CHILEBanco de Crédito e InversionesFounded by the Yarur family and an assortment of entrepreneurs in Chile in 1937, the Banco de Crédito e Inversiones has grown to great heights. Specialising in savings and deposits, alongside securities brokerage, asset management and insurance, the banking group now boasts yearly revenue of over $1bn, with assets at around $40bn.
Year: 2016
Banco Mercantil Santa Cruz
BoliviaBanco Mercantil Santa CruzSince being established in 1905, Banco Mercantil Santa Cruz has supported national growth and promoted international prestige. Following its acquisition of a majority stake in Banco Santa Cruz in 2006, Banco Mercantil has gone on to define Bolivia’s financial market, making it a regional force to be reckoned with.
BOI Bank
AntiguaBOI BankHeadquartered in the Antiguan capital of St John’s, BOI Bank has an outward-looking approach and an extensive network that is spread throughout the countries of Latin America and the Caribbean. The bank prides itself on integrating the latest technology with the best customer protection, thereby offering sound reassurance to its many clients.
How can banks use social media to get more customers?
Social media is a vitally important part of developing brand awareness and growing your customer base. But in an extremely fast-moving marketplace, it’s never been so important for businesses to constantly review, update, and improve their strategies, to ensure social media activity is actually contributing to business targets. This is something that Portugal’s ActivoBank knows a lot about. On Facebook, the bank set a target of growing an audience of 100,000 fans – it’s now well on the way to 150,000. But how did the bank start conversations with all of these people? And how has it been converting followers on social media into real banking customers? Luis Magro, Marketing Director for ActivoBank, discusses the process.
World Finance: What is your social media strategy? You know you need one, but how do you make sure it’s linked with your business objectives? How do you review it, update it, improve it? In line with the extremely fast-moving marketplace?
Portugal’s ActivoBank has been leading the digital banking conversation in that country; its marketing director Luis Magro joins me now.
Luis, let’s start with your Facebook target of 100,000 fans. You’ve actually surpassed this really quickly – you’re well on your way to 150,000. Why did you set this target for yourself? What business objective did it align with?
Luis Magro: Social media continues to play a very important role in our digital strategy. More than 50 percent of the Portuguese population is already on Facebook, and probably every one of our potential market is already on Facebook.
We already have more fans on Facebook than we have customers – we have 30 percent more. What we are doing is, we are building our friend base, but at the same time converting them to customers.
We estimate that our market is about 700,000 people, so what’s important is that we continue growing until we reach that 700,000, but that we keep pulling them into our customer base.
World Finance: Tell me about how you actually achieve that, then. How do you start the conversation, get Facebook users to become fans, and then as you say convert them from fans into actual customers?
Luis Magro: It’s not easy! Because we have to make nice posts about our products, about our services, and wait for people to interact with us.
This wasn’t enough. We have very good engagement rates, but we were not converting enough friends into customers. What we decided was to launch a virtual branch.
In this virtual branch, our friends can chat with our commercial team. They can access a lot of information of our products and services, and they can even start the process of opening an account. Facebook for us is a very big source of new customers.
World Finance: What lessons did you learn from your fans, and then your customers? And how did you make sure that those lessons were actually carried through to the team members driving the campaign?
Luis Magro: In Facebook, everything happens very fast. So your social media team is of very big importance. They all have the same knowledge, they all have to learn at the same time, they all have to participate in all the decisions. They all have to know what’s happening right now.
This is not a one-man show. This is a team that decides what is best right now, to answer – for example – a comment on our wall. So if you treat everything as a team, you will be consistent along the way.
World Finance: Tell me more about the content that you’re using to engage potential customers. Because you’re active not just on Facebook, you’re across all the main social media sites. So the content you’re putting on Instagram versus Youtube versus – well, Twitter or Facebook – has got to be quite different.
Luis Magro: Yes it’s different – and we have to adapt to each platform.
I was telling you about our virtual branch on Facebook; but recently we launched a virtual branch on Youtube. Completely different: it’s video-based. We have a lot of menus where you can navigate the content so you can choose what you want to see. You can even choose to open an account – you’ll be redirected to our website to start opening an account.
So it’s a virtual branch also, but done in a very different way. And with the same objective, which is acquire new customers. But the content is completely different.
World Finance: Going from converting fans into customers then – a lot of social media interactions from existing customers tend to be complaints. How does your team turn those complaints into a more positive experience?
Luis Magro: A complaint for us is an opportunity to change something that went wrong in the past.
What we see is that when we are afraid of people complaining, it’s because something about our products and services are not going well. So the problem is not the complaint – the problem is the product or the service.
If you have a good service, you won’t get complaints. And this is where ActivoBank has been very good in the past, because we are growing at a very fast pace, because of all our customers recommending ActivoBank to their family and to their friends. And this only happens if we have this preoccupation of having everybody happy.
World Finance: I said in the introduction that ActivoBank is leading the digital conversation in Portugal – and in fact it’s because of you that the Portuguese central bank doesn’t require physical signatures for opening an account. What do you expect the next digital innovation is going to be in the banking sector?
Luis Magro: Without having innovated yet, it’s a bit early to say what we are going to do! But for example, people opening accounts without even having to go to the branch. For example, we would like to see people from their homes, opening their account with a video conference. We could get facial verification comparing the video with a photo id. And a digital signature at the end, and the account would be open.
There’s a lot of stuff coming to the market – but rules and regulations are heavy, and sometimes it’s very difficult to bring these new ideas to our customers.
World Finance: Luis, thank you.
Luis Magro: Thank you.
Maamba Collieries coal-fired power plant to solve Zambia’s energy crisis
Zambia is nearly completely reliant on hydropower: 96 percent of its energy is fuelled by the Zambezi river. But climate change is affecting capacity, and long power cuts are now a daily occurrence. One solution: coal. Ashwin Devineni and PJV Sarma from Nava Bharat Projects discuss the Maamba Collieries project. Set to add 300MW to Zambia’s energy grid, it’s an extremely important initiative for Zambia’s businesses that depend on reliable energy. It also represents a landmark project finance deal in sub-Saharan Africa – one that can be replicated now the model has been established with a strong sponsor.
World Finance: Zambia is nearly completely reliant on hydropower: 96 percent of its energy is fuelled by the Zambezi river. But climate change is affecting capacity, and long power cuts are now a daily occurrence. One solution: coal. Ashwin Devineni and PJV Sarma join me now.
Ashwin, let’s start with the Maamba Collieries project. 300 MW of extra power about to be going into the country; this must be extremely important for Zambia’s businesses.
Ashwin Devineni: What Maamba Collieries entails is a large coal mine, spanning 79 sq km; and more importantly, a 300 MW coal-fired power plant, which is almost ready. It should be commissioned in June-July 2016. With the potential of expanding the capacity to about 600-900 MW.
Maamba Collieries is 65 percent owned by Nava Bharat Singapore, and 35 percent owned by the government investment holding company.
What Maamba brings to the table is good, reliable, baseload power. And the government is extremely eager for us to come online, so that we can fight the current load-shedding crisis. And also help a lot of the copper industries, and other industries which Zambia is heavily dependent on, to actually start producing at the levels that they were producing when power was available throughout the day.
World Finance: So how has the government been supporting the project?
Ashwin Devineni: The government has been extremely supportive. Firstly, because they do own a significant stake – a 35 percent stake – in the company. And more importantly, today Zambia is heavily dependent on hydro-electric power. Almost upwards of 95 percent. And they are facing the brunt of going all hydro, because the last few years they’ve had bad rains. And as we speak they’re facing about 10-11 hours of load shedding on a daily basis.
World Finance: PJV, talk me through the finances. What’s Nava Bharat’s involvement?
PJV Sarma: As you know, Nava Bharat Singapore is a 100 percent subsidiary Nava Bharat Ventures – the principal holding company, which is very strong financially and technically. The strength of the project lies partly behind the strength of the financial and technical strength of Nava Bharat Group.
This has been one of the main reasons why the Chinese banks – they are predominantly Chinese banks, and Sinosure – put their strength behind the project, to go ahead with that. That is actually the uniqueness of this project now: the strength of the sponsors.
About 70 percent of the total cost of the project, coming to almost $600m, is funded by a group of international banks. Half of it’s coming from China – two big banks, and there are three developmental financial institutions, and two European South African banks.
So this is unique in the sense that it’s the first IPP project coming in sub-Saharan Africa which is getting finance from international banks – especially from Chinese – on a purely project finance basis. Which is a non-recourse finance basis, without recourse to the sponsor. Which is very, very unique.
World Finance: As you say, a real unique international collaboration; a milestone for project finance in the region. Do you think that now that you’ve established the model it can be replicated? In Zambia, or across the region?
PJV Sarma: It can be replicated, but you know – as I told you, there are certain things you really need to take care of that.
One of the reasons why this project could be financed on a purely project finance basis is the strength of the sponsors: financial, and technical. And the robustness of the project documents. You know, the project documents have to be very, very strong. With proper legal arrangements. You need to have it.
Once you have it, I don’t see any reason why it can’t be duplicated in other parts of Africa.
World Finance: So what happens next? For the Maamba Collieries project, and for your other work across Africa and the region?
Ashwin Devineni: We’re really excited we are about to commission the plant in June-July, which is a month from now. And we’re also excited about expanding the existing capacity of 300 MW to possibly 600 or 900 MW. Because we see a huge power crisis in the southern African region, and also the eastern African region. And the uniqueness of setting up a power plant in Zambia is, although you’re generating power in Zambia, the power can be exported and utilised by all the neighbouring countries, aside from Zambia.
We look at Africa as a continent that’s developing at a very, very rapid pace. And we want to play a major role in improving its infrastructure. And therefore, I think, for us we do plan on expanding in the power sector and the agricultural sector, where we have significant experience in India and different parts of Africa.
World Finance: Ashwin, PJV, thank you.
Ashwin Devineni and PJV Sarma: Thank you very much, Paul.
Is robo-advice the future of wealth management?
Robotification has transformed manufacturing, logistics, and grocery shopping. But is it going to transform investment services? Paul Stratford and Sarah Clarricoats from EY explain how automated financial advisors could make wealth management accessible to the mass market – provided that asset managers overcome four key challenges.
World Finance: Paul – robo-advice. Your working definition is an automated financial advisor, using algorithms to determine and understand client needs, making portfolio management recommendations, with minimal human intervention. Perhaps you could start by just putting that into slightly more practical terms for me.
Paul Stratford: The analogy for robo-advice is a bit like the use of dating sites. So on a dating site it will ask you a number of questions; you answer them, and it then makes some selections and identifies some matches for you. So I think it’s slightly analogous with robo-advice, in that you will be answering questions online about your financial arrangements. It’s going to work out what is important for you, and then make the appropriate selection as far as portfolio and investments are concerned.
Sarah Clarricoats: So, robo-advice is much broader than that. I think what we’ve typically seen in the UK is like simplified discretionary fund management. So, customer-friendly online options that are cost-efficiency and really focused at the mass market. But there are more sophisticated solutions to come, and that we’ve seen in other markets.
So, if you imagine an online solution that aggregates your financial data across your savings, your investments, your pensions; even your partner’s financial status. And then uses an algorithm to create holistic advice based on all of your financial position, and based on your goals and ambitions, your tax status, your investments. I think that’s potential what robo-advice is the future for.
Paul Stratford:…is heading towards. Completely agree, yeah.
World Finance: Okay, so – robotification across industries is largely about reducing costs. How is this going to change the wealth management industry?
Paul Stratford: Robo-advice, essentially being online, reduces some of the human costs out of it. And from a price competitive perspective, that then means it’s targeting a lower price point.
Now, the interesting comparison is that face-to-face advice is expensive. And it’s actually at a price point that the mass market and mass affluent are unwilling to pay for. So actually, that then means robo-advice is incredibly viable, because there’s a market out there that isn’t being serviced at the moment. And this provides them with an opportunity to gain access to financial advice.
Sarah Clarricoats: Exactly. So, the cost efficiency of robo could increase assets under management overall. And that’s why we see, you know, traditional wealth managers, or even the big retail banks, looking to build simplified automated wealth solutions or robo-advisors to capitalise on their existing client base, and move into a younger generation of investors.
World Finance: Like you say we are seeing a lot of people moving to capitalise on this. What is going to be a measured path to success?
Paul Stratford: Well, I think we see four key challenges.
So, the first one of those is for existing providers, there’s potentially a conflict with their existing advisor-led value network. They need to be seriously thinking about, if they’re going to enter this new area, what are the cannibalisation opportunities, and how do they avoid it?
Secondly, they then need to be thinking, what’s the right service model for each client segment? Because robo-advice is hugely valuable, but it doesn’t necessarily mean it’s the panacea for every single client segment.
The third point is around the pace of innovation. So at the moment you need to be thinking about the speed to market. If you kick off a project and it takes five years, inevitably the market’s going to have moved on, so you need to be sharp and focused.
And then finally, a key part of thinking about how to be successful on implementing robo-advice, is getting the business case right. Because there will be pressures to bring prices down. And consequently, you need to have a thoroughly well-thought out value proposition. And it needs to be sufficiently robust that you’ve built in efficiencies, and you can adapt your pricing strategy if there is pricing competition, and you need to lower costs.
Blockchain: Complex challenges on the path to fintech transformation
Blockchain is the innovation at the centre of the bitcoin phenomenon – a technology that can foster trust between completely anonymous transactors. Paul Stratford and Sarah Clarricoats from EY discuss how blockchain could be used in wealth management, its potential to change the industry, and the three challenges that need to be overcome for blockchain to really go mainstream.
World Finance: Sarah. Blockchain of course most famous because of bitcoin, but aside from that, what other uses for it are there?
Sarah Clarricoats: So what Blockchain does is, it says: this is the single source of the truth across the market. So, anywhere where you need to share data between multiple parties in a trusted way could be a good use case.
So, if you think about it being used for securities issuance and to record trades, it means that everybody is looking at the same version of that security data, or that trade data. So, it’s cutting out any existing processes to check back that data, or reconcile that data. And that’s how the cost efficiencies come out: because you don’t need that duplication of effort, with everyone checking back to the data.
For wealth and asset management we’ve seen interest in sharing KYC data, or in fund transfer agency. And anywhere that the use of a blockchain could cut out data confirmations or reconciliations could have a good cost efficiency for asset wealth managers.
Paul Stratford: It’s probably worth recognising that there’s something like over £1bn that’s been invested in blockchain technologies, so the financial services industry is definitely taking this seriously.
World Finance: So what does that mean for operating models for asset wealth managers?
Sarah Clarricoats: So if blockchain starts to be used in capital markets in any meaningful way, asset wealth managers will want to participate. Post-trade confirmation and settlement processes are likely to be very different on a blockchain. So actually what we’ll see in the short-term is more exception and manual processes.
In a utopian view, where all portfolio assets are recorded on a blockchain, we could see significant cost efficiencies.
Paul Stratford: Yeah – I think we feel the transformational nature of blockchain is such that not all the use cases have come to the surface yet. And so it may be a number of years before the real killer application that affects asset managers gets developed.
World Finance: What is the timeframe then: when are we actually going to see these innovations come to market; what might be the next evolution?
Sarah Clarricoats: Yeah, so… blockchain is the most talked-about topic in technology at the moment. But in reality, the challenges that need to be overcome are very complex. And it’s difficult to predict where and how it will land.
Firstly the technology: when will it really be ready for financial services. Secondly the regulation: will blockchain solutions fit into the construct and the language of the existing law? And commercial: is the market really incentivised to implement and embed blockchain into the existing market infrastructure? None of these challenges are small.
Even if you look at the regulatory challenges, there’s so many different levels to that. So if you look at EMIR, for example: things like timely confirmations and daily reconciliations; they’re very prescriptive, the language of the law. Which might not actually fit into blockchain solutions.
You’ve got legal questions around, is a contractor still on the blockchain? Can I hold that up in court? Or even, is the data that I store on a blockchain: how does that fit into data protection regulation? Can I delete data from a blockchain?
Paul Stratford: I was going to say, another practical example. One of the early identified use cases was sharing of Know Your Customer information. And on paper, it looks like a great idea. In practice there are rules around data in different jurisdictions, and they actually conflict with the use case in terms of privacy laws and what can get stored, and whether it can be removed or not. And then you go into a bit of a legal minefield.
Sarah Clarricoats: And actually I think what you’ll see in the next three to five years is, you will see blockchain applications in real life use. But they’ll be much smaller: like remittances or trade finance. I think those solutions are very close to being live. But that whole-scale change of cap-markets: replacing market infrastructure with blockchain might never happen. Or it could happen, but it could be very slow.
Tax in Argentina: GNP Group on reducing fiscal pressure
The tax burden in Latin American countries has been on the rise since 2002. In Argentina, that marks the end of the country’s great depression, when a focus on improving tax collection helped the government spend its way back to growth. Nearly 15 years later, is it time for a review? Juan Elias Perez Bay, Partner of GNP Group, outlines the four main taxes that are putting pressure on businesses. But, he explains, the system’s complexity also presents opportunities for businesses to save.
World Finance: The tax burden in Latin American countries has been on the rise since 2002. Now, in Argentina, that marks the end of the country’s great depression, when a focus on improving tax collection helped the government spend its way back to growth. Nearly 15 years later, is it time for a review? Juan Elias Perez Bay from GNP Group joins me down the line.
Juan, talk me through Argentina’s growth story over the last decade, and how the tax landscape has changed.
Juan Elias Perez Bay: Well Paul, Argentina’s GDP has grown about 10 times over the last 12 years, while national public spending has grown 20 times in the same period. Naturally, this has had a strong impact on fiscal pressure, since tax collection precisely grew 20 times in the same period, in order to finance the growth of this public spending.
World Finance: Now, all Latin American countries have expanded their tax collection in recent years; what makes it particularly difficult in Argentina?
Juan Elias Perez Bay: Well, today’s fiscal pressure in Argentina exceeds 40 percent of GDP, measured by government indicators. About 10 years ago, fiscal pressure was approximately 20-25 percent of GDP. This situation puts Argentina at a clear disadvantageous situation in terms of competitiveness regarding its neighbouring countries.
If we consider Latin America, Argentina is today the country with the highest fiscal pressure: even higher than Brazil, with its complex fiscal system. And considering it has been historically the one with the largest fiscal pressure of the region.
This is the reason why the tax area in Argentina has taken on significant importance over the last years.
World Finance: So, talk me through the complexity. Which taxes have increased, and what makes them difficult for businesses to reconcile?
Juan Elias Perez Bay: The system is Argentina is based on four taxes, according to its participation in complete tax collection. VAT, income tax, tax on bank debits and credits, and export duties.
VAT increased due to GDP’s increase, and due to technical improvements in tax wealth systems and inspection processes, which contributed to reducing the informal economy in Argentina.
Income tax increased because of annual inflation of about 30 percent, in a country without any inflation accounting adjustment. So the result is the taxation of fictitious profits, as there is no adjustment for inflation in accounting statements.
The last two taxes: tax on bank debits and credits, and export duties, are relatively new taxes created in 2002. They have no joint participation with provinces; its growth is related to local GDP increase, and the increase of agro-industrial exports during the last 10 years in our country.
World Finance: Are there currently discussions to review some of these taxes? What might happen, and what’s the timeline?
Juan Elias Perez Bay: We have no certain idea about the timeline, but they surely have to be discussed and modified, of course. But, we clearly think that a discussion has to take place regarding taxes. We also think that when possible investment arrives in Argentina, the fiscal factor has to be considered as the one to keep an eye on.
Argentina right now is the country with the biggest fiscal pressure of the region. As the tax system is complex, with a good fiscal strategy (within legality, of course), it is possible to reduce the impact in a large part.
World Finance: So tell me about what can be achieved in reducing the impact of that taxation for businesses.
Juan Elias Perez Bay: Our philosophy consists of having the focus on fiscal strategy, taking into account that the economic conditions in Argentina has taken the tax matter to be really important.
We provide to our clients a team of highly trained businessmen dedicated to fiscal consultancy. And we find that our fiscal legislation has enough complexity to allow us to make fiscal management models that generate fiscal savings or tax delays – which considering an annual inflation of about 30 percent – which will cause important financial fiscal savings to companies, and in this way get important economic benefits.
Don’t treat Turkey as any other emerging market – Zurich Turkey
This year is seeing emerging high-growth economies such as Turkey struggling with a number of issues: comparatively lower economic growth, high inflation, depreciating currencies, and uncertain geopolitics. But there are certain sectors bucking the trend. Zurich Turkey CEO Yılmaz Yıldız discusses how Turkey is outperforming other emerging market economies, the importance of achieving equality in the insurance sector, and how the company has bucked trends to maximise profits in non-life insurance.
World Finance: 2016 is seeing emerging high-growth economies such as Turkey struggling with a number of issues: comparatively lower economic growth, high inflation, depreciating currencies, and uncertain geopolitics. But there are certain sectors bucking the trend. With me to discuss is Yılmaz Yıldız, CEO of Zurich Turkey.
Yılmaz, uncertainty is plaguing most economies, developed and developing. How is Turkey responding?
Yılmaz Yıldız: The growth rate is around three or four percent. During a time of turmoil now, three or four percent is a pretty decent growth rate. Debt to GDP is around 35 percent of GDP, which is the best in Europe and one of the best in emerging markets. Budget deficit is around 1.5 percent of GDP. The low indebtedness actually reduces volatility and uncertainties that may come.
There has been the mistake of putting all these countries – emerging countries – into one bucket, and assuming that they all have the same characteristics. But what’s happening in commodity importing countries, when the commodities prices go down, these countries benefit. And Turkey is one of those. And according to the latest statistics, Turkey will benefit at least $25-30bn dollars from the reduction in oil and gas only.
And if you add a strong banking sector to that, and good infrastructure: I’m quite optimistic.
World Finance: And the insurance sector? How does that fit into this?
Yılmaz Yıldız: The insurance sector is very much related to what happens in the financial sector. Since the GDP growth rate decreased from six, seven percent, down to three, four percent, we see a similar trend in the insurance sector. In the insurance sector we have three big segments. One is property and casualty: historical growth rates have been 20-25 percent, now it’s down to 10-15 percent. The life business is related to the bank loan business – it is sold with retail loans, and what happens on the retail loan volumes has a direct impact. So again, the growth rates from 35-40 percent are down to 10-15 percent.
Private pension side has been growing quite substantially, and there the growth rates are still 25-30 percent, pretty strong growth – supported by government incentives in terms of tax breaks.
World Finance: Now non-life general insurance in Turkey – especially global players – is suffering from a lack of technical profitability. But Zurich Turkey is bucking this trend. Why?
Yılmaz Yıldız: For us we define success – or our targets – in three main areas.
One is the financial results: we have to deliver what our shareholder asks us to deliver.
The second part is customer satisfaction. And what we mean by customers are one, the end users, the end customer; second, our distribution partners; and third, our internal customers, our employees.
And the third part is the risk and compliance environment.
For the past three years we’ve been growing roughly 15 percent more than the market. Being also one of the most profitable.
First of all we have the right segment mix. The more profitable parts of the business come from personal lines, and certain niches of commercial lines. So that’s where we focus. Secondly, the most lucrative part of the distribution channels are the bank distribution. So we increase our bank distribution share to 75 percent of our total business.
And thirdly you need to have the right product mix. And while doing all that, you have to make sure that you do it in a productive way. And if you look at the past three years again, our top line increased by 70 percent, while our headcount stayed the same.
World Finance: All around the world the financial sector is known for its weakness in diversity and female equality – how do you deal with this?
Yılmaz Yıldız: We started about three years ago, and we said, look. Within the company we will reach 50:50 female:male ratio. We have achieved that.
Secondly, we said manager and up positions, we will achieve 50:50. We have managed to do that. And thirdly, CEO and minus one positions – so positions reporting directly to me – we have managed to achieve 50:50 there too.
But reaching those numbers is not enough. Because then the recruitment, promotions, trainings, need to be 50:50. And our employee engagement score, global employment engagement score, came out a few months ago. And we have a huge increase – 22 percentage point increase overall. But what is even better is, we have almost 30 percentage point increase in our female employees’ engagement. Which is great. So we intend to continue that – but it’s a major thing, and it’s a never-ending process. And you have to continue, you have to push for that.
World Finance: You also have a lot of CSR initiatives – now how do you merge your business goals with these initiatives?
Yılmaz Yıldız: Business has to have goals that go beyond just making money. Ninety-eight percent of our employees voluntarily participate in our CSR activities. We think that investing in children is the best insurance society can buy for the future. So we focus on orphan children, in many different ways, with many different projects.
The other part is art. We have been one of the major sponsors of Istanbul culture and art foundation. And just last year, for example, our activities attracted more than 200,000 people in Istanbul, which is great. It’s what gives meaning to what we do.
World Finance: And looking at Turkey more closely now, what would you say the investment sentiment is like in the country?
Yılmaz Yıldız: Overall I think that Turkey will diverge positively within the emerging markets. On the negative side is the geopolitics, and what’s happening across the borders. So that part I think is creating some negative sentiments.
But if you look at that geography – if you have the resources, and you need to allocate capital, Turkey is one of the few places in which you can actually invest in and expect sustainable returns going forward. And as any high growth emerging market it will have ups and downs, but the trend will always be up.
China’s Q1 GDP growth slows to 6.7 percent
The Chinese economy grew by 6.7 percent in the first quarter of 2016, according to newly released data from China’s National Bureau of Statistics (NBS). This was down from 6.8 percent growth in the previous quarter, showing that China’s economy is continuing its pattern of slowed growth in 2016. This was also the slowest rate of growth that the country’s economy had experienced since the first quarter of 2009.
While this slowed GDP growth indicates that the Chinese economy is facing continued headwinds, the figures remained inline with government targets, as the Chinese Government is aiming for a growth rate of between 6.5 and seven percent in 2016.
According to the press release distributed by the NBS: “The overall performance of national economy continued to be stable and move in a positive direction, with structural adjustment deepened, new impetus accumulated and positive changes showed on major indicators. The national economy enjoyed a good start.”
Meanwhile, certain indicators showed that, despite the reduced growth figure, the Chinese economy is picking up: the NBS noted that investment in real estate has picked up recently, while fixed asset investment saw nominal year-on-year growth of 10.7 percent. Manufacturing and exports in March also saw increased growth, both of which had also been noted by other data sources recently.
At the same time, the NBS noted that “in the first quarter of 2016, the national per capita disposable income of residents was RMB 6,619 [$1,022], a nominal growth of 8.7 percent year-on-year, or a real increase of 6.5 percent after deducting price factors”. This increased income falls in line with the Communist Party’s goal of raising domestic spending and demand, moving away from relying upon heavy investment for growth.
However, some areas of weakness that must be addressed by the state do still remain, including rising levels of corporate debt and overcapacity among China’s state-owned enterprises; often referred to as ‘zombie firms’. However, the latest data suggests that China’s slowdown is unlikely to be the much-feared “hard landing” that more pessimistic observers had predicted.
Mozambique’s infrastructure revival to fuel investment surge – Lopes
World Finance speaks to Fernanda Lopes, managing partner at Fernanda Lopes and Associates, on Mozambique’s staggering economic revival, and the investment opportunities that exist for those prepared for its challenges.
World Finance: Mozambique’s economic revival has been staggering, and represents many investment opportunities for those prepared for its challenges. Joining me down the line is Fernanda Lopes, managing partner at Fernanda Lopes and Associates.
Fernanda, how does Mozambique’s economy stand today?
Fernanda Lopes: Well it’s not standing up very well – mostly because of lack of investment.
We are all aware of the international crisis. So the majority of the investors withheld their investment, due to the crisis. So we’re not doing very well – but we’re picking up.
The opportunities are very big in Mozambique, so between crisis and opportunity, investors are slowly coming back and starting investments in Mozambique.
World Finance: And in terms of investor opportunities, what sectors should investors be looking towards?
Fernanda Lopes: Natural resources of course; mining, and gas.
I would look as well at agriculture – there’s huge potential for agriculture in Mozambique. I would also look at us as a tourist destination. There’s a huge opportunity, as you’re aware: we’ve got almost 4,000km of coast and sea.
Some of the ports that are corridors to the country, in the south, middle, and north of the country. So I think that the country will pick up very soon, and the opportunities are there.
World Finance: So what should investors be aware of when they’re first approaching Mozambique?
Fernanda Lopes: I would say two points. One is energy: we have some problems with energy. We’re looking at new dams, in order to build more capacity. And infrastructure: roads, ports, railways, need developing in order to shift goods from one side to another.
But we’re doing well on that. In the north of Mozambique the new railway is operating. In the centre of Mozambique the Sena line is operating. In the south everything is okay. So, it’s a matter of time, of course. You don’t build infrastructure from one day to another.
World Finance: So finally, Mozambique is currently placed 133rd out of 189 on the 2016 World Bank Ease of Doing Business report. What are the challenges moving forwards, and how can they be overcome?
Fernanda Lopes: Well you know, our background from the colonial times is very bureaucratic. And I think that we should try to ease the bureaucratic procedures in order to speed up the incorporation of companies, and all that is necessary for the set-up of companies, and for companies to start operating.
There are several projects going on, as far as the removal of bureaucratic procedures is concerned. And I think that it won’t take long for us to go faster than we’re doing now, recalling that several years ago we were much slower than nowadays.
Italy unveils €5bn rescue fund
In a bid to ease the concerns surrounding Italy’s tumultuous financial sector, a band of the country’s strongest banks, asset managers and insurers have come together to create a €5bn fund that will bail out weaker institutions.
The announcement came on April 11 following a six-hour meeting between regulators, ministers and financiers in Rome. The proposal was revealed by Italian Prime Minister Matteo Renzi, who named it a “last resort” bailout scheme.
The decision was propelled by the plunging value of banking shares in Italy – which, this year alone, have already fallen by half – along with mounting concerns surrounding the potential impact that €360bn ($442bn) worth of non-performing loans will have on the country’s economic stability.
The decision was propelled by the plunging value of banking shares in Italy – which, this year alone, have already fallen by half
According to the Financial Times, the rescue fund, which has acquired the nickname ‘Atlas’ after the god of endurance in Greek mythology, will involve the likes of UniCredit, Italy’s largest bank by assets, UBI Banca and Intesa Sanpaolo. These institutions will contribute millions to establish a ‘backstop facility’ that will be used to bail out struggling lenders.
The need to group together and protect the weaker lenders in the sector is considerable, especially given the average length of time it takes for Italian banks to recover from bad loans: the figure currently stands at eight years, considerably longer than the EU’s average of two to three. Moreover, with EU regulations limiting the financial support that the Italian Government can offer due to its own mounting public debt, the problem was left in the hands of the industry to resolve.
The timing of the decision is critical due to the upcoming €1.75bn ($2.15bn) cash call on April 18, which will fill a void that was discovered during the Banca Popolare di Vicenza financial scandal. It is expected that the Atlas fund will cover any shares that are left unsold in the capital call, together with a further €2bn ($2.45bn) that will be required for the imminent cash calls for Veneto Banca and Banco Popolare.
2016 is a pivotal year in Italy’s financial history: for the first time since 1982, the country’s largest banks have come together to protect the weakest links in the industry, in the hope of preventing a deeply damaging fallout for the entire country. In theory, it should work, but only time will tell if it the Atlas fund is enough, or if it’s too little, too late.
Fed still reluctant to raise rates
The Federal Reserve is unlikely to raise its interest rates anytime soon, according to the minutes from the latest Federal Open Market Committee (FOMC) meeting, which took place in March. The minutes show that while some members were in favour of rise in April, a majority declined, owing to concerns over the impact of continued headwinds being faced by the global economy.
However, it was noted that the state of the labour market continued to improve in the first quarter of 2016, with the minutes showing that employment had increased in January and February “at a solid average monthly pace”. At the same time, part-time employment rates also edged downward.
It was also noted that although GDP growth saw a moderate rise from the previous quarter, problems persisted.
Inflation was still below the Fed’s target of two percent, however, owing to low energy prices. At the same time, while manufacturing had seen a slight uptick – although generally at a lower-than-hoped-for pace – exports had declined in previous months, with the weakness of capital goods exports being particularly acute. Poor export performance was expected to “weigh on growth in the first quarter”.
Concerns regarding global headwinds dragging on the performance of the US economy were a common theme throughout the minutes. Fed staff also noted uncertainty about projections for GDP growth in the future, with the health of the global economy cited as being “an important downside risk to the forecast”. The Fed is still expected to raise the rate range sometime this year, but the schedule of a rise still remains uncertain.
Greece needs stability; Brexit would ruin that – Attica Wealth Management
The global economy got off to a subdued start in 2016, with investment sentiment in Europe reacting demurely to the uncertain climate. Theodore Krintas and Stelios Stylianidis of Attica Wealth Management talk about Greece’s green shoots, the disruption that a Brexit might have on the country’s recovery, and Attica’s strategy to follow wealthy Greek investors overseas.
World Finance: The global economy got off to a subdued start to 2016, with investment sentiment in Europe reacting demurely to the uncertain climate. With me to discuss the economic environment in Greece are Theodore Krintas and Stelios Stylianidis of Attica Wealth Management.
Well Theodore, if I might start with you. Greece of course has had a rough few years of late. Bad loans still make up half of lending, and capital controls may stay in place until next year. So, any green shoots on the horizon?
Theodore Krintas: Well Jenny, we see a couple of those in the short-term, and maybe a handful in the middle- to longer-term.
Europe has decided it will not lose the war of reunification in Greece, and this is very, very important, because they’re very helpful. At least, that’s the way we at Attica Wealth Management see it.
Now at the same time, capital controls have imposed serious problems in our own industry. It’s putting a lot of pressure on it. At the same time, many, many Greek companies have become more extroverted – so, now they see, they have exports in their long-term plans. So exports are not future plans: the future is happening right now.
So I really believe these are a couple of very important changes, because we have been living somebody else’s life for a long time; and now we seem to be living our own life. So hopefully in the months or years to come, we’re going to see some positive reaction on that.
World Finance: And of course Stelios, Europe is gripped by the possibility of a Brexit. Now should this happen, what would that mean for Greece, and what do you think the knock-on effect would be?
Stelios Stylianidis: The direct impact for Greece would be on tourist arrivals from the UK. The UK market is the second biggest market for Greece – both in terms of arrivals and income.
But more important for us is the indirect effect. Our economy is in a very fragile position – a stable external environment is essential. A Brexit is exactly the opposite, as it may disturb the foundation of the European Union.
If Brexit materialises, then we’ll be talking again about a Grexit. And after Grexit, who knows? The European Union might have some serious problems.
World Finance: Theodore, of course investment sentiment has been down throughout Europe; and this hasn’t been helped by dropping commodity prices. So how are you responding to this?
Theodore Krintas: Well first of all, we have to remember that investors are human beings. And human beings are not very comfortable with changes. So although we are in a much better era – cheap oil, as opposed to peak oil – investors don’t really like what is happening. So now, many concerns are gathered around the fact that oil producing economies may face serious issues; and as a result a slowdown in the world economy.
We seem to be very afraid of a possible global slowdown. What we have to say as an economist is that a slowdown will happen within the next few months or few years. And we have to be prepared for that. On the other hand, many of us say that these bad sentiments are a kind of self-fulfilling prophecy: everybody’s expecting it, and as a result it might happen.
World Finance: And Stelios, what sort of trends are you currently seeing in the market?
Stelios Stylianidis: Currently we see uncertainty for about everything among the markets. Global growth concerns, deflation fears, and central bank policy divergence are three major issues that cause uncertainty, and lead to extreme market volatility.
So we see a trend from all of this uncertainty, and that is in investing in a multi-asset context, focusing primarily in international diversification and the minimisation of risk.
World Finance: Well Theodore, as Stelios just mentioned, multi-asset investing: it certainly does seem like the safer choice moving forwards. How are you approaching this?
Theodore Krintas: Multi-asset is one part. The other portion of our solution is actually low volatility investment, low volatility asset management.
We have to find ways to avoid losses in case of a world synchronisation. So we understand that we cannot follow investment based simply on international diversification according to Markowitz.
Low volatility means capital preservation, and in this world of low – even negative! – interest rates, capital preservation becomes a must. And this is the way we see that we should invest for the near future.
World Finance: Finally, talk me through Attica’s strategy moving forward for the coming years.
Theodore Krintas: We should focus on internationalising our business in the coming years in two ways.
The first one has to do with the fact that many Greek investors, during the crisis, have already taken a lot of their funds abroad. So we want to follow our Greek clients abroad, offer them wealth management solutions, while their funds are outside Greece.
And secondly, we believe we should also be offering business-to-business services, to peers of our own, internationally. Based on the fact that during the crisis, we needed to cut our cost base a lot. Senior investment managers in Greece cost one third of what they cost here in London, for example. So we can translate these cost advantages into a lower price, and offer it as a nice service to our peers.
China business activity picks up
New data suggests that the Chinese economy may be stabilising, easing fears over its health following its recent slowdown. According to the Caixin China General Services PMI, overall business activity in China picked up in March 2016, reversing the slight dip that it experienced in the previous month. At 51.3, the composite index figure for March was at its highest for 11 months.
The index noted that the modest gains in activity were “driven by slightly stronger growth of services activity and a renewed expansion of manufacturing output”. The service sector performed the strongest, with the Caixin China General Services Business Activity Index “posting at 52.2, up from 51.2”.
Manufacturing, meanwhile, made only marginal growth gains. However, these increases mark a reversal of the past 11 months of stagnant or reduced output.
A manufacturing rebound has also been recorded in other indictors. The Financial Times noted that official government data from March “showed industrial profits rose 4.8 per cent in January and February compared to a year earlier and in contrast to a fall of 4.7 per cent in December”. This rise put an end to the previous seven-month succession of a contraction in profits.
If these gains are able to hold, fears regarding China’s slowing growth and its potential ‘hard landing’ may be calmed. The importance of the Chinese economy to the overall health of the world economy has become increasingly apparent in recent years, while a preview of a chapter in the IMF’s Global Financial Stability Report has warned of increasing spillover from China and other emerging markets.
