BULLISH VISION | Page 9 WALL ST | Page 24 Brexit no issue Main indexes for UK-China suff er the worst trade relations week in 2 years

Sunday, February 4, 2018 Jumada I 18, 1439 AH BUBBLE CONCERNS: Page 4 GULF TIMES Bitcoin ban expands across credit cards BUSINESS as US banks recoil Qatar district cooling industry seeks to build on growth: OBG atar’s district cooling industry is third, which caters to The Pearl-Qatar company also operates a 37,000-TR With the comparatively recent in- seeking to build on high growth district, has a capacity of 130,000 TR, capacity plant that will serve the 6000 troduction of district cooling technol- Qwith a wave of fresh investment, making it the largest plant of its kind in units of the Barwa City development ogy, the regulatory management of the Oxford Business Group (OBG) has said the world. north of Doha, scheduled for comple- sector may continue to evolve. There in a report. Additionally, the company is build- tion later this year. are some concerns that having district The industry’s cooling capacity – ing a fourth plant, also located in the Other key sites across the country, cooling mandates and/or exclusiv- measured in tonnes of refrigeration West Bay district, which is expected to including the newly opened Hamad In- ity in certain areas could reduce cool- (TR) – has expanded signifi cantly in add another 40,000TR of cooling ca- ternational Airport operate their own ing capacity and increase costs, with recent years, rising from 25,700TR in pacity upon completion. district cooling systems. government ownership of the network 2007 to around 485,000TR last year, “Due to the increased demand we For its part, the Msheireb Downtown seen as an alternative. The government according to Qatar General Electricity have seen in West Bay, we are con- Doha project switched on the fi rst of acting as a single buyer could help to & Water Corporation (Kahramaa). structing our third plant in the same two plants last year, which will have overcome legacy issues in the industry, The sector’s rapid expansion is due in district, with the fi rst phase expected combined capacity of 29,250TR once and benefi t both producers and con- part to the fact that district cooling is a to be completed early next year and full fully operational. sumers in the form of tariff stability relative newcomer in Qatar, OBG said in completion of the plant scheduled for Despite the rising popularity of dis- and controls. its ‘The Report: Qatar 2017’. the end of 2016,” Yasser Salah al-Jaid- trict cooling, the industry’s capital- District cooling continues to play The country’s largest operator, Qatar ah, CEO of Qatar Cool, told OBG. intensive nature can present challenges a signifi cant role in achieving the en- Cool, was established in 2003 and now A second operator, Marafeq Qatar, for operators. Contracts are generally ergy goals laid out in the QNV 2030. operates three plants with a combined entered the market in 2012 and now 20 years in length, with cost savings The plan’s fourth pillar, which covers capacity of 197,000TR. Two of its fa- runs a 5000-TR plant in Lusail City, projected over the long term. “The environmental development, targets cilities serve the West Bay district, pro- with the facility expected to increase capital costs for district cooling are ex- the adoption of more environmentally The Hamad International Airport operates its own district cooling ducing a combined 67,000TR, while the its capacity to 300,000TR by 2022. The tremely high,” al-Jaidah told OBG. friendly technology. system Gulf Times 2 Sunday, February 4, 2018 BUSINESS

Macron pledges investment for Etihad scrambling to Tunisia economy Reuters Tunis

France’s President Emmanuel Macron said last week he would push to double French invest- ment in Tunisia over five years to buttress its shore up $1.2bn bonds faltering economy and transition to democracy. In a speech to parliament in Tunis, Macron paid lengthy tribute to Tunisia’s 2011 revolution, the first of the Arab Spring uprisings, and to its ef- forts to build a democratic system, saying they remained an example for a troubled region. “The challenge which is yours today is to transform this cultural and democratic spring before coupon crunch into a political, economic and social spring,” that benefited all social classes, he said. Reuters ceeds of which were used to enter Macron’s visit comes less than a month after pro- Dubai into separate debt obligations with tests erupted in towns and cities across Tunisia, each entity involved, with those of triggered by price and tax hikes. Alitalia and Air Berlin each amount- Though Tunisia has won praise for political com- tihad Airways is urgently ex- ing to around 19%. promises and a 2014 democratic constitution, amining ways to avert a tech- Until now a credit enhancement successive governments have failed to resolve Enical default of some $1.2bn in mechanism has covered coupon deep economic and social problems including bonds indirectly linked to the Gulf payments which were due to be paid high youth unemployment and marginalisation airline, sources close to the situa- by the defaulting airlines, but if this in the country’s interior. tion told Reuters. “liquidity pool” is used to pay cou- As Macron visited, protesters calling for jobs An Amsterdam-based special pons due in March and June it will brought all production in the country’s declining purpose vehicle called SPV Equity drop below 75% of the original bal- phosphate industry to a halt by staging sit-ins at Alliance Partners (EAP) was set up ance. plants, an off icial said. in 2015 and issued two bonds for This would trigger a “remarketing Macron told lawmakers they had a “vast respon- Etihad and other airlines it partially event” in which defaulted debt obli- sibility” to ensure that “nothing that has been owned at the time, including Ali- gations would be auctioned for cash, undertaken in the last few years is weakened or talia and Air Berlin, which are both according to the documentation of overturned”. now insolvent. the EAP bonds, a $700mn bond ma- Holding delayed local elections, fighting cor- The bonds are quoted at a dis- turing in 2020 and a $500mn bond ruption and reforming public services were all count of more than 25 cents on the due to be repaid in 2021. crucial to bolster democracy, he added. dollar after Alitalia entered special Etihad spent billions of dollars on To support job creation, France aimed to double administration and Air Berlin fi led airline acquisitions that failed to de- the rate of private sector investment over the five for bankruptcy protection last year. liver expected returns. years of Macron’s term, which ends in 2022. Etihad could now end up spend- The state-owned airline once “A number of companies have already confirmed ing hundreds of millions of dollars owned minority stakes in eight oth- their willingness to invest,” Macron said, without to keep the bond structure alive, al- er carriers. naming any. though it is not legally obliged to do At the time of the bond issues French direct investment in Tunisia was worth so as there is no cross-default pro- through EAP, they were seen as A file picture taken on October 14, 2012 shows the Etihad Airways headquarters in the Emirati capital Abu Dhabi. 3.3bn dinars ($1.39bn) in 2016, making it the vision in the bond documentation, strengthening Etihad’s partnerships Etihad is urgently examining ways to avert a technical default of some $1.2bn in bonds indirectly linked to the Gulf second biggest foreign investor behind the UAE, the sources said. with the other airlines. airline, sources close to the situation told Reuters. according to figures from the French economy With more than $400mn of EAP However, it has since sold two, ministry. debt in the hands of UAE investors, while Alitalia and Air Berlin have are straightforward, the sources EAP, equivalent to $235mn. But ing Alitalia’s debt in the EAP bonds, Macron had pledged more than €270mn there is political and reputational declared insolvency. Etihad posted said, but Etihad could reach one this was signed before Alitalia’s as it could be used by the adminis- ($335mn) in new financing for Tunisia last pressure on the Abu Dhabi carrier to its fi rst loss in six years in 2016 and over the next few weeks and one workers rejected a restructur- trator to repay Alitalia’s more senior Wednesday, as he began his two-day state visit. avoid a default in March and Etihad began a strategic overhaul. idea being considered, two sources ing plan for the Italian carrier in creditors. Alitalia did not respond to In his speech to parliament, Macron also said is holding internal talks to assess Last month it pulled its Airbus said, is that Etihad could buy Alita- early 2017, leading the company to a request for comment. France would put all its energy into finding a whether and how to support the freighter fl eet from service and lia’s mini-bond within EAP. bankruptcy. Another option might be for Eti- solution to the conflict in neighbouring Libya and bonds, the sources said. asked some pilots to take unpaid Etihad agreed at the end of With Alitalia now under admin- had to pay directly into the EAP would push for elections to be held there by the An Etihad spokesman declined leave. 2016 to repay the principal of Ali- istration, it is not clear whether the bonds’ liquidity pool, to guarantee end of the year. to comment on the bonds, the pro- None of the potential solutions talia’s portion of debt issued by agreement would succeed in repay- coupon payments.

Gulf Times 4 Sunday, February 4, 2018 BUSINESS Bitcoin ban expands across credit cards as big US banks recoil

Bloomberg New York

growing number of big US credit-card Bitcoin is the ‘biggest bubble issuers are deciding they don’t want to Afi nance a falling knife. JPMorgan Chase & Co, Bank of America Corp in human history’: Roubini and Citigroup Inc said they’re halting purchases of bitcoin and other cryptocurrencies on their credit cards. JPMorgan, enacting the ban yes- “Dr Doom” isn’t mincing his words when it more than 1,300 cryptocurrencies or initial coin terday, doesn’t want the credit risk associated comes to the crypto boom and bust. off erings, and “most of them are even worse” with the transactions, company spokeswoman Nouriel Roubini of Roubini Macro Associates than the largest digital token. These constitute Mary Jane Rogers said. said bitcoin is the “biggest bubble in human “a bubble to the power of two or three,” he said. Bank of America started declining credit card history” and this “mother of all bubbles” is Blockchain has “been around for 10 years, and transactions with known crypto exchanges on finally crashing, in an interview with Tom the only application is cryptocurrencies, which Friday. The policy applies to all personal and Keene and Francine Lacqua on Bloomberg is a scam,” the New York University economist business credit cards, according to a memo. Television. added. It doesn’t aff ect debit cards, said company Bitcoin dropped below $8,000 Friday, a 60% In another salvo aimed at crypto bulls, bitcoin spokeswoman Betty Riess. tumble from its peak of $19,511 on December 18. is an “environmental disaster,” he said, citing its And late Friday, Citigroup said it too will It isn’t just bitcoin, Roubini added. There are soaring energy costs. halt purchases of cryptocurrencies on its credit A collection of bitcoin, litecoin and ethereum tokens sit in this arranged photograph in Danbury, UK. cards. “We will continue to review our policy as A growing number of big US credit-card issuers have said they’re halting purchases of bitcoin and UBS warns employees on tighter crypto trading rules this market evolves,” company spokeswoman other cryptocurrencies on their credit cards. Jennifer Bombardier said. UBS Group may require staff to seek and thus disclosure and pre-clearance is Allowing purchases of cryptocurrencies can Bitcoin has lost more than half its value since tal One Financial Corp and Discover Financial approval before trading cryptocurrencies not required” in most cases, UBS told staff create big headaches for lenders, which can be December 18, falling below $8,000 on Friday Services previously said they aren’t supporting in their personal accounts, bringing its this week in a memo seen by Bloomberg left on the hook if a borrower bets wrong and for the fi rst time since November. The drop the transactions. policy on whipsawing virtual money and confirmed by the Zurich-based lender. can’t repay. There’s also the risk that thieves will occurred amid escalating regulatory threats Mastercard Inc said last week that cross- into line with its rules on dealing other The bank is considering implementing abuse cards that were purloined or based on sto- around the world, fear of price manipulation border volumes on its network – a measure of securities. “additional rules and requirements,” len identities, turning them into crypto hoards. and Facebook Inc’s ban on ads for cryptocur- customer spending abroad – have risen 22% this “At present the Global Policy on Personal including an obligation for staff to seek Banks also are required by regulators to moni- rencies and initial coin off erings. year, fuelled partly by clients using their cards to Investment is silent on cryptocurrencies permission before trading, the memo said. tor customer transactions for signs of money Now, cutting off card purchases could exacer- buy digital currencies. The fi rm warned that the laundering – which isn’t as easy once dollars are bate those pressures by making it more diffi cult trend already was beginning to slow as crypto- converted into digital coins. for enthusiasts to buy into the market. Capi- currency prices fell.

BT bet on Apple’s most expensive iPhone has yet to pay off

BT Group chief executive off icer Gavin Patterson bet big on Apple’s most expensive iPhone. The wager has yet to pay off , according to Bloomb- erg. After spending millions on commercials featur- ing actor Kevin Bacon and singer Ed Sheeran to advertise new Apple products, BT’s mobile unit EE posted only small quarterly customer gains. Some analysts had hoped for a bigger payback from subsidising the purchases of the £1,000 ($1,422) Apple iPhone X and £400 Apple Watch 3. Compounding that weakness was another revenue slide at BT’s global services division, the IT unit it’s been trying to turn around for months, slower growth in the broadband business and evidence of slim order books in the wholesale and business divisions. The stock slid the most in a year. “Overall, the company is losing some steam,” said Stephane Beyazian, a Raymond James analyst in London. Apple on Thursday reported lower sales of iPhones than a year earlier, but eased investor wor- ries by showing solid demand for the iPhone X. IPhone ‘super cycle’ pronounced dead as handset market tumbles

Bloomberg San Francisco

The iPhone “super cycle” – a wave of upgrades and new customers that was supposed to wash over Apple Inc this year with the introduction of its model X – was pronounced dead on arrival. In Apple’s first earnings report since the launch of the pricey flagship smartphone, the company re- ported lower-than-expected handset sales from the holiday period. Chief financial off icer Luca Maestri also forecast a decline in the average selling price of iPhones in the current quarter, suggesting the most-expensive models aren’t as popular. The results are part of a broader malaise in the glo- bal smartphone industry. Shipments in the fourth quarter dropped 9%, year over year, the biggest decline in history, according to Strategy Analytics. “The super cycle is dead,” Steven Milunovich, an analyst at UBS, wrote in a note to investors on Friday. Apple shares fell as much as 4.1% Friday to $160.88, the biggest intraday decline in more than six Tim Cook, chief executive off icer of Apple, speaks about the iPhone X during an event at the months. The stock is down 4% so far this year. Steve Jobs Theater in Cupertino, California, on September 12, 2017. In Apple’s first earnings report “The verdict is in: relative to expectations, the cycle since the launch of the pricey flagship smartphone, the company reported lower-than-expected is weak, and total iPhones sold are likely to be flat handset sales from the holiday period. for the third straight year,” Toni Sacconaghi, an ana- lyst at Sanford C Bernstein, wrote in a note to inves- each year, Milunovich added. Indeed, chief execu- Cook advised against looking at 90 days of sales. tors. He downgraded the shares to market-perform tive off icer Tim Cook highlighted late Thursday that “The far bigger thing is to look over a longer and cut his price target to $170 from $195. Apple has 1.3bn devices in use now, an increase period of time and customer satisfaction and Smartphone doldrums are hurting other compa- of 30% in two years. The company is trying to engagement and number of active devices are all nies, too. Verizon Communications Inc, the largest sell more services through these devices, along a part of that.” US wireless carrier, has off ered unlimited data plans with more accessories and related gadgets. Apple Over longer periods, the smartphone market still to lure subscribers as a saturated and competi- services revenue jumped 18% in the fourth quarter, looks weak, though. Global smartphone shipments tive market makes it more diff icult to attract new while sales of other products, like the Watch and slipped 0.1% in 2017, with iPhone shipments up customers. AirPods, jumped 36%. 0.2%, according to research firm IDC. Qualcomm Inc, the largest mobile chipmaker, Milunovich and other analysts quizzed Apple Still, many Apple fans were undeterred by the has seen orders from big customers tail off and is executives on the slowing phone upgrade cycle, recent results. diversifying into other types of processors. The during a conference call late Thursday. Apple’s ability to command a premium has “never company is also holding out for faster 5G wireless “You have an installed base that’s 20%-plus higher, been more clear,” Loup Ventures’ Gene Munster networks and new phone features it hopes will and a unit growth that’s relatively flat, which would said in a note. The company did “stumble” with revive growth in the sector. suggest that your upgrade rate is going down, iPhones missing unit sales estimates, but he’s Apple is adjusting by focusing on its huge installed or your replacement cycle is elongating. And I’m bullish on the “transition from their existing iPhone base of devices and how to make more money wondering whether you agree with that,” asked platform to an augmented reality-driven platform from that – rather than selling a lot more phones Sacconaghi. in the future.”

Gulf Times 8 Sunday, February 4, 2018 BUSINESS Facebook really wants you back

Even with regular users, Facebook has become thirstier for posts

Bloomberg San Francisco

It’s been about a year since Rishi Gorantala deleted the Facebook app from his phone, and the company has only gotten more aggressive in its e-mails to win him back. The social network started out by alerting him every few days about friends that had posted photos or made comments—each time inviting him to click a link and view the activity on Facebook. He rarely did. Then, about once a week in September, he started to get prompts from a Facebook security customer-service address. “It looks like you’re having trouble logging into Facebook,” the emails would say. “Just click the button below and we’ll log you in. If you weren’t trying to log in, let us know.” He wasn’t trying. But he doesn’t think anybody else was, either. “The content of mail they send is essentially trying to trick you,” said Gorantala, 35, who lives in Chile. “Like someone tried to access my account so I should go and log in.” Facebook, which has more than 2bn people logging in monthly, has never failed to grow its user base. To beat investors’ expectations consistently on user numbers, it’s just as important for the company to retain people like Gorantala as it is to recruit new members. People who are logging into Facebook less often—but aren’t fully disconnected—are noticing more and more frequent prompts to come back, sometimes multiple times a day, via emails or text messages reminding them what they’re missing out on, according to screenshots and reports from users around the world. Gorantala, who eased off his Facebook usage because of privacy concerns, said his security prompt comes “whenever I don’t log in for a few days.” Even with regular users, Facebook has become thirstier for posts. The social network’s reminder boxes at the top of the news feed, which often People seen as silhouettes as they check mobile devices while standing against an illuminated wall bearing Facebook’s logo in this arranged photograph in London. Facebook, which has more than show memories or anniversaries of friendship 2bn people logging in monthly, has never failed to grow its user base. with close pals, have recently become real estate for more trivial milestones—like being revenue will probably see a boost from people as a milestone number of photos tagged with even involved with—a person from his past re-thinking of its mission—the revelation that tagged in 10 photos with someone or getting watching video ads. And no matter what a particular friend, were rolled out in August commenting on his or her own photo, for Russia had for months used the site to spread 100 heart reactions. happens with the flagship Facebook app, the because focus groups told Facebook they example. fake news and sow social discord around Chief executive off icer Mark Zuckerberg said company owns several other huge platforms liked celebrating memories. The Menlo Park, But sometimes, he admits, he’ll click. “I guess the 2016 US presidential election—and also earlier this year that Facebook was going to for communicating with friends—Instagram, California-based company said it had nothing to that’s why I haven’t deleted the account yet,” a sprinkling of mini-crises, like live-streamed rethink the formula for its news feed to put an WhatsApp and Messenger—that are just starting add on its engagement numbers. Patil said. But after clicking, while he’s scrolling violent videos and the uncovering of racist emphasis on posts from friends and family, to seriously generate revenue. It’s standard for all types of companies to use through the feed, he gets uncomfortable ad-targeting options. But several users said downplaying content from brands and media. Still, investors are watching for any comments email and text messages to re-engage their watching the “same bunch of people posting their reasons for tuning out Facebook usage The company will emphasize “time well spent,” or clues about audience growth and user customers. Facebook’s stand out for their only good things.” He’ll close it quickly. were much simpler: It was overwhelming. It aiming for meaningful interactions that will be habits. Bumps in the trend line are a reminder frequency and personalization, users said. The It’s that kind of activity—idle scrolling to wasn’t fun. It was too public. The longer people better for users long-term. It cautioned that that Facebook’s continued dominance is company does it because it works. compare one’s own life to others’—that even use Facebook, the more people they become the changes could cause some measures of not inevitable, and any protracted decline in Facebook admits is depressing. As part of connected with, and the less intimate the feed engagement to go down, because people may engagement could eventually curb its appeal Facebook is going to rethink the a reckoning over the company’s impact on feels. Gorantala became conscious of how spend less time on the app reading articles to advertisers. In order to count as a monthly formula for its news feed to put an society, Facebook released a study in December much the site knew about him, as well as his and watching videos. But engagement may active user, someone must have logged into or emphasis on posts from friends and that acknowledged it could be harmful for activity on the rest of the internet. He felt it have been a concern for Zuckerberg before shared content on Facebook at least once in the family, downplaying content from people’s mental health to use the app passively, would be too extreme to delete his Facebook the announcement. While the company has last 30 days of the quarter. Facebook’s biggest brands and media. The company will reading others’ posts without contributing account entirely. It still contained a record of said it sees positive trends, it hasn’t updated a barrier to growth is its already-unprecedented emphasize “time well spent,” aiming or reacting. If people interact with their close photos of him, and some social contacts that statistic on how much time people spend on its size. The internet, in total, has about 3.6bn users. for meaningful interactions that will be friends, commenting and sharing, that can weren’t on his phone. properties since the first quarter of 2016. For the roughly 1.6bn of those who aren’t regular better for users long-term actually positively impact mental health, Several others said they remained users, but not Minutes spent on the site in the US are declining, Facebook users, almost half are likely in China, the study concluded. That helped inform frequent ones, because they weren’t sure how to according to measurements by both Nielsen where Facebook is banned by the government. Kuldeep Patil, 32, deleted the app from his Zuckerberg’s decision to focus on friends and actually delete their accounts. On the website, a and Comscore, even if the trend is healthy For the rest, it’s unclear how many do have phone many months ago and says he gets at family in the news feed. user has to put in a request to Facebook to have globally. In the third quarter, the growth in accounts that they just don’t use, or decided to least two messages wooing him back each day. In other words, the solution for the ills of an account deleted. But many people choose daily users was the slowest ever. “You could delete. They used to be related to people that were Facebook, in Facebook’s academic opinion, is the simpler “deactivate” option instead, which argue that the actions they announced were “Nobody would ever talk about that,” Wieser interacting with his account, tagging him in more Facebook. “It’s convenient,” said Judson preserves all their data should they choose in response to what they were observing,” said said. photos or inviting him to like pages. “Kuldeep, Brewer, director of research at University of to come back. Brewer said his wife makes the Brian Wieser, an analyst at Pivotal Research. Facebook says there are “many reasons” why you have 90 new notifications, 6 messages, 1 Massachusetts Medical School’s Center for choice to deactivate frequently, then gets the “Given how big they are, you’re going to run into users might get notifications from the company. poke and 4 group invites,” a typical subject line Mindfulness, who has written about technology emails and comes back to Facebook. a wall at some point.” “We’re always looking for ways to help people reads, from an email he got in December. addiction. “It all sounds great, that they want Rogério Pereira, a user in Portugal, said Facebook’s financial results are showing no access their accounts more quickly and easily, Like Gorantala, Patil, who lives in India, to do this, but they still need to keep their user among his friends it’s understood that there’s signs of struggle so far. There’s still plenty of especially when there are notifications from decreased his usage due to concerns over base because that’s how they make money.” only one way to make sure you never go room to grow in the mobile-advertising market, friends they may have missed,” spokeswoman Facebook tracking his activity. He said the As Facebook has continued to grow, it’s given back. “You must ask your friend to say you’re which Facebook dominates alongside Alphabet Lisa Stratton said in an e-mail. messages have gotten more annoying recently users many reasons for malaise. There was dead so they convert your account into a Inc’s Google, the digital-ad leader. This quarter, The new mini-celebrations, for occasions such as they start to flag updates that he’s not the situation that sparked the company’s memorial,” he said.

Bloomberg QuickTake Tech’s new monopolies

By David McLaughlin response, Google said in September regulators long ago stopped equating Washington it would create a standalone unit for big with bad. They focus instead on the business, which would have to whether a company abuses its market use its own revenue to bid against power to thwart competitors who The rise of global technology rivals for ads. The US Federal Trade might off er lower-priced products. superstars such as Amazon, Apple, Commission in 2013 declined to The number of monopoly cases Facebook and Google is creating bring a case against Google for the brought by the US dropped from an new challenges for competition same conduct the EU sanctioned. average of 15.7 a year from 1970 to watchdogs. In 2017 they joined The EU says it’s also investigating 1999 to just 2.8 a year between 2000 Microsoft Corp to become the five whether Google pressures mobile- and 2014. The last big case was in most-valuable companies in the US, phone manufacturers that use its 1998, when the Justice Department a category that included only the free Android software to install other successfully challenged Microsoft’s software company 10 years ago. Google apps. Germany is separately dominance of computer operating They dominate their markets, from examining whether Facebook Inc systems. US watchdogs have also said e-books and smartphones to search abuses its market dominance — it little as the tech juggernauts used advertising and social-media traff ic now has 2bn regular users worldwide their profits and big-data advantages on mobile devices. New research — by requiring new members to give to gobble up smaller rivals or to connects the market power of these up privacy rights when agreeing to enter new markets. Bloomberg data high-tech behemoths — part of a terms they may not fully understand. show they’ve made close to 500 broader rise in concentration in many Japanese and South Korean acquisitions worth about $140bn over industries — with chronic economic watchdogs, meanwhile, are looking the last decade. The ability to easily problems, including the decline in at the exclusive control Google and raise prices, a traditional concern of workers’ share of national income and Facebook have over vast amounts of regulators, often isn’t an issue in such slower economic expansions. Their consumer data. China’s tech giants — deals. In the case of internet search dominance is fuelling a global debate Alibaba, Baidu and Tencent, which are and social media, the services are over whether it’s time to rein in such roughly similar to Amazon, Google free. And as Amazon’s August 2017 winner-takes-all companies. and Facebook, respectively — have purchase of grocery-chain Whole The Situation large market shares, too. China not Foods Market Inc shows, the acquired of the quality of their off erings, so some exceptions, the tech giants idea that an online platform becomes only hasn’t pursued antitrust actions companies often aren’t direct why punish success? But the 20-year reap hefty profits from small labour more valuable when more people While the US, the home of the tech against them, it protects them from competitors. dry spell in US monopoly cases has forces, leading to more national use it, giving giant incumbents giant titans, is taking a hands-off approach, competition by restricting foreign The Argument led economists, lawmakers and even income going to fewer workers and advantages — and call for a rethinking other countries are aggressively companies. some tech experts to conclude that stagnating median wages overall. The of how best to police competition. pursuing them. In June 2017, the The Background The tech goliaths say their dominance enforcement has been too timid, with simultaneous decline of successful Other antitrust experts don’t buy this European Union fined Alphabet is hardly durable because barriers to negative economic eff ects. Some startups, attributed in some studies view, arguing that more concentration Inc’s Google $2.7bn for abusing Amazon, Apple, Facebook and Google entry are low for new competitors. would go beyond the narrow focus to the dominance of existing firms, doesn’t necessarily mean less its search-engine dominance by have monopoly-sized market shares, Google is fond of saying competition on consumer prices and consider has dampened innovation and job competition, and that antitrust favouring its own shopping service but being a monopoly isn’t illegal in is just “one click away.” The companies the eff ects of concentration on creation, the critics say. They also cite enforcement can’t solve an economy’s in search results. As part of its the US and most other countries, as also say they are successful because innovation, jobs and inequality. With the power of “network eff ects” — the broader ills. Gulf Times Sunday, February 4, 2018 9 BUSINESS

India’s new industrial policy being ‘designed’ to equip industry for the future: Prabhu

IANS at a time of financial crisis. Guwahati, India The minister stressed “the laser Brexit no issue for focus of the government” to make business easier for industry. India’s Commerce and Industry In this regard, he highlighted Minister Suresh Prabhu said a new multiple initiatives of the govern- industrial policy is being framed ment to reduce the burden of after 25 years and it is “being regulations on industry. He also designed” to equip Indian industry talked about the importance of for the future. centre-state cooperation and leaders’ vision of The minister spoke at an event the need for change even at the dis- organised to commence the trict-level. The consultation event “nation-wide consultations with was organised by Department of industry” on the proposed new pol- Industrial Policy and Promotion in icy. According to Prabhu, the policy partnership with Ficci. The event is being designed in a way that it was attended by more than 120 will adequately address the future industrialists from the Northeast, needs of industry and that prior in addition to government off icials UK-China trade tie attempts in 1956 and 1991 were from the region, Ficci said in a driven by “ideology” or formulated statement. Bloomberg relations and “bring new fruits.” ping on a state visit in October 2015. exports from China surged. Asked about Beijing May’s business mission to China is A commentary published Wednesday China’s Belt and Road Initiative, May meant to demonstrate her government’s by the state-run Xinhua News Agency struck a diplomatic tone, saying the plan intent to forge a global trade policy after said the “‘liberating eff ect’ of Brexit” had the “potential to further prosperity K Prime Minister Theresa May leaving the European Union next year. could help ties between the two sides and sustainable development across Asia and her Chinese counterpart Li While the UK can’t sign any deals out- reach a “new high.” China and the UK and the wider world.” UKeqiang set thorny political is- side the EU before leaving the bloc – and plan to step up cooperation in energy, “We will work together to encourage sues aside and off ered a bullish vision of wouldn’t be able to implement them be- nuclear technology, high-speed railways, free and fair trade, ensure a transparent, the two countries’ blossoming trade rela- fore at least 2021 – she’s hoping to strike aerospace and artifi cial intelligence, it rules-based multilateral trading system, tionship after Brexit. now. UK companies will also sign deals said. and build an open global economy that The two leaders put their countries worth £9bn ($12.7bn) during her visit, The two sides are discussing the feasi- works for all,” she said. on the path towards negotiating a future she said, without giving details. bility of a bond- trading link that would May declined formally to endorse free-trade agreement, setting up a high- May’s delegation – which includes 50 mark a fresh step in opening up the the Belt and Road Initiative by signing a level panel to review and expand com- business leaders, Trade Secretary Liam world’s largest emerging debt market, memorandum of understanding, as Brit- mercial ties. A British offi cial said China Fox, a clutch of offi cials and her husband Bloomberg reported last month, citing ain still needs assurances over transpar- Prabhu: The new industrial policy is being designed in a way that promised to open up its market for UK – are optimistic about progress towards people familiar with the matter. ency in supply chains and tendering for it will adequately address the future needs of industry. fi nancial services, a move likely to start formal trade talks. The group includes May had said she would raise the sensi- contracts so there is a fair split between with new deals announced in the coming Pascal Soriot, chief executive offi cer of tive topics of China’s human rights record Chinese companies and others winning days, potentially focusing on the insur- AstraZeneca; Mark E. Tucker, chairman, and Hong Kong democracy in talks. She has business. ance sector. HSBC Holdings Plc; Ralf Speth, CEO, also shown reluctance to formally endorse Li said China wanted to import more “The UK and China are global partners Jaguar Land Rover; Bill Winters, group Xi’s global Belt and Road trade-and-infra- British food, especially beef and dairy for the long-term,” May said at a joint chief executive, Standard Chartered structure initiative, potentially putting at products. May’s team welcomed the of- press conference in Beijing on Wednes- Bank; and Nikhil Rathi, CEO, London risk her pursuit of more robust ties. fer, which they estimate could boost the day, outlining plans for a joint trade and Stock Exchange Plc. Li confi rmed that the two had dis- U.K. economy by 500 million pounds Nissan and Toyota’s investment review of bilateral ties. “Chi- China is also keen to build greater ties cussed human rights, while May said she over fi ve years. Standard Chartered said na is a country that we want to do a trade with a key US ally and long-time pillar of also raised the issue of over-capacity in in December that it plans to facilitate at deal with.” Li said May’s visit will further Europe. May’s predecessor, David Cam- the steel market, an issue that has led least $20bn of fi nancing for the Belt and secret weapon in improve the “golden era” in UK-China eron, hosted Chinese President Xi Jin- to job losses in the UK and Europe since Road Initiative by 2020. the US: Fleet sales

Bloomberg Fiat Chrysler Automobiles NV Chicago have been reigning in this part of their business. Fleet sales have been less than 20% of GM’s US issan Motor Co and sales each of the last two years, Toyota Motor Corp both though the company did boost Nkicked off the year re- these deliveries last month. porting strong US demand. Fiat Chrysler has been pull- What they didn’t reveal was how ing back on fl eets since late 2016, many vehicles were sold to rent- and the automaker reduced al-car companies to hit those these sales by half in January. numbers. Two explanations Deliveries to fl eets surged 48% last month for Nissan and Toyota’s deliveries to fleets 69% for Toyota, according to will be lower in the second half Cox Automotive. Of Nissan’s of the year and will likely end 41,550 and Toyota’s 24,281 ve- up at about 10% of its total US hicles sold to fl eets in January, sales in 2018, in line with past all but a few thousand were to years, according to Amanda rental-car companies. Roark, a company spokeswom- Investors frown upon auto- an. The automaker also is aim- makers relying too much on fl eet ing for its namesake brand to deliveries because they tend to lead the industry in retail sales be bulk orders that are discount- for a seventh consecutive year, ed. Rental cars often also end up she said. in the used-vehicle market and Nissan’s big jump in fl eet sales can depress the value of autos is explained by the company owned by retail customers. Nis- clearing out 2017 model year ve- san, which set a target years ago hicles to make room for 2018s, to reach 10 percent market share said Judy Wheeler, the automak- in the US, has boosted its fl eet er’s vice president of US sales. business to get there. “It’s really just a timing situa- The ‘danger’ tion for us,” she said. The rental-car business isn’t “If you want to claim 10% as unprofi table as it used to be, market share, that’s a way to do Keller said, because companies it,” said Maryann Keller, an inde- are buying nicely-equipped pendent auto industry consult- models that hold their value ant in Stamford, Connecticut. better. But it still doesn’t look “The danger is that you create a good to some consumers when large number of late-model used they see rental lots packed with cars that will compete with your too many of the same badge of new cars and bring down prices vehicles. Chinese President Xi Jinping shakes hands with British Prime Minister Theresa May at the Diaoyutai State Guesthouse in Beijing. The two leaders put their countries on the and profi ts.” “It really does aff ect the per- path towards negotiating a future free-trade agreement, setting up a high-level panel to review and expand commercial ties. A British off icial said China promised to open up Both General Motors Co and ception of the brand,” she said. its market for UK financial services, a move likely to start with new deals announced in the coming days, potentially focusing on the insurance sector. What’s on the block in China’s potential sale of the century?

Bloomberg list of notable assets the companies still own development in the land near Hong Kong’s of movie theaters owns AMC Entertainment among those that have fallen through. A Beijing that could possibly come up for sale. former airport that it bought for $3.5bn. In Holdings Inc, Odeon & UCI Cinemas Group, high-profile bid for a Manhattan office tower HNA Manhattan, it owns buildings in 245 Park Nordic Cinema Group and Hoyts Group. owned by the family of US presidential Avenue, 850 Third Avenue and 1180 Avenue of Wanda is also the owner of Legendary adviser Jared Kushner also fizzled last year Two years ago, hardly a week would go Though it isn’t clear what HNA specifically the Americas. The conglomerate was said to Entertainment, the Hollywood production amid increased scrutiny at home and abroad. by before news would emerge that HNA plans to sell, as of June, HNA had amassed approach brokers earlier about the possible company that specializes in making monster The conglomerate has almost 2tn yuan Group Co, Dalian Wanda Group Co or $190bn of assets – more than at American sale of two office buildings in London’s movies such as the latest “Godzilla” and the ($318bn) in assets and owns businesses Anbang Insurance Group Co was in talks to Express Co. The group also held almost Canary Wharf financial district. latest “King Kong” movies. spanning life and non-life insurance, asset invest in an overseas trophy asset as the $30bn of shareholdings, according to data Others: HNA bought Ingram Micro Inc for Sports/luxury: Wanda owns FIFA World management, financial leasing and banking, trio spearheaded the nation’s seemingly compiled by Bloomberg, and Real Capital about $6bn in 2016 but the company said last Cup marketing-rights holder Infront Sports according to its website. Some of its notable insatiable appetite for global expansion. Analytics estimates the conglomerate owns month it has no plans to sell it. The group also & Media AG, “Ironman”– organiser World assets include: Today, all three are hunkering down and in more than $14bn in real estate properties owns 21% of duty-free-shop operator Dufry Triathlon Corp and a minority stake in Club Waldorf Astoria: Anbang bought the downsizing mode. HNA is planning about worldwide. AG, 25% of OM Asset Management Plc and Atletico de Madrid. It also has control of landmark New York hotel for $1.95bn, but $16bn in asset sales during the first half of HNA’s investments are diverse. They range 19% stake in Virgin Australia Holdings Ltd. British yacht-maker Sunseeker International it’s now closed for renovations that will the year, Wanda is putting up its last two from banks to airlines, hotel chains and Wanda Ltd. convert most of the property into luxury overseas property developments up for sale duty free shops. Some of its notable assets Property: Wanda has tens of billions of condominiums. But if Anbang wants to sell, and the government last year asked Anbang include: Billionaire Wang Jianlin, who was once dollars worth of properties across China, the previous owner, Hilton, has a 100-year – rudderless since its chairman’s detention in Deutsche Bank AG: HNA’s 9.9% stake makes China’s richest man, is no longer talking including more than 200 shopping malls. agreement to operate the hotel. June – to sell its overseas assets, according it the largest shareholder of Europe’s largest about building an entertainment empire that Anbang Strategic Hotels & Resorts Inc: The Chicago- to people familiar with the matter. bank. HNA hedged its investment through a could challenge Walt Disney Co. In the past based company is Anbang’s single biggest Behind the reversal is China’s clampdown so-called collar trade that limits the risk, but year, he’s agreed to sell his group’s interests People familiar with the matter said last year asset, which it acquired in a deal originally on capital outflows to protect the yuan from also potential profits. in one of the largest residential projects in that Chinese authorities asked Anbang to valued at about $6.5bn. The group boasts depreciating and as the government steps Hilton: HNA owns 25% stakes in Hilton London – One Nine Elms – and billions of sell its overseas assets, but the company and hotels such as San Francisco’s Westin St. up its campaign to snuff out financial risks Worldwide Holdings Inc, Park Hotels & dollars worth of theme park and hotel assets the insurance regulator subsequently said Francis and JW Marriott Essex House in New stemming from the country’s mounting Resorts Inc and Hilton Grand Vacations Inc as in China. that there were no such plans. More recently, York, the Manhattan hotel near Central Park pile of corporate debt. In HNA’s case, it part of a purchase from Blackstone LP that Some notable assets he still holds include: the government is said to have been seeking known for the red-lettered sign on its roof. doesn’t earn enough profits to cover interest was completed in 2017. But there’s a two-year Beverly Hills/Chicago projects: Wang’s to broker the sale of a stake in the insurer, Others: The company also invested in expenses, which according to Bloomberg lock-up to the deal preventing HNA from property arm is said to be putting its last two whose chairman Wu Xiaohui has been Netherlands-based Vivat NV, South Korea’s data, have soared to levels topping those of selling those shares until 2019. overseas property developments – a hotel, detained by authorities since June. Tongyang Life Insurance Co, Bentall Centre in any non-financial company in China. CIT: In 2016, HNA agreed to buy CIT Group office and apartment complex in Chicago The overseas deals that vaulted Wu and his Vancouver, Fidea NV in Belgium, the 717 Fifth Wanda declined to comment, while Inc’s aircraft-leasing business for $10bn to and a development in Beverly Hills, California company onto the global stage have slowed Avenue building in New York that serves as representatives at HNA and Anbang didn’t create the world’s third-largest rental fleet. – up for sale. dramatically, with Anbang’s plans to buy an Anbang’s US headquarters and the 70 York immediately respond to queries. Below is a Real estate: HNA is building a luxury Entertainment: The world’s largest operator American hotel chain and insurance assets Street building. Gulf Times 10 Sunday, February 4, 2018 BUSINESS

Coincheck says it’s BoJ takes action to back up claim getting ready to resume yen it is not following Fed and ECB withdrawals Bloomberg Tokyo Bloomberg Tokyo Japanese exchange Coincheck Inc, which was hacked and lost he Bank of Japan backed up about $500mn worth of custom- weeks of talk with action on Fri- ers’ cryptocurrency holdings, Tday: ramping up bond purchases said it’s bolstering its security to control yields and damping inves- systems as it prepares to resume tor speculation about policy normali- yen withdrawals. sation. As the Federal Reserve moves Coincheck halted withdrawals further down its rate-hike path and the after the theft was uncovered on European Central Bank debates when January 26, although users have to start unwinding its own stimulus been able to deposit funds. The programme, rising global yields and a Tokyo-based exchange has prom- strengthening yen have added pressure ised to reimburse all 260,000 on BoJ governor Haruhiko Kuroda. customers who lost money in The BoJ faced a test as the 10-year theft of the virtual currency coins, Japanese yield this week neared 0.1%, a called NEM. Coincheck didn’t give level at which the central bank had in- a timeframe in a statement on tervened previously. its website yesterday for when “The Bank of Japan couldn’t sit tight people could retrieve yen. any longer,” said Maiko Noguchi, a sen- The heist was the biggest ior economist at Daiwa Securities Co since the 2014 disappearance of and a former BoJ offi cial. “Letting the about $470mn worth of Bitcoins yield rise even a bit more would have from the Mt Gox exchange fuelled further speculation that the BoJ and reverberated throughout is moving towards policy normalisa- the global markets for Bitcoin tion.” and other cryptocurrencies. All The BoJ on Friday off ered to buy an Japanese yen is being stored unlimited amount of bonds at a fi xed in a customer-specific account rate for the fi rst time since July, backing in a major financial institution, up its repeated stance that actions by its Coincheck said. Additionally, peers and global yields wouldn’t dictate cryptocurrencies registered to its policy. customer accounts have been The central bank off ered to buy 10- transferred out of “hot wallets,” or year notes at a fi xed rate of 0.11%, and risky network-connected storage, expanded purchases at its regular op- and into “cold wallets,” which are eration for the second time this week. off line and more secure. The BoJ’s target for the 10-year yield “We are working closely with is “around 0%.” It twice stepped in last outside experts, and based on year by off ering to buy an unlimited current information, we would amount of debt when the yield touched like to announce the timeframe or crossed the 0.10% mark. when Japanese yen withdrawals The BoJ’s actions were a response to will resume,” Coincheck said in the recent rise in long-term yields and the statement. On Friday, Japan’s were meant to enable it to fi rmly adhere Financial Services Agency to its yield target, according to a senior raided Coincheck’s off ices. The offi cial in the central bank’s fi nancial Bank of Japan governor Haruhiko Kuroda attends a news conference at the BoJ headquarters in Tokyo. The Japanese central bank on Friday off ered to buy an unlimited agency was seeking to gain a markets department. amount of bonds at a fixed rate for the first time since July, backing up its repeated stance that actions by its peers and global yields wouldn’t dictate its policy. better understanding of how the The global bond selloff has chal- exchange is operating in light of lenged the BoJ’s control of yields, the Its moves on Friday signalled its desire announcement. The yen weakened to acknowledged stronger US growth term ends in April and those of his two the regulator’s business improve- main focus of its current policy frame- to get ahead of traders who have been 109.66 per dollar at 1:54pm Tokyo time. and expressed more confidence that deputy governors in March. The cen- ment order imposed earlier work. It reversed recent cuts in regular speculating that it could be ready to The BoJ’s moves came after the inflation will rise to its target, setting tral bank also off ered to buy ¥450bn this week, an FSA off icial told debt purchases, another key compo- start rolling back stimulus. A stronger benchmark 10-year US Treasury yield the stage for a March interest-rate ($4.1bn) of 5-to-10 year bonds at its reporters in Tokyo. Coincheck nent of its ultra-loose monetary stance. yen poses a risk to the BoJ’s price target, jumped 8 basis points to 2.79% on increase. regular operation, ¥40bn more than its has until February 13 to submit a While the BoJ’s peers turn toward and to corporate profi ts just as compa- Thursday, setting fresh highs since The turmoil in global debt markets last off er. On Wednesday, it increased report detailing the causes of the tighter policy, Kuroda again reaffi rmed nies start annual wage negotiations. 2014, and the 30-year yield broke comes at a sensitive time for the BoJ, purchases in the 3-to-5 year segment. incident and how it will improve on Wednesday that the BoJ needs to The benchmark 10-year yield slipped through 3% for the first time in eight with the government needing to an- No bids were tendered at Friday’s fi xed- internal controls. keep easing to hit its 2% infl ation target. one basis point to 0.085% after the BoJ’s months. The Federal Reserve this week nounce leadership candidates. Kuroda’s rate bond operation, the BoJ said later.

Chinese national found guilty of selling fake Apple devices worth $1.1mn in US Indian economy has entered IANS working through his company “Dream Digitals”, con- Beijing spired with Andreina Becerra, Roberto Volpe, Rosario LaMarca and others to smuggle and traff ic into the US from China more than 40,000 electronic devices and into consolidation phase: Jaitley A 43-year-old Chinese national who lived in the US has accessories. The smuggled devices included Apple pleaded guilty to taking part in a counterfeiting opera- iPads and iPhones, along with labels and packaging tion out of China that involved selling fake iPhones and bearing counterfeit Apple trademarks, according to the IANS solidation as far as the economy is con- formal economy itself.” “This is one sec- iPads to customers in the country. documents filed in this case. He shipped devices sepa- New Delhi cerned,” Jaitley said at an event here. tor, where people not only exhibit their “Jianhua ‘Jeff ’ Li, pleaded guilty before US District Court rately from the labels bearing counterfeit trademarks According to Jaitley, this phase of “con- entrepreneurial skills, become part of Judge Kevin McNulty of New Jersey to one count of for later assembly to avoid detection by US Customs solidation” will be led by the Micro, Small large value chains, but they also become conspiracy to traff ic in counterfeit goods and labels and to and Border Protection off icials, the documents filed ndia’s Finance Minister Arun Jait- & Medium Enterprises (MSME) sector. job creators in the process and that’s the smuggle goods into the US, and one count of traff icking in the case added. The counterfeit devices were then ley said yesterday that the economy Speaking on the launch of “CriSidEx” reason why a bulk of the jobs in manufac- in counterfeit goods,” the US Department of Justice said shipped to conspirators all over the country. I has entered into a phase of consoli- which is India’s first sentiment index for turing, trading have been credited in this in a statement late on Friday. Li also received payments Li will be sentenced on May 30 while LaMarca, dation after a series of “structural re- the MSEs developed jointly by Crisil and particular sector.” worth over $1.1mn in sales proceeds from US accounts into another member of the conspiracy, was the first to be forms” which were initiated in the past Sidbi, Jaitley said: “The health of this CriSidEx is based on a diffusion index his bank accounts. The case has been ongoing since 2015, sentenced in July 2017, receiving a prison term of 37 two years. sector (MSME) is extremely vital to the of eight parameters, and measures MSE when Li was charged and taken into custody. months. Both Becerra and Volpe, Li’s other conspirators, “Having gone through a series of very economy and we are increasingly seeing business sentiment on a scale of “0 (ex- From July 2009-February 2014, the Chinese national, are still awaiting sentence. major structural reforms in the past two that with a number of steps taken an in- tremely negative) to 200 (extremely posi- years, this now also is a phase for con- creased integration of the sector into the tive)”. Breakneck rise of China’s colossus of electric-car batteries

Bloomberg director at Pala Investments Ltd, a Zug, Switzerland- Now CATL is making another leap. Job ads for posi- Beijing based fund investing in the EV supply chain. “There is tions in the Detroit area have appeared on LinkedIn, and no question in my mind that they are going to lead the the company said in an e-mail it is meeting with several world in capacity and, eventually, in the technology.” US carmakers to discuss partnerships. The next global powerhouse in the auto industry comes China’s government likes to have national champions “Their intentions are very clear,” said Simon Moores, from a small city in a tea-growing province of southeast of industry: think Alibaba Group Holding Ltd in e- London-based managing director of battery sector China, where an unheralded maker of electric-vehicle commerce and Tencent Holdings Ltd in social media. So consultant Benchmark Mineral Intelligence. “To not batteries is planning a $1.3bn factory with enough far no carmakers are part of that conversation, although just be China’s biggest battery producer but the world’s capacity to surpass the output of Tesla and dwarf the CATL is working its way in there by capitalising on largest.” suppliers for battery-powered cars by GM, Nissan and China’s push for cleaner air and fewer oil imports. The Ningde doesn’t look like a global foundry for the key Audi. rising battery giant is, in no small part, a manifestation technology inside the cars of the future. The isolated Contemporary Amperex Technology Ltd, or CATL, of China’s aggressive government support for electric city is surrounded by mountains, with a long history of already sells the most batteries to the biggest electric- vehicles. fishing and farming that has more recently made way vehicle makers in the biggest EV market: China. Now China surpassed the US in 2015 to become the for a few Starbucks and McDonald’s locations. President it wants to use proceeds from a pending initial public world’s biggest market for electric cars. Sales of new- Xi Jinping apprenticed there as a Communist Party off ering backed by Goldman Sachs Group Inc to get energy vehicles—including battery-powered, plug-in chief in the 1980s, when Ningde was the poorest city on under the hoods of more European marques and secure hybrid and fuel-cell vehicles—reached 777,000 units last China’s east coast. customers in the US. year and could surpass 1mn this year, the China Associa- Menahem Anderman, president of Total Battery Con- The company plans to raise 13.1bn yuan ($2bn) as tion of Automobile Manufacturers estimated. sulting Inc in Petaluma, California, went to see CATL’s soon as this year by selling a 10% stake, at a valuation of In China, the source of 99% of CATL’s business, the headquarters for himself in January and found a com- about $20bn. The share sale would finance construction company’s lithium-ion batteries will be inside locally pany in the process of becoming a world-class battery of a battery-cell plant second in size only to Tesla Inc’s made EVs from Volkswagen AG, BMW AG, and Hyundai maker. “Technically they are a probably a tad behind the Gigafactory in Nevada—big enough to cement China Motor Co. Japan’s Toyota Motor Corp, Honda Motor Co big three,” he said, citing Panasonic Corp, Samsung SDI as the leader in the technology replacing gas-guzzling and Nissan Motor Co are considering CATL batteries Co and LG Chem. “But considering how fast they have engines. for planned China-made vehicles. Domestic companies been moving, it’s reasonable to assume that in two to The new assembly lines would quintuple CATL’s using the batteries include BAIC Motor Corp, the biggest three years they’ll have a technically similar product.” production capability and make it the world’s largest EV seller in China, and Zhengzhou Yutong Group Co, the The new battery plant is set to rise on landfilled electric-vehicle battery cell manufacturer, ahead of world’s biggest bus maker. mudflats across a lake from CATL’s sprawling headquar- Tesla, Warren Buff ett-backed BYD Co in China and CATL is already in the midst of expanding overseas. ters. The entire complex, all barely seven years old, is South Korea’s LG Chem Ltd, according to Bloomberg Last year, it spent €30mn ($35mn then) to acquire 22% vast enough that it takes half an hour to walk from an New Energy Finance. The factory could go fully online of Finland’s Valmet Automotive Oy, a contract manu- off ice building on the northwest corner to a gate on the as soon as 2020, an opportune time as China targets a facturer for Daimler AG’s Mercedes-Benz and supplier east side. Six electric shuttle buses, all powered by CATL A worker stands outside a factory of Contemporary Amperex Technology in Ningde, sevenfold increase in new-energy vehicle sales by 2025 to Porsche AG and Volkswagen’s Lamborghini. CATL batteries, trundle employees between dormitories, Zhejiang province. The company plans to raise $2bn as soon as this year by selling a and ponders a course for phasing out fossil-fuel vehicles also added off ices in Paris to existing facilities across factories and research labs. For the 90- minute trip to 10% stake, at a valuation of about $20bn. The share sale would finance construction of altogether. Germany. The company has a partnership with BMW’s the nearest airport in Fuzhou, employees can book free a battery-cell plant second in size only to Tesla’s Gigafactory in Nevada, big enough to “China, unabashedly, wants to be the Detroit of motorsport teams for races in Europe and Macau, chauff eured rides in a Zinoro hybrid built by BMW’s joint cement China as the leader in the technology replacing gas-guzzling engines. electric vehicles,” said Anthony Milewski, a managing splashing its blue logo across the carmaker’s M6 GT3. venture and powered by CATL batteries. Gulf Times Sunday, February 4, 2018 11 BUSINESS

Pakistan, World China set to urge scrutiny of Bank sign $305mn loans M&A loans used to buy land Bloomberg Beijing Internews Islamabad hina’s banking regulator has told lenders in Shanghai to in- akistan and the World Bank Ccrease their scrutiny of loans signed agreements worth for mergers and acquisitions to ensure P$305mn yesterday to sup- the funds aren’t used to buy land, ac- port projects in the agriculture cording to people familiar with the sector in Punjab and to improve matter. the nutritional status of chil- A significant portion of M&A loans dren and women in Khyber Pa- in Shanghai have been used for deals khtunkhwa. involving land as the main underlying The Strengthening Markets for asset, the China Banking Regulatory Agriculture and Rural Transfor- Commission’s Shanghai branch said mation (SMART) in Punjab pro- in a notice issued in recent days, ac- gramme will get a loan of $300mn. cording to the people, who asked not The SMART Punjab pro- to be identified as they’re not author- gramme is aimed to help the ised to speak publicly. The regulator provincial government promote requested banks to strictly comply transformational changes in the with current policies on M&A loans crop and livestock subsectors by and other real estate lending policies. focusing on activities contribut- The directive marks the latest move ing to three result areas: increased in China’s crackdown on risks in the on-farm productivity and value $38tn banking industry and its cam- of crops and livestock; increased paign to reduce the flow of money value addition and competitive- into riskier areas such as real estate. ness of crops and livestock; and Authorities stepped up restrictions on enhanced resilience of smallhold- lenders’ entrusted loans business last er farmers to climate change and month, plugging a loophole in shadow natural disasters. financing to the property sector, af- Each results area involves a ter last year tightening the sources of specifi c combination of policy home loans. reforms, institutional strength- “It’s like a continuous bomb dis- ening and public investments. posal in China’s deleveraging of the While the World Bank will pro- property sector,” said Van Liu, a vide loan of $300mn for the Shenzhen-based Guotai Junan Inter- project, the Punjab government national Co property analyst. “China will contribute $1,290mn to- has been plugging real estate financ- wards the project. ing loopholes since the end of 2016 in The government of Khyber- wealth-management funds, entrusted Pakhtunkhwa will get an addi- loans and trusts, and this is another tional fi nancing of $5mn on grant step.” basis for the enhanced nutrition CBRC’s Shanghai branch reiterated Buildings under construction are seen in Chengdu, Sichuan province. Builders in China spent a record 646bn yuan ($103bn) last year swallowing competitors or their for mothers and children project. that banks aren’t allowed to provide assets as land prices surged. The objective of the grant is to M&A loans for the purchase of com- scale-up nutrition intervention in panies whose only assets are land debt-fuelled acquisition binge, rac- In the directive, the regulator also firms, to fund purchases as regulators Group and Sunac China Holdings Ltd the province and improve the nu- holdings, the people said. In addition, ing to amass land banks in an attempt urged banks to boost merger and ac- started to cool the land market by ask- have the highest net debt-to-equity tritional status of children under banks are prohibited from provid- to acquire market share amid faster quisition loans to strategically-im- ing builders to use their own funds for ratios, a measure of leverage, among two-years of age, as well as preg- ing loans in any form to land projects consolidation in the industry. Nation- portant sectors, as well as for overseas such acquisitions, Guotai Junan’s Liu developers, prompting caution among nant and lactating women. Sec- where permission to start construc- wide, builders spent a record 646bn acquisitions involving key technology said. ratings companies and some analysts. retary Economic Aff airs Division, tion hasn’t been received, or where yuan ($103bn) last year swallowing and intellectual property, according to The land expansion has come with a Earlier this week, regulators re- Arif Ahmed Khan signed the loan land-acquisition fees haven’t been competitors or their assets, accord- the people. pile of mounting debt, as leverage for quired Hengfeng Bank Co, a regional and grant agreements on behalf of fully paid, the people added. ing to data compiled by Bloomberg, as M&A loans have been increasingly developers rose to an all-time high in Chinese lender, to temporarily halt government of Pakistan. China’s developers have been on a land prices surged. used since 2016, especially by smaller the first half of 2017. China Evergrande new real estate lending.

Beijing Auto, Foreign funds pour $13bn into China shares in Jan Magna plan

Bloomberg JV in China Beijing

Bloomberg verseas investors pumped $13bn into Chinese stocks last Beijing month, the most in at least two years. O Growing optimism over the nation’s currency and eco- nomic outlook fuelled the infl ows, with $3bn also plowed into Hong eijing Automotive Group Kong shares and $1.6bn into the city’s bonds, the most in EPFR Co is in talks with Magna Global data going back to January 2016. BInternational Inc on a joint Hong Kong’s Hang Seng Index jumped the most since April 2015 venture to produce battery-pow- last month to hit an all-time high, while the Shanghai benchmark ered vehicles in China, according rallied the most in almost two years. to people familiar with the matter. That these markets are rallying – especially Hong Kong – is The discussions range from an nothing new, but the infl ow fi gures show foreign investors are be- equal partnership to cooperation ing drawn to the gains as the dollar’s retreat supercharges the yuan in areas including manufactur- and the world’s second-largest economy charts a steady course. ing and parts supply, the people China’s currency is edging back towards levels not seen since it was said, asking not to be identifi ed devalued in 2015 and equity valuations remain below those of many as negotiations are private. An developed-market peers. existing plant of Beijing Automo- “Investors are re-balancing their portfolios after a very strong tive would be used for production run in US equities to markets that off er compelling valuations under the tie-up, the people said. such as Hong Kong and mainland Chinese equities,” said Brendan The negotiations are pre- Ahern, chief investment offi cer at Krane Funds Advisors in New liminary and may not lead to an York, which off ers US exchange-traded funds investing in Chinese agreement. Representatives for shares. “Valuations are at a discount relative to their US equivalents Beijing Auto and Magna declined while Chinese economic data have been quite strong.” to comment. Beijing Auto shares But the rush of cash also raises the question of whether foreign jumped as much as 2.7% on Friday funds have entered too late. Hong Kong’s advance started to show in Hong Kong trading. The stock The Shanghai benchmark index rallied the most in almost two years in January while Hong Kong’s Hang Seng jumped the most since April signs of faltering late last month, while Shanghai shares have fallen recently traded at HK$11.96, up 2015 to hit an all-time high. 2.7% since reaching a two-year high on January 24. 1.9%, giving it a market value of $11.6bn. Teaming up with a local company for contract manufac- turing is the fastest way to make electric vehicles in China, which Modi’s election budget may lift India’s interest rates has dished out only 15 licences so far for production of new-energy vehicles. Electric car startup NIO Bloomberg Bloomberg expect the RBI to hold will have serious consequences,” trading at ICICI Securities Primary it doesn’t look like they’ve thrown is outsourcing production from Mumbai rates at 6% through this year, but Congress leader Palaniappan Dealership Ltd in Mumbai. “That’s caution to the wind,” said Reshmi automakers such as Anhui Jian- in the swaps market, investors are Chidambaram said. what’s worrying the bond market Khurana of Kroll, a risk consultancy. ghuai Automobile Group Corp so pricing in a hike to 6.5% before the Already, sovereign bond yields have most.” “I don’t think it’s actually going to that they can bring their prod- Indian Prime Minister Narendra end of 2018. spiked to their highest since June The yield on sovereign bonds due trickle down to the point where this ucts to the market quicker, sav- Modi delivered an election year “Improving growth prospects, 2016, boding ill for the government’s January 2028 jumped 18 basis points means he sweeps elections.” ing time on gaining a production budget focused on tamping down rising inflation and lingering fiscal borrowing plans and interest to 7.61% on Thursday. The budget, as expected, focused licence and the cost of setting up rural discontent ahead of crucial slippage risks all point towards payments. A sustained rise in yields The government hopes this heavily on rural India after a voter a manufacturing plant. elections, spending that could tighter monetary policy this year,” could also see banks raise lending budget will alleviate discontent backlash in Modi’s home state of A partnership with Magna, prompt the central bank to raise said Priyanka Kishore, lead Asia rates, a move that could choke a in the countryside, while creating Gujarat. whose Magna Steyr unit has con- interest rates in the coming economist at Oxford Economics in nascent recovery in Asia’s third- desperately needed jobs. The depth of anger across India was tract manufacturing partnerships months. Singapore. “We are pencilling in two largest economy. However the spending boost means underscored by a recent survey with companies including Daim- With less than a week to go before rate hikes.” Various high-frequency indicators India missed its fiscal deficit target suggesting “clear rumblings of ler AG, could help Beijing Auto the Reserve Bank of India meets to Arun Jaitley delivered a pre- show an economic recovery will and disappointed investors with discontent” among not just farmers, position itself better in a market decide on policy, Finance Minister election budget aimed at boosting gather pace over the next few a long-term capital gains tax on but traders and shopkeepers who that surpassed the US in 2015 as Arun Jaitley unveiled a budget that rural incomes but at the cost of quarters. That is likely to see a equity investments. And while traditionally support the BJP. the world’s largest for EVs. Au- opens the taps for impoverished a larger-than-expected deficit – narrowing in the output gap and complex initiatives – from boosting “These wide-ranging measures will rora, Ontario-based Magna is farmers, guaranteeing higher likely confirming the central bank’s possibly higher rates. aquaculture to health care – may help to consolidate rural support one of the world’s biggest auto minimum crop prices and more hawkish bias. “We see this budget fanning not materialise fast enough to alter for the BJP in upcoming elections,” suppliers with 328 manufactur- spending on infrastructure projects Modi’s Bharatiya Janata Party faces inflation with its focus on stoking electoral sentiment, the budget said Rajiv Biswas, Asia-Pacific chief ing operations around the world, in India’s vast rural hinterland. elections in eight Indian states this consumption and at a time when oil suggests Modi’s government is economist for IHS Markit Ltd, adding according to its website. That may prompt some in the six- year and federal elections in the first is surging amid hardening global attempting to balance deficit targets the BJP is concerned they might Sales of new-energy vehicles member monetary policy committee half of 2019. yields, that will change the narrative while not going all out with election still “need the support of coalition in China may top 700,000 units to turn more hawkish. More than “The finance minister fails the fiscal for the RBI’s monetary policy,” said freebies. partners to pursue his reform in 2017 and 1mn in 2018, accord- half of the economists surveyed by consolidation test and this failure Naveen Singh, head of fixed-income “It’s not a budget that’s too populist, agenda.” ing to the China Association of Automobile Manufacturers. Gulf Times Sunday, February 4, 2018 21 BUSINESS

he Qatar Stock Exchange (QSE) ing value. The industrials sector was QSE Index and Volume index declined 252.60 points, or the second biggest contributor to the T2.67%, during the trading week overall trading value, accounting for to close at 9,207.1. Market capitalisa- 22.1% of the total trading value. QNBK tion fell by 2.45% to QR501.8bn versus was the top value traded stock during QR514.4bn at the end of the previous the week with total traded value of trading week. Of the 45 listed com- QR95.2mn. panies, 11 ended the week higher, Trading volume decreased by while 32 declined and two remained 38.05% to reach 37.3mn shares versus unchanged. Doha Insurance (DOHI) 60.2mn in the prior week. The number was the best performing stock for the of transactions fell by 22.77% to reach Weekly Market Report week with a gain of 6.76% on 25,805 16,903 versus 21,887 in the prior week. shares traded. On the other hand, Qa- The banks and financial services sec- tari Investors Group (QIGD) was the tor led the trading volume, accounting worst performing stock for the week for 36.8%, followed by the real estate with a decline of 10.1% on 480.9k sector which accounted for 23.3% of shares traded. the overall trading volume. Source: Qatar Exchange (QE) Industries Qatar (IQCD), Masraf Qatar First Bank (QFBQ) was the top Al Rayan (MARK) and QNB Group volume traded stock during the week (QNBK) were the primary contributors with 5.3mn shares. Weekly Index Performance to the weekly index decline. IQCD was Foreign institutions turned bearish the biggest contributor to the index’s with net selling of QR93.0mn versus weekly decline, deleting 46.97 points net buying of QR13.4mn in the prior Source: Qatar Exchange (QE) from the index. MARK was the second week. Qatari institutions remained biggest contributor to the mentioned bullish with net buying of QR39.4mn decline, deleting 46.38 points from versus net buying of QR114.6mn in the index. Moreover, QNBK shaved off the week before. Foreign retail inves- 42.82 points from the index. However, tors turned bullish with net buying of Qatar Navigation (QNNS) added 17.43 QR7.1mn versus net selling of QR1.7mn points to the index. in the prior week. Qatari retail inves- Trading value during the week de- tors turned bullish with net buying creased by 35.77% to reach QR969.0bn of QR46.5mn versus net selling of versus QR1.51bn in the prior week. The QR126.3mn the week before. banks and financial services sector Foreign institutions bought (on a net Source: Bloomberg led the trading value during the week, basis) $29.5mn worth of Qatari equi- accounting for 41.6% of the total trad- ties since the beginning of 2018. Source: Qatar Exchange (QE)

DISCLAIMER

This report expresses the views and opinions of QNB Financial Services Co WLL One Person Company (“QNBFS”) at a given time only. It is not an off er, promotion or recommendation to buy or sell securities or other investments, nor is it intended to constitute legal, tax, accounting, or financial advice. We therefore strongly advise potential investors to seek independent professional advice before making any investment decision. Although the information in this report has been obtained from sources that QNBFS believes to be reliable, we have not independently verified such information and it may not be accurate or complete. Gulf Times and QNBFS hereby disclaim any responsibility or any direct or indirect claim resulting from using this report.

Qatar Stock Exchange Top Five Gainers Top Five Decliners

Most Active Shares by Value (QR Million) Most Active Shares by Volume (Million)

Investor Trading Percentage to Total Value Traded Net Traded Value by Nationality (QR Million)

Technical analysis of the QSE index formation named “Harami”, which is a bear- he index may have started a cor- ish reversal formation. If the index moves rective wave on the weekly chart. It below the current levels, then we might see Tclosed down 2.67% from the week further weakness to come. Our expected before and marked the 9,207.01 level. The support level remains at 8,000 points and current weakness has created a candlestick the resistance at 10,000.

Definitions of key terms used in technical analysis

andlestick chart – A candlestick represents one trading day) in our analy- chart is a price chart that displays sis. Cthe high, low, open, and close for a Doji candlestick pattern – A Doji can- security. The ‘body’ of the chart is portion dlestick is formed when a security’s open between the open and close price, while and close are practically equal. The pat- the high and low intraday movements tern indicates indecisiveness, and based form the ‘shadow’. The candlestick may on preceding price actions and future represent any time frame. We use a one- confirmation, may indicate a bullish or day candlestick chart (every candlestick bearish trend reversal. Gulf Times 22 Sunday, February 4, 2018 BUSINESS

Wall St is taking on Existential questions more risk again Bloomberg on similar deals declined to New York comment. And, to be clear, it isn’t that banks have suddenly reverted Three words have finally set to the heady days before the plague stock rally amid Wall Street deal-makers loose: financial crisis, when private President Donald Trump. equity firms loaded companies Off icially, the Trump like radio broadcaster Clear administration has yet to rewrite Channel and Texas power Obama-era rules restricting how producer Energy Future with much debt banks can pile onto debt loads so massive that they companies in buyouts. were forced to restructure. bond market swoon But a spate of recent The 2008 buyout of Clear transactions shows financiers Channel, now known as Bloomberg are letting go of their concerns iHeartMedia, pushed its debt New York about the lending guidelines to more than eight times that had tied their hands in earnings before interest, taxes, recent years. depreciation and amortisation, hey’ve faced threats before: And they’re doing so just as or Ebitda. The company skipped swollen valuations, a stagnating Wall Street’s buyout titans are a bond payment this week and Teconomy, stretches of declining demanding greater sums of may need to file for bankruptcy earnings. Now investors are dealing with cash so that they can take down if it can’t cut a deal with its a new menace, and it’s wreaking more bigger game – like Blackstone lenders. havoc than anything in two years. Group’s $17bn purchase this It was excesses like these It’s the bond market, where the big- week of the financial-data arm that prompted the Obama gest jump for interest rates since March of Thomson Reuters Corp. administration to pursue tighter has bulls questioning the staying power “If the cops say you can have leveraged-buyout restrictions of an equity advance now seven months open containers in Central as part of their crackdown on from being the longest ever. Park, what do you think is the financial industry in the So drastic is the run-up in yields that going to happen,” said Richard aftermath of the global crisis. it’s knocking stocks down during a pe- Farley, who runs the leveraged- Officials at the Federal riod when analysts are pushing up earn- finance practice at Kramer Reserve, the Office of the ings estimates four times faster than any Levin Naftalis & Frankel. “Listen Comptroller of the Currency time since 2012. to all the comments and the and the Federal Deposit Looking at the week’s drumbeat, you signals are clear – the bright line Insurance Corp issued new can’t help but wonder, is this the start of features of the guidance have guidelines to make sure banks something big? Warnings about valua- been cast into doubt.” weren’t taking on too much tions have been pouring forth from bears Take Carlyle Group LP’s risk in buyout deals. for so long that barely anyone listens an- buyout of workers-comp Those principles also took into ymore. With the S&P 500 up almost 50% vendor MedRisk last month. account how quickly companies in less than two years, some see the end Barclays helped underwrite can pay down the mountain of of the blissfully easy money that equities $705mn of debt to finance the debt they had taken on. have spewed out for 13 straight months. deal, pushing the company’s But it is increasingly being “It’s the turning point of volatility,” borrowings to levels that felt that federal regulators are said Jeff rey Schulze, chief investment Moody’s Investors Service willing to refrain from using strategist at Clearbridge Investments, estimates will reach seven times veto power and instead leave which manages $137bn. “We were all earnings. the decision in the hands of very fortunate to go through a year like It’s the kind of deal that banks to exercise their own 2017. But there’s a number of diff erent big banks like Barclays had credit judgment, according dynamics this year that will make vola- been turning down in recent to interviews with senior tility more part of the equation than it years – allowing the less- leveraged finance bankers. has been in quite some time.” regulated Jeff eries Group to To add to the renewed “But it’s defi nitely not the end of the suddenly become America’s confidence is the incredibly bull market,” Schulze said. “In order to biggest arranger of buyout open credit market that’s willing see the end of the bull market, you need debt – because it would have to gobble up any new debt to see the US go into a recession. We have likely caught the attention of deal brought to it, which has an economic dashboard at Clearbridge, 12 regulators. paved the way for the jumbo variables that have done a very good job of The rough interpretation of the Blackstone deal. foreshadowing an economic downturn. guideline, bankers at the big And it comes at a time when Out of the 12 variables, only one of them is firms say, was that any deal with across financial markets there fl ashing any type of caution.” a leverage ratio well above six are signs of banks and other When Friday’s dust cleared, the times earnings would attract institutions beginning to push S&P 500 was down 2.1% on the day to unwanted attention. the envelope. 2,762.13, and 3.9% for the week – the That angst is fading quickly. “Amid a stronger market most since January 2016. The Dow Jones Goldman Sachs Group, UBS backdrop where people feel it’s Industrial Average fell 665.75 points to Group and Bank of America more willing to absorb more 25,520.96, bringing its total points lost Corp have all arranged debt for aggressive terms, combined over fi ve days to 1,095.75. The Nasdaq buyout deals over the past few with a regulatory backdrop 100 Index fell 3.7% for the week while the weeks that pushed leverage that is clearly more forgiving,” Cboe Volatility Index surged 56%. gies: those lumped together under the The S&P 500 just had its best January and not a signal of something dire.” levels. said Mike Terwilliger, a New The most signifi cant feature of this rubric of 60/40 mutual funds. Among 35 since 1997, stocks from Nvidia to Boeing At the same time, a lot that looks And then there were the deals York-based portfolio manager selloff has been its breadth. While past such funds that have at least $1bn in as- Co to Vertex Pharmaceuticals all came straightforwardly good for investors for Avantor and anti-virus at Resource America, which declines in the US stock market have sets, all suff ered losses during the week. close to doubling last year, and turbu- could be framed as bad. Buying stocks software maker McAfee from oversees more than $9bn. “I been notable for their narrowness – Their decline averaged 1.2%, the most lence as measured by the average level when unemployment is this low and con- last fall that raised eyebrows in think this is the time you’re when one industry fell, another rose – since September 2016, data compiled by of the VIX was never lower than it was in sumer confi dence this high hasn’t been a the market. going to see some of those this time there’s been no cushion. Bloomberg show. 2017. Friday’s downdraft came on a day great bet: Four of the last fi ve peaks in the Last year, 6.6% of all LBO deals previously established All 11 industries in the S&P 500 de- A big concern for investors is the tim- the Labor Department said US employers S&P 500 came after the jobless rate fell had leverage ratios of at least boundaries get pushed a bit.” clined in the last week, something that ing of the rout – the middle of earnings added 200,000 jobs and unemployment to between 50 and 100 basis points be- seven times, up from just 3.4% Last fall, the Government hasn’t happened since the month of season, a calendar period that for the held at a 17-year low. low 4.5%, data compiled by Credit Suisse in 2016, according to data from Accountability Off ice said the Donald Trump’s election. last six years has a nearly perfect record “The underlying strength of the econ- Group AG show. LCD, a unit of S&P Global Market lending guidelines needed to be Selling has also been spread among of boosting stocks. Bulls hoping for a omy is still healthy. The overall level of The past year’s rally has also attracted Intelligence. subject to congressional review, asset classes. A simple comparison that broader celebration of brisk iPhone X interest rates is still quite low. If anything, a category of investors whose enthusiasm Underwriting standards leaving their applicability in adds up percentage losses in the SPDR demand at Apple or surging holiday sales we’re surprised that it took so long for us isn’t always welcome: individuals. Client “adhere to the guidelines” and question. S&P 500 ETF and iShares 20+ Year Amazon.com were disappointed. Even to get a 3, 5% correction in the market,” activity at TD Ameritrade Holding Corp there are no plans to change That was followed by banking Treasury Bond ETF showed a concerted the seventh straight weekly upgrades to said Evan Brown, New York-based direc- hit a record as the number of daily trades those standards at our bank, regulators telling Congress that selloff that was the worst since January S&P 500 earnings estimates was no help. tor of asset allocation on the investment surged almost 50% in the past year. At according to AJ Murphy, head they plan to reissue guidelines 2009. To be sure, even a decline such as this solutions team at UBS Asset Manage- E*Trade Financial Corp, the number of of global capital markets at that previously forced regulated The swoons are taking a toll on one of week’s is barely notable in a stock chart ment, which oversees $776bn. “This is a trades from which a broker can generate Bank of America. Other banks banks to shun risky deals. the most popular asset allocation strate- that goes back more than a few months. healthy repricing of bonds and equities, revenue is the highest ever. Junk-bond rout erodes investor optimism as credit tailwinds fade Yellen admits disappointment

Bloomberg terms of mutual-fund inflows, in terms of central bank Washington support, in terms of generous valuations, we do think over her exit in rare interview that a lot of those are fading,” said Neil Sutherland, a portfolio manager at Schroders, which has $135.2bn of The worst day of the year for junk bonds rattled assets in its global fixed-income funds. “We would be Bloomberg when she took offi ce. The January read- credit-investor confidence as risk assets suff ered in a lot less optimistic on credit products than we have Washington ing, released earlier on Friday, matched sympathy with slumping Treasuries and stocks. But been over the last three or four years.” the lowest since 2000 and was below the most portfolio managers don’t expect much more of “We’re not seeing corporate defaults, they’re at all-time level that most economists – including a selloff . lows,” said Kevin Giddis, head of fixed-income capital ederal Reserve Chair Janet Yellen those at the Fed – reckon is equivalent to The high-yield pain was most easily spotted in markets at Raymond James & Associates. “Until we professed her disappointment over full employment. exchange-traded funds, the biggest of which dropped start to see some cracks like that, it’s still an attractive Fnot being tapped for a second term Infl ation, though, has consistently to the lowest since March. trade,” Giddis, referring to high-yield credit, said on by President Donald Trump, as she also fallen short of the Fed’s 2% objective “JNK chart looks like death. No way to win here, folks,” Bloomberg TV. predicted the central bank would keep during Yellen’s tenure and stood at 1.7% DoubleLine Capital CIO Jeff rey Gundlach tweeted. JNK Those who anticipate spreads widening don’t expect a on its path of gradual interest-rate in- in December, according to the Fed’s fa- is the ticker for the SPDR Bloomberg Barclays High significant move. creases. vourite price gauge. Yield Bond ETF, one of the biggest high-yield exchange “We’re not surprised that we would see a modest “I would have liked to serve an addi- Yellen and her fellow policy makers traded funds. reversal because of the sharp drop in spreads we’ve tional term and I did make that clear, so said this week that they expect infl ation The Markit CDX North America High Yield Index fell seen since the beginning of the year,” said Collin I will say I was disappointed not to be to rise this year and to hit their target 0.43% in New York on Friday. Martin, a fixed-income strategist at Charles Schwab reappointed,” she said on Friday on the “over the medium term.” High-yield investors blamed Treasuries’ drop to a Corp. “We could see spreads rise a little bit this year but PBS NewsHour programme in a rare tel- Notwithstanding this week’s rout in four-year low for the move, which follows credit- we don’t see this as the end of the credit cycle. We’re evision interview. In her last day on the the stock market, investors have pros- spread tightening to levels not seen since the not anticipating a sharp, steep selloff .” job, Yellen added, “I feel great about the pered during Yellen’s time atop the financial crisis. “There’s still a pretty good chance you earn your economy, I think things are looking very central bank. Since she took control in “In a world where your 10-year is pushing 3%, it’s coupon,” said Eric Stein, co-director of global income strong.” February 2014, the Dow Jones Industrial hard to have high-yield trading at 5.5”%, said Randall at Eaton Vance Corp, said on Bloomberg TV. “Certainly “The Federal Reserve has been on a Average has risen by more than 65%. Parrish, senior portfolio manager at Voya Investment there’s not as much value in the credit markets as you path of gradual rate increases and if con- As Fed chair, Yellen began the process Management, which oversees $230bn. “It’s not like had a year or so ago.” ditions continue as they have been, that of exiting from the extraordinary meas- we’re afraid of credit – spreads aren’t really going For others, the move was a reminder of junk-bond process is likely to continue,” she said. Yellen: Unhappy over not considering ures that the Fed put in place during the wider.” vulnerability as the credit cycle extends a multi-year In a break from past practice, Trump for a second term. fi nancial crisis and its aftermath, ginger- The arguments in support of junk bonds have not run. opted not to nominate Yellen to a second ly lifting interest rates from near 0% and changed, investors say. They include positive earnings, “As we get further into this late stage of the four-year term. Instead, he chose fel- Yellen said gains in the labour market slowly scaling back the central bank’s big steady US economic growth and stable commodity economic cycle, we’re going to have more and low Republican Jerome Powell to head had begun to benefi t “almost all groups holdings of bonds. Yellen’s exit marks the prices. However, some of the external drivers may not more of these types of situations,” said Jody Lurie, the central bank. Earlier on Friday, the in the American economy” and she ex- end of more than 15 years of public serv- be as strong. corporate credit analyst at Janney Montgomery Brookings Institution announced Yellen pected the pace of wage growth to move ice in two stints at the central bank. She “We still think fundamentals are on sound footing,” Scott. “We’ve seen a couple of indications that the is joining the Washington-based think up, but perhaps not dramatically. fi rst served as a governor under Chair- said Ken Monaghan, co-head of high yield at Amundi environment we’ve gotten used to is changing, but tank to continue her economic studies “Ultimately it’s limited by productiv- man Alan Greenspan in 1994 to 1997. She Pioneer, with $53.7bn in assets. I don’t know if those are enough to spur a complete and particularly her analysis of the la- ity growth, which is weak,” she said. returned as president of the San Francis- “The tailwinds we’ve had in the last few years, in shift in mentality just yet.” bour market. Powell is to be sworn in as During Yellen’s four-year term, un- co Fed in 2004, became vice chair in 2010 chair on Monday, February 5 at 9 am. employment fell to 4.1%, from 6.7% and chair in 2014. Gulf Times Sunday, February 4, 2018 23 BUSINESS

Deutsche Bank sees contagion risk growing in fi nancial markets

Bloomberg investor positioning is stretched in At fi rst glance, the timing of the global economy. Momentum is ac- rything is stretched by historic stand- and refl ect weak infl ation. A faster- New York almost every major asset. Even worse, rupture looks odd, with global growth celerating in so-called refl ation trade, ards. In US equities, mutual fund ex- than-expected pickup in infl ation is markets are moving in unison to a de- picking up momentum and earnings where risky assets such as stocks and posure rose to a six- year high while “likely to be interpreted as a sign of the gree rarely seen during this market estimates rising faster than ever. But commodities rally and havens like the short interest in stocks and ETFs fell to economy overheating and the Fed em- f the selloff feels like news, don’t cycle, in which pain in one asset is anyone heeding Chadha’s call would US dollar and sovereign bonds lose fa- the lowest level since 2007. In other as- barking on hiking until it ends the cy- blame Binky Chadha. Yes, stocks spreading quickly to another. have at least had a clue. vor. sets, fund exposure to oil is now about cle, resulting in broad based risk aver- Iare heading for their worst week in It came home to roost Friday. The A measure that tracks the average The S&P 500 just fi nished January 2.8 standard deviation above average sion,” Chadha wrote Wednesday. two years. Treasuries are sinking, with Dow Jones Industrial Average plunged three-month correlation between the up 5.6% in the best start to a year since while long euro shows similarly ex- That seemed to be what triggered 10-year yields jumping to the high- 600 points as a strong employment re- S&P 500, 10-year Treasury yields, the 1997, while oil surged past $65 a bar- treme readings. Friday’s carnage in fi nancial markets. est level since 2014. And commodities port of sent Treasury yields toward 3%. euro and oil has risen to 90%, a level rel, hovering near a three-year high. So extended is the positioning that Stocks and bonds extended their week- from oil to gold have been roiled. But The S&P 500 ended an unprecedented reached only twice before, according Meanwhile, Treasuries posted their an unwind could occur even without ly losses as strong jobs data increased according to Deutsche Bank AG, signs streak of going without a 3% pullback to Deutsche Bank data that goes back worst return in more than a year and a fundamental catalyst triggering a the likelihood the Federal Reserve will of trouble have been plainly visible for and traders are scrambling to hedge to 2004. the dollar fell in 10 out of the past 13 domino eff ect, warned Chadha in his lift rates next month. The selling ac- a while. against losses. As a result, options The tight relationships refl ect a months against a basket of currencies. note. To him, fi xed income may repre- celerated after Dallas Fed President Chadha, the fi rm’s strategist, sent trading in the Cboe Volatility Index theme that traders are increasingly As investors all chase the same trade, sent the biggest risk as valuations are Robert Kaplan suggested more than out a warning earlier this week that surged to a record. embracing: accelerating growth in the consensus is building that almost eve- “completely out of line with growth” three hikes may be necessary this year.

Dell to explore IPO or merger with VMware

Reuters reported on Thursday that Dell San Francisco planned to announce a review of a possible reverse merger with VMware, as well as other op- omputer maker Dell tions, including an IPO or asset Technologies said on Fri- sales. Cday it was considering a Sources told Reuters VMware public off ering of common stock was likely to form a special com- or a combination with business mittee to consider a combina- software maker VMware, its tion with Dell. publicly held subsidiary. Dell added on Friday that Dell, the world’s largest pri- nothing had been decided and vately held technology company, the company might end up con- is under pressure to boost prof- tinuing to operate under its cur- itability after its debt-laden ac- rent structure. quisition of data storage provid- “The board of directors fol- er EMC Corp for $67bn in 2016 lows sound corporate govern- failed to meet fi nancial targets, ance practices, and will continue hurt by intensifying price com- to do so in connection with any petition. potential transaction involving Combining with VMware our controlling stockholders,” would provide access to VMware’s lead director Paul VMWare’s $11.6bn in cash, help- Sagan said in a company state- ing Dell trim its $52.5bn debt ment. Pedestrians pass in front of a Wells Fargo & Co bank branch in New York. Wells Fargo detailed new regulatory restrictions imposed by the US Federal Reserve on Friday that pile. Last month’s US tax reform Shares in VMware, which is sent its shares down sharply in after-hours trading, as the third-largest US bank continues to reel from a sales scandal that erupted in 2016. made servicing that debt more 82%-owned by Dell, fell 2.4% on expensive due to caps on de- Friday to close at $122.72. ducting interest expense. Dell’s tracking stock, which The combination would also Dell issued to fi nance the EMC make Dell a publicly listed com- deal and which tracks the value pany, off ering a path for private of VMware’s business, was up a equity fi rm Silver Lake to begin little less than 1% at $70.90. selling down its 18% stake if it Dell has faced fi erce com- chooses to. petition in the storage market, Fed orders Wells Fargo Silver Lake helped bankroll with prices pressured by cloud- Dell CEO Michael Dell in taking based rivals such as Amazon. the company private in 2013 in a com Inc’s AWS and Microsoft $24.9bn leveraged buyout. Corp’s Azure. A lockup provision prevents Dell’s infrastructure chief, Dell from buying out the stake in former EMC executive David to halt growth over VMware it does not already own Goulden, departed last fall, until September. and the company has been Any merger agreed before working to reorganise storage then would have to be struc- operations. tured as an acquisition of Dell Michael Dell helped shape the by VMware: a so-called reverse personal computer market when merger. he founded Dell in 1984 as a Uni- compliance issues “We view a reverse merger of versity pre-med freshman with Dell by its majority-owned sub- $1,000 in savings. Reuters members by April and a fourth board ment with the Consumer Financial Pro- enhanced oversight from its board of sidiary, VMware, as potentially But growing popularity of Washington/New York member by the end of the year, the Fed tection Bureau, the Offi ce of the Comp- directors and improved compliance and the most benefi cial alternative smart phones and tablets has said, without naming who they should troller of the Currency and a Los Angeles risk management functions, and how it for Dell and Silver Lake,” Wells squeezed the PC market, which be. Wells Fargo shares fell 6.1% to $60.10 prosecutor in September 2016 over em- plans to improve further. Fargo Securities analysts wrote shrank by 0.2% in 2017, accord- ells Fargo & Co detailed new in after-hours trading. ployees opening phony accounts in cus- Once the Fed approves those plans, in a research note. ing to International Data Corp. regulatory restrictions im- The Fed’s consent order will have a tomers’ names without their permission Wells will hire third-party consultants A combination of Dell and Dell’s servers have been a bright Wposed by the US Federal Re- “manageable” impact on profi ts and to artifi cially hit internal targets. to review them and monitor its progress VMware would place them un- spot, helping total net revenue serve on Friday that sent its shares down should not aff ect the bank’s plans to re- The tally of fake accounts has since until the regulator is satisfi ed. der the same management and grow to $56.7bn in the nine sharply in after-hours trading, as the turn capital to shareholders this year, risen to as many as 3.5mn. Regulators The San Francisco Fed and top regula- help them co-ordinate strategy. months to November 3, from third-largest US bank continues to reel chief executive offi cer Tim Sloan said have rarely intervened directly in a bank’s tory offi cials in Washington will lead the Dell’s hardware and VMWare’s $41.6bn a year earlier. from a sales scandal that erupted in 2016. during a conference call with analysts on operations in the past, and it is unprece- review, the central bank said. software off erings could poten- Yet operating expenses soared Wells is not allowed to grow beyond Friday evening. dented for the Fed to order a bank to stop “We cannot tolerate pervasive and tially be marketed in one suite of from $10bn to $17.3bn and Dell’s the $1.95tn in assets it had at the end of “We are in a very competitive business growing altogether, offi cials said. persistent misconduct at any bank,” said products. operating loss widened to $3bn last year “until it suffi ciently improves its whether we have a consent order or not,” But Wells Fargo’s aggressive business Chair Janet Yellen in a statement on her “As part of our ongoing mul- from $1.6bn a year ago. governance and controls,” the Fed said in said Sloan.”Our marching orders to our strategy prioritised growth over eff ec- fi nal day as leader of the central bank. ti-year strategic planning, Dell Dell has been considering a a statement. team are, go out and serve your custom- tive risk management, leading to seri- Since the 2016 settlement, Wells has Technologies is evaluating a sale or initial public off ering Wells Fargo estimated that the cap ers, fulfi ll our vision, take deposits, make ous compliance breakdowns, the central taken steps to enhance oversight at the number of potential business (IPO) of one of its fast-growing will cut its annual profi t by $300mn to loans. We are open for business.” While bank said. board level, centralise risk-manage- opportunities,” founder Michael divisions, Pivotal Software Inc, $400mn this year, as it reduces some Sloan said he takes the matter seriously, Wells Fargo’s balance sheet expanded ment functions and install new execu- Dell said in a blog post. “We do sources have said. parts of its balance sheet, like corporate he also characterised it as the latest step steadily from the end of 2013 to 2016, but tives to oversee key businesses and con- this from a position of strength, Dell, whose technology port- deposits and trading assets, in order to in a risk-management and corporate gov- growth slowed dramatically last year as it trol functions. with a desire to grow Dell Tech- folio spans servers, displays, continue growing core businesses. ernance overhaul that Wells Fargo began battled to address the issues raised by the Its board chair, Betsy Duke, is a former nologies and its businesses even workstations and gaming PCs, That represents 1.5 to 1.9% of the prof- some time ago, when it realised it had a scandal. Fed governor, and it recently hired Sarah faster and thrive in the very dy- also has a security unit, RSA, and it Wells generated in 2017. serious problem with sales practices. The bank must submit a plan to the Dahlgren, a former New York Fed offi cial, namic IT marketplace.” Reuters a cloud platform called Boomi. The bank will also replace three board The bank reached a $190mn settle- Fed within 60 days detailing how it has as its head of regulatory relations. Interest rate angst trips up US equity bull market

Reuters market has been stocks are inexpensive reacted to data from the US Labor Depart- Nicholas Colas, co-founder at DataTrek in order to sidestep the impact of rising as of January 30, so-called noncommercial New York relative to bonds, and bonds are getting ment showing wages last month recorded Research in New York.”Rates have risen rates. US-based active stock mutual funds, investors had modestly raised their net cheaper, especially at these highs,” said their largest annual gain in more than 8-1/2 fairly quickly this year and the speed of which lost $7.2bn in outflows as investors long positions for a third straight week. Michael O’Rourke, chief market strate- years. the advance is worrying.” moved toward “passive” stock exchange Stocks sensitive to rates are leading the For nearly nine years, the global hunt gist at JonesTrading in Greenwich, Equities continued a five-day downward The yield on the 10-year Treasury has traded funds (ETFs), attracted $2.4 bn in market lower for the year. for yield sent you to one place: the US Connecticut.”So people are taking profits trend, with the S&P 500 sliding more than risen to 2.84% from 2.46% at the start of new assets during the week that ended Real estate stocks in the S&P 500 are stock market. On Friday, stocks took and they probably should be.” 2% for its largest one-day decline since the year, the swiftest rise since Novem- Wednesday, according to data from Lipper. down 3.7% over the last month, while utili- their biggest pounding since September With the yield on the benchmark 10- September 2016. ber 2016. Earlier this week, the Federal At the same time, the lowest end of ties are down 4.6% over the same time. 2016, before US President Donald Trump year Treasury note on pace to top 3.5% The Dow Jones Industrial Average lost Reserve left rates unchanged but said it the credit spectrum has been facing cash Consumer discretionary stocks, which was elected, after the US government’s this year for the first time since April of more than 2.5%. Meanwhile, a sell-off in anticipated inflation likely would rise in withdrawals as rising rates increase the tend to outperform during periods of infla- monthly payrolls report showed the big- 2011, risk-free bonds are becoming an bonds that has gathered pace this year 2018, bolstering expectations borrowing cost of refinancing debt. tion due to rising wages, are up 8% over gest wage gains for workers since 2009. increasingly attractive place for yield- intensified, with yields on 10-year Treasur- costs will continue to climb. In the week ended Wednesday, US- the same time. That convinced investors the threat of focused investors. ies hitting a four-year peak. That dynamic The Fed currently projects three rate based high-yield “junk” bond funds posted Fund managers say they expect that inflation, long tame since the 2007-2009 At the current forward price-earnings is putting pressure on areas of the market hikes for this year. outflows of $1.8bn, their third consecutive other growth-oriented sectors such as recession, is growing larger, sending bond ratio of 18.2, according to Thomson that had served as bond proxies. Stocks have so far proven largely im- week of cash withdrawals, according to technology and financials will continue to yields soaring. Reuters proprietary research, the S&P 500 As a result, fund managers are redis- mune to rising rates, with the S&P 500 Lipper. The four-week moving average for outperform, thanks in part to a pickup in With central banks having taken index’s earnings yield is 5.5%, well below covering the risk of rising rates, selling out jumping nearly 20% in 2017. Stocks have the sector is negative $825mn, the largest inflation and the Republican-led tax over- extraordinary measures to combat the the historic norm of around 6.7%. of assets ranging from high-yield “junk” not fallen by 10% or more since the start such figure since early December. haul that slashed corporate rates. financial crisis, driving interest rates to With bond yields rising across the spec- bonds to utility stocks and pushing the of 2016, leaving recent declines as buying Still, some have piled in even as risks Overall, 78.1% of companies in the record lows and making safe assets like trum, the 5.5 cents of profit that underpins broad S&P 500 lower. opportunities. rose. US fund investors cashed out of cash S&P 500 have reported fourth-quarter US Treasuries a scarcity, investors of all every $1 in share prices on average begins Warning signs for equities have been A stock market correction could pose funds and stocked up on stocks in the lat- earnings above analyst expectations, com- stripes were forced to turn to equities. to look thin by comparison. long discussed, as the market hit almost a political problem for President Donald est week, Lipper data showed. pared with an average of 72% over the last But when what had been a stealth “We don’t have a line in the sand but daily fresh highs. Trump and his fellow Republicans ahead Earlier in the week, positioning data year, according to Thomson Reuters data. increase in US rates over several months 10-year Treasuries near 3% are starting On Friday, Merrill Lynch’s bull-bear in- of congressional elections later this year. showed hedge funds and other big specu- “You’re getting a pickup in economic suddenly broke out into the open in the to look a lot more attractive,” said Mike dicator, which has accurately predicted 11 Trump has trumpeted the sharp gains lative investors to have their largest net growth and in wages, so that makes the last week, investors were jolted awake to a Dowdall, a portfolio manager with BMO out of 11 US stock market corrections since in US equities since he took off ice as proof long exposure to the S&P 500 since Sep- growth sectors still the place to be,” said new reality: stocks are no longer the only Global Asset Management. 2002, hit a “sell” signal. that his economic policies were working. tember. Weekly commitments of traders Margaret Patel, a senior portfolio manager solution for finding yield. That rise in yields prompted a broad The rise in bond yields is “certainly There already are signs investors are data released Friday by the Commodity at Wells Fargo Funds who runs a portfolio “One of the key mantras of the bull sell-off in stocks on Friday, as investors beginning to concern the markets,” said moving into actively managed stock funds Futures Trading Commission showed that of both equities and fixed income. Sunday, February 4, 2018 GULF TIMES BUSINESS Global economy to continue synchronised upturn, says QNB

The global economy should continue to enjoy global economy was emerging from the depths tight and the rise in long term government demand), while growth in India is forecast to a synchronised upturn buoyed by stronger of the global financial downturn. bond yields has been contained as the market accelerate markedly to 7.4% in 2018 (from 6.7% demand growth in the US, a resilient China, At the same time, growth in global trade continues to price in a very gradual rate hiking in 2017). and still favourable financing conditions “over volumes picked up in 2017, supported by an cycle in the US against a backdrop of muted The IMF forecast for the Middle East and North the next year”, QNB has said in an economic upswing in investment, especially in advanced inflationary pressure. Africa has growth accelerating from 2.5% in 2017 commentary. economies. In terms of regional breakdown, the IMF is to 3.6% in 2018 reflecting the benefits of higher Earlier this month, the International Monetary Looking ahead, the strong growth momentum in forecasting growth in the US to accelerate from oil prices that provide more fiscal space for Fund (IMF) published its revised forecasts for 2017 is expected to carry through to 2018. 2.3% in 2017 to 2.7% in 2018, QNB noted. For the government spending. global growth in its World Economic Outlook First, the recently-passed US tax reform advanced economies as a group, the IMF has While the outlook for global growth remains (WEO) update. legislation and associated fiscal deficits is revised up its growth forecast to 2.3% (from bright there are nevertheless downside risks. Global growth is estimated at 3.7% in 2017 forecast to lead to higher demand in the US 2.0% previously). An upside inflation surprise in the US, where (compared to 3.2% in 2016) while the forecast that should also benefit its trading partners, The forecast for emerging market and unemployment is at historical lows, would likely for 2018 has been revised up from 3.7% to 3.9%, particularly those economies with large export developing economies remains unchanged lead markets to price in a more rapid hiking QNB said. sectors exposed to the US such as the Nafta relative to the October WEO, with growth cycle by the US Fed. The upswing in global growth that began in economies of Canada and Mexico. accelerating to 4.9% in 2018 from 4.7% in 2017. This would push long term bond yields higher, mid-2016 has continued to gather momentum. Second, although global central banks will Emerging Asia and Developing Asia remains the the US dollar stronger and equity markets lower. As the IMF points out, some 120 countries be withdrawing stimulus in 2018, growth will fastest growing region with growth forecast at The cost of borrowing would rise and global accounting for about three quarters of global continue to be supported by still favourable 6.5% in 2018, the same as in 2017. capital flows would slow as financial conditions output have witnessed higher year-on-year global financing conditions. Equity markets Within the region, China is expected to slow tightened resulting in a slowdown in growth, growth in 2017 – this makes it the broadest continue to march higher, in part supported by moderately to 6.6% in 2018 (revised up from especially for those economies that have large upswing in global growth since 2010 when the earnings growth, while credit spreads remain 6.5% previously reflecting stronger external external borrowing requirements, QNB said.

Bond traders fl ood into hawkish Fed bets Wall Street’s main stock after strong job report

Bloomberg a-half hikes next year – as the New York strip continues to aggressively indexes suff er their bear steepen. It comes after a fl urry of trades immediately fol- ond traders are rushing lowing Wednesday’s Fed meet- into wagers that the Fed- ing also betting on front-end Beral Reserve will continue spreads to widen further. to raise interest rates well into The gap between Decem- next year after Friday’s jobs re- ber-18 and December-19 con- worst week in two years port showed the strongest wage tracts has more than doubled gains since 2009. since the start of the year. Reuters While the euro-dollar futures, Nonfarm payrolls rose New York fed fund futures and overnight 200,000 in January, exceeding index swap markets have almost the median estimate of econo- fully priced in the Fed’s forecast mists for a 180,000 increase. Av- all Street’s main stock index- of three hikes this year, they’ve erage hourly earnings rose 2.9% es suff ered their worst week been, until recently, stubbornly from a year earlier, the most Win two years as bond yields dovish on the pace of rate in- since June 2009. Subtle tweaks soared and renewed fears of infl ation creases beyond 2018. in the language of this week’s gripped investors. Not anymore. Demand in the Fed policy statement may also But amid the selloff , corporate earn- euro-dollar market has surged be fuelling the wagers, according ings forecasts keep improving. for downside hedges – or pro- to Goldman Sachs Group chief Forecasts for earnings, one of the fun- tection against a more aggressive economist Jan Hatzius. damental factors that drives stock prices, policy path – across the 2019 “While further rate increas- are rising fast as analysts factor in ben- and 2020 tenors as the backdrop es were already implied by the efi ts from the US tax overhaul. of a weaker dollar, tax cuts and previous wording – and by the Optimism over forecasts has caught rising wages fuels expectations hikes projected in the December the attention of anxious investors, who infl ation is on the upswing. summary of economic projec- hope that strong earnings can support The spread between Decem- tions – we think the committee lofty stock valuations and off set the ber 2018 and 2019 contracts implemented this change to em- concerns over rising bond yields and the climbed to 37.5 basis points on phasize the durability of the hik- pace of Federal Reserve rate hikes. Friday – suggesting traders are ing cycle they foresee,” Hatzius Rising interest rates in general mean now pricing in about one-and- wrote in a note to clients. higher borrowing costs for companies. This week, fears of higher rates over- whelmed the upbeat profi t picture as the benchmark S&P 500 stock index fell Big volatility players may 3.9% and raised some concern about a deeper pullback. be on the loose as VIX tops “This uptick in bond rates has every- body nervous obviously,” said Gary Brad- shaw, portfolio manager at Hodges Capi- Bloomberg participant the pachyderm name. tal Management in Dallas, Texas. New York The account would book a profit “But we step back and look, and so if implied equity volatility rises far earnings have been awful good. Even moderately. though you have seen rates move up Trading patterns associated The Elephant’s activity could some here, they are still very low, infl a- with two major volatility players involve buying back 262,500 Feb- tion is still low,” he said. popped up again on Friday as the ruary VIX puts with a strike price With half of the S&P 500 index com- Traders work on the floor of the New York Stock Exchange (file). Wall Street’s main stock indexes suff ered their worst week in two Cboe Volatility Index rose above of 12, selling 262,500 15 calls, and panies still to report fourth-quarter re- years as bond yields soared and renewed fears of inflation gripped investors. 15 for only the second day this buying back 525,000 25 calls in sults and potentially give guidance on year. The move came as the quick order to close out the existing po- 2018, profi t estimates are likely to in- First-quarter profi t growth for S&P 2018 earnings estimates were 4.3 times proving global economic growth and the rally in US stocks that started the sition. Then, the new position may crease further. 500 companies is now estimated at more positive than negative, according weaker US dollar, which helps US mul- year suff ered an abrupt reversal. be established by selling 262,500 Even after the selloff this week, the 17.7%, according to Thomson Reuters to Bank of America Merrill Lynch. tinationals exports sales, said Jill Carey The S&P 500 may still be up more 12 March puts, buying 262,500 15 S&P 500 is up 3.3% for this year and that data, up from 11.7% on December 20, The one-month ratio of upward to Hall, equity and quant strategist at Bank than 3% in 2018, but it tumbled calls and selling 525,000 25 calls. is on top of a 19.4% gain for 2017. when both houses of Congress approved downward revisions was the highest of America-Merrill Lynch. almost 4% this week alone, as the This is similar to activity seen on Whether this week’s downturn in glo- the tax revamp. since at least 1986, as far back as the Those factors could help to underpin VIX has hit its highest levels since January 11 for the prior month, bal equity markets continues will depend Earnings growth for 2018 is now fore- bank’s data goes. US earnings even after the tax benefi t is November 2016. Chintawongvanich notes. in part on upcoming earnings reports. cast at 18.2%, up from 11.5% on Decem- All of the S&P 500 companies together priced in. The “VIX Elephant” may have Patterns consistent with an- Reports from both Apple and Google ber 20. are expected to show earnings of about “Stocks may be have been overbought, traded about 2mn contracts on other market participant, dubbed parent Alphabet late Thursday disap- Typically, expectations decline as the $155 per share this year in aggregate, up but some of that was alleviated this week, Friday – closing out positions that “50 Cent” by Chintawongvanich pointed investors, as did Friday’s re- earnings reporting season for the quarter about $9 since December 20, Thomson and global growth and profi t growth are expire in February and rolling due to a penchant for buying sults from ExxonMobil and Chevron, approaches. Reuters’ estimates show. still intact,” said Bucky Hellwig, senior the trade over to same-strike near-dated VIX options priced at but fourth-quarter S&P 500 company On average, profit growth expecta- The tax reform benefi t is estimated vice president at BB&T Wealth Manage- options that mature in March, around 50 cents, also appeared. results overall have been much stronger tions fall by four percentage points to add more than that, however, a full ment in Birmingham, Alabama. according to Pravit Chintawon- A block of 50,000 VIX March 28 than expected. from the start of the quarter to the start $13, which suggests there “there is more Among companies due to report next gvanich, the head of derivatives calls traded in New York for 48 Among changes to the tax law, the cor- of earnings season, said David Aurelio, room to run,” BofA-ML strategists said week are Walt Disney, General Mo- strategy at Macro Risk Advisors, cents each, after a trade of 49,501 porate income tax rate drops to 21% from senior research analyst at Thomson in a note. tors, several biotech companies includ- who originally gave the market contracts for 54 cents each. 35%, so earnings estimates for the fi rst Reuters. In addition to the tax law, US compa- ing Gilead and restaurants including quarter and all of 2018 have jumped. This January, revisions to S&P 500 nies’ earnings are benefi ting from im- Chipotle Mexican Grill. Deutsche Bank traders set for ‘generous’ bonus despite slump

Bloomberg highly-paid investment banking staff , accounts for less than a fi fth of the London, started his career trading the London while keeping a lid on costs after three €12.2bn the bank had in compensation instruments in South Africa. straight years of losses. But with revenue expenses last year. He also said that ac- The decline in equities trading com- at a seven-year low, even a relatively small cruals for bonus payments in the fi nal pares with a 14% drop at Goldman eutsche Bank chief executive increase in compensation is pushing the quarter were up by €750mn compared Sachs Group and a 23% fall at Citi- offi cer John Cryan, seeking to securities unit into the red. The bank’s with the fi nal quarter of 2016. group. While US lenders reported more Drestore morale after massive chief fi nancial offi cer James von Moltke The bank lost several senior em- than $1bn in losses as a result of an ac- bonus cuts last year, raised compensa- on Friday urged a return to more disci- ployees last year after slashing variable counting scandal at Steinhoff Interna- tion for traders and bankers in 2017. He plined cost management after the lender compensation, and investment bank- tional Holdings, the debacle was “not a didn’t get much in return. had to give up its expense target. ing co-head Marcus Schenck on Friday big event for us,” Schenck said. Trading at Frankfurt-based Deut- Given the bank’s focus on costs, this suggested some of the underperform- Some of the declines in revenue were sche Bank slumped 27% in the fourth year’s “generosity” will not be repeated ance in the equities business may be similar to those reported by Deutsche quarter to €886mn ($1bn), while fees next year and staff should only expect related. Revenue from Deutsche Bank’s Bank’s biggest rivals, executives said, from advising on deals and arranging increases if the bank’s performance equities unit fell 25% to €332mn, one as the industry struggled with a slump debt and equity sales fell 3%. Higher improves, too, Cryan said. The invest- of the worst quarterly performances in volatility that caused clients to en- bonuses combined with the decline ment bank paid “one-off ” bonuses for reported by global lenders so far. gage in fewer transactions. fuelled a loss at the German lender’s the past year to bolster morale in the “We clearly recognise that the eq- Fixed-income trading, the biggest sin- investment bank. unit, Cryan said in his speech. uity derivatives business is one that we gle revenue generator in the investment “I think we’ve actually been erring Analysts questioned why higher pay need to improve,” Schenck said. Peter bank, fell 29% for the quarter to €554mn, slightly on the generous side” when hasn’t resulted in better performance. Selman, the ex-Goldman Sachs part- less than the 34% drop posted by JPMor- awarding bonuses for 2017, Cryan said “The issue is why the revenues are ner hired to run the struggling business gan Chase & Co. Citigroup fell 18% and in an interview with Bloomberg TV so poor,” said Piers Brown, an analyst late last year, has a “specifi c equity de- Goldman Sachs Group plunged 50%. Friday. “We took a risk last year” by in London with Macquarie Bank. rivatives background,” he said. “Are we gaining ground? Yes we are,” slashing variable compensation almost Deutsche Bank didn’t say how Equity derivatives are products Cryan said. “Are we regaining trust 80%. Now, “we’re talking about in- much it had set aside to cover bonuses whose value is tied to underlying that was lost? Yes we are. Are we sat- The headquarters of Deutsche Bank in Frankfurt. Deutsche Bank chief executive vesting for the future.” for 2017, which are typically paid in stocks. Garth Ritchie, who oversees isfi ed with our current results? Abso- off icer John Cryan, seeking to restore morale after massive bonus cuts last year, Cryan is trying to motivate and retain March. Von Moltke said the bonus pool Deutsche Bank’s markets division in lutely not.” raised compensation for traders and bankers in 2017.