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IMF warns of huge emerging market defaults
Capital Markets
As if the US Federal Reserve doesn’t have enough to weigh up as it vacillates about raising interest rates. The International Monetary Fund (IMF) has added another factor to the mix. Yesterday, it warned that higher US interest rates could cause a wave of default by companies in emerging economies and panic in global financial markets as liquidity evaporates, reports
Alibaba ups its stake and pumps $680m into India's Paytm
Venture Capital
<p>Alibaba has made yet another incursion into Indian e-commerce, chucking $680 million at Indian payments firm Paytm - alongside its financial affiliate Ant Financial - bringing their stake to 40%.</p> <p>Alibaba and Ant Financial are now the largest shareholders of One97 Communications, the firm behind Paytm, which is now valued at $3.4 billion, the Economic Times reports.</p> <p>Paytm offers a mobile wallet app, online phone credit recharge, and a shopping service. Its been working on synergies with Alibaba since the Chinese e-commerce giant first invested in February.</p> <p>The Indian payments firm has seen its services used by a number of big players in India's burgeoning e-commerce space including Uber and Snapdeal, another Alibaba investment.</p> <p>The firm was also part of a consortium - which also included SoftBank - that pumped $500 million into Snapdeal last month. It looks like Alibaba now has a formidable potion in the sector.</p> <p>&nbsp;</p>
Alejandro Agag, the man who swapped consulting for racecar driving
Lifestyle, 4:01
<p>Alejandro Agag, walks into the room with the confidence that only a man of many talents can do. He is a seasoned politician, former chairman of Addax Capital, and is now the CEO of Formula E, writes FinBuzz. </p> <p>Unlike the better-known Formula One auto racing series, in Formula E, officially called FIA Formula E Championships, only 100% electric-powered cars zoom around the track. The first series was held in Beijing in September last year.</p> <p>Before the turn of the century, Agag was better known as a politician, but now, most people associate him with sports car racing.</p> <p>After a lengthy political career in Spain, Agag moved to London 2002 and opened a consulting firm, later called, along with Ignacio Munoz Alonso, former CEO of Rothschild Bank in Spain. In 2008, he was named the Spanish businessman of the year.</p> <p>He was the first person to expand Formula One across Spanish media, and since has been involved in several high-level sponsorships and race industry deals, one of which is a sponsorship with Julius Baer, a Swiss private banking group.</p> <p>“My banking and finance background was essential for being able to put together sponsors. Formula E has an exclusive sponsorship package with Julius Baer now which is going to last several years. A number of other banks have approached us to invest but I let them know while they can’t invest right now in Formula E they can partner with the car teams and sponsor that way,” Agag explained.</p> <p>He sees his work at Formula E as a mix of work and pleasure.</p> <p>“I was already a part of Formula One, being a driver myself and finding drivers for them. Because of my background in finance and my involvement on the track, FIA had the idea for me to put together investors for Formula E,” he said.</p> <p>Formula E seeks to be the first carbon neutral automobile sport, and is committed to sustainable and innovative technology in the motor industry.</p> <p>“Formula E is my passion. It is the testing place of new technology and the gateway to the future of the automotive industry. At Formula E we care for the environment and hope for a world where (one day electric) cars will be the only ones allowed in city areas. Cutting back on pollution is essential as we become more aware of the damage we are doing to the world we live in,” he said, running his hands through his hair.</p> <p>I asked him what other technologies could replace electric for the Formula E car.</p> <p>“Hydrogen could be part of our technology in time but currently hydrogen still relies on a battery and you need a source of it.”</p> <p>Agag went on to say that whatever happens to the advancement in technology Formula E is here to stay.</p> <p>“Currently Formula One is more prestigious that Formula E but that’s because it has a history. One day, maybe fifty years from now, Formula E will be just as prestigious if not more so.”</p> <p>Formula E is hitting the road with a race in Shanghai next month and  one in Paris in April. It is in talks about holding the event in several  other cities in Asia and America.</p> <p>Agag no longer races but runs a test drive around the track before races and sometimes gives private tours to sponsors.  His choice of car is the BMW M18 and he also drives a Renault Zoe.</p> <p>Although originally from Spain, after fifteen years of living in the City, Agag considers London as his home. In 2002 he married the form</p>
Pimco links Fed, China, commodity deflation & market concerns
Asset Management
<p>Noting that scientist Ivan Pavlov trained dogs to salivate in anticipation of receiving a tasty reward, Pavlov’s experiments translate into the current market environment, a recent Pimco strategy note observed. Investors have become trained to react negatively simply at the anticipation of a Fed rate hike, and the Fed is accomplishing a task that hasn't been successfully executed in the postwar era, they note.<br /> Pimco: Fed is eliciting typical Pavlovian response, causing markets to shudder at the thought of a rate hike<br /> “In 2015, market volatility has been rooted in a phantom rate hike from the Federal Reserve, which throughout the year has been ringing a bell to warn markets that it is on the verge of raising interest rates for the first time since 2006,” Pimco’s market strategist Tony Crescenzi wrote in a note to investors. “Though it hasn’t happened, the Fed has elicited a typical Pavlovian response, causing markets to shudder at the thought and prompting a very significant chain of events that has rippled throughout global financial markets.”</p> <p>Crescenzi says that the Fed’s much anticipated rate hike isn’t the cause of market volatility, but notes that it has been a catalyst. Crescenzi says the most significant fallout from “the Fed’s phantom rate hike” can be seen in China, connecting two of the primary performance drivers of negative stock market performance. China’s unexpected move to weaken its currency and improve its export sector in August spurred substantial market volatility highlighted by a plunge in global equities prices.<br /> Pimco links Fed rate hike, China and commodity deflation<br /> Linking nervous investors to concerns regarding the August 10 Chinese currency devaluation and a potential September Fed rate hike, Cresenzi says the strengthening U.S. dollar caused China’s currency, the yuan, to move higher on an inflation-adjusted basis, doing so at a time when its economy was weakening.  “This is the opposite of what tends to happen and it is an undesirable outcome for a central bank seeking to stimulate economic growth by cutting interest rates…” he wrote.</p> <p>Cresenzi noted the strengthening U.S. dollar along with “the anxious anticipation of a Fed rate hike by investors throughout the world sparked a cascade of events,” which are all inextricably linked. The Fed, China and the last leg of the troika of market concerns is the decline in commodity prices, which tend to fall when the dollar strengthens.</p> <p>“That markets have moved so significantly on the prospect of a Fed rate hike exposes the fragility of the global financial system, which remains mired in a lengthy era of deleveraging,” he wrote. “It demonstrates the difficulty that central banks face in escaping crisis-era policies, including zero percent policy rates.”<br /> Former Fed Chair Bernanke reminds Pimco that coming off zero has never been accomplished successfully in the post-war era<br /> It is the zero interest rate trap that Cresenzi notes former Fed Chair </p>
Daily Scan: Asia closes its worst quarter since 2008, China autos soar
Capital Markets
<p>Updated throughout the day </p> <p>September 30</p> <p>Good evening. The bell has rung and China's stock markets have posted their worst quarterly losses since 2008, despite finishing in positive territory. The CSI300 - an index of the largest companies on the Shanghai and Shenzhen markets - lifted by a modest 0.8%, and the Shanghai Composite edged up 0.5%. These modest gains pale into insignificance against the roughly 29% both bourses have lost since the start of July.</p> <p>China's auto industry was the biggest winner in the quarter after the government halved sales tax on small-engine cars. Changan Auto, Great Wall Motor, and SAIC Motor surged 9.99%, 10.02%, and 3.94% respectively.  However. Beijing's recent stimulus efforts do not erase the fact that China's auto industry has had its worst year since becoming the world largest in 2009.</p> <p>Here is what else you need to know:</p> <p>Japan on brink of technical recession. Japan is on the verge of a technical recession. Industrial production for August — a crucial input into gross domestic product — unexpectedly fell by 0.5%on the previous month after a 0.6% fall in July. Financial Times (paywall)</p> <p>China arrests two Japanese citizens for spying. Japan's top government spokesman confirmed Wednesday that China has detained two Japanese citizens, after reports that they were arrested on suspicion of spying. The two were both picked up in May, one in Zhejiang province and the other in Liaoning. The New York Times (paywall)<br /> IMF warns of new financial crisis if interest rates rise. Rising global interest rates could prompt a new credit crunch in emerging markets, as businesses that have ridden the wave of cheap money to load up on debt are pushed into crisis, the International Monetary Fund has said. Guardian<br /> Climate change is going to be very expensive, says BoE chief. The governor of the Bank of England has thrown down the gauntlet to the fossil fuel industry with a blunt warning that investors face “potentially huge” losses from climate change action that could make vast reserves of oil, coal and gas “literally unburnable”. Financial Times (paywall)</p> <p>Russian legislature gives use of Syria force the green light. In a closed-door session of the Federation Council, Russia’s highest body of parliament, senators voted unanimously to to give President Vladimir Putin authorization to use military force in Syria. Washington Post<br /> Indonesia's Jokowi 'needs time' to tackle haze. Indonesian President Joko Widodo has said he needs time to tackle the forest-burning which creates a haze every year over South East Asia. He Indonesians were also victims of the haze, but it would take three years for results to be seen from efforts to end the huge annual fires. BBC<br /> Afghan forces fight to retake Kunduz from Taliban. Afghan forces have been battling Taliban fighters to retake the city of Kunduz, a day after it fell to the insurgents in their biggest victory since their removal from power in</p>
Daily Scan: Stocks steady; Flooding hits East Coast
Capital Markets
<p>Updated throughout the day</p> <p>September 29</p> <p>Good evening, U.S. stocks steadied a bit Tuesday, with the Dow posting a 0.3% gain. The S&amp;P 500 squeaked by with an additional 0.1%, and the Nasdaq fell 0.6%. Oil was up about 1%, closing just short of $45/barrel. The Stoxx Europe 600 lost 0.7% Tuesday. Glencore's shares rallied up to 20% Tuesday as the company assured investors its finances are solid. Valeant Pharmaceuticals is getting hit hard, and it's taking down Pershing Square Capital Management and ValueAct Capital Management with it. Valeant's stocks dropped 17% Monday, and continued to slide more than 5% Tuesday. Don't forget: the new month starts Thursday.</p> <p>Here is what else you need to know:</p> <p>Floods coming. Portions of 11 eastern U.S. states are under flood watches through late Thursday. Heavy rain is already hitting North Carolina and Virginia, and could spread up to New England. CNN</p> <p>Japan Tobacco to buy non-U.S. rights to Natural American Spirit. The Japanese company will purchase the cigarettes from Reynolds American for about $5 billion. Japan Tobacco's Japanese market is shrinking, and Reynolds is willing to hand over some of its debt after it acquired Lorillard for $25 billion in June. Wall Street Journal</p> <p>Pope's security breached. A 39-year-old man impersonated an officer and drove his black SUV along a motorcade to get access to Pope Francis on the JFK tarmac Saturday. The man arrived about 10 hours after the pope had left, but he said he wanted to give the pope his business card and talk to him about changing the world. CNN</p> <p>U.S. still on track for 2015 rate hike. William Dudley, president of the Federal Reserve Bank of New York, said Monday the central bank is likely to raise short-term interest rates this year, echoing Chairwoman Janet Yellen’s message last week. Wall Street Journal</p> <p>U.S. launches airstrike after Taliban assault on Afghan city. US forces carried out the airstrike on the northern Afghan city of Kunduz today after after Taliban insurgents fought their way into the major city. The Washington Post<br /> China angered by Hillary Clinton tweet on women's rights. From calling her a "big mouth" to making Monica Lewinsky jokes, China has reacted furiously at US presidential candidate Hillary Clinton's recent comments about China's record on women's rights. Clinton said in a tweet that China President Xi Jinping was "shameless" for hosting a UN conference on women's rights. BBC<br /> China’s offshore yuan softens versus US dollar. The offshore yuan softened against the US dollar today, at one point trading at a premium against the same day’s mid-price fix for the first time since November. At 6.3710 against the greenback, the offshore yuan was weaker by 130 basis points from Monday’s close, ending the currency’s longest winning streak in one month. South </p>
What happens when public pension funds go activist?
Asset Management
<p>As activist investing continues to spread in popularity, we've begun seeing studies that attempt to gauge whether activism actually creates value for shareholders or not. Public pension funds are starting to get in on the action, now becoming a formidable force in the activist arena as Proxy Monitor found that this year nearly one-fifth of all the shareholder proposals brought to Fortune 250 companies were sponsored by them.</p> <p>Now there's a new study that looks at whether public pension fund activism makes a difference or not. As it turns out, their activism and even ownership to some degree is correlated with lower stock returns.<br /> Stock returns fall when public pension funds go activist<br /> University of Tennessee Professor Tracie Woidtke analyzed the stock returns of companies that became the activist targets of public pension funds between 2006 and 2014. The Manhattan Institute's Proxy Monitor published her report on the topic as a companion to the regular Proxy Monitor report, and interestingly, she found a correlation between shareholder proposal activism by public pension funds and lower stock returns.</p> <p>She examined Fortune 250 companies that were targeted by shareholder proposals from five of the biggest state and municipal pension funds and learned that, on average, the companies' stocks underperformed the S&amp;P 500 Index by 0.9% in the year after the vote on the proposals. Just five big state or municipal pension funds dominate shareholder proposals:</p> <p>Also the number of proposals introduced by those five funds has climbed steadily over the last few years:</p> <p>The public pension fund's activist involvement that had the biggest negative impact on stock prices was CalPERS. The Manhattan Institute warned that the sample sizes for CalPERS, CalSTRS and the Florida fund were probably too small. However, they did have a big enough sample for the the New York State Common Retirement Fund, which also had a huge negative impact on share prices. Woidtke found that companies targeted by that fund saw their stock prices decline by 7.3% compared to the broader market.</p> <p>Proposals on social issues not supported<br /> Perhaps the main reason the New York State Common Retirement Fund's activist campaigns had such a huge negative impact on its targeted impact is because it began to aggressively push out proposals on social issues like political spending starting in 2010. As you can see from the graph, political spending or lobbying made up the lion's share of the fund's proposals over the last decade:</p> <p>There's a marked difference in the strategy employed by the State fund and that used by New York City pension funds, which is more balanced:</p>
Billionaire buys two Manhattan condos
Lifestyle, 4:01
<p>&nbsp;</p> <p>Billionaire restaurateur Peter Morton has bought two condos in the West Village.</p> <p>Morton, who founded the Hard Rock Cafe and Morton's Steakhouse chains, spent $25.5 million on the two units on the 12th and 14th floors of 150 Charles St., reports the New York Daily News. Morton has been looking for a new pad since his $10 million Hamptons home burned down in March.</p> <p>Morton's new neighbors will include Jon Bon Jovi. The building sports a lap pool and hot tub, a gym, massage room, and  40,000-square-foot landscaped common area and private terraces.<br /> Photo: Michael Dorausch</p>
NY Fed president says interest rate rise still on for 2015
Capital Markets
<p>An interest rate rise is still, definitely maybe, coming this year, promises New York Fed president William Dudley.</p> <p>"Every meeting's a live meeting," Dudley said during a Wall Street Journal-hosted breakfast Monday. "Let's see what the information is [in October]," he said.</p> <p>But Dudley was reluctant to forecast when the rate rise will happen, or even what exactly the Fed is waiting for. "I don't think it's possible to say if 'X' happens then 'Y' will follow," he said, explaining that there are too many "X"s to take into consideration. As different economic issues come up, such as devaluation of the yuan or the strengthening of the dollar, the U.S. economic situation could change. "We want to assess [the uncertainty in emerging markets] not for itself but for how it effects the U.S. economy," said Dudley.</p> <p>The Fed isn't "chickening out" on raising rates either, said a defensive Dudley. "If things come along...we should change what we're going to do," he said. "The world is not a certain place."</p> <p>And everyone needs to take a chill pill, Dudley indicated. "I think there's an over emphasis on the first [interest rate] move." Once the first move happens, the focus will turn to the second, and then the third, he said. The markets shouldn't count on a "mechanical" approach to interest rates, such as a quarterly raise. The ideal approach to the economic policy is something between mechanical rules and discretionary policies, said Dudley. Rules, like the Taylor Rule, are "guidelines" that need the personal insight of economists before being implemented. And the Federal Reserve needs to communicate those choice carefully, to keep investors on board, he said.</p> <p>"We care about financial stability because of how it can disrupt" the macro economy, said Dudley.</p> <p>Basically, we're still waiting. And may be for a while.<br /> Photo: Michael Daddino</p>
Chicago business school alumni host Booth Night
Lifestyle, 4:01
<p>Alumni snap photos at #BoothNight15</p> <p>Business school graduates from Lima to Abu Dhabi gathered on September 17 in over 97 cities worldwide. Donning silly props and flashing #ChicagoBooth night placards, alumni flooded social media with photos from different geographical gatherings.</p> <p>More than 3000 alumni participated in the virtual get together known as Worldwide Booth Night. The tradition dates back to 2001, and has grown in numbers each year with the support of local Booth alumni chapters around the world.</p> <p>In London, alumni gathered TwoRuba Bar at the Hilton Hotel Tower Bridge. Members from the UK Booth Alumni chapter, which has over 1,000 members, attended the event. In the US, events were held in New York, Chicago, LA, and in more than 30 other cities.</p> <p>Another major cluster of graduates gathered in Dubai’s GQ Bar, hosted by alumni Rezwan Mirza ’99 and John van Zuylen ’10.</p> <p>It’s an opportunity for not only networking and talking finance, but also a pleasant atmosphere to kick back with old schoolmates and meet new alumni in your city.</p> <p>After Harvard, Booth School of Business is the oldest business school in the United States, and the first ever to offer an Executive MBA program. Famous alumni include James McKinsey, Founder of McKinsey &amp; Company, Jon Corzine, former CEO of Goldman Sachs and the former governor of New Jersey, Brady Dougan CEO of Credit Suisse, and Peter Peterson, Founder and Chairman of the Blackstone Group and former CEO of Lehman Brothers.</p> <p>It is one of the top-ranked schools in the United States, and as the photos show, graduates take their Booth experience to all corners of the world.</p> <p>&nbsp;</p> <p>Sailing with Boothies &amp; Booth alums on Venetian Night in Chicago! #BoothNight15 #ChicagoBooth<br /> A photo posted by Grace Ding (@gracie_ding) on Sep 12, 2015 at 5:50pm PDT</p> <p>A glimpse of the people and places that make up our worldwide community! #BoothNight15 #ChicagoBooth pic.twitter.com/RF9pDVFi9A — Chicago Booth (@BoothFullTime) September 21, 2015</p>