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China’s NSSF invests nearly $1 billion in infrastructure fund
Asset Management
<p>China’s National Council for Social Security Fund (NSSF) seems to be betting big on a rise in infrastructure spending, as China Money Network reports:<br /> “China's National Council for Social Security Fund (NSSF) has agreed to commit RMB6 billion (US$938 million) to an infrastructure investment fund launched by China Communications Construction Company (CCCC), according to a securities filing.</p> <p>CCCC launched the vehicle, which has total capital commitment of RMB15 billion (US$2.35 billion), in February with its subsidiary CCCC Fund.</p> <p>CCCC Fund is to commit RMB15 million as a general partner. CCCC and NSSF will each contribute RMB8.985 billion and RMB6 billion as limited partners.”<br /> The fund, which will be investing mostly in build-transfer projects, will do so through several methods including equity, mezzanine debt, and convertible bond investments.<br /> Photo: Dhi</p>
Mario Draghi: Economic man of the year
Capital Markets
<p>&nbsp;</p> <p>Editor’s note: We are publishing early this week in advance of Thanksgiving weekend here in the United States. For those celebrating with us, our best wishes for a warm holiday with friends and family.</p> <p>With December just around the corner, awards for full-year achievement are beginning to come out. Sport, politics and the arts are recognizing those who reached the highest heights in 2015.</p> <p>There is no trophy given for outstanding achievement in financial policy. And even if there were, it would not be a rival for the Ballon d’Or or the Palme d’Or in the public consciousness. Nonetheless, Mario Draghi deserves significant acclaim for the work he has done as president of the European Central Bank (ECB) in 2015. He is, arguably, the economic man of the year.</p> <p>Late last year, many feared the potential “Japanification” of Europe. The Continent was suffering from a damaged banking system, an aging population and high levels of unemployment in most countries. The gap between actual and potential growth in gross domestic product (GDP) was still widening, six years after the onset of the financial crisis.</p> <p>This was all reflected in a falling inflation rate, and diminishing inflation expectations. Once entrenched, these conditions are very difficult to dislodge; they are a central banker’s worst nightmare. To combat this outcome, the ECB had brought rates down to very low levels, but policy was clearly limited by the zero lower bound.</p> <p>Quantitative easing (QE) had been suggested for quite some time in Europe, but many resisted it. There was skepticism over whether it would work; QE has shown mixed results in the United States and the United Kingdom, with early rounds having more of an impact and later rounds more effete. Japan continues to press ahead with the largest QE program in the world (in relation to its GDP), with only modest effect to date.</p> <p>The structure of Europe’s credit system argued against QE. Most borrowers in Europe get the capital they need from banks, and not the financial markets. (QE programs have the most effect when the opposite is true.) And eurozone banks had been conserving capital by limiting the growth of their balance sheets, restricting credit at a time when more was needed.</p> <p>As conditions worsened, Draghi worked hard to fulfill his pledge “to do whatever it takes.” He worked tirelessly to bring his governing council on board with the idea of QE, and his staff worked out the intricate details of which assets to buy and who would bear the risk of any underperformance. Finally, in mid-January, Draghi delivered a program that was larger than expected, gaining some psychological points from investors.</p> <p>Quantitative easing works in mysterious ways. As we discussed in our October 16 commentary, QE programs encourage risk taking by making safe assets less attractive; the resulting capital flows provide money for investment and can create wealth effects that augment consumption. Since mid-January, European equities are up by 14%, and consumption is growing at its fastest pace since 2008.</p> <p>The road to improvement reached a fork in the middle of the year, as Greece teetered on the brink of exit from the eurozone. Some parties to the negotiations thought that the Greeks should be excused, but Draghi argued forcefully for keeping Greece in the fold. (That took on a literal meaning during a late night meeting in July, when Draghi reportedly engaged in a shouting match with German Finance Minister Wolfgang Schäuble.)</p> <p>Draghi put a lot of the ECB’s money at risk to support Greece, at great personal risk. But in the aftermath, Draghi has been hailed for acting in the best interest of all of the eurozone’s members. He is a leading European, transcending the parochial politics of individual countries.</p> <p>But job well done is not mission accomplished…far from it. Inflation readings from the eurozone are still well below the ECB’s objective, even after adjusting for recent declines in energy and commodities prices. And while growth seems t
China payments go digital
<p>The latest data from the People’s Bank of China (PBoC) show a surge in the use of electronic payments for all types of transactions by Mainland consumers. The South China Morning Post reports:<br /> [The] bulk of the growth in the China payment market is increasingly coming from e-payments which bypasses banks and their legacy paraphernalia of bills and notes. While it is often difficult to track all the myriad modes of e-payments, the ones that are routed through the banking system and can be tracked by the PBoC is now a 553 trillion yuan market. Chinese users have made 27 billion e-payments through banks only in the three months to September-end.</p> <p>In this segment, the fastest growth is coming from the mobile market, which has this year grown at 254 per cent from last year.<br /> Why should this matter? It means that even the all-dominant Chinese mega-banks in the mainland are losing market share in basic payments, the gateway to selling more expensive products to captive customers.<br /> Photo: michael davis-burchat</p>
Renminbi set to join IMF currency basket
Capital Markets
<p>The Chinese renminbi is expected to reach another landmark on Monday. The IMF is likely to include it as the fifth member of its basket of reserve currencies that values the fund's own de facto currency, the "special drawing rights", reports the Financial Times. (paywall)</p> <p>However, the renminbi's inclusion at this stage is contentious.</p> <p>"Several western diplomats in Beijing have said the renminbi’s inclusion in the SDR basket was a heavily political decision and that the Chinese government had been very effective at lobbying countries to support the inclusion regardless of whether the currency met the requirements or not," according to the FT.</p> <p>Basically, the renminbi has to meet two criteria: first, a significant role in global trade - which it has easily passed; second, that it is widely used and "freely usable" internationally - which is doubtful because of remaining capital controls.</p> <p>"However, the IMF’s management insists that its review of the case for including the renminbi was purely 'technical' in nature and focused on practical issues of whether the renminbi could be used in IMF transactions with its members," says the FT.<br /> Photo: David Dennis<br /> &nbsp;</p> <p>&nbsp;</p>
Weekend Scan: Turkey agrees to slow flood of migrants to Europe in exchange for cash
Capital Markets
<p>November 29, 2015</p> <p>Now that we are recovering from Thanksgiving feasting and family it's time to turn to the serious agenda of the week: On Friday the jobs report for November lands at 8:30 a.m. ET. As we all know by now, decent numbers all but assure a December rate hike, the first in the U.S. in nine years. Janet Yellen will be speaking on Wednesday and Thursday -- unlikely she will give any hints about the employment outlook.</p> <p>Here's what else you need to know:</p> <p>Turkey to stem migrant flow to Europe in exchange for cash. The European Union will also consider Turkey's application to join the 28-member group. The Sunday talks promised a package promises $3.2 billion in aid for the 2.2 million Syrians flooding Turkey.</p> <p>Obama sets his sites on Paris climate talks to clinch legacy. The U.S. President is the first to create a climate policy. He joins more than 120 leaders Sunday to launch two weeks of talks designed to create regulations that would lower greenhouse gases. Obama faces opposition both abroad and home. New York Times (paywall)</p> <p>Online rules on Thanksgiving, Black Friday. Online consumers spent $4.45 billion over the two-day shopping period, accounting for 34% of spending -- a record, says Adobe Digital Index. Brick and mortar traffic fell slightly to $12.1 billion on Thursday and Friday from $12.29 billion last year. Reuters </p> <p>Chinese 'pull back' from U.S. real estate -- unless their cash 'floods' the market. You vote: The NYT says the U.S. real estate market is awash in Chinese cash but the Wall Street Journal says Chinese investors are pulling back. Let us know what you think. New York Times, Wall Street Journal (paywall)</p> <p>Richest man in Philippines places big bet on China. Henry Sy is planning on building more shopping malls in China, his native country. His company SM Investments plans on opening three more by 2017 -- bringing his total to nine.  Wall Street Journal (paywall)</p> <p>Three killed, nine wounded at Planned Parenthood clinic in Colorado. Robert Lewis Dear surrounded after a six-hour standoff with police in Colorado Springs. He was heard muttering "baby parts" -- which suggests he was motivated by anti-abortion sentiments. An Iraqi war veteran and father of two was killed. CNN, The Denver Channel</p> <p>Adele sets one week record. Her new album "25" sold more than 3 million copies. Wall Street Journal<br /> You won't believe this:<br /> Men are putting glitter in their bears. So they can garner likes on their Instagram accounts. How do they get the glitter out? Vice<br /> Photo: Freedom House</p>
Here is the $1.1 trillion reason central banks shouldn't be regulators
Capital Markets
<p>News came this week that European banks have about $1.1 trillion of non-performing loans. In several countries, the loans represented well over 10% (in a few over 20%) of total loans, quite astonishing numbers. Indeed they are numbers and one that suggest threatened insolvency.<br /> But it is tragic how little the new data have told us. They have not told us when all those bad loans were made. Are they mostly a hangover from 2008 that is only gradually being recognized because the banks kicked the can down the road for seven years? That would be a terrible statement about the reliability of European bank accounting, auditing, and supervision. Or is the state of affairs even worse than that because the loans that now have gone sour were loans made after 2009, when loans made in the U.S., for example, except for energy loans, have performed extremely well?<br /> The question is of more than academic interest because the answer would go a long way to telling us just how broken the European idea of bank may be.<br /> The basic idea of a bank that takes deposits at short term and lends at longer term to lesser credits is dangerous. Without adequate capital to cushion the losses that necessarily come in recessions, all such banks are bound to fail fairly frequently. But maybe in Europe the situation is even worse than that. Maybe the loans that banks make to small and medium-sized businesses, the so-called SME sector that depends heavily on bank finance, are flawed in concept to begin with. Maybe such firms actually borrow only when they are not stable. Maybe family firms that have survived for generations do not borrow much at all. They self-finance, whereas the newer, riskier firms look to banks to fund their inventory, receivables, and growth. That kind of lending is, by its nature, riskier than a highly leveraged bank should do. Yet the various forces of European society press banks to make exactly such risky loans.<br /> My guess is that both phenomena are responsible for the high reported level of NPLs. Slow recognition that loans have gone bad is a factor—and it is a factor that suggests that the $1.1 trillion figure is low, probably by quite a bit—and the style of lending that European banks are expected to engage in also is a factor in the continuing magnitude of bad loans. If I am right, this combination is continuing bad news for the European banking sector. Indeed, it is bad news that we should not expect to see rectified any time soon.<br /> And if I am right, then the ECB is stuck with a Herculean task to bring the banks up to snuff in terms of stability. And that task will be made more complex by the fact that the goal of stability will require banks to make fewer loans of the types that have got them into trouble, while the job of the central bank as monetary policy manager is to induce the banks to make more such loans in order to produce economic growth.<br /> The U.S. Federal Reserve Board has a similar set of conflicts of interests, and in the run-up to the Great Recession, it flunked the regulatory side of the test as well as the monetary side. Can we expect the ECB to do better? Despite my great admiration for Mario Draghi, I am not optimistic that the ECB can overcome its conflicts of interests. It simply should not have been designated the European bank supervisor.</p> <p>Photo: ECB European Central Bank<br /> &nbsp;</p>
Sector ETF idea for December: Not what you think
Asset Management
<p>December trading comes Tuesday and with the arrival of the 12th month comes plenty of conjecture about a Santa Claus rally and the January Effect. The arrival of December is also likely to bring speculation that this is a fine time of the year in which to be long consumer discretionary and retail stocks and the corresponding exchange traded funds.</p> <p>Sector investors might be surprised to learn that consumer discretionary and retail ETFs can be duds at this time of the year. Those investors might also be surprised to learn about which sector funds are, on a historical basis, potent in December. All those investors need to do is look back on which sector ETFs thrive in November for a guide as to what expect in December.</p> <p>Year-to-date, the Materials Select Sector SPDR (NYSE: XLB), the largest ...</p> <p>Full story available on<br /> Photo: Pete Bellis</p>
Video: Founders can make or break a startup
Venture Capital
<p>"Founders are paramount," says Hendrick Lee, managing partner at Palm Drive Ventures, explains to NexChange at "Going Global: Startups' paths to funding and expansion in Asia." Founders create the culture of the company. Startup founders will grow and learn with their companies, but they need to be obsessive, dedicated entrepreneurs, he says.</p> <p>&nbsp;</p>
What we're reading: Space nerds and America’s secret drinking habit
<p>A selection of articles and columns from across the world.</p> <p>Can Silicon Valley take us into space? In days gone by the space race was defined as a massive ideological struggle, a clash of nations, as the U.S. and its Soviet rivals struggled for space supremacy. Today, it has been reduced down to a twitter squabble been billionaire geeks Elon Musk and Jeff Bezos. Maybe that’s not a bad thing. The Financial Times</p> <p>Black and white, and red all over. The consumption of children’s literature in China has soared in recent years. While this may be a sign enlightened times, Chinese publishers are still painfully conservative and politics still lurk between the pages. The Economist</p> <p>One nation under the influence. What if the past 350-odd years of U.S. history has just been one long boozy bender? It may help explain some of the mistakes made along the way. The hidden influence of alcohol on the country is more significant than you think. LA Times</p> <p>Where the wind blows on climate debate. Too busy focusing on the storm clouds of war and the rough seas of finance, it seems the world has forgotten about climate change of late. For those in need of an update, here is a reminder of the main issues ahead of next week’s change conference in Paris. Wall Street Journal (paywall)</p> <p>A small peace of recognition. Everyone knows the peace sign first made famous by anti-nuclear protesters. It is now ubiquitous at most peace rallies and was recently used in the wake of the Paris attacks, but where does it come from? The Guardian’s Ian Jack argues that Gerald Holton, the symbol’s designer, should be commemorated. After all he did create the work for nothing.  The Guardian.</p> <p>The women who keep on truckin’. A truck driver may not be the most conventional job for a woman, but there are those who both do the job and enjoy it. And why not? As part of its 100 Women series, the BBC offers an intimate look at the women around the world who have chosen life on the open road. BBC<br /> Photo: NASA Goddard Space Flight Center</p>
Week ahead: All eyes on the central banks; a double dose of Yellen
Capital Markets
<p>All times GMT</p> <p>We have a big macro week ahead of us with a slew market-moving speeches and data downloads in the offing.  There will be meetings at the European Central Bank and Swiss National Bank, both of which are expected to add more stimulus ahead of the Federal Reserve’s expected interest rate hike. This is expected to keep the dollar supported and boost U.S. bond yields ahead of Friday's U.S. jobs report.  This will help make clear where the Fed is likely to stand in two weeks' time. There is also the possibility that in the week ahead the IMF will make its decision on the inclusion of the Yuan in its benchmark currency basket.</p> <p>Markets will get a double dose of Federal Reserve Chair Janet Yellen as she drives home the U.S. central bank’s message that it wants to raise interest rates. On Thursday, Yellen will give her testimony on the economic outlook before the congressional Joint Economic Committee.  She will also speak before the National College Fed Challenge Finals and at the Economic Club of Washington on Wednesday.</p> <p>Here are some of the week’s other major developments, a full list is available at WBP online:</p> <p>Monday: The global week will kick off with Japan’s preliminary y/y industrial production figures which will be coming out Sunday evening and are pegged to shift down 0.9% . The Bank of Japan’s (BOJ) Kuroda will speak at 1 a m. India will also come out with its GDP growth data for the third quarter, which is expected to hit 7.2% y/y, versus last quarter’s 7%.  </p> <p>Tuesday: China will be in focus early on in the day as it releases its PMI manufacturing data at 1am. The focus will then shift over to Europe where the Bank of England Governor Mark Carney is due to hold a press conference about the Financial Stability Report and UK Bank Stress Testing in London. The U.K. wil also be releasing its PMI Manufacturing data along with Germany and France,</p> <p>Wednesday: The day will be led by the EU’s y/y consumer price index data for November, released at 10 am. It is expected to shift up by 0.3% after remaining flat the previous month.  Over in the U.S we will have the ADP employment change figures, followed by a speech the Fed’s Yellen at 1.30pm along with q/q unit labor costs data for the third quarter, pegged to rise 1%.  Yellen will speak again at 5:25pm.</p> <p>Thursday: The day will start will a deluge of data from Europe as Germany, the U.K, and E.U. all release PMI Services data for the month from 9am onwards. At 1.30pm the U.S will come out with its initial jobless claims data. Yellen will also testify before the Joint Economic Committee.</p> <p>Friday: The day will kick off with OPEC Meetings in Vienna which will be quickly followed by E.U. GDP data for the third quarter. Then, from 1.30pm, the U.S. will release its all-important trade balance and unemployment rate data for October and November, respectively, with the latter set to be unchanged at 5%.  The week will then round off with the publication of the Baker Hughes U.S Rig Count at 6pm.<br /> Photo: Day Donaldson</p>