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Video: ICYMI -- The Janet Yellen press conference post FOMC rate decision
Capital Markets
<p>Chair Janet Yellen read a statement on Thursday, September 17 after the Federal Reserve decided to stand pat on interest rates. She then fielded questions from reporters. Do you agree with the way the press portrayed the Fed decision? Anything in this hour-long video that surprises you?</p>
Credit risk a bigger problem for emerging markets than higher rates
Capital Markets
<p>The Wall Street Journal recently had a lead article with the headline “Higher Rates A Risk for Emerging Markets.” The implication of the headline—and of much of the article—was that a general rise in interest rates—even a small one such as the Fed soon may generate—poses a danger to EM nations and companies.</p> <p>Frankly, that idea totally misses the point: EM nations and companies have borrowed in dollars and euros that they may not be able to repay in a slower global economy where they will not earn the foreign exchange they will need in order to so. The result is a classic credit risk problem.</p> <p>The Fed may raise short-term rate by a quarter percent—maybe even by a quarter percent a couple of times. Those quarter percents mean nothing when the interest rate on existing borrowings is LIBOR plus 3 and the new credit conditions may require the EM nation or company to pay LIBOR plus 4 or 5—or even more—in order to get credit at all. Brazil, for example, has been downgraded to junk by S&amp;P. That is not interest rates rising; that is the Brazilian economy going in the tank.</p> <p>The WSJ article itself tells us that the issue is credit risk. It has a nice set of graphs at the end (the beginning in the online edition) that it discusses hardly at all. The graphs show that for EM loans in its sample, the margin over LIBOR is 2.5 percentage points, up from 1.2 in 2005. By contrast, six-month LIBOR itself has moved only from .5% in 2013 down to a little over .3% in 2014, back to a little over .5% now. Basically, nothing has happened to general interest rates. It is credit risk that has been changing—and that will continue to change, perhaps at an accelerating pace. The loans were made when EM economies looked strong and the financial world was reaching for yield. Now the EM economies look weaker. Simple story.</p> <p>Real market turmoil comes from credit risk. We might see some of it.<br /> Photo: Global Panorama</p>
U.S. – China: A relationship of inconvenience?
Capital Markets
<p>In an era of economic modernization, it is clear states stand to lose more and gain very little by locking horns and flexing their muscles. With the way the international system has changed over the past few decades, for any state -- especially one that has come a long way from being just another piece of land on the map to a regional superpower, if not global -- it will always be considered foolhardy and erratic behavior to opt for a violent and coercive approach to settle disputes.</p> <p>Talking on the table and weighing the pros and cons of fighting a war is the new battlefield, with diplomacy the best way out. Indeed, Carl Von Clausewitz's statement, "War is nothing but a continuation of politics with admixture of other means," is not more applicable to the current scenario in which states, regardless of their insecurities and reservations about their so-called allies, cannot afford to go to war.<br /> China's emergence as the Asian peninsula superpower<br /> Today China has come a long way towards establishing itself as one of the emerging superpowers in the Asian peninsula. A major chunk of China's economic progress is due to the fact that there is no state on the globe that can challenge its production and manufacturing superiority. And the fact that China is pulling strings on Wall Street clearly means that the U.S. cannot afford to adapt a confrontational policy with the Asian giant.</p> <p>Apart from already going with its economic plans at a breakneck pace, China is also arming itself to the teeth, and this has raised concerns in North America where China's aggressive approach is seen as a ploy to flex its muscles in the vicinity of the South China Sea, which is an international disputed territory with multiple players vying to have control over it. The fact that the Chinese navy's movements and the recent developments in that context (the building of the artificial island) are further worrying the U.S. and its allies.</p> <p>However, it was never really supposed to be the way things have panned out in recent memory. In 1972, U.S. President Richard Nixon visited Beijing, which was a first in U.S. history at that time. It was a move that astonished and shook the whole world, considering China's ideology towards economics and politics. Regardless, that did not stop Washington from trying to broker a diplomatic relationship with a state that was steadfast in its resolve to not give its "newfound friend" any room to maneuver.</p> <p>Even though the media at that time was very critical about this particular move, Nixon and his administration were defiant since they saw the bigger picture. In China, Washington saw a state with huge potential and a possible market and a strategically important ally despite a few features of the state that made Congress a little twitchy.</p> <p>After keeping very much in line with the economic reforms that were introduced during the 1970s and being very consistent about it, China has really come to life since the turn of the new millennium. Today it is a vocal and integral member of the World Trade Organization and one of the most vital cogs in the international monetary system. It might be a benign superpower for now, but one cannot underestimate its global influence on all levels.<br /> U.S. - China relations<br /> Since the beginning of the year, </p>
Japan then and now
Capital Markets
<p>September 2015</p> <p>Late in 2006, Matthews Asia was wrapping up a special report titled “Japan Reawakens.” The timing of that AsiaNow publication, just ahead of the Global Financial Crisis, was unfortunate to say the least. With the ensuing economic turmoil, Japan fell asleep again, sliding off the radar screens of many investors. But as interest in Japan has more recently re-emerged, I thought it would be important for us to take a look back and consider what we previously published. Has Japan evolved the way we had envisioned? What’s changed and what hasn’t? And most importantly, where do we go from here?</p> <p>Governance at Japan Inc.</p> <p>A major theme in that issue of AsiaNow was “Restructuring of Japan Inc.” We discussed topics such as shareholder-friendly governance, the shakeup of cross shareholdings, using catchy phrases like “this is not your father’s Japan” and “from stakeholders to shareholders.” We spoke too soon. Japan’s corporate governance made little improvement in the years that followed. The Global Financial Crisis ushered many companies back into their cocoons, where they found comfort in cash-hoarding practices that shielded them during tough times. I recall a steel company executive telling me, “We survived because we had this cash, why should we pay it out?” Only recently, have the tides begun to shift again.</p> <p>Japan’s Stewardship Code of 2014 and its Corporate Governance Code in 2015 are measures that reflect the strong determination of Prime Minister Shinzo Abe’s administration to bring Japan’s corporate governance practices further in line with global practices. In reality, the code itself still falls short of global best practices, and needs continued improvements. For instance, it does not mandate a majority independent board, there are few repercussions for non-compliance and it lacks a regular monitor-and-review process.</p> <p>Still, we’ve observed a noticeable change in how corporate managers interact with investors and the market in general—some more than others. That changing mindset is evidenced by the increase in shareholder returns in the form of both dividends and share buybacks. On the back of strong earnings, dividend payouts for firms on the Tokyo Stock Exchange’s 1st section have reached a historical high. Note that the figures in the chart below reflect only dividends and buybacks that have already been executed. There are even more buybacks announced but yet to be executed.</p> <p>However, improving corporate governance isn’t simply about paying out excess cash. Ultimately, Japanese corporate managers need to become better stewards of capital. That means improving capital returns by unwinding unproductive cross shareholdings and investing for growth. Already, several major financial institutions have announced plans to comprehensively review their cross shareholdings. Japanese firms have also been active in cross border acquisitions with more than US$50 billion spent year-to-date as they invest for growth.</p> <p>These developments give me some hope that progress will be made over the next several years. Remember, change in Japan rarely happens quickly. There may even be times when it looks like it’s taking a step back. Hence, it’s important for investors to temper expectations, have some patience and let the evolution play out.</p> <p>The Evolving Relationship with Asia</p> <p>Another major theme from the AsiaNow newsletter, published in 2007, was Japan’s integration with Asia. Back then, the relationship was mo</p>
NexAsia Week Ahead: Greek elections; US GDP coming up
Capital Markets
<p>Good morning everyone. With the Fed decision over and done with, attention is set to shift to global politics this week as Greece hits the polls and Shinzo Abe outlines his plans. The Bank of Japan is scheduled to reveal its monetary policy decision though, and the U.S. is about to unveil its final Q2 GDP growth rate as well, so we still have a lot of biggies from the economic data front coming.</p> <p>Here’s what you should look out for:</p> <p>Sunday:</p> <p>7:00 am – Greek parliamentary elections</p> <p>Monday:</p> <p>2:00 pm – Germany August MoM PPI – Forecast: -0.4% from 0%</p> <p>3:00 pm – Switzerland Q2 current account</p> <p>4:30 pm – Hong Kong Q2 current account</p> <p>4:30 pm – Hong Kong August YoY inflation rate – Forecast: 2.24% from 2.5%</p> <p>6:00 pm – Bundesbank month report</p> <p>10:00 pm – U.S. August existing home sales – Forecast: 5.4 million from 5.59 million</p> <p>Tuesday:</p> <p> 9:30 am – Australia Q2 QoQ house price index – Forecast: 2% from 1.6%</p> <p>10:00 am – China August CB leading economic index</p> <p>2:00 pm – Switzerland August balance of trade</p> <p>10:00 pm – Eurozone September flash consumer confidence – Forecast: -7.26 from -6.9</p> <p>10:00 pm – Richmond Fed September manufacturing index – Forecast: -2 from 0</p> <p>Wednesday:</p> <p>9:45 am – China September flash Caixin manufacturing PMI – Forecast: 47 from 47.3</p> <p>12:00 pm – Malaysia August YoY inflation rate – Forecast: 3.47% from 3.3%</p> <p>1:00 pm – Singapore August YoY inflation rate – Forecast: -0.3% from -0.4%</p> <p>3:00 pm – France September flash Markit services PMI – Forecast: 51.3 from 50.6</p> <p>3:00 pm – France September flash Markit manufacturing PMI – Forecast: 48.9 from 48.3</p> <p>3:30 pm – Germany September flash Markit services PMI – Forecast: 54.7 from 54.9</p> <p>3:30 pm – Germany September flash Markit manufacturing PMI – Forecast: 52.8 from 53.3</p> <p>4:00 pm – Eurozone September flash Markit services PMI – Forecast: 53.9 from 54.4</p> <p>4:00 pm – Eurozone September flash Markit manufacturing PMI – Forecast: 52 from 52.3</p> <p>8:30 pm – Canada July MoM  retail sales – Forecast: 0.25% from 0.6%</p> <p>9:00 pm – ECB President Mario Draghi speech</p> <p>9:45 pm – U.S. September flash Markit manufacturing PMI – Forecast: 52 from 53</p> <p>Thursday:</p> <p>6:45 am – New Zealand August balance of trade</p> <p>9:35 am – Japan September flash Nikkei manufacturing PMI – Forecast: 51.65 from 51.7</p> <p>4:00 pm – Germany September IFO business climate – Forecast: 107.8 from 108.3</p> <p>4:00 pm – Bangko Sentral ng Pilipinas interest rate decision – Forecast: unchanged at 4%</p> <p>4:00 pm – Taiwan August YoY industrial production – Forecast: -1.46% from -2.99%</p> <p>4:30 pm – Hong Kong August YoY imports</p> <p>4:30 pm – Hong Kong August YoY exports</p> <p>4:30 pm – Hong Kong August balance of trade</p> <p>5:00 pm – Italy July MoM retail sales – Forecast: 0.2% from -0.3%</p> <p>8:00 pm – Brazil August unemployment rate – Forecast: 7.6% from 7.5%</p> <p>8:30 pm – U.S. August MoM durable goods orders – Forecast: -2.4% from 2.2% (revised from 2%)</p> <p>8:30 pm – U.S. August MoM durable goods orders ex-transport – Forecast: 0.15% from 0.6%</p> <p>8:30 pm – U.S. Sept 19 initial jobless claims – Forecast: 269,000 from 267,000</p> <p>10:00 pm – U.S. August new home sales – Forecast: 510,000 from 507,000</p> <p>Friday:</p> <p>5:00 am – Fed chair Janet Yellen speech</p> <p>7:30 am – Japan August YoY core inflation rate – Forecast: -0.1% from 0%</p> <p>7:30 am – Japan August YoY inflation rate – Forecast: unchanged at 0.2%</p> <p>12:00 pm – Malaysia July unemployment rate – Forecast: unchanged at 3.1%</p> <p>1:00 pm – Singapore August YoY industrial production – Forecast: -5.33% from -6.1%</p> <p>8:30 pm – U.S. Q2 final QoQ corporate profits – Forecast: 1.3% from -8.8%</p> <p>8:30 pm – U.S. Q2 final QoQ GDP growth rate – Forecast: 3.7% from 0.6%</p>
Barron's Weekend Roundup: Financial advisors offer insight; Alibaba fights back
Capital Markets
<p>In this week's cover story, Barron's asks four financial advisors for insight to retirement planning. For starters, try communicating clearly- with family and advisors. Market volatility may seem scary, but many times investors need to hold on and think long term while talking out their concerns with their advisor.</p> <p>China fears have been hurting Wynn Resorts, but now the company's stock is set to more than double, argues Barron's. Gambling in Macau has been steadily declining, hurting the hotels and resorts in the area. But Wynn is still betting on Macau, opening a new property there early next year. When Macau stabilizes, Wynn is ready to take advantage.</p> <p>Last week's cover story slaughtered Alibaba, predicting the stock will tank 50%. Barron's stands by its story, but this week it's printed a letter from Alibaba fighting the accusations.  Jim Wilkinson, head of international corporate affair at Alibaba, writes that the Barron's story included factual inaccuracies and doesn't fully understand Alibaba's business plan.<br /> Photo: Dan Farber </p>
What we’re reading: Stanley Druckenmiller, China’s currency reserves, and Lucille Bluth
Capital Markets
<p>From Mark Dow’s thoughts on the Fed rate decision to a speech from the former right hand of Soros, here are some are some great reads for you this weekend:</p> <p>Stanley Druckenmiller at the Lost Tree Club. Stanley Druckenmiller’s the man, and here’s an older speech from him detailing his early years, his mistakes, his triumphs, and his thoughts on ZIRP circa January 2015. Sam Reeves’ epic burning of Bill Gross in the intro alone is well worth your time. Check it out. Cove Street Capital (pdf)</p> <p>The Fed, international weakness, and the impotence of monetary policy. Here’s a short, sweet, and excellent take on Federal Reserve Chair Janet Yellen’s recent presser. Will ZIRP remain this year or will the Fed take a leap of faith? It’s hard to tell, that’s for sure. Behavioral Macro</p> <p>Is China running out of reserves and does it matter? With Beijing defending the yuan with the fury of a thousand Vikings, everyone seems to have an eye on the nation's currency reserves, questioning what its erosion could mean for the country. Here’s an interesting take on it. PIIE</p> <p>This is nuts, when’s the crash? FT Alphaville had this intriguing piece on VC’s, Unicorns, and the “sharing economy,” littered with graphs on how awesome the whole thing really is. Or not. FT Alphaville</p> <p>Who said it: Donald Trump or Lucille Bluth? With Trumpalooza raging on, BuzzFeed decided to play around with the Donald’s gaffes and compare them with those of that delightful juggernaut of political incorrectness – Lucille Bluth. BuzzFeed<br /> Photo: Marketa</p>
Weekend Scan: Stocks across the globe dip; Deutsche Bank says do svidanya to Russia
Capital Markets
<p>Happy Saturday, folks. With ZIRP still in place, uncertainty has reared its ugly head again to clip gains and send stocks tumbling. In the U.S., the S&amp;P 500 tanked 1.61%, while over in Europe, the FTSE 100, the DAX, and the CAC fell 1.34%, 3.06%, and 2.56% respectively. Asian shares fared slightly better, though much worse than how they did earlier in the trading day. Bonds across the globe meanwhile ended the week with strong gains, while havens such as the Swiss franc and gold surged against the almighty dollar.</p> <p>Here’s what else you need to know:</p> <p>Deutsche Bank pulls i-banking out of Russia. Deutsche has been making moves to significantly cut company costs worldwide. By the end of the year, about 200 investment bank employees in the Russian deal advisory and securities-trading services teams will be affected. Technology, cash management, and other financial services employees however, will stay in place. Wall Street Journal (paywall)</p> <p>Moody’s downgrades France’s credit rating. Citing several issues such as low growth potential, political constraints, and eroding competitiveness, New York-based Moody’s has downgraded France’s government bond ratings from Aa1 to Aa2, and changed its outlook on Eurozone’s second-largest economy from “stable” to “negative.” Moody’s</p> <p>The NYSE had some glitches again. It did get resolved within 19 minutes though: “NYSE Arca experienced an issue routing Tape A, B &amp; C symbols. The issue began at 15:15:12 ET and was resolved as of 15:34:01 ET.” MarketWatch</p> <p>The Italian economy is slowly regaining its bella figura. At least that’s what Prime Minister Matteo Renzi’s government says. His crew just upgraded the nation’s economic forecasts for 2015 and 2016, while Pier Carlo Padoan, Italy's finance minister, said he expected the region's debt to GDP ratio to start shrinking next year, a first since 2007. Financial Times (paywall)</p> <p>Russia moves first fighter jets to Syria. At least four tactical fighter jets are at the growing airfield on the Syrian coast. Russia has already sent housing for up to 2,000 people, attack helicopters, choppers for troop transportation, and artillery. It’s not yet clear what Russia’s full intent is. Wall Street Journal (paywall)</p> <p>Burkina Faso president freed. President Michel Kafando has been freed after being seized by the military coup Thursday. Prime Minister Isaac Zida is still under house arrest. BBC</p> <p>Japan dumps dovish approach. The upper chamber of Parliament approved the controversial bills allowing the military to engage in overseas combat, a major shift since the island nation’s post-WWII pacifism. The bill will allow overseas combat for the Self-Defense Force in very limited circumstances. They were previously limited to humanitarian roles. CNN<br /> You won’t believe this:<br /> Selfies take another life. A Japanese tourist died fro</p>
People Moves: JPM bags new China investment banking chief; Macquarie names new Asia ECM bosses
Capital Markets
<p>Goldmanite named JP Morgan head of global IB. Houston Huang, a man with over two decades of deal making experience under his belt, has been named head of Global Investment Banking, China by JP Morgan. David Li, the firm’s Chairman and CEO for China, seemed pretty stoked by the investment banking giant’s new hire:<br /> “We are delighted that Houston will be joining J.P. Morgan. He brings with him strong experience and unique insight to the firm having worked on landmark transactions across multiple sectors. He is an exceptional addition to our investment banking team in the region.”<br /> Prior to joining the vaunted firm, Huang spent four years at Goldman Sachs, where his most recent role was Managing Director and head of its China Industrials Group. Before that, Huang worked at the behemoth China International Capital Corporation, serving the bank in various key roles and advising on several mammoth deals. He reports to David Li. China Money Network</p> <p>Macquarie appoints new co-chiefs of Asia ECM. Arthur Van Dijk and Jack Yee, two heavies in the ECM scene, have been appointed co-heads of equity capital markets in Asia by the Australian firm, Macquarie.</p> <p>Van Dijk was most recently Managing Director of Macquarie’s ECM team, joining the bank back in 2012 after cutting his teeth at Morgan Stanley straight out of college. Yee meanwhile joins the firm from Barclays, where his most recent role was Managing Director and head of the British bank’s Asia equity syndicate. He jumped to Barclays from Nomura, after spending over 10 years of his career at Lehman Brothers. Van Dijk is set to run deal origination while Yee will be taking care of the syndicating side. They are both filling the shoes of Jeremy Weinert, who was promoted last year to regional head of Macquarie Capital. Finance Asia</p> <p>For Asset Management moves, click here.<br /> Photo: Wendy</p>
Daily Scan: Stocks fall ahead of weekend; Russia moves into Syria
Capital Markets
<p>Updated throughout the day</p> <p>September 18</p> <p>Good evening.  After reading the tea leaves overnight on the newest Federal Reserve policy statement, traders and investors headed to gold and bonds. Safety on, risk off. The Dow fell steadily all day, closing with a 1.74% loss. The S&amp;P 500 was down 1.61%, and the Nasdaq dropped 1.36%. To review: The Federal Open Market Committee voted Thursday to hold steady on zero interest rates. The markets aren't loving this move. And it's not just because the Fed policymakers have said they are worried about the slowdown in China and its effect globally. Investors are worried that the Fed has been stripped of its power to act. The central bank is the de facto leader of global monetary policy. Inaction is making our partners anxious. The dollar is nearing a 3-week low and stock futures are off about 1%. Get ready now for the next month's worth of: Will the Fed lift rates in October or December? It's the longest running monetary reality show in the world.</p> <p>Here’s what else you need to know:</p> <p>Russia moves first fighter jets to Syria. At least four tactical fighter jets are at the growing airfield on the Syrian coast. Russia has already sent housing for up to 2,000 people, attack helicopters, choppers for troop transportation, and artillery. It's not yet clear what Russia's full intent is. Wall Street Journal (paywall)</p> <p>Burkina Faso president freed. President Michel Kafando has been freed after being seized by the military coup Thursday. Prime Minister Isaac Zida is still under house arrest. BBC</p> <p>Japan dumps dovish approach. The upper chamber of Parliament approved the controversial bills allowing the military to engage in overseas combat, a major shift since the island nation's post-WWII pacifism. The bill will allow overseas combat for the Self-Defense Force in very limited circumstances. They were previously limited to humanitarian roles. CNN</p> <p>Deutsche Bank pulls i-banking out of Russia. Deutsche has been making moves to significantly cut company costs worldwide. By the end of the year, about 200 investment bank employee in the Russian deal advisory and securities-trading services will be affected. Technology, cash management, and other financial services employees will stay in place. Wall Street Journal (paywall)</p> <p>Baby Doe identified. Law enforcement says it has finally identified the body of the young girl found in the Boston Harbor in June. The Boston police have been pushing a forensic photo of the girl, Bella Bond, around the area for months. The child's mother and her boyfriend have been arrested in relation to her death. CNN</p> <p>Despite everything, Asia ends week modestly higher. Friday was mixed post-Fed decision day.  Asian stock markets went 'huh?' and bond markets rallied. The Shanghai and Hong Kong indices rose a modest 0.38% and 0.30%, respectively. Markets in Jakarta, Kuala Lumpur, and Tokyo were all down. </p> <p>Danke, Janet. With Yellen &amp; Co. keeping rates unched, European bond yields are starting to drop like flies. German 10-year bund yie</p>