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Numbers game: China’s essential indicators
Capital Markets
<p>All eyes are are on China. Is the country really headed for a historic crash, or is this just a bump in road as the government shepherds China from an investment-led economy to one that is driven by consumer-demand? Investors will be focusing on some key indicators to gauge the country’s prospects:<br /> GDP growth<br /> This perhaps provides the best overall picture. The impact of China’s recent decision to revise down 2014 growth to 7.3%, from 7.4%, raises concerns over the economy’s health. The change is small but nonetheless significant as China  is used to making upward revisions on GDP growth. According to the Financial Times, this revision was largely attributed to the decline in the service sector - the biggest contributor to GDP.<br /> PMI<br /> Representing the health of the country’s manufacturing sector, China’s Purchasing Manager’s Index (PMI) for August slumped to a three-year-low of 49.7 from 50.0 in July, according to the National Bureau of Statistics. But that was still better than the figure given by an independent survey by China media group Caixin: 47.1.  <br /> Retail sales growth<br /> Retail sales growth edged down to 10.5% in July from 10.6% in June - August’s numbers will be released on Sunday. The number is expected to hold at 10.5% for last month. If this turns out to be the case, in the light of everything, the consumer spending has held up quite well.   </p> <p>Exports </p> <p>China’s trade data will be released tomorrow (Tuesday). According to Reuters, China's National Bureau of Statistics expects exports to swing into positive growth for August from an 8.3% drop in July - a possible indication the economy is stabilizing. That said, analysts polled by Reuters expect August exports to drop 6% compared with a year earlier. </p> <p>Debt</p> <p>According to the South China Morning Post, new data shows a surge in the debt run up by regional and local governments (RLGs), and it is worrying ratings agency Moody's. Official data shows RLG debt surged by more than a third between June 2013 and December 2014 to top 24 trillion yuan ($3.7 trillion), or 38% of economic output. Perhaps more than any, this number threatens to undermine China’s growth prospects.<br /> Photo: up to 2011</p>
The best (and worst) hedge funds so far in 2015
Hedge Funds
<p>Julian Robertson’s cubs may have been roarin’ so far this year but as good as their performance was, it wasn’t good enough for them to crack into the top five.</p> <p>Zero Hedge has just released a 20 best (and worst) performing hedge funds for 2015 list and surprisingly, none of the usual suspects – save for John Burbank’s Passport Capital – were on it.</p> <p>Burbank’s Passport Special Opportunities Fund came in third this year with a huge 29.18% return through July 31, while Simon Sadler’s Segantii Asia-Pacific Equity Multi-Strategy Fund came in second with an eye-popping 32.19% return through August 28. Topping them all though is Joseph Edelman’s Perceptive Life Sciences Offshore Fund, which boasts a Druckemiller-esque 35.34% return through August 21. Here’s the rest of the top five:</p> <p>Place<br /> Fund name<br /> Return<br /> Date</p> <p>4th<br /> Lucerne Capital Fund<br /> 23.33%<br /> July 31</p> <p>5th<br /> Alcentra Global Special Situations Fund<br /> 22.79%<br /> July 31</p> <p>And here are the bottom three:</p> <p>Fund name<br /> Return<br /> Date</p> <p>Dorset Energy Fund<br /> -24.54%<br /> August 28</p> <p>Elm Ridge Capital Partners<br /> -18.04%<br /> August 31</p> <p>Tulip Trend Fund<br /> -16.73%<br /> August 31</p> <p>Forever haters, Zero Hedge would like to point out that John Paulson has stopped publishing his performance figures entirely.<br /> Photo: Damon Green</p>
UBS is the latest bank to launch lab to test Bitcoin-inspired technology for trading
<p>Swiss bank UBS is elbowing its way into the digital vanguard with a prototype Bitcoin-inspired currency.</p> <p>UBS is developing something called “utility settlement coin” by making use of the same blockchain technology that drives Bitcoin. According to the Wall Street Journal, it hopes its virtual currency will be used by banks as a basis to settle mainstream financial markets transactions. </p> <p>The idea is that UBS will have its own blockchain-based platform to issue bonds, and another bank might have a blockchain-based stock trading platform - both will use the same utility coin for settlement. </p> <p>The advantage of blockchain is that the ownership of assets is verified by a decentralized network of computers rather than a centralized authority. This could potentially make transactions quicker, safer, and cheaper. </p> <p>The project - which is being developed with London-based fintech start-up Clearmatics - is helping to cement UBS’s reputation as a fintech player. Last month the Swiss bank launched a competition to attract fintech start-up to its incubator program.<br /> Photo: BTC keychain</p>
What finance can learn from Blockbuster
<p>The growth in the number of fintech startups threatening to disrupt the financial sector has sparked both alarm and glee in equal measure. Its not the first time an industry has been flipped on its head by a group of plucky young newcomers, so comparisons are inevitable. One of the most popular is Blockbuster Video.</p> <p>If you don't remember, Blockbuster was the offline video rental giant that pretty much had the monopoly on movie night - that is, before Netflix. To its eventual demise, Blockbuster had dismissed this scrappy young tech startup when came onto the scene in 1997 - it even turned down an offer to acquire the business. The rest is history. </p> <p>The question today is could banks make the same mistake when it comes to fintech? It is a possibility says Ryan Caldwell, CEO of digital banking platform MX. In an article for The Financial Brand he writes that banks and credit unions will only avoid a similar downfall by investing in consumer-centric services like digital account opening, digital lending, and digital payments</p> <p>They also ignore young pretenders at their peril. Caldwell cites the example of San Francisco-based loan platform Lending Club:<br /> “Some people might say that Lending Club represents such a small presence in the loan business that there’s no need to worry. However, it’s worth keeping in mind that when Netflix first started out — nearly two decades ago — Blockbuster said the same thing.”<br /> He is not the first to make this comparison, Bank Director editor Jack Milligan made a similar observation this year, referring specifically to the lending space.</p> <p> However, the extent to which big banks have sought to invest in their would-be disruptive - Barclays, UBS, and DBS to name but three - would suggest some are not prepared to make the same mistake as our erstwhile home video store. <br /> Photo: trebomb</p>
CSRC to crack down on automated trading
Capital Markets
<p>Well, it appears all those rumors were really true.</p> <p>After slamming the volatility it helped create, the CSRC told Xinhua (Chinese) over the weekend that it will indeed tighten its grip on automated trading and curb excess speculation in stock index futures. And not only that, they also plan to add a circuit breaker mechanism to temporarily shut down trading when things start getting hairy.</p> <p>How it defines “excess” and how it plans to regulate a construct of ones and zeroes is currently unclear however, though I did find this earlier tweet about it particularly delightful:</p> <p>CHINA MAY ASK ALGORITHMIC TRADERS TO REPORT IN ADVANCE: CAIXIN - have no idea how this works in principle<br /> — Chris Weston (@ChrisWeston_IG) August 31, 2015</p> <p>Joking aside, this is the nth time China is making a mistake in regards to their stock market, and just goes to show how badly they needed the “sea turtles” – the best and the brightest of the nation’s returnees – who ended up either unceremoniously ousted by the CSRC or forced to return to the private sector.</p> <p>With them gone, the watchdog has done nothing but omnishambolic policies and witchhunts that have sullied its own credibility, from allowing margin lending to grow unhindered to blaming “hostile foreigners” for the market’s crash.</p> <p>In tightening its grip on automated trading, not only has it made itself a laughing stock, it has also built more walls against the once-rushing tide of investments coming in from the outside world. Algorithmic trading adds a massive amount of liquidity in the market, a huge plus for foreign investors seeking to invest, and Peking University professor Christopher Balding also seems to have found another benefit of their presence:<br /> “…given their importance in the market whether it is stocks or currencies, there is evidence that algorithmic trading has played a significant role in stabilizing the markets.  After falling relatively sharply beginning on August 21 for a number of days, major markets outside of China began sharp recoveries that have returned them largely to the point they were on August 21.  While we cannot say with certainty that algorithms are responsible, the rapid rebound from a fear induced sell off would seem to seem to match with how many of those types of programs especially when many of the economic fundamentals of the major markets presented here are better than China.”<br /> And they couldn’t have done it at a worse time; liquidity in the Shanghai Hong Kong cross-border connect is already drying up, CDS’ on China are comparing it to MERS-plagued South Korea, and growth is starting to go the way of the dodo.</p> <p>It’s almost as if someone’s doing this just to get Premier Li out of office. But maybe that’s just me with my tinfoil hat on.<br /> Photo: Edgeworks Limited</p>
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>
Serena Williams gets no respect when it comes to endorsement. Here's why.
Lifestyle, 4:01
<p>Serena Williams stands on the cusp of winning all four major tennis tournaments in one year, a feat that has been seen just five times, the last time in 1988. Despite her prowess on the court, Williams makes much less money than other tennis stars.</p> <p>On Forbes's list of highest paid athletes Williams ranks 47th, reports The Atlantic. Of the seven tennis players on the Forbes list, Williams is last for endorsement deals with just $13 million annually. Williams is poised to win her 22nd Grand Slam title this year, and has dominated American sports, let alone women's tennis. Roger Federer, the male tennis counterpart to Williams, will earn almost $58 million in endorsements this year. Even Maria Sharapova, no where near able to touch Williams' skill, will make $10 million more than Williams. So what gives?</p> <p>For starters Williams isn't male. Despite what one could assume, Federer falls short of Williams' 21 Grand Slams, holding only 17. Federer has spent 302 weeks ranked number one. Williams has been number one for 250 weeks, but she's on the road to surpass Federer soon. And as for win-loss rations, Federer has about 4.4 wins per loss. Williams has 6. It's not like Federer or his male counterparts are bringing more viewers than Williams either. The women's finals in the U.S. Open have surpassed the men's for the last two years. This year, the women's final of the U.S. Open sold out before the men's.</p> <p>Sorry "experts," men really aren't more marketable for athletics either, even though marketers love targeting young men. Women control $29 trillion buying power in across the globe, and make 64% of household purchasing decisions. Sketchers and Nike have both picked up on it, steering their marketing to women.</p> <p>Williams' other problem, apparently, is that she's black and muscular. Thin, blonde Sharapova makes more than Williams, although she's not as strong of a player. Williams has been attacked before for looking too "manly," and not fitting the stereotypical feminine sexy that Sharapova does.</p> <p>At least Williams' doesn't let her under-appreciated value keep her down. She recently launched the "Greatness Collection" with Nike, and is ready to slay anyone standing between her and another Grand Slam.<br /> Photo: Marianne Bevis</p>