Tag: Tencent

July 18, 2018

If you were only to read one thing…

FT – Why millennials are driving cashless revolution in China – Yuan Yang 7/16

  • “The mobile payments revolution in China has happened with breathtaking speed and scale. In only five years it has transformed daily life in Chinese cities and also laid the foundations for the country’s mammoth financial tech industry, which last year generated revenues of Rmb654bn ($98bn), according to iResearch. Last year, the value of mobile payments in China overtook the worldwide totals of both Visa and Mastercard.”
  • “Almost half the world’s digital payments in 2017 were made in China, through apps such as Alipay (owned by Ant Financial, an affiliate of e-commerce juggernaut Alibaba) and WeChat (owned by Tencent), according to PwC research. Alipay and Tencent have now also outstripped PayPal, the US’s biggest online payments operator. They each handled more payments in one month this year than Paypal’s $451bn for the whole of 2017, according to market research firm Analysys.”
  • “This transformation has been spearheaded by millennials, who were the early adopters of mobile payments, but it has rapidly spread across generations…A survey by research company Ipsos, commissioned by Tencent, shows that the average person born in the 1990s now carries Rmb172 of cash ($26) compared with Rmb557 by those born in the 1960s.”
  • “China’s mobile payments revolution was partly spurred by the inconvenience felt by many of using traditional banks, from having to travel long distances for rural customers to having to queue in branches in the cities. But it was the unique formula offered by China’s tech giants that generated the explosion: by blending social, e-commerce and payment functions into single apps, customers could manage their finances at the same time as managing their social lives.”
  • “The revolution was enabled by the dominance of Tencent and Alibaba, along with the latter’s sister fintech company Ant Financial (recently valued at more than $150bn). Together they have created an interlocking network, or ‘ecosystem’, of services that complement each other and can be accessed via a few ‘killer apps’. These have become the natural playground of millennials. Imagine Facebook bolted on to email with a built-in payment platform for splitting bills among friends: that is Tencent’s WeChat. Or Amazon, with its own payment system that lets you send money to friends using only their phone number: that is Ant Financial’s Alipay. The network effect of such platforms is vast; if all your friends are using them, it is difficult to opt out.”
  • “’The way Beijing is developing, living without a smartphone will be difficult because of all the places that are starting not to take cash,’ says Chauncey Zhang, a 23-year-old tech company employee. In large cities some stores, markets and food stalls now only accept mobile payments.”
  • “Not only is a smartphone necessary for shopping, it has also become indispensable for hailing and paying for taxis. Beijingers joke that it is now more important to carry a phone charger than a physical wallet.”
  • “Familiarity with mobile payments has also made customers more comfortable with other new fintech innovations, in areas such as peer-to-peer lending, investing in money market funds, and consumer loans.”
  • “On the surface, China looks an unlikely place for this to happen. Saving, rather than borrowing, is what Chinese people typically do to afford big purchases. The country has one of the highest household savings rates in the world. When it comes to investment, property is viewed as the safest asset.”
  • “However, many citizens and small businesses are still under-served by traditional banks, and fintech companies have seen the opportunity for mobile platforms to leapfrog the old lenders.”
  • “Feidee, a company that makes personal financial management apps, says that 93% of its users are young customers born after the 1980s, and 42% of these were born after the 1990s.”
  • “China’s government has become worried by this surge in access to credit. Regulators as well as companies are now cracking down on opportunistic lending and high-interest rate loans. Policymakers are particularly concerned about young people falling prey to bad lenders, and last year launched a push to stop such companies advertising scams on university campuses dressed up as ‘entrepreneur loans’, ‘trainee loans’ and ‘jobseeker loans’.”
  • “Investment, too, has been normalized by being bundled up with Alipay and Tencent’s apps: in a couple of taps a user can deposit leftover money from their mobile wallet balance into a fixed-term investment. As a result, Ant Financial’s Yu’E Bao, meaning ‘leftover treasure’, became the world’s biggest money market fund just four years after launch.”
  • “The rapid uptake of fintech in China means customers, investors and entrepreneurs are asking whether the same tools can succeed abroad. ‘When I leave China, I feel I’ve gone back 10 years . . . Tencent, why don’t you launch [WeChat Pay] here?’ complained a young French man in a video that went viral in China.”
  • “Tencent and Ant Financial have expanded internationally by following the surge of Chinese tourists travelling abroad, and are considering how best to serve local customers. WeChat Pay is starting to expand partnerships with shopping malls in Paris and Japan’s Hokkaido. The company applied for a third-party payments license in Malaysia ‘but when we got it, we found basic infrastructure was lacking,’ says Mr Ma. It took Ant Financial and Tencent years to build the links with hundreds of Chinese banks that makes their services possible.”
  • “China’s revolution leaves one great question unresolved. How will data regulators across the globe respond to the rise of fintech companies that could, as they already do in China, track every commercial decision in a person’s life?”

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Four Reasons Taxpayers Should Never Subsidize Stadiums – Barry Ritholtz 7/16

  • “Elected officials have been played by team owners and sports leagues.”

Bloomberg – Warnings of Market Complacency Are Growing Louder – Liz McCormick and Lu Wang 7/16

Economist – American democracy built-in bias towards rural Republicans – Leaders 7/12

Economist – Mini-grids may be the best way to illuminate the “bottom billion” – Leaders 7/12

NYT – I Was a White House Stenographer. Trump Wasn’t a Fan. – Beck Dorey-Stein 7/17

WSJ – How an Economic Boom Can Run Out the Clock – James Glynn 7/15

  • “Australia’s 27-year stretch of growth offers lessons for U.S. policy makers.”

WSJ – Why Tapping the U.S. Oil Reserve Is an Awful Idea – Spencer Jakab 7/16

  • “Using the reserve to curb summer pump prices at a time the economy is booming and midterm elections loom would be a strategic blunder, leaving the country exposed in the event of an actual oil shortage.”

Markets / Economy

WSJ – Whirlpool Wanted Washer Tariffs. It Wasn’t Ready for a Trade Showdown. – Andrew Tangel and Josh Zumbrun 7/16

  • “Put into practice, tariffs are a complex economic weapon that can ricochet through an economy in ways even proponents don’t expect. That’s what happened with washing machines, which were among the first consumer products targeted by the Trump administration.”
  • “In the months since washing machine tariffs took effect in February, LG and Samsung have pressed on with investments in the U.S., given that they now face the higher cost of shipping goods in from abroad. The overseas companies and Whirlpool have also increased hiring in the U.S. But appliance prices have risen for consumers, and there are signs of waning demand.”
  • “Last year, Whirlpool sought protection from South Korean competition under a provision known as the safeguard law, which required the company to establish it suffered serious injury from surging imports. The law, or section 201 of the 1974 trade act, was previously invoked in 2002 when then-President George W. Bush moved to protect steelmakers.”
  • “The resulting tariffs apply a 20% duty on the first 1.2 million washing machines brought into the country each year, and a 50% duty on quantities above that threshold. The barriers are expected to remain in place for at least three years.”
  • “The U.S. imported 4.2 million large residential washers in 2017, for a monthly average of 350,000, according to Christopher Rogers, an analyst at Panjiva, a firm that tracks global trade data. This year, imports have fallen to an average of 161,000 each month through April.”
  • “Washer and dryer prices climbed 20% in the three months through June, the steepest rise in at least 12 years, according to Labor Department estimates.”
  • “Washer shipments, a proxy for sales, to U.S. dealers dropped 18% in May compared with the previous year, the steepest monthly decline since March 2012, according to data compiled by the Association of Home Appliance Manufacturers, a trade group. Analysts said shipments likely dropped because dealers had stocked up on washers before prices rose. LG blamed post-tariff price increases, too, a spokesman for the manufacturer said.”

WSJ – GE Still Wrestles With a Big Problem – Thomas Gryta 7/17

  • “Lending unit GE Capital nearly toppled whole company as the source of ‘nasty surprises’.”

Energy

WSJ – Daily Shot: Princeton Energy Advisors – US Shale Oil Production 7/17

Finance

FT – PE firms raise money at fastest pace since 2006 – Javier Espinoza 7/16

  • “Private equity groups are raising money at the fastest rate in more than a decade. Buyout executives are rushing to tap investor demand just as fears grow of a market correction.”
  • “The average time PE funds, including those investing in infrastructure and real estate, are taking to raise money has fallen to 12 months — from almost two years in 2010 — the quickest pace since at least 2006, according to an analysis by Pitchbook, a data provider.”
  • “But the figures also show there are fewer funds raising cash from investors in the US — from 328 in 2014 to 271 last year and 111 by the end of June this year.”
  • “Last year was still marginally up from a decade ago, but large institutional investors have been concentrating their allocations to larger and more established managers, which is partly driving the decline in funds looking to raise money.”
  • “PE funds have been one of the winners of the era of low interest rates, as investors such as pension funds chase higher returns.”
  • “However, with the PE industry already having an estimated $3tn in cash to invest, there is concern that buyout funds may end up overpaying for assets and eroding the potential returns for their investors.”

Canada

Bloomberg – Vancouver’s One-Two Punch Is Expensive Homes and Low Wages – Natalie Obiko Pearson 7/13

  • “Want to pay San Francisco housing prices on a Columbus, Ohio income? Move to Vancouver.”

South America

Economist – Venezuelan cash is almost worthless, but also scarce 7/12

  • “The worthlessness of Venezuela’s currency is the result of inflation, 46,000% a year, which in turn is largely caused by the printing of money to finance the government’s deficit of 30% of GDP. But there is also a shortage of banknotes. In the looking-glass world of Venezuela’s economy, cash itself trades at a premium to its face value, making it slightly less worthless than bolívares in other forms.”

Economist – Daniel Ortega is causing a bloodbath in Nicaragua 7/12

Other Interesting Links

WSJ – Daily Shot: Cresset Wealth Advisors – Money and Baseball 7/17

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July 17, 2018

Worthy Insights / Opinion Pieces / Advice

NYT – Tracking the President’s Visits to Trump Properties – Karen Yourish and Troy Griggs 7/16

Markets / Economy

Bloomberg – Giant Pork Pile Awaits Americans as Trade Wars Risk Exports – Megan Durisin and Justina Vasquez 7/13

  • “American production is poised to reach an all-time high this year, and output is forecast to surge again in 2019. The supply boom comes as tariffs from China and Mexico threaten to curb export demand, leaving Americans with a mountain of cheap meat.”
  • “Total U.S. meat production is forecast at a record in 2018 and is set to climb again next year, the USDA estimates. Cash hogs may average about 42 cents a pound in 2019, down 7.7% from this year, the department predicts.”

NYT – After Storm, Foreclosures in Puerto Rico Stopped. They’re Starting Again. – Matthew Goldstein 7/15

  • Bottom line, the imposed foreclosure moratoriums are ending.

FT – Sovereign wealth funds abandon active managers – Chris Flood 7/15

  • “More problems lie ahead as SWFs look to switch more equity holdings.”

WSJ – Daily Shot: China Beige Book – China Construction Growth YoY Change 7/16

  • “Here is the reason steel rebar futures have been rallying.”

Real Estate

FT – US bankers warn on commercial property risks – Alistair Gray 7/15

  • “US bankers have warned about mounting risks in commercial real estate, with figures showing they are putting the brakes on loans to buyers of office buildings, hotels and shopping malls.”
  • “JPMorgan’s latest quarterly results published on Friday showed its commercial real estate business had its slowest period for at least 10 quarters, with average balances flat from the previous three months.”
  • “Wells Fargo’s CRE loan book shrank by $2.5bn in the second quarter because of declines in construction funding and mortgages on existing properties. In contrast, its non-property commercial portfolio expanded by $1.9bn.”
  • “Default rates remain low but bankers are concerned that CRE loan terms are too loose, especially as the Federal Reserve’s interest rate rises push up their own funding costs.”
  • “Tim Sloan, Wells Fargo’s chief executive, said CRE underwriting standards had been deteriorating ‘for some time’. He added, though, that the slippage was ‘nowhere near what we saw in 2006 and 07’, before the financial crisis.”

Energy

FT – Peak oil demand forecast for 2036 – David Sheppard 7/15

  • “One of the world’s most influential oil consultancies has forecast that global oil demand will peak within 20 years, as a ‘tectonic’ shift in the transport sector towards electric cars and autonomous vehicles gathers pace.”
  • “’A lot of our clients recognize that peak demand is real,’ said Ed Rawle, Wood Mackenzie’s head of crude oil research. ‘It’s just a question of when it arrives.’”
  • “Mr. Rawl at Wood Mackenzie said the consultancy’s thinking on peak demand was driven by a renewed assessment of the impact of not just electric cars but growing signs that autonomous electric vehicles will play a major role in the future of transport.”
  • “In the next 10 years the biggest impact on slowing global oil demand growth — which is expected to hit 100m barrels a day for the first time this year — would be fuel efficiency, Mr. Rawl said.”
  • “The improvement in fuel efficiency standards in conventional cars over the past decade has already had an effect, while the coming years should see the retirement of many older, gas-guzzling cars, leaving a less fuel-hungry fleet on the road.”
  • “Petrol demand is expected to be the first component of oil demand to peak around 2030 as a result.”
  • “Seeing peak oil demand on the distant horizon, does not, however, mean lower prices in the short term, Mr. Rawl said.”

Finance

WSJ – Why a $1 Trillion Mountain of Private-Equity Cash Matters – Ben Eisen 7/10

China

FT – Tencent and Alipay set to lose $1bn in revenue from payment rules – Gabriel Wildau 7/15

  • “China’s two mobile payments giants, Alipay and Tencent, are poised to lose around $1bn in combined annual revenue to a new central bank requirement that third-party payment groups hold all customer funds in reserve.” 
  • “Chinese mobile payment transactions reached Rmb109tn ($16tn) last year, according to research firm Analysys Mason, as consumers switched to smartphones from cash for supermarkets, taxis, and payments to friends. The platforms are also increasingly used to purchase mutual funds, peer-to-peer loans and other wealth management products.” 
  • “Ant Financial’s Alipay and Tencent’s WeChat Pay dominate the industry, with market shares of 54% and 39% respectively in the first quarter. Ant Financial is the finance affiliate of Alibaba.” 
  • “Together the two groups control hundreds of billions of renminbi in customer funds that accumulate on their platforms when users receive payments but do not immediately transfer the funds to a bank account or other investment.” 
  • “Previously, third-party payment groups were permitted to invest customer funds, much as banks use deposits to make loans and other investments, even though unlike banks, the payment groups pay no interest to users.” 
  • “In January 2017, the People’s Bank of China announced that it was requiring third-party payment groups to keep 20% of customer deposits in a single, dedicated custodial account at a commercial bank and specified that this account would pay no interest.”
  • “In April, the ratio was increased to 50%, and last month, the central bank announced that it would raise the reserve requirement to 100% by next January. At that point, payment groups will earn zero interest on all customer funds.”
  • “The ostensible reason for the change is to prevent fraud and protect customers.” 
  • “Large players like Alipay and Tencent handled customer funds conservatively, but they were still able to earn significant revenue by depositing funds in interest-bearing accounts at commercial banks. Tencent earned Rmb3.9bn in interest income in 2017, or 1.7% of total revenues, according to its annual report.” 
  • “The PBoC’s balance sheet shows that ‘deposits of non-financial Institutions’ — a category that mainly includes payment companies — increased from nothing in May 2017 to Rmb501bn by the end of May. Before the implementation of reserve requirements, nearly all that money would have been generating interest for Alipay, Tencent, and their smaller rivals.” 

April 4, 2018

Perspective

FT – Naspers trims Tencent stake with $10bn share sale – Joseph Cotterill and Louise Lucas 3/22

  • “Naspers, the South African media company that is one of the biggest shareholders in Tencent, said that it would sell down part of its stake in the Chinese technology giant for the first time in almost two decades.”
  • “In a statement on Thursday, Naspers said that it would sell stock worth more than $10bn, equivalent to 2% of the shares in Asia’s biggest company by market capitalization, to fund investments elsewhere.”
  • “The transaction would reduce Naspers’ stake in Tencent, the world’s biggest gaming company and the owner of China’s WeChat and QQ social networks, from 33% to 31%.”
  • “Naspers added that it did not plan to sell any more of its Tencent shares for at least the next three years.”
  • “But even Thursday’s limited sell down is a landmark for what has been one of the most successful venture capital investments in history, and comes as Hong Kong-listed Tencent shifts strategy after years of explosive growth.”
  • Naspers’ investment of $32m in Tencent in 2001, now worth $175bn, powered its rise from a publisher and pay-TV operator to Africa’s biggest company by market capitalization.”
  • Approximately a 65.91% compound growth rate over 17 years. How do you like them apples?

Worthy Insights / Opinion Pieces / Advice

Forbes – Canadian Real Estabe Bubble Blowing Up North – Bob Haber 4/2

  • “According to the Real Estate Board of Greater Vancouver, single detached homes in Vancouver (on a local currency basis) have risen from approximately $400K CAD to $1.75 million CAD since 2002. That’s a 337% increase in 15 years. With incredibly fast rising prices, a large portion of the population is engaged in real estate brokerage, real estate development, construction, renovations, and everything that goes along with that. The echoes of Phoenix, Las Vegas, and San Diego from 2006 cannot be ignored.”
  • “…Taxation and interest rates are going higher. Cap rates on rentals or commercial properties are shockingly low (think 1% to 3% in most circumstances). In fact, Canada’s price-to-rent ratios are now well above what they were in the U.S. during the 2006 housing debacle. According to the Bank of Canada, 47% of Canada’s mortgages will reset in the next 12 months. To put that in perspective, a five-year fixed mortgage rate in Canada averages approximately 5.14%. This is 11% higher versus the 4.64% that it averaged for most of the past 2 years.”

NYT – Teachers in Oklahoma and Kentucky Walk Out: ‘It Really Is a Wildfire’ – Dana Goldstein 4/2

Markets / Economy

engadget – New York approves surcharge for Uber and Lyft rides in Manhattan – David Lumb 4/2

  • “As part of the budget that New York lawmakers passed last Friday, ride-hailing services and taxis face a new fee if they drive in Manhattan. These aren’t nickel-and-dime increases, either: Uber, Lyft and the like face a $2.75 charge for each ride, taxis get a $2.50 increase and group ride services like Via and uberPOOL will be charged $0.75 per customer. It’s meant to combat congestion and help fund subway repair and improvements, providing an expected $400 million per year going forward for the MTA.”
  • “Unsurprisingly, it’s already catching flak from customers and from taxi drivers, who have become far outnumbered by ride-sharing cars in the last several years. Of the 103,000 vehicles for hire in NYC, 65,000 are driven by Uber contractors alone, while taxis remain capped by law at 13,600, The New York Times reported. As a result, average traffic in Manhattan has slowed from 6.5 miles per hour to 4.7.”
  • “Other cities have enacted their own surcharges for ride-hailing services in recent years, but they are far lower than those New York just passed. Seattle instated a $0.24 charge for each trip in 2014, Portland, OR agreed to levy a $0.50 fee per customer in 2016, both of which funnel money collected toward regulating ride-sharing services. Chicago passed one in 2014 that will reach $0.65 this year and directs part of the funds raised toward public transit, much like New York’s will.”

FT – Walmart extends money transfer operation to 200 countries – Anna Nicolaou and Ben McLannahan 4/2

  • “Walmart is expanding its money transfer operation to 200 countries, the latest move in the retail giant’s slow but steady push into financial services.”
  • “Through the new scheme, people will be able to deliver money from Walmart’s nearly 5,000 US stores to locations abroad within 10 minutes, the company said.” 
  • “Arkansas-based Walmart first unveiled a money transfer service four years ago, allowing customers to send funds between its stores, and aiming to reach the “underbanked” — about 27% of Americans have limited access to traditional banking, according to the Federal Deposit Insurance Corporation. Walmart claims it has saved customers $700m in fees because it charges cheaper rates.” 
  • “The retailer has partnered with MoneyGram, one of the big wire transfer groups, to expand globally this month. The service will allow US residents to send money to countries such as Mexico, which received nearly $30bn in remittances last year, according to Mexico’s central bank.”
  • “Walmart’s push into money transfers comes a few months after it announced it was partnering with PayActiv and Even, two financial-technology firms, to offer its 1.4m US employees tools for money management and on-demand access to their earned wages.”
  • “The moves suggest the retailer may see itself as a partner of the big financial services companies rather than a direct rival going head to head with basic products such as checking accounts or credit cards.”

WSJ – Daily Shot: Political Calculations – Why Bad News for Big Tech Is Bad for Stocks 3/29

WSJ – Daily Shot: SPDR Americas – Equity Geographical Flows 4/3

WSJ – Daily Shot: Deutsche Bank – Drawdown Durations 4/3

Real Estate

FT – Manhattan apartment sales plunge – Lindsay Fortado 4/2

  • “The number of co-op and condominium sales in Manhattan fell nearly 25% during the first quarter compared to the same period last year, according to new research by Miller Samuel real estate appraisers and Douglas Elliman real estate brokers.”
  • “It was the largest annual decline in sales in nine years, according to the report.”
  • “The average sale price across Manhattan fell by 8.1% from the year-earlier quarter, and the average price per square foot also recorded a sharp decline, falling by 18.5% to $1,697.”
  • “Luxury apartment sales, considered the most expensive 10% of all properties, were hit particularly hard, as were new developments.”
  • “The average sales price of a luxury apartment fell 15.1%, down from $9.36m in the first quarter of 2017 to $7.94m in the first quarter of this year, and the number of sales was down 24.1%. The number of newly built apartments that went into contract fell 54%.”

WSJ – Daily Shot: Black Knight – Mortgage Equity 4/3

  • “Turning to consumer credit, how much borrowing capacity do households have against their homes? The answer is $5.4 trillion. $2.8 trillion of that capacity is with borrowers who have the highest credit scores.”

WSJ – Daily Shot: Black Knight – Hurricane-related mortgage delinquencies in Florida and Puerto Rico 4/3

Finance

WSJ – Daily Shot: Deutsche Bank – Countries with Negative-Yielding Bonds 4/3

Cryptocurrency / ICOs

Bloomberg – The Crypto Hedge-Fund Bubble Is Starting to Deflate – Olga Kharif 4/2

Tech

FT – Why south-east Asia’s politics are proving  problem for Facebook – John Reed and Hannah Kuchler 4/2

  • “One of the company’s fastest-growing markets is also one of its most complex where hate speech and political manipulation are making it hard to remain neutral.”

China

FT – China moves its factories back to the countryside – Emily Feng 4/2

  • “After decades of urbanization and rural neglect, China’s Communist party is seeking to revitalize the countryside, where wages and standards of living have stagnated compared with those of big cities.”

FT – Chinese developers seek piece of booming education market – Emily Feng 4/2

  • “When China’s premier Li Keqiang recently vowed progress on a property tax intended to rein in home prices, it signaled to the country’s real estate developers that more than a decade of double-digit growth would soon end.”
  • “Facing slowing growth in their core business, top developers are betting on the education market, building and operating international schools for tens of thousands of students.”
  • “The country’s three biggest property developers — Country Garden, Evergrande and Vanke — have seen sales slow in the first quarter of this year, according to an industry ranking compiled by research agency China Real Estate Information Corp. Meanwhile, home price growth has dipped following a clampdown on lending and property speculation.”
  • “That has already made a dent in developers’ financials. Dalian Wanda reported a revenue drop of almost 11% in 2017 while other residential developers are girding for longer-term impact. JPMorgan Chase has forecast as much as a 6% decline in mainland Chinese home sales this year.
  • “Now developers are ‘looking at other sectors in which to invest in order to get the returns that they need to continue growth’, says John Mortensen, regional director of real estate investment and management company JLL, which often works with universities.”
  • “Meanwhile, China’s education market is booming. The sector will grow from Rmb1.64tn ($261bn) in revenue in 2015 to Rmb2.9tn ($461bn) in 2020, according to Deloitte, with particularly high demand for English-language curriculums.”
  • “Amid fierce competition to get into good universities at home and overseas, proximity to a good school is often a key factor in determining Chinese property prices. A 2012 study of Shanghai housing found that prices were more than 40% higher in top-rated school districts.”
  • “That has prompted residential developers to build new complexes with schools within walking distance of apartments, hiring or building in-house education teams to recruit teachers and design bilingual curriculums.”
  • “Guangzhou-based Country Garden, China’s top residential developer by sales, is now also among the country’s biggest private education providers. Its education subsidiary, Bright Scholar, runs 52 bilingual international schools that each offer a full education from kindergarten to secondary school. Bright Scholar listed on the New York Stock Exchange last year, raising more than $150m.”
  • “Vanke Group, China’s second biggest residential developer by sales, set up its own education group in 2015 as part of a strategic shift aimed at offering a ‘full ecology’ to families.”
  • “Dalian Wanda is another property group with a growing interest in schools — its children’s education and entertainment group almost tripled its sales last year even as the group’s total revenues fell more than 10%.”

India

NYT – Jeweler to the Stars Flees as India Seethes Over Bank Fraud – Maria Abi-Habib 4/3

  • “About a week after Mr. Modi grinned for the cameras with the prime minister, a state-run Indian bank told regulators that it had found nearly $1.8 billion in fraudulent transactions linked to the jeweler’s account. Indian officials now accuse Mr. Modi, his family and business associates of assembling a global empire with nearly $3 billion in money obtained illegally, mostly from government-run banks. He denies wrongdoing.”
  • “For many Indians, the allegations against Mr. Modi further cement the notion that taxpayer-owned banks are footing the bill for the lavish lifestyles of a rising elite. That idea has particular resonance in a country where stark poverty — India is home to a third of the world’s poorest people — remains dire.”
  • “Just a decade ago, during the global financial crisis, Indian lenders were held up as a bastion of stability. Today, they are considered more vulnerable than those in other leading emerging markets, mostly because state-controlled lenders dominate the sector, according to the International Monetary Fund.”
  • “Of the $6.5 billion in fraudulent loans that have hit the industry over the past two years, the most egregious cases were at government-owned banks, according to figures released by Parliament. Executives at those lenders are more likely to be appointed for their political connections than for their talent, financial analysts say.”

Russia

FT – Russia plans ‘bad bank’ for $19bn in toxic assets – Max Seddon 4/2

  • “Russia’s central bank is to create a ‘bad bank’ to ringfence Rbs1.1tn ($19bn) in toxic assets from three nationalized top-10 lenders, vastly increasing the total bill for bailing them out.” 
  • “Vasily Pozdyshev, a deputy central bank governor, told Russian news agencies on Monday that the central bank would transfer assets from three collapsed banks into Trust, another failed lender.” 
  • “Taxpayers are footing the largest bank rescue bill in Russia’s history to fund the central bank’s takeover of three privately held banks last year to stave off a collapse in the sector.”
  • “The largest of them, Otkritie, was Russia’s biggest privately held bank by assets until it was nationalized in August. The central bank then nationalized B & N Bank, another top-10 lender, and Promsvyazbank to stop them from going under.” 
  • “Under Ms Nabiullina (Elvira Nabiullina, Russian central bank governor), the central bank is conducting an unprecedented clear-up of the sector under which it has wound down more than 300 banks since 2013. To rescue the three top-10 lenders, however, Ms Nabiullina had to create a separate bailout mechanism that allowed the central bank to take direct stakes in their capital.” 

FT – Russia’s $55bn pipeline gamble on China’s demand for gas – Henry Foy 4/2

  • “The pipeline is Russia’s most ambitious, costly and geopolitically critical energy project since the fall of the Soviet Union, and represents a $55bn bet on uncharted territory by the world’s biggest gas company.”
  • “Russia’s first eastern pipeline is the most striking physical manifestation of President Vladimir Putin’s diplomatic pivot towards China amid rapidly worsening relations with the west. It is the biggest and most critical element in a suite of energy deals, funding packages and asset sales that seek to warm a once frosty relationship.”
  • “For Gazprom, the Kremlin-controlled gas export monopoly behind the pipeline, the mega-project is the largest and most expensive in its history. When the taps are switched on in December 2019, the world’s largest gas exporter will be connected for the first time with its largest energy importer.”

January 31, 2018

Worthy Insights / Opinion Pieces / Advice

FT – Lex in Depth: the case against share buybacks – Dan McCrum 1/29

  • “S&P 500 companies have spent $1.1tn on share repurchase programs over the past two years, as executives struggled to turn modest economic growth into higher earnings. Lacking opportunities to invest, or at least shareholder support to do so, companies have spent money buying their own stock, which provides a boost to the size of profits reported per share.”
  • “Fresh records for buybacks are likely to be set, with changes to the US tax regime expected to trigger a repatriation of profits that have been held offshore for years.”
  • “A string of companies, including Boeing and Honeywell, have announced close to $90bn worth of share buyback programs since the reforms were agreed in December. Bank of America Merrill Lynch estimates that of $1.2tn parked overseas, perhaps half of the post-tax total, or around $450bn, could be devoted to share buybacks.”
  • “Shareholders are going to be banging on doors saying we want some of that money,’ says Howard Silverblatt, senior index analyst at S&P Dow Jones. No matter that stock markets have set record highs of late, the expectation that spare cash must be returned to its rightful owners is putting managers under pressure.”
  • “They almost have to buy when the stock is high. Timing the market is not something most companies can do,’ adds Mr Silverblatt. But the new flood of dollars raises an old question about whose interest the practice serves.”
  • McCrum does an excellent job of outlining some of the motives and outcomes of the practice. Some highlights:
  • “The only year in the past 14 when big US companies spent less on buybacks than dividends was 2009, when the S&P 500 index hit rock bottom. ‘The best time to do [a buyback] is in a recession, but that’s when everyone is scared stupid,’ says Andrew Lapthorne, a quantitative strategist for Société Générale.”
  • “If a company has more cash than it needs, and nothing better to invest in, it should consider whether buying its own stock is a good investment. Yet the time when companies have plenty of spare cash tends to be when business is good and shares are overvalued.”
  • “Apple has admitted that a primary purpose of its buybacks is to neutralize the impact of stock compensation.”
  • “The company has spent $151bn on repurchasing stock in the past decade, about 17% of its almost $900bn market valuation. The number of shares has dropped by about the same amount — 17%. Yet when Apple started to buy in 2012, the shares could be bought for half today’s price. The difference has been handed to employees.”
  • “Some companies have managed to spend more on buybacks in recent years than the shares are worth today.”
  • “Since 1995 IBM, the consulting and supercomputer group, has spent $162bn to repurchase more than half of its outstanding shares. What is left, for those who did not sell, is a company now valued at $154bn, suggesting the money was spent in the wrong place.”
  • “Any company will wonder what its valuation might have been, were different decisions taken. Prof Lazonick (William Lazonick, professor of economics at the University of Massachusetts Lowell) points to the example of Cisco Systems, the world’s largest networking company. In two decades it has spent $75bn repurchasing stock, more than three times the total for capital investment in property or equipment. A serial acquirer of other businesses, it has long struggled to grow sales.”

Markets / Economy

WSJ – Daily Shot: Trading activity at retail-focused brokerages 1/29

  • “Retail investor trading activity has accelerated recently. It’s starting to look like the late 90s.”

Real Estate

Bloomberg – Singapore Overtakes China as Largest Asian Investor in U.S. Property – Pooja Thakur Mahrotri 1/28

Bloomberg – Wanda Selling $5.4 Billion Property Unit Stake, to Seek Listing ‘Soon’ – Jing Yang De Morel 1/29

  • More on the Tencent investment below. However, wanted to call attention to…
  • “Separately, Wanda put its last two overseas property developments up for sale, according to people familiar with the matter, in the latest unwinding of a decade-long overseas buying spree that drew scrutiny from Chinese regulators. The group is seeking buyers for a hotel, office and apartment complex in Chicago and a development in Beverly Hills, California, said the people, who asked not to be identified because discussions are private.”
  • Presumably the Beverly Hills site is the “One Beverly Hills,” aka Robinson May, site that was previously purchased by New Pacific Realty Corporation for $33.5m in 2004, sold to the Candy Brothers for $500M in 2007, bought out of foreclosure by Hong Kong based Joint Treasure International for $148M in 2010 and then sold to Dalian Wanda for $420M in 2014.

CNBC – America’s 10 most valuable malls are bringing in billions in sales. Here’s where they are – Lauren Thomas 1/29

NYT – New York’s Hidden Home Buyer Closing Costs: Luxury Boxes and Mint Mojitos – Shane Goldmacher 1/29

Health / Medicine

Economist – America’s opioid epidemic is driven by supply 1/29

  • “A new study shows that economic factors do not fully explain the rising number of drug deaths.”

WSJ – Schools Close as Flu Epidemic Spreads – Tawnell D. Hobbs and Sarah Toy 1/27

  • “Schools in at least 11 states have closed as the worst flu epidemic in nearly a

decade intensifies.”

China

WSJ – Why Tencent’s Latest Property Deal Makes Sense – Jacky Wong 1/30

  • Reminds me of when the Japanese Keiretsu’s were buying stakes in each other.
  • In this instance Dalian Wanda benefits from an association with Tencent and Tencent picks up some real estate equity on the cheap (maybe).