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Bursa Malaysia and KRX: Support of the Malaysia International Islamic Financial Centre’s Initiative aims to boost Growth of Islamic Finance Market- Event 19.11.2009

The Korea Exchange (KRX) and Bursa Malaysia will be playing host to the Korean investment bankers, advisers, issuers and institutional investors at its inaugural KRX-Bursa Malaysia Islamic Capital Market Conference, which will be held on 19 November 2009 in Seoul, Korea. This conference which is co-organised in support of the Malaysia International Islamic Financial Centre (MIFC) initiative, aims to share Malaysia’s Islamic finance experience and to promote the opportunities in the Malaysian Islamic capital market landscape. This collaborative effort hopes to strengthen the growth opportunities of Islamic finance amongst the discerning Korean investors and issuers.

This conference is timely as there is a strong interest for Korea to grow the Islamic finance industry, following from the proposed liberalisation measures by the Korean government which are aimed to allow the issuance of Islamic bonds or sukuk as well as allow incomes from sukuk to be tax-exempted. These proposed laws are expected to be passed by the Korean government’s National Assembly later this year.

In conjunction with the KRX-Bursa Malaysia Islamic Capital Market Conference, delegates of the MIFC initiative, which comprises senior management of Bank Negara Malaysia (Central Bank of Malaysia), Securities Commission Malaysia and Bursa Malaysia, will be participating in the conference. Malaysia acknowledges Korea as a potential Islamic financial market and welcomes Korea’s participation in shaping the Islamic finance landscape together, via leveraging on Malaysia’s more than 30 years of experience in developing the world’s most comprehensive Islamic financial system.

Chief Executive Officer of Bursa Malaysia Berhad, Dato’ Yusli Mohamed Yusoff said, “We hope this conference will stimulate interest in the Shari’ah compliant products which are currently in demand from investors who are seeking returns from alternative and ethical investments. In addition, this visit by the delegates from the MIFC will pave the way for more opportunities to exchange ideas in Islamic finance and forge greater working relations between Korea and Malaysia for the interest of growing this important industry. We are confident that the Malaysian and Korean authorities as well as KRX and Bursa Malaysia would be able to leverage on our respective strengths in the establishment of an Islamic capital market in Korea.”

This KRX-Bursa Malaysia Islamic Capital Market Conference is expected to attract 200 participants and will provide a platform for all attendees to gain an insight into the outlook and trends of Islamic capital markets. Key discussion topics will centre around the liberalisation of Islamic financial markets, investment and business opportunities in Islamic capital market, the Islamic finance landscape and framework as well as the growth of Islamic finance products in Asia and globally.

Source: MondoVisione, 16.11.2009

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Why China and Japan Need an East Asia Bloc

Withering exports and asset bubbles have forced Asians – especially China and Japan — to work harder at free trade pacts.

All kinds of proposals have been floated about creating an Asian bloc a la European Union. Bilateral and multilateral free trade agreements (FTA) have been suggested for various combinations of Asian countries. Lately, there’s been a flurry of new ideas as Japan’s recently installed DPJ government seeks to differentiate from the ousted LDP.

By promoting ideas that lean toward Asia, DPJ’s leadership is signaling that Japan wants less dependence on the United States. This position offers a hope for the future to Japanese people, whose economy has been comatose for two decades. Closer integration with Asian neighbors could restore growth in Japan.

Whenever global trade gets into trouble, Asian countries talk about regional cooperation as an alternative growth driver. But typically these talks die out as soon as global trade recovers. Today’s chatter is following the same old pattern, although this time global trade is not on track to recover to previous levels and sustain East Asia’s export model. Thus, some sort of regional integration is needed to revive regional growth.

Which regional organization is in a position to lead an integration movement? Certainly not ASEAN, which is too small, nor APEC, which is too big. Something more is needed – like a bloc rooted in a trade pact between Japan and China.

ASEAN’s members are 10 countries in Southeast Asia with a population exceeding 600 million and a combined GDP of US$ 1.5 trillion in 2008. The group embraced an FTA process called AFTA in 1992, which accelerated after the 1997-’98 Asian Financial Crisis and competition with China heated up. When AFTA began, few gave it much chance for success, given the region’s huge disparities in per capita income and economic systems. Today AFTA is almost a reality, which is certainly a miracle.

ASEAN has succeeded beyond its wildest dreams. These days China, Japan, and South Korea join annual meetings as dialogue partners, while the European Union and United States participate in regional forums and bilateral discussions.

China and ASEAN completed FTA negotiations last year, demonstrating that they can function as an economic bloc. Now, China is ASEAN’s third largest trading partner. Indeed, there is a great upside for economic cooperation between the two.

Before the Asian Financial Crisis, the ASEAN region was touted as a “miracle” by international financial institutions for maintaining high GDP growth rates for more than two decades. But some of that growth was built on a bubble that diverted business away from production and toward asset speculation. This developed after credit expansion, driven by the pegging of regional currencies to the U.S. dollar, encouraged land speculation. ASEAN’s emerging economies absorbed massive cross-border capital due to a weak dollar, which slumped after the Federal Reserve responded to a U.S. banking crisis in the early 1990s by maintaining low interest rates.

Back then, I visited companies in the region that produced goods for export. I found that, despite all the talk of miracles, many were making money on financial games — not business. At that time, China was building an export sector that had started exerting downward pressure on tradable goods prices. Instead of focusing on competitiveness, the region hid behind a financial bubble and postponed a resolution. Indeed, ASEAN’s GDP was higher than China’s before the Asian financial crunch; now China’s GDP is three times ASEAN’s.

China today faces challenges similar to those confronting ASEAN before the crisis. While visiting manufacturers in China, I’ve often been discovering that their profits come from property development, lending or outright speculation. While asset prices rise, these practices are effectively subsidizing manufacturing operations – an asset game that can work wonderfully in the short term, as the U.S. experience demonstrates. When property and stock markets are worth more than twice GDP, 20 percent appreciation would be equivalent to four years of business profits in a normal economy. You can’t blame businesses for shifting their attention to the asset game in a bubbly environment. Yet as they focus on finance rather than manufacturing, their competitiveness erodes. And you know where that leads.

I digress from the main focus for this article — regional integration, not China’s bubble challenge.

So let’s look again at ASEAN’s success. In part, this reflects its soft image: Other major players do not view ASEAN as a competitive threat. Rather, the FTA with China has put pressure on majors such as India and Japan to pursue their own FTAs with ASEAN. Another dimension is that the region’s annual meetings have become important occasions for representatives from China, Japan and South Korea to sit down together.

In contrast to ASEAN’s success, APEC has been an abject failure.
Today, it’s simply a photo opportunity for leaders of member countries from the Americas, Oceania, Russia and Asia. APEC was set up after the Soviet bloc collapsed, and served a psychological purpose during the post-Cold War transition. It was reassuring for the global community to see leaders of former enemy countries shaking hands.

However, APEC is just too big and diverse to provide a foundation for building a trade structure. So general is the scope that anything APEC members agree upon would probably pass the United Nations. Now, two decades after end of the Cold War, APEC has clearly outlived its usefulness and is withering, although it may never shut down. APEC’s annual summit still offers leaders of member countries a venue for meetings on the sidelines to discuss bilateral issues. Maybe the group is useful in this way, offering an efficient venue for multiple summits concurrently.

Although ASEAN has succeeded with its own agenda, and achieved considerable success in relation to non-member countries, it clearly cannot assume the same role as the European Union. Besides, should Asia have an EU-like organization? Asia, by definition, clearly cannot. It’s a geographic region that includes the sub-continent, Middle East and central Asia. Any organization that encompasses Asia as a whole would be as unwieldy as APEC.

I am always puzzled by the word “Asia,” which the Greeks coined. In his classic work Histories, it seems ancient Greek historian Herodotus primarily referred to Asia Minor — today’s Turkey, and perhaps Syria — as Asia. I haven’t read much Greek, but I don’t recall India being included in ancient Greek references. So as far as I can determine, there is no internal logic to treating Asia as a region. It seems to encompass all places that are neither European nor African. Africa is a coherent continent, and Europe has a shared cultural past. Asia belongs to neither, so it shouldn’t be considered an organic entity.

Malaysia’s former prime minister Tun Mahathir bin Mohamad Mahathir was a strong supporter of an East Asia Economic Caucus (EAEC) which would have been comprised of ASEAN nations plus China, Japan and South Korea. But because Japan refused to participate in an organization that excluded the United States, the idea failed.

Yet there is some logic to Mahathir’s proposal. East Asia has a shared history, and intra-regional trade goes back centuries. Population movements have been significant, and as tourism takes off, regional relations should strengthen. One could envision a future marked by free-flowing capital, goods and labor in the region.

Yet differences among the region’s countries are much greater than in Europe. ASEAN’s overall per capita income is US$ 2,000, while it’s US$ 3,500 in China and US$ 40,000 in Japan. China, Japan, South Korea and Vietnam share Confucianism and Mahayana Buddhism, while most Southeast Asian countries embrace Islam or Hinayana Buddhism, and generally are more religious. I think an EU-like organization in East Asia would be very hard to establish, but something less restrictive would be possible.

Because Japan turned down Mahathir’s EAEC idea, there was a lot of interest when recently elected Prime Minister Yukio Hatoyama’s proposed something similar – an East Asia Community — at a recent ASEAN summit. Hatoyama failed to clarify the role of the United States in any such organization. If the United States is included, it would not fly, as it would be too similar to APEC. Nor could such an organization be like the EU. But if Japan is fully committed, the new group could assume substance over time.

The Japanese probably proposed the community idea for domestic political reasons. Yet the fundamental case for Japan to increase integration with the rest of Asia and away from the United States grows stronger every day. Despite high per capita income, Japan remains an export-oriented economy, having missed an opportunity to develop a consumption-led economy in the 1980s and ’90s. In the foolish belief that rising property prices would spread wealth beyond the industrial heartland in the Tokyo-Osaka corridor, the government of former Prime Minister Kakuei Tanaka pursued a high-price land policy, discouraging the middle class from pursuing a consumer lifestyle as they saved for property purchases.

Even more seriously, high property prices have been a major reason for Japan’s rapidly declining birth rate, as land prices inflated living costs. Now, facing a declining population and public debt twice GDP, Japan has few options for rejuvenating the economy by promoting domestic demand. It needs trade if it hopes to achieve any growth at all. Without growth, Japan will sooner or later suffer a public debt crisis.

Japan’s property experience offers a major lesson for China. Every Chinese city is copying the Hong Kong model — raising money from an increasingly expensive land market to fund urban development, leading to rapid urbanization. But this is borrowing growth from the future. Rising land prices lead to rising costs and, hence, slower growth and the same rapid decline in the birth rate that Japan experienced. Unless China reverses its high-land price policy, the consequences will be even more disastrous than in Japan or Hong Kong, as China shifted to the asset game much earlier in its development.

Yet I digress again. The point is that Japan has a strong and genuine case that favors more integration with East Asia. The United States is unlikely to recover soon and with enough strength to feed Japan’s export machine again. There is no more room for fiscal stimulus. Devaluing the yen to gain market share is not an option as long as Washington pursues a weak dollar policy. Without a new source of trade, Japan’s economy is doomed. Closer integration with East Asia is the only way out.

In addition to Hatoyama’s EAC proposal, a study jointly sponsored by China, Japan and South Korea is considering the possibility of a FTA. Of course, ASEAN could offer a template for any new East Asian bloc. ASEAN has signed an FTA with China and is talking with Japan and South Korea. If they all sign, regional integration would be halfway completed.

Whatever proposals for East Asian integration, the key issue is a possible FTA between China and Japan. Adding other parties avoids this main issue. China and Japan together are six times ASEAN’s size and 10 times South Korea’s. Without a China-Japan FTA, no combination in East Asia would truly support regional integration.

Five years ago, I wrote an op-ed piece for the Financial Times entitled China and Japan: Natural Partners. At the time, a prevailing sentiment was that China and Japan were antithetical: Both were still manufacturing export-led economies and could only gain at the other’s expense. I saw complementary demographics and capital: Japan had a declining labor force and China needed to employ tens of millions of youths migrating to cities from the countryside. China needed capital and Japan had surplus capital. And their trade relations indeed tightened, as Japan had increased the Chinese share of its overall trade to 17.4 percent in 2008 from 10.4 percent in ’04.

Today, the situation has changed. China has a capital surplus rather than a shortage. Demographic complementarity is still good and could last another decade. As China shifts its development model from resource intensive to environmentally friendly, a new complementarity is emerging. Japan has already made the transition, and its technologies that supported the transition need a new market such as China’s. So even without a new trade agreement, bilateral trade will continue growing.

An FTA between China and Japan would significantly accelerate their trade, resulting in an efficiency gain of more than US$ 1 trillion. Japan’s aging population lends urgency to increasing the investment returns. On the other hand, as China prepares to make a numerical commitment to limiting greenhouse gas emissions at the upcoming Copenhagen summit on global warming, heavy investment and rapid restructuring are needed for its economy. Japanese technology could come in quite handy.

More importantly, a China-Japan FTA would lay a foundation for an East Asian free trade bloc. The region has a population of 2.1 billion and a GDP of US$ 13 trillion, rivaling the European Union and United States. Blessed with a low base, plenty of capital, sound technology and a huge market, the region’s GDP could easily double in a decade.

Trade and technology are twin engines of growth and prosperity. No boom is sustained without one or the other. And when they come together, the boom can be massive. Prosperity seen over the past decade, for example, is due to information technology along with the opening up of China and other former planned economies. But these factors have been absorbed, forcing the world to find another engine. An integration of East Asian economies would be significant enough to play this role.

The best approach would be for China and Japan to negotiate a comprehensive FTA that encompasses free-flowing goods, services and capital. This task may appear too difficult, but recent changes have made it possible. The two countries should give it a try.

It would be wrong to begin by working out an FTA that includes China, Japan and South Korea. That would triple the task’s level of difficulty, especially since South Korea doesn’t have a meaningful FTA with any country. To imagine that the Seoul government would cut a deal with China or Japan is naive. China and Japan should negotiate bilaterally.

A key issue is that China and Japan should put economics before politics. If the DPJ government wants to gain popularity by increasing international influence rather than boosting the economy, then all the current speculation and discussion about an East Asia bloc would be for nothing. But if DPJ wants to sustain power by rejuvenating Japan’s moribund economy, chances for a deal are good.

While Japan is talking, China should be doing. China should aggressively initiate the FTA process with Japan. Regardless of China’s current difficulties, its growth potential and vast market are what Japan will never have at home nor anywhere else. Hence, China would be able to compromise from a position of strength.

Some may say a free trade area for East Asia is beyond reach. However, history belongs to the daring. The world has changed enough to make it possible. China and Japan should seize the opportunity.

Source: Caijing, 10.11.2009 by Andy Xie, guest economist to Caijing and a board member of Rosetta Stone Advisors Ltd.

Full article in Chinese

Filed under: Asia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, News, Singapore, Thailand, Vietnam, , , , , , , , , , , , , , , , , , , , , , , , ,

Asia’s affluent lose one-fifth of wealth in 2008 – CapGemini-Merryll Lynch Asia Wealth Report 2009

Hong Kong’s high-net-worth crowd were the hardest hit by the financial crisis, according to the annual wealth report from Capgemini and Merrill Lynch.

It was perhaps inevitable that after experiencing such rapid wealth growth in the past few years, Asia’s high-net-worth individuals suffered particularly keenly from the recent crisis. But there is still huge market potential in the region for those wealth advisory firms able to tap it.  Download: Asia-Pacific_Wealth_Report_2009_CapG_ML

The wealth of the region’s high-net-worth individuals (HNWIs) — those with $1 million or more in investable assets — fell by 22.3% to $7.4 trillion last year, below the level in 2006. That compares to a fall of 19.5% for global HNWI wealth, according to the 2009 Asia-Pacific Wealth Report, released yesterday by consulting firm Capgemini and Merrill Lynch.

Hong Kong HNWIs saw by far the biggest drop, losing 65.4% of their wealth, followed by those in Australia (29.7%), Singapore (29.4%) and India (29.0%). South Koreans got off lightest with a 13.4% decline in asset value, while Japan saw a fall of 16.7%.

In terms of market capitalisation, the Asia-Pacific region as a whole saw an average fall of 48.6% last year, with China (60.3%) and India (64.1%) suffering the biggest declines of the countries surveyed*.

With regard to asset allocation, the report noted three key trends. First, Asian HNWIs undertook a ‘flight to safety’ to cash-like assets with their allocation to cash-based investments rising to 29% in 2008 from 25% the year before. This reflected an increase in the global allocation to cash in 2008 to 21% from 17% in 2007. Taiwan had the highest allocation to cash/deposits at 41% of its total portfolio, while India had by far the least with 13%.

Another trend was an opportunistic shift back to real estate investment with an allocation of 22% in 2008, up from 20% the year before. Regionally, Australia had the highest allocation to real estate (41%), closely followed by South Korea (38%), while Taiwan had the least (15%).

As for other asset classes, India had the largest allocation to equities (32%), despite the heavy fall in the country’s stock market last year, while South Korea had the smallest (13%). And, perhaps surprisingly, Indonesia had the largest allocation to alternative investments (9%), covering structured products, hedge funds, derivatives, foreign currency, commodities, private equity and venture capital.

The third broad trend noted by the report was a retreat to home-region and domestic investments with HNWIs increasing their domestic investments to 67% in 2008 from 53% the year before. China was the top Asian market for investment by HNWIs in Asia-Pacific ex-Japan, while their peers in Japan preferred to invest domestically.

Allocations to mature markets are likely to increase through 2010 as Asia-Pacific HNWIs seek more stable returns. Allocations to North America, for example, are predicted to rise from 17% last year to 20% in 2010.

In terms of diversity of geographic distribution of investments, Japanese HNWIs were the most diversified beyond Asia in 2008 with 45% of their allocation outside the Asia-Pacific region. The least diversified were the Chinese with a 17% allocation outside Asia-Pacific, and India with a mere 14% invested outside the region.

On a wider level, the crisis resulted in many Asian clients shifting their assets towards regional and local firms, changing the competitive landscape. Such moves exposed “weaknesses in the capabilities of the region’s wealth management firms and especially revealed the disparate strengths and weaknesses of international firms versus regional and local competitors”, says the report.

In terms of the challenges faced by wealth management firms in Asia, they feel maintaining client trust/client retention is by far the biggest concern, according to a Capgemini survey carried out during July and August. Eighty-five percent of wealth management advisers cited this as the biggest challenge they face as a result of the crisis, and 45% cited as the next major issue the need to have the right skill set and talent to cater to HNWI clients.

A closer look at the issue of client attrition shows that 42% of wealth advisers lost clients last year; 63% of those advisers employed an individual-adviser model, while 37% used a team-based model. Meanwhile, younger advisers tended to lose more clients than older ones with 62% of those who lost clients being 40 or under. “Advisers were not mature enough to handle the intense market conditions,” says the report.

Experience is clearly key, and advisers in the Asia-Pacific region were less well able to handle the economic turmoil. The average amount of experience for the region was 9.7 years, versus the global average of 13.3 years. Wealth management firms need to remedy this situation if they are to make the most of the untapped market potential in China, India and elsewhere in the region.

* The report focuses on 11 markets: Australia, China, Hong Kong, India, Indonesia, Japan, New Zealand, Singapore, South Korea, Taiwan and Thailand. Together, these account for 95.3% of Asia-Pacific gross domestic product.

Source: Asian Investor, 14.10.2009

Asian Investor

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KRX Wins Stock Market System Development Project In Vietnam Stock Exchanges HOSE – HaSTC

Korea Exchange was finally selected as a priority negotiator in the international bidding for the construction of the Vietnamese stock market next-generation system announced on March 7, 2008 by the Vietnam Ho Chi Minh stock exchange(HOSE). Since KRX started global marketing in 2005 for the stock market IT solution export, this is one of the most successful results covering overseas projects.

KRX will provide total solution for the development of 13 stock market-related systems and the delivery of all related equipment in 2 exchanges, i.e. Ho Chi Minh and Hanoi including the Vietnam Securities depository covering trading, market surveillance, disclosure, sharing of information, clearing and settlement to upgrade the Vietnam’s stock market infrastructure. The construction project covering Vietnam’s stock market infrastructure next-generation system directly managed by the Vietnamese government is the largest scale project for a single order since KRX started overseas projects.

Recently, KRX has successfully completed the development of bond trading system, market maker monitoring system and Islam product trading system at Bursa Malaysia. With the winning of this project aimed at improving the IT infrastructure at the stock market of Vietnam, Korea’ technical capability in the stock market IT solutions has been recognized worldwide.

Development Projects

Completed the 1st(March 2008) and 2nd(January 2009) development of the bond trading system for Bursa Malaysia.

Completed development of the market maker monitoring system (MMM) (April 2009) for Bursa Malaysia.

Completed development of the Islam product trading (BCH) system (August 2009) for Bursa Malaysia.

Source: MondoVisione,08.10.2009

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‘Bubble-Mania’ in Shanghai Spreads to Global Markets

The S&P-500 Index, a global bellwether for the world stock markets, extended its best five-month winning streak since 1938, by advancing through the psychological 1,000-level, and is up nearly 50% from its 12-year low set on March 10th. The S&P-500 gained 7.4% in July, its best monthly performance since 1997, even as average earnings per-share tumbled -32% and sales slid -16% from a year ago.

Industrial commodities, often viewed as barometers for global economic trends, have also moved sharply higher. So far this year, copper has soared by +96%, nickel is up 62%, and zinc is +50% higher. China, which buys two-thirds of the world’s seaborne iron ore shipments, boosted imports 30% in the first seven-months of this year to 353-million tons, lifting its spot price to $91 /ton, up from $60 per ton in February. Crude oil rose above $71 /barrel this week, doubling in value since December.

In hindsight, while the “Group of Seven” (G-7) economies in North America, Europe, and Japan, were experiencing the most severe economic contractions since the Great Depression of the 1930’s, coupled with unemployment rates ratcheting upward to multi-decade highs, the emerging economic giant – China – was demonstrating its prowess, with the most ambitious stimulus plan the world has ever seen, to rescue its juggernaut economy from the brink of social disaster and unrest.

In a little more than nine months, the pendulum of investor sentiment in Asia has swung from the extreme of terrifying panic and fear, to the opposite side of the emotional spectrum – hope and unbridled greed. The Shanghai stock market index has surged +90% this year, owing its good fortune to 1.2-trillion of bank loans clandestinely funneled into the stock market by brokerage firms, leaving it awash with yuan and lifting share prices above what economic reality can support.

China’s ruling Politburo is demonstrating to the world its command and control over its stock market and economy. Over the past few years, Beijing has proven its ability to either massively deflate a stock market bubble, as seen in 2008, and the wizardry to re-inflate a stock market bubble this year. Beijing is following the Greenspan – Bernanke blueprints, – turning to massive money printing to re-inflate bubbles in asset markets, in order to jump start an economy from the doldrums, or in this latest case, from the grip of the Great Recession.

A relatively healthy banking system enabled the Chinese central bank to work its magic. China’s M2 money supply is growing at a record +28.5% annualized rate, and the money supply surge is coinciding with big rallies in stocks and property, spilling over into neighboring Hong Kong. State-controlled Chinese banks extended 7.4-trillion yuan ($1.2-trillion) of new loans in the first half of this year, equal to 25% of China’s entire economy – helping to fuel a powerful Shanghai red-chip rally.

One of the beneficiaries of the explosive growth of the Chinese money supply is the Shanghai gold market, which is trading near 6,600-yuan /ounce, and is also tracking powerful rallies in industrial commodities. China is poised to overtake India as the world’s top gold consumer this year, and there is speculation that Beijing will quietly buy the gold which the IMF wants to sell in the years ahead.

China, the world’s biggest gold mining nation, is seeking to boost gold output by 3% to 290-tons this year, far less than the 400-tons it consumed last year. Thus, China could become an even bigger importer of the yellow metal in the months ahead, helping to cushion inevitable corrections in the gold market. Given the trade-off between expanding growth and fighting asset-price inflation, Shanghai traders are betting that Beijing will opt to blow even bigger bubbles in asset markets.

Industrial Commodities Eyeing Shanghai

China’s super-easy monetary policy is designed to offset the damage to its export-dependent regions, which are suffering from the collapse in global trade. Beijing is also spending 4-trillion yuan on infrastructure projects, equal to roughly 15% of its economic output per year, to create jobs and stoke economic growth. So it was of great interest to global traders, when the Shanghai red-chips suddenly plunged -5% on July 29th, the biggest daily loss in eight-months, on rumors that Beijing would curb bank lending in the second half of this year.

The Shanghai index is prone to sudden shake-outs, with the index trading at 35-times earnings, and Shenzhen’s small-cap shares trading at 45-times earnings. The Shanghai red-chip index has evolved into the locomotive for key industrial commodities, such as crude oil, base metals, and rubber. Industrial commodities rebounded from a nasty one-day shake-out on July 29th, after the People’s Bank of China wasted little time in denying rumors swirling in the media that it was considering the idea of enforcing quotas on bank loans.

The prospects for Chinese corporate earnings growth are of critical importance, with the Shanghai stock index flying higher in bubble territory. Large-scale industrial companies in 22 Chinese provinces saw their profits decline -21.2% in the first half to 894.14 billion yuan, but the decline rate was less from the first quarter’s 32% slide, and nowadays, “less bad,” means signs of recovery.

The most optimistic scenario calls for Chinese industrial profits to rebound to an annualized growth rate of +30% in the fourth quarter, due to the government’s massive stimulus. China’s Bank of Communications predicts the economy’s growth rate will accelerate to a pace of +9% in the third-quarter and +9.8% in the fourth-quarter. China’s crude steel output would surely top 500-million tons this year, equaling 40% of the world’s total production.

Korea Joins Alignment of B-R-I-C-K

Upbeat markets in China are helping underpin the BRIC nations, including Brazil, India, and Russia, which have the four best performing stock markets this year. Brazil’s Bovespa Index is up 79%, India’s Sensex Index is up 63%, and Russia’s RTS Index has gained 62-percent. The S&P-500 Index by comparison, is up 9.4% this year, while Japan’s Nikkei-225 index is up 7.5-percent.

One could add Korea to the alignment of B-R-I-C-K stars, since the Kospi Index has rebounded by 72% above its November low, emerging as the most favored market among global investors. With growing appetites for risky assets, global investors have rushed to snatch up Korean Kospi shares, particularly those in the information technology (IT) and the auto sectors. Foreigners were net buyers of $4.7 of Korean stocks in July, much larger than net-purchases of $2.6-billion of stocks in Taiwan, $1.9-billion shares in India, and $1.29 billion shares in South Africa.

“Money has no motherland, financiers are without patriotism and without decency, – their sole object is gain,” observed Napoleon Bonaparte. Highlighting the fickle nature of speculators, – foreigners bought a record $18-billion of Korean securities in the second-quarter of this year, or 24-times more than $750 million the previous quarter. In the third and fourth quarters of 2008, foreigners sold $17.9-billion and $17.4-billion, respectively, at the height of the global financial turmoil.

Foreign buying of Korean equities knocked the US-dollar 28% lower against the Korean-won, and the Japanese yen has tumbled 20% to 12.8-won, since March 10th, when global stock markets bottomed out. “Carry traders” are active in Seoul, and profiting from a stronger won. In a world where G-7 central banks are pegging rates at record low levels, it does not take much imagination to envision the Federal Reserve, the ECB, and the Bank of Japan underwriting rallies in the emerging currencies of Brazil, Russia, India, and Korea, just as Tokyo pumped massive liquidity straight into New Zealand and Australian dollars during its flirtation with the hallucinogenic drug – “Quantitative Easing” (QE) between 2001 and 2006.

Virtuous Cycle Swings in the Kremlin’s Favor

The resilience of China’s economy has rekindled the de-coupling debate, which hinges on the premise that the emerging economies in Brazil, Russia, India, China, (BRIC) can grow in spite of a declining G-7 economies. The so-called BRIC countries accounted for half of global growth in 2008 – China alone accounted for a quarter, and Brazil, India, and Russia combined equaled another quarter. Furthermore, the IMF notes that BRIC “accounted for more than 90% of the rise in consumption of energy products and metals, and 80% of grains since 2002.”

The virtuous cycle of events are now swinging back in the Kremlin’s favor, as global speculators flock back into hard-hit resource shares trading in Moscow. Russia’s central bank cut its main interest rates for the fourth time in less than three-months, after Moscow said the local economy contracted an annual 10.2% in the January-May period. Bank Rossii lowered the refinancing rate a half-point to 11% following on initial reduction on April 24th and two further cuts on May 13th and June 5th.

The Russian rouble has rebounded 16% against the US-dollar, since the first quarter, as Urals blend crude oil rebounded towards $70 a barrel, and base metals surged higher, boosting demand for Russia’s currency, a world leader in commodity exports. Russia is the world’s second-largest oil exporter behind Saudi Arabia, and supplies a quarter of Europe’s natural gas needs. Russia is also the world’s largest nickel and palladium miner, the second largest platinum miner, and the fourth-largest iron ore miner, behind Brazil, Australia, and India.

After reaching a record high of $597-billion last August, Moscow’s foreign currency reserves were dramatically depleted in the second-half of 2008, as the central bank spent more than $200-billion supporting the Russian rouble and bolstering the capital position of domestic banks. This year’s rebound in Urals blend crude oil has improved the Kremlin’s coffers, to the tune of $404-billion today. China, the world’s second-largest oil guzzler, imported 3.83-million barrels per day in July, or 25% more than a year earlier, the fastest pace in nearly two-years.

The BRIC nations are rethinking how their US-dollar currency reserves are managed, underlining a power shift from the United States, which spawned the global financial crisis. Russian chief Dmitry Medvedev has repeatedly questioned the US-dollar’s future as a global reserve currency. China is allowing companies in its southern provinces of Yunnan and Guangxi to use yuan to settle cross-border trade with Hong Kong and Southeast Asia to reduce exposure to the US-dollar.

India Weathers the “Great Recession”

Reserve Bank of India chief Duvvuri Subbarao says India’s modest dependence on exports will help Asia’s third largest economy, to weather the “Great Recession” and even stage a modest recovery later this year. Even during the depths of the October massacre in the Bombay Sensex Index, India managed to maintain a 5.3% growth rate in the fourth quarter, and India’s banking system had virtually no exposure to any kind of toxic asset, manufactured in the United States.

India’s factory output contracted by a slim 0.25% in January, the first decline this decade, and export earnings had fallen for six straight months. In January exports were 16% lower from a year earlier tumbling to $12.3-billion. So the Reserve Bank of India (RBI) scrambled to rescue the Bombay stock market, by slashing its lending rates six times from September thru April, by a total of 425-basis points.

click to enlarge

The Indian Sensex index began to decouple from Wall Street and Tokyo in early May, after it rallied 14% for its biggest weekly gain since 1992, when Indian Prime Minister Manmohan Singh won a second term. Bombay stocks soared with enthusiasm at the prospect that Singh’s new government, shorn of Communists, would privatize up to $20-billion of state-owned assets, increase foreign investment in highly profitable crown jewel companies, begin deregulation of banking and financial services, and gut restrictions on the closing of factories.

India’s factory sector, measured by the Purchasing Mgr’s Index, held strongly at a reading of 55.3 in July, or 2-points higher than China’s, signaling a strong industrial recovery in the second half of this year. If the decoupling of China, India, Russia, and Brazil becomes a reality, it could be good for the developed G-7 nations, as growing wealth in BRIC nations could, in theory, increase demand for goods made in battered nations like Japan, Germany, and the United States.

A decoupling between the emerging BRICK nations and the more developed G-7 economies would mean a huge shift in the global financial markets, away from the traditional pattern of emerging markets dancing to the tune of G-7 economies, which still account for 60% of global GDP. Instead, increasing independence could lead to a greater sphere of influence of the emerging giants, led by Beijing.

In the United States, Fed chief Bernanke is pumping a “bailout bubble” for Wall Street, similar to the policies of his mentor “Easy” Al Greenspan, who inflated the housing bubble, the sub-prime debt bubble, and the high-tech bubble. It’s a never ending cycle of boom-and-busts of bubbles, engineered by central banks. The revival of the “Commodity Super Cycle,” might already be in motion, and if a global economic recovery gains traction, soaring input costs would begin to crimp the profit margins of the giant Asian industrialists.

All the liquidity that’s been unleashed into the global banking system would play havoc with accelerating inflation. History shows that central banks won’t pre-empt inflation by withdrawing liquidity early. Instead, the money printers tend to inflate bubbles to dangerous proportions. Add to the mix, the vast leverage of the US-dollar and Japanese yen carry trades, it’s going to be a wild ride for the US Treasury bond market, which is increasingly dependent upon the whims of BRICK.

Source: SeekingAlpha, 05.08.2009 by Gary Dorsch

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Sumitomo Trust QFII custody goes to Citi

Sumitomo Trust and Banking has named Citi Securities and Fund Services sole custodian for its new qualified foreign institutional investor (QFII) programme in China.

Under the mandate, Citi will provide custody services including settlement and safekeeping of assets, corporate action processing, income collection, recordkeeping and consolidated reporting to Sumitomo Trust. It will also offer relationship management, implementation and customer service in both China and Japan.

“As the first Japanese [trust] bank to receive an approved QFII license, the appointment of an experienced and innovative custodian bank was a key priority for us,” says Akira Inoue, a senior manager in the global product management office at Sumitomo Trust. “Through partnership and mutual understanding, we are extremely confident that Citi is the right choice for our QFII programme.”

The China Securities Regulatory Commission approved Sumitomo Trust for QFII status on July 15. As the only Japanese trust bank approved for the programme, it plans to develop a Chinese equity socially responsible investment fund for Japanese investors. Sumitomo Trust is still awaiting investment quotas from China’s State Administration of Foreign Exchange before it begins investing in Shanghai and Shenzhen listed A-shares.

Other Japanese financial institutions with QFII status include Dai-ichi Mutual Life Insurance, DAIWA Asset Management, Daiwa Securities SMBC, Mitsubishi UFJ Securities, Nikko Asset Management, Nomura Securities, Shinko Securities and Sumitomo Mitsui Asset Management.

In March Citi won a QFII custody mandate from South Korea’s Hanwha Investment Trust Management. According to a representative of the bank, it has eight existing QFII custody mandates and a “healthy pipeline” of new business in the works.

“In winning this important mandate, our unmatched track record in providing services for the most progressive QFII participants continues to gain momentum,” says Harle Mossman, Asia-Pacific managing director and regional head of investor services at Citi Securities and Fund Services.

According to the bank, Sumitomo Trust’s vetting process for a QFII custodian took less than a year.

For the 2008 fiscal year, Sumitomo Trust’s consolidated net income fell 74.3% to ¥7.9 billion ($83.6 million). A significant contributor to the fall was the bank’s multi-billion yen securities losses, including ¥57.4 billion in international asset-backed securities.

Source: AsianInvestor.com, 27.07.2009

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Beware of rising Asian stock markets

Investors who were bold enough to stay invested in Asian equities from the latter part of last year onwards are reaping the rewards of their bravado. The closely watched MSCI Asia ex-Japan Index was, after all, up 41% in the three-month period ending May 15. The sharp gains in Asian shares have, not surprisingly, triggered a bandwagon effect of investors trying to get in on the action and hoping that they’re not too late to cash in later on.

The notion that Asian companies have strong balance sheets is great, if you’re a bondholder.

For investors who are looking for a quick buck, Asian equities — or equities in any market for that matter — isn’t the place to find it. Short-term, Asian stock markets remain volatile and the fact that they have risen by so much in such a short span of time make it even more dangerous ground. If anything, the markets look poised for a correction. It may come later rather than sooner, because the momentum chasers are keeping markets afloat for now, but it will come.

“The global economy has not yet recovered to a healthy state,” says Nick Scott, Hong Kong-based CIO for Asian equities at BlackRock. “The rally in March and April is based upon investor relief that things may not be as bad as was predicted, rather than concrete evidence that the worst is over and a recovery is imminent.”

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For investors who are in this for the long haul — with one year being the minimum investment horizon — then the scenario is vastly different. Asian stock markets are generally expected to outperform US and European markets over the long run. The reasons for this optimism is plentiful, including the region’s relatively strong domestic consumption, sound fiscal position, ability to counteract external shocks with central bank reserves and fiscal spending, less dependence on exports, stronger financial systems, and so on and so forth.

Halbis Capital Management, for one, has kept its bullish long-term view of Asian equities intact.

“Overall, we believe the market is showing signs of stabilisation that should allow bottom-up investors such as ourselves to focus once again on picking the right stocks,” says Ayaz Ebrahim, Hong Kong-based CEO of Halbis Capital Management. “In the last few months of turbulence, investors have focused more on shifting between defensive and cyclical sectors rather than assessing the fundamentals of the companies themselves.”

Still, even for long-term investors, fund managers and analysts are sounding out the alarm bells and warning against chasing the momentum. Waiting for that correction is seen as the best option.

“It is very hard to predict how equities will perform over the next 12 months, particularly following such a strong rally,” says Peter Elston, Singapore-based Asian strategist at Aberdeen Asset Management. “We are still in a period of economic turbulence, in which conditions in the short- to medium-term may either improve or deteriorate unpredictably.”

Alex Ingham, a London-based emerging markets fund manager at Aviva Investors, believes that a pause in the current rally is “almost certain”.

What investors should be mindful at the present are the changes in fundamentals of listed companies, risk tolerance of investors and company-specific outlook. These are the factors that will shape the investment landscape going forward.

“We are beginning to see some discrimination emerging in the markets, different sectors and businesses are starting to demonstrate their ability to either recover more quickly or improve their cost competitiveness,” says Colin Ng, the Hong Kong-based regional head for Asia-Pacific equities at MFC Global Investment Management, the asset management arm of Manulife Financial.

Structural return on equity and earnings growth potential remains higher in Asia than in the world’s developed markets, says BlackRock’s Scott, who like many fund managers is particularly optimistic on the long-term prospects of China and India.

“China of course is the focal point,” says Victor Lee, Hong Kong-based regional investment manager at JP Morgan Asset Management. “We may indeed see China outperforming global markets as the fiscal packages continue to gain traction. It has strong deposit base and fiscal power to keep its economy on track.”

Scott says the strengthening links between China and Taiwan may also throw up some interesting opportunities as mainland companies acquire stakes across the Strait. He believes that India’s economy has cooled as foreign funding has dried up, but that has created some insulation from the collapse in global demand.

Not everyone’s a fan of China.

Desmond Tjiang, Hong Kong-based CIO for Asia ex-Japan equities at Fortis Investments, is wary of the rally in Chinese shares and doubts it is sustainable.

“The consensus overweight in China is a risk because that market is overcrowded,” says Tjiang, who is bullish instead on Indonesia. He believes that the strong domestic consumption in Indonesia, citing that country’s urbanisation, infrastructure, and domestic consumption trends.

Rajiv Jain, managing director for international equities at Vontobel Asset Management in New York, says the notion that Chinese domestic demand is going to rescue the region in fiction.

“Chinese domestic consumption is less than that of the UK,” Jain notes. “An increase there isn’t going to move the needle.”

Worse, it’s in China where the greatest overcapacity exists in areas such as steel and cement. China’s infrastructure spending program is good at boosting GDP figures by adding capacity, but does nothing to help corporate profitability.

Moreover, Jain is sceptical about the ability of government stimulus programs to ultimately boost corporate earnings.

“We don’t trust any government. Why do investors have such confidence in Beijing? Chinese steel companies are being instructed to produce more and not lay off workers, at a time when capacity utilisation rate are at their lowest in 50 years.”

Too many investors are mesmerised by the Asian growth story, but Jain calculates that over the long term, Chinese corporate earnings growth rates have been about the same as America’s — but Chinese stocks are priced far more ambitious.

Jain says the past five years were a bubble and have clouded investors’ expectations about growth in China and other Asian markets. The argument that Asian corporate balance sheets are strong is fine for bondholders but doesn’t equate to earnings growth.

Source:AsianInvestor, 03.07.2009 by Rita Raagas De Ramos

This is an excerpt from a story that originally appeared in the June edition of AsianInvestor magazine. To learn more about the content in the magazine, please contact Stephen Tang at stephen.tang@asianinvestor.net

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Carbon Trading Market Creating Opportunities

Continued growth in the global carbon trading market and the anticipated adoption of a U.S. climate control bill is creating plenty of new opportunities for investment banks, nascent exchanges, technology vendors and asset servicing agents in the trading and post-trade arenas.

The carbon emissions market, which grew 75 percent to reach $116 billion in 2008 from the prior year, could expand to $2 trillion by 2020 should more markets adopt a version of Europe’s “cap and trade” model for reducing greenhouse gas emissions, according to research firm Celent.

Based on the 1997 Kyoto Protocol, an international treaty, the European Emissions Trading Scheme allows for members of the European Union to create tradable European Emissions Allowances (EUAs) and Certified Emission Reduction Credits (CERs)–otherwise known as offsets. Other countries such as Australia, New Zealand, Canada and Japan are also pursuing their own versions of carbon cap and trade models as is the United States.

“The potential for carbon trading is great, as is the opportunity cost of ignoring the market,” said Stephen Bruel, research director for TowerGroup. Even more lucrative than trading will be advisory services to help energy firms comply with divergent regulations to reduce carbon emissions, he believes. Harmonization between regulatory regimes to create a unified global market, while ideal, is a long way off.

“It is costly for global firms to comply with the patchwork emission schemes and investment banks can help carbon emitter clients navigate this minefield with offset strategies,” said Bruel, citing BNP Paribas, Goldman Sachs and Credit Suisse as examples of firms with specialized carbon risk desks. Hedge funds, he predicted, will also want to capitalize on the arbitrage opportunities between regulatory regimes and will use algorithms to take advantage of the correlations between the price of coal or weather patterns and the price of carbon.

Although much of the trading activity and innovation in the carbon emissions market remains in Europe, where the European Climate Exchange and Bluenext are the largest exchanges, the potential passage of U.S. legislation later this year or in 2010 could easily make the U.S. the largest regulated carbon market.

Under the proposed American Clean Energy and Security Act, the ceiling on greenhouse gas emissions would be divided into billions of permits, each conferring the right to emit one metric ton of carbon dioxide. Fewer permits would be issued to utilities, manufacturers and refiners each year until emissions are 83 percent by 2050 over 2005 levels.

It is unclear what effect the legislation, if passed, would have on several voluntary regional and state projects which have already cropped up, creating emission offset contracts traded over-the-counter, largely through interdealer brokers and web-based mechanisms.

“Trading volumes will continue to expand in the over-the-counter market but U.S. legislation will likely favor exchange-traded contracts and several more exchanges could emerge,” said Jubin Pejman, vice president in the Americas for Trayport, an electronic trading software firm purchased by interdealer broker GFI last year. Exchange-traded contracts are typically standardized and cleared through a centralized facility, which reduces counterparty risk–a key mantra of the new Obama administration for the over-the-counter market.

Three fledgling U.S. emissions exchanges–the Chicago Climate Exchange, its sister company Chicago Climate Futures Exchange and rival Green Exchange, stand to benefit the most from any federal mandate. The CCX, launched in 2003 as a voluntary market with binding targets, offers participants a way to buy and sell “carbon financial instruments” (CFIs) that represent a certain level of emissions reductions; the CCX overtook the over-the-counter market for the first time last year.

The rival Green Exchange created in December 2007, by a consortium of trading firms and the New York Mercantile Exchange (Nymex), is awaiting approval from the Commodity Futures Trading Commission as a designated contract market. Its contracts are already listed for trading and clearing on Nymex.

Pejman said that Trayport’s GlobalVision Broker Trading System, a screen-based network, is scaleable enough for broker dealers to expand their message traffic on bid and offers in the over-the-counter market for carbon emission allowances and credits in the U.S.The firm’s GlobalVision Trading Gateway, which enables traders to trade on multiple liquidity pools through a single user interface, will also link to the Green Exchange, should the market win CFTC approval.

Software vendors with cross-asset capabilities are also finding fertile territory in adding functionality for carbon emission contracts. SunGard has enhanced its GL Clearvision middle office and GL Ubix back-office products–inherited through the 2008 acquisition of GL Trade–for trades executed on Bluenext, a Paris-headquartered exchange majority-owned by NYSE Euronext.

Mark Stugart, product manager of commodities for Calypso Technology, a trading and risk management softwar firm, said that his firm will upgrade its platform to incorporate trade capture, pricing and P&L calculations for EUAs and CERs on the ECX and BlueNext by year end.

Last month, Bank of New York Mellon launched a centralized custody and trade settlement platform called GEM to give customers a single view of their entire carbon portfolio–for regulated and voluntary markets–and perform all transactions including trading, cancellation and retirement of contracts in one place.

Original Article

Source:Securities Industry News, 22.06.2009 by Chris Kentouris

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World’s Biggest Carbon Offset Exchange Comes One Step Closer To Reality As NYSE’s BlueNext And China-Beijing Environmental Exchange Sign China Partnership

Surprising Green Energy Investment Trends Found Worldwide

Worldbank: State and Trends of the Carbon Market 2009


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CCX Chicago Climate Exchange signs agreement to collaborate on establishing Emissions Trading in Korea

Chicago Climate Exchange, Inc. (CCX®) signed a memorandum of understanding today in Washington, DC with Korea Power Exchange (KPX), Korea Exchange (KRX) and Korea Energy Management Corporation (KEMCO) to collaborate in preparing for the establishment of emissions trading in Korea.

Parties to the agreement will explore avenues of cooperation in the establishment of Korean emissions trading and matters relating to the infrastructure for emission trading, both of which could play an important role in promoting “low carbon green growth” in Korea.

“Emissions trading is a proven tool for using market-based mechanisms to address environmental challenges and we look forward to working with KEMCO, KRX and KPX, as well as the Ministry of Knowledge Economy and other Ministries in Korea, as Korea moves forward with its important ‘low carbon’ growth goals,” said Dr. Richard L. Sandor, Chairman of CCX and Executive Chairman of Climate Exchange plc.

By creatively integrating public concerns about environmental protection and his experience in financial innovation and business development, Dr. Sandor founded CCX in December 2003 and launched the European Climate Exchange (ECX) in April 2005. CCX also operates the Chicago Climate Futures Exchange (CCFE), which handles NOX, SOX and other criteria pollutant contracts based on the U.S. Clean Air Act.

“CCX is the preeminent and most influential organization in carbon trading. This MOU not only represents a historic collaboration of the parties, but represents a crucial initiative between the United States and Korea,” said KPX CEO Il-Hwan Oh.

“CCX has many international connections we want to be part of. CCX has provided a market solution, with many products as everybody knows, and is facilitating the preparation for carbon trading, fostering green growth,” said KRX CEO Jung-Hwan Lee.

“We are confident the MOU will be part of developing infrastructure in Korea for emissions trading,” said KEMCO CEO Tae-Yong Lee.

Source: MondoVisone, 15.06.2009

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Asia’s first cleantech funds now raising capital

Preqin shows private-equity managers in Asia are beginning to participate in the worldwide boom of cleantech funds.

Perhaps the biggest trend in private equity right now is investing in cleantech, a term that refers to products or services that improve operational performance, productivity or efficiency, while reducing energy consumption, waste and pollution. And PE managers in Asia are introducing the region’s first dedicated cleantech funds, says Preqin, a London-based consultancy specialising in private equity and infrastructure. Click here for original article.

See also: Investment in Clean Energy Exceeded Fossil Fuel Investment in 2008

According to Preqin, there are now four Asia-based PE funds trying to raise capital for dedicated cleantech funds (see table below). The two largest are from Hong Kong-based First Vanguard, which is raising $500 million for the China and Pacific Rim Water Infrastructure Fund; and Singapore-based Middle East & Asia Capital Partners, which is raising $400 million for its MAP Clean Energy Fund.

There are two more players raising $250 million funds: in Singapore, Ant Global Partners is financing its Ant Global Partners Cleantech Fund; and in Malaysia, Abundance Venture Capital seeks capital for its AVC Abundance Energy Fund.

The first private-equity or venture-capital fund to include a cleantech focus, within a diversified portfolio, emerged in 2005 in India, where IDFC closed a $440 million infrastructure fund. Then in 2006, China’s Prax Capital closed a $153 million fund that included cleantech themes, as did China’s Northern Light Venture Capital, which closed a $350 million fund.

Since then activity has picked up: in 2008, funds in India, China and Hong Kong closed over $5 billion worth of diversified funds that included cleantech plays, while earlier this year, Singapore’s SEAVI Advent closed a $178 million diversified buyout fund.

Preqin says there are now at least 10 PE funds trying to raise capital towards themes that include cleantech, of which four are dedicated, as mentioned above. Together these 10 seek to raise up to $3.6 billion, with the four dedicated funds accounting for $1.4 billion of that.

Preqin has released a report on cleantech funds that shows huge interest among institutional investors and funds of funds. Despite the global financial crisis, overall cleantech fundraising remained steady in 2008, with 29 funds raising a total of $6 billion worldwide, roughly the same as was raised in 2007. The majority has gone to VC funds, with infrastructure funds also playing a big role.

In North America, funds this year seek to raise up to $9 billion, making this the biggest market, followed by European funds, which want to raise over $7 billion, Preqin says.

The consultants also find more than half of cleantech-focused VC firms prefer to take minority stakes, while buyout and infrastructure firms mostly prefer controlling stakes. For institutional investors, these funds represent the preferred means of accessing cleantech themes, as opposed to via the public markets, because the sector is too new to be well represented in the listed space.

Preqin’s 10 largest funds with a cleantech focus raised by Asian fund managers

Fund Fund Type Size (Mn) Vintage Fund Cleantech Focus Fund Manager Fund Manager Location
Baring Asia Private Equity Fund IV Balanced 1,515.0 USD 2008 Diversified Baring Private Equity Asia Hong Kong
IDFC Private Equity Fund III Infrastructure 700.0 USD 2008 Diversified IDFCPrivate Equity India
IDFC Private Equity Fund II Infrastructure 440.0 USD 2005 Diversified IDFCPrivate Equity India
LC Fund IV Venture (General) 400.0 USD 2008 Diversified Legend Capital Management China
Northern Light II Venture (General) 350.0 USD 2007 Diversified Northern Light Venture Capital China
Qiming Venture Partners II Venture (General) 320.0 USD 2008 Diversified Qiming Venture Partners China
Softbank China Venture Capital III Venture (General) 2,000.0 CNY 2008 Diversified SB China Venture Capital China
Nexus India Capital II Early Stage 220.0 USD 2008 Diversified Nexus India Capital India
SEAVI Advent Equity V Buyout 178.0 USD 2009 Diversified SEAVI Advent Singapore
Prax Capital II Expansion 153.0 USD 2006 Diversified Prax Capital China

Preqin’s 10 largest funds with a cleantech focus currently raising by Asian fund managers

Fund Fund Type Target Size (Mn) Fund Status Vintage Fund Cleantech Focus Fund Manager Fund Manager Location
ORYX-STIC Fund II Buyout 500.0 USD Raising 2009 Diversified STIC Investments South Korea
China and Pacific Rim Water Infrastructure Fund Infrastructure 500.0 USD Raising 2009 Pure Cleantech First Vanguard Hong Kong
Sandalwood Capital Partners II Early Stage 350.0 EUR Raising 2009 Diversified Sandalwood Capital Partners India
Ascent India Fund III Expansion 450.0 USD Raising 2009 Diversified UTI Venture Funds India
MAP Clean Energy Fund Infrastructure 400.0 USD Raising 2009 Pure Cleantech Middle East & Asia Capital Partners Singapore
AmKonzen Asia Water Fund Infrastructure 320.0 USD Raising 2009 Diversified AmKonzen Water Investments Management Singapore
Asia Strategic Capital Fund Mezzanine 300.0 USD First Close 2008 Diversified Asia Mezzanine Capital Group Hong Kong
Tripod Capital II Buyout 300.0 USD Raising 2009 Diversified Tripod Capital China
Ant Global Partners Cleantech Fund Venture (General) 250.0 USD Raising 2009 Pure Cleantech Ant Global Partners Singapore
AVC Abundance Energy Fund Natural Resources 250.0 USD Raising 2009 Pure Cleantech Abundance Venture Capital Malaysia

Source: AsianInvestor.net, 08.06.2009 by Jame DiBiasio

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Asian stock exchanges find ways around falling volumes

The financial crisis has reduced profits for Asia’s stock exchanges, but they are finding a variety of opportunities to grow revenues.

It’s a tough time to be an Asian stock exchange. A new study by Celent finds all of them suffering lower trading volumes, lower margins and reduced profits as a result of the global financial crisis and the introduction of alternative trading systems — at a time when new regulations and risk management issues are likely to impose additional challenges. Click here for original article.
Exchanges are, however, finding a variety of ways to maintain their position, and in many ways, may be in a better position than counterparts in Europe and America to grow.

On average, Asian exchanges enjoyed robust growth in the years before the crisis, with an almost 30% compound annual growth rate in revenues from 2005 through 2007. But in 2008 this reversed: for example, Singapore’s exchange saw net profit down 40% in the first three quarters of 2008; Hong Kong’s exchange saw revenues fall by 10% and profits down 17% in 2008. The news is similar for others in the region.

These declines are due to the lack of listings and steep declines in both cash and derivative trading. These had a knock-on effect on other revenue-generating services offered by exchanges, including clearing and information products.

Celent reckons these losses are not going to be easily reversed in 2009. Exchanges are relying more on new initiatives to maintain their quasi-monopolistic positions and their profitability.

These include trying to attract cross-border listings in emerging markets, going head-to-head with the likes of NYSE, Nasdaq and the London Stock Exchange. The Korea Exchange, for example, has entered into equity stakes in the new bourses of Laos and Cambodia, partly in order to get new companies there to cross-list in Seoul. Singapore’s exchange has a partnership with the provincial government of Fujian to attract its companies. Hong Kong and Shanghai have signed a number of collaborative measures.

Trading is the biggest revenue generator, and has come under pressure from the rise of alternative systems such as Instinet and Liquidnet, and from the promotion of dark pools by broker dealers or the likes of ITG.

However, in Asia, such alternatives do not threaten exchanges as they have done in the United States, in part because Asian bourses enjoy monopolistic positions among fragmented, less liquid markets. This has prevented alternatives from being able to undercut the exchanges on pricing or service, despite the anonymity they offer. In Hong Kong, alternative platforms actually operate as members of the exchange.

Only in Japan is there a true alternative market, with 2% of all electronic trading executed on true off-exchange platforms, and crossing networks are popular.

Nonetheless the exchanges can’t be complacent, and are improving their products and their pricing. This includes upgrading their systems to be faster and accommodate more trades, and improving their market-data services. Singapore is working to attract more algorithmic traders, both through operational improvements and perhaps fee cuts. Korea Exchange’s introduction last year of KoreaCross, a VWAP anonymous electronic platform for local and international institutional investors, will also spur block trading. Taiwan is taking similar action.

Other important initiatives that are sweeping the region are the development of derivatives trading and cross-border initiatives.

With regulation likely to encourage the OTC derivatives market to move onto an exchange, exchanges are trying to develop products that are standardised and easy to use, but also provide the benefits of OTC trades. For example, Korea Exchange has begun a market-making scheme to provide liquidity to 10-year Korea treasury bond futures. It has also allowed Eurex to list, trade and clear daily futures on Kospi 200 options worldwide after Korean trading hours.

Southeast Asia has seen five nations form an Asean electronic trading link, which should allow investors in their markets to trade regional securities through local brokers. Other examples of international initiatives include the Tokyo Stock Exchange taking a 5% stake in SGX in 2007, as part of a plan to give Tokyo access to superior technology.

The next most active area for growth is in product development, with Islamic products at the forefront. The idea is to attract investment from the Middle East. Last year, SGX listed Singapore’s first sharia-compliant ETF covering 100 eligible Japanese companies. Carbon emission products are also expected to grow, with Japanese bourses at the forefront.

Taken together, these and other initiatives should be enough to keep Asia’s exchanges on the path to growth, thanks to the region’s strong economic fundamentals and GDP growth prospects.

Source: AsianInvestor.net, 25.05.2009 by Jame DiBiasio

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Emerging Asia inflation tumbles, more rate cuts seen

Inflation rates slowed once again in emerging Asia, pointing to a fresh round of interest rate cuts in Thailand and Indonesia as the region battles to reinforce tentative signs that economies may be on the path to recovery. Indonesia said annual inflation stood at 7.3 percent in April, its lowest level since December 2007, while South Korea also reported a fall in April inflation to a 14-month low of 3.6 percent. However, Thailand saw a fourth straight month of falling prices or deflation with April consumer prices falling 0.9 percent from a year earlier.

Core consumer prices in Japan fell 0.1 percent in March from a year earlier, heralding what the Bank of Japan expects to be two-years of deflation although the central bank has dismissed the idea of an economically damaging spiral of falling prices.

Prices are tumbling across the world as buyers tighten their belts in the face of the global recession and because of the collapse in commodities prices from record high levels last year. Crude oil for example, has dropped to around $50 a barrel from its near $150 record set in July.

Central banks globally have slashed rates in the hope that cheaper credit will spark a revival in their economies. Government have spent hugely on fiscal stimulus package and some data suggests the worst of the crisis may be over.

In Asia, exports have collapsed as recession in major demand centres such as the United States and Europe hammered demand. But signs that the recession is easing has raised hopes that Asia’s export engine may see a return of some demand, albeit from low levels.

Indeed, major exporters South Korea and Japan have both seen a pick up in monthly exports even if they are still much lower than year-earlier levels. Annual falls in exports elsewhere have become less severe.

SOME WILL CUT, SOME WILL NOT

In Thailand, the fall in prices is seen as largely technical and reflective of the sharp falls in the past year in commodities prices rather than the result of falling demand.

The latter is feared by policy makers because it can add an extra weight on growth or push an economy deeper into recession.

“With very, very little risk of inflationary pressures, and with monetary conditions still fairly tight, there remains a scope to cut rates to support growth,” said Carl Rajoo, an economist at Forecast in Singapore said of the Bank of Thailand.

“The central bank is likely to make a measured cut in May, and then wait and see before additional loosening is started,” he said.

The Bank of Thailand is due to review policy next on May 20, when analysts expect a 25 basis-point cut in the policy rate to 1.00 percent, the lowest level since the central bank started targeting inflation in 2000.

The Bank of Thailand has already cut its policy rate by 250 basis points since December to support an economy widely seen as in recession and pressured not only by the global downturn but by political unrest.

In Indonesia, an easing in food price pressures and a 14 percent rise in the rupiah against the dollar since early March, making imports more expensive, has weighed on prices.

Inflation has come down steadily from above 12 percent just seven months ago giving the central bank room to keep cutting interest rates to support Southeast Asia’s largest economy, whose exports are falling at close to 30 percent.

“We expect Bank Indonesia to cut rates by 25 basis points in May and (in) June,” said Helmi Arman, an economist at Bank Danamon in Jakarta. The central bank next meets on Tuesday.

However, South Korea’s central bank is seen holding fire for now.

It has skipped rate cuts at its last two meetings and is expected by financial markets to leave rates unchanged at a record low of 2.0 percent at its next meeting on May 12.

Inflation has fallen steadily, but growing optimism the economy may be starting to turnaround suggests the central bank will save its monetary ammunition for now. Since the financial crisis blew up last year, it has cut rates by an unprecedented 325 basis points.

South Korea’s inflation rate fell to 3.6 percent in April, its lowest level in 14 months but with some signs in the trade-reliant country that exports are picking up, the central bank is unlikely to use inflation as a cue to cut rates again.

The Philippines is expected to report on Tuesday that its consumer prices inflation fell to a 16-month low of 4.7 percent in April, also paving the way for the central bank to cut its overnight borrowing rate, already a 17-year low of 4.5 percent, at its next meeting on May 28.

Source: Reuters, 04.05.2009

Filed under: Asia, Indonesia, Japan, Korea, News, Thailand, Vietnam, , , , , , , , ,

Asian electronic trading revenues to decline – TABB

Electronic trading revenues are anticipated to fall in the Asia-Pacific region, while the development of dark pools is expected to stall, according to new research from consultancy TABB Group.

In ‘Asian Equity Trading 2009’, TABB predicts that income from electronic trading will slip 16.9% to $815 million this year, from $981 million in 2008. This follows a similar decrease of 17.7% in institutional value traded in the previous 12 months, a drop that affected overall trading strategies in Asia, according to TABB.

“In the second half of 2008, there was a significant pullback leading into the first quarter of 2009,” said Matt Simon, TABB Group analyst and author of the report. “Traders saw liquidity sink.”

The study, which examines institutional trading across Japan, Hong Kong, Korea, Australia, Singapore and Taiwan, estimated that dark pool uptake in Asia-Pacific would take longer to develop than in the US and Europe. TABB predicted that by 2010 3.5% of value traded would be matched off-exchange in Japan and 1.5% in the five other market centres examined. Volatile market conditions have also marked a return to VWAP/TWAP algorithmic trading strategies from buy-side traders in the region, the report added.

Despite the decline in electronic trading revenues, global expansion in the region is expected to continue, driving connectivity to new markets such as Malaysia, Thailand and Indonesia.

Source: The New Trader, 23.04.2009

Filed under: Asia, Hong Kong, Indonesia, Japan, Korea, Malaysia, News, Singapore, Thailand, Trading Technology, , , , , , , , , , , ,

Asian equity electronic trading revenues to sink in 2009 – Tabb

Equity electronic trading revenues in Asia Pacific are set to see a 17% fall this year, with liquidity sinking during the downturn, according to research from Tabb Group.

Tabb predicts revenues will drop to $815 million, down 16.9% from $981 million in 2008. This follows a 17.7% decrease in institutional value traded from 2007 to 2008, a year-over-year drop that has affected overall trading strategies across Asia.

Tabb says the global downturn hit just as electronic trading was taking hold in the region, forcing many hedge funds to curtail electronic strategies or simply shutter operations.

Matt Simon, Tabb analyst and report author, says: “In the second half of 2008 there was a significant pullback leading into the first quarter of 2009. Traders saw liquidity sink.”

The research also highlights the slow rate of dark pool trading adoption in the region. Dark pools are estimated to account for at least 10% of all equity trading in the US whilst the introduction of MiFID has spurred their growth in Europe.

They are far less popular in Asia although last month Goldman Sachs launched its Sigma-X dark pool equity trading system in Hong Kong, while CLSA, Instinet and Investment Technology Group also run platforms in the region.

Yet Tabb estimates that only 3.5% of value traded will be matched off-exchange in Japan by 2010, up from 1.2% in 2008. In Hong Kong, Korea, Australia, Singapore and Taiwan, there will be just 1.5% traded off-exchange, although this compares to a paltry 0.3% in 2008.

Other trends indentified by the report include continued global expansion, which is driving connectivity to new markets such as Malaysia, Thailand and Indonesia

In addition, buy-side firms have returned to volume-weighted average price (Vwap) and trade weighted average price (Twap) strategies amidst current volatile market conditions. Meanwhile demand for transaction cost analysis is increasing with 35% of buy-side firms using some type of independent TCA.

Source: Finextra, 23.04.2009

Filed under: Asia, Australia, Exchanges, FIX Connectivity, Hong Kong, Indonesia, Japan, Korea, Malaysia, Singapore, Thailand, Trading Technology, , , , , , , , , , , , , , , , ,

Asia: Survey sees softer growth in wealth management revenues – BarCap

The industry’s bright spots are China and India, which are viewed as the most attractive markets in Asia.  See Barcleys Capital Wealth Management Report 2009

Revenue growth in Asia’s wealth management industry is expected to soften significantly during the next two years, according to a Barclays Capital survey of Asia’s leading wealth managers who between them have more than $5 trillion of assets under management.

The wealth management survey involved 123 respondents from 53 wealth management organisations in seven countries across non-Japan Asia, including asset managers, insurance companies, local and global retail banks and private banks.

In last year’s survey, around 90% of wealth managers expected revenue growth in Asia of more than 5% per annum in the coming two years, while only 41% of respondents expect such growth in this year’s survey. Worse news still, this year 18% anticipate negative returns.

China and India continue to be viewed as the most attractive markets in Asia, both in terms of potential for business expansion and for their expected revenue growth rate. A majority of wealth managers see China as the most attractive market, with a quarter of them still forecasting the country to generate revenue growth of more than 15% per annum during the next two years. Next in line is India, with a fifth of respondents still anticipating such growth.

Korea is viewed as the least attractive market in Asia, with 29% of wealth managers forecasting negative revenue growth.

This is not a surprising result, as many banks, in anticipation of lower revenues, have cut back their global wealth management staff. And Asia has not been spared.

Challenges and strategies

The key challenge facing wealth managers is how to adapt to the changing regulatory environment. “It is evident that wealth managers share the view that the financial markets will operate under significantly different regulatory conditions in future,” says Kevin Burke, head of distribution, Asia-Pacific at Barclays Capital.

Capital protection continues to be the most common product strategy. Thematic investments dropped from the second most popular product strategy last year to sixth this year, reinforcing the continuing client trend towards simple and transparent products.

The three most important product features for clients are considered to be issuer risk, capital protection and a short maturity. This is a significant shift in investor attitudes away from liquidity and growth, which have typically dominated over the past three years.

“Evidently, risk aversion is currently top of mind for investors, as demonstrated by the great importance they place on protecting their underlying capital, assessing issuer risk and short maturity products for investment flexibility,” says Peter Hu, head of non-Japan Asia investor solutions at Barclays Capital. “This risk aversion is also reinforced by a shift towards increased use of structured deposits,” he adds.

Wealth managers’ recommendations for a balanced-risk investor portfolio have an increased weighting in cash products and bonds over last year’s survey, at the expense of equities and commodities, which is in line with the trend towards capital protection. Looking ahead, a majority of respondents are expecting the allocation to non-Japan Asia equities within their balanced-risk portfolio to increase during the next six months.

The survey also shows that equity and FX remain the most popular asset classes for both flow and structured products. The use of equity has generally declined from last year as investors search for capital protection, and the use of structured products has declined across the board as investors search for simpler and more transparent products.

Source: FinanceAsia.com 20.04.2009

Filed under: Asia, Banking, China, India, Korea, News, Risk Management, , , , , , , , , , , , , ,