Bamboo Innovator

Following defaults, Chinese Banks Cut Back on wealth-management products which grew from close to zero a few years ago to $1.2 trillion has rung alarm bells about growing risks for banks and retail investors

Updated May 27, 2013, 5:53 p.m. ET

Chinese Banks Cut Back on Wealth-Management Products

BEIJING—New rules aimed at reducing risks in China’s financial-services industry have dented the appeal of high-yield alternatives to deposits and threaten to crimp profits for banks.

Bank issuance of wealth-management products—retail investments that offer some of the security of deposit accounts but higher yields—dropped 8.8% in April from March, according to Cnbenefit, a research firm in the city of Chengdu. The average yield edged down to 4.3% in May from 4.4% in March, Cnbenefit said.

A default on a product sold by Huaxia Bank last year fanned concerns over inadequate disclosure and opaque investment structures.

China’s banking regulator introduced strict new rules in March governing where wealth-management products can be invested, how assets are managed, and standards of disclosure to investors. The rules give China’s banks until the end of the year to reduce the share of wealth-management products invested in illiquid assets to 35% of wealth products, or 4% of total assets. If they don’t, they could be forced to make moves that reduce their profitability, such as allocating more capital to back those assets.

The prospect of lower growth in the sector, combined with reduced returns and higher management costs, gives China’s banks with an unpalatable choice: reduce returns to investors and risk losing market share, or keep returns high and accept lower margins.

Smaller banks could be particularly hard hit. Small and medium-size banks collectively have a 60% share of the wealth-management market, and 15% of their products are in breach of the new rules, according to estimates from Bernstein Research. Read more of this post

Power struggle in Beijing leaves China Investment Corp (CIC) leaderless; Empty chair in sovereign wealth fund’s corner office worries investment industry observers and casts shadow over economic reform plans

Power struggle in Beijing leaves CIC leaderless

Monday, 27 May, 2013, 12:00am

George Chen george.chen@scmp.com

Empty chair in sovereign wealth fund’s corner office worries investment industry observers and casts shadow over economic reform plans

China’s US$480 billion sovereign wealth fund may well have to wait a few more months before it gets its new chairman, thanks to a power struggle in Beijing.

The chairman’s office at China Investment Corp (CIC) has been empty for about three months since former chairman Lou Jiwei , who helped establish CIC in 2007, was promoted to become finance minister as part of the Communist Party’s once-a-decade leadership transition earlier this year. Read more of this post

As the economy slows and midtier brands lose favor with consumers who are switching to premium brands and to shopping online, China’s retail sector is changing

Updated May 27, 2013, 11:07 a.m. ET

Change Afoot for Investors in China’s Retail Sector

By CHAO DENG

As the economy slows and midtier brands lose favor with consumers who are switching to premium brands and to shopping online, China’s retail sector is changing. The result is that private-equity firms that once bet on sky-high consumer growth are now buying into restructuring situations or into companies that cater to more-sophisticated tastes. “Going from a founder focused on growth to a team focused on modern management techniques is a hard curve for Chinese companies,” said André Loesekrug-Pietri, chairman of private-equity firm A Capital, which has invested in the sector. “Retail is not only about branding and fast growth but about efficient inventory management and logistics.” Read more of this post

South Korea’s Plastic Surgery Fad Goes Extreme

South Korea’s Plastic Surgery Fad Goes Extreme

By Jung Ha-Won on 10:56 am May 27, 2013.

Seoul. South Korea’s obsession with plastic surgery is moving on from standard eye and nose jobs to embrace a radical surgical procedure that requires months of often painful recovery. A stream of celebrities boast on TV shows how it gave them a “new life,” while advertisements extolling its cosmetic benefits are everywhere from street billboards to subway stations, magazines and popular Internet sites.

But there’s nothing really “cosmetic” about double-jaw surgery. A radical solution to congenital facial deformities or for people unable to chew properly due to excessive over or underbite, the operation involves realigning the upper and lower jaws. Read more of this post

Korean chaebols including Samsung tense over economic bills; restrictions of shareholders’ voting rights could have a major impact on its web of cross shareholdings among affiliates

2013-05-27 17:10

Chaebol tense over economic bills

By Jun Ji-hye
Ruling Saenuri Party and main opposition Democratic Party (DP) will open an extraordinary session on June 3 to handle bills on key economic issues.
Conglomerates and financial firms are paying keen attention on which bills will be legislated into laws as they will influence their business substantially.
Both parties have in principle agreed to handle bills aimed at removing unfair business practices by chaebol. However, they have yet to narrow differences on key issues before passing them.
One of the sensitive bills on “economic democratization” is the one to restrict voting rights of major shareholders of financial companies if they are caught embezzling corporate funds. Read more of this post

Korean chaebol CJ, Home Plus and other large companies received the lowest rating in terms of relationship with SME

2013-05-27 17:03

Home Plus, CJ among worst in SME relationship

By Yi Whan-woo
Home Plus and seven other large companies received the lowest rating from a corporate watchdog on Monday in terms of relationship with smaller business groups.
Also on the list were CJ O Shopping, Hyundai Home Shopping, Hyundai Department Store, KCC Corp., STX Heavy Industries, LSIS and Kolon Global.
The National Commission for Corporate Partnership (NCCP) made the evaluation of 73 firms on the basis of a survey of some 9,500 small- and medium-sized enterprises (SMEs).
They were the subcontractors of those large firms. Read more of this post

Why Turkey is Thriving; There is nothing flashy about Turkey’s rise, which has been based on fundamentals, rather than bubbles or resource discoveries

Jeffrey D. Sachs, Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University, is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals. His books include The End of Poverty and Common Wealth.

Why Turkey is Thriving

27 May 2013

NEW YORK – A recent visit to Turkey reminded me of its enormous economic successes during the last decade. The economy has grown rapidly, inequality is declining, and innovation is on the rise.

Turkey’s achievements are all the more remarkable when one considers its neighborhood. Its neighbors to the west, Cyprus and Greece, are at the epicenter of the eurozone crisis. To the southeast is war-torn Syria, which has already disgorged almost 400,000 refugees into Turkey. To the east lie Iraq and Iran. And to the northeast lie Armenia and Georgia. If there is a more complicated neighborhood in the world, it would be difficult to find it. Read more of this post

Sony’s Bread and Butter? It’s Not Electronics; selling life, auto and health insurance accounts for 63 percent of Sony’s total operating profit

May 27, 2013

Sony’s Bread and Butter? It’s Not Electronics

By HIROKO TABUCHI

TOKYO — Sony is best known as a consumer electronics company, making PlayStation game consoles and televisions. And it loses money on almost every gadget it sells.

Sony has made money making Hollywood movies and selling music. That profitable part of the business is what Daniel S. Loeb, an American investor and manager of the hedge fund Third Point, wants Sony to spin off to raise cash to resuscitate its electronics business.

But as Mr. Loeb pressures Sony executives to do more to revive the company’s ailing electronics arm, some analysts are asking, Why bother?

Sony, it is suggested, might be better off just selling insurance. Or just making movies and music. But not electronics. Read more of this post

Financial innovation for once works for the investor

Financial innovation for once works for the investor

Posted by: abnormalreturns, May 27th, 2013 at 4:08 pm

True, long-lasting innovations ares a rare thing in the world of finance. In my book I argue that the introduction of the ETF or exchange-traded fund was exactly that. It has taken two some decades but we are now seeing real changes in how people invest due to ETFs. I wrote:

Like all upheavals, the ETF revolution has both its benefits and its drawbacks. On the whole, ETFs have made investing easier, more diverse, and cheaper. On the other hand, the introduction of ETFs has changed the actual underlying nature of some markets, and the rapid introduction of new ETFs has diluted the benefits seen early on. Unlike many revolutions, we are not likely to see a counterrevolution unseating the ETF regime any time soon.

You can see how the introduction of ETFs has driven the adoption of “broadly diversified, low-cost portfolios.”Joe Davis and Andy Clarke at the Vanguard Blog compare the rise of these portfolios to other “great ideas. They write:

The adoption of great ideas typically follows an “S” curve, starting slowly, then accelerating. Eventually, the great idea becomes commonplace. The adoption of the “broad low-cost portfolio” seems to be following this pattern.

Source: Vanguard. Adapted from Visualizing Economics and The New York Times. Vanguard calculated the growth in the low-cost portfolio based on data from Morningstar, Inc. The calculation represents the percentage of U.S. mutual fund and ETF assets under management with annual expense ratios of less than 25 basis points.

They note that we are still in the “second or third” inning of this process. Of course there is a limit as to just how much of the asset management industry can (or will) shift towards this approach. To be clear the definition of these portfolios is low cost, not necessarily indexed. In any event if too much money becomes indexed there should be a resulting increase in opportunities to generate alpha. Read more of this post

U.S. securities regulators are turning back toward Main Street, renewing their focus on accounting fraud and other financial-disclosure failings

May 27, 2013, 5:56 p.m. ET

Accounting Fraud Targeted

With Crisis-Related Enforcement Ebbing, SEC Is Turning Back to Main Street

By JEAN EAGLESHAM

U.S. securities regulators are turning back toward Main Street, renewing their focus on accounting fraud and other financial-disclosure failings.

Such cases were long a staple of the Securities and Exchange Commission’s enforcement efforts, leading to more than 25% of civil-enforcement actions filed by the agency in its 2003 to 2005 financial years. The financial crisis shifted attention and money elsewhere. In the year ended last September, accounting fraud and financial-disclosure problems made up just 11% of SEC enforcement actions. Read more of this post

Over-optimism raises risk of global recession

Over-optimism raises risk of global recession

In April 2010, the International Monetary Fund’s World Economic Outlook offered an optimistic assessment of the global economy, describing a multi-speed recovery strong enough to support roughly 4.5 per cent annual GDP growth for the foreseeable future — a higher pace than during the bubble years of 2000-2007.

27 MAY

In April 2010, the International Monetary Fund’s World Economic Outlook offered an optimistic assessment of the global economy, describing a multi-speed recovery strong enough to support roughly 4.5 per cent annual GDP growth for the foreseeable future — a higher pace than during the bubble years of 2000-2007.

But, since then, the IMF has steadily pared its economic projections. Indeed, this year’s expected GDP growth rate of 3.3 per cent — which was revised downward in the most recent WEO — will probably not be met.

Persistent optimism reflects a serious misdiagnosis of the global economy’s troubles. Most notably, economic projections have vastly underestimated the severity of the eurozone crisis, as well as its impact on the rest of the world. And recovery prospects continue to depend on the emerging economies, even as they experience a sharp slowdown. The WEO’s prediction of a strengthening recovery this year continues the misdiagnosis. Read more of this post

Li Says China Confronts ’Huge Challenges’ as Growth Levels Slow

Li Says China Confronts ’Huge Challenges’ as Growth Levels Slow

Chinese Premier Li Keqiang said his country is confronted by “huge challenges” as it opens up the economy and that the new government’s reform measures will be accompanied by tapered-off levels of growth.

Speaking in Berlin during his first trip abroad as premier, Li said the Chinese government will move forward with market-oriented reforms to generate stable growth after the economy unexpectedly slowed in the first quarter. Read more of this post

Asia seen as least creditworthy relative to their global peers

‘Asia seen as least creditworthy relative to their global peers’

Published: 2013/05/28

BEIJING: Borrowers in Asia are seen as the least creditworthy relative to their global peers in almost a year on signs of faltering growth in China.

The Markit iTraxx Asia index of credit-default swaps traded as much as 20 basis points higher than the average of four others from around the world this month, the biggest premium since June, according to data provider CMA. As recently as March, Asian borrowers were seen as better credits than the rest of the world.

Confidence in Asia is being dented by slowing growth in the region’s biggest economy, where manufacturing is contracting for the first time in seven months.  Read more of this post