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China sets its sights on life sciences
Capital Markets
<p>Governments and public health policy makers around the world have long struggled with providing access to affordable health care while at the same time promoting life science innovation. China is no different. Its pharmaceutical landscape today has been shaped by the government’s quest to achieve universal health care through a national health care system. And the evolving industry landscape and the government’s pro-innovation policies are driving indigenous innovation in its life science industry.</p> <p>China is a market too large to be ignored—this has long been a saying among those considering doing business in the country. But increasingly, multinational corporations see China as a hub of nascent innovation in life sciences, and have been setting up research and development (R&amp;D) centers for new drug candidates that target global markets. To be sure, there are some challenges. This month’s Asia Insight explores China’s path in this arena.<br /> China’s Pharmaceutical Landscape<br /> It’s hard to overlook China’s pharmaceutical market given its size and growth rate. Public and private expenditure on pharmaceuticals totaled US$76 billion in 2014, and this is expected to reach US$315 billion at a compound annual growth rate of 23% by 2020, which would make it the second-largest pharmaceutical market in the world after the U.S. Both China’s central and local governments have played an integral role in shaping the current landscape of the fragmented pharmaceutical market. The focus on affordable health care has led to the prevalence of generic drugs, which have taken over 80% of the market. Domestic and multinational pharmaceutical companies have pursued very different strategies. Multinational companies have focused on patented drugs and some drug originators that enjoy preferential pricing premiums under the existing drug pricing system. Domestic companies, on the other hand, have not invested much in R&amp;D, and have focused predominantly on making generics.</p> <p>The most successful domestic companies have focused on branded generics, which are generic drugs marketed under a company’s proprietary brand name. This has been a profitable approach due to the limited scope of R&amp;D investment and price premiums. But generic drug makers often have to participate in government tendering, and face intense competition and government price cuts. They rely on their knowledge of tiered markets and extensive distribution networks to achieve economies of scale.</p> <p>Essential Medicines<br /> Essential medicines are defined by the World Health Organization as those that satisfy the priority health care needs of the population. In 2009, China’s Ministry of Health published its first list of essential drugs, which are subsidized by local and central governments. China’s fragmented domestic pharmaceutical industry includes approximately 5,000 drug manufacturers, with the top 100 drug makers comprising just one-third of the market. Going forward, the regulatory environment is increasingly shifting against sub-scale inefficient generic players due to the more intense pricing pressure from the expanding Essential Drug List (EDL) and higher compliance costs.</p> <p>The EDL was initially designed to make medicine more affordable for low income patients, and was implemented at grassroots, mostly rural, facilities. In 2013, the government expanded the coverage of EDL to larger and better-equipped hospitals mainly located in urban areas. It required EDL drugs to reach 40% of Class 2 hospitals and 25% of Class 3 hospitals in revenues to ensure better access to affordable dr</p>
China deserves more credit than blame
Capital Markets
<p>The visit to the US later this month by China’s President Xi Jinping comes at a politically sensitive time, with volatility in China’s markets—widely attributed to the effect of policy decisions—rippling globally. In our view, however, China deserves more credit than blame for its recent actions.</p> <p>As China attempts to make the transition to a more open economy, two things are virtually inevitable: market volatility and extremely difficult policy decisions, many of which need to be taken in the heat of the moment.</p> <p>A case in point is the government intervention that followed the initial correction in the A shares market in July. This was widely interpreted outside China as a panicky reaction. But China’s share market is largely retail driven, and the need to maintain social harmony is of paramount importance to a single-party state. In light of this, the government’s response makes sense.</p> <p>But what do we make of China’s decision to devalue its currency last month, just weeks before President Xi was due to make his first official visit to the US? The move was widely characterized as an attempt by China to shore up its sputtering export performance. Given that US politicians have for years accused China of keeping the renminbi artificially low, and that bilateral trade will be a key talking point when President Xi meets President Obama, surely the timing of the move was, at the very least, politically inept?</p> <p>We don’t think so. In our view, the currency adjustment provides another example of how easy it is to misinterpret China’s policy actions.</p> <p>Devaluation? Or a Step in the Right Direction?</p> <p>Describing the move as a competitive devaluation ignores a number of facts—such as that China’s exports, while challenged, have largely performed better than those of its regional competitors. For this reason alone, it’s hard to see why a competitive devaluation would be necessary.</p> <p>Also, China’s trade balance is positive (imports are falling faster than exports) and the country has an embarrassingly large trade surplus. Devaluation would simply exacerbate these issues, and do so at precisely the wrong political moment.</p> <p>Far more plausible, from our point of view, is the explanation by the People’s Bank of China that the adjustment was intended to close an unusually large gap between the currency fix and the spot price. This made sense given that the central bank lowered the fix by just 1.9% and stepped into the market to support the currency when it came under pressure as the devaluation story took hold.</p> <p>It also made sense as a reflection of government policy, which is to modernize and diversify the economy using private capital from inside and outside the country. To do this, China needs a more market-oriented currency—hence the move to align the fix more closely with the spot price.</p> <p>Good News, Mr. President</p> <p>Our research suggests that China is in fact less focused on its currency than on the need to deliver liquidity into the right parts of the domestic economy so that consumption becomes more of a growth driver alongside the traditional engines of exports and investment.</p> <p>President Xi can tell President Obama some good news in this respect: recent data show a convergence in fixed-asset investment and retail sales trends, with the former falling and the latter holding steady (Display). While the figures are not particularly exciting in themselves, they suggest that China’s economic rebalancing is under way.</p>
Weekend Scan: China's central bank chief says worst is over for markets
Capital Markets
<p>The migrant crisis continues apace even with Germany and Austria accepting desperate refugees from Syria. Pope Francis  "called on 'every' parish, religious community, monastery and sanctuary to take in one refu­gee family — an appeal that, if honored, would offer shelter to tens of thousands." In the U.S., millions of Americans are bidding a sad adieu to summer over Labor Day weekend. Monday, markets are closed.</p> <p>Here is what else you need to know:</p> <p>PBOC chief says the worst is over. Zhou Xiaochuan said the stock market rout is over and the yuan is heading into a steady state after the surprise devalutation last month.  Zhou made the remarked in Ankara during a two-day G20 meeting.  Surprisingly, world leaders struck an optimistic tone despite data revealing just how how much China's growth is slowing.  For the moment, all is good. The week poses challenges with a slew of data. The fun begins Monday morning when China releades foreign exchange reserves data for August.</p> <p>Asia markets mostly lower. Hong Kong, the Nikkei, Korean and Chinese indices were mostly lower -- 1%-2%. Australia bucked the trend, edging 0.4% as dod the CSI 300 futures market, which gained 0.72%.</p> <p>Pope is nervous about his first ever visit to the U.S., says Cardinal Dolan. The head of the Catholic Church has favored visiting the poor to the rich. Pope Francis has been critical in the past of the political and economic power in the U.S.  New York Times (paywall)</p> <p>Fiat Chrysler, GM merger on “high priority.” Fiat Chrysler CEO Sergio Marchionne isn't taking "no"lying down. GM rebugged Marchionne in a merger bid, but he's at it again because he says the move would “be the best possible strategic alternative for us and for them.” Reuters</p> <p>Falling oil prices hit Saudi Arabia. With crude oil prices practically cut in half, the world’s largest oil producer is currently working on slashing unnecessary expenses and delaying state projects. Which is ironic because they were the ones who opened up the taps to begin with. They have, however, built reserves and decreased public debt to near-zero levels. BBC</p> <p>Nissan to repeat airbag recall. Federal regulators are worried that Nissan’s recall last year of almost one million vehicles did not correct a malfunction of the passenger airbag, meaning the automaker might have to recall the vehicles again. The New York Times (paywall)</p> <p>Euro founder fears a creation of an EU superstate. Almost everyone agrees that there’s just no way a monetary union can survive without a corresponding fiscal union. Well, Professor Otmar Issing, the chief architect of the European monetary union, fears that next step would be “dangerous,” and that an undemocratic political union may be in the works too. The Telegraph<br /> You wouldn’t believe this…<br /> “Resting bitch face” apparently makes women better communicators. While women with cheerful, emphatic facial expressions and body language receive nothing but good vibes, women with “RBF” apparently have to work harder toget their point across – which suppos</p>
Daily Scan: Mainland shares tumble; China FX reserves post largest monthly drop
Capital Markets
<p>Updated throughout the day</p> <p>September 9</p> <p>Good evening everyone. PBOC Governor Zhou Xiaochuan may have said that the multi-trillion dollar “correction” is “almost done,” but that doesn’t mean that mainland stocks didn’t want to do some correcting of their own. The SHCOMP lost all of its gains today, finishing the session down 2.52%, while Shenzhen retraced most of its earlier 3.7% rally to close up 0.2%. Even the nation’s forex reserves did some correcting, falling $94 billion to $3.56 trillion to notch up its largest monthly drop on record.</p> <p>Here’s how the rest of Asia is faring:</p> <p> Nikkei 225: +0.38%<br /> Hang Seng Index: -1.23%<br /> Straits Times Index: -0.4%</p> <p>The European market seems to be doing much better though; the FTSE 100 climbed 1.3% to 6,119, the DAX jumped 1.2% to 10,161, while the CAC spiked 1.2% to 4,580. Here’s what else you need to know:</p> <p>Chinese GDP revised lower to 7.3%. In a surprise move, China’s National Bureau of Statistics revised its annual economic growth rate for 2014 from 7.4% to 7.3%, largely thanks to a slowdown in the services industry. The primary (agriculture) and secondary (manufacturing &amp; construction) sectors however still looks pretty good. Reuters</p> <p>Toshiba posts $318m annual loss. Reeling from its recent accounting scandal, the Japanese conglomerate has reported a net loss of 37.8 billion yen ($318 million) for the past financial year, citing asset impairment changes and other losses. The firm had at one time expected a 120 billion yen profit. Nikkei</p> <p>Experts reject official account of Mexico student deaths. An international committee reviewing the case of 43 missing college students in Mexico said there was no evidence to support the official line that the students were executed by a drug gang, fueling suspicion of police involvement. New York Times</p> <p>Fiat Chrysler, GM merger on “high priority.” Fiat Chrysler CEO Sergio Marchionne had some pretty interesting stuff to say over the weekend.  Despite being rebuffed earlier this year by the U.S.’ largest carmaker, Marchionne said that a merger between GM and Fiat Chrysler Automobiles remains a “high priority for FCA,” believing that the move would “be the best possible strategic alternative for us and for them.” Reuters</p> <p>Falling oil prices hit Saudi Arabia. With crude oil prices practically cut in half, the world’s largest oil producer is currently working on slashing unnecessary expenses and delaying state projects. Which is ironic because they were the ones who opened up the taps to begin with. They have however, built reserves and decreased public debt to near-zero levels. BBC</p> <p> Nissan to repeat airbag recall. Federal regulators are worried that Nissan’s recall last year of almost one million vehicles did not correct a malfunction of the passenger airbag, meaning the automaker might have to recall the vehicles again. </p>
What makes a financial center? In one word: Flexibility
Capital Markets
<p>I have been mulling a question, prompted by a silly article in the Financial Times. The piece contended that Barclays’ exit from much of investment banking was the end of prominence for London as a financial center. Ridiculous.</p> <p>This got me wondering: What does make a financial center. Why has my town, New York, been a financial center since the 18th century? Why has London been a financial center since long before that? Why were Amsterdam and Venice financial centers for a few centuries but are no more? Will Frankfurt, now the home of the ECB and Europe’s bank regulator, become a real financial center?</p> <p>There are so many tempting issues to explore. Please do not be too critical if I leave out your pet theory.</p> <p>In my opinion, people are what make a financial center. In the U.S., people who want to climb the letter of success head for NYC. People from all over the world who want to get ahead head for NYC. They have done so for a couple of centuries. Therefore NYC has a deeper talent pool that is more motivated than anywhere else. That deeper and more motivated talent pool also creates a place that such people like to live. It has restaurants, theaters, museums, a yoga studio or gym on every corner (it seems)—and high prices that only the successful can afford. If NYC ceases to be a magnet for people that want to get ahead, it will cease to be the world’s financial center. Taxes can be high—but there would be a limit. (Washington also has become a magnet, but for a different type of people.)</p> <p>London has similar advantages. Like NYC, it is exciting, international, intellectually stimulating. That is the source of London’s allure. If London makes living there unattractive, such as by taxing high earners too much, it will wither.</p> <p>Regulation also may play a role. But except at the extremes, clever people adapt to financial regulation. An August 19 comment in the FT by</p> <p>John Authers, a top Financial Times writer, recently cited studies showing that from 2008 to 2013, NYC increased its investment management market share from 12.6% of global assets to 20%. The studies attribute the growth to higher regulatory costs. You read that correctly. Those costs have meant that size has become more important to profitability. The cost of compliance has increased; therefore once the mechanisms are in place, they can cover whatever amount of assets. Maybe so, but to explain New York’s ability to benefit from that, I think we need to look again at talent and incentives.</p> <p>Will Frankfurt become the equal of London or New York? I think not. Flexibility is the key characteristic of successful people in New York and London. That is not yet true in Frankfurt and seems unlikely to be true in the near future. Just contrast the head of the Bundesbank with the Governor of the Bank of England or the Chair of the Fed or compare the German finance minister with a U.S. or British equivalent. I do not see the world’s go-getters going to Frankfurt to get.</p> <p>So what happened to Venice and Amsterdam? Venice and Amsterdam were financial centers because that is where the ships literally came in. Their financial basis was the world trade that their harbors made possible. When communications no longer required that finance and trade be in the same place, their financial prominence withered. Both still are wonderful cities, but they do not attract the world’s go-getters.</p> <p>Venice, Amsterdam, London and New York all have attracted, in their financial heydays, artists from all over the world. Maybe the arttists follow the money, like everyone else.</p> <p>Probably I am preju</p>
Putin wants to chummy up with China
Capital Markets
<p>With its economy a mess, and its relations with its Western neighbors in tatters, Russia is in dire need of new friends. So, its leader - Vladimir Putin - is looking east to China.</p> <p>According to Reuters, Putin was at the Eastern Economic Forum in Vladivostok  earlier this week trying the woo Asian investors in a bid to drum up cash for Russia's neglected Far East region. </p> <p>“The possibilities in region,” Putin told Asian investors, “are enormous”. The Russian leader was touting the region - packed with natural resources, forestry and fish stocks - to delegates from Japan, South Korea, and, most importantly, China. </p> <p>Its Putin’s hope that Russia’s Asian friends will help turn his country’s Far East - which takes of a third of its landmass - into a "profitable business center". </p> <p>China is already throwing quite a bit of love Russia's way. Data from Rhodium, a China-focused research group, shows that China's direct investment into Russia totaled about $8.4 billion in 2014, up 10% from 2013. That’s almost half of the $18 billion China invested in the whole of Europe for the same period. </p> <p>With its economy buffeted by cheap oil and western sanctions, resulting from its conflict in Ukraine, Russia really needs its Asian allies. But then again, anyone with even with a passing interest in the global economic affairs will know that China is having a few money problems of its own right now.</p> <p>Photo: Donkey Hotey via Flickr</p>
NexAsia Week Ahead: Chinese inflation, exports, and forex reserves figures coming up
Capital Markets
<p>(Note: all times HKT)<br /> Good morning everyone. China and the Federal Reserve will continue to dominate the headlines this week as the former reports is forex reserves and export data while the latter gears up to decide whether it should lift rates or not. There are other heavies on this week’s docket though, such as the Bank of Canada’s and the Reserve Bank of New Zealand’s interest rate decision, the Bank of England’s PMC minutes, Japan’s GDP growth, and Jean-Claude Juncker’s upcoming State of the Union address.</p> <p>Here’s what else you should look out for:</p> <p>Monday:</p> <p>6:00 am – China August foreign exchange reserves</p> <p>1:00 pm – Japan July preliminary coincident index – Forecast: 112.17 from 112.3</p> <p>1:00 pm – Japan July preliminary leading economic index – Forecast: 106.3 from 106.5</p> <p>2:00pm – Germany July YoY industrial production – Forecast: 1.84% from 0.6%</p> <p>Tuesday:</p> <p>7:50 am – Japan Q2 QoQ final GDP growth rate – Forecast: -0.4% from 1%</p> <p>7:50 am – Japan Q2 annualized final GDP growth rate – Forecast: -1.6% from 3.9%</p> <p>9:30 am – Australia August NAB business confidence – Forecast: 3.75 from 4</p> <p>10:00 am – China August balance of trade – Forecast: $40 billion from $43 billion</p> <p>10:00 am – China August YoY exports</p> <p>10:00 am – China August YoY imports</p> <p>2:00 pm – Germany July balance of trade – Forecast: € 21.8 billion from €24 billion</p> <p>5:00 pm – EU Q2 estimated YoY GDP growth rate – Forecast: 1.2% from 1%</p> <p>Wednesday:</p> <p>8:30 am – Australia September Westpac consumer confidence index – Forecast: 98.58 from 99.5</p> <p>1:00 pm – Japan August consumer confidence – Forecast: 40.22 from 40.33</p> <p>4:30 pm – U.K. July balance of trade – Forecast: unchanged at £ -1.6 billion</p> <p>4:30 pm – U.K. July YoY manufacturing production – Forecast: 0.4% from 0.5%</p> <p>4:30 pm – U.K. July YoY industrial production – Forecast: 1.31% from 1.5%</p> <p>8:15 pm – Canada August housing starts – Forecast: 195,100 from 193,000</p> <p>8:30 pm – Bank of Canada interest rate decision – Forecast: unchanged at 0.5%</p> <p>Thursday:</p> <p>5:00 am – Reserve Bank of New Zealand interest rate decision – Forecast: unchanged at 3%</p> <p>9:30 am – Australia August unemployment change – Forecast: 9,500 from 38,500</p> <p>9:30 am – China August YoY inflation rate – Forecast: 1.7% from 1.6%</p> <p>9:30 am – China August YoY PPI – Forecast: -5.5% from -5.4%</p> <p>7:00 pm – Bank of England interest rate decision – Forecast: unchanged at 0.5%</p> <p>7:00 pm – Bank of England MPC meeting minutes</p> <p>7:00 pm – Bank of England quantitative easing – Forecast: unchanged at £375 billion</p> <p>10:00 pm – Singapore Parliamentary elections</p> <p>Friday: </p> <p>2:00 pm – Germany August YoY inflation rate – Forecast: unchanged at 0.2%</p> <p>8:30 pm – U.S. August MoM core PPI</p> <p>8:30 pm – U.S. August MoM PPI – Forecast: 0.1% from 0.2%</p> <p>10:00 pm – U.S. September preliminary Michigan consumer sentiment – Forecast: 91.5 from 91.9<br /> Photo: nuomi @1280x1024.net</p>
Barron's Weekend Roundup: Making sense of the market correction
Capital Markets
<p>The bull market isn't over yet. The August 24 stock market correction may have shaken some, but U.S. shares will still see gains for 2015, Barron's writes in this week's cover story. Analysts say the S&amp;P 500 will hit 2150 by the end of the year, a more than 10% increase from Friday's close.</p> <p>ETFs dropped sharply on August 24, during the massive market correction. ETFs should offer investors prices close to the underlying stocks, but that Monday ETFs dropped more than the stocks, writes Barron's. Some of the problems seem to stem reflect the flash crash in 2010. Regulators will need to take a look at how to ensure smooth ETF trading in the event of another such market swing.</p> <p>Leah Zell, head of Lizard Investors, says international small-cap value investing is the way to go. Zell tells Barron's that China's slowdown will be felt unevenly. "International small-cap investing is the last refuge of stock-picking," she says. Lizard looks at investments a year or two out, or even three to five years if possible.</p> <p>&nbsp;<br /> Photo: Jim Bowen <br /> &nbsp;</p>
Weekend Scan: Jobs report misses expectations; Lacker still on track to raise rates
Capital Markets
<p>Happy Saturday, folks. While you were sleeping, the U.S. equity markets continued their descent largely thanks to uncertainty over the Fed’s lift-off timing following the non-farm payrolls report. August jobs climbed 173,000, below expectations of a 220,000 rise but Richmond Fed President Jeffrey Lacker was quick to point out that while it didn’t meet expectations, 173,000’s “still a strong number,” and that it isn’t enough to change the picture for monetary policy. The bond market however doesn’t seem to be pricing in that possibility, with short-end yields barely moving from their Thursday levels.</p> <p>Here’s what else you need to know:</p> <p>Chinese pre-crash trading account data inexplicably unavailable. The weekly report published by the China Securities Depository and Clearing Corporation (CSDC) – which details the number of people who opened or closed trading accounts that week – mysteriously ends on May 29, two weeks prior to the Shanghai Composite’s dramatic crash. Whether or not this information was pulled by Beijing, or if the CSDC simply chose to stop publishing these figures, is still unclear. Quartz</p> <p>Mainland banks are going to have a rough year. Ratings agency Fitch says that mainland lenders’ profitability will continue to get screwed in the second half of the year, mostly due to a rise non-performing loans following a sustained deterioration in asset quality. “Weakening asset quality could result in some profit decline in the near term, as banks cannot rely on lowering their provision coverage to generate positive profit growth.” South China Morning Post </p> <p>Egyptian billionaire offers solution to migrants. Naguib Sawiris has offered to purchase an island from Greece or Italy to house hundreds of thousands of migrants that are currently overwhelming Europe. Sawiris says he would give the island independence and provide jobs for the migrants to make it their own country, permanently or temporarily. TIME</p> <p>Good news: there’s more trees than we thought. A new study found 3.04 trillion trees on Earth, 7.5 times the amount thought to exist. On the down side, the number of trees has fallen by 46% since humans arrived on the planet. CNN</p> <p>Top Democrat opposes Iran deal. Sen. Ben Cardin, the top Dem on the Senate Foreign Relations Committee, says he will oppose the nuclear deal with Iran. Cardin’s announcement won’t kill the deal in Congress, but Cardin’s weight does hurt Obama’s efforts. Cardin says he fears the agreement would strengthen Iran in the long run.Politico</p> <p>Indonesia cuts plans for high-speed train. The country has decided to ax what would have been the first high-speed train for the nation, connecting Jakarta and Bandung, because the 93 mile route was deemed too short for a high-speed train. Wall Street Journal<br /> You won’t believe this…<br /> Died: The world’s shortest man. N</p>
Morgan Stanley ranks ‘winning’ and ‘losing’ investment banks in 2015
Capital Markets
<p>Morgan Stanley has published a ‘banking report card’ that sizes up the performance of major investment banks in 2015. Finbuzz has obtained a copy of the report and below is a brief summary.</p> <p>2015 certainly has been no cakewalk for big banks as monetary policy, market corrections, and debt crisis make profitability of some investment banks uncertain.</p> <p>Banking analysts at Morgan Stanley have declared 2015 the year of US banks, as these institutions stand to gain the most wallet share.</p> <p>Things are looking good for Morgan Stanley and Goldman Sachs, who are poised to continue to outperform given the high growth of US capital markets. This year major management and strategy changes are expected at HSBC, Credit Suisse, Barclays, BNP, and Standard Chartered in order to boost their return on equity, which is currently 3-4% lower than US firms.</p> <p>Regional players like Wells Fargo in the US and the Nordic and Baltic Nordea in Europe are both set to increase securities finance because they aren’t as constrained as some of the other big players.</p> <p>This graph shows the equities market share change in the first six months of 2015, compared to the same time period last year. The banks on top, such as Goldman Sachs and Morgan Stanley both performed as ‘winners’ in the first half. Barclays had an abhorrent first two quarters.</p> <p>Goldman Sachs and J.P. Morgan were the overall ‘winners’ in equities sales and trading, whereas UBS and Royal Bank of Scotland were ‘losers’.</p> <p>Morgan Stanley, HSBC, UBS, and Credit Argicole topped the fixed incomes and trading this past year. The report attributes this trend to ECB QE, which has given European banks a boost. This is surprising because the ECB QE and de-pegging of the Swiss franc drove many investors to divert their portfolios away from Europe.</p>