Year: 2017

UK growth defies post-Brexit expectations

Posted on by Max Tomlin

The UK economy grew 0.6 percent in the final quarter of 2016, marking a strong end to a year that exceeded expectations. According to preliminary estimates from the IMF, the new figures place the UK at the front of the G7 group in terms of growth in 2016. The US, on the other hand, is expected to see growth of 1.6 percent in 2016, while Germany is on track for 1.7 percent.

The positive growth figures have defied recurrent warnings the UK’s decision to leave the EU will dampen growth. Chris Hare, a UK economist at Investec, noted, as of yet, there are “scant signs” of a Brexit-related slowdown in the economy. However, the Brexit process is still in its formative stages and its impact on the economy is yet to take shape. “We do still expect the modest slowdown in economic growth this year. Brexit-related uncertainty has not disappeared and might begin to weigh noticeably on business spending”, Hare told The Guardian.

The Brexit process is still
in its formative stages, and its impact on the economy
is yet to take shape

While UK growth appears to have exceeded that of other G7 nations, it has slowed somewhat from previous years. The economy grew by 2.2 percent in 2015 and 3.1 percent in 2014.

Growth in the fourth quarter was driven by a strong performance in services, particularly through consumer-focused industries like retail, travel agencies, and restaurants. The hospitality and restaurant industry performed particularly well, expanding by 1.7 percent and carving out a contribution of 0.24 percent to quarter-on-quarter GDP growth. Manufacturing increased by 0.7 percent, providing a negligible overall contribution to growth. Notably, the business and finance industries expanded by a solid 0.9 percent during the quarter despite fears Brexit could dent confidence in the financial industry.

While the UK appears to have dodged a serious blow to its growth in 2016, many feel the decision to leave the EU will cause serious damage to the economy in the coming years. Quoted in the Financial Times, Bronwyn Curtis from the Society of Business Economists said: “The UK is the country that initiated the ‘divorce’ and Europe will want to make the UK pay the highest price possible.”

Energy insecurity: the danger of foreign investment in the energy sector

Posted on by Max Tomlin

In August, Australia made a decision regarding its energy infrastructure that caught many people off-guard. Ausgrid, the country’s biggest energy grid – which was at the time in the process of being privatised by the New South Wales Government – rejected an offer from the highest bidder.

The offer was a joint proposal from the Chinese state-owned State Grid Corporation and Hong Kong-listed Cheung Kong Infrastructure. The Australian Treasurer at the time, Scott Morrison, announced the rejection: “After due consideration of responses from bidders to my preliminary view… I have decided that the acquisition by foreign investors under the current proposed structure of the lease of 50.4 percent of Ausgrid, the New South Wales electricity distribution network, would be contrary to the national interest.” The decision was reportedly in line with a recommendation made by the Australian Foreign Investment Review Board.

The rejection of the proposed deal – which Morrison claimed raised a number of security concerns – was not well received by the Chinese Government. “This kind of decision is protectionist and seriously impacts the willingness of Chinese companies to invest in Australia”, said Shen Danyang, a spokesman for the Chinese Commerce Ministry, according to the BBC.

The situation bears a striking similarity to one faced by the UK in negotiating a deal over its Hinkley Point nuclear power station. Last July, the UK Government temporarily delayed approval of the project, which was jointly funded by France and China. In the wake of the delay, China’s ambassador to the UK, Liu Xiaoming, warned the Financial Times that international relations between the UK and China stood at a “crucial historical juncture”. However, the deal was eventually approved.

The definition of security
As energy security continues to appear at the forefront of foreign policy, international ownership of energy infrastructure is coming under increased scrutiny. According to the International Energy Agency, energy security is defined as “the uninterrupted availability of energy sources at an affordable price”. Such a broad definition has somewhat diluted the concept’s meaning, leaving it open to interpretation, and leading it to become associated with varying definitions.

Dr David Reiner is a senior lecturer in technology policy at the University of Cambridge. He told The New Economy that a challenge when it comes to analysing energy security policy is the many different ways the term ‘energy security’ can be used: “I think the danger is people aren’t always consistent when they’re discussing it. It tends to be used quite loosely, so sometimes you think they’re talking about self-sufficiency and then all of a sudden they start veering off into security of supply, which is quite different. And then there are also ideological differences of opinion within governments, within ministries, within individuals as to its importance.”

To this extent, energy security can be broadly applied to not only the daily availability of energy for a population, but also more long-term prospects in terms of where energy can be sourced. A poorly designed grid prone to blackouts is a very different problem to making sure countries are able to access liquefied natural gas on the international market, but both issues can fall under the broad definition of energy security.

In terms of foreign investment, the major energy security concern is when a country’s energy supply becomes too intertwined with international politics

In terms of foreign investment, the main energy security concern is when a country’s energy supply becomes too intertwined with international politics. Reiner said foreign investment into national energy systems could be considered similar to any sort of trade between countries, so determining whether foreign investment poses an energy security risk comes down to how a country interprets the intent of an investor.

“So, if you believe that Russian investment in the UK might make the Russians more sensitive to UK economic interests, then you might be, again, a bit more relaxed about that”, he said. “Whereas if you believe a firm like Gazprom might be acting not in its own economic interest, but might be acting more in the strategic and geopolitical interests of the Russian Government, then they would be doing things not economically or commercially rational.”

Reiner said attitudes vary from government to government, and they frequently change. In any case, given how energy networks are considered to be critical infrastructure, foreign investments tend to be placed under immense scrutiny.

Global grid ambitions
China’s State Grid Corporation has signalled it has broad and ambitious goals for international energy infrastructure. The company is the largest energy provider in the world and, according to Fortune 500, the world’s second largest corporate entity by revenue. Its aggressive global growth is showing no signs of slowing down, with the company already owning portions of the energy network in Italy, Brazil and the Philippines.

The company’s international expansions are the beginnings of an impressive scheme. Chairman Liu Zhenya said in a March 2016 interview that the company’s ambition is an international interconnected energy network: “If railway, road and internet can link the whole world, why can’t an energy network be built? The problem right now is just that people need to embrace new ideas and not let the old thinking stand in the way of new innovation.”

The technology that would be needed to develop such a system has only recently become feasible, with the development of high-voltage, direct current electricity transmission making transmission across longer distances possible.

Liu has also proposed a smart grid system to manage the allocation and distribution of energy across regions. The system has the potential to be more efficient than smaller local grids, and also improve the reliability of renewable systems. Widely distributed sources of renewable energy could alleviate the supply and storage issues that go along with the technology. If an energy grid were to span continents and hemispheres, for example, solar energy could be continuously supplied even if some regions were in the dark.

However, any chance of implementing Liu’s scheme seems unlikely anytime soon. Apart from the $50trn estimated cost of the project, many countries are unlikely to relinquish national control of their energy networks to an international body. Instead, many governments are looking at internal sources wherever they can.

Buying energy independence
Renewable energy sources, such as wind or solar power, can provide energy security by reducing governments’ reliance on international provision. Furthermore, Reiner said, while these energy sources may be at the mercy of the weather, their supply isn’t affected by an election on the other side of the world: “You might be buying the turbines from Denmark, Germany or China, but after they are built they are not reliant on what’s going on in any particular year in the Gulf. You don’t have to worry about the long-term prospects for Qatar or any of these other countries.”

However, though they do cut out foreign powers from the equation, renewables still suffer from the problem of security of supply. In order to take full advantage of their benefits – and short of creating a global interconnected system – governments may have to rethink the way local energy grids are managed.

David Hall is a visiting professor at the University of Greenwich. Last April, he released a report into the potential costs of renationalising the UK’s energy network. As per his calculations, he estimated the cost of renationalising the UK’s energy infrastructure to be between £24bn ($29.7bn) and £26bn ($32.2bn), with a national saving of £3bn ($3.7bn) every year. He said that, across Europe, energy infrastructure owned by the public is between 20 and 30 percent cheaper than privately owned infrastructure. In the US, it is around 15 percent cheaper. He also observed energy infrastructure in public ownership offers more energy security benefits.

You’re not subject to the pressure of, for example, multinational companies who want to see the generation of policy around items that favour their interests

“If [energy infrastructure] is actually owned by the country through the public sector, then there’s no danger of foreign interests having a built-in say in what’s going on”, explained Hall. “You’re not subject to the pressure of, for example, multinational companies who want to see the generation of policy around items that favour their interests, as well as not being subject to political pressure.”

Hall also noted the increasing use of renewables offers the opportunity to escape the uncertainty that goes along with dependence on foreign energy markets: “One of the worst issues in energy security has been the instability of oil and gas prices, and the impact this has on the cost of energy. We’ve seen that in some other countries over the last few years. One of the great advantages of going to renewables is that, as part of that process, you make yourself independent of the oil and gas markets and move beyond gas politics as well. This is a real economic security gain, as well as – indirectly and directly – a political security gain, because you eliminate the political risk of oil and gas suppliers.”

It’s a method private companies have caught onto before governments have. Walmart, Google and Apple have received designation from the US Government to become electrical wholesalers, generating and supplying green energy to themselves. While it could be seen as a mere nod towards environmentalism, the move does allow these companies to lock in the price of their energy bills.

The future
However, despite all the efforts of international governments, complete long-term energy independence – and therefore total security of supply – is a near impossibility. Reiner observed that, in an interconnected and fragmented world, one country is not able to consistently source everything it needs, internally.

“You occasionally get those periods. Arguably, because of the shale gas revolution in the US, 40 years after project independence they’re now accidentally somewhere near energy independence for maybe a few years. But, fundamentally, you’re always fighting against the inevitability that you’re going to be relying on foreign sources, and then it becomes a question of what can be an acceptable foreign source.”

As such, energy security will remain a political issue, with countries continuing to make decisions as to what are acceptable investments, ownerships and imports. But, with the changing nature of the energy grid, a major rethink of who owns these critical pieces of public infrastructure seems inevitable.

Dow Jones reaches record high

Posted on by Max Tomlin

The Dow Jones Industrial Average made financial history on January 25, breaking through the 20,000 barrier for the first time. The broader S&P 500 and the Nasdaq index also reached new records, bolstered by President Trump’s early executive actions on infrastructure and deregulation.

The Dow Jones index broke the barrier following the president’s renewed pledge
to build a wall along the
US-Mexico border

Wall Street stock markets have rallied since Trump’s election victory, with the Dow first coming close to the 20,000 landmark on December 13, and then finishing just 0.37 points shy of the milestone on January 6. It broke the barrier on the morning of January 25, following the president’s renewed pledge to build a wall along the US-Mexico border. With the promise of using domestic steel at the heart of the construction effort – and the announcement of two planned pipeline projects – investor confidence in US markets has boomed.

The newly inaugurated president took to Twitter to comment on the milestone, tweeting:

His senior advisor, Kellyanne Conway, tweeted the landmark was a result of:

Goldman Sachs and JP Morgan are among the big winners of the recent Trump rally, accounting for around 20 percent of the record rise. The Wall Street stalwarts rose by around 34 and 26 percent respectively, fuelled by investor hopes that Trump’s fiscal stimulus package will trigger inflation and prompt a rise in interest rates.

While the Dow is perhaps one of the best known US stock market indexes, it has a somewhat limited scope and is thus regarded as an unreliable economic measurement among most market professionals. The index measures the performance of the 30 largest publicly owned companies in the US, from tech giants such as Apple to global banks such as JP Morgan. The Dow assesses performance by tracking the share prices of each company, paying little attention to the overall size of the company in question and failing to adjust for inflation – leading to several peculiarities.

The Dow’s rise has been remarkably sudden since Trump’s shock victory in November. Given sharp rises on the Dow are historically followed by sharp falls, the index could well stand to lose these impressive gains over the coming months as Trump begins his fiscal spending.

Insurance liberalisation must strike delicate balance in Myanmar

Posted on by World Finance

Insurance is normally a highly competitive industry, but in Myanmar – only recently opened to the international market – that competition is highly controlled. Nyo Myint, Vice Chairman of IKBZ Insurance, explains that although the monopoly of the state-owned Myanma Insurance has ended, the country’s 12 insurance companies are still relative novices. Myanmar’s insurance industry needs foreign insurers bringing in capital, expertise, and capacity – but instant liberalisation would demolish the domestic industry. He outlines the transition so far and suggests the next steps that Myanmar’s finance services regulator needs to take.

World Finance: Insurance is normally a highly competitive industry, but in Myanmar – only recently opened to the international market – that competition is highly controlled. Joining me is Nyo Myint, Vice Chairman of IKBZ Insurance.

Myanmar’s insurance sector is transitioning from a state controlled one – what’s the story so far?

Nyo Myint: The five decades -long monopoly of state-owned Myanma Insurance was ended, with the establishment of 12 insurance companies: six life insurers and six composite insurers; in 2013.

Myanmar’s insurance market still remains imbalanced and highly controlled, with state-owned Myanma Insurance as the dominant player.

However, there are now 24 foreign insurance companies and brokerage companies that have representative offices in Myanmar; among them are three companies that are allowed to provide insurance business within Myanmar’s Thilawa Special Economic Zones.

In terms of liberalisations, the initial crucial steps have been taken, and the existing conditions seem to be right for the accelerated development of Myanmar’s insurance sector.

World Finance: What are the challenges on the path to full liberalisation of the insurance industry?

Nyo Myint: At this point of time, the local insurance companies are novice, and need time to develop so that they can withstand competition.

Therefore, the whole process of liberalisation has to balance opening up the market enough to bring in capital, expertise, and capacity of foreign companies, without letting the local insurers feel threatened with the entry of the foreign companies in near future. It must be a step by step approach.

The regulatory body needs to exercise more freedom in terms of premium insurance products, the policy design, and premium pricing, in such a way in order to avoid price wars and substandard coverage when the market opens up.

World Finance: What legislation or regulation is needed to promote a healthy insurance industry?

Nyo Myint: The current regulatory body has agreed to make necessary amendments to existing policies.

For example, the existing co-insurance model shares all the risks among the local insurers. It is important for the local insurers to have a way of measuring their risks and mitigate them by having the umbrella protection of reinsurance.

Currently we are a tariff-based industry where price cannot be varied, leading to a uniform trend in pricing. The price needs to be determined with a focus on long-term sustainability.

A coordinated approach will not only help to price a product better, but also in maintaining adequate financial reserves of a company.

World Finance: What are Myanmar’s demographics, and what do they represent for the insurance industry?

Nyo Myint: Out of a 51.5 million population, more than 30 percent comprises the urban class, and the remaining 70 percent is a large rural population.

More than half of the population comes under the productive population age bracket, from 15 to 64 years. Having such a productive population, and with more insurance penetration as expected in the near future, it gives an opportunity to domestic players like us to explore and take advantage of the vast potential of this growing industry.

World Finance: Of course the big challenge for all industries in the country is ensuring a successful peace process?

Nyo Myint: The government is expected to urgently address a number of key challenges; and one of these is moving the peace process forward.

The signing of the Nationwide Ceasefire Agreement by all ethnic groups is a must to grab this opportunity.

This peace conference renders national development and human security a priority before anything else.

This will definitely benefit our industries in a way, since we operate through the length and breadth of the country.

World Finance: Nyo Myint, thank you very much.

Nyo Myint: Thank you very much.

Myanmar’s unbanked population are a “major priority” for KBZ Bank

Posted on by World Finance

The final trade restrictions on Myanmar were lifted by the outgoing US President’s government in October 2016, marking the final step in the years-long rehabilitation for the previously isolated country. Nyo Myint, Senior Managing Director of KBZ Group, explains what this signals for the country’s ecomomy and industry, and outlines some challenges the country still faces. Building trust in Myanmar’s banks, he explains, means expanding their physical branch networks, as well as investing in mobile banking and fintech. Plus there is still work to do in disaster recovery and other corporate social responsibility initiatives – and an ongoing human capital challenge.

World Finance: The final trade restrictions on Myanmar were lifted by the outgoing US President’s government in October 2016, marking the final step in the years-long rehabilitation for the previously isolated country. Nyo Myint, Senior Managing Director of KBZ Group, joins me now.

What does this last change signal for Myanmar’s economy and industry?

Nyo Myint: It’s definitely great news for our economy. Since the country started opening in 2010, we have seen increased foreign investment flows from Asia as well the EU, whereas US companies and banks have remained cautious. But the ending of the remaining sanctions has cleared the way for them to invest and trade more with Myanmar and for Myanmar companies to do business with US companies.

World Finance: KBZ Bank controls more than 40 percent of the retail and commercial banking space in Myanmar, so which industries are growing and attracting foreign investment?

Nyo Myint: Myanmar is still an untapped economy, so there are abundant opportunities for investors in multiple sectors.

Myanmar has a population of about 51 million, with the majority aged under 30. And labour costs are still competitive. Many manufacturing companies have shifted their operations from China and Vietnam into Myanmar.

The food and beverage industry has also taken off in the last few years. And Myanmar’s tourism sector is also very attractive. The number of inbound tourists grew 20 percent in the past years. There are a lot of opportunities for the opening of hotels and many other services related to the tourism sector.

World Finance: Now on the retail side, how much work needs to be done do to reach the currently unbanked population?

Nyo Myint: KBZ Bank holds very much holds reaching our unbanked population a major priority. We have already opened more than 400 new brick and mortar branches in the last four years, and have been able to reach towns and cities where no previous banking services were available.

Physical brick and mortar branch expansion is very much needed to develop trust in the banking sector.

KBZ is also focusing on the expanded payment systems such as various cards through ATM and point of sale. We are also now in the process of partnering with a big telco company to launch a mobile money platform, to reach more customers and to provide services to unbanked populations.

World Finance: You’re also reaching out to aid the Myanma with your Brighter Future Foundation – what kinds of work are you doing?

Nyo Myint: The foundation focuses on five areas of social commitment: Disaster Relief and Recovery Assistance, Women, Environment, Education, and Community and Culture.

The notable projects are one water project, where a large number of tube wells have been drilled to supply water in the drought area; and disaster relief and recovery efforts throughout the country.

The total contributions for all of our initiatives has reached more than $110m.

World Finance: You’ve previously talked about the human resources challenge that Myanmar’s banks are facing – how is that developing?

Nyo Myint: There are still challenges in human resources. We address this by strengthening our own internal staff development programmes: we have two dedicated training facilities to provide in-depth training to our new recruits, and develop existing staff.

We have also partnered with multiple universities in Yangon for an internship programme that provides final year students practical experience in banking before they complete their studies.

We are always on the lookout for top international talents and Myanmar citizens living abroad to come back and join KBZ to make a contribution back to their motherland.

World Finance: Projected growth for Myanmar is eight to 10 percent for the next five years – so what are your personal hopes for the country?

Nyo Myint: I believe we can make a leapfrog success in national development.

The NLD party led by Daw Aung San Suu Kyi had achieved a landslide victory in the previous general election. That means the government has the full trust from the majority of the people. And the peace agreement is now well undergoing.

As for me, I believe we can regain our preeminence in the region, and be a leading light once again.

World Finance: Nyo Myint, thank you.

Nyo Myint: Thank you.

US economy stutters in 2016

Posted on by Max Tomlin

The year 2016 was marred by several unexpected developments: the UK’s shock decision to leave the EU; China’s struggle to stabilise its economy; the surprise election of Donald Trump in the US; and the persistent deflationary pressures engulfing most advanced economies. Perhaps a less widely publicised example, however, was the unanticipated slowdown of the US economy.

The US ran out of steam in the first half of 2016, as growth in the world’s largest economy slowed unexpectedly. Growth expectations for the year fell from 2.5 percent at the end of 2015 to 1.5 percent. Although consumer spending held up well during the year, business investment was weak and exports were held back by the strength of the dollar and lacklustre growth elsewhere in the world. The sluggish economic performance was one of the reasons the Fed refrained from raising rates during the first half of the year – despite initially planning one or two possible hikes.

Easterly winds
There were several headwinds following the beginning of the year that seriously worried policymakers. The year started with a fresh bout of volatility in financial markets, principally caused by the People’s Bank of China’s (PBOC) willingness to let the yuan depreciate against the dollar – the same source of panic that led to turbulence in the global market in the summer of 2015. This, in turn, renewed concerns over the health of China’s economy, and the subsequent knock-on effects it would have on other emerging market economies.

The unexpected outcome of the Brexit vote appeared to dent both business and consumer sentiment

While the yuan remained on a steady downward path, financial markets became somewhat less concerned about any further depreciation of the currency. This appeared, in part, to be a result of investors perceiving the fall to be consistent with China’s economic slowdown. Another contributing factor was PBOC’s demonstration that it was able to support the yuan when necessary. There was also an improved mood regarding the state of China’s economy, as indicated by the rebound in China’s stock market – rising sharply after a January low.

Nevertheless, there was confusion about the PBOC exchange rate policy, with many analysts questioning the central bank’s ‘market-orientated’ daily midpoint fixing. In the meantime, China’s economy showed signs of stabilising, with GDP growth averaging 6.7 percent year-over-year during the first nine months of 2016. Even the struggling manufacturing sector appeared to be coming out of the doldrums, with both the official and Caixin manufacturing Purchasing Managers’ indices turning positive in the third quarter. Exports failed to recover, however, and China looked set to record a decline in yearly exports for the second year running.

Perhaps a bigger risk facing the country was the high level of corporate and local government debt. Chinese authorities had been relying on increased lending to sustain demand and meet their growth targets. The credit surge came despite the PBOC keeping its benchmark rate at 4.35 percent since October 2015. The central bank resisted cutting its one-year lending rate further despite low inflation – fearing any cut would fuel further capital outflows. Instead, the PBOC opted to increase borrowing by lowering the reserve requirement ratio for large banks and by expanding its lending facilities to state-owned banks.

Capital outflows from China – which had been accelerating since 2014 – exerted downward pressure on the yuan, forcing the PBOC to spend billions of its foreign reserves to defend the currency. China’s foreign currency reserves fell from just under $4trn in June 2014 to $3.17trn in September 2016. During the same period, the yuan fell by about 7.5 percent against the dollar – from around 6.20 per dollar to 6.67 by September 30.

The weakened outlook brought on by the market turbulence at the start of the year led investors to pare back their expectations of the number of times the Fed would hike rates in 2016. By late spring, as the volatility subsided and US economic data seemed more solid, the Fed looked set to raise rates in June or July. However, fresh panic soon struck the markets following Britain’s shock vote to leave the EU on June 23.

Brexit blues
The initial reaction to the result of the UK’s EU referendum saw stock markets tumble, with sterling plunging to a 31-year low of 1.32 against the dollar, while gold surged to a 15-month high. The uncertainty created by the unexpected outcome of the vote appeared to dent both business and consumer sentiment – not just in the UK, but in the eurozone, too. However, with the swift appointment of a new prime minister in the UK – and the new government signalling it would take its time before formally initiating the Brexit process – market order was quickly restored.

China’s foreign currency reserves:

$4trn

June 2014

$3.17trn

September 2014

The Bank of England (BoE) was also quick to respond to the shock of Brexit, swiftly putting its contingency plans into effect and announcing a huge stimulus package in August, cutting interest rates to a record low of 0.25 percent – the first cut in UK interest rates since 2009. The measures helped maintain business confidence in the British economy, with most indicators suggesting the Brexit vote actually had little economic impact. While the UK’s growth forecasts for 2016 were quickly revised from 1.9 percent to 1.4 percent in the wake of the referendum, they were subsequently revised back to 1.8 percent.

The improved forecasts were partly due to sterling’s depreciation – which continued to slide to fresh 31-year lows against the US dollar – raising the prospect of inflation overshooting the BoE’s two percent target. However, the BoE said it was willing to tolerate higher inflation as it attempted to cushion the UK economy from the uncertainty of Brexit.

The quick dissipation of the market panic was also welcomed by the European Central Bank (ECB), which faced the possibility of having to expand its already large asset purchase programme if eurozone growth took a hit from the UK’s decision. The ECB’s deposit rate reached a record low of -0.4 percent, and the bank admitted there was a limit to how low rates could go.

The Bank of Japan soon followed suit, introducing a negative interest rate policy of its own – although the reaction in Japan was not as positive as that in the eurozone. The wider adoption of negative interest rates – as well as the likelihood of lower rates for longer elsewhere – drove gold to a two-and-a-half year high of $1,375 per ounce in July. Heightened economic uncertainty also added to this high.

The Fed, reserved
In the meantime, the Fed had to once again put any decision to raise rates before and after the Brexit vote on hold, with some analysts questioning whether the central bank would tighten at all in 2016.

Another reason for the Fed’s caution was the unexpected slack in the US labour market. While the number of hawkish voices within the Federal Open Market Committee (FOMC) grew bigger, a few Fed policymakers – including Fed Chair Janet Yellen – were making the case that the US economy still had room to run before it started to overheat. Yellen even suggested it might be better to let the economy run hot before raising rates in order to help the US economy repair the damage caused by the financial crisis. This could be a sign of a possible shift in Fed policy in 2017, though Yellen might find it difficult to convince the Fed hawks that rates should stay low.

A policy of a ‘high-pressure economy’ could be especially controversial if oil prices continue to strengthen, as planned restrictions on output by OPEC and Russia could put a floor under the oil price.

Crude oil prices moved sharply away from 13-year lows set in January and February as a series of production disruptions and declining output from high-cost producers – such as the US – provided some relief to the supply glut. A surprise commitment by oil producers to curtail output reinforced the 2016 oil rally, although analysts remained sceptical whether the different OPEC members – as well as Russia – would abide by any such agreement.

While this might be good news for countries currently struggling to meet their inflation targets – such as Japan and those in the eurozone – it could spell potential trouble for the US if monetary policy is too accommodative; given headline inflation was already hovering around one percent and core inflation was around two percent.

The diversifying views within the FOMC have already resulted in mixed messages coming from the Fed. The lack of consensus by Fed policymakers could be a new cause of angst in the markets in 2017, and the Fed may need to rethink how it provides guidance in a changing economic environment if it is to avoid creating fresh confusion and uncertainty.

Chief Trump advisor set for $100m windfall

Posted on by Max Tomlin

Wall Street stalwart Goldman Sachs is set to pay an $100m exit package to Gary Cohn, its former President and COO. In December, Cohn announced he would be leaving his position at the bank in order to take over as President Trump’s chief economic advisor.

Over the course of Cohn’s 25-year career at Goldman, the investment banker acquired many bonuses and stock awards, which he was due to receive in the coming years. However, government ethics rules state these investments are subject to a “conflicted employment provision”, meaning Cohn is eligible to receive an accelerated payout upon joining the Trump administration.

The president has packed his administration with a host of banking and business experts

According to a document filed by Goldman Sachs with the Securities Exchange Commission, Cohn will receive a cash payout of approximately $65m, covering the long term bonuses he was owed. Goldman has also lifted restrictions on a further $23m worth of shares held by its former President, and advanced stock awards totalling $35m.

Half a dozen former Goldman employees have now taken up roles within the Trump administration. With Cohn leading the National Economic Council and Stephen Mcuchin as secretary of the Treasury, ex-Goldman bankers will hold the two premier economic roles in Trump’s new government. Former Goldman Investment banker and Breitbart executive Steve Bannon will also serve as Trump’s chief strategist.

During his presidential campaign, Trump repeatedly attacked Wall Street banks as symbols of a corrupt establishment. However, following his unexpected election victory, the president has packed his administration with a host of banking and business experts, with Goldman alumni awarded a significant portion of the senior roles.

While Cohn’s exit package is certainly substantial, it is just shy of the $180m Rex Tillerson is set to receive from ExxonMobil as he steps into his new role as secretary of state. Meanwhile, with a portfolio of investments across the globe, Trump will have to cut financial ties to his business empire during his presidency in order to meet government rules on ethics. Despite this, the president is yet to elaborate on how he will manage his own potential conflicts of interest.

The advantage of private equity governance

Posted on by Max Tomlin

I recently gave a lecture to the current TRIUM Global EMBA class about how the rise in private equity (PE) deals has brought renewed scrutiny to their governance. With an exceptionally diverse, senior and experienced student population, many participants in the TRIUM course have already worked in business – under differing forms of governance – or have run their own companies. Many of our graduates go on to become board members – or create new business ventures – so clearly understanding the implications of PE governance is of great interest.

My lecture centred on the pros and cons of PE corporate governance structures, outlining some of the differentiating features found in PE strategies. This included the fact that investors (LPs) – often representing pension payers – give a mandate to highly specialised representatives or fund managers (GPs) to manage their money for a limited term. This management is based on an incentive structure that motivates the best decisions – when selecting management teams and companies for investment – and guides the execution of their strategy.

Representative democracy
The class generated a lively discussion, with a classic ‘TRIUM conversation’ ensuing. One student related my remarks to some background reading she had done around TRIUM classes on political economy at the London School of Economics and Political Science: “So PE governance really is for businesses what a representative democracy is for countries. GPs are like members of parliament (MPs), who are elected by investors to represent them for an election period, charged with the responsibility of acting in the investor’s interest; not as their proxy representatives, nor necessarily always according to their wishes, but with enough authority to exercise swift and resolute initiative in the face of changing circumstances. In this function, the GPs select management teams, like parliaments elect governments. GPs define strategies, set budgets and oversee the executions of these strategies, like parliaments pass laws and control governments.”

Private equity governance is just as different from the traditional publicly listed corporation as a representative democracy is from a direct democracy

Her analogy made perfect sense. I responded: “Yes, precisely. And PE governance is just as different from the traditional publicly listed corporation as a representative democracy is from a direct democracy. Direct democracy often does not function well as the exact implications of complex political decisions are too difficult to assess for many individual voters. Similarly, it is often not effective to let individual investors vote on complex business decisions, as they may not have the time or knowledge to fully understand their implications.

“In the publicly listed corporation, individual investors rely on management, as the equivalent of a national government, to act in their best interest. What is missing, however, is an overseeing authority, which would be equivalent in its function to that of parliament in a representative democracy. External board members of public corporations could in theory perform these functions, but are probably as limited in their power as MPs in a direct democracy. There is much research on the fact that, structurally, external board members are in a less powerful position to perform this role than PE fund managers. In fact, the latter act as ‘active owners’, with more powerful incentives, direct influence on top management and better access to critical information.”

Benevolent dictatorships
The student pushed the analogy further: “Then what about other privately owned firms or family owned firms? Their owners also have full control over their business, and in theory there should be no agency conflict.”

An intriguing argument, I thought, and replied: “Well, these would probably be the equivalent of a monarchy or dictatorship. Like benevolent dictatorships, private owners exercise their power responsibly and for the benefit of the whole company and all stakeholders. But there is always the risk that, at some point, private owners or their successors will start to abuse this power and harm the business.”

She looked puzzled: “Well, let’s hope that the chances of private business owners remaining benevolent are greater than in politics, where benevolent dictators are more the exception than the rule – after all, how many Lee Kuan Yews have we seen recently?”

I concluded: “Very true. Ultimately, the question of which form of governance is best for a given business depends on the nature of the business, its competitive context and the people available to govern it. In some situations, PE governance may not be effective for a business; just as sometimes there are difficulties in representative democracies. Some GPs may not be perform well, just as it can be the case for some politicians.

“In some aspects, PE incentives may be far from perfect, which is why PE governance structures need to constantly evolve and improve based on investor input, just as governance rules in a representative democracy are not written in stone, but improved over time.”

Her final question was: “But then why do so many people criticise PE?” At this point I could only reply with a variation of Churchill’s classic quote: “Surely, it is because – without a doubt – PE as it stands today is the worst possible form of governance… except all those other forms that have been tried from time to time.”

Trump backs out of Trans Pacific Partnership

Posted on by Max Tomlin

On January 23, newly appointed US President Donald Trump signed an executive order to scrap the Trans Pacific Partnership (TPP), bringing an end to the US’ long held commitment to free trade. By terminating the pact, Trump is making good on his ‘America First’ campaign, through which he vowed to block multilateral trade agreements in favour of brokering bipartisan deals in the US’ interest.

The deal ultimately held the potential to become a single market comparable to the EU

The ambitious 12-nation trade deal – negotiated by Barack Obama – covered 40 percent of the world’s economy, including Mexico, Australia, Japan and Malaysia, but notably excluded China. The partnership was the cornerstone of the Obama administration’s signature ‘pivot to Asia’ foreign policy initiative, and was broadly acknowledged as a framework that empowered the US to write the rules of trade in the region.

The partnership, which was negotiated in 2015, involves a complex web of trade regulations with the stated aim of providing shared benefits to member states, including increased growth and improved economic ties. The new trade rules include heavy reductions in tariffs, as well as measures to promote labour, intellectual property and environmental standards. The deal ultimately held the potential to become a single market comparable to the EU.

Trump’s announcement was, perhaps unsurprisingly, met by broad condemnation from the leaders involved in the heavy negotiation process. New Zealand Prime Minister John Key said: “The United States is not an island. It can’t just sit there and say it’s not going to trade with the rest of the world, and at some point it will have to give some consideration to that.”

The decision also garnered criticism from members of the Republican party, which has long pursued a free trade agenda. John McCain, the Republican senator from Arizona, said: “[Scrapping the deal] will create an opening for China to rewrite the economic rules of the road at the expense of American workers… and it will send a troubling signal of American disengagement in the Asia-Pacific region at a time we can least afford it.”

However, disapproval was not unanimous, as the deal had attracted criticism from both political parties. Trump’s Democratic rival, Hilary Clinton, had also criticised the TPP, while senator Bernie Sanders released a statement immediately after the executive order was signed, stating: “I am glad the Trans Pacific Partnership is dead and gone… [multilateral trade deals] have cost us millions of decent-paying jobs and caused a ‘race to the bottom’ which has lowered wages for American workers.”

By signing the executive order, Trump has reinforced the protectionist stance adopted during his presidential campaign, which promised to take a more aggressive approach to trade policy. During the campaign, Trump argued: “[The TPP presents] a mortal threat to American manufacturing… [and marks the] biggest betrayal in a long line of betrayals where politicians have sold out US workers.”

Jean-Marc Torre: How Bank of the West simplifies international banking

Posted on by World Finance

2016 hasn’t exactly been the best year for easing the uncertainties that have plagued international financial markets for most of the last decade. A reliable international banking partner can relieve some of that complexity; Commercial Banking Group Head Jean-Marc Torre explains how Bank of the West does it. It requires more work to make business processes simple, he says – it’s harder than ever before to adopt a global strategy that doesn’t accommodate regional and local varianes. He explains how Bank of the West facilitates the kind of close client relationship needed to understand a business’s needs and translate that into a strategy – and then implement that strategy in an effective and efficient way.

World Finance: 2016 hasn’t exactly been the best year for easing the uncertainties that have plagued international financial markets for most of the last decade. A reliable international banking partner can relieve some of that complexity; joining me is Jean-Marc Torre from Bank of the West.

What are the challenges that you see businesses wrestling with today?

Jean-Marc Torre: Well they have a lot of challenges. They probably have today, more challenges than they’ve had, probably in the last 20 years.

The change in the geopolitical, political, regulatory, technology… I mean there’s now a level of various dimensions, that creates a level of complexity for businesses.

How it translates depends really on what you want to do, what your strategy is, and where you are. You have to have a global, regional, and local view: to really understand what you can simplify over the various levels. And the idea that you could be global, meaning, dealing everywhere the same way. I don’t know if it’s ever been possible, but it’s clearly less possible than ever before.

World Finance: So how can a reliable international banking partner help smooth out some of these complexities?

Jean-Marc Torre: It requires more work to make it simple. Companies need to have a trusted partner that knows you, knows how you’re organised, and helps support the strategy and the execution of the company worldwide.

This requires a strong suite of products – of course the cash pooling and international transaction and treasury services – but it also requires intelligence. And intelligence given in the various countries, to provide the proper implementation of those great products. But also the support of bankers on the ground that will allow you to think globally and act locally, and to find the best solution that is available in every market, in conjunction with your overall global strategy.

World Finance: How do you have those conversations, then? How is Bank of the West set up to facilitate that kind of close client relationship you need in order to understand the business and translate that into a strategy for them?

Jean-Marc Torre: That’s a great question, because it’s the dialogue between the various bankers, with the various levels of responsibilities on the company’s side, which is… you have a regional treasurer talking to a banker that will be able to actually know and coordinate regionally the various bankers on the ground, with the various companies and treasurers that the regional treasurer will deal with.

We have a setup we call OneBank, which is a network of bankers and products that allow a company headquartered anywhere in the world to be supported in their operations, both regionally and locally.

To give you an example: banks talk about international treasury services products they have to support their customers internationally. Of course we have those – it’s critical to have a seamless, competitive product, to allow companies to monitor and transact – monitor their balances and execute their transactions internationally.

But beyond that, you may want to set up a regional treasury in Europe, when you are a US company. How do you do that? You have to deal with the various treasurers and treasuries of your various businesses. You need a bank that has got bankers and treasury services consultants that go at every level of your company to advise and to implement. Because many times it’s in the implementation that the details come up.

So to some extent, you allow as much as possible a mirroring of skills and knowledge with the skills and knowledge and responsibility level on the company side.

World Finance: Of course businesses need to innovate in order to thrive in new markets; how do your San Francisco connections help businesses on their digital transformation journey?

Jean-Marc Torre: We’re probably better placed than most, because yes, we are headquartered in San Francisco. So we are part of the ecosystem.

We are part of an open innovation approach, where we bring start-ups, or innovations that we trial with our customers.

Giving an example: for a long time, banks were how you could have the quickest execution on your foreign exchange transactions. Now there are some innovations that come in to: what kind of hedging do you want? And you have some innovative software put into the systems of the customer to identify and manage on a daily basis your foreign exchange exposure – and then immediately get the hedge that is needed. Or, as soon as it is identified by the system, depending on the rules the company decides.

We’re going into an end-to-end, in a way which is very automated. In a way where you need less day-to-day human intervention, and you’re going to humans where they are actually the best which is to define the strategy, to define really what you want, and then you lend the execution to be precise and to be immediate.

World Finance: Jean-Marc, thank you.

Jean-Marc Torre: Thank you Paul.

 

Gulfstream Aerospace continue to fly high despite turbulent changes in business aviation

Posted on by Max Tomlin

The business aviation market has seen a number of significant changes in recent years. As a result of the rise of globalisation, international markets have expanded, thus broadening the horizons of numerous industry players. The sector has also seen a marked increase in the number of individuals purchasing their own private aircraft.

This shift to private individuals is driving renewed focus on the cabins themselves, with a higher percentage of custom interiors. In turn, this has seen growing investments in interiors in order to enhance cabins to support a broader range of missions, beyond basic business applications.

One company shifting its strategy in response to these market developments is US-based Gulfstream Aerospace. Not only has the company expanded into international markets in recent years, its client base has changed as well. Previously Gulfstream Aerospace’s business was conducted primarily with companies, but today more than 30 percent of its business is with private individuals – a trend that is set to continue.

To discuss these changes and consider what’s in store for the future of the company and the aviation sector at large, World Finance spoke with Mark Burns, President of Gulfstream Aerospace.

In your opinion, where is the business aviation market heading?
Only 10 years ago, less than 20 percent of our business was based outside of North America. Today, more than 35 percent of our fleet is international, and our backlog is more than 50 percent international. Asia-Pacific is now our largest international market, with nearly 300 aircraft.

As companies expand their businesses around the world, the need to travel efficiently and productively becomes more important

The industry is undergoing profound change. Manufacturers must innovate more as customer expectations continue to grow and evolve. Customers want to go much further, much faster, which is why the Gulfstream G650 and G650ER have done so well in the marketplace. Clients are also spending more time in their aircraft as a result of these longer ranges, which requires manufacturers to advance in terms of interior design, in-flight connectivity, in-flight entertainment and the overall cabin environment.

What is required for the industry’s continued success?
In addition to innovating, it’s also important that we create awareness around the world about the benefits of business and private aviation. While those advantages are well known and understood in some regions and industries, in others there is more work to be done to truly illuminate how business aviation saves time, enhances safety, provides more security and allows more direct travel.

The need for business aviation will continue to grow as the world’s economy becomes more interconnected. As companies expand their businesses around the world, the need to travel efficiently and productively becomes more important.

How do you respond to the changing needs of your customers?
Gulfstream has a strong continuous improvement culture, and customer feedback is an integral part of this process. We solicit customer feedback through our Customer Advisory Board, which has been in place for 20 years, and we also conduct routine surveys with our customers following service visits and aircraft deliveries.

As well as running operator forums around the world, we also have an Advanced Technology Customer Advisory Team in place to provide input on future technologies and products. Their input was instrumental on the G650 programme to ensure the aircraft met the needs of our customers. For our newest aircraft, the Gulfstream G600, we have showcased the cabin to solicit customer feedback on the new interior. We incorporate the feedback we receive from all of these venues into the products and services we offer our customers.

What role do technology and innovation play in business aviation?
Technology and innovation are crucial to the success of business aviation. We believe it is extremely important to deliver on our promises, as well as meet and exceed our customers’ expectations. Technology and innovation have allowed us to deliver 1,000 nautical miles more range at Mach 0.90 for the G650, and provide more range and shorter take-off distances for the G280. Finally, we were the first business-jet OEM [original equipment manufacturer] to introduce and certify significant safety features, such as enhanced and synthetic vision.

Our two new aircraft, the Gulfstream G500 and G600, are an example of how the tradition of innovation can shape an industry. Those aircraft feature the Symmetry Flight Deck, which offers a truly transformational flying experience. This novel flight deck features several innovations, including touchscreens, which reduce the number of switches in the flight deck by up to 70 percent, and active control side sticks, which enhance the coordination between pilots by allowing them to see and feel each other’s actions. Gulfstream is the first business jet manufacturer to offer the active control side sticks, adding to our extensive list of firsts.

How have these developments been incorporated into
Gulfstream Aerospace’s operations?
Continuous improvement is woven into the Gulfstream culture, so doing things better and more efficiently is always at the forefront for us – whether we’re designing aeroplanes in engineering, joining a wing to the aeroplane’s fuselage in manufacturing, or replacing an engine at our service centre. We’re never satisfied with the status quo.

Trump vows to begin NAFTA renegotiations

Posted on by Max Tomlin

Donald Trump’s incoming administration is to start renegotiating the North American Free Trade Agreement (NAFTA) with Mexico and Canada in a series of upcoming meetings. Trump first pledged to overhaul the trade pact during his presidential campaign, vowing to provide more favourable terms for the US and address trade deficits with Mexico and Canada.

Speaking at a swearing-in ceremony for senior White House advisors, the newly inaugurated President confirmed: “We are going to start renegotiating on NAFTA, on immigration and on security at the border.”

Critics from both parties [have] suggested [NAFTA] has ultimately harmed US businesses and led to a decline in manufacturing jobs

Trump also announced he had scheduled meetings with Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau to begin the process of reviewing the trade deal.

Congressmen from both the Democratic and Republican parties initially supported the agreement – which took effect in 1994 – as it promised to significantly lower trade restrictions between the US and its two neighbours. The pact created one of the world’s largest free trading zones, reducing or eliminating tariffs on a wide range of products and facilitating trade between the three nations.

However, the agreement has become something of a contentious political issue in recent years, with critics from both parties suggesting it has ultimately harmed US businesses and led to a decline in manufacturing jobs.

Trump consistently criticised the deal during his election campaign, branding the agreement “a total disaster” and declaring it to be “the single worst trade deal ever approved in this country”. Blaming NAFTA for the loss of US car manufacturing jobs, Trump has promised to withdraw from the agreement entirely if renegotiations are unsuccessful.

A preliminary meeting with Mexico’s Peña Nieto is scheduled to take place at the White House on January 31. In addition to discussing NAFTA, Trump will take the opportunity to talk about immigration and border security with the Mexican President.

“Mexico has been terrific”, said President Trump during the January 22 swearing-in ceremony. “The President has been really very amazing. I think we are going to have a very good result for Mexico, for the United States, for everybody involved.”

China targets loopholes in capital controls

Posted on by Max Tomlin

New capital controls have been implemented in China, marking the latest in a series of efforts by Chinese authorities to support the country’s struggling currency, which fell 6.5 percent against the dollar in 2016.

The currency has been gradually falling against the dollar since August 2015, when the Chinese central bank allowed the markets to play a stronger role in determining the value of the yuan. As part of its efforts to relieve this downward pressure, the Chinese central bank has relied heavily on its foreign currency reserves, which have now dipped below $3trn.

[The growing use of bitcoin has] prompt[ed] experts
to speculate the currency may be used to circumvent
capital regulations

According to the Financial Times, the new rules require banks in Shanghai to match their currency outflows with equal capital inflows. This means for every renminbi sum that banks remit overseas, they must import an equivalent amount. In Beijing, the clampdown has been taken even further, with rules requiring banks to import RMB 100 ($14.60) for every RMB 80 ($11.70) they allow in currency outflows.

These new regulations follow a curb on capital outflows in November, in which authorities heavily restricted the size of outbound investment deals and changed the threshold for the vetting of foreign transfers. The move arose amid fears the yuan was entering a depreciative spiral.

In an interview reported by Reuters, Wang Zhenying, a senior Chinese central bank researcher, said: “Depreciation triggers capital flight, and capital flight exerts even bigger pressure on the yuan.”

In a separate move, Chinese authorities stepped up scrutiny on bitcoin exchanges, issuing spot checks on China’s three largest bitcoin exchangers. The use of bitcoin in China has witnessed a surge in recent months, prompting experts to speculate the currency may be used to circumvent capital regulations. The inspection aimed to assess a variety of possible rule violations, ensuring firms fully adhered to the regulations already in place.

Furthermore, on January 23, the three largest Chinese bitcoin exchangers simultaneously announced a new charge of 0.2 percent per transaction. In a press release from the BTCC exchange, the firm described the move as an effort to “curb market manipulation and extreme volatility”.

 

CB Bank remain mobile in Myanmar’s digital banking revolution

Posted on by Max Tomlin

Since the beginning of this century, technology and banking have become increasingly intertwined. Even in traditionally cash-based countries like Myanmar, the influence of technology is getting stronger. In this technology-driven environment, customer experience is the top priority for CB Bank, which was set up as a private bank in August 1992 with the permission of the Central Bank of Myanmar Law and the Financial Institutions of Myanmar Law.

Since June 2004, CB Bank has been transformed into a public company as a result of a merger with two other banks. In the years since, CB Bank has expanded significantly, not only with the banking services it offers but also with regards to its branch network. The organisation has grown from a small bank with 33 members of staff in 1992 to one of Myanmar’s leading banks, with 6,032 employees as of FY 2015-16.

To offer the best banking solutions to its customers, CB Bank leverages the most secure, reliable and state-of-the-art technology while recruiting the best and brightest talents with very strong financial and banking backgrounds from around the world.

Ahead of the pack
CB Bank focuses on innovation and adopting the best practices from global and regional banks, while at the same time complying with Myanmar regulations in its search to find the best ways to improve the banking experience for its customers and partners. The bank’s service channels have reached 166 branches, while it operates around 500 ATMs, alongside 376 mobile banking agents and 3,000 POS machines. CB Bank branches can be found in every major region throughout the country.

Even before Myanmar was recognised as one of the fastest growing economies in the region, CB Bank anticipated the growth and potential of the country, as well as the underlying opportunities and challenges this growth would bring. We have always tried to be ahead of the curve and become the first provider of many of the products and services offered. We have already been the first to introduce many services in Myanmar, from being the first bank to accept Visa and MasterCard transactions at our ATMs, to the introduction of mobile banking and business iBanking.

Even in traditionally cash-based countries like Myanmar, the influence of technology is getting stronger

At the same time, CB Bank has been exploring more cashless payment initiatives in order to provide a better customer experience. To enhance the payment and ease of transactions, CB Bank introduced domestic credit cards in 2015. The bank has also designed real-time cash collection and payment services for local and foreign companies in Myanmar to ensure efficient liquidity management. With the further evolution of technology in banking and finance, CB Bank will continue to embrace innovation to deliver new products and services to all customers.

Digital leader
Myanmar has witnessed impressive leaps in technology in recent years, enjoying rising internet speeds and strong mobile penetration. To optimise such opportunities, CB Bank has been a pioneer in introducing technology-based banking services across the country.

Being at the forefront of the country’s financial transformation, CB Bank was the first bank in Myanmar to introduce ATMs in 2011, the first to adopt centralised core banking systems in 2012, and the first to launch mobile and internet banking in 2013. We also launched our mobile-based agent banking network in 2014. In 2015, we introduced an internet banking platform to allow companies to have access to banking services from their own offices, while in 2016 we introduced cash recycler machines, which accept cash deposits and allow cash withdrawals without the need for customers to visit a branch.

In recent years, CB Bank has ramped up its innovation efforts even further, continually rolling out technology-based digital banking services. In 2012, we rolled out Myanmar’s first online banking platform, which now provides customers with all of the modern conveniences of online banking. This includes viewing recent bank account activity, viewing credit card bills payments and checking bank account balances. The platform also allows customers to carry out money transfers both between their own accounts and with other people’s accounts. Customers can pay virtually any person in Myanmar with a bank account.

166

Number of CB Bank branches

6,032

Number of employees

95%

Mobile coverage in Myanmar

For businesses, the digital platform can be used for employee payroll services. Overseas fund transfers can also be completed, as can e-alerts for account activities. The platform also includes the CB Pay feature, which allows customers to make purchases. Customer account management has also become easier through the digital platform, as it allows customers to schedule appointments with bank specialists.

However, bank branches are still at the centre of the banking experience in Myanmar. Digital service delivery is layered on top of branch systems, with duplicate services offered through various banking channels. CB Bank understands customers expect seamless integration of the digital banking experience, from service initiation to fulfilment. Yet, in the current situation, it is not possible to provide an end-to-end suite of all banking services in digital form because of various technology and regulatory constraints. Nonetheless, CB Bank plans to transform the most commonly used banking services into a digital platform, so that customers have an interest in using the digital banking services from the start.

CB Bank makes use of the T24 from Temenos as its core banking system. This allows us to enhance bank-wide connectivity with our branches all over the country. Through the system, CB Bank can offer reliable, secure and real-time account information that is readily available in many forms. CB Bank has also recently launched the first ever business internet banking system in Myanmar, taking it far ahead of its competitors. The service features highly secure banking services, such as setting limits of amounts for transactions, creating authorised users and setting up approval structures. CB Bank’s business internet banking allows customers to conduct banking transactions over the internet without having to visit bank branches.

The move to mobile
Mobile telecommunications have shown astounding growth in Myanmar in recent years, reaching up to 95 percent coverage of the population by the end of 2016. With geographical challenges affecting some mountainous parts of the country, mobile banking agents and mobile banking platforms play a critical role in providing financial services to CB Bank’s customers.

We have pioneered the agent-banking model based on mobile banking technology since 2014, in order to reach out to potential customers from non-banked regions. With the continuous strong growth of our mobile agent network and transaction volumes in the past two years, CB Bank aims to reach 1,000 mobile banking agents around the country in the near future.

CB Bank’s mobile application is available on almost all mobile devices. Because of the robustness and user-friendliness of the app, CB Bank has the highest number of mobile banking users in Myanmar, with a total of over 155,160 mobile banking users as of September 2016. Our customers can now enjoy mobile banking services any time, anywhere, including services such as viewing the locations of CB Bank ATMs and currency exchange counters, checking balances, viewing exchange rates, carrying out fund transfers to own accounts, completing beneficiary registration, completing fund transfers to beneficiaries, and topping up banking cards.

Realising the importance of a mobile network connection, CB Bank is also planning to launch mobile money services by partnering with one of the major telecoms service providers in Myanmar. Currently, CB Bank’s mobile banking users account for 12 percent of its total digital banking customer base, while online banking (personal and business banking) customers account for 0.4 percent. These figures are in line with CB Bank’s strategy to stay ahead of its competitors, especially at a time when mobile penetration in Myanmar is growing at an unprecedented rate.

In order to provide customers with the best solutions and most reliable financial services, CB Bank has plans to build a more robust IT and human resource infrastructure to support upcoming digital banking services, which are expected to grow exponentially. It also plans to digitise its more commonly used banking services for an enhanced customer experience.

With such objectives towards improving technology and innovation in the rapidly changing landscape of banking and financial services, CB Bank will continue to be the market leader in Myanmar, focusing not only on traditional banking, but also on technology-based banking, such as digital banking and mobile banking.

Rebuilding investors’ confidence

Posted on by Max Tomlin

To the average investor, the global market has never seemed more intimidating. In between surprise political events – such as the UK’s vote to leave the EU and Donald Trump’s shock election in the US – and drastic changes in China’s economy, the future for the world’s financial sector is anything but certain.

Even though central banks are doing everything they can to encourage investment and spending, taking the plunge into this complicated investment landscape is far easier said than done. This is especially true now traditional methods to ensure the integrity of a portfolio are no longer as effective as they once were. While opportunities still exist for the informed investor, knowing where to turn is difficult. Paulo Pinto, Chief Operating Officer at DIF Broker, told World Finance: “Only a fool would bet against the bull market promoted by the central banks.”

DIF Broker, founded in 1999, helps European investors – particularly in Spain and Portugal –protect their savings and prepare for the future with their investments. It has recently begun a significant expansion of its operations, acquiring Uruguayan firm Saxo Capital Markets Agencia de Valores in 2016, beginning a push into a new region. With this acquisition, the firm has quickly become one of South America’s key players.

Pinto said DIF Broker is dedicated to helping people think differently about how they invest their money: “We know investors are concerned about where to place their trust. Where once it was possible to inspire confidence with the scale of an institution alone, today trust must also be built on a concrete record of delivering on your promises.”

Certain uncertainties
The current climate for investments is one that is full of both more opportunities and more unknowns than ever before. These uncertainties have increased the potential for a sudden drop in investor confidence. Stock market crashes seem inevitable, with events similar to Black Monday 1987, the dot-com crash and the flash crash of 2010 at risk of playing out.

Pinto explained that the old adage to never fight the world’s central banks is out-dated. “Low and negative interest rates have inflated stock and bond prices, but central banks are running out of ideas. They are simply patching up holes in the financial markets with wads of cash, which they can create at no cost. Not even the central banks can believe this will last forever.”

Fortunately, with a trusted broker offering products that mitigate uncertainty surrounding future returns, individual investors can make decisions with more confidence and ensure a firm financial footing. The development and implementation of intelligent financial products can therefore help investors manage the risk of widespread losses across portfolios.

The current climate for investments is one full of both more opportunities and more unknowns than ever before

In order to protect its customers from a potential catastrophe, DIF Broker has developed a new product called DIF Options. DIF Options allows investors to build a collection of personalised ‘protected investments’. Through DIF Broker’s online platform, investors choose any major exchange-traded fund or major stock, and select a level of protection against downside losses. Investors then choose to either pay for the protection with an upfront premium, much like insurance, or agree to give up some of their future upside. The system places powerful investment protection tools in the hands of investors for a mere fraction of the price they would traditionally cost.

To any investor, whether they are working with large or small portfolios, the proposition should be a comforting one. With this level of support and growing uncertainty in the broader financial sector, investors can feel more confident in their decisions. The risk of a widespread stock market crash no longer carries the same threat.

Protecting valuable assets
DIF Broker decided to develop the product when stocks were at records highs and investor sentiment was at its most bullish after sensing an increasingly risky financial environment. With safe gains now long in the past, the agent sought to innovate, delivering option-based strategies to more people.

“By using exchange traded options, it is possible to create investments with no early withdrawal penalties or credit risk”, explained Pinto. “These products have very low fees when compared with traditional structured products, and were previously only available to high net worth individuals with high minimum investments. Moreover, both yield and protected investment product lines offer customised risk exposure, which can be tailored to an individual investor’s risk tolerance.”

The DIF Options platform was developed in conjunction with a trusted name in finance, CBOE Vest Technologies, a company that specialises in bringing wider access to investments with targeted protection, enhanced returns, with the level of predictability that is unattainable with most other investment services available today.

“The platform allows clients to structure protective strategies using a portfolio of exchange-traded options to match the investor’s personalised investment objectives and desired protection as closely as possible”, explained Pinto. “To boil this product down to its essentials, it’s basically a user-friendly interface to work with options-based protected investments. The engineers and designers at CBOE Vest Technologies have done everything they can on their end to reduce the complexity of these products, which can sometimes prove intimidating, both for financial advisors and their clients.”

In the case of past stock market crashes, investors may have been able to avoid suffering massive losses if they had a tool product like DIF Options at their disposal. Pinto said the product was specifically designed to provide an easy way to protect portfolios from selloffs. “It’s also ideal for long-term value investors who do not believe in market timing. Each offer is valid for the options expiration calendar, either the next 12 or 24 months. It’s making use of an instrument – options – that exists precisely for this purpose, to provide a measure of certainty in uncertain markets.”

Pinto also said DIF Options would benefit investors of every level. “With the DIF Options platform, investors can automatically hedge, or insure, stocks or exchange-traded fund investments, without having to learn about the sophisticated financial instruments used by institutional and high net worth investors.”

Out with the old
Traditionally, investors have sought to protect their portfolios from a widespread crash by diversifying their investments. This method of mitigating risk by spreading it out across a range of investments in the hope of avoiding a hit across an entire portfolio is no longer as effective as it once was. Investments previously considered sure bets no longer carry the same amount of confidence. According to Pinto, while diversification is theoretically a sound concept, it can fail when needed the most – for example, when commodities, equities and corporate bonds all fell at the same time in September 2008.

“In contrast to protection through diversification, protected investments through options have a contractual level of protection”, said Pinto. “Sophisticated investors who understand options can build such investments themselves. Wealthy investors with millions to invest can access protected investments through their private banks for a high fee. However, for most everyday investors, such strategies are either too complicated or beyond their reach.”

Making sure the interface investors use in order to make their decisions as simple as possible has also been a priority for DIF Broker. Pinto explained the company has decided to move away from being a heavy and complex repository of information. “We wanted a website that responds to the visitor’s choices, and their interests. We wanted to be clear with our business objectives and we want the visitor to be clear with his or her expectations. Clients know us, but we wanted to prioritise visitors, so they can quickly understand if we are the right choice for them.”

This increased focus on simplification has led to DIF Broker’s current design to be used not just on its European websites, but on its South American platforms as well.

Between the incalculable amounts of data now available and the throngs of uncertainty that are currently enveloping the global economy, mustering up the courage to take the chance on an investment is difficult. However, despite these uncertainties, there are ample opportunities for people looking to invest. Yet with the opportunity to mitigate the risks of investment, investors can make decisions with far more confidence.

Looking to the future, DIF Broker has high aspirations for the next stage of its business development. Pinto said that, while having a strong online platform is important now, a more personal and individual service is the next step for the company. “Going forward we hope we will move away as much as possible from the virtual domain of the internet and much more into personal contacts. We are figuring out how to create a 21st-century user experience with the 20th-century human experience. This is the reason we make our intentions very clear: we aspire to be our clients’ most valued financial advisors.”