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Bernanke identifies greatest threat to global economy
Capital Markets
<p>Ben Bernanke knows a few things about financial crises. As US Fed chairman he had to cope with the 2008 credit crunch and subsequent economic meltdown. </p> <p>In a fireside chat with veteran journalist Andrew Neil hosted by The Spectator on October 27 he warned that although most indicators don’t suggest the world is approaching another recession, “emerging markets are the most meaningful financial risk at the moment.”</p> <p>A consensus is rapidly building that the dollar debt amassed by some emerging countries during six years of low interest rates is a disaster waiting to spread contagion throughout the financial system. A few weeks ago the IMF waved the same red flag and the credit rating agencies have expressed the same fear.</p> <p>So the chances are that if there is a crisis, then it is going to be caused by something else entirely.<br /> Photo: Insider Monkey<br /> &nbsp;</p>
Investor risk appetite soars in Asia
Asset Management
<p>While investors in the developed world rush for the exit, risk appetite among Asian investors surged to a new high in October, according to State Street’s latest Investor Confidence Index report (pdf).<br /> “The Global ICI decreased to 114.3, down 2.3 points from September’s revised reading of 116.6. The decline in sentiment was driven by a decrease in the North American ICI from 133.2 to 125.5 along with the European ICI falling 5.8 points to 89.9. By contrast, the Asia ICI rose by 13.2 points to 111.0.”<br /> The asset manager’s Ken Froot says that this is the first time the Asia ICI climbed above the 100-point threshold this year, an interesting data point given that Shanghai and Shenzhen were on full-on risk mode during the first eight months of the year.</p> <p>The main reason for the surge? Cheap money and SOE reforms, apparently:<br /> “[T]he increasingly accommodative stance taken by policy makers globally and hopes for state-owned enterprise reforms in China have had a large impact on Asian investors, boosting risk appetite by 13.2 points.”<br /> With the Fed back at square one and the fifth plenum supposedly focused on reforms, these guys must be having a ball now.<br /> Photo: GotCredit</p>
China’s property bubble still buoyant
Capital Markets
<p>Predictions of an imminent crash in real estate prices is a favorite among China-doomsayers. But it’s not going to happen yet, according to a report by Moody’s Investor Services  published on Thursday (subscription).</p> <p>Positive sales momentum for the country’s property sector will continue this quarter, fired by supportive monetary and regulatory polices implemented since the second half of last year.</p> <p>"These favorable policies -- including the increased availability of mortgages, as well as lower down payments and funding costs to buyers financing their second homes with bank mortgages -- will support overall sales over the next 12 months and help maintain healthy year-on-year growth into 4Q 2015," says Stephanie Lau, a Moody's assistant vice president.<br /> Photo: drnan tu<br /> &nbsp;</p>
Asia fund management myth-buster
Asset Management
<p>A recent AsianInvestor survey of the biggest institutional fund managers across Asia-Pacific dispelled several misconceptions:</p> <p>They are not home-bound and instead have a strong appetite for global market exposure; they are willing to explore alternatives rather than stick to traditional assets; and there is little sign that they are switching to passive investment strategies.</p> <p>So, Asian fund managers are dynamic, experimental and keen to take on the world. They’re also a social lot and keen to share.</p> <p>“Respondents are as happy to invest directly and to co-invest with general partners and peers as they are to take a fund-of-funds approach, and they are ready to outsource more to local partners,” notes AsianInvestor. (paywall)<br /> Photo: Mandala Travel<br /> &nbsp;</p>
Pershing Square is down 15.9% for the year
Hedge Funds
<p>Looks like Ackman picked the wrong week to start doubling down on Valeant.<br /> “Pershing Square Holdings, the publicly traded fund run by hedge fund billionaire Bill Ackman, is having a brutal year.</p> <p>The fund is down 15.9% through October 27, according to a performance update. The fund had been down 11.2% a week ago.</p> <p>The fund's performance was primarily dragged down by its largest equity holding, Valeant Pharmaceuticals.”<br /> Pershing Square was up as high as 11% in August, and as Business Insider points out, it was one of the best-performing hedge funds in 2014 with a return of 40.4%.<br /> Photo: marc falardeau</p>
If you see David Einhorn, give the man a high-five
Hedge Funds
<p>After shorting St. Joe the past eight years, the man just saw the SEC hand him one of his greatest victories:<br /> “The Securities and Exchange Commission today charged The St. Joe Company, a Watersound, Florida-based real estate developer and landowner, its former top executives, and two former accounting department directors, with improperly accounting for the declining value of its residential real estate developments during the financial crisis. As a result of this misconduct, St. Joe reported materially overstated earnings and assets in 2009 and 2010.”<br /> As for Bruce Berkowitz – whose latest 13D shows him owning 32.3% of St. Joe – it might be best to give him a hug.<br /> Photo: Insider Monkey</p>
The Fed's dilemma
Capital Markets
<p>Twice in the past 30 years the U.S. Federal Reserve has faced the prospect of prematurely abandoning tightening during market turmoil. Today, global currency devaluations, market volatility, and plunging commodity prices have trapped the Fed in a similar policy dilemma.</p> <p>In 1987, the central bank aborted rate rises and reversed course after a stock market crash. Again, in 1998, after the failure of Long-Term Capital Management (LTCM), a highly leveraged hedge fund, the Fed abandoned its planned rate increases to stabilize markets and avoid a global crisis. In both cases, the unintended result of delaying was inflated asset prices, which ultimately destabilized the economy, and led to severe financial consequences and recession.</p> <p>In 1986, inflation slowed as oil prices collapsed, raising serious concerns about U.S. economic expansion following the worst postwar recession up to that time. Policymakers were slow to raise rates, allowing for a surge in equity prices in early 1987 as energy prices rebounded.</p> <p>After falling behind the curve, aggressive Fed actions to address inflation inadvertently pricked the stock market’s speculative bubble. In October 1987, U.S. equities plummeted more than 30 percent. The Fed quickly reversed course and reduced rates.</p> <p>By mid-1988, markets stabilized and the Fed again raised rates to head off inflation. By this time, more than four years of accommodative monetary policy had led to a commercial real estate boom with a glut of new properties. As the economy tumbled toward recession in 1990, a sharp decline in property values caused defaults and the failure of financial institutions. The government-sponsored Resolution Trust Corporation was set up in response to resolve troubled banking assets.</p> <p>After the ensuing recession and another period of accommodation, the Fed again raised rates in the mid-1990s. During this time, many Asian nations had pegged their currencies to the U.S. dollar. By 1997, the pressure to maintain these pegs amid rising U.S. rates became too much for some. Thailand was first to break its peg, allowing the baht to collapse and increasing pressure on neighboring economies in a dramatic round of competitive devaluation.</p> <p>Volatility in Asia Has Influenced the Fed Before<br /> Since 2009, the U.S. employment gap has been shrinking continuously, as the U.S. Federal Reserve intended. The employment gap is now approaching zero, a signal that supports a rate hike, but China’s slowdown is causing major market turbulence, especially in Asia. This puts the Fed in a similar position to the Asian financial crisis in the late 1990s. Then, the U.S. employment gap was approaching zero while dramatic currency devaluations among Asian countries threatened to destabilize the global economy. In that instance, the Fed abandoned its plans to tighten, inadvertently setting the stage for the Internet bubble.<br /> Shrinking U.S. Employment Gap amid Selloff in Asian Currencies</p> <p>Source: Haver Analytics, Bloomberg, and Guggenheim Investments. Note: Asian currencies include China, Japan, Korea, Taiwan, Thailand, Philippines, Malaysia, India, and Indonesia. The index is based on monthly currency data. Past performance is not indicative of future results. Data as of 8.31.15.</p> <p>By 1998, contagion from emerging markets reached the United States, pressuring domestic m</p>
Daily Scan: Fed spooks the markets; Deutsche to slash 35,000 jobs
Capital Markets
<p>Updated throughout the day</p> <p>October 29</p> <p>Asian bourses closed mixed on Thursday as hopes of further easing from the Bank of Japan did very little to quell fears over a December Fed rate hike.  Hong Kong’s Hang Seng Index finished the session down 0.60%, while China’s Shanghai Composite and Japan’s Nikkei Average ended the day up 0.36% and 0.17% respectively. As for the rest:</p> <p> Hang Seng China Enterprises Index: -1.13%<br /> Shenzhen Composite: +0.80%<br /> Straits Times Index: -1.24%</p> <p>Over in Europe, things aren’t looking that great either. At pixel time, the FTSE 100 is down 0.85%, the DAX 30 flat, and the CAC 40 down 0.25%. S&amp;P 500 futures meanwhile are signaling a 0.20% drop over in Wall Street.</p> <p>Here’s what else you need to know:</p> <p>Deutsche Bank to lay off 35,000. Speaking on the bank’s highly-anticipated strategy update, Deutsche Bank CEO John Cryan told the press that he plans to reduce his firm’s full-time workforce by 9,000 and shut down the bank’s operations in 10 countries. The massive overhaul, once finished, will result in around 35,000 jobs lost. CNBC</p> <p>China buys 130 jets from Airbus. The deal, which was announced after Chancellor Merkel’s meeting with Premiere Li, is reportedly valued at roughly $17 billion. Reuters</p> <p>Japanese industrial output surprises to the upside. Japan’s industrial output data climbed 1% in September, well above economists’ expectations for a 0.6% fall and a massive turnaround compared to August’s 1.9% drop. The climb was also the first in three months. Ministry of Economy, Trade, &amp; Industry</p> <p>Samsung unveils $9.9 billion stock buyback program. After reporting its first year-on-year profit climb in two years, Samsung Electronics announced that it will be buying back and cancelling nearly $10 billion worth of its own shares. The buyback program, which will be implemented in several stages, will begin on Friday and end “within one year.” Financial Times (paywall)</p> <p>U.S., China to hold talks over warship patrol. Admiral John Richardson and Admiral Wu Shengli are set to hold an hour-long video teleconference on Thursday over the USS Lassen’s recent patrol near the Spratlys. This will be the third video teleconference between the two. South China Morning Post (paywall)</p> <p>Fed stands pat on rates. The Federal Reserve, in a near-unanimous decision, voted on Wednesday to keep rates unchanged near zero. They did however open the door for a December rate hike. Federal Reserve</p> <p>Ping An to snap up U.S. properties. Teaming up with Blumberg Investment Partners, China’s second largest insurer has formed a $600 million fund meant to snap up logistics properties across the United States. South China Morning Post (paywall)</p> <p>The Starwood Hotel plot thickens. Chinese companies have been vying for the hotel chain, which includes The Westin, W Hotels, and St. Regis. Now H</p>
French billionaire acquires 5 percent of Warburg Pincus
Capital Markets
<p>Groupe Marc de Lacharriere (GML), the family holding company of French billionaire, Marc Ladreit de Lacharrière acquired a 5% stake in Warburg Pincus, a private equity firm with $35 billion of assets under management.</p> <p>In a statement, Mr. Ladreit de Lacharrière said, “We are very pleased to have the opportunity to invest in Warburg Pincus. GML is delighted to become a long-term partner with a global private equity firm and Warburg Pincus perfectly matches our objectives with respect to investing model, culture, and persistence of performance.”</p> <p>GML owns several investments, including 86% in Fimalac, a publicly traded company in France.</p> <p>Mr. Ladreit de Lacharrière is now a Senior Strategic Partner of Warburg Pincus following the investment of GML. The French billionaire plans to invest in the private equity firm’s future funds as a limited partner, according to the private equity firm.</p> <p>A person with knowledge of the matter told the New York Times that Mr. Ladreit de Lacharrière had been looking for private equity firm to invest over the long-term. The person said the French billionaire approached Warburg Pincus regarding the transaction.</p> <p>Charles R. Kaye and Joseph P. Landy serve as co-chief executives of Warburg Pincus. Former U.S. Treasury Secretary Timothy Geithner joined Warburg Pincus as president in 2013.</p> <p>The private equity firm did not disclose the amount of GML’s investment, and other financial terms in the transaction.<br /> Comments from Warburg Pincus executives<br /> Warburg Pincus said it would use all the proceeds from the transaction to invest in its funds. The private equity firm said the investment would enhance the alignment between its professionals and limited partners. It would also create additional flexibility for the firm.</p> <p>“Warburg Pincus has always valued clearly aligned interests – within our general partnership, with our limited partners who invest in our funds and with the management teams of the companies in which we invest. We know GML shares that commitment and this transaction is consistent with those interests,” said Mr. Kaye.</p> <p>Mr. Landy is looking forward to partnering with GML as they work on improving Warburg Pincus’ network of potential investment opportunities.</p> <p>Mr. Geithner said, “We are honored to introduce a figure of Marc’s standing to our firm.”</p> <p>This story first appeared in ValueWalk.<br /> Photo: Joel</p>
Golden Gate Ventures bets big on Thailand payments startup
Venture Capital
<p>Singapore-based early stage investor Golden Gate Ventures has just made its biggest bet in Southeast Asia yet, an online payments gateway in Thailand called Omise.co.</p> <p>Set up in 2013 by Japanese CEO Jun Hasegawa, Omise is still a relatively new kid on the block, but this is now its second round of institutional funding.  It raised a $2.3 million Series A round investment earlier this year. Golden Gate will not disclose how much it has invested, but the firm's average ticket size is  normally around seven-figures.</p> <p>Ecommerce has been experiencing a renaissance in Southeast Asia for the past couple of years now with major international players like German incubator Rocket Internet, and Japanese internet giants Softbank and Rakuten, backing a slew of  startups. Ecommerce-related payments and logistics solutions are still is lacking however.</p> <p>Omise is trying to lighten the load by offering a simple plug-and-play interface for software developers that make it easier to accept credit card payments.</p> <p>Golden Gate says that Omise grew 56% in Q2, and 269% in Q3. The firm estimates that at this rate the firm will be processing hundreds-of-thousands of monthly transactions in 2016.</p> <p>A big part of this strategy will be Omise's overseas ambitions. Part of the funding will be used for expansion into Indonesia and Singapore, the startup also has it eyes set on Hasegawa's native Japan.</p> <p>We can expect a lot more big deals coming from Golden Gates. The firms raised $50 million for its second fund in the summer and it has a lot more dry powder to burn through. </p> <p>Photo: Tiago Almeida</p>