(Global Times) More money to enter China markets despite yuan depreciation

More money to enter China markets despite yuan depreciation

http://www.globaltimes.cn/content/1160684.shtml#.XUrYiwxvN4I.twitter

Strong GDP growth means attraction of A shares won’t wane

Despite a slowdown of overseas capital inflows into A-shares caused by factors such as the yuan's depreciation, Chinese stocks will be of great interest to foreign investors in the long run, thanks to the country's still astonishing economic growth, experts said on Wednesday.

Billions of dollars in incremental overseas capital is expected to enter the Chinese mainland's A-share markets following the move by MSCI to further increase the weighting of A shares in the MSCI Indexes this month, industry analysts predicted.

The MSCI is about to increase the inclusion factor of China A Large Cap shares from 10 percent to 15 percent in its August 2019 quarterly index review, according to its previously released plan on a three-step A-share inclusion process.

MSCI was scheduled to announce the results of the index review later on Wednesday.

MSCI doubled the weight of China A-shares in its benchmark indexes in May to 10 percent. It is set to further increase the A-share weighting to 20 percent in November.

Zhang Xia, chief strategy analyst at China Merchants Securities, said in an investment strategy report that A shares' August weighting increase in the MSCI index will bring about $3.6 billion more in index-replicating passive investment capital into the A-share markets.

Li Daxiao, chief economist at Shenzhen-based Yingda Securities, said that MSCI's second A-share weighting increase this year will drive up the A-share market as it will draw capital from passive funds that track the MSCI indexes.

"As to active investment, it will be up to institutions to decide their own pace of buying A shares. I believe that in the long run, there will be a relatively large amount of active capital that invests in A shares," he told the Global Times on Wednesday.

Long-term inflows

Inflows of overseas capital into the A-share markets slowed recently as the China-US trade war showed signs of escalation and the yuan came under intensifying pressure. On Monday, the yuan slipped past 7 to the US dollar, an important psychological threshold, for the first time since 2008.

The US Treasury also moved to designate China as a "currency manipulator" after US President Donald Trump threatened to impose further tariffs on imports from China. This label was later denounced by China's central bank as groundless.

A total of 1.1 billion yuan ($156 million) of overseas capital flowed out of the A-share markets on Thursday, while 6.8 billion yuan worth of northbound capital flowed out on Friday, the day when Trump made the tariff-hike threat on his Twitter account, Zhang wrote in a strategy report.

Experts said that such factors as the yuan's depreciation will add pressure on overseas capital flows into mainland stock markets in the short term, but the trend of inflows will not change in the long run.

"China is contributing about 30 percent of the world's economic growth currently. Although overseas capital's allocation of A shares is still relatively at a low level, the appeal of A shares in general is very large to overseas investors, because they will miss the opportunity of sharing China's economic growth bonus if they don't allocate A shares in their assets or allocate them to a limited extent," Li told the Global Times.

Wang Jun, chief economist at Zhongyuan Bank, told the Global Times that US stocks have climbed to a level that is very risky for international investors. The A-share market, which has repeatedly bottomed in recent months, is more attractive to them.

"The stock market is easily swayed by factors such as exchange rates in the short term...but in the long run, overseas investors will decide whether to enter a market mostly based on investment returns, which is closely related to the general economic development and business environment," Wang said.
Newspaper headline: More money to enter mainland markets

(Vice) Microsoft Contractors Are Listening to Some Skype Calls Documents, screen

Microsoft Contractors Are Listening to Some Skype Calls
Documents, screenshots, and audio obtained by Motherboard show that humans listen to Skype calls made using the app's translation


Contractors working for Microsoft are listening to personal conversations of Skype users conducted through the app's translation service, according to a cache of internal documents, screenshots, and audio recordings obtained by Motherboard. Although Skype's website says that the company may analyze audio of phone calls that a user wants to translate in order to improve the chat platform's services, it does not say some of this analysis will be done by humans.

The Skype audio obtained by Motherboard includes conversations from people talking intimately to loved ones; some chatting about personal issues such as their weight loss, and others seemingly discussing relationship problems. Other files obtained by Motherboard show that Microsoft contractors are also listening to voice commands that users speak to Cortana, the company's voice assistant.
Apple and Google recently suspended their use of human transcribersfor their respective Siri and Google Assistant services after a backlash over similar media reporting on the companies' practices.
"The fact that I can even share some of this with you shows how lax things are in terms of protecting user data," a Microsoft contractor who provided the cache of files to Motherboard, said. Motherboard granted the source anonymity to speak more candidly about internal Microsoft practices, and because the person is under a non-disclosure agreement with the company.
Do you work at Microsoft or one of its contractors? Did you used to? We'd love to hear from you. You can contact Joseph Cox securely on Signal on +44 20 8133 5190, Wickr on josephcox, OTR chat on jfcox@jabber.ccc.de, or email joseph.cox@vice.com.
The snippets of audio obtained by Motherboard are typically short, lasting between five and ten seconds. The source said other passages can be longer, however.
In 2015 Skype launched its Translator service, which lets users get near real-time audio translations during phone and video calls. Before the feature's launch, WIRED published an article titled "How Skype Used AI to Build its Amazing New Language Translator."

The product does use artificial intelligence and the translations are impressive in Motherboard's own tests. But like many other AI or machine learning projects, it turns out that some of the work is facilitated by humans laboring away, completing the very same tasks the AI is supposed to in order to improve the algorithms themselves.
Some of the audio obtained by Motherboard is specified as coming from the Translator feature of Skype's Android app, according to accompanying screenshots of the contractor's screen. An FAQ for Skype Translator says that when people use the service, "Skype collects and uses your conversation to help improve Microsoft products and services. To help the translation and speech recognition technology learn and grow, sentences and automatic transcripts are analyzed and any corrections are entered into our system, to build more performant services." Another section adds, "To help the technology learn and grow, we verify the automatic translations and feed any corrections back into the system, to build more performant services."
That section does not say that humans may listen to audio captured by the Translator feature of Skype's various apps. Microsoft's Privacy Policy does not make this clear either.
"Some stuff I've heard could clearly be described as phone sex."
"People use Skype to call their lovers, interview for jobs, or connect with their families abroad. Companies should be 100% transparent about the ways people's conversations are recorded and how these recordings are being used," Frederike Kaltheuner, data exploitation programme lead at activist group Privacy International, said in an online chat.

"And if a sample of your voice is going to human review (for whatever reason) the system should ask them whether you are ok with that, or at least give you the option to opt out," she added.
Pat Walshe, an activist from Privacy Matters, said in an online chat "The marketing blurb for [Skype Translator] refers to the use of AI not humans listening in. This whole area needs a regulatory review."
After reviewing the Skype Translator FAQ, he added, "I’ve looked at it and don’t believe it amounts to transparent and fair processing."
"Companies should be 100% transparent about the ways people's conversations are recorded and how these recordings are being used."
A Microsoft spokesperson told Motherboard in an emailed statement "Microsoft collects voice data to provide and improve voice-enabled services like search, voice commands, dictation or translation services. We strive to be transparent about our collection and use of voice data to ensure customers can make informed choices about when and how their voice data is used. Microsoft gets customers’ permission before collecting and using their voice data."
"We also put in place several procedures designed to prioritize users’ privacy before sharing this data with our vendors, including de-identifying data, requiring non-disclosure agreements with vendors and their employees, and requiring that vendors meet the high privacy standards set out in European law. We continue to review the way we handle voice data to ensure we make options as clear as possible to customers and provide strong privacy protections," the statement added.

Microsoft said both its Skype Translator FAQ and documentation on Cortana are clear in that the company uses voice data to improve their services. Again, they do not say a human may listen to that voice data, however.
When a contractor is presented by Microsoft with a piece of audio to transcribe, they are also given a series of approximate translations generated by Skype's translation system, according to the screenshots and other documents. The contractor then needs to select the most accurate translation or provide their own, and the audio is treated as confidential Microsoft information, the screenshots show.
"Some stuff I've heard could clearly be described as phone sex. I've heard people entering full addresses in Cortana commands, or asking Cortana to provide search returns on pornography queries. While I don't know exactly what one could do with this information, it seems odd to me that it isn't being handled in a more controlled environment," the contractor said.
Microsoft said audio data is only available to contractors through a secure online portal, and that the company takes steps to remove identifying information such as user or device identification numbers.
Despite the sensitivity of the information, it is at least in part work-at-home contractors who are listening to and handling the Skype and Cortana audio. Motherboard found online job listings from Microsoft contractors that say employees can work from home.

The contractor said, "I generally feel like that while we do not have access to user identifiable information, that if Microsoft users were aware that random people sitting at home in their pajamas who could be joking online with friends about the stuff they just heard that they wouldn't like that."

FT : UniCredit leads trio of European lenders alarmed by low rates

UniCredit leads trio of European lenders alarmed by low rates
Germany’s Commerzbank and Dutch lender ABN Amro also warn of testing backdrop

Large European banks lined up on Wednesday to warn that the low interest rate environment would hurt their earnings, wiping hundreds of millions of euros off their market valuations.

UniCredit, Italy’s second-largest bank by market capitalisation, cut its revenue forecast for this year to €18.7bn from €19bn due to what chief executive Jean Pierre Mustier described as the “prevailing environment, with rates expected to be lower for much longer”.

Commerzbank, the German lender, warned that its profit target for 2019 was now looking “significantly more ambitious”, noting that leading central banks had “tempered their interest rate . . . expectations” because of a darkening economic outlook.

Meanwhile, ABN Amro, the Dutch bank, said that low interest rates would hit its net interest income, the amount it earns on lending minus its financing costs, owing to lower deposit margins.

“The second-quarter earnings season for European banks has been largely disappointing,” said Ronit Ghose, an analyst at Citi. “Many banks have undershot revenue forecasts. Bearish outlook guidance, especially on net interest income, has reflected an increasingly negative interest rate environment.”

The warnings from some of Europe’s largest lenders underscored how global banks are scrambling to position their businesses for a “lower for longer” interest rate environment.

Central banks in Europe, the US and the UK have either cut or are poised to cut interest rates to support the global economy at a time of escalating geopolitical turmoil, including trade tensions between China and the West and the growing prospect of a hard Brexit.

Central bankers in India, Thailand and New Zealand also cut interest rates by more than markets had expected on Wednesday in a bid to boost growth in their economies.

Shares in the trio of European lenders — which all reported first-half results on Wednesday — were lower in early afternoon trading, equating to a reduction of more than €840m in their combined market capitalisation.

Record-low interest rates are already weighing on banks’ profits as they have been forced to lower borrowing charges and in some cases pay to store money at central banks, without a similar reduction in the rates they pay to savers.

Until recently, many eurozone lenders had been hoping that the European Central Bank would increase interest rates for the first time in half a decade, leading to a recovery in the income they generate by lending to consumers and businesses.

But now the ECB is expected to cut its deposit rate from minus 0.4 per cent to minus 0.5 per cent next month — with some economists predicting that the central bank will go further in loosening monetary policy.

“As client rates are close to zero, it will be increasingly difficult to offset the decline and over time margin pressure will increase further,” warned Kees van Dijkhuizen, the outgoing chief executive of ABN.

The warnings from some of Europe’s largest lenders echoed similar concerns at banks in the US, where the Federal Reserve cut interest rates last month, and the UK, where the Bank of England is expected to do the same.

Until now, most large European banks have refrained from passing on the cost of negative interest rates to individual clients, although some have implemented charges for corporate customers.

But last week the Financial Times revealed that UBS, the Swiss bank, was preparing to levy a negative interest rate on wealthy clients with cash deposits of more than SFr2m, and Credit Suisse, its main rival, said it was considering following suit.

Ralph Hamers, the chief executive of ING, ABN Amro’s larger rival, recently launched an unusually outspoken attack on the ECB’s negative interest rate policy, which he suggested was backfiring.

“I actually see that the negative rate environment is making consumers so uncertain about their financial environment that they’re starting to save more rather than less,” he said.

FT : HK protests/Cathay Pacific: air strike

HK protests/Cathay Pacific: air strike
Dark skies lie ahead as turmoil shows no sign of abating

Local protests in Hong Kong just went international. Cathay Pacific pilots and cabin crew went on strike this week, joining thousands of Hong Kong airport employees. The airline cancelled more than 100 flights. First-half results to June released on Wednesday did not reflect this. But they did reveal that the China-US trade tussle had taken its toll.

The good news was that Cathay managed a $172m net profit in the first half, and passenger numbers even increased. But the biggest impact of protests on inbound travel, which started intensifying in July, will come later. Even so, passenger yield, the average airfare per mile, fell. Premium class travel, up early in the year, declined in the second quarter. Worse, labour costs, already above peers, increased further. Lower fuel prices, which at 28 per cent is the biggest portion of total operating costs, made the biggest difference to earnings.

Most concerning is a 11 per cent decline in cargo revenues. Cathay is the biggest cargo airline in the region. A fall in both volumes and yields is troubling as cargo, more than a fifth of total revenue, has long helped offset volatile passenger traffic. Sales at Air China Cargo, 49 per cent owned by Cathay, have suffered too.

Cathay’s share price has fallen a quarter since April, when Hong Kong violence spiked. Yet it trades at 10 times forward earnings, a premium of a third to regional peers, including Air China, and more than 50 per cent over global peers that do not face political risks. And its valuation does not reflect a deteriorating financial position. Net borrowings have increased by a third.

Headwinds are building. Forward bookings are down. US dollar strength, which cut into first-half earnings, has intensified since. It cannot compete on price with the mainland airlines. Recent concerns over monitoring passengers on flights through cameras and recording in-flight entertainment use does not help its image.

As the turmoil shows no sign of abating, the worst is yet to come for earnings in the second half. It is too early to travel on Cathay.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • ZAGG -23.1% (also to consider strategic alternatives and updates restructuring plans), NEWR -22.4%, SSTI -19.3%, FTR -17.1%, AMAG -15.6% (light volume), OAS -13.8%, KAR -13.5%, PBPB -12.9%, PEN -11.8%, BECN -9.7%, QEP -9.4% (also enters into cooperation agreement with 4.9% shareholder Elliott Management ), MAXR -9.1%, SUPN -9%, AXGN -8.4% (light volume), LL -5.9%, ENLC -4.9%, DIS -4.1%, LTHM -2.5%, PLNT -2.1%, RRR -1.9%

Other news:

  • DPW -17.5% (established $5.5 mln "at-the-market" equity offering program)
  • IRWD -4.1% (proposes offering of $330 mln of convertible senior notes)
  • WAB -1.2% (ticking lower - Wabtec announced the launch secondary offering of 20,485,156 shares by General Electric Company as the sole selling stockholder)
  • SILK -1.1% (commences proposed underwritten public offering of 3,500,000 shares of its common stock)
  • AYX -0.6% (proposes private offering of $350 mln of Convertible Senior Notes due 2024 and $350.0 million aggregate principal amount of Convertible Senior Notes due 2026)

Analyst comments:

  • LGIH -1.7% (downgraded to Sell at BTIG)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • GH +24.9%, WW +22.3%, SEDG +20.4%, MR +18.3%, NVTA +18%, MTCH +17.1%, FLXN +14.9%, GWPH +12.4%, LC +11.5%, PE +10.3%, DNR +8.8%, SAIL +8.7%, TXMD +8%, HUBS +7.9%, HTZ +6.4%, MODN +6.3% (ticking higher; also upgraded to Buy at Needham), ICPT +5.5%, HCR +5.3%, WK +5.1% (light volume), CVS +5.1%, BOLD +4.6%, HL +4.5%, NDLS +4.3% (light volume), MCHP +4.3%, BTG +4.3%, CPE +3.9%, AMN +3%, CPRI +2.9% (light volume), ODP +2.9%, PAA +2.7%, CYBR +2.3%, IONS +2.3% (also Akcea Therapeutics and Ionis Pharma announce that top-line results from the BROADEN study met the primary endpoint), TROX +2.2%, WEN +2.2%, FLT +2.1% (light volume), ARLO +1.9%

M&A news:

  • CBM +47.8% (Cambrex to be acquired by affiliate of the Permira funds in a transaction valued at approximately $2.4 billion)

Solar related names showing strength on the heels of SolarEdge (SEDG) results:

  • etf - TAN +3.2%, CSIQ +2%, SPWR +1.9%, RUN +1.8%, FSLR +1.7%, ENPH +1.3%

Select metals/mining stocks trading higher:

  • AU +4.1%, EGO +3.6% (also filed $750 mln preliminary short form base shelf prospectus), KGC +3.5%, SLV +2.8%, GFI +2.8%, HMY +2.8%, GDX +2.5%, SBGL +2%, GOLD +2%, NEM +1.7%, GLD +1.4%

Other news:

  • IAC +10.6% (following MTCH results - IAC owns 80% of the company)
  • ALLK +5.1% (prices upsized offering of 4,545,454 shares at a public offering price of $77.00 per share)
  • BYND +4.5% (ongoing volatility; also announces Subway partnership)
  • GSKY +2.8% (modestly rebounding)
  • NVS +2.5% (issues statement, says fully confident in safety, quality and efficacy of Zolgensma)
  • PRGO +1.3% (ahead of earnings tomorrow)
  • ETSY +1.1% (exec appearance on CNBC)

Analyst comments:

  • MOS +1% (upgraded to Hold at CIBC)
  • DNKN +0.8% (upgraded to Buy from Hold at Argus)
  • PPL +0.7% (upgraded to Neutral from Underperform at BofA/Merrill)
  • IFF +0.6% (upgraded to Overweight from Neutral at JPMorgan)

>>> US Early premarket gappers

Early premarket gappers

Gapping up: GH +23.4%, WW +22.8%, NVTA +19.3%, SEDG +19%, MR +18.3%, MTCH +17.3%, GWPH +11.8%, FLXN +10.5%, PE +10.3%, SAIL +8.7%, LC +8.6%, IAC +8.1%, TXMD +8%, HUBS +7.9%, HTZ +5.8%, CPE +5.5%, HCR +5.3%, WK +5.1%, BOLD +4.6%, TEVA +3.7%, MCHP +3.5%, TAN +3.2%, ALLK +3.1%, AMN +3%, GSKY +2.6%, NVS +2.4%, SLV +2.4%, IONS +2.3%, TROX +2.2%, GDX +2.1%, FLT +2.1%, CSIQ +2%, SPWR +1.9%, ARLO +1.9%, RUN +1.8%, FSLR +1.7%, BTG +1.7%, PZZA +1.5%, ENPH +1.3%, AMD +1.2%, AMZN +1%, BABA +1%

Gapping down: DPW -23.9%, ZAGG -18%, NEWR -17.6%, FTR -17.1%, SSTI -16.8%, KAR -13.5%, PBPB -12.9%, OAS -12.5%, PEN -11.5%, BECN -9.7%, SUPN -9%, VOYA -5.6%, ADT -5.4%, ENLC -4.9%, IRWD -4.1%, AYX -3.5%, DIS -3.4%, BYND -3.2%, MBI -2.1%, PLNT -2%, RRR -1.9%, WAB -1.4%, SILK -1.1%, MAXR -1.1% 

WSJ : Market Turmoil Pushes Japanese Bond Yield Below Preferred Range

Market Turmoil Pushes Japanese Bond Yield Below Preferred Range
Yield on 10-year Japanese government bonds fell to as low as minus 0.215%

TOKYO—The yield on Japan’s benchmark government bond edged out of the Bank of Japan ’s preferred range for the first time, putting the central bank’s unconventional policy of trying to control yields to the test.

Global market turmoil in recent days has pushed down yields of government debt seen as safe, including debt of the U.S., Germany and Japan. The yield on 10-year Japanese government bonds fell to as low as minus 0.215% Tuesday, driven in part by foreign investors’ buying. The yield on the 10-year U.S. Treasury note settled at 1.740%, a touch higher than its multiyear low a day earlier.
In 2016, the Bank of Japan said it wanted to fix the yield on the 10-year bond at “around zero,” making that its prime policy target instead of asset purchases, as before. The goal was to keep interest rates low but not so low as to threaten financial institutions’ stability. Gov. Haruhiko Kuroda has said around zero could be as high as 0.2% or as low as minus 0.2%, and Tuesday was the first time the yield escaped that band.

Mr. Kuroda said recently, however, that he didn’t see the need to rigidly enforce the band, and the central bank underscored that flexibility by letting the yield fall below the range without any overt response.

Japan’s central bank has been trying to jolt the country’s underpowered economy by keeping a lid on interest rates over which it has control—including the yield on government bonds—so as to drag down real-world rates charged to businesses and home buyers. It has had some success in stimulating demand for loans.

In the Japanese debt market, where nearly 90% of government bonds are held domestically, overseas investors are one emerging force pushing down yields.

Japanese financial institutions often seek to swap their yen for dollars to make investments abroad. Non-Japanese banks or hedge funds may take the other side of such trades for a fee, leaving them with yen that they have to park in government bonds. The fees allow the non-Japanese institutions to profit even if they have to hold bonds with negative yield for a while.

Foreign investors usually park their yen in short-term bonds, but recently they have been buying longer-term bonds, where they see a more attractive yield, said Hiroshi Yokotani, regional head of portfolio strategy for Asia-Pacific at State Street Global Advisors in Tokyo.

The yield on 40-year government bonds, which stood at around 0.8% at the beginning of this year, fell as low as 0.29% this week.

“Foreigners have been constantly buying JGBs, but they are buying for short-term trading purposes,” which could raise volatility in the JGB market, said Naomi Muguruma, a market economist at Mitsubishi UFJ Morgan Stanley Securities.

For other foreign investors, growing pessimism about trade tensions and the global economy may encourage investment in the yen as a haven, said Ross Hutchison, Aberdeen Standard Investments’ Edinburgh-based global bond fund manager.

“When growth outlook is down, holding JGBs and yen could make sense for some bearish investors,” Mr. Hutchison said.

The yen hit a seven-month high this week against the dollar before giving up some ground Tuesday.

To get the negative yields back up to zero, the Bank of Japan could dump some of its government-bond holdings. However, people familiar with the central bank’s thinking said it was unlikely to do so because such a move would be seen as monetary tightening when investors are worried about the global outlook.

Daiwa Securities market economist Mari Iwashita said she expected the central bank to wait to see if the storm goes away.

“It would be impossible for the BOJ to forcibly stop yield declines because those who are driving down the yields—including foreigners—would continue to try the downside even if the BOJ intervenes,” Ms. Iwashita said.

SMBC Nikko Securities economist Koya Miyamae said he thought the Bank of Japan would intervene only if the 10-year yield approached minus 0.3%, the low hit in July 2016 a few months before it announced its zero yield target. When rates dip deep into negative territory, life insurers, pension funds and other institutions find it hard to make investment returns.