TheChek News Flow

Investors Eagerly Await Alibaba’s Results

E-Commerce Giant to Make First Public Earnings Statement on Tuesday

Alibaba will report quarterly earnings on Tuesday for the first time since its record $25 billion debut on the New York Stock Exchange. Scrutiny will be intense: Alibaba’s share price has already risen 45% since the initial public offering, giving it a market value of $243 billion as of Friday, bigger than Facebook Inc. ’s.

Investors and analysts say they are looking for strong profit and revenue growth in the three months through September—estimates average around 45%—as well as guidance that suggests the good performance will continue, despite a multitude of challenges.

Market watchers are looking for signs that Alibaba is making more money through smartphone applications as it strives to extend its shopping sites to the increasing number of Chinese going online via mobile devices. They are also hoping for more clarity on Alibaba’s business strategy, including acquisitions and overseas operations. Longer-term, they are watching the progress of Alibaba’s expansion through its Alipay affiliate into financial services. Alibaba Executive Chairman Jack Ma last week said he was considering a tie-up in payments with Apple Inc.

“Every investor will be looking at the results very closely,” said Tony Chu, a Hong Kong-based portfolio manager at RS Investments, which bought Alibaba shares in the IPO. Mr. Chu said he hopes to see strong results, upbeat guidance and more transparency.

“As a public company, Alibaba needs to disclose more, and talk to investors more,” he said.

Many analysts are enthusiastic about Alibaba’s prospects.

“We estimate well over half of the Chinese population will be shopping on Alibaba’s platforms in 10 years,” Jefferies analyst Cynthia Meng wrote in a report last week, as the brokerage added Alibaba to its coverage list. Ms. Meng set Alibaba’s price target at $118 for the next 12 months—20% higher than its $98.60 close on Friday—saying there is plenty of room for growth as e-commerce expands into smaller cities and rural areas in China, helped by improving wireless infrastructure and affordable smartphones. The brokerage expects Alibaba’s annual revenue growth to average 36% over the next three years.

One area of interest will be performance at the online marketplaces Taobao and Tmall, Alibaba’s top revenue generators, which make money in different ways. Taobao, which hosts millions of small merchants, charges those vendors for services like advertising. Tmall, an online shopping mall that hosts major global brands such as Apple, Nike and Burberry, takes a cut from each transaction. Analysts expect Tmall to make larger contributions to Alibaba’s earnings growth in coming years, saying the company’s efforts to attract more high-end brands will be key to its success.

Another investor focus will be Alibaba’s profit margin, which is higher than those of most of its industry peers, but which has declined since last year as the company spends to expand services through smartphones and tablets.

A shift in e-commerce business to mobile phones is also weighing on profit, since merchants are paying Alibaba less for advertising over handsets than via PCs, the company says.

In the quarter through June, Alibaba’s operating margin fell to 43.4% from 50.3% a year earlier.

Investors and analysts will also be on the alert for an indication of how Alibaba is faring in its rivalry with Tencent Holdings Ltd. , another Chinese Internet giant that is strong in mobile offerings.

They will also be looking for hints on what is happening at financial affiliate Zhejiang Ant Small & Micro Financial Services Group, also known as Ant Financial, which owns the Alipay payment business that processes most of the transactions on Alibaba’s shopping sites and serves as a platform for financial services.

Although it is Mr. Ma, not Alibaba, who has a stake in Ant Financial, the affiliate generates revenue for Alibaba and its success is important to the company’s future.

The outlook gives the central bank room to remain patient about when to begin raising interest rates, Mr. Lacker said.

“Next year sometime it looks plausible that we’ll start needing to increase interest rates,” said Mr. Lacker, who will have a vote on the policy-setting Federal Open Market Committee in 2015, in an interview with Fox News Channel. “We’ll try to time that carefully given what the economy needs.”

Mr. Lacker, a skeptic of the central bank’s more unconventional policies, was fairly optimistic on the economy.

“Given the economic challenges we’ve faced, I think this economy has turned in an excellent performance,” he said.

“This is the sixth year of our recovery, we’ve grown at about 2-1/4% at an annual rate, the unemployment rate has come down from 10% to 5.9%, and inflation is low and not a problem,” he said. “I think it’s likely to continue at about that pace and I think we’re poised for growth ahead.”

Mr. Lacker said he was not too worried about signs of softer growth overseas, including places like Europe, China and Japan. “Stagnant growth abroad wouldn’t change the outlook much. We’ve been getting that for the last couple of years and seem to have managed to cope pretty well nonetheless,” he said.

While the Fed decided last week to conclude its bond-buying program, the central bank’s large balance sheet was still providing support to the economy and lending, Mr. Lacker said.

“Even though we stopped buying them, we still hold those securities, so that stimulus is still there as long as we hold onto those,” he said.

The new country of Facebook

The company is preparing the site to deliver services once the province of the nation state – from healthcare to education

Sitting in his home in San Francisco’s Nob Hill, arachnophobe Tim Suzman is watching a virtual spider creep across a virtual table. If he can keep calm, he’ll watch a larger spider and then a larger one, until eventually he can cope with a computerised spider crawling across his hand.

Wearing an Oculus virtual reality headset, Suzman can see the room – and the spiders – in 360 degrees. At first, he was as anxious around virtual spiders as real ones but after weeks of practising, he can now soothe himself even when a live medium-sized spider is busy building a web on his wall. “When I see a spider in real life now, rather than my first reaction being, ‘Ugh, that’s freaky,’ it’s, ‘OK, I’ve been in this situation before and it wasn’t so bad’ – even though my brain is thinking about what happened in virtual reality,” he says.

Silicon Valley Special

One day, Suzman may be curing phobias on Facebook, which bought Oculus earlier this year for $2bn. It is the company’s biggest bet on the internet’s long-term future – and its own. But this will not be the Facebook we know. Instead, the vision is for an all-encompassing site where people conduct more and more of their daily activities.

Suzman quit his job two months ago to found a business called Fearless, which he hopes could eventually enable Facebookers using virtual reality to visit their therapists on the site. He imagines a day when stepping into a virtual world would be as common as picking up a smartphone and perhaps even more useful. “The most straightforward way would be to create a virtual room and the two people can be talking as if they are meeting in person,” he says. “A therapist in any country could offer the same service locally to anywhere in the world.”

. . .

Virtual reality is just the most futuristic part of Facebook’s broader plan to transform itself into something much larger than a place to post photos of your food or watch videos of bunnies. Entrepreneurs such as Suzman are lured by its huge audience: Facebook is simply where the people are. The site is on course to become home to more inhabitants than any country in the world, its 1.3 billion-plus users taking it within a whisker of the population of China, the largest nation on the planet.

If Facebook were a country, it would be the second most populous in the world, just behind China

This milestone figure matters to the man who once opined that power in his generation was “moving from countries to companies”. In that statement, he implied that heading up a company such as Facebook could put him on a par with world leaders.

Mark Zuckerberg, Facebook founder and chief executive, was a billionaire in his twenties, but is devoting his thirties to building this new country of Facebook. “The best thing to do now, if you want to change the world, is to start a company. It’s the best model for getting things done and bringing your vision to the world,” Zuckerberg told Kate Losse, an early Facebook employee who became his speech writer and quoted him in her book The Boy Kings: A Journey Into the Heart of the Social Network.

Therapy on Facebook is only the start. The company is preparing the site so it can deliver services virtually that were once the province of the nation state: from healthcare to education. These features may be grafted on to the main site as with apps on pages, or be standalone apps. Just as Facebook citizens currently flick through the news feed and friends’ profiles, and “like” with a click of a button, in the future they could also be clicking to visit doctors in virtual reality on their profiles, take university courses or send dollars to distant relatives via messages.

In the early days of Facebook, a poster reading, “We’re only 1 per cent done”, hung on the company wall. An updated sign might now read, “We’re only 5 per cent done”.

. . .

For a sense of how Facebook is going to change, we can travel from the heights of Nob Hill to council estates across Salford in the north of England, where tenants are using Facebook to pay their rent.

Based on current trading prices of about $80 a share, Facebook is worth about $208bn. That’s more than both Disney ($151bn) and Coca-Cola ($179bn)

Visiting the Facebook page of Salix Homes, the company that manages the estates in the centre of the city, residents can pay using an app embedded there. When the UK government made many people receiving housing benefit responsible for making rent payments directly, Salix turned to where tenants were already spending their time, on Facebook.

In the first few months, more than a third of Salix’s Facebook followers had used the app – mostly via their mobile phones. Facebook has flourished on mobile, where more than half its users are, and few people on the Salford estates have conventional computers. “A lot of people say that they don’t access the internet, but do access Facebook, not perceiving it as the internet as such,” says Salix’s James Allan.

The company is not alone in seeing Facebook as the ultimate place to reach people, an enabler for even very private services. Facebook has the ability to reach the masses wherever they live – because they also live on Facebook. London and San Francisco-based start-ups are working on ways for people to buy stocks, for example, or transfer money across borders on Facebook, and school teachers in the US are returning pupils’ assignments in private Facebook groups to discuss their homework.

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Facebook founder Mark Zuckerberg sharing his vision of the new Facebook in Indonesia last month©Getty

Facebook founder Mark Zuckerberg sharing his vision of the new Facebook in Indonesia last month

Facebook is no longer a social network. Four years ago, Mark Zuckerberg used to rhapsodise that everything was destined to be social. Two years ago, on Facebook’s first earnings call as a public company, he said the word “social” 24 times. But the word has fallen out of favour. On a recent call, he mentioned it just once.

“Social” is too limiting for Zuckerberg’s quest for dominance, too closely associated with much smaller rivals such as Twitter and Snapchat and with the doctrine of “sharing”, which is no longer suitable for everything Facebook wants to become. David Kirkpatrick, author of The Facebook Effect, a book on the company’s rise, points out that healthcare and finance are “naturally very private and closed” and not at all social. “Facebook has big opportunities that it has not even begun to tap in the personal data realm,” he says, adding that Facebook knows who you are better than any government issuer of ID. “If they could reassure on privacy, they could be a natural repository for a gigantic amount of healthcare information.” Facebook’s reachable, sortable mass is what lures companies to do business on the platform and keeps users locked in to using it like a utility – not necessarily its ability to “share” with friends. Its intimate knowledge of the likes and lives of the vast number of people who spend time on the site is becoming far more important than its previous sales pitch of being a social network.

Instead, Zuckerberg has a new, three-pillared mantra that rolls off the tongue of everyone at Facebook just as readily as the “S” word once did. The chief executive described his vision to investors for the first time on an earnings call last year. It starts with “Connecting Everyone”– a mission to make sure every one of the world’s 7.1 billion people can access the internet and, with it, Facebook. At its most outlandish, this means bringing in drone engineers who used to work for a tiny company in Somerset, England, to develop unmanned aircraft in the hope that they can beam down connectivity from the sky. At the duller end, it means contracts with network operators to make its apps free for customers, so that everyone with a feature phone can access a sliver of the information online.

According to a 2014 poll conducted by the Pew Research Center, the average adult user in the US has 338 Facebook friends

However, where the first pillar is ambitious, the second and the third border on the zealous. “Understanding The World” sounds like the goal of a school swot but it really means Facebook categorising all the information on its site – the updates, the likes, the pages – and making its own searchable database of information to rival Google. You can already use Facebook’s “graph search” in some regions to look for “friends who like trail running”. But one day you might use it as a more in-depth function, say, for photos of your colleagues’ cats before 1995 or family members who have made Facebook comments about the war in Iraq. As Zuckerberg explained, it is not simply about day-to-day updates but “building up long-term knowledge about the world and being able to answer questions for you that no other service can”.

The third pillar is the most difficult for current users to picture. Zuckerberg wants Facebook to help “build the knowledge economy”, to become a place where people create jobs, companies and growth and support “a larger economic shift in the world based on information and ideas”. Rather than wasting people’s productive time, it should increase productivity by giving people the tools to educate themselves and an audience for their businesses – in industries such as finance, education and healthcare.

Cory Ondrejka, vice-president of engineering at Facebook, told the Financial Times that Facebook’s mission has always been clear internally and was discussed “every minute since I joined four years ago . . . Mark’s vision for making the world more open and connected is about those three pillars: connect everyone, understand the world and build the knowledge economy using those two facts,” he said.

Zuckerberg indicated what he thinks Facebook could look like in the future when he acquired Oculus back in March. He let his guard down to gush about all the possibilities Oculus could enable without users leaving the house. “Imagine enjoying a courtside seat at a game, studying in a classroom with students and teachers all over the world, consulting with a doctor face-to-face or going shopping in a virtual store,” he said.

Ondrejka, who has recently been working closely with Oculus, thinks Facebook’s foray into virtual reality was also inevitable. “It is the next platform with the ability to share entirely new experiences. Virtual reality was always going to be a part of Facebook’s DNA in the very, very long term,” he says.

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A man wearing an Oculus virtual reality headset©Bloomberg

Facebook bought Oculus earlier this year

However, this new Facebook – almost a country in its scale – could also be a tricky place to live. Lacking either a constitution or a vote on Facebook’s direction, its citizenry have entered a deal with the site that they are increasingly depending on – without knowing what it will become.

Adi Kamdar, a privacy campaigner at the Electronic Frontier Foundation, warns it could be hard to be a citizen in this “convoluted empire”, especially when Facebook has already lost many users’ trust even as a caretaker of photos and posts. “You start off with a single service that is a social network and build a profile about yourself, your friends, where you live, which you trust will be used in that capacity and maybe even used for ads,” he says. “But then all of a sudden it is synced up with your health information or used to create a payments system. This information you gave to them in one paradigm has expanded exponentially.”

He says consumers could benefit from a single company handling so much – creating “cool products” personalised for their needs – but they should be aware that “the company they are giving their information to now isn’t the company it is going to be a year from now, five years from now, 100 years from now”.

Astra Taylor, the author of The People’s Platform, which criticises large companies for dominating life online, says Facebook could commercialise areas which have previously been advert-free. “Traditionally, the classroom has been about the dissemination of information between a teacher and a student, it wasn’t an entity beholden to advertiser,” she says. “Facebook can’t value communications for their own sake. Whatever is being communicated, they have to wring data out of users.”

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Social is too limiting for Zuckerberg’s quest for dominance

Facebook’s mission stands the most chance of success in emerging markets, where there are fewer incumbents in industries such as finance, education and healthcare with the funds for a fightback.

In the developing world, where institutions and traditional corporate players often have a more feeble footing, Facebook could establish itself as the platform to reach the people. In fact, it is already using its apps to offer basic services, often through its Internet.org arm. Internet.org was founded by Zuckerberg in 2013 with a goal of making the internet 100 times more affordable through partnerships with mobile phone companies, deals with telecoms carriers in emerging markets and futuristic technologies. It is also clear about its role in spreading Facebook, as well as the internet, by whatever means necessary. In Zambia, for example, people can access basic healthcare information such as tips for pregnant mothers for free on an Internet.org app. In India, Facebook broadcasted debates during the national elections to inform voters in the world’s largest democracy.

This quick and easy way to access information which can be hard to come by is obviously attractive to users. If your choice is between sending money by Facebook or a money lender on the corner, or contacting a well-qualified doctor on the other side of the world rather than an under-resourced clinic in your town, it could be an easy decision to make. To some, putting this kind of power in the hands of Facebook is worrying. Evgeny Morozov, the author of To Save Everything, Click Here, warns that Facebook could become a “de facto provider of infrastructure” and services that people used to expect to receive from the state, making it hard to opt out: “As much as I’d like to believe Internet.org is a purely humanitarian mission, I don’t. I think it is a way of capturing an emerging market one way or another. If Facebook doesn’t, then Google will capture them.”

Taylor warns that, contrary to Facebook’s message of creating opportunity for users in developing economies, it could introduce a new division in the digital landscape. Facebook often strikes deals with telecoms companies to allow access to its app for free, which she argues could give the user a false choice between, for example, learning or receiving healthcare advice on Facebook, or paying for expensive data plans in order to find the information elsewhere online.

In Rwanda, working with the government and edX, the open online learning platform co-founded by Harvard and MIT, Facebook is developing an app with which Rwandan students can participate in free lessons over data connections as slow as 2G. Lou Wang from edX, who has led the partnership, says the company wants to expand the app across the developing world after it unveils it in Rwanda next year. “We’re talking about reaching individuals on their long commute to work,” he says, “to make sure those two hours aren’t wasted . . . allowing them to take advantage of that time and educate themselves, giving them major opportunities that didn’t exist before”.

Taylor says this potential involvement in education might not be welcomed in the west. “A certain privileged population wouldn’t stand for it: it is hard to see where Facebook would fit into the American education system but for those who don’t have other options for internet access it feels like another degree of digital inequality.”

. . .

Facebook might have an almost unique opportunity to remake services across emerging markets because it enjoys a certain Silicon Valley gloss. Technology companies have been celebrated for developing free services that help improve people’s quality of life, even during a global recession where money was tight for most. In this new dotcom boom, start-up fever has spread around the world fuelled by the idea that a simple app can make a fortune. But after the Edward Snowden revelations, accusations of tax evasion and conflicts with the authorities in the European Union, some are beginning to question whether technology companies can do no wrong.

Facebook may indeed improve the world for millions. But could this affection for Silicon Valley and its relentless pursuit of innovation lead us to entrust too much to one gigantic company? “When Facebook does this it is considered entrepreneurship and innovation,” notes Morozov. He invites a comparison with the banking industry. “If Goldman Sachs was creating a series of independent states around the world, I don’t think it would be as unproblematic – because Goldman Sachs cannot lie as effectively as Facebook. No one would ever suspect them of trying to improve the world.”

Paolo Momigliano, chairman of Fondazione Carige that owns 19% of listed Italian bank Carige, said Carige should merge before the proposed capital increase, reported Il Messaggero and most of the Italian press. Carige has to conduct a EUR 500m capital increase to comply with the results of the stress tests published by the ECB. Momigliano said that a merger after the capital increase would only favour the new shareholders and not the current ones. The Fondazione is being advised by Banca Imi, the Italian language report said.

Meanwhile, Il Messaggero said that Cesare Casterlbarco, the Banca Carige chairman, visited Bank of Italy to give an update on the EUR 500m capital increase. The report said that Mediobanca is willing to underwrite up to EUR 650m. Carige could sell Banca Ponti and Creditis and merge some of the controlled companies such as Cassa di Savona, Cassa di Carrara and Monte di Lucca.

Meanwhile, Castelbarco said that among the other players willing to underwrite the capital increase there could be Investindustrial’s Andrea Bonomi and an international fund.

Source Il Messaggero

As each day goes by the similarities between the eurozone and Japan seem to grow. Problems with an ageing population? Check. Struggles with high levels of public debt? Check. And now the looming threat of deflation makes it even more likely that the eurozone is about to tread the same path as Japan in the 1990s.

Last week Japanese policy makers shocked markets by expanding its already aggressive quantitative easing programme in a move to fend off the threat of deflation.

As Japan’s problems have existed for much longer, experts agree that its plight provides valuable lessons for eurozone policy makers, especially if they want the euro to remain a competitive currency.

Some of Europe’s similarities to Japan have been evident for many years.

The ageing-population crisis has taken decades to develop. According to Record Currency Management, the currency investor, the eurozone has the second-highest proportion of the population who are over the age of 65, after Japan.

Recent trends have increased the economic parallels. Javier Corominas, head of economic research at Record Currency Management, says: “Disturbingly the eurozone’s debt burden is approaching similar levels to that of Japan in terms of sustainability.”

From a currency perspective, one of the most significant similarities is the persistent low-inflation environment in the eurozone. Mr Corominas says: “Not only is inflation low in Europe, but the European Central Bank’s preferred gauge for inflation expectations suggests inflation will remain low.”

The combination of persistent disinflation with a current account surplus caused the Japanese yen to remain strong for decades. Mr Corominas says: “These economic characteristics result in a persistent demand for the currency because of the trade surplus in that region’s goods and services.”

Like Japan, a substantial current account surplus emerged in the eurozone three years ago. Azad Zangana, European economist at UK fund house Schroders, says: “Europe has improved its economic outlook by boosting its trade balance, which has resulted in its current account surplus running at a historically high level.”

Just as in Japan, the combination of the current account surplus and low inflation was a significant driver of the strength of the euro over the past few years.

A strong currency is not ideal for an economy trying to deleverage. “A strengthening currency makes the low-inflation environment more acute as the import prices fall at the same time as the domestic economy is also cutting its prices,” says Mr Zangana. Falling profits and low or negative wage inflation make it harder for both businesses and consumers to pay down debts.

One of the easiest ways for a central bank to weaken its currency is to cut interest rates. But the European Central Bank is close to its limits in terms of interest rate policy. Mr Zangana says: “Despite the historically low interest rates, this still does not seem to be enough to generate an economic recovery. That is exactly the same position that Japan was in.”

The ECB’s policy stance has not helped to dislodge low inflation. Matt Cobon, head of currency investment at Threadneedle Investments, says: “The ECB is a much more conservative institution than either the US Federal Reserve or the Bank of England, which meant they approached their mandates differently.”

However, the ECB has taken proactive steps – and much more quickly than the Bank of Japan. “The ECB recently introduced a form of quantitative easing by buying asset-backed securities and covered bonds,” says Mr Cobon.

Nor has the president of the ECB, Mario Draghi, ruled out further quantitative easing. Mr Cobon says: “If inflation continues to be lower than they have anticipated, then the next step would be full-blown QE where the ECB starts to buy back government bonds.”

Putri Pascualy, partner at Paamco, a $9bn investor in hedge funds, agrees: “The ECB is aware of the problem and is willing to take more drastic measures to avoid becoming another Japan. The key is to act quickly to avoid a deflationary spiral.”

Japan made a series of mistakes. “Japan made deflationary pressures worse by raising tax rates in 1997 and then the Bank of Japan increased rates in 2000. In contrast, Europe and the ECB look unlikely to make these mistakes,” says Mrs Pascualy.

It is not only that the ECB appears to be willing to act more rapidly than the Bank of Japan, it is also that the crisis in the eurozone is not as severe as it was in Japan. Mrs Pascualy says: “The extent of bad loans in the eurozone financial system is much less than that it was in Japan.”

The sense is there are good reasons to be hopeful that European policy makers have learnt from the mistakes made by Japan and will ensure the euro remains competitive.

China’s growth in danger of slowing more sharply

China’s cooling economy has already roiled global commodity markets and prompted slowdowns in places such as Latin America, Australia and Germany that had been big beneficiaries of the Chinese boom.

The Chinese economy grew at its slowest pace since the depths of global financial crisis last quarter and is almost certain this year to register its weakest annual growth rate since 1990.

But continued rapid and unsustainable growth in a range of important indicators suggests strongly that China’s slowdown has a long way to go before it levels off.

The current deceleration has happened even as credit is still expanding faster than gross domestic product, local governments continue to borrow far more than they can afford and investment in everything from steel production to real estate is rising fast, even as sales slump.

Given falling demand, the rise in all these indicators is unsustainable and at some point soon they will have to come down, inevitably causing China’s growth to slow more sharply.

“I’m confident we won’t see a collapse or a financial crisis in China but as credit conditions tighten in the next year or so things are going to get ugly and we will have much less growth,” says Jonathan Anderson, president of Emerging Advisors Group, an independent macroeconomic research firm. “What we will inevitably have is a big shakeout on the supply side because that’s where all the credit has gone and we may see companies start going bankrupt in droves.”

With a 7.3 per cent expansion in the third quarter from a year earlier, China still has the fastest-growing big economy in the world but as recently as 2011 it was growing by nearly 10 per cent.

As Chinese exports collapsed in the wake of the global financial crisis five years ago, the government launched a credit-fuelled investment boom that reignited growth.

In what was intended to be a temporary measure, Beijing lifted controls on credit and flooded the economy with cash, much of which was funnelled into an expanding property bubble.

The result was a construction boom and an unprecedented increase in total debt to GDP from 147 per cent at the end of 2008 to 251 per cent by the end of June this year, according to estimates from Standard Chartered.

Credit expansion has slowed in recent months but is still growing a lot faster than GDP while providing less and less growth for each renminbi borrowed.

The World Bank alluded to this problem last week when it advised China’s rulers to abandon their obsession with trying to hit annual GDP targets (set at “around” 7.5 per cent for 2014).

“The current emphasis on meeting short-term growth targets will make it more challenging to implement the policies necessary to shift growth to a more sustainable medium-term path,” Karlis Smits, senior economist, wrote in the World Bank China Economic Update, published last week. “Without policy action, the slowdown in China’s potential growth in the medium term could be more severe.”

Some analysts believe a severe downturn could come sooner.

A slump in property sales and prices that began at the start of this year has been blamed for much of the slowdown in headline growth.

But the correction has so far been fairly mild and has not yet seriously impacted investment and construction, the most important drivers of the Chinese economy.

The volume of floor space sold in the first nine months of the year was down 8.6 per cent from the same period a year earlier.

Meanwhile, the amount of floor space under construction increased by 8.1 per cent in the same period, while newly completed floor space was up 5.1 per cent from a year earlier by the end of September.

This fundamental mismatch in supply and demand is adding to an already huge overhang in the housing market.

In a recent report, Goldman Sachs economists estimate around one-fifth of urban housing in China is empty.

A range of auxiliary industries, such as steel, face similar fates.

Despite many years of extreme overcapacity and falling profits – the price of steel is now less than the price of cabbage in China – steel production in China was up 5.4 per cent in the first nine months of this year.

Bankruptcies are another area where the pain has not yet really begun.

Han Chuanhua, a bankruptcy lawyer at Zhongzi Law Office in Beijing, says the number of bankruptcies has increased in recent months but many companies that should be going bust are not.

In many cases this is because local governments simply order courts not to accept bankruptcy cases because they do not want job losses or loss of tax revenue recorded in their jurisdictions.

Many companies have resorted to borrowing at high rates to roll over old loans and keep their gates open for a few months longer.

But as growth inevitably grinds lower in the coming months, most analysts expect to see a lot more failures, particularly in the property sector and upstream industries.

“Real estate developers and steel producers will continue to survive on credit and build up inventories as long as they can because the government can’t afford to hurt employment and consumption too much,” says Michael Pettis, a professor of finance at Peking University.

“But eventually the government has to allow growth to slow more. The longer growth stays above 5 or 6 per cent the worse the debt problem gets and the greater the risk of a really ugly adjustment.”

New battery is ‘killer app’ for electric cars

A new battery that promises to solve two of the biggest grumbles about electric cars – high prices and low driving ranges – is headed for shop floors in just over a year.

The lithium battery, which experts say could be a game-changing “killer app” for the global car market, can triple the driving range of an electric vehicle and significantly lower its costs, say the US scientists who developed it.

It can also double the running life of a smartphone or a laptop, said Dr Qichao Hu, who developed the device with his former professor, Donald Sadoway, a prominent battery expert at the Massachusetts Institute of Technology.

But its impact on the cost and performance of an electric car could prove transformational, said Prof Sadoway, whose work on other batteries has been backed by Microsoft co-founder, Bill Gates.

“We’ve got to get a car on the showroom floor for $30,000, not $130,000 and the big piece is the battery: it’s too expensive and it runs down too fast,” said Prof Sadoway.

Batteries in existing electric cars can account for as much as 30 per cent of the sticker price. They also need temperature control systems to stop them overheating or catching fire.

The new battery does not need the same systems because it operates safely at a wide range of temperatures, which should shave costs, said Dr Hu, and the battery itself will be about 20 per cent cheaper than existing ones.

Cost, safety and “range anxiety” are not the only problems for plug-in electric cars, which make up less than 1 per cent of new passenger car sales in most countries. Recharging times and access to charging stations are also a concern.

Still, analysts say a battery that can sharply improve price and range could be highly significant.

“That’s game-changing,” said Arndt Ellinghorst, head of global automotive research at ISI Group, an investment research group. “There are a lot of experienced battery makers trying to do exactly that because it’s the killer application.”

Independent experts in the US recently confirmed prototype cells in the battery developed by Dr Hu and Prof Sadoway can store more than twice as much energy as conventional cells.

The main difference between their battery and existing ones is that it has an ultra-thin metal anode with higher energy density than the graphite and silicon anodes in current batteries, and uses safer electrolyte material.

Dr Hu founded a company called SolidEnergy in 2012, just outside Boston, to commercialise the technology and hopes the battery will be in production for consumer electronics in the first half of 2016 and in electric cars by the second half of that year.

The project has backing from Vertex, the venture capital arm of Temasek, Singapore’s state investment group, and Dr Hu said he had preliminary discussions with Apple and Tesla, the electric carmaker, as well as most major Asian battery manufacturers.

Apple declined to comment and Tesla did not respond to requests for comment.

To speed up the process of getting the device to market, SolidEnergy only plans to make the core battery materials for larger manufacturers.

Tesla is hoping to bring down battery costs at the “gigafactory” battery plant it is building in Nevada. But most of the cost reductions are expected to come from economies of scale rather than the technological advances promised by batteries such as the one Dr Hu and Prof Sadoway are developing.

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Extremists connected to the Islamic State (IS, previously ISIS) have been considering using Ebola as a weapon against the West, Spain’s State Secretary for Security, Francisco Martinez, said in an address to the parliament.

Martinez stated that this type of activity serves as further proof that the internet is an “an extension of the battlefield” for the Islamic State, which uses cyberspace for “threatening enemies through propaganda, preparing operations, exchanging information, ideological training, recruiting new members and acquiring finance.”

There are “many examples” of online terrorist chat logs discussing the use of biological warfare against the West, Spain’s RTVE public broadcasting corporation reported.

The most recent talks took place in a “jihadist chat room,” related to the Islamic State, in mid-September. “The use of Ebola as a poisonous weapon against the United States” was the topic of conversation, Martinez said.

There were also a number of tweets that talked about the use of “deadly chemical products from laboratories,” he added, stating that terrorist organization Ansar al-Islam was involved.

Despite increasing evidence of biological attacks on the West, US Homeland Security Secretary Jeh Johnson denied allegations of the Islamic State’s plans to use biological weapons. “We've seen no specific credible intelligence that [the Islamic State] is attempting to use any sort of disease or virus to attack our homeland,” Johnson said earlier in October.

Canada imposes visa ban

The latest cases of Ebola in Spain and the US have sparked fears of an even bigger outbreak, prompting Canada to step up its border security so as to limit the risk of infection spreading into the country.

The federal government announced on Friday it is suspending the processing of visa applications for residents and nationals who have been in Guinea, Liberia, and Sierra Leone in the last three months. The same goes for permanent residence applications.

"New precautionary measures [are] to protect the health and safety of Canadians,” the government said in a statement, adding that the move does not affect Canadians in West Africa helping to contain Ebola, adding that health workers will be permitted back in the country.

Canada has become the second country after Australia to deny visas to foreign nationals from the three affected West African countries.

So far, about 5,000 people have died this year in Guinea, Liberia and Sierra Leone, in the worst Ebola outbreak ever recorded.

* Two women found dead in apartment in central HK district

* BoA says ex-employee has same name of man media call the suspect (Adds comment from Bank of America, more details)

By Anne Marie Roantree

HONG KONG, Nov 2 (Reuters) - A 29-year-old British banker has been arrested in Hong Kong in connection with the grisly murder of two women, a rare occurrence in a city known for its low homicide rate.

Hong Kong police said in a statement on Saturday that a 29-year-old foreign man had been detained earlier that day after two women were found dead in an expensive apartment in Wan Chai, a central city district known for its night life.

The man has not been charged.

Police declined to give the name or the nationality of the man, whom local media and a source with knowledge of the situation have identified as being a Bank of America Merrill Lynch banker.

A spokesman for Bank of America Merrill Lynch told Reuters on Sunday that the U.S. bank had, until recently, an employee bearing the same name as a man Hong Kong media have described as the chief suspect in the double murder case.

Bank of America Merrill Lynch would not give more details nor clarify when the person had left the bank.

Britain's Foreign Office in London said on Saturday a British national had been arrested in Hong Kong, without specifying the nature of any suspected crime.

The body of one of the two victims had been hidden in a suitcase on a balcony, while the other, a foreign woman of between 25 and 30, was found lying inside the apartment with wounds to her neck and buttocks, police said in a statement.

The man had called police in the early hours of Saturday and asked them to investigate the case, police said.

Hong Kong's Apple Daily newspaper said the suspect had taken about 2,000 photographs and some video footage of the victims after the killings including close-ups of their wounds. Local media said the two women were prostitutes.

The apartment where the bodies were found is on the 31st floor in a building popular with financial professionals, where average rents are about HK$30,000 (nearly $4,000) a month.

"It's very shocking because we never expected something like this to happen in Hong Kong, especially in the same building that I'm living in," said banker Mina Liu.

Another woman who lives down the corridor from the flat where the bodies were found said she had seldom seen anyone come and go from the apartment.

There were 14 homicides in Hong Kong, a city of seven million, between January and June, down from 56 in the same period last year, according to government crime statistics.

In one of Hong Kong's most talked-about killings, the so-called "milkshake murder", a Merrill Lynch banker was clubbed to death in 2003 by his wife, who drugged him beforehand by serving him a milkshake full of sleeping pills.

Cover story: Special report on Asia features commentary and picks from Justin Leverenz of the Oppenheimer Developing Markets Fund; Laura Geritz of Wasatchs Emerging Markets Small-Cap and International Opportunities funds; Robert Horrocks, chief investment officer of Matthews Asia; and Dara White, senior portfolio manager of the Columbia Emerging Markets fund (picks include BIDU, Compagnie Financiere Richemont, Minor International, Pigeon, VIPS); 

Follow-up on Brazils recent presidential election suggests the countrys outlook may be better than most investors expect. 

Tech Trader: Cautious on FB: Tiernan Ray questions how social site will continue to grow, and what its increased spending is going towards, noting chief financial officer Sheryl Sandberg has been vague about will drive up expenses to a rate of nearly double revenue growth; Company could buy an advertising startup such as Turn, which is said to be close to filing for an IPO, or FUEL. 

Trader: Thomas Lee of Fundstrat Global Advisors says institutional investors remain cautious despite the market recovery; Cautious on FCAU: Automakers recent results have improved, but like all large players in the sector, it faces global headwinds, and for stock to rise next year markets in Europe and South Africa would have to improve; Positive on MTZ: Trends that will benefit infrastructure contractor particularly in wireless and fiber to the homeshould continue, prompting shares to rise 25% or more in the next 12-18 months. 

Features: Positive on BID: Shares of auction house should continue to rise if the market remains strong and management, under pressure from activist investors such as Daniel Loeb, continues to implement shareholder-friendly changes; Positive on GLD, IAU, SLV, DBC, DJP, DBA, SGOL, GSG, USCI, RJII, PPLT, UNG: These 12 financial products are a solid way to play the commodities market, especially for investors who have little or no exposure to the sector; Cautious on JD: Chinese retailer is battling with rivals such as BABA, EBAY, and AMZN, but its strategy to cover all of China will require much heavier investment, while its mobile efforts are lacking; Positive on WBC: Company has parlayed its success in the truck-brake business into a range of new technologies, such as computerized systems that see obstacles, and shares could rise 60% in three years; Story reports on picks from participants in Barrons The Art of Successful Investing conference, including Scott Black (SWKS, SNX, AXAS), Ross Margolies (DAL, RJET), William Priest (AMAT, CVS, Safran), Oscar Schafer (ANIP, BERY), Meryl Witmer (NVGS, GPK), Marc Faber (IOI, Wilmar International). 

Small Caps: Positive on STBZ: Atlanta-based bank has used a number of deals to build up one of the most attractive low-cost bases in Georgia, and is increasing its loan book. 

Follow-Up: Positive on V, MA: Card payment networks could see upside from increased consumer spending and a slow, steady move away from cash transactions; Positive on SWK: Shares took a hit over worries about European growth and the dollars rise, but the damage seems mostly repaired and shares seem likely to resume their ascent; Positive BLT: Company is seeing increased demand and a strengthening market, and shares could rally by 25%.