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Knight in shining armour: Alibaba's $3.5B bid for Youku Tudou
Venture Capital
<p>It looks like Alibaba could add another string to its bow with a bid to buy US-listed Youku Tudou. For the ailing Chinese video site the timing could not be better.</p> <p>Alibaba says it's offering to pay $26.60 per American depositary share to acquire the 82% it doesn't already own. The offer represents about a 30% premium on Youku Tudou's last closing price prior to the bid going public and values the company at $5.1 billion. Tech Crunch reports that total offering is worth $3.5 billion, when taking the cash already on Youku's book already into account.</p> <p>Its a welcome development for the one-time venture capital-backed Youku which, despite its dominance as China's answer to YouTube, has had a miserable loss-making run on US public markets. Its chairman and CEO Victor Koo has already pledged his shares in support of the deal.</p> <p>Alibaba already holds an 18% stake having made a strategic investment in May 2014. The decision to gobble up the rest may be fairly opportunistic but it's a large leap for Alibaba as it looks to spread its e-commerce empire to include digital content. Daniel Zhang, chief executive officer of Alibaba Group, said this:</p> <p>"We believe that the proposed transaction, with tighter integration of our resources, will help Youku achieve exciting growth in the years ahead by leveraging Alibaba's assets in living-room entertainment, e-commerce, advertising and data analytics. Digital products, especially video, are just as important as physical goods in e-commerce."</p> <p>With Baidu’s iQiyi and Tencent’s QQ video services already operating in this space its is yet another front on which the China's internet giants are battling fiercely for dominance.<br /> Photo: Hans Splinter</p> <p>&nbsp;</p>
Boaz Weinstein is on the warpath
Hedge Funds
<p>In the latest twist on the Saba Capital vs. Public Sector Pension Investment Board (PSP) saga, Saba’s Boaz Weinstein essentially told Forbes that he’d rather slash his wrists than give PSP a single cent:<br /> “PSP recklessly and maliciously attacked me and my firm. Read our motion to dismiss – it shows that we did absolutely nothing wrong and that is why we will not settle this suit for 1 cent.”<br /> The man has a point though. Taking a quick gander at PSP’s complaint, it seems that the Canadian pension may be making something out of nothing here:<br /> “to calculate the NAV of the Class A shares of the Fund in satisfaction of the pending requests to redeem those shares as of March 31, 2015, defendants deviated from their past practice by using for the first time a different method for valuing the MNI bonds in the Master Fund's portfolio, namely, they used a bids-wanted-in-competition ("BWIC") process that purportedly produced materially depressed bids reflecting a significant liquidity/blockage discount from the values previously assigned by defendants to the Master Fund's holdings of MNI Bonds.”<br /> Given that a) PSP’s supposedly one of Saba’s largest clients (and thus a large chunk of capital) and that b) Saba’s would be selling a big block of bonds into a depressed market, doesn’t this method sound – at least – a rational thing to do?</p> <p>Also, there’s this little nugget from Saba’s motion to dismiss which, if true, might prove to be more than just a pebble in the shoe for PSP:<br /> “the valuation process PSP describes in its complaint is entirely consistent with the governing documents—indeed, they required it under the circumstances. The Investment Manager was not obligated to continue using a valuation methodology under conditions in which it did not generate reasonable, reliable and accurate valuations for the bonds at issue. Saba turned to a methodology that did achieve such valuations. In any event, PSP cannot sue the Fund itself for breach of contract, because the governing documents demonstrate that the Fund plays no role whatsoever in the determination of the NAV.”<br /> This thing could go a long way though, so stay tuned.<br /> Photo: Andy Maguire</p>
No rate cut down under
Capital Markets
<p>The RBA minutes painted a pretty picture of Australia’s economy today, citing controlled inflation, a “rebalancing” away from the mining sector, and a surge in exports. More importantly, it telegraphed that the RBA currently is in no rush slash rates again. Still, the members seem to be pretty worried about “the key domestic sources of risk to financial stability,” the nation's local property markets:<br /> “Members further observed that the risks in commercial property and the property development sector were rising. Building approvals for new apartments remained very strong over 2015, even though rental markets appeared soft in some areas. The divergence between commercial property valuations and rents had widened further, with strong domestic and foreign investor interest for new and existing office buildings in particular, even though vacancy rates were quite high…The key domestic sources of risk to financial stability, and stability of the Australian economy more broadly, revolved around developments in local property markets. Members noted that growth in lending for housing had been steady over recent months and that there were some signs of an easing in the strong rate of increase in dwelling prices in Sydney, in particular, although trends had been more varied in a number of other cities.”<br /> AUD/USD climbed as high as $0.7276 following the release, however, swaps – still spooked by China – are still pricing in a 58% chance of a November rate cut.<br /> Photo: Michael McDonough</p>
What are the credit markets telling asset allocators?
Asset Management
<p>What Are The Credit Markets Telling Asset Allocators? by Toby Nangle, Columbia Threadneedle Investments</p> <p> Credit spreads can contain important information about investors’ expectations regarding risks to corporate solvency, and the economic cycle more generally.<br /> Rising credit spreads can also reveal strains in the financial system that are only later reflected in equity market valuations.<br /> We explain what the signals in the recent sell-off tell investors and what we are doing with this information in portfolio construction decisions.</p> <p>Credit spreads – the additional yield promised to investors over and above the yield offered by similar maturity government bonds – can contain important information about investors’ expectations regarding risks to corporate solvency, and the economic cycle more generally. Rising credit spreads can also reveal strains in the financial system that are only later reflected in equity market valuations. As such, it is worth asking what the substantial rise in Investment Grade and High Yield credit spreads over the past 18 months (figures 1 and 2) means for investors.</p> <p>Credit spreads compensate investors for a combination of underlying corporate credit risk and illiquidity risk. We have written before about a technique that is used by our investment team and the Bank of England to split credit spreads into these two components. Our analysis suggests that there has been neither an increase in theoretical liquidity risk premia embedded in credit spreads, nor an increase in empirical measures of illiquidity over the past 18 months.1 As such it would seem by process of elimination that the increase in credit spreads really is about an increase in perceived credit risk.</p> <p>The increase in credit spreads has come at a time when many energy companies have experienced a very marked deterioration in their prospects. Energy is an important part of the US high yield market, accounting for around 16% of the face value of the market.</p> <p>Figure 3 compares the distribution of spreads for US high yield non-energy company bonds at the end of July 2014 when the oil price stood at $98 a barrel and September 2015 by which time the oil price had fallen to c$45. We can see that substantial distress has been priced into energy company debt when we repeat the exercise for energy companies, the results of which are shown in Figure 4. This shows that we have moved from a situation where virtually no US energy company bonds traded with an option-adjusted spread above 1,500 basis points to one in which more than 15% of energy company bonds (by face value) traded with this risk premium.</p> <p>Importantly, the centre of gravity for both energy and non-energy high yield bonds has also shifted higher over the period, reflecting the fact that almost every sector of the market has been repriced (downwards). And interestingly, we find that the European high yield market has also been largely repriced despite its much lower exposure to energy (as shown in figure 2). It appears to be a victim of contagion in credit markets, and while we expect the default rate to spike higher in the US market,</p>
Daily Scan: Chinese shares rebound; Canada elects new PM
Capital Markets
<p>Updated throughout the day</p> <p>October 20</p> <p>Good evening everyone. A weird combo of stimulus bets, services sector growth, and margin lending increases helped Chinese shares out of their rut Tuesday with the Shanghai and Shenzhen Composites ending the session up 1.4% and 1.97%, respectively. Hong Kong however was a lot more subdued with both the Hang Seng and the Hang Seng China Enterprises Index tanking 0.37%. As for the rest:</p> <p> Nikkei 225: +0.42%<br /> Straits Times Index: +0.09%<br /> Kospi: +0.45%</p> <p>The European markets meanwhile seem to have taken a hit largely thanks to the China-fueled commodity rout. The FTSE 100 is currently down 0.1%, the DAX down 0.2%, and the CAC down 0.3%.</p> <p>Here’s what else you need to know:</p> <p>Canadian liberals make shock election win. Canada's Liberal leader Justin Trudeau rode a late surge to a stunning majority election victory on Monday, toppling Prime Minister Stephen Harper's Conservatives with a promise of change and returning a touch of glamor, youth, and charisma to Ottawa. Reuters</p> <p>Moody’s: Gulf states to run deficits in 2015-2016. They may be late for the “low oil is bad for the Gulf” train, but ratings agency Moody’s sure makes up for it with a little bit of shock and awe. The agency says that Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE – which all ran surpluses from 2010 to 2014 – are set to run a near 10% deficit in 2015 and 2016. Financial Times (paywall)</p> <p>Divided families reunite in North Korea. Hundreds of South Koreans have begun meeting family members in the North in a rare reunion event for families separated by the Korean War. The reunion, comprising a series of meetings over a week, is being held at a Mount Kumgang resort, at the border. BBC</p> <p>Chinese new home sales disappoint. Expecting a “golden September,” developers and investors were instead met with a broad drop in home prices in China’s tier-1 cities. Compared to August, primary home prices in Shanghai fell 0.9% in September, while Shenzhen and Guangzhou did far worse by tanking 3.5% and 5.6%, respectively. Beijing home prices continued to post gains, climbing 7.1% in September from the month before. SCMP (paywall)</p> <p>China to invest billions on British nuclear plant. In a landmark deal set to be announced on Wednesday, China is to take on a 33.5% share in the proposed $37 billion, French-led Hinkley Point nuclear power station in Somerset. The deal, which took months of negotiations with France’s EDF, is set to be Chinese Premier Xi Jinping’s “commercial centerpiece” during his visit this week. Financial Times (paywall)</p> <p>U.S. Treasury: Chinese capital outflows surged nearly 1000%. In its latest report to congress, the U.S. Treasury Department said that capital outflows from mainland China surged to $250 billion in the first half of the year, a massive jump from the $26 billion posted in the same period in 2014, adding that in July alone outflows may have reached $80 billion, and may have spiked as high as $200 billion in August. U.S. Treasury</p> <p>Deutsche accidentally paid hedge fund $6 billion.</p>
Asia lens on global ESG
Capital Markets
<p>There are many ways in which a firm can construct the illusion of shareholder value creation (as they often do), while actually hurting it over the long term. Take, for example, a manufacturing business that might cut costs, boosting short-term profits by releasing untreated sewage into a river. Doing so will seemingly lift its short-term cash flows but will also substantially increase the variability of its long-term cash flows because the potential threat of regulatory actions, that may thwart business, is never far off. Similarly, a firm can cut back on research and development expenses to boost short-term profits. But that can often damage its long-term prospects.</p> <p>Therefore, a focus on solely short-term profit generation may allow observers to draw misleading conclusions about a firm’s long-term prospects. In accurately assessing a firm’s long-term prospects, it pays to understand the environmental and social impacts of its business practices on all stakeholdersinvolved, which could lead to better outcomes for shareholders in the long run. By stakeholders, we mean employees, a firm’s neighboring community, supply chain, customers and regulators in addition to shareholders. This is what the incorporation of Environmental, Social and Governance (ESG) factors in investment analysis purports to achieve. Businesses that meet ESG standards are generally businesses that make human or business activity less destructive to the environment, as well as promote positive social and economic developments. Therefore ESG focus is part of a focus on long-term shareholder value creation as companies that fit this bill may be better able to spot and execute on long-term growth opportunities. Equally importantly, such companies may be also better able to identify and manage risks effectively, potentially resulting in improved risk-adjusted outcomes for company shareholders.<br /> Asia: Act Locally, Impact Globally<br /> For investors looking to make investment decisions based upon ESG factors, Asia represents one of the best opportunities to gain exposure to companies that can make a long-term difference to the region and the world. There are a range of global ESG issues that cannot be addressed effectively and solved globally unless they are addressed and solved in Asia first. For instance, with respect to climate change, Asia today is the largest regional emitter of carbon. It emits approximately 2.5x the carbon that North America emits, and four times that of Europe.</p> <p>&nbsp;</p> <p>On the back of impressive growth over the last several decades, the Asia Pacific region accounts for 28% of global GDP and 31% of stock market capitalization. Asia’s growth has lifted hundreds of millions of people out of poverty and created a large and vibrant middle class. But an economic model that prioritized growth without regard to externalities has led to rapid deterioration of the environment.</p> <p>Read more at Advisor Perspectives<br /> Photo: NASA Goddard Space Flight Center</p>
Daily Scan: Weight Watchers stock soars; IBM disappoints; the $6B 'oops'
Capital Markets
<p>Updated throughout the day</p> <p>October 19</p> <p>Good evening. We're off to a shaky start for the week, with Morgan Stanley in a big miss for its 3Q earnings -- $0.42/share  (adjusted) vs $0.66 estimates. U.S. markets start the week in a holding pattern following a strong close last week. The Dow fell 0.1% by midday, but was able to scrape up a 0.1% gain by close. The S&amp;P 500 added 0.03% after being low all day as well. The Nasdaq gained 0.4%, after an initial fall. Soft growth in China has hit energy shares giving a negative tone to the early morning trade. Investors will be likely be divining the strength of the economy this week through earnings reports. Bucking the trend: Weight Watcher's stocks more than doubled Monday after Oprah announced she is taking a 10% stake in the company and joining the board. The National Association of Home Builders' numbers are in, and we're doing a little happy dance. Sentiment is up 3 points to 64, compared with 54 points last October. Analysts had been ready for the index to be unchanged at 62 this month.</p> <p>Here’s what else you need to know:</p> <p>IBM's revenue disappoints. IBM reported Monday that its revenue fell for the fifth quarter in a row, and 2015 operating profit forecasts were dropped to $14.75-$15.75 per share from $15.75-$16.50. Shares were down 4.5% in after-market trading. Reuters</p> <p>Deutsche accidentally paid hedge fund $6 billion. A junior foreign-exchange trader accidentally transferred $6 billion to a U.S. hedge fund client's custody account in June, after he misunderstood directions. The trader paid out a gross amount -- not net -- as was intended. The error was corrected within 24 hours, but highlights some of the technology issues the bank has struggled with. Wall Street Journal</p> <p>CIA director's email possibly hacked. The FBI and Secret Service are looking into reports that CIA Director John Brennan and Department of Homeland Security Secretary Jeh Johnson's personal email accounts were hacked. The alleged hacker is a high school student who says he is critical of U.S. foreign policy and a supporter of Palestine. CNN</p> <p>"Star Wars" tickets go on sale Monday night. The latest chapter in the Star Wars saga is due out in December, but tickets go on sale after Monday Night Football October 19. The "Star Wars: The Force Awakens" trailer will also debut during the game between the New York Giants and the Philadelphia Eagles. CNN</p> <p>Polls open in Canada, and it's going to be a tight race. Incumbent Conservative Prime Minister Stephen Harper is vying for a fourth term, but it appears that Liberal leader Justin Trudeau, whose father was prime minister, is leading the polls. Left wing New Democratic Party's Tom Mulcair is also pulling strong support, but will likely fall behind the others. BBC</p> <p>Amazon attacks fake reviews. King Amazon is suing more than 1,000 people for posting fake product reviews on the site and "misleading" customers. In April, Amazon sued a number of websites for selling fake reviews as well.</p>
The top Wall Street internship resume winners
Lifestyle, 4:01
<p>The one-two punch for nailing a Wall Street internship is simple, a former bulge-bracket analyst told Business Insider. Most important?</p> <p>1. Have a GPA of at least a 3.6.</p> <p>2. List relevant experience.</p> <p>3. Write three non-finance interests.<br /> Photo: istock Rich Legg<br /> &nbsp;</p>
This ETF will work...until it doesn't
Asset Management
<p>First Trust Dorsey Wright International Focus 5 ETF (NASDAQ: IFV) has received arguably the least amount of fanfare among the most successful ETFS. Just 10 months after coming to market, the First Trust Dorsey Wright International Focus 5 ETF is now home to $641.1 million in assets under management.</p> <p>Judging by flows data, IFV got off to a slow start as essentially all of the ETF's current assets under management tally has flowed into the fund this year. Of course, it is worth noting IFV enjoys a big marketing advantage. It is the international equivalent of the wildly popular First Trust Dorsey Wright Focus 5 ETF (NASDAQ: FV). FV does not turn two until March and it already has over $4.2 billion in assets.</p> <p>IFV applies the methodology used by FV at the international level. Meaning IFV holds five First Trust single-country or regional funds displaying favorable momentum characteristics. IFV's current lineup includes the First Trust United Kingdom AlphaDEX Fund FKU 0.12%, First Trust Switzerland AlphaDEX Fund FSZ and the First Trust Germany AlphaDEX Fund FGM.</p> <p>Read more at Benzinga. <br /> Photo: Hans Gerwitz</p>
Video: Gen. Petraeus talks US energy revolution
Capital Markets
<p>The U.S. is leading the energy revolution, says former CIA director Gen. David Petraeus on this week's Wall Street Week. Be bullish on America, because its  innovation is paving the way, he says.</p>