TheChek News Flow

Fitch: China Q1 GDP in-line with forecasts

- Rebalancing remains key 

- Whether China can adjust to less credit-intensive growth and avoid a sharp slowdown that endangered financial or social stability is central to its credit profile.

The complaint was lodged by two of the major players of the market: from Mb (House cafe) and Ethical Coffee Company which embarked since 2010 on the market compatible pods. "We are launching a test market," said the Authority is expecting a return of this test here in May 19

If Nestle did not meet these commitments, he is liable to the penalties which may be up to 10% of its turnover.

Li is reportedly the richest person in Asia with a net worth well in excess of $30 billion, much of which he made being a shrewd property investor.

Li Ka-Shing was investing in mainland China back in the early 90s, way back before it became the trendy thing to do. Now, Li wants out of China. All of it.

Since August of last year, he’s dumped billions of dollars worth of his Chinese holdings. The latest is the $928 million sale of the Pacific Place shopping center in Beijing– this deal was inked just days ago.

Once the deal concludes, Li will no longer have any major property investments in mainland China.

This isn’t a person who became wealthy by being flippant and scared. So what does he see that nobody else seems to be paying much attention to?

Simple. China’s credit crunch.

After years of unprecedented monetary expansion that has put the economy in a precarious state, the Chinese government has been desperately trying to reign in credit growth.

The shadow banking system alone is now worth 84% of GDP according to an estimate by JP Morgan. The IMF pegs total private credit at 230% of GDP, jumping by 100% in the last few years.

Historically, growth rates of these proportions have nearly always been followed by severe financial crises. And Chinese leaders are doing their best to engineer a ‘soft landing’.

If they’re successful, the world will only see major drops in global growth, stocks, property, and commodity prices.

If they fail, the spillover could become pandemic.

This isn’t important just for Asian property tycoons like Li Ka-Shing. Even if you don’t know Guangzhou from Hangzhou from Quanzhou, there are implications for the entire world.

Here in Chile is a great example.

Chile is among the top copper producers worldwide, China among its top consumers. With a major slowdown in China, however, copper prices have dropped considerably.

Consequently, the Chilean economy has slowed. The peso is down nearly 10% against the US dollar in recent months, and the central bank is slashing rates trying to prop up growth.

There are similar situations playing out across the globe.

Not to mention, China could put the entire global financial system on its back just by dumping a portion of its Treasuries in order to defend the yuan.

Now, you’d think that a major credit crunch with far-reaching consequences in the world’s second largest economy, its largest manufacturer, and its largest holder of US dollar reserves, would be constant front-page news.

But it’s not.

Most traditional investors are unaware that what’s happening in China will likely have far greater implications to their investment portfolios than the policies of Janet Yellen and Barack Obama combined. At least for now.

And folks who don’t see this coming and keep buying at the all-time high may see their portfolios turned upside down. Quickly.

At the same time, some investors who are conservative and cashed up may realize a real ‘blood in the streets’ moment.

Again, using Chile as an example, I’m starting to see over-leveraged property owners coming to the market in droves ready to make a deal. This is great news because my shareholders and I are able to buy far more property with US dollars than we could even just six months ago.

I expect this trend to hold given that China is just at the beginning of its process.

It’s said that the Chinese word for “crisis” is a combination of “danger” and “opportunity”.

This isn’t entirely accurate. ‘Weiji’ can have several meanings, but is probably best translated as ‘dangerous’ and ‘crucial point’.

We may certainly be at that crucial point, and now might be a good time to take another look at your finances and consider selling before a major crash. The richest man in Asia certainly thinks so.

Rapid growth in lending to the mainland would seem to put Hong Kong at particular risk in case China’s economy experiences a “hard landing.”

Of course, few analysts expect Chinese growth to slow sharply:. More likely is a gradual deceleration, after data Wednesday showed China’s gross domestic product growth slowed to 7.4% in the first quarter of the year, from 7.7% in the final quarter of 2014.

Most analyses have focused on how slower Chinese growth would impact Asia through the trade channel. Even by that metric, Hong Kong – which sends 28.1% of its exports to China – would appear to be among the most exposed.

Other economies with heavy export exposure to China include Singapore, Taiwan, South Korea and Vietnam, according to a recent report from Capital Economics.

But the greatest risk for Hong Kong would appear to be through the financial channel: Lending to mainland businesses by all authorized institutions (“AIs” in the attached chart) has surged from about 5% of Hong Kong’s GDP in 2007 to nearly 20% today, according to the Hong Kong Monetary Authority.

“Given the size of Hong Kong’s economy relative to the mainland and how much it’s lending to the mainland, it does look quite worrying,” Capital Economics analyst Julian Evans-Pritchard told The Wall Street Journal. “It has become quite a large percentage of Hong Kong GDP.”

In its latest Monetary and Financial Stability Report, issued last month, the HKMA called banks’ rising exposure to the mainland “a key risk factor to watch for.”

But they don’t see an imminent danger. Just ahead of this week China GDP release, Arthur Yuen, the HKMA’s deputy chief executive officer, called a news conference to say the authority was on top of any risks from mainland loans.

“Despite the absence of any early signal of credit quality deterioration, the HKMA will continue to closely monitor banks’ asset quality and ensure banks are resilient to credit loss throughout the economic cycle by maintaining strong capital positions and, where necessary and appropriate, regulatory reserves,” Mr. Yuen said in a statement.

John Zhu, an economist at HSBC in Hong Kong, said the real danger would come if China’s real-estate market suddenly collapsed – perhaps due to a combination of falling prices and a supply glut.

Given the fact that so much of Chinese citizens’ wealth is tied up in real estate, a pricking of the real-estate bubble could set in motion a rapid downward spiral for consumption, investment and overall growth.

Still, Mr. Zhu agreed with the HKMA that there’s no immediate risk to Hong Kong’s economy.

“On the whole I think the risks are there, but probably contained for now,” he said.

While EU and US policy makers press on with reforming markets in the wake of the financial crisis, Deutsche Börse (DB) stands apart. North Atlantic rivals may have more volume in particular products, but none has the breadth of operations of Europe’s largest infrastructure operator by market capitalisation.

Thanks to long-term planning, its operations have mushroomed in the last 20 years from share trading to derivatives and commodities, and providing IT services and market data.

It has built on extensive post-trade services, such as clearing and settlement, which, while not always attracting much attention, provide a critical market “plumbing” by offsetting systemic risks from trading.

These units account for the majority of profits and create a highly integrated business the group sees as fundamental to a particular strand of capitalism.

Reto Francioni, chief executive, told business leaders and politicians in January: “We share the same basic belief that the market economy also has to fulfil a social obligation, and that the ‘Rhine capitalism’ model of an economy buffered by corporations and focused on the long term, with strictly regulated markets – which are free for that very reason – is fundamentally superior to the Anglo-American capitalism model of deregulation.”

Yet, perhaps surprisingly, few politicians and regulators see the bourse as a role model. Instead, it finds itself facing threats to its status, particularly from Brussels.

The first blow came two years ago, when antitrust officials blocked its planned merger with NYSE Euro­next, the transatlantic exchange operator, saying the combination would have created a European monopoly in futures markets. The ruling had two ramifications say senior executives, who maintain it makes further acquisitions in Europe difficult and puts local companies at a disadvantage to US rivals.

Chicago-based CME Group had been allowed by its regulators to pursue a combination that gave it a near-monopoly in interest rate futures in the US. Then, Atlanta-based IntercontinentalExchange (ICE) swooped in to buy NYSE Euronext for $11bn.

As ICE already had extensive London-based operations, this has created a bigger rival to DB’s Eurex derivatives business in the European heartland. CME plans to launch a futures exchange in London in late April.

CME’s divisions will also square up in two of Eurex’s new developments, foreign exchange futures trading and over-the-counter (OTC) swaps clearing.

For all three, the goal is to persuade investors to process more of their derivatives trades through their clearing houses, allowing customers to save on margin by netting out positions.

Post-crisis, global regulators have sought to underpin financial markets by pushing more of the over-the-counter market through these risk managers, which guarantee a trade in the event of a counterparty default.

But it is unclear how profitable this business could be, with regulators keen to avoid clearing houses competing by cutting prices or skimping on risk management processes.

In February, Morgan Stanley said the market for OTC clearing in Europe could be worth an extra €160m in revenues.

Even if Deutsche Börse won a quarter of this market, it would accrue only €40m in revenues, about 2 per cent of its group total, the bank said.

Another threat comes from Europe’s review of its key markets legislation, the Markets in Financial Instruments Directive. Known as Mifid II, it seeks to introduce competition in futures trading, clearing and ownership of market indices.

Taken together, these moves could force open what is known as the “vertical silo” of integrated business that has played an important part in Deutsche Börse’s growth.

But the rules are unlikely to come into force until 2019 and DB executives expect to win as much in new business as they lose in old.

A European financial transactions tax, as pursued by its own government, may also hit profits.

Faced with potential threats in its backyard, it is exploring new products and markets, such as corporate bond trading and interest rate swap futures. Central to its long-term vision is Asia, mirroring the trade flows between China and Germany.

Europe’s largest economy is the biggest recipient of Chinese investment in the region. Germany took in €1.27bn in the first nine months of 2013, according to A Capital, a private equity group.

Deutsche Börse has also bought a stake in the Taiwan Futures Exchange and will open a derivatives clearing house in Singapore.

More than that, it hopes that its philosophy of a capitalism based on long-term careful planning will find a more receptive audience worldwide.

In another notable win, Deutsche Börse beat the London Stock Exchange Group and Nasdaq OMX of the US to supply the technology to upgrade the Bombay Stock Exchange’s platforms. The Börse offered its code as open source software, which allows the BSE to tweak its technology to meet regulatory changes.

“For me it is the correct way to look at the world,” says Ashishkumar Chauhan, chief executive of the BSE. “We are not customers, we are partners.”

Europe’s telecom companies could soon be getting what they have long been begging for: looser EU competition rules that would finally allow them to consolidate and boost profitability.

Jean-Claude Juncker, a leading candidate to become the next European Commission president this year, said the EU had to rethink its competition rules for the digital sector to allow dealmaking to occur more freely across the bloc.

Speaking during his European-wide campaign trail in Finland, Mr Juncker said: “A first thing we should do is rethink the application of our competition rules in digital markets.”

Opening the door to consolidation in the fragmented European telecoms market would be key for the industry, which has repeatedly lobbied the commission for an easing of competition rules.

“We share Juncker’s view that the priority of the new Commission should be to bring Europe back to economic growth and that the new agenda for a digital Europe should facilitate private investments and innovation,” Luigi Gambardella, chairman of Etno, Europe’s largest telecom industry body in revenue terms.

The favoured candidate of Europe’s centre-right parties to become Commission president added that given recent EU moves to abolish roaming charges across the 28-country region it made sense to allow takeovers regardless of whether they took place within the same member state or not.

“If we ask companies to offer their networks and services no longer only nationally, but on a continental scale, we should in my view also apply EU competition law with a continental spirit.”

In March, 10 leading telecom operators including Orange, Deutsche Telekom, Telecom Italia, Telefónica, Vodafone and Hutchison Whampoa wrote to Neelie Kroes, Europe’s digital commissioner, demanding softer antitrust rules.

The EU’s competition watchdog has still to decide whether to allow the mergers in Germany between Telefónica and KPN’s E-Plus, in Ireland between Hutchison’s Three and Telefonica’s O2; and in France between Altice and SFR.

European competition regulators have generally sought to maintain at least four telecoms operators in every major market, with the fourth and smallest normally setting the price at the lower end.

This has benefited consumers with lower prices across Europe but companies in the sector have complained that lower revenues have stifled investment in networks and innovation at a time when rivals in the US and Asia have grown strongly.

Joaquín Almunia, EU competition chief, has opposed national consolidation that reduced the number of mobile operators to less than four, arguing that a fall in competition would increase prices and reduce quality.

One telecoms executive said Mr Juncker, Luxembourg’s former prime minister, appeared to be talking a different tack from previous EU leaders.

This is a theme also emerging in individual European counties, with senior government figures in France, for example, now supporting attempts to reduce competition in a country with some of the lowest prices in Europe.

US Market Closed Higher, 3rd of consecutive gains, Nasdaq leaded the move, all Sectors positive, Bio Tech closed 2.4% higher above 200d MA, consumer discretionary (+1.4%),energy (+1.2%), and industrials (+1.5%) provided support to the broader market, while financials (+0.9%) lagged, financials will be in focus today with GS, MS & AMX reporting numbers before the opening bell, volume were below average @ 661mil shares...VIX @ 14.18 -9.16%...After Hours IBM -4.2% GOOG-3% on disappointing Q1 earnings SNDK+6.1%...still some tensions in Ukraine...China FDI slowed to a 3-month low on a YTD basis, reflecting further cooling in the economy. On y/y basis for March, FDI actually fell by 1.5% - its first decline in over a year. Investment from developing Asia continued to grow,however investment from Japan plummeted by 47%, while that from US and Europe were down 1.9% and 25% respectively...Japan's primary pension fund GPIF head Ito said the body is working in adjusting portfolio changes toward more investment in stocks vs bonds as price levels change. Ito noted changes will likely be more felt in the next 2 months. Separately, BOJ Gov Kuroda reiterated easing to continue until 2% inflation stable, though he continued to forecast CPI likely remaining around 1.25% for some time, presumably as consumption levels adjust to higher sales tax...Nikkei+0.24%...Hang Seng+0.41%...Shanghai -0.06%

Eur$1.3843 S&P Fut -0.20% European Future -0.03%

Macro

- Portugal Economy to Grow 1.4% in 2014, Catholic University Says

- Hedge Funds 1Q Inflows Biggest Since 2Q 2007: eVestment {NSN N45MNH6KLVR6 <go>}

Keep an eye on :

- AALB NA : Aalberts Says Orders, Order Book, Sales, Results Rose in 1Q

- AKZA NA : Akzo Nobel 1Q Sales Miss Ests., Net Beats; Repeats 2015 Goals

- ATLN VX : Actelion 1Q Core Earnings, EPS Beat Estimates, May Review Core Earnings Forecast By Mid-Year

- ATO FP : Atos 1Q Sales Decline; Confirms 2014 Outlook

- AZA IM : Etihad, Alitalia Deal May Not Go Through, Messaggero Reports

- BLT LN : BHP Needs Rebound Not Spinoffs During Commodity Slump: Real M&A

- BOL FP : Bollore, Rubis Interested in Taking Over Petroplus Site: Echos

- EI FP : Essilor to buy Coastal.com for CAD$12.45/ share - total value CAD$430

- F IM : Jeep to Announce China Production Deal by End of Month: Reuters

- IT IM : Italcementi to Benefit from Lafarge/Holcim Merger, BofAML Says

- LI FP : Klepierre Completes Sale of EU2 Bln Portfolio of Retail Centers

- ORCO FP : Orco Germany Didn’t Get Orders From Qualified Shareholders

- PMI IM : Popolare Di Milano To Carry Out EU500m Cap Increase as Planned

- PUB FP : Publicis 1Q Organic Growth Beats; Reiterates 2014 Growth Target

- RCO FP : Remy Sees FY Current Op. Profit Down 35%-40%, Organic Sales Miss

- RWE GY : RWE Shareholders Approve Option to Raise Capital After Dispute

- SAB LN : Article in the presse after UBS Analyst comments about potential interest from Inbev. for SAB

- SAP GY : SAP 1Q Software Sales, Operating Profit Miss; Sticks to Outlook

- SBMO NA : SBM Studies Construction of Platforms From Scratch, CFO Tells FD

- SCVB SS : Scania: Robur sells part of its holding (sold 0.4% (now 1,9%) of the shares and 0.1% of the votes (now 0.3%)

- SLIGR NA : Sligro Says 1Q Organic Sales Growth Flat

- SYNN VX : Syngenta Ticks Lower; China Rejected Shipments of Corn Brand

- SW FP : Sodexo 1H Adj. Oper. Profit Beats Ests., Rev. Misses

- VIE FP : Veolia, Suez Deny Merger Discussions: Reuters Link { http://reut.rs/1ipHBGK}

- VOLVB SS : Volvo Gained Market Share in Europe in 1Q, Dagens Industri Says