Author: Helen

Greece reaches long-awaited bailout deal

Posted on by Helen

On May 2, the Greek Government announced it had reached a deal with creditors that will enable to the country to secure a new set of bailout loans.

Greek Finance Minister Euclid Tsakalotos told reporters: “There is white smoke. Negotiations on all issues have been completed.” His comment came after overnight talks with creditors, where he said a “preliminary technical agreement” had been formulated. The agreement arrives just in time to be presented at the upcoming meeting of eurozone finance ministers on May 22, where it will be subject to formal approval.

Under the agreement, Greece will commit to further austerity measures in exchange for another round of bailout payments. These payments are urgently required for the country to meet its upcoming €7bn debt repayment bill in July. Crucially, Greece will also pave the way for creditors – including the IMF and the EU – to begin debt relief talks that may be able to lessen the total debt burden.

Bailout payments are urgently required for Greece to meet its upcoming €7bn debt repayment bill in July

In order to unlock the bailout cash, Greece has committed to several heavily contentious belt-tightening measures, including further pensions and tax break cuts.

A protest involving more than 10,000 people was organised in Athens on May 1 in response to the looming cuts, and a general strike has been planned for May 17.

Despite several rounds of cuts, the Greek national debt currently shows no sign of shrinking. The total debt load was up slightly in 2016 as compared with 2015, and has also been labelled “highly unsustainable” and potentially “explosive” by the IMF.

However, as creditors continue to squabble over who should shoulder the burden of Greece’s runaway debt, relief has not been forthcoming. The provision of further debt relief for Greece is politically contentious among European creditor nations. In particular, Germany’s central role in a potential debt relief package could provide a potential sticking point due to the added uncertainty presented by its upcoming election.

Moreover, German officials have repeatedly expressed reluctance to make any cuts to the Greek debt load. The IMF has insisted that European creditors must provide debt relief before it will step in to support the effort itself.

Upon reaching the accord, Tsakalotos claimed to be “certain” that the agreement would unlock the necessary debt relief to spur economic recovery. Yet despite this new deal for Greece, tough negotiations lie ahead.

Olympus scandal culminates in $520m fine

Posted on by Helen

Six years ago, it emerged top executives at camera manufacturer Olympus had falsified accounts to conceal losses of more than $900m in one of the biggest financial frauds in Japan’s history. The scandal has now culminated in a $520m fine, which has been charged jointly to six individuals who were implicated in the cover-up.

The defendants include five former high-ranking executives of Olympus, as well as the company’s former chairman, Tsuyoshi Kikukawa. While one of the six individuals has since died, the fine will be passed on to his heirs.

While one of the six individuals has since died, the fine will be passed on to his heirs

The Olympus scandal came to a head in 2011 when then-CEO Michael Woodford confronted the board regarding his concerns over suspiciously large payments related to acquisitions. Following the challenge, Woodford was promptly dismissed by the board. An investigation into the incident revealed a long-running cover-up effort dating back to the 1990s, in which losses of $1.7bn were concealed from shareholders.

The lawsuit was filed by Olympus and its shareholders, who were looking to receive compensation for the damage incurred by the company as a result of the fraud.

According to The Mainichi, upon making the charge, Presiding Judge Akihiko Otake said: “If the former chairman and the others had not neglected their duties, the company would not have submitted false securities reports. Therefore, the defendants are obligated to compensate the company.”

The case was launched against 16 executives, but ultimately only six were held responsible for damages. The remaining 10 were absolved as, according to Otake, they “were not in a position to become suspicious. Therefore, it cannot be recognised that they neglected their duties, such as those to investigate any alleged illegal practices”.

Since the scandal erupted in 2011, Olympus’ stock prices have gradually recovered. The company’s reputation, however, remains dented.

Google attempts to clear up fake news

Posted on by Helen

On April 25, Google announced a series of updates to it search engine, which it claims will be able promote more “authoritative content” while reducing the prominence of fake or offensive pages.

In a blog post, the company acknowledged its role in the proliferation of fake news, noting that it has “become very apparent that a small set of queries in our daily traffic (around 0.25 percent) have been returning offensive or clearly misleading content, which is not what people are looking for”.

The power that tech giants like Facebook and Google have to filter the information people consume places a huge responsibility on their shoulders

In December, the company’s image received a serious blow when it emerged its search engine’s first response to the query ‘did the Holocaust happen?’ was an article entitled ‘Top 10 Reasons Why the Holocaust Didn’t Happen’.

It has become starkly apparent that the power tech giants like Facebook and Google have to filter the information people consume places a huge responsibility on their shoulders. Concern over the fake news phenomenon came to a head during the US presidential election, when it became clear politically charged false content was being widely read and many were actively falling for the stories. By some measures, fake news even outperformed real news in the run up to the election.

In an effort to tackle the issue, Google claims it has adjusted the ‘signals’ its search tool uses. The company believes this tweak, while presented in an extraordinarily vague way, will be effective in reducing the likelihood of unsettling results such as last year’s Holocaust denial scandal.

Google is also looking to rely more heavily on direct feedback tools. According to its blog post announcement: “Starting today, we’re making it much easier for people to directly flag content that appears in both ‘autocomplete’ predictions and ‘featured snippets’.” This change will create more clearly labeled categories so people can directly complain if they come across sensitive or unhelpful content. Such feedback will then be rewired back into Google’s algorithms.

A final change the company presented is an improvement to its search quality rater guidelines, which involves a process of experimentation using in-house ‘evaluators’ who assess the quality of search results and provide feedback. This process, according to Google, will help the company weed out misleading information, unexpected offensive results, hoaxes and unsupported conspiracy theories.

Bernault Arnault’s LVMH to take over Christian Dior for $13bn

Posted on by Helen

French business magnate, art collector and billionaire Bernault Arnault has moved to consolidate the corporate structure of Christian Dior, bringing all of the Paris-based fashion house’s operations together under the LVMH luxury umbrella. As it stands, Christian Dior is split between LVMH and other minority shareholders.

LVMH is publically traded, but the Arnault family currently owns a 47 percent stake in the brand. The group has owned a large chunk of Christian Dior’s operations since the 1960s, when it forged a deal to raise capital for the fashion house. However, the brand’s couture business – comprising handbags, made-to-measure gowns and men’s and women’s ready-to-wear fashions – has for decades been split from LVMH’s arm of the business.

LVMH has owned a large chunk of Christian Dior’s operations since the 1960s, but Dior’s couture business has for decades been split from LVMH’s operations

The purchase will be completed in a number of payments that have been planned to simplify leadership of the fashion house. The cash-and-shares deal values Christian Dior at €260 ($283) a share, giving the deal a total value of €12.1bn ($13bn). The purchase price marks a 15 percent premium above the stock’s closing price on April 24.

In a statement, Arnault said: “The corresponding transactions will allow the simplification of the structures, long requested by the market, and the strengthening of LVMH’s fashion and leather goods division thanks to the acquisition of Christian Dior Couture, one of the most iconic brands worldwide.”

The merger is expected to be immediately accretive to LVMH earnings per share. Stephen Mitchell, Head of Strategy for Global Equities at Jupiter Asset Management, said in a Bloomberg Radio interview: “Reuniting Christian Dior Couture and Christian Dior Parfums, so one brand under one leadership, has to be a good thing for LVMH shareholders.”

LVMH shares rose by 3.2 percent in early trading in Paris as markets reacted to the news.

Shinzo Abe replaces final dissenters on Bank of Japan board

Posted on by Helen

Japanese Prime Minister Shinzo Abe has set the tone for future monetary policies with two new nominations for the board of the Bank of Japan (BOJ). Hitoshi Suzuki and Goshi Kataoka will replace regular dissenters to the dovish policy stance set by the bank’s governor.

The outgoing board members, Takahide Kiuchi and Takehiro Sato, are due to finish their terms on July 23. For more than a year, Kiuchi and Sato have been the only two board members to vote against the majority, which favours the aggressive reflationary policies that have become the hallmark of Abe’s economic strategy.

By eradicating the final dissenters on the BOJ’s board, Abe’s move is expected to consolidate support for reflationary policies

Hitoshi Suzuki is a bank executive from the Bank of Tokyo-Mitsubishi UFJ, and Goshi Kataoka is a senior economist from Mitsubishi UFJ Research and Consulting. Kataoka is noted for being a vocal advocate of reflationist policies, having last year published a research paper entitled A Reboot of Reflationary Policy Is Wanted.

Suzuki’s policy stance is less clear, but he is generally seen to be more centrist than his fellow appointee. He is noted for his wealth of experience in banking, owing to his long stint in the financial markets division Bank of Tokyo-Mitsubishi UFJ, as well as his tenure as deputy president.

By eradicating the final dissenters on the BOJ’s board, the move is expected to consolidate support for reflationary policies. However, it will not necessarily change the overall direction, which is set by the bank’s governor, Haruhiko Kuroda.

“The nominations show Prime Minister Shinzo Abe wants the BOJ to continue the current reflationary stimulus programme”, Yasuhiro Takahashi, an economist at Nomura Securities, told Bloomberg. “Abe is also aware that he shouldn’t push the gas pedal too much, as the BOJ’s negative rate policy last year caused public concern.”

However, there is a lot that still hangs in the air, as BOJ Governor Kuroda is due to finish his term in the spring and may not be reappointed. Kuroda has made clear that he sees room for pursuing continued bond purchases, yet even in the case that his tenure does not continue, the new appointments should provide momentum for a similarly reflationist agenda.

IMF raises forecast for global economic growth

Posted on by Helen

The International Monetary Fund (IMF) has raised its outlook for global economic growth, predicting the world economy will grow by 3.5 percent in 2017. The revised forecast suggests the global economy could well be on course for its strongest performance in several years, bolstered by manufacturing and trade gains in Europe, Japan and China and promising prospects in large emerging markets.

“The global economy seems to be gaining momentum”, said IMF Chief Economist Maurice Obstfeld in the spring edition of the organisation’s World Economic Outlook report. “We could be at a turning point.”

The IMF has been somewhat pessimistic in its predictions since the 2008 financial crisis

The forecast is a marked improvement on last year’s growth prediction of 3.1 percent. The IMF has been somewhat pessimistic in its predictions since the 2008 financial crisis, expressing concern over the global economy’s slow rate of recovery. The upward revision therefore strikes a more positive tone, estimating that the world economy could grow at its fastest rate in five years.

Despite this optimistic outlook, the fund also warned that creeping protectionism and looming geopolitical tensions are a threat to global growth. According to the report, protectionist policies in advanced economies could ultimately lead to “trade warfare”.

As a staunch defender of free trade policies, the IMF reiterated this position in its latest report, suggesting that “inward-looking policies” and excessive use of tariffs and duties may ultimately damage the global economy. Last week, Christine Lagarde, the fund’s managing director, warned that a “sword of protectionism” hung over the global economic future.

Since taking office in January, US President Donald Trump has pursued several protectionist policies, abandoning the Trans-Pacific Partnership and pushing a ‘buy American, hire American’ rhetoric. While the IMF expects the US economy to grow by a moderate 2.3 percent this year, it could see Trump’s aggressive economic policy as a threat to further US growth.

In addition to targeting trade protectionism, the report also identified low productivity and high income inequality as crucial impediments to global growth. Weakening levels of productivity are identified as a major medium-term challenge for many emerging market and developing economies.

According to Obstfeld: “Whether the current momentum will be sustained remains a question mark… The world economy still faces headwinds.”

Trump to bolster ‘buy American, hire American’ pledge with new executive order

Posted on by Helen

President Donald Trump is ramping up his ‘buy American, hire American’ initiative with a new set of executive orders. On April 18, the US President will sign an executive order in Wisconsin, which is aimed at revamping a guest worker visa programme that enables US companies to hire temporary foreign workers in certain high-skilled jobs.

The order will be signed on the same day that Australian Prime Minister Malcolm Turnbull announced a major overhaul of Australia’s visa programme for skilled foreign workers.

Around 85,000 foreign workers are admitted to the US each year under the current H-1B visa programme, with most coming to work in high-skill industries. The visa scheme is particularly popular in the tech sector, but critics say the programme can both undercut US workers and depress salaries. In order to address these issues, Trump will order the Department of Homeland Security to review the process with which it awards these visas to foreign workers.

The H-1B visa scheme is particularly popular in the tech sector, but critics say the programme can both undercut US workers and depress salaries

The 220-day review proceedings will attempt to move the current H-1B programme towards a more merit-based system, steering it away from the random lottery under which it currently operates. Trump will also instruct the Department of Homeland Security to ensure that H-1B visas are not used to undercut US workers and wages.

While Trump has long promised to reform the controversial visa scheme, the executive orders will come too late to have a direct effect on this year’s visa season, which commenced on April 1.

In addition to targeting the H-1B visa programme, Trump’s forthcoming orders will also bolster his campaign pledge to support ‘buy American’ policies. Perhaps most significantly, the executive orders will demand that all publically financed infrastructure and construction projects use US-made steel in their projects. In order to meet the new requirements, this steel must be melted and poured in the US, ensuring that the entire steel supply chain benefits US workers and industries.

What’s more, the executive orders will also require federal agencies to review and minimise the use of waivers and exceptions in international trade agreements. At present, waivers enable agencies to opt out of choosing US-made goods in favour of cheaper alternatives. Such waivers are a feature of US trade agreements with nearly 60 countries.

Trump will officially sign the executive orders in Wisconsin, a state he crucially won in November’s presidential election. In putting pen to paper on this matter, Trump is looking to bring to fruition his campaign promise to support domestic blue-collar workers and US job creation.

Australia to scrap visa programme for skilled foreign workers

Posted on by Helen

The Australian Government has moved to scrap its 457 visa, through which skilled foreign workers who fall under a list of specific professions can apply to stay in the country for four years.

A shock announcement by Prime Minister Malcolm Turnbull asserted that an overhaul of the current system will prioritise Australians for jobs and will better target genuine skills shortages. In a video publicised on his Facebook page, Turnbull said: “We are an immigration nation, but the fact remains Australian workers must have priority for Australian jobs.”

Moves to reform the Australian visa system plainly echo US President Donald Trump’s ‘America first’ mantra

The 457 visas are to be replaced by a new scheme that requires applicants to pass much more stringent requirements, including labour market testing, a criminal record check and a higher level of English language proficiency. “It will be manifestly, rigorously, resolutely conducted in the national interest to put Australians and Australian jobs first”, according to Turnbull.

The new visa will be available under either a two or four-year stream. The reformed system will continue to filter people by job type, and while the two-year visa will be available for a broad variety of occupations, there will be a “substantial reduction” in the list of accepted professions for the four-year stream.

More than 1.28 million 457 temporary work visas have been issued since the scheme was introduced in 1996, with 96,000 people currently working under the scheme.

While 457 visa-holders make up less than one percent of the current Australian labour force, moves to reform the system has been painted in a manner that appeals to anti-immigrant sentiment and plainly echoes US President Donald Trump’s ‘America first’ mantra. According to Turnbull: “We’ll no longer allow 457 visas to be passports to jobs that could and should go to Australians.”

Immigration – while a contentious topic – is broadly considered by economists to have a positive overall economic impact on Australia. Indeed, the announcement has already triggered concerns in the business community.

Talking to The Australian Business Review, Bridget Loudon, CEO of Sydney start-up Expert360, said the move would result in some start-ups being forced to move their headquarters to the US or Europe: “The talent gap in Australia is a major concern for businesses, and this move simply creates more uncertainty for skilled workers who might have considered bringing their talent to Australia.

“457 visas have played a big part in helping us grow so significantly over the past four years, and it would be a shame if other high-growth businesses would not be able to achieve that same level of success because of these changes.”

Elon Musk’s five most ambitious projects

Posted on by Helen

From interplanetary travel to green energy, serial entrepreneur Elon Musk is on a mission to change humanity. Combining unbridled creativity with shrewd business acumen, Musk has emerged as one of the most innovative minds of the modern age.

At the modest age of 45, the dot-com billionaire has amassed an impressive number of business ventures, start-ups and side projects, each focused on revolutionising some essential aspect of human life. At Tesla, the focus is on eco-friendly electric cars, while SolarCity hopes to bring solar power to the mass-market and SpaceX looks to Mars as the next frontier. These goals are certainly grandiose, but big results require big ambitions.

By now, barely a month goes by without Musk announcing a new, pioneering project. These grand plans often start life as a single tweet, but Musk wastes no time in turning fledgling ideas into reality. With two new ventures already announced so far in 2017, World Finance takes a look at Musk’s most outrageous projects to date.

Barely a month goes by without Musk announcing a new, pioneering project

  1. Dawn of the cyborgs

While a Mars colony might seem like one of Musk’s most far-fetched ideas, another project has beaten it to World Finance’s number one spot. In March 2017, Musk revealed his latest mission: to merge man and machine. At his neurotechnology start-up Neuralink, Musk is working on a ‘neural lace’, a device that can be fitted over the brain to give the wearer superfast computing abilities.

As advanced technology and artificial intelligence become increasingly sophisticated, Musk has warned that humans must “achieve symbiosis with machines” if they wish to stay relevant in the digital age. He has also hypothesised: “Over time, I think we will probably see a closer merger of biological intelligence and digital intelligence.” With the creation of Neuralink, this merger may arise sooner than we might expect.

  1. Life on Mars

Elon Musk is on a mission to make human life multiplanetary. Not content with simply sending people on a return trip to Mars, the SpaceX CEO wants to start an entirely new civilization on the Red Planet. Speaking at an astronautical conference in September 2016, Musk outlined his concept for a self-sufficient Mars colony, suggesting his vision could well be realised “within our lifetime”.

With Spacex hard at work on the project, Musk’s first flight to Mars could take place as early as 2022, with the outcome of this voyage establishing the timeline for Mars colonisation. “If we can get the cost of moving to Mars to be about the same price as a median-priced house in the US of about $250,000, then I think the probability of establishing a civilization would be relatively high”, said Musk.

  1. A boring solution to traffic

On December 17 2016, Musk took to Twitter to grumble about the infamous LA traffic. “Traffic is driving me nuts”, he griped. “Am going to build a tunnel boring machine and just start digging.” While the majority of Twitter users thought he was joking, the idea started taking shape just one hour later, with Musk revealing a marketing platform and a company name – Boring Company. Two hours later, he provided another update, telling his three million followers: “I am actually going to do this.”

In the months since his Twitter outburst, Musk has made impressive progress with his Boring Company. In February, the fledgling firm began digging a 30-foot-wide hole on the SpaceX Los Angeles premises, marking the first steps towards realising Musk’s tunnel vision.

  1. Open AI

For some time now, Musk has been troubled by the potential dangers of artificial intelligence. Likening the technology to “summoning the demon”, the entrepreneur has long warned that AI poses the single greatest existential threat to human survival. Given this strong stance on artificial intelligence, it came of something of a surprise when Musk announced the launch of his own AI research company in December 2015.

Supported by more than $1bn in commitments, Open AI is focused on developing AI technology in a safe and responsible way. By making it accessible to all, Musk argues, this levels the playing field against the large corporations looking to exploit the technology for their own financial gain.

  1. 760mph train travel

In 2013, Musk announced his plans to revolutionise mass transit. In a detailed white paper, the business mogul outlined his concept for the Hyperloop: an ultra-high-speed rail system that would shuttle passengers between San Francisco and Los Angeles in a matter of mere minutes.

As imagined by Musk, the Hyperloop would consist of two large, pressure-reduced tubes between the two destinations. Passengers would then be ferried through the tubes in capsules at speeds of up to 760mph. The Hyperloop idea has been open-sourced by Musk, and other companies are encouraged to help develop the design.

For more on Elon Musk’s life and work, keep an eye out for our upcoming profile in the summer issue of  World Finance

Brazil drastically cuts its interest rates

Posted on by Helen

On April 12, policymakers at Brazil’s central bank unanimously agreed to drop the benchmark rate by a full percentage point, bringing it down from 12.25 percent to 11.25 percent. The move follows rate cuts at four consecutive meetings and marks the greatest reduction in rates since the midst of the financial crisis in 2009.

Notably, despite the recent push to wind down rates, Brazil’s real interest rates remain among the highest in the world. This could, however, be set to change. According to a statement, the central bank expects to continue on its current trajectory, with its baseline scenario foreseeing a policy rate of 8.5 percent by the end of 2017.

Despite the recent push to wind down rates, Brazil’s real interest rates remain among the highest in the world

The decision comes amid an improving outlook for inflation, which has dropped by around half over the past six months. “Inflation developments remain favourable”, said the bank’s statement, which predicted that inflation would reach around 4.1 percent this year and 4.5 percent next year.

The loose monetary policy could provide some respite for Brazil’s economy, which is still struggling from its worst recession in a century. The country’s economy shrank by 3.8 percent in 2015 and a further 3.6 percent last year, triggered by a fall in commodity prices and runaway fiscal spending. But according to the central bank, a recovery is on the cards: “Available evidence suggests a gradual recovery of economic activity during the course of 2017.”

Another cause for optimism is the extensive reform package currently being pushed by Brazil’s president, Michel Temer, which looks to rein in fiscal spending. The reform, however, may struggle as a result of corruption allegations targeted at members of Temer’s ruling coalition.

The bank said this presents a risk to the baseline scenario: “The approval and implementation of reforms – notably those of fiscal nature – and of adjustments in the Brazilian economy are important for the sustainability of disinflation and for the reduction of its structural interest rate.”

World Finance Corporate Governance Awards 2017

Posted on by Helen

Though the field of corporate governance has certainly transformed in recent times, it faces even greater challenges and further changes in the coming year. Against a backdrop of sluggish growth and uncertainty, dynamics within the boardroom continue to undergo an evolution of sorts, while pressure from all stakeholders grows apace. Significantly, investors – particularly the institutional kind, such as banks, insurance companies and hedge funds – will make a greater push this year for worldwide uniform corporate governance standards, while also increasing their expectations in terms of shareholder interests.

In 2017, companies face continued political uncertainty in light of an unprecedented series of events during the previous year. Boards will therefore have to play a more active role in risk mitigation and planning as a means to reduce climbing costs and looming threats. Given this precarious landscape, it has also become increasingly important for companies to adopt a long-term strategy for value creation, which is reflected in the mounting pressure placed on boards to demonstrate such capabilities.

The World Finance Corporate Governance Awards 2017 provide insight into these shifting expectations, while also celebrating the organisations that have made their boards more diverse and dynamic by placing long-term strategies in favour of short-term, results-driven plans. In managing such feats, the recipients of this year’s Corporate Governance Awards have not only made their companies more transparent and better positioned to handle risk, they are also drivers of excellent environmental, social and governance (ESG) policies in the world of corporate governance.

Investors will make a greater push this year for uniform corporate governance standards, while also increasing their expectations in terms of shareholder interests

Getting in line
Institutional investors, pension fund managers, public company directors and other governance professionals continued to push for the worldwide alignment of corporate governance throughout 2016. This trend is set to endure in 2017 in a bid to further promote corporate value creation in the long term. Regulators are responding to this ongoing trend with new reforms, particularly in emerging economies.

As a means of modernisation, Brazil and India, for example, have borrowed the regulatory framework of advanced economies for their own corporate governance models. That said, although this is the case in some areas, there are numerous countries in which regulations have not caught up with investor expectations. In instances of regulatory insufficiencies, an increasing number of investors are choosing to communicate directly with boards in order to promote the reforms that they expect to see.

Generally speaking, investors are now demanding more than ever. Consequently, it has become more likely that they will intervene when they feel regulations are not being met, or in the event that a board is not acting responsibly. Today, investors expect boards to take a more proactive approach in terms of forward-thinking management, particularly in the areas of scenario planning, strategy and executive succession planning.

As such, long-term value creation is a major trend in corporate governance in 2017 and beyond, with companies subject to greater scrutiny as a result. Much of this push has to do with mounting uncertainty in the market and the growing trend of investor activists in the battle against short-term priorities that threaten long-term interests.

According to a report by the Harvard Law School Forum on Corporate Governance and Financial Regulation, entitled Global and Regional Trends in Corporate Governance for 2017: “Efforts to encourage a more long-term market orientation have intensified in recent years, with several prominent business leaders and investors – most notably Larry Fink, Chairman and CEO of BlackRock – urging companies to focus on sustained value creation, rather than maximising short-term earnings.”

Uncertain landscapes
Last year, the planet suffered two major political shocks: first was the UK referendum in June, which resulted in the narrow majority of the voting population choosing to leave the European Union after more than four decades of active participation. Then, in November, the successor of US President Barack Obama turned out to be not the politically experienced and well-versed candidate Hillary Clinton, but rather a political outsider with seemingly no tact, diplomacy or sense of decorum whatsoever.

Elsewhere in the world, populist movements continue to emerge, growing not only in number but also in power, making them a force to be taken seriously. Such movements are adding to the level of uncertainty being felt globally, not only in terms of the political environment of their respective countries, but also the regulatory and legislative framework that they in turn support.

For example, during his presidential campaign, Donald Trump hinted at his support for naming and shaming US companies that have benefited “unfairly” from moving jobs from the US. In preparation of this shift in American policy and the media scrutiny that may ensue, boards must prepare their companies to mitigate such events and any negative consequences that could arise. Likewise, the incumbent government in the UK has indicated it may support the ability of shareholders to influence executive salaries, as well as the public disclosure of CEO-employee salary ratios. Again, a company’s reputation could be at risk in such scenarios, requiring forward planning from its board.

Sustainability game
Now more than ever, investors want to feel certain that boards are taking a proactive, strategic approach in order to rejuvenate their companies in line with evolving expectations. They wish to see directors in place who have the skills and experience needed to help drive companies in forward-thinking directions, while also ensuring a variance in perspectives and backgrounds.

According to the Harvard report: “Some investors see tenure and age limits as too blunt an instrument, preferring internal or external board evaluations to ensure that every director is contributing effectively.” Part of this process will involve external evaluations from third parties as a means of improving the feedback given to boards, which in turn will improve their governance.

In Europe, diversity will be a particular theme that will keep arising in corporate governance, while executive pay will also remain a focus of both the government and the media. Likewise, ESG issues will play an increasingly important role in boardrooms in 2017, particularly those related to sustainability and climate change, as investors apply greater pressure in this regard. In conclusion, sustainability remains key.

In ensuring sustainability, there will be greater expectations this year around the oversight role of boards, which will involve improved strategisation, scenario planning, investor engagement and executive succession planning. Again, this will entail continued efforts to refresh and optimise a board’s composition and skills that extend beyond mere box ticking. There will be greater scrutiny overall, from board composition to a company’s strategy for plans for sustained value creation. Namely, it is becoming imperative for boards to alleviate concerns about compromising a company’s long-term interests for short-term priorities.

With much faster access to information, expectations among investors and the public are greater than ever before. For this reason, boards must continue working on long-term strategies, which include promoting greater diversity and transparency. This is particularly important given the possibility that the media spotlight may shine down on them at any point in time. While corporate boards may face more pressure in 2017, this could be the year when their transformation really takes off, for the better of both the companies themselves and the wider environment. The winners of the World Finance Corporate Governance Awards 2017 are those firms that have shown time and time again that they are willing to face these challenges.

World Finance Corporate Governance Awards 2017

Argentina
Telecom Argentina

Angola
Banco de Fomento Angola

Bahrain
Bank of Bahrain and Kuwait

Brazil
Gol Linhas Aéreas Inteligentes

Canada
Suncor Energy

Chile
Endesa Chile

China
TCL Communications Technology

Colombia
Grupo Sura

Cyprus
Bank of Cyprus

Denmark
Novo Nordisk

France
Vinci

Germany
United Internet

Ghana
FBN Bank Ghana

India
Mindtree

Italy
Telecom Italia Group

Kenya
Sanlam Kenya

Kuwait
Gulf Insurance Group

Nigeria
Access Bank

Peru
Ferreycorp

Portugal
EDP Renovaveis

Saudi Arabia
Dar Al-Arkan Real Estate Development Company

Singapore
CapitaLand

South Africa
Vodacom Group

Spain
Iberdrola

Sri Lanka
Talawakelle Tea Estates

Switzerland
Roche Holding

Thailand
Kasikornbank

UAE
Dubai Parks & Resorts

UK
Next

US
Microsoft Corporation

Zambia
Barclays Bank Zambia

World Finance Islamic Finance Awards 2017

Posted on by Helen

After a year of political upset, which came to characterise 2016, we are finally in the midst of recovery. In fact, the past year has seen greater stability among economies and financial markets. According to the Brookings-FT Tiger index, a set of tracking indexes for the global economy, growth has seen a sharp uptick both in advanced and emerging economies in 2017. For the latter, growth has reached levels not seen since 2013.

Against this increasingly favourable backdrop, one standout player in the finance sector continues to excel: Islamic finance. The sector has expanded rapidly over the past decade, in line with demand for Sharia-compliant services and products. Between 2000 and 2016, Islamic banks’ capital grew from $200bn to an incredible $3trn, with this figure expected to reach $4trn by the early 2020s. Now expanding by an annual rate of 19.7 percent, growth in the Islamic finance sector far outpaces that of conventional banks, putting pressure on traditional financial institutions to diversity into Sharia-compliant services. With a surge of interest among consumers from non-Muslim majority countries, the Islamic banking market is showing no signs of slowing down.

Staying competitive
As stated by Ernst & Young’s latest Islamic Banking Competitiveness Report, there are now more than 65 Islamic banks, also known as participation banks, worldwide, while the number of conventional banks with Sharia-compliant departments also swells. As a wave of new competitors floods the Islamic finance market, long-established Sharia-compliant banks are undergoing a process of revisiting their long-term strategies in a bid to stay ahead. Essentially, this means keeping up with the digital revolution that has dominated the conventional banking scene for some time now.

According to the report, boards of the 40 biggest players in Islamic finance are investing between $15m and $50m in new digital initiatives over the coming three years. This digital drive is particularly crucial in the GCC region, which boasts a sizeable young population. In this demographic, smartphone usage has reached a staggering 98 percent, yet 46 percent of consumers still find mobile banking difficult to access.

With the Islamic digital banking services falling short of customer expectations last year, Sharia-compliant banks are now enhancing their consumer engagement with considerable success. As consumers demand flexible, on the go banking as standard, Islamic banks are responding to the realisation that being Sharia-compliant is no longer enough. Indeed, EY data shows a direct correlation between the customer’s digital experience and the bank’s revenue, and also reveals that 81 percent of Islamic bank customers are ready to switch banks for a “better digital experience”. Given that inaction in this area could cost institutions up to 50 percent of their retail banking profits, there is a convincing incentive to push forward with digitalisation.

Green sukuks
Though sukuks, also known as Islamic bonds, are still recovering from a recent slowdown, Islamic banks continue to push forward, exploring new possibilities and opportunities for sustainable grown. One such area is socially responsible investments: green sukuks.

Making particularly noteworthy progress in this field is Malaysia and the UAE, which have been the most active of key Islamic markets. In fact, it was the Malaysian solar energy heavyweight Tadau Energy that sold the world’s very first green sukuk in July 2017. The MYR250m Sustainable Responsible Investment (SRI) sukuk, which is called green SRI sukuk Tadau, has been given a long-term rating of ‘AA3’ by RAM Rating Services Berhad.

With this precedent set, more are soon to follow, opening up a plethora of new – and sustainable – opportunities for the world’s ever-growing Islamic finance sector.

New markets
Due to the rapid economic growth of several Muslim-majority countries, Islamic finance has grown rapidly over the past decade. Oil-rich states that had accrued enormous revenues from their oil and gas industries are now shifting their economic strategies, which results in greater focus on Sharia-compliant banking.

This transition has seen numerous Islamic banks successfully improve financial inclusion in many Muslim-majority nations where a large portion of the population were previously unbanked. Offering essential financial support to both individuals and SMEs, Islamic banks have come to dominate the financial landscape in many Muslim-majority countries.

Although the Islamic finance industry remains just a small segment of the global financial system, Sharia-compliant banks are rapidly gaining popularity outside the market of practising Muslims. Much like traditional banks, Islamic banks offer a wide range of financial products and services, from mortgages and loans to equity funds and bonds. However, the principles of Islamic banking are sometimes more attractive to consumers than those of conventional banking.

Islamic finance appeals to a broad range of consumers due to its reputation as being less prone to crisis. In a global climate of political and economic instability, Islamic finance offers a stable approach to banking. Islamic banks must refrain from engaging in activities that involve uncertainty or speculation. As such, Islamic finance is entirely asset-based, and is therefore fully collateralised. This also encourages better risk management by banks and consumers, making both parties mutually responsible.

These risk management strategies served Islamic banks well in the post-financial crisis years. In 2010, an IMF report showed Islamic banking institutions had fared better than their conventional counterparts both during and after the global financial crisis of 2008.

In June 2014, in response to an increased demand for Sharia-compliant financial products, the UK became the first non-Muslim country in the world to issue a sukuk. Since then, Hong Kong, Luxembourg and South Africa have all followed suit, while the US now boasts 25 exclusively Islamic banks. As we head into 2018 and beyond, the demand for Islamic finance only looks set to grow.

The World Finance Islamic Finance Awards 2017 celebrates the most forward-thinking players in this rapidly expanding market.

World Finance Islamic Finance Awards 2017

Best Islamic Bank

Algeria
Al Salam Bank Algeria

Bahrain
Bahrain Islamic Bank

Indonesia
Bank Syariah Muamalat

Jordan
Jordan Islamic Bank

Kuwait
Kuwait International Bank

Lebanon
Arab Finance House

Malaysia
RHB Islamic Bank Berhad

Oman
Maisarah Islamic Banking Services

Pakistan
Meezan Bank

Qatar
Qatar International Islamic Bank

Saudi Arabia
Alawwal Bank

Turkey
Al Baraka Turk Participation Bank

UAE
Al Hilal Bank

UK
Al Rayan Bank

Global recognitions

Islamic Banking Chairman of the Year
Sheikh Mohammed Jarrah Al-Sabah
Chairman, Kuwait International Bank

Business Leadership and Outstanding Contribution to Islamic Finance
Musa Shihadeh
Vice Chairman and General Manager, Jordan Islamic Bank

Islamic Banker of the Year
Mohammad Nasr Abdeen
CEO, Union National Bank

Best M&A Advisory
KFH Capital Investment Company

Most Innovative Islamic Finance Solutions
Al Wifaq Finance Company

Best Socio-Economic Project Development
Islamic Development Bank

Best Sharia-Compliant Private Equity House
QInvest

Best Sukuk Deal
Maiden Sukuk by Warba Bank

Best Asset Management Company
Alkhabeer Capital

Best Takaful House
Al Rajhi Takaful

Best Islamic Banking and Finance IT Solutions
International Turnkey Systems

World Finance Brokerage Awards 2017

Posted on by Helen

The broking industry was once a safe, established and lucrative sector. In all its forms, people came to rely upon brokers as experts to escort them through the most complex and specialised markets. As trusty guides through the seas of chaos, brokers were the sole source of knowledge for anyone – from the average armchair investor to the largest international companies – wishing to carve a path to riches.

However, with online broking tools now in reach of almost anyone, this knowledge is no longer enough for many clients. It is all too easy for people and businesses, even if they possess only the smallest understanding of markets, to conduct their own trading entirely from their smartphone. With the ease of access these services offer, and considering the wealth of information that is easily available online, traditional brokers suddenly seem very old world. When it is now so easy to do yourself, brokers may be questioning whether their traditional role is worth the price of admission.

The role of the broker in the future may be very different from what it is now. For the brokers of tomorrow to survive, they will have to offer insight and expertise that is far greater than what can be found in the money pages of the average newspaper. They will have to rethink their relationship with their clients, while offering services that mix the convenience of apps with the expertise of a traditional financial expert.

With incredibly powerful tools now available, and more emerging every day, brokerages have an opportunity to act with more information and insight than ever before

The World Finance Brokerage Awards 2017 have sought to identify the brokerage firms that offer the best services, the most advanced tools and the most unique insights. In the current financially uncertain environment, a trusted advisor may be more valuable than ever before.

Switched on
While the internet has been a global force since the 1990s, it has only been in the past decade or so that online services have become a focus rather than a supplement. As the barrier for entry with smartphones has fallen even lower, while trust in the services they provide has risen, this do-it-yourself mentality has also made the move to investment. Instead of turning to a personalised brokerage service for advice and assistance, a few quick taps on a phone can get a person equipped with the traditional blue chips the average advisor might recommend as the cornerstone of a portfolio.

Catering to this class of investor are myriad online services, offering full-fledged financial trading tools and the highest levels of convenience at a low price. They have the ease of use that is up to par with the best online companies, and they have services available for anyone on any size budget. However, the tremendous competition between the biggest online players has since escalated into a price war between individual companies. Already in 2017, US-based Fidelity announced a cut in its commission to $4.95, with rival Charles Schwab cutting its own to match, and TD Ameritrade and E*Trade Financial each cutting theirs to $6.95. In this incredibly tough environment, only the best and most competitive services will survive.

In a race to the bottom such as this, the traditional, personal broker might be concerned their time and expertise is becoming considerably less valuable. However, with the political turmoil of the past year – and, indeed, the coming one – a dose of traditional expertise may be exactly what the market needs.

A numbers game
On a more ambitious scale, algorithmic trading has also emerged as an alternative to the traditional role of an advisor. In terms of the raw number of trades, algorithms are unparalleled in how quickly they can respond to the tiniest fluctuation in the market before identifying a potential chance to make a profit. With a volume of information at their disposal that no human could hope to comprehend, the average stockbroker has truly inhuman competition on his or her hands.

But the mathematics behind these systems is not flawless. Famously, in 2012, Knight Capital connected its algorithm to the New York Stock Exchange to power its automatic trading system. Very quickly, the program started posting rapidly escalating losses. After 45 minutes, Knight Capital was down $440m. While mistakes like this are the exception rather than the rule, it’s difficult to imagine a human stockbroker suffering a similarly bad streak.

While these new systems are undoubtedly an exciting development in finance, there is ample room for the traditional stockbroker in the modern marketplace. Rather than a destructive force, opportunities for greater amounts of data analytics should be seen as an opportunity. With incredibly powerful tools now available, and more emerging every day, brokerages have a tremendous opportunity to act with more information and insight than ever before.

Looking at the data of the past may be the best idea when the global markets are performing as expected, but the past year has proved to be anything but ordinary. Between the election of Donald Trump and the UK’s vote to leave the European Union, global markets were sent on a rollercoaster ride of uncertainty without a recent parallel. A conclusive definition of how Brexit will manifest will likely take years, and Trump has already shown that he is willing to surprise us all and push the legal limits of what he can do as President of the United States. When it comes to global markets, the events themselves are often not as damaging as the state of uncertainty that will take hold in the following months.

The best stockbrokers are able to see through this storm of uncertainty to identify industries and opportunities that the average investor may be overlooking. Escaping the world’s most famous exchanges, with the markets of other countries looking more appealing, may be how brokers can differentiate their businesses for the future.

Steady in a storm
As technology grows more advanced, long-term clients who appreciate the value that an expert guide can bring will always appreciate experienced and talented brokers. For discerning clients keen to keep a sharp eye on their portfolio, a modern brokerage can be an insightful touchpoint and make all the difference when it comes to making confident decisions about the future. Particularly in a time where the role of the brokerage is changing so rapidly, brokers are working hard to prove that their services are needed and relevant.

However, the greatest challenges are yet to come. Industry regulations also make the future uncertain, and navigating what is likely to be a more restricted future is only going to prove an additional challenge. Given this, identifying the leading brokerages is an important step that encourages the entire industry to strive towards even stronger returns in a time of unparalleled uncertainty.

The World Finance Brokerage Awards 2017 have scoured the industry to find the firms that are not just successful today, but are prepared to face the challenges of the future as well. In such a dynamic and broad market, the World Finance awards team, together with our readers, has found the companies that embody the future of brokerages and the industry at large.

World Finance Brokerage Awards 2017

Asia

Hong Kong
KGI Securities

Singapore
OCBC Securities

Malaysia
CIMB Investment Bank

Thailand
Bualuang Securities

Indonesia
PT Danareksa Sekuritas

China
Haitong Securities

Middle East

UAE
ADCB Securities

Kuwait
NBK Capital

Bahrain
SICO BSC (c)

Saudi Arabia
SaudiMed

Lebanon
MedSecurities

Europe

UK
Barclays Stock Brokers

Germany
Steubing AG

Italy
IW Bank

Spain
UBS Securities España

North America

US
JP Morgan

Canada
RBC Capital Markets

Latin America

Chile
BCI Corredor de Bolsa

Mexico
Actinver

Peru
Inteligo

Brazil
BTG Pactual

China opens long-awaited Myanmar oil pipeline

Posted on by Helen

On April 10, a new oil pipeline that will allow China to import crude oil from the Middle East without relying on politically precarious shipping routes was officially opened.

The pipeline, which has been dogged by years of delays, starts in Myanmar’s Made Island and leads to China’s Yunnan province. At its end point is a refinery built by PetroChina, which has been heavily contested and became the target numerous street protests. The agreement to build the link was signed in 2009, but it has since received substantial opposition in both Myanmar and China.

The long-standing absence of a viable sea route has remained a central issue for China as the world’s greatest importer of crude oil

The pipeline is 771km long and is designed to have a transmission capacity of 22 million tons a year. The link could supply as much as six percent of Chinese crude imports once fully operational, while the refinery is built with the capacity to process 13 million tons of crude oil per year.

Operations began immediately following the signing of a transmission agreement, with a 140,000-ton tanker offloading crude oil at a port in Myanmar later that same day.

The pipeline is a part of China’s broader economic and diplomatic strategy, named the One Belt, One Road plan, which looks to invest in infrastructure projects stretching across Asia to Africa and Europe. The pipeline is likely to be beneficial for Myanmar economically, as it will provide energy infrastructure that could be vital in the future. It also has the potential to provide the country with two million tons of crude oil annually.

“It may send a message to those countries that are still hesitating about whether to participate that the initiative is China’s top national strategy and can bring economic benefits to participants”, said Fan Hongwei, an international relations professor at Xiamen University, as cited in Bloomberg.

For China, the pipeline is a breakthrough. The country has for decades been heavily dependent on oil imports passing through the chokepoint of the Malacca straits and the politically contentious South China Sea. The long-standing absence of a viable alternative sea route was dubbed “the Malacca Dilemma” in 2003 by then-Chinese President Hu Jintao, and has remained a central issue for China as the world’s greatest importer of crude oil.

Technology is a bigger driver of inequality than globalisation, says IMF

Posted on by Helen

Since the 1980s, labour’s share of national income in advanced economies has gradually been whittled away by technology and globalisation, according to a report published by the IMF on April 10.

Just prior to the onset of the 2008 financial crisis, the share of national income received by workers dipped to its lowest level for the past half century, and has since made no material recovery.

The hit to workers was attributed to a high share of jobs becoming automated, as well as the rapid progress in information and telecommunications tech

The IMF report, titled Understanding the Downward Trend in Labour Income Shares, identified technology as the primary cause of labour’s shrinking share of income for advanced economies. “In advanced economies, about half of the decline in labour shares can be traced to the impact of technology”, reads an IMF blog post based on the report.

The hit to workers was attributed to a high share of jobs that could be automated, as well as the rapid progress in information and telecommunications tech. Technology can also be harmful due to the implications for “job polarisation”, according to the report, whereby middle-skilled labour was under greater threat from routine-biased technology. This then sharpens the disparity in wages between different skill levels.

Global integration was also found to play an important role, but its impact was judged to be around half as important as that of technology.

The labour share of income measures the proportion of national income paid in wages to workers, rather than capital incomes. While it is not necessarily a direct measure of unemployment, a fall in the labour share of income will usually occur in parallel with an increase in inequality. This is in part because those who own capital tend to already be clustered around the top of the income distribution.

The report provides support to arguments being pushed by the big global institutions, which are speaking up increasingly against the tide of trade protectionism.

On the same day, the IMF released a second report – published in partnership with the World Bank and World Trade Organisation – which argued that with the right policies, it is possible to embrace the opportunities that trade brings, while lifting up those who have been left behind. It stated: “Adjustment to trade can bring a human and economic downside that is frequently concentrated, sometimes harsh, and has too often become prolonged. It need not be that way.”