Russia keen to see Hong Kong, China investment in Russian corporate bonds

Russia wants more investors in Hong Kong and China to look at investing in Russian corporate bonds, Deputy Prime Minister Arkady Dvorkovich said. 

PHOTO: REUTERS

JAN 19, 20169:51 AM

[HONG KONG] Russia wants more investors in Hong Kong and China to look at investing in Russian corporate bonds, Deputy Prime Minister Arkady Dvorkovich said. "Fixed income is a really interesting story for us," he said late on Monday as part of a panel discussing economic ties between Russia and Asia Pacific.

Asked if Russian would encourage companies to tap Hong Kong's equity markets after the city last week made it easier for firms incorporated in Russia to list, Mr Dvorkovich said:"Equities is probably even not the biggest story, fixed income is even more important."

Russia will be watching to see if there will be moves to connect Hong Kong and China's bond markets, now that a link has been established between Hong Kong and Shanghai's equity markets, Mr Dvorkovich added.

Russian companies United Company RUSAL Plc, the world's top aluminium producer, and iron ore miner IRC Ltd have listed in Hong Kong, but RUSAL was incorporated in Jersey and IRC in Hong Kong.

 

REUTERS

    
 

Major currencies in limbo as China data looms large

Major currencies were on hold on Tuesday as investors readied for key Chinese economic data due in a few hours as worries about the global economic outlook deepen and oil prices show scant signs of life.

PHOTO: REUTERS

JAN 19, 20168:53 AM

[TOKYO] Major currencies were on hold on Tuesday as investors readied for key Chinese economic data due in a few hours as worries about the global economic outlook deepen and oil prices show scant signs of life.

The dollar stood at 117.38 yen, having recovered from a five-month low of 116.51 set on Friday for now but market players say the yen is likely to be underpinned by weak confidence in global economic prospects.

The yen was the best performer so far this year among major currencies with gain of about 2.5 per cent. Falls in the Chinese yuan earlier this year sparked fears over the Chinese economy, prompting investors to buy back safe-haven assets including the yen. "At the heart of the yen's strength are falls in the yuan, which were perceived to be negative on the global economy," said Shunsuke Yamada, chief Japan currency strategist at Bank of America Merrill Lynch. "The yuan's fall also makes it less likely for the Fed to raise rates and nullify the existing reasons to bet against the yen," he said.

Indeed, currency speculators in Chicago currency futures became net yen buyers last week for the first time since Prime Minister Shinzo Abe took office in late 2012.

Although Beijing has managed to stabilise the yuan through massive intervention, signs of massive capital outflow from China highlighted worries over China's economy.

Against this backdrop, the Chinese economic data due later in the day is a major market focus for the day.

Economists expect China's GDP growth to have slowed 6.8 per cent from a year earlier in the three months to December, from 6.9 per cent in the preceding quarter.

The Australian dollar, seen as a proxy for China trades, changed hands at US$0.6872, not far from a seven-year low of US$0.6827 touched on Friday.

Pressures on commodity-linked currencies such as the Aussie remain strong, with oil prices hitting a new 12-year low on Monday and many other commodities also flirting with multi-year lows.

Concerns are also growing that the US economy, which had been considered as one of the brightest spots in the world, may not escape the headwind, following surprisingly weak U.S. retail sales data published on Friday. "One major support for risk assets has been that the US economic seems robust. If the US economy is losing steam, that would be really bad for global investor sentiment," said Shinichiro Kadota, chief Japan currency strategist at Barclays.

Rising caution on the US economy helped to curb the US dollar. The dollar index kept some distance from this year's high of 99.634 touched on Jan, 5 and last stood at 99.126.

The euro has been range-bound at US$1.07-US$1.10 so far this year and last stood at US$1.0890.

Sterling, a big loser since the start of December on softening economic outlook and worries over a UK referendum on its membership of the European Union, continued its downward spiral to edge near its 2010 trough.

The pound stood at US$1.4250, just above US$1.4228 hit in May 2010.

UK inflation data due at 0930 GMT is a key focus with a weak reading having the potential to push back expectations of a rate hike by the Bank of England even further, hurting the pound.

The Canadian dollar also hit a 13-year low of C$1.4650 on Monday as Brent crude futures fell below US$29 per barrel. It last changed hands at C$1.4545.

REUTERS

    
 

Son's SoftBank plan at risk as Sprint goes from bad to worse

The acquisition of Sprint Corp was supposed to help Masayoshi Son realize his vision of transforming SoftBank Group Corp into the world's most-valuable company. 

PHOTO: AFP

JAN 19, 20169:17 AM

[TOKYO] The acquisition of Sprint Corp was supposed to help Masayoshi Son realize his vision of transforming SoftBank Group Corp into the world's most-valuable company.

Instead, the 2013 deal has become his biggest setback so far, dragging down SoftBank shares and cutting into the billionaire's wealth.

SoftBank tumbled yesterday to its lowest level since the Sprint deal closed 2 1/2 years ago. Mr Son's fortune has shrunk by US$3.2 billion over the past 12 months, according to the Bloomberg Billionaires Index, as the Japanese company's stock plunged.

The Sprint deal has proven a dramatic blow for Mr Son, one of Japan's most enigmatic entrepreneurs who has said he has a 300-year plan for SoftBank and wants to build an Internet empire unrivaled in "profit, cash flow and market value."

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Instead, as Sprint losses mounted, Mr Son found himself spending hours a night on the phone with its engineers and executives. The prospects of a turnaround may be slipping away, taking away precious time from the 58-year-old as he tries to secure his legacy.

"He was very overconfident from SoftBank's success in Japan," said Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners Inc in Singapore.

"With Sprint, it seems like Son's luck with these big, splashy acquisitions has run out."

SPRINT FREEFALL

SoftBank paid US$22 billion for a controlling stake in the No. 3 US wireless operator at the time. That investment has lost US$7.3 billion in value, according to SoftBank, and Sprint is now the No. 4 carrier. Hiroe Kotera, a spokeswoman for SoftBank, declined to comment.

At the press conference announcing the Sprint deal in October 2013, Mr Son reminisced about his first trip to the US as a 16-year-old. The experience inspired him to create SoftBank, which he since transformed from a distributor of PC software to one of Japan's largest acquirers, with more than 1,000 investments.

"Today, more than 30 years later, I once again make a major advance into America," Son said at the time.

BEST LAID PLANS

He then tried to acquire T-Mobile US Inc to combine with Sprint, but regulators blocked him, scuttling his plans to achieve profitability in the US market.

Sprint subsequently got US$1.2 billion in financing from a phone leasing company created by SoftBank to help lower equipment costs and relieve pressure on its cash supply.

"The scenario has gone completely awry," said Yasuaki Kogure, chief investment officer at SBI Asset Management Co. "It's becoming clear to investors just how high the hurdle is now."

Sprint closed down 10 per cent on Friday after a report said the company was finalizing plans to cut US$1 billion in network costs through measures analysts called risky. Sprint is working to move radio equipment to spots on lower-cost, government-owned properties, according to a report in Re/code.

SoftBank fell as much as 1.5 per cent to 5,034 yen in Tokyo today, after tumbling 7.9 per cent yesterday.

BONDS DUE

During the next three years, Sprint must address six bonds coming due with an aggregate principal amount of US$7.6 billion. These issues account for 28 per cent of all communications bonds set to mature by year-end 2018, Bloomberg Intelligence analyst Stephen Flynn wrote in a note Friday.

The cost to insure the company's debt from default climbed to the highest since November 2012 on Monday, according to CMA data. SoftBank is the fourth-riskiest company on the Markit iTraxx Japan credit-default swap index, after Sharp Corp, its own unit Ymobile Corp and Toshiba Corp.

Sprint Chief Executive Officer Marcelo Claure plans to cut US$2.5 billion from the company's more than US$20 billion in annual costs. Sprint booked its fifth consecutive quarter of losses, and SoftBank may record a charge of as much as US$1.2 billion, the company said in November.

ALIBABA DECLINE

"Son has promised a rapid recovery," said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. "As it failed to materialise, investors began to lose hope." The strategy of trading losses for subscribe gains has taken a toll on Sprint's market value. At the same time, a slowdown in China brought down shares of Alibaba Group Holding Ltd, SoftBank's biggest holding, by 22 per cent last year.

SoftBank is still investing aggressively in startups. Nikesh Arora, the president Son hired from Google, is leading the effort and plans to put about US$3 billion into companies each year. The goal is to back startups that can become the next Alibaba, the Chinese e-commerce company that pulled off the largest initial public offering ever.

"There will always be fans of SoftBank, it's just at this moment in time, no one cares -it's out of fashion," said Andrew Clarke, director of trading at Mirabaud Asia Ltd in Hong Kong. "They have too many concerns about Sprint and Alibaba because those shares are being crushed."

BLOOMBERG

      

Yuan opens firmer ahead of China GDP data

China's yuan firmed at the open on Tuesday, ahead of the release of quarterly GDP data which is expected to point to the weakest economic growth in nearly seven years. 

PHOTO: REUTERS

JAN 19, 201610:06 AM

[SHANGHAI] China's yuan firmed at the open on Tuesday, ahead of the release of quarterly GDP data which is expected to point to the weakest economic growth in nearly seven years.

The People's Bank of China set the midpoint rate at 6.5596 per dollar prior to the market open, weaker than the previous fix of 6.559, and firmer than the previous day's closing quote of 6.5788.

The spot market opened at 6.5775 per dollar and was changing hands at 6.5795 in early trade, 7 pips away from the previous close and 0.30 per cent away from the midpoint.

The spot rate is allowed to trade with a range 2 per cent above or below the official fixing on any given day.

The offshore yuan (CNH) was trading 0.19 per cent softer than from the onshore spot at 6.5919 per dollar, weaker than the previous day's unofficial close of 6.586.

REUTERS

    
 

Australian leader urges China to great power conflict trap

JAN 19, 20167:00 AM

[WASHINGTON] Australian Prime Minister Malcolm Turnbull called on China on Monday to avoid actions in pursuit of territorial claims in Asia that could make conflict with the United States more likely.

Speaking in Washington ahead of a meeting with President Barack Obama on Tuesday, MrTurnbull said Chinese President Xi Jinping had spoken of his desire to avoid the so-called Thucydides Trap - an academic theory that sees a risk of rivalry between a rising and an established power turning to conflict. "If avoiding the Thucydides Trap is a core objective of China's strategy, as President Xi insists it is, then we would hope that China's actions will be carefully calculated to make conflict less likely not more," Mr Turnbull told the Center for Strategic and International studies think tank.

He said China should be seeking to reassure neighbors and build confidence about its intentions. "The legitimacy of claims to reefs and shoals should be a secondary consideration when that objective is focused on," Mr urnbull said, referring to China's territorial claims in the South China Sea, where Beijing has been building artificial islands to extend its reach.

Mr Turnbull said rival claims should be settled under international law and referred to a case the Philippines has brought in the arbitration court in The Hague over its competing claims with China.

Mr Turnbull, who has a tricky balancing act to maintain between China as Australia's largest trading partner and the United States as Canberra's main security ally, said a strong and enduring US presence was needed in Asia to ensure the region's unprecedented economic growth continued.

In announcing Mr Turnbull's visit earlier this month, the White House said Obama and the Australian leader were expected to discuss the Trans-Pacific Partnership trade deal awaiting ratification and the fight against Islamic State militants in Iraq and Syria, in which both countries are engaged.

Mr Turnbull met US Defense Secretary Ash Carter on Monday and the two discussed Iraq and Syria and the need to continue close collaboration on security in the Asia-Pacific, Pentagon Press Secretary Peter Cook said.

REUTERS

    
 

China seen posting slowest economic growth in 25 years as policy risks grow

China is expected to report its weakest quarterly economic growth in nearly seven years on Tuesday, adding pressure on policymakers to take bolder steps to ward off fears of a sharper slowdown that are jolting global financial markets. 

PHOTO: AFP

JAN 19, 20166:35 AM

[BEIJING] China is expected to report its weakest quarterly economic growth in nearly seven years on Tuesday, adding pressure on policymakers to take bolder steps to ward off fears of a sharper slowdown that are jolting global financial markets.

Chinese leaders have been struggling to put a floor under the economy, even as a fresh plunge in its stock markets and yuan currency have stoked worries from Washington to Wellington that conditions may be rapidly deteriorating.

Fourth-quarter gross domestic product (GDP) growth is expected to slow to 6.8 per cent from a year earlier, down from 6.9 per cent in the third quarter and the weakest since early 2009, according to analysts polled by Reuters.

Full-year growth is seen at 6.9 per cent, enviable by Western standards but China's poorest showing in a quarter of a century.

Analysts expect the world's second-largest economy will cool further this year, with growth of 6.5 per cent even if Beijing hikes spending and cuts interest rates again as widely expected.

Some China watchers believe real growth is already much weaker than official data suggests - UK-based Fathom Consulting believes it could be as low as 2.4 per cent - though the government has rejected accusations it is being inflated.

Regardless of what the official reading is, it will likely suggest no material change in what most economists have been telling the world for years. After being a major locomotive of global growth for over a decade, China is now in the midst of an inevitable and bumpy slowdown from sizzling double-digit growth to a hopefully more manageable pace in the mid-single digits. "The economy still faces relatively big downward pressure this year despite signs of stabilisation in property and auto sales," said Nie Wen, an economist at Hwabao Trust in Shanghai. "Macro-economic policies will stay accommodative." Weak exports, factory overcapacity, slowing investment, a soft property market and high debt levels are all compounding problems for the government as it tries to transition from a centrally planned economy to a more market-oriented model that will require it to cede a large degree of control.

That policy dilemma has been clearly in evidence this year, prompting global investors to question if Beijing has the ability to manage the slowing economy and modern markets.

Shanghai stocks have plunged to 13-month lows despite a massive government rescue, while the central bank has sown confusion globally by allowing the yuan to weaken sharply then intervening to stop the fall. Its intent is still not clear.

Beijing has set five key goals for 2016 including reducing overcapacity, shrinking a glut of unsold homes, deleveraging balance sheets, reducing costs for businesses and encouraging new technology. But few specifics have been announced.

To be sure, the outlook for some parts of the US$10 trillion economy is looking better as 2016 begins.

China's home prices continued to rise in December, adding to signs of improvement in the housing market, although the recovery remains uneven across the country.

On the factory side, vehicle sales are seen growing 6 percent in 2016, accelerating from last year on demand for more green cars and sport-utility vehicles, good news for the likes of General Motors. "Regardless of whether Q4 growth was 6.8 per cent or 6.9 per cent, we do not expect full-year GDP to change the evolving narrative about the weak state of global demand," analysts at PRC Macro Advisors said in a note.

Policy advisers say the government could widen this year's budget deficit to about 3 per cent, the biggest in perhaps half a century, as leaders increase spending to support activity.

The central bank has already cut interest rates six times since November 2014, and reduced the amount of cash that banks must hold as reserves, but such steps have had limited impact on growth due to high debt levels in the economy.

Other measures have included more government spending on infrastructure and easing of curbs on home purchases.

Activity data for December also will be released on Tuesday, and analysts will be looking for clues on whether momentum is still fading or if the economy may be slowly stabilising.

Factory output likely grew 6.0 per cent in December on-year, easing from November, while annual growth in fixed asset investment, a crucial driver of China's economy, likely cooled to 10.2 per cent in 2015 - the weakest in nearly 15 years.

Retail sales, one of the few bright spots in 2015, likely grew 11.3 per cent in December.

REUTERS