FT : House prices speed up London exodus

House prices speed up London exodus
Apart from twentysomethings, more people are leaving the capital than arriving

An exodus of people in their thirties from London has accelerated over the past five years as rapidly rising house prices have pushed couples and families out of the capital.

The departures — to areas ranging from Cambridge to Canterbury — have been driven by house prices on average almost £250,000 cheaper than in London, according to estate agency Savills.

International migration excluded, some 66,000 in their thirties left London in 2015, according to a Savills analysis of figures from the Office for National Statistics. In 2009, the figure was 51,000.

Among people aged 35 to 39, the number leaving has risen 18 per cent in the past two years.

London house prices have risen 85 per cent since 2009, placing intense pressure on people living in the city and leaving people in their twenties as the only age group with net inward movement.

“We are seeing a major migration of London housing wealth into other markets,” said Lucian Cook, director of residential research at Savills

The borough of Epsom and Ewell in Surrey receives the equivalent of almost 4 per cent of its population in the form of London leavers each year. But people have also been moving to areas outside the traditional commuter belt, such as Canterbury, about 62 miles away.

Mr Cook said leavers were divided into two groups: “More affluent people trading up for much more space compared with their London counterparts, and those driven by accessibility as they seek home ownership or lower rental costs.”

Popular destinations include wealthy areas such as south Buckinghamshire, where the average home costs £690,000, but also relatively cheap areas such as Thurrock in Essex, where the cost is £250,000.

The borough of Epsom and Ewell in Surrey receives the equivalent of almost 4 per cent of its population in the form of London leavers each year. But people have also been moving to areas outside the traditional commuter belt, such as Canterbury, about 62 miles away.

Mr Cook said leavers were divided into two groups: “More affluent people trading up for much more space compared with their London counterparts, and those driven by accessibility as they seek home ownership or lower rental costs.”

Popular destinations include wealthy areas such as south Buckinghamshire, where the average home costs £690,000, but also relatively cheap areas such as Thurrock in Essex, where the cost is £250,000.

NYT : Trump Adviser Takes Stake in China Ride-Sharing Company

Trump Adviser Takes Stake in China Ride-Sharing Company

A hedge fund billionaire who was an economic adviser to President-elect Donald J. Trump during the campaign has taken a position in a fast-growing Chinese ride-sharing company that recently signed a deal to acquire Uber Technologies’ operations in China.
John Paulson, who made $15 billion betting against the housing market before the financial crisis, told his investors on Wednesday that at least one of his portfolios had taken an investment stake in Didi Chuxing, a privately owned Chinese company, said people briefed on the matter who were not authorized to speak publicly.
The investment, by Mr. Paulson’s Advantage funds, is roughly 7 percent of the assets of those portfolios, he told investors, these people said.
Didi Chuxing, which has backing from Alibaba Group and Apple, could prepare for an initial public offering in the next year, according to news reports. In August, Didi struck a deal with its main rival, the American ride-hailing giant Uber, to acquire Uber China in a transaction that created a company some valued at $35 billion.
Mr. Paulson disclosed the investment in Didi at a meeting with investors on Wednesday in New York during which he apologized for the overall poor performance of his $1.2 billion Advantage funds. His Paulson Advantage fund is down about 22 percent this year, and a leveraged version called Paulson Advantage Plus is down about 26 percent.
In making the investment, Mr. Paulson is joining several prominent hedge funds and investment firms including two so-called Tiger Cubs — a nickname for firms founded by protégés of hedge fund manager Julian Robertson and his Tiger Management. One of those firms, Coatue Management, founded by Philippe Laffont, made a $2 billion investment in July 2015, according to the private equity data site CrunchBase. Chase Coleman’s Tiger Global has also backed the Chinese company, as has Daniel Loeb’s Third Point.
“We expect Didi to grow into one of China’s largest internet companies, resulting in significant equity appreciation over the next five years,” Mr. Loeb recently told investors in a letter.

WSJ : U.S. Regulators Move to Stop Chinese Takeover of German Tech Firm Aixtron

U.S. Regulators Move to Stop Chinese Takeover of German Tech Firm Aixtron
CFIUS flagged security concerns over acquisition by German unit of China’s Fujian Grand Chip Investment, says Aixtron

FRANKFURT—U.S. regulators are yet again set to block a takeover of a European technology company by a Chinese buyer, a further sign of how China Inc.’s recent shopping binge is raising security concerns in the Western world.

German technology firm Aixtron SE late Friday said it was informed by the powerful Committee on Foreign Investment in the U.S., or CFIUS, about “unresolved U.S. national security concerns regarding the proposed transaction.”

The news comes after Germany’s economics ministry late last month withdrew its earlier approval and reopened a review of the €670 million ($710 million) acquisition of Aixtron by Grand Chip Investment GmbH, the German unit of China’s Fujian Grand Chip Investment Fund LP.

Aixtron, a chip-equipment manufacturer, said CFIUS recommended the parties “abandon the entire transaction” and that the authority plans to recommend to the U.S. President the transaction be prohibited. Aixtron said the U.S. President “must now render his decision to block or allow the proposed transaction within 15 calendar days.”

A spokesman for Fujian Grand Chip Investment declined to comment.

Aixtron shares dropped about 4% in Germany’s after-hours trading late Friday.

The company has been struggling the past few years, especially after China’s Sanan Optoelectronics Co. cut back on a large order late last year. The move shaved nearly half of Aixtron’s market value and left the company looking for a buyer.

Months later, Grand Chip Investment, another Chinese enterprise from the province of Fujian, offered to buy Aixtron.

CFIUS involvement in large deals isn’t new. Dutch electronics firm Royal Philips NV this year canceled the sale of its lighting component and automotive-lighting unit to a Chinese investor because CFIUS torpedoed the deal on security concerns.

In Germany, lighting company Osram Licht AG is scrambling to get approval from the German government for the sale of its lightbulb businesses to China’s MLS Co. Sanan and MLS have both considered acquiring Osram altogether, people familiar with the matter said earlier. Those people added it is unlikely a move to buy Osram would be feasible given political backlash amid resistance from labor unions.

WSJ : Euro, Dollar Flirt With Parity

Euro, Dollar Flirt With Parity
Trump outlook and Fed’s likely move are strengthening dollar, and ECB may not help stop euro’s fall

A 10-day losing streak for the euro against the U.S. dollar is rekindling an old debate: Will the single currency reach parity with the dollar?

In the last two weeks, the euro has fallen 4% against the dollar, hitting $1.06, a level last seen 12 months ago.

The sharp shift in expectations for U.S. interest rates and economic growth since the presidential election has refueled the euro’s relative fall against the greenback. If the Federal Reserve increases rates, expectations are the dollar would rise further by drawing money to the U.S. looking for higher returns.

The European Central Bank, meanwhile, is showing few signs of a major shift in a monetary policy that has pushed rates into negative territory and includes a massive bond-buying program.

The euro also has to contend with a gauntlet of coming eurozone votes that could increase power for the sort of populist parties that, many investors believe, embrace policies that could stymie growth.

Following Donald Trump’s victory, Citigroup said it had shifted its euro-dollar forecast “180 degrees.” The bank now predicts the euro will tumble to just 98 cents in the next six to 12 months. This week others have joined the bank in predicting parity. The euro Friday closed at $1.058 in European trading.

The divergence of U.S. monetary and fiscal policy with the rest of the world “should be very beneficial to the dollar,” said Adnan Akant, head of currencies at asset management firm Fischer Francis Trees & Watts.

Mr. Akant now believes that parity could be reached fairly soon.

“Well, that’s only 7% to 8% away; yes, I would think so,” he said.

The euro’s decline could be good for the European economy. A weaker exchange rate will make the eurozone’s exports more competitive and should encourage inflation, which has been persistently below the ECB’s target near 2%. But such trends are not all good news for consumers, who will see a rise in the cost of dollar-denominated imports like oil.

Launched in 1999, the single currency spent much of its early years below parity, falling to as low as 83 cents in 2000, when there was a strong U.S. economy and a weak one in Europe.

But the currency has traded above $1 since late 2002, climbing to a high of $1.60 as the U.S. struggled with the financial crisis in 2008.

Analysts were last predicting parity in early 2015, when the euro was dragged down by the ECB’s introduction of quantitative easing, a bond-buying program designed to push down interest rates.

That March, the euro fell to as low as $1.046. But U.S. interest-rate rises didn’t occur as fast as economists were predicting, puncturing the trade.

Monetary policy divergence is once again driving the euro lower against the dollar.

Goldman Sachs expects one interest-rate increase soon from the Federal Reserve, followed by another three in 2017, and believes the ECB will extend its QE program to the end of 2017.

But the current fall is also different from 2015’s big decline. Back then, the euro dropped against the currencies of almost all its major trading partners. This time, the euro is actually up 1.8% this year against a trade-weighted basket.

Not all strategists believe parity is destined. There are two actors in this trade, the euro and the dollar.

“A lot of good news has already been priced in for the U.S., possibly too much,” said Geoffrey Yu, head of the U.K. investment office at UBS Wealth Management, who also bet against parity in early 2015.

“If you just look at how the eurozone has performed in terms of data, things look better than they did the last time people were gunning for parity,” he said.

The eurozone economy has grown slowly but consistently for each of the last nine quarters, expanding by between 0.3% and 0.8% of GDP every three months.

Alongside interest-rate expectations, political risk is weighing on the currency.

“Both blades of the scissor are moving against the euro right now,” said Marc Chandler, a strategist at Brown Brothers Harriman in New York. “My view is that the currency goes to record lows.”

Europe has already witnessed one political earthquake this year, when the British surprised investors by voting to leave the European Union. Now, the eurozone’s political diary is full of potential market shocks.

Early next month, a constitutional referendum in Italy could sink the government of Prime Minister Matteo Renzi. The resignation of Mr. Renzi, one of Europe’s most reform-minded leaders, could freeze Italy’s economic overhaul and erase the meager growth the country has generated.

Also lining up are key elections in France, Germany and the Netherlands, all of which have seen populist right-wing parties gain support.

Investors “were surprised on Brexit, they were surprised on the U.S. election,” said Mark McCormick, head of North American foreign exchange strategy at TD Securities. “This time, they will want to be more cautious when it comes to Europe.”

Barron's : Tech Stocks Sell Off, but Future Looks Brighter

Tech Stocks Sell Off, but Future Looks Brighter
Trump’s victory batters technology stocks, but companies like Temenos, SAP, and Legrand are long-term plays with promising prospects.

Technology stocks have fallen out of favor in Europe in recent weeks, but the sector still offers value for long-term investors.

The Stoxx Europe 600 technology stocks have dropped about 7% since early October, pushing the sector into the red for the year with a net return of minus 1.5%. That’s still better than the performance of the Stoxx Europe 600 index, which is down 7.2% in 2016.

A selloff in technology issues is the flip side of investors’ rotation into banks, exacerbated by Donald J. Trump’s election win earlier this month. The president-elect is expected to be a bit softer on banks, which will be comforting for European players that have been penalized for regulatory shortcomings in recent years.

Global investors are raising their interest in European equities. Allocations to euro-zone stocks improved last month to a five-month high of 8% overweight, according to a monthly survey by Bank of America Merrill Lynch. “Europe seems placed for contrarians,” says Merrill’s European equity quantitative strategist Manish Kabra.

George Evans, chief investment officer for equities at Oppenheimer Funds and lead portfolio manager for the Oppenheimer International Growth fund (ticker: OIGAX), has put a big bet on what he terms the “data deluge,” which, he explains, is “predicated on the idea that digital traffic is growing at a rate of 35% to 40% a year.”

Growth could be sustained at that level for at least the next 15 years, says Evans, although traditional methods to assess gross domestic product aren’t designed to accurately record growth in the digital economy. “It is very difficult to measure the productivity of the digital world if productivity isn’t measured by a Google or Amazon,” Evans says.

He’s putting his money where his mouth is: About 20% of his strategy is invested in companies with exposure to the digital economy with names such as SAP (SAP.Germany), Temenos (TEMN.Switzerland), and Legrand (LR.France).

Evans’ fund typically holds stocks for 10 years, so he isn’t put off by expensive price/earnings ratios.

For example, Temenos, a leading developer of software systems for banks, trades for more than 28 times estimated 2017 earnings. That’s substantially higher than its historical average of 20 times. “We think this is fully justified in light of the company’s medium-term growth opportunity and recent strong deal wins,” notes Credit Suisse analysts Felix Remmers and Jan-Thomas Schöps.

Despite Trump’s anticipated easier stance on banks, many still need to modernize IT infrastructure to comply with regulations, which is good news for Geneva-based Temenos. Its software consists of components that can be sold individually and easily installed, so it has a massive opportunity to sell into its existing base.

The company has more than $1 billion in cash, equivalent to more than 20% of its market capitalization, but it has failed to find suitable acquisition targets, so this month it announced a $100 million share buyback.

Temenos shares closed Friday at 68.10 Swiss francs ($67.35), but they could climb to CHF75 in the next 12 months, a potential upside of about 10%.

STOCK BUYBACKS COULD BE ON THE CARDS at SAP, too. The Walldorf, Germany–based developer of enterprise-application software is showing good earnings momentum, and by the second half of next year it could be generating excess cash that could be returned to shareholders.

Analysts expect the company’s licensing of Internet cloud-based software to decline in 2016, but results could defy those projections. More than 40% of licenses are sold in the fourth quarter, and Berenberg analyst Gal Munda calculates that SAP could report flat sales even if fourth-quarter licensing declined 6.5% year on year.

But management’s upbeat comments about its improved pipeline and visibility are cause for optimism, which could lead to the revision of forecasts for next year and beyond.

At Friday’s close of 78.29 euros ($82.90), SAP’s shares trade for 18.4 times estimated 2017 earnings. On a sum-of-the-parts basis, Munda reckons SAP is worth 94 euros per share ($99.52), or 20% above the latest price.

Legrand, a specialist in electrical and digital building infrastructures, trades at a relatively pricey multiple of 20.8 times next year’s earnings, even though its shares have been essentially flat in 2016. They closed Friday at €51.88, but could be worth €60 in 12 months’ time.

Investors may be willing to pay a premium for Limoges, France–based Legrand because it has stellar growth prospects. A recovery in European end markets can drive 2.5% to 3% organic growth while it has a track record over the past decade of adding about 3% annually through acquisitions and boosting operating margin from 17% to 20%.

Its outlook—and a 2.2% dividend yield—makes Legrand very tempting.

WSJ : Iran Oil Minister Says OPEC Production-Curb Deal Is ‘Highly Likely’

Iran Oil Minister Says OPEC Production-Curb Deal Is ‘Highly Likely’
The 14-nation cartel is meeting to decide on output reductions aimed at boosting oil prices

OPEC is “highly likely” to reach a final agreement to curb oil production later this month, Iran’s oil minister said Saturday, in the latest sign that the cartel is moving closer to resolve its differences.

Iran and Iraq have seemed to be the most reluctant members of the Organization of the Petroleum Exporting Countries to agree on reining production ahead of a Nov. 30 gathering in Vienna. The 14-nation cartel is meeting to decide on output reductions aimed at boosting oil prices. International crude remains down more than 60% since mid-2014, closing at $46.76 a barrel on Friday.

The group—which controls over a third of global oil production—agreed in September to reduce output to help draw down a glut of supplies weighing down on prices. But the pact left the details of how to cut roughly 2% to 4% of its output for later.

But speaking after a meeting with OPEC’s secretary general Mohamed Barkindo in Tehran, Iran’s oil minister Bijan Zangeneh said “it is highly likely that oil and energy ministers of the member countries of the Organization of the Petroleum Exporting Countries will reach an agreement” on Nov 30. If producers manage to cooperate, oil prices could rebound to $55 to $60 a barrel, the level OPEC members deem appropriate for producers and consumers, the ministry’s news agency, Shana, quoted him as saying.

Though Mr. Zanganeh didn’t say how Iran would participate in the deal, an Iranian oil official reiterated the Islamic Republic still wanted to reach its pre-sanctions market share of about 4 million barrels a day but was now close to that level. “We are almost there,” the official said. Iran said it produced 3.92 million barrels a day on average in October but several oil projects have since come on stream.

Iran’s continuous output increase since sanctions were lifted in January has turned into a contentious issue with its Persian Gulf neighbors who said they are not ready to cut their output unless Tehran reins its production.

The positive noises out of Tehran come after Iraq, which has disputed numbers used by OPEC to assess its production, showed willingness to compromise in recent days. In an interview with the Wall Street Journal on Friday, Iraq oil minister Jabbar al-Luaibi said Baghdad was narrowing differences with independent analysts used by the cartel. He also said he had hashed out some of those problems during a recent meeting with OPEC’s Mr. Barkindo.

The optimistic signals by Iraq and Iran come after a flurry of diplomacy inside and outside the cartel to seal the production-cut deal. On Friday, oil officials from nine OPEC members—including Saudi Arabia’s energy minister Khalid al-Falih--met with two non-OPEC producers, Russia and Oman, to discuss production.

Russian Energy Minister Alexander Novak said the talks had proved “positive,” according to Interfax news agency.

FT : Hundreds of sports stars, financiers and celebrities are braced for bills r

Film investors face ‘life-changing’ bills for tax avoidance
Sports stars, financiers and celebrities caught out by Eclipse 35 investment scheme

Hundreds of sports stars, financiers and celebrities are braced for bills running into millions of pounds as Revenue & Customs prepares to send out tax demands linked to a failed avoidance scheme.

Investors — including Sir Alex Ferguson, the former Manchester United manager, and former England manager Sven-Göran Eriksson — are expected to be issued shortly with demands for tax payments that will far exceed their original investment in Eclipse 35, a film investment scheme.

The move follows April’s decision by the Supreme Court in favour of HMRC. While the Eclipse partnership argued it was trading film rights, HMRC said it was in reality a tax avoidance scheme. It said its victory protected an estimated £635m in tax.

Nick Wood, an adviser for hundreds of investors in the Eclipse 35 partnership, told The Times that it was ‘highly likely’ that up to 600-700 of the 780 people in the scheme would go bankrupt. Despite the claims, there was no evidence that any named investors were in financial difficulties, the paper said.

HMRC said it recognised that some people would face “life-changing bills”. It said it took its duty of care very seriously and it had briefed its teams on the support available to people who were worried or anxious.

It said: “HMRC has made clear that, if people consider they will have problems in meeting their tax bills, they should talk to us as soon as possible. We will discuss with people, in light of their individual circumstances, whether payment arrangements may be appropriate.

“HMRC works closely with individuals caught up in avoidance schemes to help them resolve their tax affairs. Where people face genuine hardship we will always discuss payment arrangements to make the settling process more manageable.”

The members of Eclipse 35 claimed tax relief on interest on loans they took out to buy distribution rights to two Disney films, Enchanted and Underdog. The company swiftly leased the film rights back to the film producer for a payment spread over a 20-year period.

HMRC argued that Eclipse 35 never carried on a trade — a pre-requisite for investors to qualify for tax reliefs — and “merely organised a sophisticated financial model involving licensing and distribution rights” in relation to the films.

It said that in reality, the borrowed money simply earned interest, which was then filtered through the partnerships to investors to cover the interest on their loans. This was dressed up as a trading transaction in order to enable the partners to claim tax reliefs.

HMRC said: “Avoidance schemes are often highly contrived and almost invariably fall flat when trying to deliver a tax advantage never intended by Parliament. The fact is the majority of schemes simply don’t work and can put avoidance users in a significantly worse financial position than if they had never used the scheme in the first place.”

For the last two years, HMRC has had the power to make people pay disputed tax up front. Over that period it has collected more than £3bn from users of avoidance schemes. It had agreed to over 95 per cent of request for payment arrangements when people could not immediately pay the amount due.