FT : UK inheritance tax move to hit non-doms

UK inheritance tax move to hit non-doms

Residential property will be liable to inheritance tax even if it is owned by an offshore trust under new guidelines from the Treasury. The decision adds to pressure on wealthy families and individuals living in the UK, but domiciled elsewhere, to reconsider the benefits of remaining in the UK.
As part of last year’s summer Budget, the government announced it would amend the rules for non-dom residents, particularly in terms of inheritance tax. However, many advisers had expected the long-awaited guidelines to be pushed back a year — or even dismissed after the UK’s decision to leave the EU. Now questions have been raised over whether this will be a further factor driving wealthy non-dom residents away from the UK.
“The government have taken everyone by surprise,” said Matthew Braithwaite, private wealth partner at Bircham Dyson Bell, the law firm. “There’s lots of talk about people leaving, but it depends on everyone’s situation.”
Under the new guidelines, non-dom residents who own a residential property in the UK will be subject to inheritance tax from April 6 next year. “This charge will apply both to individuals who are domiciled outside the UK and to trusts with settlors or beneficiaries who are non-domiciled,” the Treasury said in its consultation paper.

Yet despite concerns that this might alienate current non-doms — and deter wealthy individuals or families considering moving to the UK — many advisers welcomed the clarification from the Treasury.
“There has been speculation that the EU referendum vote might push back, or even see the end of, the proposed non-dom reforms, but this update indicates that change is still on the government’s agenda and that the timetable has not changed,” said Lucy Johnson, special counsel at Withers, the law firm. “Nonetheless, further information has been long awaited and there are some helpful proposals in the document. “
The new guidelines allow non-doms a grace period from April 2017 to April 2018 to separate their various assets, Ms Johnson added. Individuals and families will also be able to rebase their assets as at April 2017 for capital gains tax purposes. “The proposals for the taxation of income and gains in trusts have been improved too,” she added.


Property tax squeeze (6/2016)
Pedestrians pass luxury residential properties on Cadogan Place, Belgravia, in London, U.K., on Tuesday, May 31, 2011. Luxury-home prices in central London rose at the fastest pace in a year in May as the pound's weakness encouraged overseas buyers to compete for a declining number of properties for sale, Knight Frank LLP said. Photographer: Simon Dawson/Bloomberg
The tax on residential property owned by offshore companies rose 50 per cent to £174m last year, as the Treasury tightened its squeeze on home ownership structures used by wealthy foreigners.

FT : Carmakers face profit threat as China toughens emissions rules

Carmakers face profit threat as China toughens emissions rules

Domestic brands face biggest challenge adjusting to tougher rules commonplace elsewhere

Three months after announcing the biggest annual loss in the company’s history for 2015 due to its diesel emissions scandal, Volkswagen in July unveiled unexpectedly high profits for the first half of this year, fuelled by sales of VW cars in China.
There, unlike Europe and the US, the VW brand has not been tarnished by the German carmaker’s scandal, and Chinese demand for vehicles is strong in spite of the country’s economic slowdown.

But China’s tolerance for polluting vehicles — the market is dominated by cars powered by petrol engines — is now drawing to an end. A rollout of new legislation due to be completed by 2020 aims to tighten China’s rules on cars’ emissions and fuel economy, bringing them into line with western countries and thereby curbing the industry’s contribution to global warming and air pollution.
The legislation is expected by some analysts to hit the profits of companies operating in what is the world’s largest automobile market, but VW and other overseas carmakers are better placed than their domestic rivals to cope with China’s shift to stricter standards, says Jane Lewis, analyst at Macquarie.
“The domestic brands are hit disproportionately as international brands face similar emission and fuel economy requirements in other markets,” she adds.
Some overseas carmakers, such as Jaguar Land Rover, may struggle to meet fuel economy targets set by the Chinese government for their fleets but most international brands will reach these goals, says Ms Lewis. The worst hit will be smaller domestic carmakers, she adds.
The main drivers behind China’s emissions and fuel economy targets are efforts to reduce air pollution in towns and cities and promote technical developments in the domestic auto industry, says a report by the Innovation Centre for Energy and Transportation, a Chinese think-tank.
In order to push companies towards hitting fuel-economy targets, Beijing has begun to name and shame carmakers whose fleets are inefficient.
Twenty-two carmakers on the Chinese mainland — including joint ventures involving Sweden’s Volvo and Germany’s Mercedes-Benz, as well as major domestic brands such as BAIC Motors — failed to meet their passenger vehicle fuel economy targets for 2015, according to a report released last month by China’s ministry of information technology.

No public action has been taken against non-compliant companies. But overall, the report by the ministry of information and technology found the fuel economy of Chinese carmakers’ fleets dropped by 0.9 per cent last year, while those of international brands increased by 3.1 per cent.
The fuel consumption target for each carmaker’s fleet in 2015 was for vehicles on average to travel 100km on 6.9 litres of fuel. But the average fuel required for domestic and overseas carmakers’ vehicles was 7.04 litres last year. By 2020, the Chinese government wants that figure to fall to 5 litres.
To try and avoid penalties for non-compliance with China’s fuel economy rules, carmakers are starting to change the composition of their Chinese fleets by bringing in electric vehicles. They are also looking to introduce more so-called hybrid vehicles, which have a combination of a combustion engine and electric power.
Japanese carmakers including Toyota have already begun to establish factories to produce hybrid vehicles in China.
This tactic may be less helpful for domestic carmakers as the numbers of electric vehicles they would need to sell in order meet the fuel economy targets is unrealistically high, says Yale Zhang, analyst at Automotive Insight, a consultancy.

“Right now it looks like no Chinese automakers can hit the targets unless they allocate about 20 to 25 per cent of their sales to new energy vehicles,” he adds. “No one is ready to hit that kind of level by 2020,” he added.
Meanwhile, China is preparing to introduce a new set of emissions testing standards, with tougher limits on exhaust gases such nitrogen oxides, which cause respiratory diseases.
The so-called Beijing 6 rules that are due to take effect in 2018 will be an adapted version of US emissions standards, and should take a harder line than the EU on nitrogen oxides, which are generated by both petrol and diesel engines.
Analysts at Bernstein say the Chinese rules represent a “huge challenge for industry profits”, estimating that meeting fuel economy targets alone will cost overseas carmakers Rmb5,000 to Rmb7,000 ($752 to $1,052) per vehicle sold between now and 2020.
But for some domestic brands, whose fleets are increasingly made up of gas-guzzling sport utility vehicles, the cost of meeting the targets could be between Rmb10,000 and Rmb16,000 per car for the same period, they add.
Jaguar Land Rover said it was confident of meeting all its global emissions targets, including those in China.
Fujian Benz Automotive, a joint venture in China involving Daimler, Mercedes-Benz’s parent company, said it was “continuously working on optimising the energy consumption of our vehicles”.
Volvo did not respond to requests for comment. BAIC could not be reached.

>>> Steinhoff thirsty for more deals in bid to double valuation in five years

Steinhoff thirsty for more deals in bid to double valuation in five years
Steinhoff International [SNH:SJ], the South African retail holding, has the capacity to finance more takeovers following this month’s USD 2.4bn acquisition of Mattress Firm, a newswire report said. According to a Bloomberg interview with Steinhoff Chairman Christo Wiese published on Friday (19 August), acquisitions are in the company’s DNA and are part of CEO Markus Jooste’s ambition of building a global retail group.

Besides “sheer size”, Steinhoff wants acquisition targets to have strong cash generation, good management teams and the capacity to grow, Weise said. In any market Steinhoff enters it wants to be in the top three, he added.

The company is currently looking at a large number of proposals, propositions and opportunities, although Weise declined to be more specific in terms of identifying potential targets, the report said.

The rapid pace of Steinhoff’s dealmaking so far this year could either slow down, continue or accelerate, Weise said.

>>> Vodafone's fixed lines in the Netherlands attract interest from T-Mobile and

Vodafone's fixed lines in the Netherlands attract interest from T-Mobile and Fiber - report (translated)
T-Mobile Netherlands, a subsidiary of Deutsche Telekom, is a candidate for the acquisition of Vodafone Netherlands' fixed line business, according to a report in Dutch-language De Telegraaf, which cited unnamed sources. Fiber is said to be another candidate for the business, the item added.

Vodafone Netherlands has to divest its 120,000 fixed line clients in Holland to mitigate competition authority concerns, after it announced plans to merge with Dutch telco Ziggo.

As Vodafone has to sell its fixed line operations, the deal value is likely to be in the tens of millions of euros and not hundreds of millions, the report added, citing an unnamed bank which works for Vodafone.

Investment firm Apollo, which is said to have been eyeing the Dutch telecoms market for a longer period, is not interested in the fixed line operations, the report noted. Previously, Apollo and Warburg Pincus were bidders for T-Mobile Netherlands, however, both bids came in too low, the report noted. Warburg is however still interested in T-Mobile Netherlands, the item added.

Deutsche Telekom is still hinting at its intention to sell T-Mobile Netherlands, the report noted. However, if T-Mobilie is successful at acquiring the Vodafone's fixed lines, it could opt to hold on to its Dutch subsidiary, the article said.

Warburg is interested to gain a foothold in the Dutch telecoms market and T-Mobile Netherlands is the only candidate that fits with its budget, the report noted. The company could also opt to acquire Vodafone's fixed line business in the Netherlands, before it eyes T-Mobile again, a source told the newspaper.

Both T-Mobile and Warburg Pincus would not respond to questions, the report noted.

de Telegraaf

>>> Four Italian good banks offers from private equity turned down; banks may be

Four Italian good banks offers from private equity turned down; banks may be sold off singly – report (translated)
Private equity offers for four Italian “good banks” are understood to have been turned down by the Bank of Italy's National Resolution Authority (NRA), Italian language daily Il Sole 24 Ore reported. The unsourced report said that PE funds Apollo and Lonestar made offers for all four banks with the total value of the bids being EUR 500m - EUR 600m. The NRA believed the offers to be too low, the report said, adding that the NRA is believed to be looking for EUR 1.4bn from the sale of the four banks.

The NRA is now considering single offers for Banca Marche, Banca Etruria, CariChieti and CariFe. The report added that Italian lenders UBI, BPER and Banca Popolare di Bari have been contacted to see whether they would submit bids.

UBI is believed to be interested in CariFe while BPER might submit offers for Banca Marche and Banca Etruria. The report said that BPB could bid for CariChieti.

Il Sole 24 Ore

>>> Weekly Update

Weekly Market Update: Markets Drift Sideways, Looking Ahead to Jackson Hole

Major equity indices retreated slightly from record highs in light summer trading, while the 10-year Treasury yield crept up toward 1.6% this week. Crude futures continued to march higher with Brent breaking above $50/bbl for the first time since early July and WTI topping $48/bbl, even as the Baker Hughes rig count rose for the eighth straight week. The greenback hit seven-week lows against the Yen and Euro before mounting a small recovery on Friday. For the week, the DJIA lost 0.1%, the S&P500 slipped less than 0.1%, and the Nasdaq edge up 0.1%.

The economic data this week was mostly unremarkable, though US July core CPI came in one-tenth weaker than expected. Meanwhile UK inflation data saw some fallout from the Brexit vote and post-referendum sterling fall: July CPI hit a 20-month high at 0.6% y/y and manufacturers saw the biggest jump in PPI in 3 years. On Friday, a report said that Prime Minister May would invoke EU Article 50 and start the 2-year Brexit process by next April.

In corporate news, Cisco beat earnings expectations but was weighed on by a 7% workforce reduction announcement. Private prison operators Corrections Corp and Geo Group were subject to hard time this week after the DOJ said it would phase out their contracts, hitting their shares by as much as 50% on Thursday.

A raft of Fed speakers set a somewhat more hawkish tone as markets look ahead for signals about rate tightening at the Jackson Hole symposium next week. Most notably, the normally dovish NY Fed President Dudley said the time for a rate hike is getting closer and would not rule out a September move. The minutes of the July FOMC meeting released this week indicated that Fed members are still divided on the future course of action and wanted more data before making a decision.

Monday
(US) AUG EMPIRE MANUFACTURING: -4.2 V +2.0E
(US) AUG NAHB HOUSING MARKET INDEX: 60 V 60E
(US) JUNE TOTAL NET TIC FLOWS: -$202.8B V -$11.0B PRIOR; NET LONG-TERM TIC FLOWS: -$3.6B V +$42BE

Tuesday
BLT.UK: Reports FY16 Net loss $6.39B v profit $1.91B y/y, Underlying profit $1.22B v $1.04Be; Rev $30.9B v $52.3B y/y
(UK) JULY CPI M/M: -0.1% V -0.1%E; Y/Y: 0.6% (20-month high) V 0.5%E; CPI CORE Y/Y: 1.3% V 1.4%E
(UK) JULY RPI M/M: +0.1% V -0.1%E; Y/Y: 1.9% V 1.7%E
(UK) JULY PPI INPUT M/M: 3.3% V 1.0%E; Y/Y: 4.3% V 2.0%E (largest annual rise since July 2013)
(DE) GERMANY AUG ZEW CURRENT SITUATION SURVEY: 57.6 V 50.2E; EXPECTATIONS SURVEY: 0.5 V 2.0E
HD: Reports Q2 $1.97 v $1.96e, R$26.5B v $26.4Be
(US) JULY CPI M/M: 0.0% V 0.0%E; CPI EX FOOD AND ENERGY M/M: 0.1% V 0.2%E; CPI NSA: 240.647 V 240.805E
(US) JULY HOUSING STARTS: 1.211M V 1.180ME; BUILDING PERMITS: 1.152M V 1.160ME
TJX: Reports Q2 $0.84 v $0.80e, R$7.88B v $7.87Be
(US) JULY INDUSTRIAL PRODUCTION M/M: 0.7% V 0.3%E; CAPACITY UTILIZATION: 75.9% V 75.6%E
(US) Fed's Dudley (dove, FOMC voter): Getting closer to the time for a rate hike, Sept rate hike is possible; Bond market is looking a bit stretched, 10-year yield is looking a bit low, given the circumstances - TV interview
(US) Fed's Lockhart (moderate, non-voter): would not rule out at least one rate hike this year; not committed to any particular timing on rate hike
(US) Atlanta Fed GDPnow: raises Q3 GDP forecast to 3.6% from 3.5% on Aug 12th
(US) EPA finalizes greenhouse gas requirements for medium and heavy duty trucks; 2027 model year trucks to be 25% more efficient
F: Targets fully autonomous vehicle for ride sharing in 2021

Wednesday
CARLB.DK: Reports H1 adj Net DKK1.41B v DKK1.80B, EBIT DKK3.45B v DKK3.54Be, Rev DKK31.2B v DKK31.5Be
(UK) JULY JOBLESS CLAIMS CHANGE: -8.6K V +9.0KE; CLAIMANT COUNT RATE: 2.2% V 2.2%E
(UK) JUN ILO UNEMPLOYMENT RATE 3M/3M: 4.9% V 4.9%E
(UK) JUN AVERAGE WEEKLY EARNINGS 3M/Y/Y: 2.4% V 2.4%E; WEEKLY EARNINGS (EX BONUS) 3M/Y/Y: 2.3% V 2.3%E
700.HK: Reports Q2 Net CNY10.7B v CNY9.52Be, Rev CNY35.7B v CNY23.4B y/y
MON: Reportedly allows Bayer limited access to confidential company information; Bayer has not yet signed confidentiality agreement with Monsanto and ongoing talks described as "difficult" - press
(PT) Canadian ratings agency DBRS analyst: agency is 'comfortable' with current Portugal BBB rating - press
(US) FOMC MINUTES FROM JULY 26-27TH MEETING: FED OFFICIALS SPLIT, WANT MORE DATA BEFORE DECISION ON RATE HIKE
CSCO: Reports Q4 $0.63 v $0.60e, R$12.6B v $12.5Be; to eliminate up to 5.5K positions (7% of global workforce)
992.HK: Reports Q1 $0.02 v $0.01e; Net $173M v $111Me, Rev $10.1B v $9.9Be
(CN) CHINA JULY PROPERTY PRICES M/M: FALL IN 16 OUT OF 70 CITIES VS FALL IN 10 PRIOR; Y/Y: FALL IN 11 OUT OF 70 CITIES V FALL IN 12 PRIOR
(AU) AUSTRALIA JULY EMPLOYMENT CHANGE: +26.2K V +10.0KE; UNEMPLOYMENT RATE: 5.7% V 5.8%E

Thursday
(UK) JULY RETAIL SALES (EX AUTO FUEL) M/M: 1.5% V 0.3%E; Y/Y: 5.4% V 3.9%E
(UK) JULY RETAIL SALES (INCLUDING AUTO FUEL) M/M: 1.4% V 0.1%E; Y/Y: 5.9% V 4.2%E
(EU) EURO ZONE JULY CPI M/M: -0.6% V -0.5%E; Y/Y: 0.2% V 0.2%E V 0.2% ADVANCE; CPI CORE: 0.9% V 0.9%E
(US) INITIAL JOBLESS CLAIMS: 262K V 265KE; CONTINUING CLAIMS: 2.175M V 2.14ME
(US) AUG PHILADELPHIA FED BUSINESS OUTLOOK: 2.0 V 2.0E
HOG: US regulators file suit over emission control defeat devices, claims Harley Davidson violated Clean Air Act - press
(US) Dept of Justice to end its use of private prisons due to safety and security issues - Washington Post
(US) Fed's Williams (moderate, non-voter): calls for rate hike sooner rather than later; raising interest rates makes sense
AMAT: Reports Q3 $0.50 v $0.47e, R$2.82B v $2.83Be
GPS: Reports Q2 $0.60 v $0.58e, R$3.85B v $3.81Be

Friday
(UK) JULY PUBLIC FINANCES (PSNCR): -£2.1B V +£13.5B PRIOR; PUBLIC SECTOR NET BORROWING: -£1.5B V -£2.2BE
(ID) INDONESIA CENTRAL BANK (BI) LEAVES 7-DAY REVERSE REPO RATE (new benchmark rate) UNCHANGED AT 5.25% (not expected)
(UK) UK govt reportedly likely to trigger Brexit by April 2017 - press
(US) Weekly Baker Hughes Rig Count: 491 v 481 w/w (+2%) (8th straight week of increase)

Barron's : 2 Norwegian Banks on Sale at Deep Discounts

2 Norwegian Banks on Sale at Deep Discounts
Shares of these two regional powerhouses have been unfairly beaten down and now look tempting.

Two norwegian regional savings banks could be proof that small is beautiful—even in the unloved European banking sector.
It is no surprise that bank stocks have been Europe’s worst performers over the past year, retreating more than 34% while the Stoxx Europe 600 index has declined just 9.5%. Over the past five years, banks have eked out a mediocre 15% gain. Only the basic-resources sector has fared worse, plunging 15%.

Record-low interest rates are making it difficult for banks to earn money, and a tougher regulatory environment following the global financial crisis means that the sector’s risks outweigh potential rewards.
However, not all of Europe’s banks are in bad shape.
SpareBank 1 SR-Bank (ticker: SRBANK.Norway) and SpareBank 1 SMN (MING.Norway) have their own issues, but they trade at discounts to their book values that appear unjustified. They are “good-quality franchises in a somewhat contrarian space,” says Egor Rybakov, who manages the Chicago-based RMB Capital’s International Focus fund, which owns shares of both banks.


THE TWO BANKS are part of the SpareBank 1 Alliance, a collection of regional banks that collaborate in providing financial products and services, such as insurance and asset management, to compete with the country’s biggest institution, DnB (DNB.Norway). Besides their participation in the SpareBank group—Norway’s second-largest financial-services provider—SpareBank 1 SR-Bank and SpareBank 1 SMN have no cross-shareholding.
Banking in Norway is very conservative. There is a healthy lending culture, but consumers aren’t as leveraged as those in other parts of Europe or in North America. And the complexity of debt forgiveness discourages irrational borrowing.
The fortunes of the two SpareBanks, like most banks, are closely tied to macroeconomic fundamentals, and Norway’s economy is doing pretty well despite its heavy exposure to the oil industry, where a sustained downturn has weighed on investment.
Norway’s gross-domestic-product growth is forecast to fall to 1.2% in 2016 from 1.6% in 2015, although it is projected to accelerate to 1.7% in 2017. Unemployment is inching up, but it is forecast to peak next year at about 4.7%—low compared with a European Union rate above 10%.
The two SpareBanks haven’t been immune to the consequences of the slowdown. They have been forced to increase impairments due to the knock-on effects of weakness in oil-services-related activities, which have hurt the share prices of both companies.


Nonetheless, the problems at both institutions seem to be well contained. Net interest income is growing, returns on equity are robust, and the levels of core Tier 1 equity—a mandatory provision to protect against financial shocks—are within spitting distance of the Norwegian regulator’s 14.5% year-end target.
SPAREBANK 1 SR-BANK SHARES trade at a price/book ratio of just 0.6 times, effectively pricing in a further 42% write-down on its entire offshore exposure. “The share price is discounting too much trouble,” says Swedbank Research analyst Bengt Kirkoen. He rates the stock a Buy with a target price of 58 Norwegian kroner ($7.06).
The bank’s shares closed on Friday at NOK38.80, giving it a market capitalization of NOK9.7 billion, or about $1.2 billion. The shares are down more than 20% in the past year.
Based in the southwestern city of Stavanger, the capital of Norway’s oil industry, SpareBank 1 SR-Bank is the market leader in the Rogaland region, with a 37% share. It is forecast to generate net interest income of NOK2.83 billion, or NOK5.86 a share, in 2016, and NOK2.81 billion, or NOK5.99 a share, in 2017. The company offers a dividend yield of about 4%, although last year it paid out only about 22% of its earnings.
SpareBank 1 SMN trades at a price/book ratio of 0.5, but Swedbank’s Kirkoen says earnings will be at trough levels from 2016 to 2018, and, with the prospect of an 8% to 9% return on equity in coming years, it could justify a price closer to book value. He rates the stock a Buy with a NOK68 price target, 38% above Friday’s close of NOK50.
Shares of Trondheim-based SpareBank 1 SMN have retreated 18% in the past 12 months, giving it a market value of NOK6.43 billion. They offer a dividend yield of 4.5%.
SpareBank 1 SMN is forecast to earn NOK1.92 billion in net interest income this year, or NOK6.74 a share. Next year, it is projected to generate NOK1.93 billion, or NOK6.93 a share.
RMB Capital’s Rybakov believes that the stocks of both banks have been beaten down too far. “We realized the market is way, way overreacting,” he says. He sees 40% to 50% upside to the estimated intrinsic value for both banks.

Barron's : Hong Kong Stocks Look Very Cheap

Hong Kong Stocks Look Very Cheap
The recent rally has much more room to move, particularly if foreign investors step back in.

The Hang Seng index pushed to a new 2016 high last week, and is up 14% since the United Kingdom voted to leave the European Union. The rally will have a lot more room to run if foreign investors can be convinced to return to China.
HSBC China strategist Steven Sun explains that recent gains “have been engineered by Chinese investors,” who have bought about 100 billion yuan ($15 billion) worth of Hong Kong stocks via the new trading link between Shanghai and Hong Kong exchanges (see “5 Hong Kong Stocks Set to Win from Shenzhen Link”). Mainland investors want yield, snapping up shares in China Construction Bank (ticker: 939.Hong Kong) and Industrial and Commercial Bank of China (1398.Hong Kong). They are also buying Internet conglomerate Tencent Holdings (700.Hong Kong), whose shares aren’t available in Shanghai.

Foreigners, however, are still sitting on the sidelines of the Chinese market, despite buying other major emerging markets in the last few months (see the Emerging Markets column). Year to date, they’ve sold $3.4 billion in China stocks and another $1.9 billion of Hong Kong companies’ stocks.
But sentiment could change. In the last week, foreigners turned net buyers, pumping in $912 million, the largest weekly flow in five months.
China may not be all that scary. Citigroup China strategist Jason Sun turned bullish on Chinese stocks last week, convinced “credit discipline” rather than a “credit boom” will help the market. Beijing seems determined to control corporate debt. By July, new corporate lending had fallen 8.2% year-on-year.
Chinese stocks can’t have a meaningful rally unless bank shares participate. On that score, UBS bank analyst Jason Bedford believes there have been at least five bank bailouts in the last year. Between 2013 and 2015, Chinese banks disposed of about 1.7 trillion yuan of impaired loans and raised 620 billion yuan in new capital, according to his figures. Much of this occurred at privately held banks and therefore went unnoted. UBS thinks Beijing needs to get rid of another 4.5 trillion yuan of bad debt. Still, it’s a start.
THE CONSENSUS is that banks’ bad-debt ratio, now less than 2%, will peak at 10% to 15%, so any chance it tops out at, say, 5%, would be a huge boost to Chinese banks, says Douglas Morton, Northern Trust Capital Markets head of Asia research. Morton is bullish on the banks because they offer excellent liquidity and 5%-plus dividend yields. They also are underowned by institutional investors, despite trading at 0.8 times book.


The Hang Seng’s rally isn’t all euphoria; this earnings season is unfolding nicely. Alibaba Group (BABA) reported its fastest revenue growth since going public, while Tencent set a new high last week after reporting fast growth on everything from mobile gaming to WeChat advertising. Ping An Insurance (2318.Hong Kong) saw its net profit grow 18% year-over-year, even as Chinese interest rates fell and the Shanghai stock market remained in its slump.
It isn’t hard to see why fund managers are tempted. Even after the recent rally, the Hang Seng Index has reached only a nine-month high, while the Hang Seng China Enterprises Index, or H-shares index, has broken even just this year, and trades at only 7.6 times earnings.

Barron's: LafargeHolcim Builds a Platform for Growth

LafargeHolcim Builds a Platform for Growth
The product of a 2015 merger, the Swiss aggregates and cement giant has cut head count and trimmed fat. The shares look ready to rise.

Cement and aggregates giant Lafarge-Holcim is laying a firm foundation for its future—and its share price.


The product of a merger of France’s Lafarge and Switzerland’s Holcim in 2015, the Swiss colossus (ticker: LHN.Switzerland) showed earlier this month that it can improve. It delivered 60% of its targeted synergies for 2016 in the first half, and upped a divestment program to five billion Swiss francs ($5.19 billion) from CHF3.5 billion, helping slash net debt from CHF18 billion to CHF13 billion by year end.
LafargeHolcim’s 6% organic growth in earnings before interest, tax, depreciation, and amortization in the second quarter, despite a 2% drop in revenue, was impressive. The company could return excess cash to shareholders as soon as 2017.
“While operating leverage is an important attraction throughout the cement space, scope for higher cash returns is the key differentiating factor in LHN’s investment case,” says Deutsche Bank research associate Priyal Mulji, whose price target is CHF68. A special dividend next year could boost yield to 5% from 2016’s estimated 3%.
After slumping in January and February, LafargeHolcim’s shares have retraced their losses and are virtually flat in 2016. They have outpaced a 7.8% decline in Swiss stocks and a 7% fall in the Stoxx Europe 600. The stock closed on Friday at CHF50.20, for 16 times estimated 2017 earnings. The shares have jumped 37% since Barron’s suggested they could trade at CHF54 in 12 months (“European Cement Giant LafargeHolcim Looks Rock-Solid,” Feb. 20, 2016). With that goal within reach, investors should wait for more gains. “Despite the recent rally in the share price, we continue to see the valuation as attractive,” Credit Suisse analysts Harry Goad and Samuel Thomas wrote in a research note. Their price target: CHF58.
LafargeHolcim is forecast to earn net income of CHF1.39 billion, or CHF2.32 a share, in 2016. Next year, that should rise to CHF1.88 billion, or CHF3.07. On a ratio of enterprise value to 2017 estimated Ebitda, they trade at a seven times multiple, in line with peers, despite an outlook that seems more concrete.