Year: 2018

Ukraine secures fresh IMF funding amid Russian tensions

Posted on by Max Tomlin

On December 18, amid increased tensions with Russia and with a presidential election on the horizon, Ukraine secured a new $3.9bn lending commitment from the International Monetary Fund (IMF). The assurance should help maintain stability within the nation – currently under martial law – as it approaches a critical period.

President Petro Poroshenko tweeted the news, which will see the first disbursement of $1.4bn head to Ukraine on December 25. Further payments are scheduled over a 14-month period. Approval of the loan by the IMF was granted to the country following a conscientious 2019 budget that targets a deficit reduction to 2.3 percent of GDP and predicted growth of three percent. Concurrently, the World Bank announced a $750m loan to aid Ukrainian reforms in banking, anti-corruption, agriculture, pensions, utility subsidies and healthcare.

Last year, a $17.5bn IMF aid package was frozen due to Ukraine’s lack of progress implementing reforms to erase corruption. To re-secure the funding, Ukraine’s government pledged to establish an anti-corruption court in 2019 and to raise energy tariffs by 23.5 percent, despite vocal opposition within the country.

GDP growth in the country saw two years of significant contractions on the back of the annexation of Crimea and the outbreak of war with Russian separatists in the eastern Donbass region. Since 2016, however, growth has remained stable.

Recently, uncertainty in the region surfaced once more when three Ukrainian naval vessels were attacked and seized by Crimea-based Russian forces as they attempted to sail through the Kerch Strait. Ukraine accused Russia of implementing an economic blockade on export-reliant Ukrainian ports in the Sea of Azov.

In March of next year, Ukraine will head to the polling booths to elect a new president, in what is expected to be a tightly contested race. Mr Poroshenko’s approval ratings have slumped in recent months, allowing former two-time prime minister Yulia Tymoshenko, of the pro-EU ‘Fatherland’ party, to amass a lead in opinion polls.

British Airways to resume flights to Pakistan

Posted on by Max Tomlin

British Airways has announced it will resume flights to Pakistan in 2019 after a decade-long absence due to security concerns, the carrier said on December 18. The UK’s national airline ceased all flights to Pakistan in 2008, after an Islamist militant truck bomb killed over 50 people at the Marriott Hotel in Islamabad. It will be the first Western carrier to resume flights to Pakistan after the incident.

The recommencement of flights by BA is a positive symbol of a renewal of international confidence in Pakistan’s national security

Following decades of devastating Islamic militant action across the South Asian nation, security has drastically advanced. Thomas Drew, the British High Commissioner to Pakistan, said that the resuming of BA flights was a “reflection of the great improvements”.

“The return of British Airways will give a particular boost to our growing trade and investment links,” Drew added.

BA, which is owned by Spanish-registered carrier IAG, will begin the London Heathrow–Islamabad service on June 2, with three weekly flights by the airline’s newest long-haul aircraft, the Boeing 787 Dreamliner. Tickets will go on sale today.

Robert Williams, BA’s head of sales for Asia Pacific and the Middle East, said: “It’s exciting to be flying between Islamabad and Heathrow from next year, which we believe will be particularly popular with the British Pakistani community who want to visit, or be visited by, their relatives.”

At present, only the unprofitable national carrier Pakistan International Airlines (PIA) flies directly between the UK and Pakistan. However, after decades of poor management, political interference and a dwindling budget, passengers have little confidence in the airline and its ageing fleet.

Middle Eastern carriers Qatar Airways, Etihad Airways and Emirates have a strong presence in Pakistan, which is eating into PIA’s declining market share.

Islamabad has embarked on an ambitious international tourism campaign in recent months, in an effort to revive the ailing sector that was badly hit by Islamist militant violence in the aftermath of the 9/11 attacks and the US-led war in Afghanistan.

Last month, Prime Minister Imran Khan called the National Task Force on Tourism together to develop a framework for the tourism sector that seeks to facilitate public-private partnerships and boost foreign investment.

The recommencement of flights by BA is a positive symbol of a renewal of international confidence in Pakistan’s national security. This move may encourage other Western carriers to resume flights to Pakistan, boosting tourism and trade opportunities for the South Asian nation.

Top 5 surprisingly easy countries to do business in

Posted on by Max Tomlin

Now into its 16th edition, the World Bank’s Doing Business index continues to champion both regulatory quality and efficiency. With 128 economies all introducing substantial improvements, this year’s report recorded a total of 314 regulatory reforms between June 2017 and May 2018. Unsurprisingly, New Zealand, Singapore, Denmark, Hong Kong and South Korea once again make up the top five; however, many other countries performed better than expected.

1 – Georgia (6th)
Georgia continued its impressive climb as it registered sixth in this year’s rankings. Last year’s report recorded 44 business reforms in the Eurasian nation, with 673 improvements launched overall across the past 15 years. Georgia outranked countries such as Sweden, Finland and Australia. Registering a business in Georgia involves just two procedures – taking an average of only 20 days – and, as such, it is regarded as the second most accessible place to start a business. Other recent reforms include granting protection to minority investors, where it also ranks second in the world, and improvements to the insolvency resolution process.

2 – Macedonia, FYR (10th)
Macedonia, currently in the process of changing its name to the Republic of North Macedonia, climbs into the top 10, leading the way for Balkan states. Second place in the region is Slovenia, 30 places below. As with Georgia, Macedonia ranks well in terms of protecting minority investors (seventh), while also fairing well in dealing with construction permits. Getting electricity and enforcing contracts – both of which became more difficult in 2017 – are currently the most significant challenges in the country.

3 – Lithuania (14th)
This year Lithuania climbed to its highest ever ranking, as neighbouring nations fell down the table. Lithuania is ranked as a top 10 country in three categories: dealing with construction permits, registering property and enforcing contracts. Registering property is a particular highlight, with the country ranking third in the world, but resolving insolvency requires work, ranking 85th. The report noted improvements in four different categories: protecting minority investors, paying taxes, trading across borders and labour market regulation. This progression follows consistent reform since 2011.

4 – Estonia (16th)
Touted as ‘E-stonia’ – in 2000, the country declared internet access a human right – this Baltic state has long been a champion of digital technologies. Once aged 15, Estonians are granted e-identities, providing means of entry to over 4,000 different services. Despite falling four places when compared to the previous year, Estonia remains a leading nation within Eastern Europe. Known for having one of the most competitive tax regimes in the developed world, this year’s Doing Business report ranked Estonia 14th for paying taxes. Where the country falls down is in protecting minority investors, where it ranks a disappointing 83rd.

5 – Mauritius (20th)
This tiny island in the Indian Ocean – located 2,000km east of the African coast – climbs into the top 20 of the rankings for the first time since 2013. The report recognised improvements in eight different sectors, with its best ranking coming in terms of paying taxes, where the nation ranked sixth overall. Prime Minister Pravind Jugnauth, leader of the Militant Socialist Movement, said: “Mauritius has been transformed into a huge construction site, with projects being implemented across the country.” The government’s determination to improve the lives of the entire population is clearly paying off.

Malaysia files criminal charges against Goldman Sachs over 1MDB scandal

Posted on by Max Tomlin

Malaysia has brought criminal charges against Goldman Sachs, along with two of its former employees, in connection with a corruption and money-laundering probe at state fund 1Malaysia Development Bhd (1MDB).

These charges are the latest progression in a scandal that has shocked the investment banking industry

The US investment bank has faced scrutiny in recent months for its role in helping raise $6.5bn through three bond offerings for the 1MDB.  It is currently under investigation in at least six countries.

Malaysia’s Attorney General Tommy Thomas said in a statement on December 17 that charges had been filed against “subsidiaries of Goldman Sachs investment bank,” along with “key employee” Tim Leissner and former 1MDB employees Jasmine Loo Ai Swan and Low Taek Jho. A second Goldman Sachs employee, Roger Ng Chong Hwa, will be charged shortly.

The charges “arise from the commission and abetment of false or misleading statements by all the accused in order to dishonestly misappropriate [$2.7bn] from the proceeds of three bonds issues by subsidiaries of 1MDB, which were arranged and underwritten by Goldman Sachs,” Thomas continued in the statement.

Goldman Sachs has denied all wrongdoing. In an emailed statement, it described the charges as “misdirected,” adding that the bank continues to cooperate with all authorities in their investigations.

The investment bank is alleged to have pocketed $600m in fees from underwriting the three bonds, which have a total face value of $6.5bn. Thomas described the fees as “several times higher than the prevailing market rates and industry norms.” Leissner and Ng reportedly received part of the misappropriated Bond proceeds, along with “large bonuses and enhanced career prospects… in investment banking.”

Thomas labelled the allegations “grave violations of our securities laws,” adding that Malaysia will seek criminal fines “well in excess” of the value of the original misappropriated capital. The country will also seek jail terms of up to ten years for each of the individuals accused.

“Having held themselves out as the pre-eminent global adviser / arranger for bonds, the highest standards are expected of Goldman Sachs. They have fallen far short of any standard. In consequence, they have to be held accountable,” Thomas’ statement concluded.

Both Leissner, Goldman Sachs’ former South East Asia chairman, and Ng, a managing director, were served with criminal charges relating to the 1MDB case in the US last month.

Leissner pled guilty in the US to conspiring to launder money and the Foreign Corrupt Practices Act. Ng continues to be detained in Malaysia and is facing extradition to the United States.

These charges are the latest progression in a scandal that has shocked the investment banking industry in its scope. According to US authorities, the $2.7bn embezzled from the state fund was used to purchase art, property, a private jet, and even to finance the production of the Wolf of Wall Street film.

No date has yet been set for legal action to begin in Malaysia. Lawyers representing Leissner and Ng were not immediately available for comment on the charges.

 

European Central Bank confirms end of quantitative easing programme

Posted on by Ashton Wenborn

Following a decade of recessions and financial crises, the European Central Bank (ECB) announced on December 13 that one of the most extensive quantitative easing programmes ever seen would come to a close. The unanimous decision by the ECB council was widely expected – the bank has long signalled it would end new purchases this month.

For four years, the bond-buying scheme has kept interest rates, and therefore borrowing costs, at historic lows to encourage investment from European governments. At a press conference regarding the decision, Mario Draghi, President of the ECB, said that at times quantitative easing was “the only driver of this recovery”. In total, the programme pumped €2.6trn ($2.94trn) into the eurozone economy.

Despite it being one of the more contentious economic policies among European politicians, advocates have credited Draghi’s programme with propelling a robust post-crisis recovery.

Beginning in 2015, the ECB’s quantitative easing policy followed the actions of the UK and US. The UK created £375bn ($550bn) of new money in its quantitative easing programme between 2009 and 2012, while the US Federal Reserve bought bonds worth more than $3.7trn between 2008 and 2015.

Although the decision to end the stimulus programme signals that Draghi has increased confidence in the health of the eurozone, the cessation comes at a time of slowing growth

Although the decision to end the stimulus programme signals that Draghi has increased confidence in the health of the eurozone, the cessation comes at a time of slowing growth. The ECB chief warned that rising uncertainty had forced the bank to downgrade growth forecasts.

Following healthy expansion in 2017, when the eurozone grew at its fastest rate since the financial crisis, this year’s third quarter saw growth slow to a four-year low of just 0.2 percent. In fact, Germany, the eurozone’s largest economy, shrank from July to September.

“The risks surrounding the euro area growth outlook are assessed as broadly balanced,” read Draghi’s statement. “On the one hand, the prevailing positive cyclical momentum could lead to stronger growth in the near term. On the other hand, downside risks continue to relate primarily to global factors, including rising protectionism and developments in foreign exchange and other financial markets.”

The euro fell 0.3 percent against the dollar in response to the ECB’s decision, while the ECB said it would continue to reinvest the proceeds of bonds that are now maturing.

Green sukuk will be vital to achieving COP21 goals

Posted on by Max Tomlin

The Paris Agreement – commonly referred to as COP21 – set out to limit the rise in global temperature to two degrees Celsius above pre-industrial levels. In October, the Intergovernmental Panel on Climate Change (IPCC) recommended reducing this cap to 1.5 degrees Celsius, stating that “rapid, far-reaching and unprecedented changes” must be taken to curb the harmful effects of global warming.

As such, it’s terribly disappointing that the US pulled out of the Paris Agreement. In the G20’s latest meeting, the group of industrialised nations were unable to reach an agreement regarding COP21, with the US reiterating its desire to withdraw from the accord and its intention to use all available energy sources.

Unsurprisingly, these actions sent shockwaves around the world, with many speaking out against the US’ decision. “We will no longer sign commercial agreements with powers that do not respect the Paris accord,” said French President Emmanuel Macron during the 73rd session of the UN General Assembly in New York. Just one day later, Macron confirmed the unfortunate impasse at the second One Planet Summit, but refused to admit defeat: “The Paris Agreement was supposed to be dead because of one decision. [But] climate change is not an agreement or a decision made by heads of states and governments.”

US President Donald Trump, meanwhile, has added fuel to the fire, using the ‘gilets jaunes’ (yellow vests) movement to attack the Paris Agreement. And yet, the movement arose as a response to rising fuel prices – it’s not an anti-environment movement. The recent protests on December 8, for example, took place at the same time as a climate march, which a number of yellow vests joined.

These immature actions from the Trump administration will decelerate the progress of environmental protection efforts. I believe the US must fulfil its moral responsibility and rejoin the Paris Agreement, perhaps even taking the lead in this global effort. Indeed, the world is in need of a binding environmental deal – agreeing to anything else would be worthless.

Arresting climate change
Our generation is the last to avoid – or, at least, the last to still have the opportunity to minimise – the catastrophic effects of climate change. In other words, we now know the impacts of global warming and it’s up to us to implement smart initiatives to arrest it.

During a recent IPCC meeting, South Korean President Moon Jae-in proposed a number of significant goals for climate change adaptation and elimination. But in order to reach Moon’s targets, the whole world has to contribute – we must uphold our moral responsibility, otherwise there will be no future generations left. To do so, we have to propose an energy strategy that discourages the use of fossil fuels and nuclear power in favour of natural gas and renewable energy sources, such as wind, solar and hydroelectric power. This involves phasing out coal-fired power stations and improving facilities to cut toxic emissions. Finally, we must suspend the construction of new nuclear reactors and shut down existing nuclear reactors.

Fortunately, the One Planet Summit saw a number of political and business leaders commit to tackling climate change: BlackRock, for example, promised to launch an investment fund to finance the development of renewable energy and low-carbon transport in Africa, Asia and Latin America; the World Bank pledged to launch a $1bn platform for developing battery storage technology; and the EU promised to allocate 25 percent of its next budget, earmarked at €320bn ($363.8bn), to climate initiatives. Of course, these are great gestures, but are they enough?

Laws of nature
Islamic banking is a natural fit when trying to meet the goals set out by both Moon and COP21. Sharia law has long laid out basic provisions for protecting the environment – unfortunately, these have not always been recognised. It also addresses the need for all community members to preserve the environment in all respects. As such, Sharia law has proven its absolute leadership in protecting the environment and, in turn, the climate.

The world is in need of a binding environmental deal – agreeing to anything else would be worthless

There are several categories of Islamic banking products, with sukuk being the best known among them. A sukuk is similar to a bond, but it complies with Sharia law. Broadly speaking, a sukuk buyer has the ownership interest of the underlying, Sharia-compliant asset. In recent years, the sukuk market has been attracting more and more conventional investors, who increasingly favour ethical investment funds. Consequently, the industry is expanding at a rapid pace.

In 2002, the Luxembourg Stock Exchange became the first European exchange to list sukuk. Since then, it has listed sukuk from issuers in Malaysia, Pakistan, Saudi Arabia, Qatar, Bahrain, the UAE, the US, Hong Kong and South Africa. What’s more, Luxembourg issued the first sovereign sukuk, which was denominated in euros, in 2014.

Given this growing interest, the Islamic banking market is expected to reach $4trn by 2025. Encouraging and favouring investments in sustainable, renewable and responsible projects will further enhance this growth, while also helping to diversify its funding sources.

Green sukuk
Since the European Investment Bank issued the first green bond in 2007, the market has grown substantially, with total green bond issuance now nearing the $500bn mark. Moreover, S&P Dow Jones, Barclays MSCI and Bank of America Merrill Lynch have all launched green bond indices in recent years.

Green sukuk are similar to other debt instruments and offer attractive returns, but they also come with the added promise of using the proceeds to finance the world’s transition to a low-carbon economy. As such, green sukuk can help to combat climate change by paving the way for climate-smart investments in environmentally friendly projects that are based on sustainable resources. Tadau Energy, for example, issued the world’s first green sukuk in July 2017 for MYR 250m ($59.6m) in order to finance a solar power plant in Malaysia. Indonesia issued the first green sovereign sukuk for $1.2bn soon after.

As defined by Climate Bonds Initiative, eligible assets for green sukuk include: solar parks, biogas plants, wind energy projects, renewable transmission and infrastructure projects, and electric vehicles. Equally, they can be used to subsidise a government’s green payments. The Climate Bonds Initiative is an international, investor-focused, non-profit organisation, and is the only body of its kind working solely to mobilise the $100trn bond market towards climate change solutions.

Extraordinary opportunities
In its recent report on green sukuk issuance, S&P Global explained that a large number of countries are targeting a higher contribution of clean energy within their energy mix. For example, the Association of South-East Asian Nations and the Gulf Cooperation Council (GCC) have set ambitious targets to invest in renewable energy.

This promises vast opportunities for investors. Indeed, directly after the Paris Agreement was signed, the International Finance Corporation, a member of the World Bank Group, calculated investment opportunities in infrastructure and climate-smart solutions to be worth a whopping $23trn.

Green sukuk can help to combat climate change by paving the way for climate-smart investments in environmentally friendly projects that are based on sustainable resources

The International Energy Agency, meanwhile, expects energy demand to increase significantly over the next 25 years. As such, substantial investments will be required to meet growing demand. What’s more, BP’s yearly forecast for the global energy market, published in February, suggests that renewable energy will play a commanding role in the future. In fact, BP estimates that, if current trends continue, renewables will grow by some 400 percent by 2040.

In my opinion, sukuk have proven their practicality for financing projects that are socially and ethically responsible, especially when it comes to infrastructure. Sukuk are becoming more common and attracting a greater number of investors – both conventional and Islamic – who are interested in socially responsible finance.

Based on my 25 years of experience in global banking, I believe green sukuk are a unique ‘win-win’ product for investors from cash-rich GCC and Islamic countries. They also offer a great opportunity for stakeholders seeking to generate excellent returns on their capital and for the large number of people who will benefit from the resultant employment opportunities.

A growth industry
The Islamic banking sector is charged with promoting the green sukuk market. It can do so by driving demand for climate-smart investments, while also enticing the Islamic capital market, takaful and retakaful operators (insurance companies that comply with Sharia law), sovereign wealth funds and Islamic banks to mobilise funding for green asset funding.

Over time, the sukuk market will become established – particularly as more green sukuk come to market – attracting conventional and Islamic investors alike. As a result, more players will realise their credibility and profitability, which, in turn, will help achieve greater growth. This will finally catalyse the move towards environmentally friendly projects, leading to heightened climate resilience. All of this will be achieved while creating a profitable market that presents great employment opportunities and reduces living costs for billions of people around the world.

Personally, I wish to see sukuk – especially green sukuk – occupy an enhanced position in the global market. I believe that Islamic banking has a responsibility to act as a guardian of natural wealth for future generations. I also believe that green sukuk can change the world for the better by contributing significantly to the financing of climate-smart projects.

Mourad Mekhail is a former Wall Street banker and an expert in financial services. He earned his MBA in International Economies from Trier University, Germany. Mekhail has served as Advisor to the Board of Directors at Kuwait International Bank since 2011, following stints at Merrill Lynch, UBS, LBBW and Credit Suisse.

Why wine continues to be one of the most secure global investments

Posted on by Ashton Wenborn

Following the 2008 financial crisis, investors have become much more cautious about their activities – even more so as a result of the market volatility and record low interest rates for the last decade. This unpredictability has led to an enhanced demand for diversified investments, including passion assets. This term describes physical commodities that the investor gains pleasure from owning – cars, coins, antiques and fine wines – and that prove stable in all types of economic conditions.

Real estate consultancy Knight Frank found that 68 percent of respondents to its annual Attitudes Survey, published in its Wealth Report 2018, said their high-net-worth clients had become more interested in these sorts of investments. In its 2017 Luxury Investment Index, Knight Frank also discovered that of the 10 luxury investments it tracked, eight had increased in value over a 10-year period. In the decade from Q4 2007 to Q4 2017, fine wine experienced a 192 percent growth.

In the decade from Q4 2007 to Q4 2017, fine wine experienced a 192 percent growth

One of the main benefits of investing in wine is that it has huge consumer and collector demand. Global alcohol consumption is estimated to have grown by 0.1 percent in 2017, which equates to 3.5 million nine-litre cases, according to market researcher IWSR. In comparison, global wine production has dropped to a historic low, with the International Organisation of Vine and Wine confirming that production is at the lowest level since 1957 as a result of poor weather conditions across the EU. In investment terms, this means wine has become more attractive as a commodity based on the supply vs demand economic laws.

Historically, wine has performed well in pure investment returns and has the benefit of being a tax-free asset. There are numerous ways to invest in wine, whether through a winery, physical wine, a wine fund or publicly traded stocks and shares. As these areas can be tough to navigate, one of the main methods investors can enhance their knowledge is through the use of an investment specialist.

Cult Wines is an award-winning global leader in fine wine investment and collection management services. The company has featured in The Sunday Times’ Fast Track 100 in three of the last four years and won the prestigious Queen’s Award for Enterprise: International Trade in 2017. Cult Wines prides itself on openness and transparency and has a huge amount of experience and data at its disposal to help investors succeed in the wine market. This is borne out by the strength of its average portfolio returns, which have consistently outperformed the industry benchmark.

The company has grown dramatically from a start-up in 2007. In addition to its headquarters in London, it has offices in Hong Kong and Singapore. Its website caters to a global audience, offering a comprehensive overview of the company’s services as well as an introduction to the world of fine wine investment; providing a wealth of tools to kick-start the investment process, including a fine wine directory, a guide to wine investment, videos and events.

Tom Gearing, Managing Director at Cult Wines

Speaking about the importance of its service, Tom Gearing, Managing Director at Cult Wines, said:

“High levels of customer service are crucial for any successful firm, but we strive to go one step further, as what we offer is bespoke to each and every client. We see the relationship with our customers as one that is defined by this personal approach, delivered by our Portfolio Managers – who maintain each client relationship from inception and for the whole duration, typically over many years. In turn we offer comprehensive services to help people invest in the best wine, such as sourcing, logistics, storage, analysis, reporting, technology and accounting. We constantly seek to improve what we do on a daily basis and pride ourselves on our attention to detail.”

To discover more about the service, go to wineinvestment.com or read the Cult Wines Fine Wine Investment Guide here.

EU-Japan trade deal ratified by EU parliament

Posted on by Ashton Wenborn

On December 12, following nearly five years of negotiations, the European Parliament finally approved the EU-Japan trade deal. It is hoped the agreement, the largest ever struck by the EU, “will raise the benchmark for international commercial ties”.

President of the European Commission Jean-Claude Juncker said in a statement: “I praise the European Parliament for today’s vote that reinforces Europe’s unequivocal message: together with close partners and friends like Japan we will continue to defend open, win-win and rules-based trade.”

The deal binds together two economies that together account for a third of global GDP

The agreement was ratified with 474 votes in favour, 156 against and 40 abstentions. Japan’s parliament agreed to the deal earlier in the week. Once EU member states approve the pact on February 1, 2019, the trade deal will create the world’s largest free trade zone.

The deal binds two economies that together account for a third of global GDP. It will remove EU tariffs of 10 percent on Japanese cars and three percent for most car parts. Japanese duties on cheese and wine will also be scrapped.

Additionally, it will open up services markets, including financial services, telecoms, e-commerce and transport. An estimated €58bn ($66bn) of goods and €28bn ($32bn) of services are exported by EU businesses to Japan each year.

Before the US withdrew its signature, Japan was part of the 12-nation Trans-Pacific Partnership. However, Donald Trump’s rejection of the deal saw Tokyo turn its focus towards other prospective partners.

In similar circumstances, after negotiations regarding the Transatlantic Trade and Investment Partnership stalled with the US, the EU also branched out to find other potential partnerships.

“Everyone knows there is a tariff man on the other side of the Atlantic,” said Bernd Lange, Head of the European Parliament Committee on International Trade. “Our answer is clear. We are not tariff men, but the people of fair trade.”

Japan and the EU face continued tension with Trump, who has imposed tariffs on imports of steel and aluminium. Nevertheless, both parties have pledged to start separate trade talks with the US.

Ho Chi Minh Stock Exchange on track to emerging market status by 2020-22

Posted on by World Finance

It’s been quite a year on the Ho Chi Minh stock exchange. The first three months of 2018 saw double-digit growth, taking the exchange to record highs. But by July valuations had crashed back to 2017 levels; at the time this video was filmed, the market still hasn’t re-made any of January’s gains. Đỗ Huy Hoài is CEO of BIDV Securities Company; he discusses the prospect of the stock market being upgraded from frontier to emerging market status, the impact this would have on foreign capital inflows to Vietnam, and what makes the country an attractive investment destination. This video is mostly in Vietnamese with English subtitles.

World Finance: It’s been quite a year on the Ho Chi Ming stock exchange. The first three months of 2018 saw double-digit growth, taking the exchange to record highs. But by July valuations had crashed back to 2017 levels; at time of recording the market still hasn’t re-made any of those January gains. Đỗ Huy Hoài is CEO of BIDV Securities Company; he joins me to discuss the future of the exchange.

There is speculation that the exchange could be upgraded to emerging market status in the next few years – what needs to be done to achieve this?

Đỗ Huy Hoài: I believe that the Vietnamese government has to accomplish two fundamental missions. The first is to maintain its macroeconomic stability, and the second is to upgrade its market infrastructure.

With regard to the issue of macroeconomic stability, to date the GDP growth rate has met the National Assembly requirements, inflation remains under control, the exchange rate and interest rates are relatively stable over time, and the purchase index has increased by approximately four percent.

The second mission is to reinforce and upgrade Vietnam’s market infrastructure. The State Securities Commission is currently making amendments to the Securities Law to suit the development of the market.

In addition, the authorities in Vietnam are prepared to revise the financial reporting system of Vietnamese enterprises in accordance with international practices.

Derivative markets are already in operation. Despite being the very first move, this shows great potential and promises new products, such as warrants, a governmental ‘born future’, and the coming corporate bond market.

I believe that Vietnam will be able to meet the eligibility criteria for upgrading its stock market from a frontier market to an emerging market, following its proposed agenda from 2020 to 2022.

World Finance: If the market is upgraded, what would be the impact on the sizeable foreign capital inflows to the country?

Đỗ Huy Hoài: The proportion of Vietnam’s securities in the MSCI Frontier 100 Index is 17 percent. If its market status is upgraded from a frontier market to an emerging market, this proportion will be much greater.

It is estimated that if the index increases by one percent, approximately $3bn will be poured into the market.

The free movement of domestic capital and foreign capital will be more transparent and easier, which will make foreign investors feel secure, thus a large amount of public funds will be invested in Vietnam’s stock market in a direct manner or via M&A.

World Finance: Vietnam received record-breaking foreign direct investment in 2017 while still a frontier market. What makes the country such an attractive destination?

Đỗ Huy Hoài: There are several reasons for this. Firstly, investors have noted Vietnam’s potential and capacity to be upgraded from a frontier to an emerging market, and have thus taken a step forward.

Secondly, it cannot be denied that Vietnam’s economy is stabilising. Vietnamese enterprises have grown up, and stock quality has improved.

And as mentioned, the large-scale, long-term stability of Vietnam’s market, economy, and stock market, has been a key highlight, attracting attention from foreign investors – notably investors from Thailand and South Korea. With the advantage of being neighbouring countries, they have been able to make bold investments in Vietnam via M&A.

World Finance: How does BIDV Securities assist foreign investors in the Vietnamese market?

Đỗ Huy Hoài: To date, we have built relationships with professional investors in the US, Europe, and Asia. We have the advantage of a team of qualified staff, a strong IT infrastructure, and great insight into the Vietnamese stock market. As a result, our customers are putting their trust into BSC.

We are one of the first stock companies to participate in the derivatives market, and one of the first companies to enter the warranted market.

We are also preparing for participation in the ‘born future’ market of government bonds, and for the establishment of a corporate bond market in Vietnam.

With such preparations, we believe that the investors operating via BSC can fully be assured that their benefits are guaranteed.

World Finance: Đỗ Huy Hoà, thank you very much.

Đỗ Huy Hoài: Thank you.

Credit Suisse reveals $1.5bn share buyback for 2019

Posted on by Max Tomlin

Credit Suisse has announced that it will buy back ordinary shares up to the value of CHF 1.5bn ($1.5bn) in 2019, as the bank completes its ambitious three-year restructuring programme.

The Swiss lender also plans to increase its share dividend by at least five percent from 2019 onwards, according to a statement released by Credit Suisse ahead of its investor day on December 12. “The actions taken during the restructuring mean that the bank is now more resilient in the face of market turbulence,” said Credit Suisse CEO Tidjane Thiam.

Credit Suisse expects to achieve a pre-tax income of up to $3.4bn in 2018, signalling its first full-year profit since Tidjane Thiam became CEO

Since Thiam’s appointment in 2015, Credit Suisse – Switzerland’s second-largest bank – has embarked on a major reshuffle of its business operations. During his tenure, the CEO has restored Credit Suisse’s wealth management business to profitability, reduced operating costs across the board and eliminated a number of key risks from its global operations.

The Swiss bank now expects to achieve a pre-tax income of up to CHF 3.4bn ($3.4bn) in 2018, signalling its first full-year profit since Thiam took up his post. This figure represents a 20 percent increase in profits from 2015.

In the press release, Credit Suisse stated that it aims to “distribute at least 50 [percent] of net income” to shareholders in the coming years through its combined share buyback and increased dividend programme. It also hopes to increase profitability in 2019 and 2020, despite anticipating economic headwinds caused by geopolitical tension and central bank policy changes.

The bank has identified ultra-high-net-worth and high-net-worth individuals as key growth points for its wealth management division, and will aim to leverage its “full suite of investment banking solutions to meet their private wealth and business needs”. Thanks to these measures, Credit Suisse hopes to achieve a reported return on tangible equity of at least 10 percent in 2019.

Although Credit Suisse was one of the lenders least affected by the 2008 financial crisis, it has been embroiled in several tax evasion scandals since, paying out a number of costly settlements as a result.

To turn a profit in 2018, therefore, would be clear vindication of the bank’s strategy under Thiam’s leadership, and an excellent omen for its future operations. This success would not have been possible without the loyalty of Credit Suisse’s shareholders and, as such, the proposed buyback scheme is an opportunity to reward them financially.

Macron seeks to curb violent ‘gilets jaunes’ protests with tax cuts and concessions

Posted on by Max Tomlin

French President Emmanuel Macron has announced a catalogue of emergency measures – including a rise in minimum wage and the scrapping of additional tax for pensioners – in an attempt to quell the violent protests that have raged across the country for the past two weeks.

In a televised mea culpa on December 10, Macron acknowledged that the protestors’ anger was “deep and in many ways legitimate”. The French president pledged to “respond to the economic and social urgency with strong measures, by cutting taxes more rapidly, by keeping… spending under control, but not with U-turns”.

In response to the civil unrest, Macron has promised to increase the minimum wage by €100 ($114) per month, starting in January. Taxes on overtime pay will also be abolished, while a tax hike planned for pensioners will be scrapped.

In response to the civil unrest, Macron has promised to increase the minimum wage by €100 ($114) per month, starting in January

However, the defiant president refused to reinstate the controversial wealth tax that once applied to anyone with assets over €1.3m ($1.5m). The tax was replaced in January 2018 by a levy that solely applies to property. Macron, a former banker, has been dubbed the “president of the rich” by critics due to his pro-business and pro-wealth policies.

The emergency measures to appease protestors will cost between €8bn ($9.1bn) and €10bn ($11.4bn), according to Olivier Dussopt, a junior minister who oversees public accounts. Dussopt told BFM TV: “We are in the process of fine-tuning and seeing how to finance [the measures].”

Demonstrations by a protest group, dubbed the ‘gilets jaunes’ (yellow vests), turned violent on the first weekend of December, when the grassroots revolt against a rise in fuel tax was quickly hijacked by fringe dissidents determined to cause havoc across the nation.

In the latest round of demonstrations, shops and buildings were burned, smashed and looted, cars were set on fire, and police used water cannons and tear gas to restrain protestors. Across the country, 1,723 people were arrested, 1,220 of whom remained in custody overnight. As many as four people are thought to have died since the revolts began.

In his speech, Macron openly condemned the violence, stating that “no anger justifies attacking a gendarme or a police officer”. The French president also acknowledged the long-running nature of many of the protestors concerns: “These are 40 years of malaise that have come to the surface. Without doubt we haven’t been able to provide a response that was strong or quick enough.”

In an interview on the RTL radio station, France’s finance minister, Bruno Le Maire, warned that fallout from the protests could cause GDP to fall 0.1 percent in Q4 2018, leading to “fewer jobs” and “less prosperity for the whole country”. He added: “What is important now is to put an end to the crisis and find peace and unity in the country again.”

While street uprisings have been a fairly consistent feature of French life since the May 1968 protests, which effectively shut down the government, the level of violence seen during this round has shocked citizens and politicians across the nation. The introduction of emergency measures signifies that Macron is treading a fine line between appeasing protestors and protecting citizens, while also remaining committed to his campaign promises.

The real test will come on December 15, when the president, and indeed the country, will find out whether he has done enough to prevent a fifth weekend of anti-government demonstrations.

Deutsche Bank reports suspicious tax transactions to German authorities

Posted on by Ashton Wenborn

Deutsche Bank has notified German authorities of a number of suspicious transactions that may have allowed customers to falsely claim dividend tax credit, according to data from an internal review.

The transactions in question relate to the issue of American depositary receipts (ADRs). Non-US companies use ADRs to trade on US exchanges, as they are denominated and pay dividends in US dollars.

In July this year, Deutsche Bank was fined $75m for its part in fraudulent ADR transactions

Normally, to issue an ADR a depository bank must hold the equivalent number of domestic shares in custody. When contacted by a counterparty seeking to purchase an ADR, the bank swaps the domestic shares for ADRs. This process removes both the ADRs and the domestic shares from the market.

However, some banks can pre-release ADRs, issuing them before the underlying shares are received, provided the broker acting for the counterparty signs off on the transaction.

This effectively means the shares exist in two places simultaneously. As part of the deal, the counterparty theoretically promises the ADR issuer that it will not claim a tax credit on those shares. In the case of Deutsche Bank, this promise was not upheld.

According to sources familiar with the document, the German lender’s internal review found that more than five percent of its pre-released ADR transactions between 2010 and 2015 had potentially been mishandled and German dividend tax credit claimed erroneously.

Deutsche Bank estimated that the potentially suspicious transactions accounted for around €25m ($28.5m) in German withholding tax. Up to €5m ($5.7m) of this sum may relate to transactions between different units of Deutsche Bank, which acted as counterparties for one another in various transactions.

The review did not include data on whether irregular claims were actually made. If any capital was claimed by its own staff, however, the bank will be expected to repay it in full to the German authorities.

German politician Gerhard Schick said the review clearly demonstrates “illegal conduct.” He told the Financial Times: “you cannot claim tax credit for taxes which you did not pay in the first place.”

The US Securities and Exchange Commission (SEC) has been investigating pre-release ADRs since 2014, after discovering “industry-wide abuses”. A number of lenders, including ITG, Citibank and Deutsche Bank, have already reached settlements with the SEC regarding improper handling of ADRs.

In July this year, Deutsche Bank was fined $75m for its part in fraudulent ADR transactions, with the SEC stating that the lender had been “negligent” in ensuring that counterparties actually owned shares.

Finance Minister Olaf Scholz will tackle Deutsche’s latest misgivings in German parliament on December 11. Deutsche Bank declined to comment on the allegations.

Activobank offers simple, transparent, honest banking to Portugal

Posted on by World Finance

Activobank has been at the technological forefront of Portugal’s banking industry since its origins in 1994 as a 24/7 phone banking service. Today it is one of the most important players in online banking in Portugal. CEO Dulce Mota discusses the bank’s constant pursuit of technological innovation, including its latest mobile app feature: ActivoPay. She also explains what’s drawing people to ActivoBank’s brand of convenient mobile banking, and why offering the fastest account opening process in Portugal is so important to the bank’s growth.

World Finance: Activobank has been at the technological forefront of Portugal’s banking industry since its origins in 1994 as a 24/7 phone banking service. Today it is one of the most important players in online banking in Portugal. CEO Dulce Mota joins me to discuss the bank’s constant pursuit of technological innovation, and its latest mobile app feature: ActivoPay.

Let’s start with ActivoPay; what is this new feature?

Dulce Mota: We are very proud about this new feature! With ActivoPay you can withdraw or send money just with your smartphone. So you don’t need a card, you don’t need any special technology. Just with your smartphone you can withdraw or send money.

We released it last October – it was a success, we were the first bank in Portugal to introduce this kind of feature. Our customers reacted very well – we already have about 10 percent of our customer base already using this service. We think that we’ll get another figure above that, so, our objective is to attain 30 percent of our customer base using this service. And maybe in the next months we will attain it.

Because the service is very interesting, very simple, very easy. And it’s like the value proposition of ActivoBank.

World Finance: What’s drawing people to your brand of convenient mobile banking?

Dulce Mota: It’s our value proposition, you know: we are a simple bank, with a few products. Our concept of doing banking is taking transparency and honesty to our customers.

For example, we don’t have 10 cards: we have one card. If you want to buy a house, we don’t show you 15 solutions: we show you one solution. For us it’s the best, and for you it’s also the best.

So people appreciate this kind of approach. Being simple, being honest, being transparent. And without commissions. Most of our services we don’t cover anything from our customers.

So, I think we are in the right way of the bank of the future.

World Finance: How do you listen to your customers to identify the digital solutions that they need?

Dulce Mota: Nowadays it’s quite different, how we can see what our customers are seeing and looking at. So, we use a lot of social media; especially Youtube, Instagram, and Facebook, where we have thousands of customers looking at us, where we are always introducing news or facts or something that we want to share with them.

We also contact directly our customers when they have their birthday, when they have a son, when we think they need a mortgage. So we have different types of contacts, depending on the lifecycle and the way the people want us to interact with them.

So, we are not a common bank about normal publicity. We are a different bank, because we try to be with our customers where they are.

World Finance: You have the fastest account opening in Portugal; why is this so important?

Dulce Mota: Because as we are a digital bank, and we want to be present in all the country, and we just have about 15 branches – that are not normal branches! We call them Active Points.

We introduced this year this digital onboarding. Everyone can open an account in ActivoBank just sitting at home, or at a café, or in the car. Nowadays we can open an account in six minutes – that’s our best performance. It’s very easy, and in the next moment you already have your account number, you can do the first transfer to the account, you can use the account from this moment. So it’s very easy and simple.

We increased about 70 percent our customer base this year – it is a huge objective, and we are very proud of that. And next year we hope that it also will increase.

World Finance: What’s next, then?

Dulce Mota: We always think about that, because we are not satisfied with the present! We are thinking about improving our services in the browser. Maybe we will also have some news for the next months. And especially in personal loans and mortgages.

We are also looking at different processes and different experiences for our customers. So maybe next year I can tell you some news about this next future.

World Finance: Dulce, thank you very much.

Dulce Mota: Thank you Paul, it was a pleasure.

Thai Life Insurance pursues digital mindset to transform its culture

Posted on by World Finance

Chai Chaiyawan, President of Thai Life Insurance, has embedded humanism at the core of Thai Life’s brand values. With this belief set comes a focus on building customer trust, and sustainable growth. And that means meeting new customer expectations and challenges head on. Customers have less patience today, he says, and demand better products and services. He explains how Thai Life is transforming its culture to meet these demands, and how the company’s CSR activities are helping it contribute to the UN’s sustainable development goals.

World Finance: Why is sustainability so important for Thai Life?

Chai Chaiyawan: Well, in Thailand at the moment, there’s a business environment change. Customers now have less patience, and also they demand better products and services.

Apart from that, there’s a demographic change; Thailand now is a rich, ageing society.

Also, multi-channel distribution disrupts the business. Technology changes the behaviour of the customer. Now the customer can learn everything by themselves through the internet, make any decisions through the internet; also even pay their premium through the internet.

So the company has to transform the competitive competency; that means we need to transform our people’s attitudes, because now they have to understand about digital technologies. So we have to transform them, to have a digital mindset.

World Finance: How have you embedded sustainability in your long term strategy?

Chai Chaiyawan: First of all we have to run the business, secondly we have to transform the business, and third we have to build the business.

Run the business – this means that the business must be lean, and then optimise profit and optimise sales volume. And the business must have the financial staying power and sustainability.

Transform – this means that we have to transform our corporate culture, to make our people have a new attitude and new mindset. Make them result-oriented, and understand about agility.

On building the business – we have to build business innovation. Be customer-centric. And understand customer insights. We have to create dynamic pricing products, that if the policy holder has good health, then we reduce their premium.

World Finance: You also see your customer relationships and responsibilities as a key part of your sustainability?

Chai Chaiyawan: Mmhmm. We offer products that improve quality of life for our customers, such as dynamic pricing products that I just mentioned, and also offer products that make people live longer, healthier, and better lives.

Also we invented policies for the military, and then invented policies for disabled persons.

World Finance: And how are you expanding your CSR activities?

Chai Chaiyawan: We have a masterplan, and this has three strategies: giving strategy, caring strategy, and fulfilling strategy.

On the giving strategy, we do things such as blood and stem cell donation, occupational training for disabled persons, for single mums, for underprivileged women in rural areas.

On the caring strategy, we do environmental conservation such as the mangrove forest conservation.

And then on the fulfilling strategy, we improve and enhance quality of life of ageing persons and underprivileged people in the rural area.

World Finance: Now overall you hope that your work will contribute to the UN’s sustainable development goals?

Chai Chaiyawan: So we set up a new masterplan on the SDG. First is a promise strategy, secondly is protect, and the third one is a prosperous strategy.

The promise strategy concerns human capital development, workforce wellbeing, and also anti-corruption. And also corporate governance.

On the protect strategy, we have a policy that incentivises responsible behaviour. For example a product for wellness persons or impaired persons. And then also we invent digital technology for the policyholder to give a better product and better services.

On the prosperous strategy, we manage the financial risks, insurance risks, technology risks – to prevent any risks that will happen to the business. And apart from that we also do the corporate citizenship and philanthropy, and accessibility and insurance education.

World Finance: Chai Chaiyawan, thank you very much.

Chai Chaiyawan: Thank you very much.

Violence in France is the latest setback for Macron’s reform agenda

Posted on by Max Tomlin

On December 2, French President Emmanuel Macron landed in Paris following the G20 summit in Buenos Aires contemplating the declaration of a state of emergency. Earlier that same day, flames engulfed the Avenue des Champs-Élysées as 36,000 disgruntled citizens took to the streets of central Paris.

Critics claim the tax will disproportionally hit those on low incomes living in rural areas

Heading straight to Avenue Kléber from the airport, a chorus of cheers and boos greeted the president as he observed the damage. Overturned cars, smashed shop windows and destroyed ATMs demonstrated the extent of the anger that has gripped the nation. For three weeks, the ‘gilets jaunes’ (yellow vests) have peacefully protested against Macron’s proposed fuel tax. The first weekend of December, however, saw the clashes turn violent: at least 412 arrests were made, while 263 people were injured and three others killed.

Shopkeepers had prepared for a fruitful weekend following the switch-on of the Champs-Élysées’s iconic Christmas lights, but were forced to close their doors as a battle between police and protestors ensued in the French capital.

Touted as the ‘president of the rich’, Macron’s pro-business reforms have been criticised by students and those on the political left as favouring the wealthy over the poor. During his brief presidential reign, protests and scandals have been a common occurrence. With a commanding majority in the National Assembly, opposition to En Marche! has taken to the streets.

The price of diesel, the most commonly used fuel in French vehicles, has risen 23 percent over the last 12 months. The fuel tax is part of an ambitious plan for France to become carbon neutral by 2050. The plan includes detailed commitments to end coal power by 2022, cease French oil and gas production by 2040 and a proposed ban on the sale of petrol and diesel cars by 2040.

Critics claim the tax will disproportionally hit those on low incomes living in rural areas, who have no choice but to drive to work. With fuel prices at their highest level since the early 2000s, a proposed increase of 6.5 cents on diesel and 2.9 cents on petrol effective from January 1, 2019, was the tipping point.

Macron insisted he would never make a U-turn on policy because of street protests in an attempt to distance himself from former presidents. However, on this occasion, the substantial response has forced Macron to rethink his strategy. On December 4, Prime Minister Édouard Philippe announced the suspension of the tax for six months.

Growing inequality
Along with other developed or developing nations, income inequality has skyrocketed in France. With an estimated 8.8 million people living in poverty, the bottom 20 percent of the population earn almost five times less than the top 20 percent. “The problem for Macron is that this has moved so quickly from being a protest against fuel taxes to becoming a whole catalogue of social and economic grievances,” says James Shields, Professor of French Politics at the University of Warwick.

Unemployment has consistently stood above nine percent – one of the highest rates of any EU member state. Macron has pledged to cut this to seven percent within five years. One of the president’s first reforms was to make it easier for businesses to hire and fire staff.

Parisian technician Idir Ghanes told the Guardian: “We have low salaries and pay too much tax and the combination is creating more and more poverty. On the other side, there are government ministers and the president with their fabulous salaries.” He added: “I just want a fairer distribution of wealth in France. I’m unemployed; it’s harder and harder to find a job and, even when you find this famous job, the salaries are so low you find you’re in the same situation as before, if not worse.”

Macron’s anti-populist En Marche! movement, described as “neither left or right”, pledged to unite a divided nation following the 2017 presidential election. Elected as the country’s youngest ever president, Macron was seen as a slick operator, a Europhile who embraced tolerance and internationalism. What French citizens have found instead, is a lofty arrogance and an unwillingness to hear criticism of his reform agenda.“Opposition to Macron is partly about policy but also largely about style,” Shields explains.

Out of touch
As the former economy minister under his predecessor Francois Hollande, economic reforms became a key aspect of Macron’s 2017 presidential campaign. Having afforded an estimated €40bn ($44bn) in tax breaks during the last government, Macron pledged to continue reducing taxes when in office – corporation tax, for instance, will gradually be reduced to 25 percent.

France is famed for having one of the world’s largest public sectors, where 56.5 percent of GDP is allocated to public spending. A key manifesto pledge was to cut that spending by €60bn. When it was announced that €25bn worth of savings would result in the loss of 120,000 public sector jobs over the next five years, a one-day nationwide strike – involving millions of public sector workers and supported by all nine of the country’s public sector unions – represented the first sign of discontent.

GDP growth has remained steady in France since the 2009 financial crash, though the rate has rarely exceeded two percent. However, months of rail strikes earlier in the year caused growth to slump to 0.2 percent during the first two quarters of 2018. In September, it was announced that France would show a deficit of 2.8 percent next year, compared to 2.6 percent this year, due to slowing growth and Macron’s changing tax regime.

The ‘gilet jaunes’ – a reference to the high-visibility yellow clothing worn by protestors – is a grass-roots movement attributed to the French working-class. It has encompassed a wide range of participants: both the left and right have joined forces in their opposition. Surveys have revealed the vast majority of French citizens support the protests, while Macron’s approval rating has hit rock bottom, standing at just 26 percent.

Shields believes Macron has responded too slowly to this crisis, giving time for the protests to gain momentum and, crucially, for French public opinion to solidify in support of the protesters.His promise upon election, to use his five years in office to ensure that none of those who felt driven to vote for the extremes will have cause to do so again, is looking rather fragile.