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BlackRock: Market segments to consider while the Fed holds
Asset Management
<p>Investors have spent much of the last couple of months fixated on the Federal Reserve (Fed). In the end, last Thursday, the central bank did exactly what most had come to expect: nothing.</p> <p>After a day to deliberate how to interpret the Fed’s decision to hold off on raising interest rates, investors took the Fed’s hesitancy as a sign of global economic fragility. Stocks reversed course on Friday, giving up their gains for the week, and market volatility (as measured by the VIX index) quickly spiked back to above average levels after dropping below 20 early in the week, according to data accessible via Bloomberg.</p> <p>Amid renewed volatility and the Fed’s continued delay, are there any moves to consider? As I write in my new weekly commentary, “With the Fed Holding, an Opportunity to Make Moves,” after the recent selloff, two areas of the market may now be worth added exposure.<br /> Two Market Segments to Consider<br /> Rate sensitive parts of the market, such as U.S. utilities<br /> Were interest rates rising, one would expect these bond market proxy segments to suffer. However, with long-term rates clearly stuck, utilities look less vulnerable. This is particularly true when you consider that this sector, represented by the S&amp;P 500 Utilities Index, has dramatically underperformed the rest of the broader S&amp;P 500 market this year, according to Bloomberg data. So, it may be time to consider bringing exposure to U.S. utilities back up toward a market weight.<br /> Emerging market (EM) stocks<br /> A more contrarian play could be revisiting EMs. Last week’s soft economic data out of China led to another selloff in China’s equity market. Domestic Chinese stocks were down between 3 percent and 6 percent, although H-Shares, traded in Hong Kong, managed to end the week higher, as market data from Bloomberg show.</p> <p>However, other EMs fared better, according to the data. Markets posted solid gains in India, South Korea, Turkey and even Brazil. The turn in performance was also accompanied by a marginally positive week of flows into broad EM funds, according to market flow data.</p> <p>It’s too early to call a bottom in EM, and there could be more volatility ahead, but valuations now appear attractive. At the recent lows, EM equities were trading at less than 1.3 times book value, and the current price-to-book ratio is the lowest it has been since the end of the financial crisis. It also represents a 35 percent discount to developed markets, the largest discount in 12 years, according to my analysis using Bloomberg data. For investors with little or no exposure to this asset class, now may be a reasonable time to consider slowly establishing or reestablishing positions. The bottom line: With the Fed on hold, there may be an opportunity to make some contrarian moves.</p> <p>Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock.</p> <p>This article was originally published by Advisor Perspectives. <br /> Photo: Kurtis Garbutt</p>
The buzzsaw aimed at blockchain
<p>Karen Petrou's memorandum to Federal Financial Analytics clients on the buzzsaw aimed at blockchain.<br /> &nbsp;</p> <p>Earlier this week, an NPR story fired up a campaign to force banks to absorb customer losses when business accounts are hacked. It remains to be seen if legislation will change the Electronic Funds Transfer Act, but the campaign is a sharp reminder of what happens when law falls behind technological reality. Regulators know this all too well – see our analysis of Treasury’s new inquiry into online marketplace lending as a critical case in point. Blockchain processing, take warning. The most exciting change in years for clearing and settlement will come to pass only if regulators come to love it.</p> <p>There’s been a lot of buzz about blockchains in the past few months, and buzz turned into a strong signal when nine global banks earlier this week announced a new consortium to figure out ways to make blockchain processing work for them. Several freestanding start-ups are also attracting significant industry and investor interest, with all of these ventures aimed at turning digital ledgers into the double-entry bookkeeping of tomorrow.</p> <p>Regulators really like this in theory – current market infrastructure is prone to breakdowns that pose severe operational risk, cost a lot, and concentrate risk into the hands of the largest dealers and exchanges. Banks used to make buckets from their central role across the clearing-and-settlement spectrum, but a raft of new rules has combined with an array of empowered competitors (CCPs, anyone) to restructure clearing-and-settlement into a losing proposition. In theory, large banks could simply shutter clearing-and-settlement operations, but then the lights would go out across the financial system.</p> <p>The upside of blockchain processing thus is evident, especially to the largest banks and their regulators. Customers need to have clearing-and-settlement services and banks have long perched higher-margin products atop their infrastructure edifices. Regulators very much want banks in the clearing-and-settlement business – if banks don’t do it, then others – such as they may be and whatever bits and pieces of the business they might do – won’t be under strong prudential supervision (if any).</p> <p>What’s the downside? In thinking through blockchains, it’s critical at the start to work through what it fixes and how its fixes could go wrong. For starters, skeptics will look at the new big-bank venture, review research about collusion risk in anonymized, digital-ledger systems, and think LIBOR. That’s the first thing an expert in this field asked me about when the word “banker” came up, and he didn’t even know until I told him just how big they are.</p> <p>Another unanswered question is the extent to which counterparties – especially banks – will aggregate data when using digital ledgers. Data aggregation is a top regulatory priority not now faring well at any of the big banks. Will blockchains make this better? If so, that’s a big plus, but if so isn’t it even harder to tell one systemic counterparty from another until losses warp out of control?</p> <p>An even bigger plus would come if blockchain design addresses operational risk and, thus, systemic resilience. It is possible – certainly hopeful – that digital ledgers could erase all the speedbumps that can destroy financial-market axles under stress. However, would blockchain processes rev up high-frequency trading across the markets to the point at which trades couldn’t be halted by automatic stays in a regulatory resolution? If it does, then orderly resolutions are even more remote.</p> <p>Blockcha</p>
Is this Chinese start-up disrupting the world's oldest profession?
Venture Capital
<p>A Beijing-based start-up called Zubowa - meaning "rent me" -  has raised a $1.5 million angel round for a platform that allows users to sell themselves for a day... or a night.</p> <p>Of course, many uses for this service are purely innocent: perhaps you need someone to teach you piano, another player on your soccer team, or just someone to play bridge with your grandma. But there are other - potentially murkier - services also being offered: dating.</p> <p>According to Tech in Asia, the app is not shy about it either. The description attached to the app even boasts: "there are a ton  of beautiful girls and handsome guys waiting for you."</p> <p>It doesn't take a massive leap of the imagination to see how a platform such as this opens itself for exploitation. It will also be interesting to see how this startup navigates clear regulatory and cultural pitfalls.</p> <p>In any case, online-to-offline services is a fast-growing sector in China right now. Given that China's unemployment rate is the rise - the National Bureau of Economic Research recently put it at 10.9% -  a platform like this could still gain traction.</p> <p>&nbsp;</p> <p>&nbsp;</p>
Aberdeen Asset Management receives ambiguous award
Asset Management
<p>As Chinese securities brokerages and fund managers sweat under the intense scrutiny of the local authorities for alleged stock manipulation, Aberdeen Asset Management must be wondering if it has just been handed a poisoned chalice.</p> <p>The U.K. money manager is the first overseas asset management firm to be granted a wholly foreign-owned enterprise (WFOE) license in China, allowing it to operate as a private domestic securities firm, reports AsianInvestor.</p> <p>The award by the finance ministry followed a meeting between UK chancellor of the exchequer George Osborne and China’s vice-minister Ma Kai on Monday.</p> <p>Previously, WOFEs could only advise and had to attach “Overseas” or “Investment Consulting” designations to their names. Alternatively, they could form joint-ventures with local firms, but a 49% limit on their stakes meant they ceded control of the investment process – a not inconsequential concession when trying to cope with the volatile A-share market.</p> <p>Aberdeen Investment Management (Shanghai) was set up on September 14 in the Shanghai Free Trade Zone. Subject to final approval by the China Securities Regulatory Commission it will be able to create and distribute its own products into the private market of wealthy individuals and also service institutional investors.</p> <p>Hugh Young, Aberdeen Asset Management’s veteran managing director in Asia, is the Shanghai entity’s legal representative. But, bosses at Citic and several other Chinese investment firms have been taken into police custody during the past couple of week, so perhaps it would safer for Young to stay in Singapore.<br /> Photo: Javier Kohen<br /> &nbsp;</p>
Apple Pay gets ready for war in China
<p>Apple looks set to take on internet giants Alibaba and Tencent by launching its Apple Pay platform in China to compete with theirs.</p> <p>The Wall Street Journal reports the mobile-payment service registered an entity in the Shanghai free-trade zone in June. Called Apple Technology Service (Shanghai), its operations will include technical consulting and services and system integration in payments.</p> <p>It comes as no surprise. Apple CEO Tim Cook has said the company wants to launch payments as soon as possible. But the doesn't mean it won't have a heck of a fight on its hands.</p> <p>Alibaba and Tencent have already been in the payments space for at two years. E-commerce giant Alibaba has AliPay, while Tencent has payments functionality  bundled into its WeChat platform. Like Apple Pay, both are based on near-field communication (NFC) technology.</p> <p>Apple is not incapable of pulling a China incursion off. Apple's other products have taken China by storm, its most recent result showed revenue in  Greater China rose 112% in the fiscal third quarter ended June.</p> <p>Also, iPhone sales in the region rose 87% versus 5% in the broader smartphone market. This is important as the Apply Pay service is restricted iPhone and Apple Watch owners.</p> <p>Breaking China's  payment market will not be like breaking the smartphone market, and Apple can expect a lot more fightback from well-established domestic players and, potentially, local regulators.<br /> Photo: Dan DeChiaro</p>
Full house for the Cyberport NexChange Inaugural Fintech O-2-O Meetup
<p>Innovators, investors, finance professionals and media gathered in Hong Kong's Cyberport yesterday for the Inaugural Fintech O-2-O Meetup co-hosted by Cyberport and NexChange. Nearly 200 people in total attended the event which featured three presentations and a panel discussions on fintech trends in Hong Kong.</p> <p>The event kicked off with an introduction from Cyberport CEO Herman Lam, followed by brief presentation from NexChange CEO and founder Juwan Lee. Chris Dark, president international  at working capital marketplace C2FO, gave the keynote speech and set the tone for the event, talking about digitial disruption in the finance industry and how innovative start-ups can work with industry incumbents.</p> <p> The panel was chaired by NexChange associate managing editor Rupert Walker and included:</p> <p> Dominic Wong, head of large merchant acquisition, PayPal<br /> Jame McKoegh, partner, KPMG<br /> Mukesh Bubna, founder and CEO of Monexo.<br /> Van Ta, founder of STP-Suisse Tech Partners</p> <p>The lively discussion covered the evolution and revolution brought about by fintech and Hong Kong's role in developing the industry in Asia. Participants also had an engaging debate over the distinction between fintech - the leveraging of technology to create new financial products - and so-called "tech-fin" - using technology innovation  to support and grow the existing financial service ecosystem.</p> <p>Here are the social media highlights in full:</p> <p>[View the story "Inaugural #fintechO2O Meetup | Presented by Cyberport and NexChange " on Storify]<br /> &nbsp;</p>
Private banker Petko Bahovski reveals secrets for ultra rich in new book
Lifestyle, 4:01
<p>Petko Bahovski, 46, is an experienced investment consultant in Zurich, who previously worked for Credit Suisse, JP Morgan and Coutts in Asia, Latin America and Europe. He is also the author of a practical guide How to Choose a Private Bank. He came up with the book idea in 2006-2007 during his transition from investment to private banking. And the idea didn’t let go until the text was published earlier this year, writes FinBuzz.</p> <p>“I noticed that banks sell themselves usually by stressing their strong points. At the same time there exists loads of information on private banking from consulting companies like BCG, KPMG, or McKinsey. But the clients themselves are usually left with bits and pieces of advice, mostly concerning how to open an account in the UK or in Switzerland,” Bahovski explained.</p> <p>Translated into English and Bulgarian (Petko’s native language), the book reveals no names but answers basic questions on private banking matters. How much do you know about your private bank? How can you possibly choose who to trust with your assets? What services can a private bank offer you? How can you find the right private bank that will best suit your purposes and needs on an individual level?</p> <p>The very mission of the book is to expand the mind of the clients before opening an account; you don’t need to be a hedge fund guru to enjoy it. The niche edition of 700 copies (plus an e-book) appeals first and foremost to a more affluent audience that has an investment portfolio of more than $1 million, but it could also serve as an educational source for finance students.</p> <p>It took Bahovski about 3 months to complete the book: the whole process was very intense and intellectually rewarding. He dedicated an entire month solely to writing. The financier worked side by side with an English-speaking editor from a professional publishing company, striving to provide the text with high-quality language.</p> <p>“I’ve received many positive reviews from my target audience. The professional community also finds it useful for their clients, as they can be a little bit more prepared and, at the end of the day, the clients are aware of what they can get from a bank,” Bahovski proudly commented.</p> <p>In the beginning of October, the new book An Introduction to Investment Funds by Bahovski comes out. It will provide a thorough up-to-date summary on the whole investment fund universe and it is certainly a must-have for any investment professional. His third book, which discusses banking fines, is forthcoming.</p> <p>5 tips how to choose a private banker</p> <p>1) Be well-prepared. You should understand what exactly you expect from the bank and its investment portfolio management. The biggest mistake you can make in private banking is to invest into products and services blindly.</p> <p>2) It is extremely important that the private banker is somebody you feel comfortable with. Even when you like the bank, if you don’t like the banker better ask for someone else. There should be a kind of chemistry between the two of you. The banker should have a clear vision of your personal financial situation and your ambitions.</p> <p>3) Don’t get hooked by a brand. Banks that almost collapsed in 2008 are now the winners. If a pharmaceutical company produces an ineffective d</p>
BAML says “Fed Blinks”; lowest interest rates in 5,000 years
Capital Markets
<p>“The Fed Blinks,” blares a headline in an investment strategy piece from Bank of America Merrill Lynch today, one that takes the tone that the Fed catered to those on Wall Street who were warning of a threat to the main street economy if the Fed lifted rates.<br /> BAML: Interest rates "lowest in 5,000 years" at depression levels<br /> As short term interest rates are the “lowest in 5,000 years,” running at the zero level not seen since the Great Depression in 1930, a BAML piece from Chief Investment Strategist Michael Hartnett along with Investment Strategists Brian Leung and Garrett Roche notes seven primary thoughts.</p> <p>The first thought is that the Fed caved to threats that China and withdrawing stimulus from Wall Street could reverse what little main street recovery that has occurred to date. The bigger picture is that this recovery is different from others, “thanks to low rates/oil/unemployment,” but the component troubling economists, deflation, remains low as a result of three factors: debt, tech disruption, demographics.<br /> BAML: Fed in "tactical delay," also known as a "stay of execution for the 'liquidity era'"<br /> The delay in the Fed rate hike was viewed by the bank as a “tactical delay,” calling it a “stay of execution for the ‘liquidity era’” but it could have more ominous meaning if a strong rally does not ensue. The combination of an “ultra-dovish Fed” and bearish market sentiment could be hinting that a recession and/or default is imminent, according to the report, which is looking for the S&amp;P 500 to reach the 2040 to 2070 level in light of a soft touch by the Fed recently.</p> <p>A key point could be the rolling over of the Federal Reserve’s monetary base, known as M1 as the report says that liquidity could be peaking.  The peak in M1 could result in a peak in excess returns. The best anecdote to fears could be stronger global growth.</p> <p>In a “deflationary recovery,” the report recommends “growth, yield and quality” which it predicts will “remain structurally bid.” In such an environment they recommend maintaining long exposure to the U.S. dollar, long volatility as well as real estate and stocks, “but upside for risk assets now (are) constrained until unambiguous handoff from liquidity to growth” market environment occurs.</p> <p>This story first appeared in ValueWalk.<br /> Photo: Philip Dehm</p>
Daily Scan: China leads Asia rout, Macau casinos on a losing streak
Capital Markets
<p>Updated throughout the day </p> <p>September 23</p> <p>Good  evening. Asian markets plunged downward today, with China taking the lead after the Caixin manufacturing PMI disappointed expectations coming in at 47 for September - its lowest level since March 2009. The Shanghai and Shenzhen composite indices were down by 2.2% and 0.83%, respectively, as Hong Kong fared worse with the Hang Seng Index finishing down 2.26%; the H-share index down 2.7%. Among the hardest hit were Macau's casino operators. Galaxy Entertainment (-4.5%), SJM Holdings (-5.44%), and Wynn Macau (-5.8%) - which was recently rocked by $258 million heist -  all hit 52-week lows. Here is what else you need to know:<br /> India commits to $2.5 b military helicopter deal and deeper ties with Washington. The world’s largest democracies, India and the US, have agreed to deepen their security and economic cooperation, part of an ambitious drive to boost trade between them five-fold. SCMP (paywall)<br /> China open to foreign business amid economic reforms - Xi. Chinese President Xi Jinping has sought to reassure US business leaders, in a wide-ranging speech covering China's economic reforms and cyber crime. Speaking in Seattle, Mr Xi said foreign firms are welcome in China, and that Beijing would not manipulate its currency to boost exports. BBC<br /> EU leaders to agree on migrant quotas. EU leaders meeting in Brussels are set to approve a plan to relocate 120,000 migrants across the continent, despite fierce opposition from some members. Romania, the Czech Republic, Slovakia and Hungary voted against the mandatory quota scheme. BBC<br /> Volkswagen scandal could affect 11 million vehicles. The carmaker is now the subject of global criminal probes involving software designed to lie about emissions in its diesel cars. It has set aside $7.27 billion to cover potential liabilities. On Monday, the stock plunged 23% and slid another 19% on Tuesday. VW owns Porsche, Audi, and Skoda. Wall Street Journal (paywall)<br /> Malaysia won't protect its companies in Indonesia for causing haze.  Malaysia has said it will not protect its companies if they are found guilty of practising slash-and-burn to clear lands in Kalimantan and Sumatra in Indonesia. Many oil palm concessions in the region are owned by listed plantation companies in Malaysia. Channel News Asia<br /> China president Xi’s US trip gets off to an awkward start.The White House has contacted China’s Foreign Ministry over the detention of an American businesswoman accused of spying, a spokesman said on Tuesday, in a case that blew up just as President Xi Jinping began a visit to the United States. Japan Times</p> <p>Goldman Sachs CEO Lloyd Blankfein diagnosed with lymphoma. Blankfein announced via email that he will be undergoing chemotherapy treatments over the next seve</p>
Want to work for Ray Dalio? Then you better be able to answer these questions!
Lifestyle, 4:01
<p>Getting hired at Bridgewater Associates isn't easy. As one of the world's biggest hedge funds, Ray Dalio's firm has a reputation for being incredibly intense, and maybe a little crazy. Dalio has said the self-improvement process is like "when a pack of hyenas takes down a young wildebeest," reports Business Insider. Like companies such as Google, Bridgewater is more interested in forcing an interviewee to think about a complex question than to get a correct answer.  Says Dalio:<br /> "The answer doesn't really matter. It's totally great if the person's thinking on the subject ends in a different place than the beginning, because moving forward together to get at the best answer is more important than being right from the outset."<br /> Here are some of the most interesting Bridgewater interview questions Business Insider found on Glassdoor:</p> <p> For a facilities-manager candidate: "Are there any circumstances under which torture is justified?"<br /> For an investment associate: "Would the world be better off with an open border policy?"<br /> For an investment associate: "Should hate crimes be punished more strictly than regular crimes?"<br /> For a management associate: "Should participation in a team sport be mandated for young children?"<br /> For an investment associate: "Should the U.S. be allowed to kill civilians using drone strikes?"</p> <p>Photo: Richard Toller</p>