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Is China leading the global banking revolution ?
FinTech
<p>The spread of digital banking has been vast and rapid in China but also largely ignored outside the country, as the biggest players focus first on the domestic market.</p> <p>This year we have seen two big tech giants - Alibaba and Tencent - launch into the banking space. First was WeBank, an offshoot of Tencent’s payments service QQ and its messaging app WeChat; this was followed by MYBank, formed out of Allibaba’s AliPay and ANT Financial.  </p> <p>With a lack of equivalent maneuvers by Western tech giants - who are just getting into payments - it begs the question: is China leading the way on financial innovation? This the question asked by Chris Skinner in his Financial Services Club Blog. </p> <p>Rivals Alibaba and Tencent have already been in the finance space for at least two years. Both launched payments services bundled in with their chat rooms and messaging apps. </p> <p>Tencent in particular enjoyed a massive uptick in the adoption of its payments service last year when it allowed users to send money to family and friends on Chinese new years in the form of virtual red envelopes - $64 million was transacted. Alibaba then upped to ante by giving away $96 million in lucky money gifts.</p> <p>This latest foray by both into the banking sector comes by dint of China’s regulators offering private companies the opportunity to apply for banking licences last year. The two banks differ from incumbents by focusing on micro-lending, due to restriction from regulators.</p> <p>This way China has opened up the banking sector to the private markets without threatening the state-owned banking sector. There will no doubt be issues down the road, particularly if they look to eventually target overseas users. But for now, it shows China’s tech giants are already some way down the road, while their Western counterparts are still putting their boots on.<br /> Photo: Tauno Tohk</p>
No Such Thing As Yuan Time…
<p>No Such Thing As Yuan Time...<br /> It's now been about 10 months since I last wrote about the Chinese Renminbi (CNY). At the time, I was bearish and expecting a decline in the CNY (which has since happened).</p> <p>Now here's the thing about devaluations: when the structural forces say that a controlled currency should devalue - it usually does. It's rare to see a "one and done," especially when the currency is only allowed to devalue by a few percent - as it did in August.</p> <p>To review why the Yuan should go lower;<br /> -With the decline in commodity prices, China no longer needs a strong currency to pay for the importation of raw commodities, which removes the only real reason to have a strong currency</p> <p>-China is an export economy and the currencies of many of its trading partners have declined dramatically. Looking at a list of major world currencies, they all have declined by 10% to 30% against the dollar in the past year. The CNY is the only notable outlier as it is only down 2.5% during this time<br /> That's some serious loss of competitive strength. Will China allow it to continue?<br /> -The Chinese economy is clearly slowing following a massive misallocation of capital complete with a huge credit bubble which is now unwinding</p> <p> -The Chinese need to stimulate their economy and the easiest way to do that is to have a much weaker currency<br /> When a government chooses to fight against devaluation, the timing of the trade is made more difficult—however the first baby-devaluation shows that the direction is no longer towards a stronger CNY. History has repeatedly shown that once a currency changes direction, it usually goes much further than just a few percent. With China going through nearly 3% of its foreign reserves in August alone, clearly we’re entering a crescendo where the reserves will shrink faster and faster as locals realize that a larger devaluation is coming.<br /> It's starting to get expensive to defend the CNY<br /> For me, following a bit of a pull-back over the past two weeks, it now seems like “game time” for the CNY. While the timing of a much larger move is unsure, it is clear that the direction has changed and the next move is likely to be a much larger and sustained devaluation. Additionally, I’m quite bearish on the world economy and this trade seems like one of the best risk rewards out there to play a slowdown in China and hence the global economy. You can play through cash currency or OTC options where volatility still prices cheaply. This trade definitely feels like shorting the Japanese Yen a few years ago and we now appear to be at the inflection point where things start to accelerate rapidly.</p> <p>Put it this way--if the CNY was approximately fairly valued, the Chinese wouldn’t have spent almost US $100 billion in August to defend their currency from further depreciation... (to be continued)</p> <p>Disclosure: I’m short Chinese Yuan Renminbi</p> <p>This story originally appeared in ValueWalk.<br /> Photo: </p>
Fosun wants another piece of China’s new wealth
<p>China’s richest man Wang Jianlin memorably lost $3.6 billion as the share price of his Dalian Wanda Commercial Property flagship sank on “Black Monday” (24 August). But, we shouldn’t forget that China is producing more and more millionaires each year. They want to spend their new wealth on luxuries and also invest it for big, long-term returns.</p> <p>Fosun International, the Shanghai conglomerate, knows its customers. It has already profited from supplying expensive pharmaceuticals and healthcare, offering up vacations at its Club Med resorts and entertainment at Cirque du Soleil.</p> <p>It now plans to buy small European private banks that are being squeezed out by the mighty wealth management operations run by titans such as UBS and Credit Suisse.</p> <p>Fosun is close to inking a deal to buy German private bank Hauck &amp; Aufhauser for $233 million, has made an offer to purchase half of Belgium’s BHF Kleinwort Benson and is pursuing Portugal’s Novo Banco.</p> <p>“We see that a lot of China’s middle class are looking for investments overseas, and if we have private banks we can offer wealthy Chinese families…direct access to [overseas] personalized financial products,” chief executive Liang Xinjun told The Wall Street Journal.</p> <p>It makes sense. The number of millionaires in China soared at a rate of 17% last year and the size of their chest of investible assets by 19%, according to the 2015 World Wealth Report by Capgemini and RBC Wealth Management. </p> <p>Sure, they were helped by 52% rise in Shanghai’s CSI300 stock index – and like Wang, many have recently taken a hit. But, all the more reason to diversify into less volatile assets.<br /> Photo: Dan Kristiansen<br /> &nbsp;</p>
Soothing China’s markets back to recovery
<p>Unusual times require desperate measures. “War-war” on collapsing stock prices and malevolent investors gave way to “jaw-jaw” over the weekend, as China’s central bank governor tried to calm markets with soothing words.</p> <p>The “correction in the stock market is almost done” and China’s financial markets should become “more stable” after the currency steadies following last month’s devaluation, PBOC head Zhou Xiaochuan told G20 government finance leaders on Saturday (The Wall Street Journal).</p> <p>Here’s a recap of the main attempts by China, usually through the China Securities Finance Corp, to boss the markets during the past couple of months:</p> <p> Sets up stabilization fund to buy shares<br /> Lends cash to 21 local brokerages to prop up equity prices<br /> Announces massive monetary stimulus and state spending to boost the economy<br /> Cuts interest rates<br /> Allows about half of listed companies to halt trading in their shares<br /> Bans major shareholders from selling their stakes for six months<br /> Threatens short sellers with arrest<br /> Suspension of all IPOs<br /> Relaxes rules on collateral for margin trading - that had inflated the stock bubble in the first place<br /> Devalues the renminbi<br /> Finds scapegoats: identifies, parades or punishes malicious traders, journalists and foreign investors apparently responsible for the rout.<br /> Intends to install circuit-breakers on exchanges to prevent panic selling</p> <p>Posturing, waving the stick, intimidating, imposing arbitrary rules – all weapons of the blustering bully. Maybe charm and soft-soap will work instead and help the market gain a bit of confidence.<br /> Photo: 2 dogs</p>
Meet QT; QE's Evil Twin
<p>There is a growing sense across the financial spectrum that the world is about to turn some type of economic page. Unfortunately no one in the mainstream is too sure what the last chapter was about, and fewer still have any clue as to what the next chapter will bring. There is some agreement however, that the age of ever easing monetary policy in the U.S. will be ending at the same time that the Chinese economy (that had powered the commodity and emerging market booms) will be finally running out of gas. While I believe this theory gets both scenarios wrong (the Fed will not be tightening and China will not be falling off the economic map), there is a growing concern that the new chapter will introduce a new character into the economic drama. As introduced by researchers at Deutsche Bank, meet "Quantitative Tightening," the pesky, problematic, and much less disciplined kid brother of "Quantitative Easing." Now that QE is ready to move out...QT is prepared to take over.<br /> For much of the past generation foreign central banks, led by China, have accumulated vast quantities of foreign reserves. In August of last year the amount topped out at more than $12 trillion, an increase of five times over levels seen just 10 years earlier. During that time central banks added on average $824 billion in reserves per year. The vast majority of these reserves have been accumulated by China, Japan, Saudi Arabia, and the emerging market economies in Asia (Shrinking Currency Reserves Threaten Emerging Asia, BloombergBusiness, 4/6/15). It is widely accepted, although hard to quantify, that approximately two-thirds of these reserves are held in U.S. dollar denominated instruments (COFER, Washington DC: Intl. Monetary Fund, 1/3/13), the most common being U.S. Treasury debt.<br /> Initially this "Great Accumulation" (as it became known) was undertaken as a means to protect emerging economies from the types of shocks that they experienced during the 1997-98 Asian Currency Crisis, in which emerging market central banks lacked the ammunition to support their free falling currencies through market intervention. It was hoped that large stockpiles of reserves would allow these banks to buy sufficient amounts of their own currencies on the open market, thereby stemming any steep falls. The accumulation was also used as a primary means for EM central banks to manage their exchange rates and prevent unwanted appreciation against the dollar while the Greenback was being depreciated through the Federal Reserve's QE and zero interest rate policies.<br /> The steady accumulation of Treasury debt provided tremendous benefits to the U.S. Treasury, which had needed to issue trillions of dollars in debt as a result of exploding government deficits that occurred in the years following the Financial Crisis of 2008. Without this buying, which kept active bids under U.S. Treasuries, long-term interest rates in the U.S. could have been much higher, which would have made the road to recovery much steeper. In addition, absent the accumulation, the declines in the dollar in 2009 and 2010 could have been much more severe, which would have put significant upward pressure on U.S. consumer prices.<br /> But in 2015 the tide started to slowly ebb. By March of 2015 global reserves had declined by about $400 billion in just about 8 months, according to data compiled by Bloomberg. Analysts at Citi estimate that global FX reserves have been depleted at an average pace of $59 billion a month in the past year or so, and closer to $100 billion per month over the last few months (Brace for QT...as China leads FX reserves purge, Reuters, 8/28/15). Some think that these declines stem largely by actions of emerging economies whose currencies ha</p>
Daily Scan: Summer comes to an end and it's time to face the reality of the markets
<p>Good evening,</p> <p>In the U.S. we bid adieu to summer and prepare to return to reality. It doesn't seem all that pretty. China lowered its growth outlook to 7.3% from 7.4%, marginal but psychologically weighty. We also learned that Beijing spent nearly $100 billion to support the yuan last month. China still has plenty of currency reserves. But what a burn rate! European markets were mostly quiet on Monday with the U.S. closed but China closed down for the fourth consecutive day. And the outlook isn't pretty.</p> <p>Here's what else you need to know:</p> <p>Markets closed on Labor Day. If you weren't on the beach in the U.S., you may have been watching this video of President Obama singing "I Can't Feel My Face."</p> <p>British unleash drone attack on Syria. The attack followed word that ISIS terrorists, two of them Britons, were planning an attack on theRoyal Family with a bombing on VJ Day. Three terrorists were killed in an attackon Aug 21. New York Post<br /> N.Y. state lawyer to Governor Cuomo shot in head. The attack took place during an annual celebration in Brooklyn of West Indian American Day. The annual event has been marred by violence in the past. Carey Gabay, 43, was "not doing well," Cuomo told reporters. The New York Times (paywall)<br /> Amazon reportedly set to sell tablet for $50. What will they do on Black Friday, when prices go so low shoppers have been known to stampede stores. Quartz<br /> Apple TV getting a serious facelift. At least that's the buzz. Coming to one of the few sleepy products in the Apple lineup: games.  New product announcements are coming Wednesday. Stay tuned. The New York Times (payall)<br /> Mining giant cuts debt by $10b, issues $2.5b stock. Glencore has announced plans to slash its $30 billion debt by shelving dividends, selling assets and raising fresh equity, as the mining and metals behemoth wrestles with a slump in commodities that has battered its share price. The debt plan underscores the huge pain being inflicted on the mining sector by China’s economic slowdown. Financial Times (paywall)</p> <p>Migrant boat tragedy in Indonesia. Echoing the recent troubles in Europe, 61 bodies have been recovered after an overloaded wooden boat sank off coast of Malaysia carrying dozens of Indonesian immigrants. This follows another crisis in May when boats carrying thousands from Myanmar and Bangladesh were left at sea following a Thai crackdown. ABC<br /> Turkey vows to wipe out PKK rebels. Turkish Prime Minister Ahmet Davutoglu has pledged to "wipe out" Kurdish PKK rebels in their strongholds after a deadly bomb attack</p>
Daily Scan: China has last minute surge, Japan sinks
<p>Disappointing trade data seemed to have less impact than expected as  Shanghai Composite ended the day 3% up, the Shenzhen Composite closed with a 4% gain, and Hong Kong's Hang Seng added 3.6% following a last hour buying spree. If anything this is a sign volatility is going nowhere as investors wonder whether the equity bubble has yet to fully deflate.</p> <p>Markets across Asia ended in positive territory - only South Korea’s Seoul Composite and Japan’s Nikkei 225 ended in the red. The Nikkei took the biggest pummeling, ending 2.43% down after a day of more disappointing figures: its economy shrank an annualized 1.2% in the second quarter despite ongoing government and central bank measures to support growth.</p> <p>Meanwhile, the broader global outlook is still grim with oil prices remained weak today as cooperation between oil producing countries to curb oversupply looking unlikely. Oil prices have fallen almost 60% since June last year. </p> <p>Here is what else to need to know...</p> <p>Chinese stock exchanges to bring in “circuit breakers” Mainland stock exchanges plan to install bourse-wide "circuit breakers" to stop panic selling after botched official efforts to stop plunges in the volatile A-share market. Under the new plan, Shanghai and Shenzhen will halt trading for 30 minutes when the CSI300 index jumps or slumps 5% in intraday trading. They will stop for the day if it soars or dives by 7%. SCMP (paywall)</p> <p>Koreas agree on family reunions.North and South Korea have agreed to hold rare reunions for families separated by the Korean War.The meetings will take place in October at a mountain resort in North Korea.The decision follows an agreement last month that de-escalated tensions sparked by a border mine explosion that injured two South Korean soldiers. BBC</p> <p>MBK-led consortium clinches South Korea Tesco deal. UK supermarket giant Tesco says  it has agreed to sell its South Korea business - Homeplus - for $6.1 billion in cash, the latest in a series of pullbacks by the chain. Tesco will get $5.1 billion after adjusting for tax and other costs. WSJ</p> <p>China foreign exchanges fall by $97b.  The August drop came as the country’s central bank sold down some of its massive stockpile to support the renminbi. It is the sharpest monthly fall in reserves on record, while in percentage terms it represented the biggest decline in more than three years. Reserves fell 2.6%  in August to $3.557 trillion. Financial Times (paywall)</p> <p>Amanda Knox acquitted of Italy murder. American Amanda Knox and her former Italian boyfriend Raffaele Sollecito have been acquitted of 2007 murder of the British student Meredith Kercher, following a botched investigation. Guardian</p> <p>Japan PM Abe secures new term as ruling party chief.  Shinzo Abe has won a second consecutive term as president of the ruling Liberal Democrats' Party (LDP). H</p>
UBS hires Annie Leibovitz for new ad campaign
<p>Though she is better-known for snapping photos of celebrities and musicians for Vanity Fair and Rolling Stone, Annie Leibovitz now works for Europe’s fifth largest bank, UBS, writes Finbuzz.</p> <p>The Swiss bank commissioned the photographer for the new ad campaign “Can I truly make a difference”, where Leibovitz holds photo sessions with budding entrepreneurs who all deliver speeches on their individual impact on the world, making sure to mention UBS’s mantra, “Together, we can find an answer.”</p> <p>In the 1980s, Leibovitz worked on an ad campaign for American Express which featured portraits of celebrities who were clients of the bank.</p> <p>UBS has also enlisted Leibovitz for a separate project called “Women,” a photography collection that is a sequel to the portrait book she created in 2000.</p> <p>The exhibition tour will debut in London in January 2016 before going to Tokyo, San Francisco, Hong Kong, Singapore, Mexico City, Istanbul, Frankfurt, New York, and Zurich. The photos will then become part of the bank’s corporate art collection, which already includes over 35,000 works.<br /> Photo: UBS</p>
Friendly fire helped to blow up ETFs on Black Monday
<p>ETFs traded like drunken sailors on Black Monday, practically throwing themselves overboard.</p> <p>Recall on August 24, some ETFs traded at a 50% discount to the underlying baskets of stocks that they reference.</p> <p>Is that anyway for a $2 trillion-plus market to act, even if the Dow Jones Industrials tumbles 10% at the open?</p> <p>No. It is not. Credit Suisse estimates that 42 cents of every dollar traded on U.S. exchanges is for an ETF.  A lot of industry insiders have said some self-serving stuff. Or retail investors shouldn't set market orders. Thanks for the advice.</p> <p>Barron's takes a deep dive into what happend on August 24 and comes up with some pretty interesting observations. Observation numero uno: New regulations put in place after the June 2010 flash crash made things much worse. Namely: 327 ETFs were forced to halt trading for five minutes; some were halted more than 10 times.</p> <p>What would you do if suddenly you had no idea how much the ETFs you were trading were worth? Or more important, what would a market maker do? Widen the hell out of the spread. And then you get iShares Core S&amp;P 500 tumbling 26%, more than 20 percentage points below the underlying stocks for the $65 billion ETF. This is the stuff of panic.<br /> “Aug. 24 highlighted the fragility of ETFs in a stressed market,” says James Angel, a professor at Georgetown University who specializes in the functioning of the stock market. “The characteristics of the products aren’t going to change, so we need to contain that fragility.”<br /> Later this month, the SEC's equity market structure committee is holding a meeting. Let's hope ETF structure is top of the agenda.</p> <p>Read the entire analysis at Barron's here. It's very good stuff.<br /> Photo: Official U.S. Navy Page</p>
September swoon for ETFs could continue in the week ahead
<p>U.S. stocks ended last week in miserable fashion as all three major U.S. indexes slumped more than 1 percent on Friday. For the week, the S&amp;P 500, Dow Jones Industrial Average and the Nasdaq Composite each lost at least 2.6 percent.</p> <p>With those dismal numbers in mind, perhaps it is a good thing that the week ahead will be shortened by the Labor Day holiday because while the bull market is still in tact, investors' enthusiasm for riskier assets is clearly waning. Emerging markets stocks and exchange traded funds continue to confirm as much.</p> <p>Read more at Benzinga.<br /> Photo: Rich Herrmann</p>