Shuttered up: As China slows, Hong Kong company closures hit record

A record number of Hong Kong firms shut up shop last year as China, the mainstay of the city's economy, trundled to its slowest economic growth in a quarter of a century and spending by mainland visitors dried up. 

PHOTO: BLOOMBERG

JAN 6, 20164:40 PM

[HONG KONG] A record number of Hong Kong firms shut up shop last year as China, the mainstay of the city's economy, trundled to its slowest economic growth in a quarter of a century and spending by mainland visitors dried up.

Some 122,479 companies were dissolved, according to data from the city's Companies Registry compiled by financial research platform Webb-site.com. New firms incorporated in Hong Kong also slid 17 per cent, leaving the net number of new firms at a low since 2003's SARS outbreak slammed the city's economy.

The numbers show just how tightly Hong Kong's business prospects remain tied to mainland China, despite its aspirations as a global financial centre. Bleak as last year was, the problem for the city's entrepreneurs - and their lenders - is that China's growth may keep slowing, with an even more painful sting in the tail down the line.

"We haven't seen the worst yet," said Kevin Lai, chief economist Asia Ex-Japan at Daiwa Capital Markets in Hong Kong."We're not too sure what may happen to the currency, we're not sure whether this slowdown in China will spill into some kind of a bigger trouble or financial crisis. We're still at the very beginning of the whole process."

Hong Kong's experience with SARS showed the city's resilience - while thousands more firms were closed in 2003 than were started, the city was back in business with a net 21,605 new firms just a year later. But China's lingering economic health problems may yet leave a deeper scar this time around.

REUTERS

    
 

After record year for M&As, privatisation to sustain Vietnam's deals blitz

Foreign firms are set to capitalise on Vietnam's privatisation drive and buy into assets such as Vinamilk and Mobifone to gain exposure to its fast-growing economy this year, boosting M&A deals that already hit a record US$4 billion in 2015. 

PHOTO: BLOOMBERG

JAN 6, 20164:15 PM

[HANOI] Foreign firms are set to capitalise on Vietnam's privatisation drive and buy into assets such as Vinamilk and Mobifone to gain exposure to its fast-growing economy this year, boosting M&A deals that already hit a record US$4 billion in 2015.

The dealmaking flurry has been encouraged by a turnaround for Vietnam's US$186 billion economy last year, which as recently as 2011 was fighting a 20-plus per cent inflation rate and a banking sector saddled with bad debt.

"With strong momentum in the Vietnamese economy and Vietnamese companies continuing to grow in scale, the opportunity for foreign companies to engage in sizeable transactions and partnerships has become increasingly attractive," said Rehan Anwer, head of Frontier Markets, at Credit Suisse.

Vietnam's economy grew 6.68 per cent in 2015, the fastest pace in five years. By comparison, growth in the economies of most of its bigger Southeast Asian neighbours isn't expected to be as robust, hurt by tumbling commodities prices and falling currencies. That dampened their merger and acquisition (M&A) volumes last year.

Deal values in Vietnam last year were boosted by Thai tycoon Santi Bhirombhakdi-linked Singha Asia's US$1.1 billion stake purchases in the consumer goods and beer units of the Masan Group.

This year, the sale of an up to 45 per cent government stake valued at US$3.1 billion in partly state-owned Vietnam Dairy Products JSC, or Vinamilk, is on the cards. Vinamilk and a finance ministry official were not immediately available to comment.

Fraser and Neave, backed by Thai tycoon Charoen Sirivadhanabhakdi, which has an 11 per cent stake in Vinamilk, and other strategic investors are seen as potential bidders, bankers familiar with the situation said. F&N did not respond to requests for comment.

Other deals likely to materialise in 2016 include a potential US$900 million sale of mobile network provider Mobifone and a partial privatisation of Binh Son Refining and Petrochemical Company (BSR), said a senior executive of an advisory firm with close links to the government.

Mobifone said it does not have any information to share on the sale. A BSR spokesman said no final decision has been taken on the partial privatisation.

Deals are also likely in the textiles, footwear, construction and machinery sectors as investors position themselves before Vietnam and 11 other countries implement the Trans Pacific Partnership (TPP) accord, which aims to liberalise commerce in 40 per cent of the world's economy.

The government has thrown open several sectors for foreign investors, as a long-waited rule kicked in last year allowing foreigners to own up to 100 per cent in Vietnamese listed firms, except for some sectors such as property and transportation.

In banks, the government has promised to raise the 30 per cent maximum limit.

Investors do see risks associated with the market. A key one is a five-yearly congress of the secretive Communist Party which takes place this month, causing uncertainty about the kind of leadership that will emerge from it, though experts say the reform momentum will be unaffected.

"Expect hiccups along the way. After all, this is a frontier market," said Orsen Karnburisudthi, Bangkok-based senior investment manager at Aberdeen Asset.

REUTER
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Yuan sinks to five-year low as PBOC surprises with weaker fixing

The yuan sank to a five-year low after China's central bank set the currency's reference rate at an unexpectedly weak level, a sign that policy makers are becoming more tolerant of depreciation as intervention costs rise and economic growth slows. 

PHOTO: EPA

JAN 6, 20164:12 PM

[BEIJING] The yuan sank to a five-year low after China's central bank set the currency's reference rate at an unexpectedly weak level, a sign that policy makers are becoming more tolerant of depreciation as intervention costs rise and economic growth slows.

The People's Bank of China cut its daily fixing to the lowest level since April 2011, weaker than the yuan's last onshore closing level. The currency fell 0.6 per cent in Hong Kong's freely traded market as well as in Shanghai, with both exchange rates dropping to their weakest levels since at least March 2011. The gap between the two rates reached a record before the start of onshore trading on Wednesday.

While China's defense of the yuan kept the currency stable for about four months after a surprise devaluation in August, the intervention led to the first-ever annual decline in the nation's foreign-exchange reserves. Official support for the currency has been more sporadic in recent months as the weakest economic expansion in a quarter century and rising US interest rates fueled capital outflows. Analysts at Macquarie Bank Ltd and Mizuho Bank Ltd said the central bank's currency policy is becoming harder to gauge.

"The market will be confused by what Beijing is trying to signal with the recent market intervention and today's fixing," said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank in Singapore.

The central bank intervened in the currency market on Tuesday to prevent excessive volatility, said a person with direct knowledge of the matter. A few major Chinese banks sold US currency when the onshore yuan dropped to around 6.5460 per dollar on Wednesday, but the offerings weren't stable or constant, according to traders who asked not to be named.

The offshore yuan declined to 6.6964 per dollar as of 3:46 pm in Hong Kong, while the onshore rate was 6.5523, near the weakest since March 2011. The rate in Hong Kong fell to a record 2.2 per cent discount versus that of Shanghai prior to the start of onshore trading on Wednesday.

The PBOC, which shocked global markets with its Aug. 11 yuan devaluation, said at the time that it was revamping the fixing system to give market forces greater sway. While allowing the yuan to depreciate may help the Chinese economy, it risks spooking global markets, according to Japan's Resona Bank Ltd.

"This isn't good for the rest of the world," said Koichi Kurose, Tokyo-based chief market strategist at Resona Bank. "Until China stops weakening the yuan, global markets will struggle to stabilize. The Chinese authorities may be trying to prop up the economy by boosting exports, but while that will help one part of China's economy, it comes at the sacrifice of someone else. Japan is an easy victim of such policy, given the overlap in many industries."

Yuan swings tend to impact currencies and export prospects across Asia, with China being the biggest trading partner of economies including South Korea and Taiwan. The Bloomberg- JPMorgan Asia Dollar - which tracks the region's 10 most-used currencies excluding the yen - reversed a daily gain immediately after the PBOC announced the cut to its yuan fixing and fell as much as 0.4 per cent.

A report next week is projected to show Chinese exports shrank for a sixth straight month in December, according to the median estimate in a Bloomberg survey of economists. The private Caixin Media and Markit Economics Chinese services gauge fell to a 17-month low of 50.2 in December, according to a report released Wednesday.

The yuan has "limited" room for further depreciation as slumping energy prices will help boost the current-account surplus in China, the world's second-largest importer of oil, and offset capital outflows, according to Goldman Sachs Group Inc. Low crude prices may prop up the excess to about $360 billion this year, a level last seen before the global financial crisis, Goldman analysts led by Robin Brooks wrote in a report on Tuesday. A relatively strong export market compared to other developing nations also suggests the exchange rate is fairly valued, according to the report.

The PBOC cut its reference rate by 0.22 per cent on Wednesday to 6.5314 per dollar, weaker than both Tuesday's 4:30 pm level as well as the end-of-the-day rate. While onshore trading hours have been extended to 11:30 p.m., the monetary authority has said it will continue to view the 4:30 pm price as the closing level. Authorities said in August they would use factors including the last closing level and movements in major currencies when setting the reference rate.

"The fixing today flags China's policy risks," said Ken Cheung, a Hong Kong-based strategist at Mizuho Bank Ltd. "It looks like that they set it in an arbitrary way and the mechanism is not consistent with their policy guidelines. This obviously undermines the PBOC's policy credibility and investor confidence in the China market."

BLOOMBERG

    
 

REPORT: Valeant is appointing a new CEO

• Linette Lopez
 
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• 17h
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REUTERS/Christinne MuschiMichael Pearson, chairman of the board and CEO of Valeant Pharmaceuticals.

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Embattled pharmaceutical firm Valeant is planning to appoint a new CEO to replace Michael Pearson, who is hospitalized, according to Dow Jones.

Current CFO Robert Rosiello and former CFO Howard Schiller are in the running to take the CEO spot for an unknown amount of time.

Valeant's stock started collapsing in October under the weight of federal investigations into its pricing practices, allegations of accounting irregularities from a short seller, and the revelation of its secret, close relationship with Philidor — a pharmacy that is also now under investigation for questionable practices with insurance claims.

Pearson has been sick for weeks, and it was already known that he would not be presenting at next week's JPMorgan Healthcare Conference.

The idea that he would leave the company entirely, though, is a huge departure from then Valeant investors know. Pearson originated the company's strategy of expanding its product line through aggressive acquisitions rather than by spending money on R&D.

On earnings call after earnings call, in Wall Street research note after research note, Pearson was credited with Valeant's success and its status as a hedge fund darling.

But after October's scandal extended into November, Valeant was forced to change course. It cut ties with Philidor and announced a new partnership with Walgreens at its investor day in December.

With that new partner came a new business strategy. In 2016, Valeant announced, the company would do no acquisitions. To make up for Philidor's sales force — which sold almost exclusively Valeant products — and instead of increasing price, it would rely on sales volume to generate adequate revenue to make payments on its $34 billion debt load.

"We've always had strong growth and volume growth, but the skeptics have said that it's all price," Pearson said on CNBC after the deal was announced. "This will turn it all into volume."

Pearson was hospitalized for pneumonia in late December, and a three-man team took his place. The appointment of a single person in Pearson's place knocks them out of the picture.

Valeant's stock is down 6% in after-hours trading on this news.

SEE ALSO: Valeant's future hangs on a single word

Crude oil dives to an 11-year low

• Will Martin
 

• 6h
• 8,086
 
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The price of oil on Wednesday morning plunged to another recent low as global geopolitical tensions grow, the volatility of Chinese markets continues, and the global glut of oil gets even bigger.

As of 10:30 a.m. GMT (5:30 a.m. ET) the price of Brent crude, the European benchmark, slipped to exactly $35 a barrel — its lowest level in more than 11 years.

The price is down nearly 4% on the day and still falling:

Investing.com

The American benchmark, West Texas Intermediate, is also having a horrible day — it is down by more than 3%, to below $35 a barrel.

Brent's massive fall means the two benchmarks are once again approaching parity.

Geopolitical tensions are as high as they've been in a long time, and the oil markets do not like it at all. ISIS continues to threaten the West, North Korea just tested a hydrogen bomb, and, most important for oil traders, tensions between Saudi Arabia and Iran are rising.

This follows the execution of a prominent Shiite cleric, which led to a severing of diplomatic ties between the two countries. Given the importance of both Saudi Arabia and Iran to the global oil markets, it's no great surprise that tension between them are spooking the markets.

Three days in, and the 2016 market horror show continues.

Many experts are already skeptical of North Korea's claims of a successful hydrogen-bomb test

• Harrison Jacobs
 
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• 11h
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Thomson ReutersNorth Korean leader Kim Jong Un giving a New Year's address for 2016 in Pyongyang.

North Korea announced on state television Wednesday that it had successfully detonated a "miniaturized" hydrogen bomb.

The announcement came hours after South Korean officials reported an artificial earthquake 30 miles north of Kilju, where North Korea's primary nuclear test site is located.

The US Geological Survey measured the magnitude of the quake at 5.1, the same magnitude reported after North Korea's most recent confirmed nuclear test, in February 2013.

Despite North Korea's announcement, many geopolitical experts remained skeptical of the country's claims of a successful hydrogen-bomb test, undoubtedly because of North Korean state media's tendency to exaggerate or outright lie about happenings in the isolated nation.

RAND senior defense analyst Bruce Bennett wrote in an opinion piece for CNN that it was unlikely that North Korea had achieved a successful hydrogen fusion bomb considering that the country's three previous nuclear tests appeared to show a difficulty in mastering a fission weapon.

Bennett did note that there was another possibility:

En route to the development of fusion weapons, some countries develop so-called "boosted" weapons, which use a small amount of fusion to boost the fission process, causing more large atoms to fission and thus releasing more energy — initially, perhaps a weapon of 50 kilotons or so. Because some fusion is involved in such a weapon, Kim may be claiming that he has achieved a hydrogen bomb when in practice he only has a boosted weapon.

That possibility was echoed by Joe Cirincione, the president of Ploughshares Fund, a global security foundation:

Other experts on Twitter expressed skepticism as well:

Others are noting the similarities in some measures between a 2013 nuclear test and Tuesday's:

Here's North Korea's full statement, translated to English by NPR:

Chosun's first hydrogen bomb testing was completely successful.

The tens of millions of fighters in our nation embraced the battle cry of the Party with hearts full of boiling blood... 

The strategic determination of the Chosun Workers Party has led to the success of our first hydrogen bomb testing on January 6, 10 a.m., Juche 105 (year 2016).

This test, which relied 100% on our wisdom, our technology and our power, we have proved the accuracy of the technological resources behind our newly developed test hydrogen bomb. We have also proves scientifically the power of miniaturized hydrogen bombs.

The experimentation of our test-hydrogen bomb was carried out safety and perfectly, proving absolutely no negative effects on the surrounding natural environment.

This hydrogen bomb testing elevates the level of our nuclear weapons development. The complete success of our historic hydrogen bomb testing has proudly elevated the DPRK to the ranks of nations possessing nuclear weapons. Our people have boasted the dignified spirit of the nation, with the best nuclear restraint.

The hydrogen bomb testing, carried out by our nation, is a defense mechanism to protect the autonomy and survival of the nation from the increasing nuclear threats of the enemy powers, centered around the US, and reliably guarantee the peace and safety of the region.

NOW WATCH: A North Korean defector tells us what life was like under a dictatorship

More: Kim Jong Un North Korea Nuclear Bomb Hydrogen Bomb

China's all-important services sector is slowing to a crawl

• David Scutt, Business Insider Australia
 

• 14h
• 1,472

ChinaFotoPress/Getty Images

See Also

China's manufacturing sector ended 2015 wallowing in the doldrums

Activity across China's manufacturing sector tanked last month

No growth for China's manufacturers in July

Growth across China’s services sector slowed to a crawl in December, fueling fears that economic growth within the country is faltering.

The latest Caixin-Markit services PMI gauge fell to 50.2 from 51.2 in November, the lowest level seen since July 2014.

Like all PMI gauges, a reading of 50 is deemed neutral, indicating that activity has neither accelerated nor decelerated during the month. A figure above 50 signals an expansion while anything below signals that activity levels have declined.

At 50.2, activity across the sector expanded – just. It was also the second lowest reading in the decade-long history of the survey.

Business Insider Australia

On top of the concerning headline reading, Markit noted that firms expressed a relatively low level of optimism towards the 12-month business outlook in December with the reading sitting only marginally above the record low level hit just two months earlier.

He Fan, chief economist at Caixin Insight Group, suggests the poor reading intensifies the need to push ahead with supply side reforms.

The headline Caixin China General Services PMI for December is 50.2, down 1 point from the reading for the previous month and reaching the lowest point in 17 months.

In light of the setback to services sector growth, the government needs to gradually relax restrictions in the sector. This will release the potential of supply-side reform, improve the economic structure and help with the industrial transformation and upgrading.

In what will do little to alleviate concerns about the reliability of Chinese government data, the Caixin-Markit survey did exactly the opposite to the official services PMI gauge released by the National Bureau of Statistics on New Year’s Day.

The government’s PMI reading surged to 54.4, the highest level seen since August 2014, indicating that activity levels expanded strongly during the month.

Business Insider Australia

While the NBS survey has a larger survey sample and includes both large, medium and small sized firms, not just the latter two as is the case with the Caixin-Markit survey, the divergence between the two is hard to explain given they both cover similar firms from the same sector over the same time period.

Another key difference, of course, is that one is conducted by the government and the other by a private sector firm.

Markets are likely to lean towards the latter, and the weak reading will do little to inspire confidence that China’s economic transition is gaining traction.

Read the original article on Business Insider Australia. Copyright 2016.

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More: Business Insider Australia China Economy Sector

Ultra-thin, high-definition TVs battle for CES crown

A battle for the title of best new television opened on Tuesday at the Consumer Electronics Show, with LG unveiling a new model no thicker than four stacked credit cards. 

PHOTO: AFP

JAN 6, 20166:45 AM

[LAS VEGAS] A battle for the title of best new television opened on Tuesday at the Consumer Electronics Show, with LG unveiling a new model no thicker than four stacked credit cards.

The South Korean consumer electronics colossus opened a packed day of press conferences at the annual tech extravaganza in Las Vegas with a line-up that included an OLED Signature panel touted as "quite literally, a picture on glass."

The television measures an unprecedented 2.57 mm, LG Electronics USA marketing vice president David VanderWaal said during an on-stage presentation.

"Our passion and commitment for OLED has never been stronger," VanderWaal said.

"OLED TV is already recognised as the best TV ever." OLED displays have pixels that emit their own light, while pixels in LCD TVs are illuminated by backlights.

OLED screens boast deeper blacks, allowing for a wider range of colour than LCD displays. They also tend to come with higher price tags.

LCD televisions remain "the king of screens" with sizes trending up, according to the Consumer Technology Association, the trade group behind CES.

One in every five televisions sold this year is expected to be 50 inches or more, measured diagonally, and feature ultra high-definition 4K resolution.

LG was among the TV makers here introducing new models that will come with a freshly minted Ultra-High Definition Premium Certification signalling that they meet standards freshly established by an alliance representing manufacturers, technology companies and studios creating content.

"The criteria established by this broad cross-section of the Ultra HD ecosystem enables the delivery of a revolutionary in-home experience," UHD Alliance chairman Hanno Basse said in a release.

"And, the Ultra HD Premium logo gives consumers a single, identifying mark to seek out so they can purchase with confidence." Analysts told AFP they expected adoption of 4K ultra-high definition televisions to pick up speed this year as prices get in reach of more consumers and the displays become marketplace norms.

LG built Dolby Vision technology into its new televisions.

"Dolby Vision creates a picture so lifelike you will forget you are looking at a TV screen," Dolby Labs senior vice president Giles Baker said during the presentation.

Dolby Vision has been used in major films including box-office record-breaker "Star Wars: The Force Awakens," according to Giles.

The LG television line-up included "Super UHD" LCD displays as slim as 6.6 mm and a new flagship 8K television measuring 98 inches diagonally.

Later in the day, leading television maker Samsung unveiled a new line of ultra-high-definition LCD televisions capable of not only streaming games or shows from the Internet but able to serve as command centers for smart home devices, from locks and lights to thermostats and appliances.

Samsung Electronics visual display business president Hyun Suk Kim pulled back the curtain on new SUHD Quantum Dot televisions that he said marked the "start of a new era of TV."

"This year we are focused on bringing the television experience into the future," Samsung Electronics America executive Dave Das said.

"The new SUHD TV is a giant leap forward in time." New models have software designed to better consolidate traditional and online content, and remote controls that automatically detect and command accessories with no set-up needed.

Samsung's new SUHD televisions will also allow people to play more than 500 video games, including blockbusters such as Assassin's Creed streamed online in partnership with Sony's PlayStation Now service, without needing consoles.

The TVs will also act as command centers in smart homes by incorporating technology from Silicon Valley start-up SmartThings, which Samsung bought in 2014, allowing them to control devices synched to the platform.

"I think this is really a big step forward for opening up the market," SmartThings founder and chief Alexander Hawkinson told AFP.

"You can have a smart home basically for free as a starting point; it is pretty amazing." SmartThings is based on open standards, letting tens of thousands of developers tailor applications to work with the platform.

"In 2016, we're going beyond anything we've done before to offer a remarkable synergy of design, engineering and craftsmanship," said Hyun Suk Kim.

Samsung also unveiled its first Ultra HD Blu-ray Player, along with partnerships with Hollywood studios to release films in the format.

AFP