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Regulations are killing Chinese quant funds
Hedge Funds
<p>Regulations are killing Chinese quant funds</p> <p>Hoping to shine post-Black Monday, mainland quant funds find out that they have nothing have dark days ahead of them.</p> <p>In an effort to curb “excessive speculation” post market rout, the China Financial Futures Exchange clamped on a series of regulations back in August, including raising margin requirements on stock index futures from 30% to 40%, and restricting the opening of positions from 600 contracts to just 10 per product a day, defining anything over that as “irregular.”</p> <p>Well, according to the SCMP, that didn’t work so well for the nation’s burgeoning hedge fund industry – especially for its futures-oriented quants.<br /> “We thought a bear market would help us stand out, and actually we did, but things were turned upside down by the new regulations on stock index futures trading.”<br /> Faced with higher expenses and limited ways in which to seek alpha – or even hedge, for that matter – hundreds of mainland quant funds have been forced to close up shop this year, while some of those still in operation have simply shifted to survival mode.</p> <p>Further complicating matters is the fact that these guys are typically smaller operations, making it difficult for them to branch into different asset classes as their bread and butter dries up, as Reorient chief Brett McGonegal related to the SCMP:<br /> “If you have only three employees in your firm, how can you manage to achieve a well-rounded asset class allocation and develop effective risk management platforms?”<br /> With regulators desperately clinging to whatever shred of credibility they have left, there just seems to be no way for the industry to get back to its feet.</p> <p>After every hardship comes ease though, so whoever’s cutting his teeth in this twilight of the quants is sure to be a monster. Let’s see who does.<br /> Photo credit: JERRYANG</p>
Blockchain startups seeking a home can face a regulatory 'Catch 22'
FinTech
<p>Startups dealing in bitcoin and blockchain can find themselves between a rock and a hard place when looking for the right jurisdiction in which to base their business.</p> <p>During a panel discussion on regulation at the "Smart Contract for Smart Cities" conference in Hong Kong's Cyberport Tuesday, industry experts explained that entrepreneurs seeking a base had to strike a difficult balance between finding an environment that is conducive to business versus one that affords clients better protection. Pamela Morgan, the CEO of consulting and cryptographic key management firm Third Key Solutions said:</p> <p>"There is a tension right now between the ease of setting up in a place that is less regulated and the fact that consumers prefer an environment that has better regulations -- it's a Catch 22. Business are currently looking to set up in places like the Isle of Man,  but as a consumer you may want the protection of U.S. or European laws, and the clarity they offer."</p> <p>Richard Levin, a partner with law firm Bryan Cave, said the best approach was to prioritize those markets that offer the best opportunities, even if that means dealing with more regulatory hurdles.</p> <p>"You have to look at the size of the market and think 'where am I  going to make most money and get highest valuation for my company?' Sometimes biting the bullet and dealing with a cumbersome regulatory environment is something you have to do to reach your potential."<br /> Photo: NexChange</p>
China Huarong faces tough IPO competition
Asset Management
<p>China’s biggest player in the distressed-asset space might need some de-stressing on the road to its long-awaited Hong Kong IPO.</p> <p>The Nikkei Asian Review reports that China Huarong’s upcoming $2.5 billion offering might not be the blockbuster it was cracked up to be, largely thanks to a slew of behemoths IPOs scheduled around the same time:<br /> “Alvin Cheung Chi-wan, associate director at Prudential Brokerage, expressed doubt that investors can digest a multibillion Huarong IPO. He said that there would be competition for investors' money as there is a swollen pipeline of big IPOs due to come in October, including that of Chinese International Capital Corp, an investment bank looking to raise about $1 billion.”<br /> Aside from the CICC, China Re – the region’s largest reinsurer – is also set to sell 5.77 billion of its shares this month.</p> <p>Further complicating matters for Huarong is its valuation. Analysts currently peg the asset manager’s shares at around 1.2 times book value, a decent estimate whichever way you look at it, save for the fact that Cinda – its closest rival – currently trades below book value.</p> <p>And that’s not all, state-owned enterprises apparently aren’t allowed to sell below book, giving its advisers – Goldman, CICC, HSBC, just to name a few – with very few options left to fulfill their duties.</p> <p>Still, it isn’t all bad news. Being a state-owned enterprise still brings the cache of being backed by Beijing, not to mention a rep that these shares are off-limits to short-term speculation. And that alone should help it attract more than a few investors.<br /> Photo: See-ming Lee</p>
Strength in numbers: Hong Kong's burgeoning crowdfunding industry
Venture Capital
<p>Crowdfunding is lowering the entry barriers for would-be venture capitalists worldwide. As one of Asia's bigggest financial centers, Hong Kong is quickly becoming a breeding ground for equity crowdfunding platform -- but regulators need to keep pace.</p> <p>To date, the crowdfunding ecosystem has been populated by reward-based platforms -- think Kickstarter and Indigogo in the U.S. - this is because offering material rewards instead of equity allows crowdfunding to avoid regulatory headaches while accessing a wider of pool of unaccrediated investors. Hong Kong's latest addition to this ecosystem is rewards-based platform SparkRaise. Its founder Yeone Moser Fok tells NexChange:</p> <p>“Crowdfunding platforms have the potential to turn traditional fundraising on its head.  It is becoming easier to invest in startups and more people now have the chance to back the projects they love.”</p> <p>She adds that these platforms offer startups two things: customer acquisition and product validation. Raising capital to complete the first run of a product is not only difficult, it's a big risk.  Crowdfunding plaftorm help startups raise capital while ensuring there is demand for a product. However, Fok notes that future  advances in regulation could see equity-based platforms being more widelyt adopted. She adds:</p> <p>“The JOBS Act in the U.S. has been a big leap forward for equity crowdfunding but it’s still early days.  In Asia, particularly in Hong Kong, there are still more regulatory hurdles to jump through before we see more equity-based platforms here.”<br /> That is not to suggest equity-based platforms do not exist in Hong Kong. There already platforms like BigColors, Colony88, and Investable that offer some form of equity crowdfunding, though exisiting regulations mean that investments are restricted to professional investors, meaning the minimum ticket size excludes mom and pop backers. Investable founder Jennifer Carver explains:</p> <p>"Right now the minumm investment is $10,000 on Investable and as an  angel investor you always have to be prepared to just say goodbye to that money. That said, we have a broad range of services so that our startups stand a better chance of survival than most, but it's still a high risk investment that's not suitable for all types of investors"<br />  Photo: James Cridland</p>
7 takeaways from Brainard’s speech
Capital Markets
<p>Vice-Federale Stanley Fischer may have kicked uncertainty up a notch by calling a 2015 rate hike “an expectation, not a commitment,” but ex-Under Secretary of the Treasury Lael Brainard was a little more forthcoming as far as her stance on rates are concerned.</p> <p>Here are seven key takeaways from her speech at the 57th National Association for Business Economics Annual Meeting.</p> <p>She thinks labor resources are still under-utilized.  “…a variety of evidence suggests there may be some distance to go to achieve full employment. Although the unemployment rate is near longer-run norms, other measures of labor utilization are not. The labor force participation rate remains materially below the pre-recession trend, even after adjusting for demographics.”</p> <p>And the Fed may have an eye on it too. “Perhaps the most striking evidence in support of continued labor market slack is the absence of any acceleration in wages and prices…Indeed, the lack of wage acceleration is likely one of the key reasons that many Federal Open Market Committee (FOMC) participants have revised down their estimates of the longer-run level of the unemployment rate.”</p> <p>Consumer spending looks solid. “…even though equity prices are down this year, continued job growth, lower gas prices, rising house prices and some loosening in consumer credit look likely to support consumer spending over the second half of the year.”</p> <p>But they’re worried about inflation. “Although the balance of evidence thus suggests that long-term inflation expectations are likely to have remained fairly steady, the risks to the near-term outlook for inflation appear to be tilted to the downside, given the persistently low level of core inflation and the recent decline in longer-run inflation compensation, as well as the deflationary cross currents emanating from abroad.”</p> <p>She isn’t a hyper-Keynesian. “To be clear, I do not view the improvement in the labor market as a sufficient statistic for judging the outlook for inflation. A variety of econometric estimates would suggest that the classic Phillips curve influence of resource utilization on inflation is, at best, very weak at the moment.”</p> <p>China matters. “A more negative assessment of underlying Chinese growth fundamentals or its exchange rate regime would likely affect other important economies in the region, as well as commodity-producing economies, pushing global demand down further. In turn, expectations of additional weakness in global demand could have important effects on the exchange rate of the dollar, the valuation of risky assets in the United States, and U.S. inflation, moving the economy further from our goals.”</p> <p>And she thinks the Fed should cool its jets for a while. “There is a risk that the intensification of international cross currents could weigh more heavily on U.S. demand directly, or that the anticipation of a sharper divergence in U.S. policy could impose restraint through additional tightening of financial conditions. For these reasons, I view the risks to the economic outlook as tilted to the downside. The downside risks make a strong case for continuing to carefully nurture the U.S. recovery--and argue against prematurely taking away the support that has been so critical to its vitality.”<br /> Photo: Fortune Live Media</p>
China is not collapsing
Capital Markets
<p>LONDON – One question has dominated the International Monetary Fund’s annual meeting this year in Peru: Will China’s economic downturn trigger a new financial crisis just as the world is putting the last one to bed? But the assumption underlying that question – that China is now the global economy’s weakest link – is highly suspect.</p> <p>China certainly experienced a turbulent summer, owing to three factors: economic weakness, financial panic, and the policy response to these problems. While none on its own would have threatened the world economy, the danger stemmed from a self-reinforcing interaction among them: weak economic data leads to financial turmoil, which induces policy blunders that in turn fuel more financial panic, economic weakness, and policy mistakes.</p> <p>Such self-reinforcing financial feedback is much more powerful in transmitting global economic contagion than ordinary commercial or trade exposures, as the world learned in 2008-2009. The question now is whether the vicious circle that began in China over the summer will continue.</p> <p>Click here to read more</p> <p>© Project Syndicate<br /> Photo: Danijel James</p>
Daily Scan: Weak China trade data hit global markets
Capital Markets
<p>Updated throughout the day</p> <p>October 13</p> <p>Good evening everyone. Weak trade data from China have hit global markets, putting a full stop to the rallies that had lifted bourses for more than a week. In Asia, the Nikkei fell 1.11%; the Hang Seng slipped 0.57%. In Europe, most exchanges were racking up losses in excess of 1% as investors feared the cold China has caught would give everyone else the flu. Commodity and luxury good companies got hit the hardest. The mainland China indexes managed to close higher after spending most of the day in the basement, thanks to the invisible hand of Sino-capitalism.</p> <p>Here’s what else you need to know:</p> <p>Exports fall 3.7% and imports collapse in China trade data. China’s trade surplus widened to $60.34 billion in September from $60.24 billion in August, a massive jump from the $46.79 billion narrowing expected by analysts. The surplus was largely fueled by a 17.7% dive in imports, indicating that China’s shift to a consumer economy isn’t going as planned. And exports slowed Business Insider</p> <p>EM currencies slammed. The post China import bloodbath seemed claimed the Malaysian ringgit and the Indonesian rupiah; both tanked at least 1% against the dollar, while the Philippine peso and the Indian rupee lost at least 0.5%. The aussie meanwhile, right after clocking in a 9-day recovery, plunged nearly 0.9% to AU$0.7296 versus the greenback.</p> <p>Yuan punches in 8-day winning streak. The PBOC fixed the yuan 0.28% higher today, helping the currency snap up another day in the verde (or red, depending where you are). Interestingly, this seems at odds with their recent “quantitative easing” measures, which should’ve sent the renminbi down, down, down. Semantics, I guess, since it was Chinese media who kept calling it that. Financial Times (paywall)</p> <p>Chinese asset manager stabbed by investor. Global Wealth Investment CEO Wang Jie was rushed to a hospital Sunday after a disgruntled investor stabbed him in the shoulder during a meeting. The incident was apparently connected to the collapse of one of China’s largest state-backed guarantors, the Hebei Financing Investment Guarantee Group. Financial Times (paywall)</p> <p>U.K. falls into deflation. While core inflation remained unchanged, headline inflation in the United Kingdom fell to a 55-year low of -0.1% in September, worse than analyst estimates of an unchanged reading. “A smaller than usual rise in clothing prices and falling motor fuel prices” were to blame. Office of National Statistics</p> <p>Apple blocking news app in mainland China. Even users who bought their iPhones in the U.S. can’t access Apple News. Quartz</p> <p>Ford to invest $1.8 billion in China R&amp;D. Despite a slump in car sales in the region, U.S. carmaker Ford plans to invest $1.8 billion to build up its research and development capabilities in China to better tailor its offerings to its customers, as its president, Mark Fields said in a statement: “With this investment in research and development, the next generation of Ford vehicles will be completely designed around our customers.” </p>
Daily Scan: Oil slumps more than 4%; earnings take center stage as stocks rally 7th session
Capital Markets
<p>Updated throughout the day</p> <p>October 12</p> <p>Enough already about this Federal Reserve dithering. Time to worry about earnings. Last week, Alcoa launched the earnings reporting season with dismal news. Expectations are low for the season -- which could prove positive for stocks. Tighten your seatbelt Tuesday for some biggies: Intel, JPMorgan, Johnson &amp; Johnson, and CSX Corp. Later in the week we will get more heavyweights, including Goldman Sachs, Netflix, Bank of America, Wells Fargo, and Delta Air. Did we mention BlackRock, Schwab, or Citigroup? Busy, busy, busy. U.S. stocks closed higher in dull action but still notched a seventh consecutive day of gains. Banks and bond trading were closed for Columbus Day.</p> <p>Here’s what else you need to know:</p> <p>Fortress Investments to shutter lead fund after major losses. Head trader Michael Novogratz is reportedly on his way out. The fund has posted losses of 17.5% through September. The fund now has $1.6 billion in assets, down from $8 billion in 2007. Wall Street Journal (paywall)</p> <p>Oil hit by OPEC production. Sweet crude futures for November fell 4.41% while Brent tumbled nearly 4.5%. It was the biggest one-day drop since Sep 1. OPEC output rose 109,000 barrels/day in September to 31.57 million. That news overshadowed an earlier forecast that U.S. production would drop in 2016. MarketWatch</p> <p>AB Inbev hikes bid for SABMiller to $103 billion. They say the fourth time is the charm. AB Inbev has been wooing the No. 2 brewer for weeks. Apparently, when it announced its bid last week of  $99.2 billion, the jilted suitor thought board members representing SABMiller family stakeholders were in favor of the deal. Wrong! Wall Street Journal (paywall)</p> <p>Dennis Lockhart whistling the same tune. The Atlanta Fed president continues to say that the U.S. is ready for an interest rate hike this year. Lockhart is considered a good gauge on central bank thinking. WBP Online</p> <p>European stocks lower, breaking winning streak. The Stoxx Europe 600 was marginally lower. The FTSE was off 0.77%, breaking a nine-session series of up sessions. Rolls Royce Holdings fell more than 4% after the Financial Times reported that regulators were investigating some of its contracts. MarketWatch</p> <p>Dell to buy EMC in $67 billion deal, a tech record. The PC maker has gone through a total makeover, going private two years ago and now taking on a mountain of debt to acquire the storage giant. An announcement is expected Monday. New York Times (paywall)</p> <p>GE said to be in talks with Wells Fargo to sell $30 billion loan portfolio. GE has been on a tear to return to its industrial roots. Reuters</p> <p>Enough already, move! Central bankers at the annual meeting of the International Monetary Fund in Lima, Peru, told the Federal Reserve to raise rates, already. “'Delaying the increase would not solve the situation,' said Sukhdave Sin</p>
Billionaire Brooklyn Nets owner Mikhail Prokhorov visits team at training, teaches new tricks
Lifestyle, 4:01
<p>&nbsp;</p> <p>The Russian businessman and owner of the Brooklyn Nets led a team training camp and gave the basketball players some tips on dexterity and coordination. Not all the players were able to keep up with the 50-year old billionaire’s moves, Finbuzz reports.</p> <p>He travelled to Duke to give the team a lesson in Tescao, a Tibetan martial arts.</p> <p>“I think my preference was to come personally and to say hello to the players and to the coaches. I think it’s very important for the new team to have a special team building, and, of course, the commitment of ownership as part of the team,” he said.</p> <p>The NBA team posted a video of the tall and lean Prokhorov simultaneously drilling and bouncing balls of different size and shape, and the professionals can barely keep up. The Brooklyn Nets owner has been practicing Tescao for the last five and a half years.</p> <p>His visit reassured both investors and players that he’ll be around for at least another season.</p> <p>Prokhorov, who owns 80 percent of the Brooklyn Nets and 45 percent of the Barclays arena in Brooklyn, has an estimated net worth of $10.8 billion, according to Bloomberg’s billionaire index. It is his sixth consecutive season as the owner of the Nets. He bought the team in 2010 along with Jay-Z, who has since sold a majority of his stakes. As of this fall, he holds a one-fifteenth of a one percent of the Nets, and one-fifth of one percent of the $1 billion Barclays Center.</p> <p>Though it was reported in January of 2015 that Prokhorov was planning on selling the team and the arena, the deal never went through, and now his next move may be buying up the pieces of the team and arena he doesn’t already own.</p> <p>“I’m not planning to sell the Brooklyn Nets. The situation is that we’re in discussion with our partners at Forest City, who own 20% of the club and 55% of the arena, to buy them out,” he told TASS.</p> <p>This story originally appeared in Finbuzz.</p>
'Smart Contracts' conference unravels the many uses of blockchain
FinTech
<p>Cryptocurrency experts from across the world gathered at Hong Kong's Cyberport today for the first day of Blockchain Workshops' two-day "Smart Contracts for Smart Cities" conference. </p> <p>The two-day event -- a draw for the sandal-wearing hacker as much as the smartly-dressed banker -- focuses on the seemingly limitless applications of blockchain (the decentralised technology that underpins cryptocurrencies like Bitcoin) across industries as varied as fintech, intellectual property, infrastructure, and internet-of-things (IoT).</p> <p>The opening speech was delivered by Hennin Diedrich, a senior programmer at IBM. Titled "Towards a Democracy of Devices," the talk examined the broader impact of blockchain technology. This was followed by an opening panel -- "Blockchain and Applications" -- where Diedrich, as moderator, quizzed a  team of technical experts about the hopes, fears and complexities of blockchain technology. </p> <p>Here is some of the social media commentary:</p> <p>Hennig Diedrich from IBM gives the keynote at #blockchain workshops #smartcontracts pic.twitter.com/BC2XLFp8UZ<br /> — NexChange (@NexChanger) October 12, 2015</p> <p>&nbsp;</p> <p>The opening panel at #smartcontracts for smart cities #blockchain pic.twitter.com/PWqOjAJ8dr<br /> — NexChange (@NexChanger) October 12, 2015</p> <p>&nbsp;<br /> Dom Williams, Difinity: "The reason the decentralised cloud will win is because it's an open transparent system" #smartcontracts — NexChange (@NexChanger) October 12, 2015<br /> Vlad Zamfir, Ethereum: "Bitcoin is a protocol that anyone can understand and provides a great gateway to blockchain" #smartcontracts — NexChange (@NexChanger) October 12, 2015</p> <p>Peter Todd, Bitcoin Dev: "It will take a long time for computer security to get to a point when more people are comfortable." #smartcontracts — NexChange (@NexChanger) October 12, 2015</p>