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TUESDAY, OCTOBER 28, 2014
BUSINESS
Hong Kong, Shanghai cross trading scheme postponed
HONG KONG: A watershed scheme to allow
cross trading between Hong Kong and
Shanghai’s stock markets has been delayed, a
Hong Kong official said yesterday, warning that
pro-democracy protests gripping the city could
impact the project’s progress. The announcement hit stocks in both cities, with Hong Kong
down 0.68 percent and Shanghai shedding 0.51
percent by the close. The Shanghai-Hong Kong
Stock Connect platform-which would enable
international investors to trade selected stocks in
Shanghai’s tightly-restricted exchange and allow
mainland investors to buy stocks in Hong Kongwas widely expected to launch this week.
But Hong Kong stock exchange chief Charles
Li said yesterday that the tie-up had been postponed, adding that the ongoing mass demonstrations demanding Beijing allow the semiautonomous city free leadership elections could
impact the future of the scheme.
“If(the protest) drags on, it’s impossible for it
not to be affected. This is important for Hong
Kong,” he told reporters. But investors have also
reportedly expressed concern about a lack of
clarity on taxation and other issues. China’s premier Li Keqiang announced plans for the project
in April and Chinese and Hong Kong authorities
issued a statement that month saying it would
take “approximately six months” to launch.
But in a statement issued late Sunday, the
stock exchange said no start date had been set for
the scheme, and it had yet to receive regulatory
approval. “There have been market expectations
that Stock Connect will commence its operation
in October 2014... However, at the date of this
announcement, HKEx has not received the relevant approval for the launch of Stock Connect,
and there is no firm date for its implementation,”
the statement said. Li said the Hong Kong bourse
does not have a say on when it can start-with regulators from both sides needing to give the goahead-although the technical infrastructure is in
place. Shen Jun, a Shanghai-based analyst with
BOC International, said the project was likely to be
delayed rather than scrapped altogether, as China
is pushing hard to open its “A-market” of shares
that are largely closed to foreign investors. “An
indefinite postponement is unlikely, as an indefinite delay means dashed hopes for the A-share
market,” Shen said. “Only opening up can bring in
the fresh foreign capital needed to invigorate the
A-share market.” He added: “It might be one or
two months late-likely it will be launched in the
second half of December.”
Confusion over tax
Media reports last week said that the Asia
Securities Industry and Financial Markets
Association (ASIFMA), representing some of
the world’s biggest banks and asset managers,
had written to Hong Kong regulators asking for
a delay because of uncertainty over the
scheme’s rules.
A spokeswoman for ASIFMA declined to comment on the reports. Shen said there was confusion about whether Chinese or Hong Kong
authorities would collect capital gains tax on
transactions from the new scheme, among other
issues. “In such circumstances the competent taxation departments need to clarify the situation,”
Shen said. “It’s possible that the competent
departments are still debating over whether or
not to collect capital gains tax, and this needs to
be made clear.”
If it goes ahead, the scheme is expected to
see volumes on both exchanges rise significantly,
particularly Shanghai, but it is subject to strict limits in order to preserve capital controls in China,
where Communist authorities keep a tight grip
on the yuan currency. Plans for a similar tie-up in
2007 sparked a surge in share prices in both
bourses but they were eventually scrapped as the
global financial crisis unfolded.
Li also told reporters at a press conference on
Sunday that he felt pro-democracy activists
should now retreat as prolonged protest could
harm the city’s overall financial stability. “I think
retreating with pride is glamorous. I think our kids
can consider that,” he added.
Thousands of protesters have taken to the
streets in fury at Beijing’s insistence that candidates running in Hong Kong’s 2017 leadership
election are screened by a loyalist committee
an arrangement critics have branded “fake
democracy”. —AFP
Egypt vows fiscal reforms,
but what about politics?
Country’s economic outlook improves to stable
SYDNEY: US Trade Representative Mike Froman (center) speaks at a press
conference for the Trans-Pacific Partnership (TPP), a pan-Pacific trade agreement by trade ministers from 12 nations in Sydney yesterday. The TPP, which
would encompass 40 percent of the global economy and include 12 nations,
has been the subject of negotiations for years. —AFP
Pacific trade talks progress
but US-Japan gap lingers
SYDNEY: Negotiations for an ambitious trade
pact among Pacific countries made significant progress over the weekend, but a gap
between Japan and the United States over
market access and other hurdles remains,
trade representatives said yesterday.
The 12-nation Trans-Pacific Partnership
(TPP) is central to President Barack Obama’s
policy of expanding the US presence in Asia
and the president has expressed hopes of
concluding a deal by the end of the year.
“There is no prospect for an agreement on
market access (between Japan and the U.S.)
at the moment,” Japanese Economics
Minister Akira Amari told a news conference
in Sydney.
“I expect we will reach results that satisfy
both (countries),” he said, adding that they
would hold further talks. An agreement
between Tokyo and Washington is crucial to
securing the broader pact as other partners
are reluctant to commit until they see how
the two resolve their differences, particularly
over access to each other’s markets for
industries such as agriculture and automobiles.
Australian Trade Minister Andrew Robb,
who hosted the meeting, said the shape of
an “ambitious, comprehensive, high standard and balanced deal” was forming. “There
is a real sense that we are within reach of the
finish line and the prize does look very
attractive,” Robb said, describing the negotiations as at the “compromise stage”.
“We are seeing a preparedness to make
some of the difficult decisions. This includes
some of the key issues that we’ve been circling for a long time in the whole IP (intellectual property) area and market access and
state-owned enterprises and other areas.”
The United States insists that Japan lower
barriers to agricultural imports, but Japan
wants to protect sensitive products, including pork, beef, dairy and sugar.
“We made substantial progress but there
certainly are issues that remain,” US Trade
Representative Michael Froman said. “We’ve
not yet reached a final agreement on a market access package and therefore there is
more work to be done before we can say
that we are satisfied with market access.”
Other outstanding issues include intellectual property rights, particularly on products
such as pharmaceuticals, environmental
protections and country-specific issues
around state-owned enterprises. —Reuters
Demand for loans in euro-zone
slowly stabilizing: ECB data
FRANKFURT: A day after the European
Central Bank gave most euro-zone
banks a clean bill of health, new data
were published suggesting that
depressed demand for loans in the single currency area could be stabilizing.
The ECB compiles monthly statistics
on loans to the private sector, which
are a key gauge of economic health
and particularly closely watched at the
moment since chronic weakness in
credit is seen as the main hurdle to a
more sustained recovery in the single
currency area.
The ECB’s latest data showed that in
September, loans to the private sector
in the euro area, fell by 1.2 percent
year-on-year in September, but that
was a slower rate than the 1.5-percent
decline seen in August. At the same
time, the ECB calculated that growth of
the overall euro-zone money supply-a
barometer for future inflation-picked
up.
The two sets of data provided some
room for encouragement, analysts
said. “The ECB may take a little heart
from a further limited pick-up in eurozone money supply growth in
September, signs that bank lending to
businesses is now falling at a reduced
rate and another moderate rise in
lending to households,” said IHS Global
Insight economist Howard Archer.
On Sunday, the results of the ECB’s
latest stress tests cleared all but 25 of a
total 130 banks as having adequate
capital and being soundly based. The
assessment was broadly well received
on financial markets yesterday,
because it could raise confidence in
the banking sector and allow banks,
which have been strengthening their
financial base to pass the tests, some
extra margin for manoeuvre to lend if
and when loan demands picks up.
No all-clear yet
“Overall, today’s data depicts a pic-
ture of a gradual pick-up in monetary
momentum in the euro area,” said
BayernLB economist Johannes Mayr.
But loans to companies “are stabilizing
only slowly and we still won’t see any
substantial loan momentum for the
foreseeable future,” Mayr said.
Archer at IHS Global Insight said the
new data “may be a sign that the stimulative measures announced by the
ECB in June and September are starting to have some positive impact,
although it will clearly take time for all
the measures to be enacted and take
full effect.”
The ECB has cut it key interest rates
to new all-time lows and unveiled multiple programs to pump cash into the
euro-zone economy. Nevertheless, the
loan data were “still hardly a robust set
of data and the ECB certainly cannot
start to relax yet on the bank lending
and money supply front,” Archer
warned.
“The ECB will now be fervently hoping that the results of its European
bank stress tests lift confidence in the
euro-zone banking system and that
this encourages banks to lend more, in
tandem with the ECB’s stimulus measures,” Archer said.
Berenberg
Bank
economist
Christian Schulz said that “even ahead
of the completion of the ECB’s asset
quality review, the euro-zone’s long
absent credit cycle was beginning to
show signs of life.” With the ECB stress
tests now completed and passed by
most banks, that “could inhale new life
into the credit c ycle in coming
months,” Schulz said.
“After spending great resources on
the assessment in most of 2014, banks
can now focus on their business again
and take on new risks. Even if it will still
take time to restore confidence
between banks that should help further gradual progress in credit availability,” Schulz concluded. —AFP
CAIRO: From mega-projects to tax
reforms, Egyptian ministers presented
detailed initiatives last week to revive an
economy battered by three years of
upheaval and decades of neglect.
Quizzed about Egypt’s political challenges, however, they had less to say.
With cameras rolling, eight Egyptian
ministers opened their doors to journalists for the Reuters Middle East
Investment Summit last week; that
accessibility was itself a change from
past decades when contact was limited
and officials were aloof. Previous administrations made big promises on the
economy but rarely delivered, critics say.
Discontent with their apparent detachment helped trigger a revolt in 2011 that
toppled officer-turned-president Hosni
Mubarak after 30 years in power.
Marking themselves out from predecessors, the ministers spoke with candor
about the enormity of the challenges
facing Egypt and in detail about solutions. They have already implemented
subsidy cuts and tax reforms that previous governments shied away from for
fear of fuelling discontent.
Those moves helped persuade
Moody’s to change Egypt’s outlook from
negative to stable this month, but
beyond vows to hold long-awaited parliamentary polls and restore stability, talk
of political reforms was general at best.
Asked how Egypt could hope to lure
back investors without implementing
political reforms, Telecoms Minister Atef
Helmy said: “Trust us as Egyptians; we
really look for peace. We look for stability.
We look for the welfare of our citizens...
but we need people to know their
boundaries... There is a big difference
between freedom and terrorism.”
The stakes are high in Egypt, where
militants have stepped up attacks on
police and soldiers in the Sinai Peninsula
since former army chief Abdel Fattah AlSisi ousted elected president
Mohammad Morsi of the Muslim
Brotherhood more than a year ago. A
day after Finance Minister Hany Kadry
Dimian told Reuters about his plans for
tax reforms and debt reduction, at least
33 security personnel were killed in
some of the worst anti-state violence
since Morsi’s removal.
Egypt moved swiftly to declare a
temporary state of emergency in
northern Sinai and extended military
trials to civilians who attack state facilities or block roads, raising fears of a
return to authoritarianism. Sisi, who
won a presidential election in May, has
already cracked down on the
Brotherhood. Thousands of its members have been detained many sentenced to death in mass trials that have
drawn criticism from Western governments and rights groups.
Stabilization
Despite the recent turbulence, multinationals have largely remained in
Egypt, which continues to offer relative
calm in a region consumed by conflict in
Libya, Iraq, Syria and elsewhere.
Many Egyptians have tolerated what
critics describe as widespread human
rights abuses, hoping that Sisi would
stabilize Egypt after the turmoil that followed Mubarak’s fall. But how long their
patience will last is an open question.
“While investor confidence has
improved thanks to the relative stability
brought about by the Sisi presidency,
ongoing political polarization, insecurity
idential vote in May.
During a visit to Cairo yesterday, US
Treasury Secretary Jacob Lew welcomed
what he described as Egypt’s “strong initial steps” toward economic reform but
urged more political openness.
“We discussed the rule of law and
how creating an open political environment in which individual rights are fully
respected would further bolster Egypt’s
ability to attract international investment,” Lew told reporters in Cairo.
Military’s role
On the economy, Egyptians are
closely watching Prime Minister Ibrahim
Mehleb’s performance on employment
and housing, issues that helped foment
the anger behind the 2011 uprising.
not dominate or control it.
Housing Minister Mustafa Madbouly,
whose ministry is working to meet ballooning demand and find a solution to
the country’s informal settlements, said
the army could also run parallel development programs. When Arabtec
Holding, Dubai’s largest listed construction firm, agreed to build one million
houses in Egypt in a $40 billion project,
it partnered directly with the army
rather than the government.
“The military has its own economic
and financial arms which also have the
right to do this,” said Helmy. The military,
whose budget is shielded from public
scrutiny, has a business empire ranging
from automobiles to computers.
Estimates of the size of its profit-making
CAIRO: US Treasury Secretary Jacob Lew (left) and Egyptian Finance Minister Hany Dimian address
reporters during a joint press conference at the Egyptian Ministry of Finance in Cairo yesterday. —AP
and structural economic challenges
complicate investor decision-making,”
political risk analysts Maplecorfit said in
a recent report on Egypt.
Asked about a new draft law regulating non-governmental organizations
(NGOs) that human rights groups fear
will restrict their activities and funding,
Social Solidarity Minister Ghada Wali
gave no details on its contents. She
promised the draft would be circulated
before going to parliament but in the
meantime has insisted groups register
under an unpopular Mubarak-era law,
raising fears that those working on
advocacy or human rights would face
persecution. Parliamentary elections are
the final step in the roadmap set out by
Sisi after Morsi’s ouster, but without a
date set they could miss the plan’s selfimposed deadline. They were due to
take place within six months of the pres-
Mehleb was realistic about how quickly
problems that had built up over decades
could be resolved, urging patience.
“In economics, we began to open all
the files that were not opened. We don’t
hide anything from the people,” he told
Reuters. “This is not a cosmetic operation or making something just look
beautiful. We are fixing from the roots.”
But even among major infrastructure
projects, some of which are set to be
showcased to investors at an economic
summit in February, the changes are not
as deep-rooted as they appear.
Egypt’s military, which has long
played a key role in the economy, is taking a leading role in a multi-billion dollar
project to expand the Suez Canal. A new
company being created to upgrade
Egypt’s telecoms and internet infrastructure will also involve military-owned
firms, though Helmy said they would
operations range from a few percent up
to nearly half of the economy.
Some see the army as more efficient
than the government, and ministers
point out that it sub-contracts much of
its work to private firms, but critics say it
crowds out the private sector and hampers growth. Asked what had really
changed in Egypt, with the Brotherhood
back underground after a brief taste of
power and a former general back in the
presidency, Investment Minister Ashraf
Salman had a simple answer:
“Egyptians”.
“The big change that’s coming this
time is coming from Egyptians,” he said.
“They will not accept anymore somebody to be like Mubarak to stay in power for 30 years. They will not accept anymore a minister like myself to stay on
this seat for 20 years. They will never
accept that.” —Reuters
Test hits Italian and some German banks
FRANKFURT: Italian bank shares were hit hard yesterday as investors got their first chance to react to
the results of Europe’s far-reaching review of banks,
which mainly flunked a few smaller financial groups
in economically weaker countries. But as traders
sifted through the masses of data, the test also
raised questions about several banks in Germany.
Though they passed the main test whose results
were published Sunday, they fell short on a tougher
measure of financial strength that will apply in
coming years. A key index of banking stocks, the
Stoxx Europe 600 Banks, fell 1.47 percent in early
afternoon trading amid generally falling shares.
Overall, the test found Europe’s big banks had
strong enough finances to weather a sharp economic downturn scenario. The test, conducted by
the European Central Bank and the European
Banking Authority, first checked the value of bank
loans and holdings. Then their finances were subjected to a stress test to simulate how their finances
would hold up in a downturn.
Many banks increased their financial buffers
ahead of the test, knowing it was coming. As a
result, 12 of the 25 had already covered their financial gaps found by the ECB, and several of the
remaining 12 had only small amounts to raise.
The test is a prelude to the ECB formally taking
over as the main banking supervisor for the coun-
PARIS: (From left), AXA CEO Henri de Castries, French Finance Minister Michel Sapin
and the CEO of French real estate company Nexity, Alain Dinin arrive for the memorial
service for Total’s CEO Christophe de Margerie at the Saint-Sulpice church in Paris yesterday. Christophe de Margerie died in a plane accident in Russia on October 20. —AFP
tries that use the euro. Here are the key takeaways
from the banking review and the market reaction.
Italian banks flunked
Shares in Italian bank Monte dei Paschi di Siena
sagged 18 percent before they were suspended
from trading. It had the biggest capital shortfall,
2.11 billion euros ($2.67 billion). The bank’s board
met Sunday and said it had hired advisers to
“explore all strategic alternatives.” That could
include a share issue, which tends to hurt the share
price because it dilutes its value.
Others that needed much smaller amounts of
capital were Banca Carige, Banca Popolare di
Milano, and Banca Popolare di Vicenza. The results
raised questions about how tough Italy’s central
bank has been as an overseer. “This puts a cloud
above the Bank of Italy’s reputation as a supervisor,”
analyst Nicolas Veron of the Bruegel think tank in
Brussels wrote in an analysis.
Trouble in Germany
Germany’s biggest banks, Deutsche Bank and
Commerzbank, passed the tests. But several smaller
ones - Germany’s HSH Nordbank, DZ Bank and
WGZ Bank - passed the basic test, but fell short on a
tougher measure of capital adequacy that will be
phased in in coming years under an international
agreement called Basel III. HSH Nordbank, which is
jointly majority owned by the city of Hamburg and
the region of Schleswig Holstein, has specialized in
ship finance, a business hard hit by losses and bad
loans. The bank remains in compliance with current
capital rules.
CEO Constantin von Oesterreich said in a statement that the test “confirmed that HSH Nordbank
has a solid capital base in the present setting.” —AP