivity gains.

Meanwhile, as developing economies become richer, they, too, will invest in technology in order to cope with rising

labour costs (a trend already evident in China). As a result, the high-water mark for global productivity and GDP growth may have been reached.

The organizing principle of global supply chains for most of the post-war period has been to move production toward lowcost pools of labour, because labour was and is the least mobile of economic factors (labour, capital, and knowledge).

That will remain true for highvalue-added services that defy automation. But for capitalintensive digital technologies, the organizing principle will change: production will move toward final markets, which will increasingly be found not just in advanced countries, but also in emerging economies as their middle classes expand.

Martin Baily and James Manyika recently pointed out that we have seen this movie before.

In the 1980’s, Robert Solow and Stephen Roach separately argued that IT investment was showing no impact on productivity. Then the Internet became generally available, businesses reorganized themselves and their global supply chains, and productivity accelerated.

The dot-com bubble of the late 1990s was a misestimate of the timing, not the magnitude, of the digital revolution. Likewise, Manyika and Baily argue that the much-discussed “Internet of Things” is probably some years away from showing up in aggregate productivity data.

Organizations, businesses, and people all have to adapt to the technologically driven shifts in our economies’ structure. These transitions will be lengthy, rewarding some and forcing difficult adjustments on others, and their productivity effects will not appear in aggregate data for some time. But those who move first are likely to benefit the most.

Project Syndicate

16 | Business Daily

September 2, 2015

Closing Chinese government cuts retail fuel prices

Brokerages increase mainland stock buying funds

China announced yesterday that it will cut the retail prices of gasoline and diesel from Wednesday, tracking a continuing slide in global crude prices. The National Development and Reform Commission (NDRC), the nation’s top economic planner, said retail prices of gasoline will fall by 125 yuan (US$19.6) per tonne, or 0.09 yuan per litre, while that of diesel will drop by 120 yuan per tonne, or 0.1 yuan per litre. This is the sixth cut since June and the ninth of the year. Under an oil pricing policy in place since the start of 2013, the NDRC can adjust the price every 10 working days based on changes in the global market.

Several leading Chinese brokerages said yesterday that they will increase the size of their proprietary stock trading - answering Beijing’s call for listed firms to bolster their backing for struggling stock markets. Guotai Junan Securities Co, Changjiang Securities and Pacific Securities all said they will increase the size of their equity trading funds to 20 percent of net assets, up from 15 percent currently, in announcements posted on exchange websites in Shanghai and Shenzhen. Orient Securities also said it would use 20 percent of net assets to invest in equities, while Western Securities said it would increase its trading fund size to 9.5 billion yuan.

Yuan depreciation ends “free lunch” offered by structured products Structured products have been prevalent among foreign investors since late 2012 thanks to steady gains the yuan made against the U.S. dollar Michelle Chen

T

he yuan’s depreciation last month has greatly dampened the appetite for yuan structured products, as investors who bet on the currency’s appreciation using these products face hefty losses.

Thankfully for them, the yuan has shown signs of stabilising, but if it returns to lows of 6.6 per dollar and beyond almost all investors holding these derivative contracts will be liable to burgeoning monthly payments to their bank counter-parties.

Many banks have revised down their forecasts for the onshore yuan’s performance, with some expecting it to fall to 6.6 per dollar by the end of this year and 6.8 by 2016.

The onshore yuan traded at 6.3673 per dollar yesterday, compared to the offshore yuan at 6.4140.

Some analysts doubt whether the yuan structured products pose any systemic risk, but there is potential for the negative effects to spill in other areas such as cross currency swap (CCS) and dim sum bond markets in Hong Kong.

These structured products, including Targeted Accrual Redemption Note (TARN) and Targeted Redemption Forward (TRF), have been

prevalent among foreign investors since late 2012 thanks to steady gains the yuan made against the U.S. dollar.

Companies relied on them to hedge currency risk initially, but as the yuan mostly had kept its strength against the dollar, they gradually increased leverage ratios to make easy money.

“The yuan had a virtual peg to the U.S. dollar since 2009 which made it a popular investment currency.

However, the free lunch is over,” said Andrew Fung, head of global banking and markets at Hang Seng Bank.

“There’s no appetite for yuan structured products now as the fundamental, namely stable FX and interest rate differentials, to invest in yuan

products have disappeared,” said Fung.

The offshore spot CNH tumbled 5.8 percent to as low as 6.6 per dollar a day after the PBOC depreciated yuan on August 11, weaker than knockout rate agreed in many structured contracts in the yuan market as nobody had expected such a big devaluation.

“All structured products that use carry trade have been affected by the yuan depreciation,” a trader at an American bank in Hong Kong.

“And, the biggest shock is to TARN products as investors have become out of the money now,” he added, meaning investors were having to make monthly payments to the banks.

In the TARN market where traders estimate the size is around US$35 billion,

banks offer investors steady cash flows as long as CNH spot is stronger than the knockout rate. If the CNH rate is weaker, however, investors have to pay banks until their contract terminates.

Tenors of TARN products are usually one to two years, which means investors that entered into these contracts last year around 6.2-6.3 per dollar are set to suffer big losses, especially if they borrowed the funds to speculate, traders say.

In Taiwan, estimated unrealised loss for two popular derivatives - targeted redemption forward (TRF) and discrete knock out (DKO) - was put at about US$1.5-1.6 billion, local Economic Daily News cited an official from the Financial Supervisory Commission (FSC) as saying.

India accuses Google of abusing search dominance

HK buys US$800 million to keep the city’s currency pegged

German unemployment at record lows

C

H

G

ompetition authority has accused Google of abusing its dominant position in online search, people with knowledge of the matter said, which if proven could force the U.S. company to alter its practices in a key market or even pay a big fine.

A preliminary report from the Competition Commission of India (CCI), a quasi-judicial regulatory body, found fault with Google’s handling of its online advertising services and search results, said the people.

Google, which just last month appointed Indiaborn Sundar Pichai as its new CEO, is already facing a billion-euro fine from the European Union after accusations the company cheated competitors by distorting Internet search results in favour of its shopping service. Google has rejected those charges.

The Indian regulator first began investigating Google in 2012, and a preliminary report was submitted to the top CCI officials about six months ago. The findings of that report have been mentioned in the local media in the last few days. The CCI is expected to make a final ruling after a hearing on September 17, where Google will present itself before a seven-person CCI panel, the people said.

Reuters

ong Kong’s de facto central bank stepped in for the first time in more than four months to prevent the city’s currency from breaking out of the strong end of its pegged range against the U.S. dollar.

The Hong Kong Monetary Authority said it bought US$1.2 billion late yesterday at HK$7.75 a dollar, the upper limit of a band that triggers intervention, taking today’s injection to US$2 billion. It last intervened in April, buying US$9.2 billion in total during the month. The HKMA “will monitor the market developments closely and maintain the stability of the Hong Kong dollar,” it said in a statement.

Hong Kong’s dollar is drawing funds as last month’s surprise yuan devaluation and the prospect of higher U.S. interest rates push currencies lower across Asia’s developing economies. The weakening of the yuan was followed by exchangerate shifts in Kazakhstan and Vietnam, making investors nervous about regime changes in other currencies.

The city linked its currency to the U.S. dollar in 1983, when negotiations between China and the U.K. over Hong Kong’s return to Chinese rule spurred an exodus of capital.

Bloomberg News

Reuters

erman unemployment remained at historically low levels in August as the recovery in Europe’s biggest economy continued on track, data showed yesterday.

The number of people registered as unemployed in Germany fell by a seasonally-adjusted 7,000 to 2.79 million, the lowest level since December 1991, the Federal Labour Office said.

That was slightly more than expected, as analysts had been pencilling in a decline of around 5,000.

The unemployment rate -- which measures the jobless total against the working population as a whole -- stood at 6.4 percent in August, unchanged from July and the lowest level since west and east Germany reunited in 1990 after the fall of the Berlin Wall the previous year.

In raw or unadjusted terms, the jobless total increased by 22,900 to 2.796 million and the unemployment rate edged up to 6.4 percent in August from 6.3 percent in July, the labour office noted.

But unemployment tends to rise in the summer months as school leavers sign on for the summer holidays. Growth of German domestic product (GDP) picked up in the second quarter, the labour office said.

AFP