(Manager-Magazin) Continental and Bosch examine collaboration on mapping service

Continental and Bosch examine collaboration on mapping service

The automotive supplier Bosch and Continental examine a report, an employee at the map service Here by BMW, Daimler and Audi. Bosch was "very keen to be heavily involved in an open standard," citing the "Car Week", a Bosch-manager in a preliminary report from Sunday.

In a strictly confidential discussion with representatives of car manufacturers, suppliers and service cards, the two companies were, according to the trade publication to subscribers. Details such as a collaboration might look were not disclosed.
BMW, Daimler and Audi had bought the map service Nokia Here for 2.5 billion euros. The most important competitor is TomTom of the Netherlands, who recently sealed a partnership with Bosch. Continental was already working before the takeover of German carmaker with Here together.

A Continental spokesman said speculation about the negotiations would not get involved you look at. A Bosch spokesman said: "We are basically open systems and therefore also for the flexible application or integration of maps."

Bosch manager Rolf Bulander had recently welcomed in the "Handelsblatt" interview that there are several providers. "We integrate maps according to customer requirements. This means that we can integrate just as Tom Tom Here."
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(ManagerMagazin) If the Dax below 10,000 points - or slows Beijing?

If the Dax below 10,000 points - or slows Beijing?

Stops the Dax its decline still above the psychologically important 10,000 point mark? Investors drives to the fear that the Chinese economy will continue to vigorously losing steam - with implications for the entire world economy. "A slip below the 10,000 points in the next few days certainly there. It always existed not much. The market sees China as a huge problem and probably will remain so only once," predicts one trader. In the last week of trading alone, the German benchmark index had lost nearly 8 percent in the previous week, there were more than 4 percent.

The shops of Chinese industry had fallen by data from Friday in August to its lowest level in six and a half years. "The government has expected an upturn in the second half, but it looks like the opposite of," says economist Chester Liaw from research firm Forecast Pte in Singapore. "The economy is likely to continue to weaken."
The Chinese central bank already is considering to reduce the reserve requirement ratio for domestic banks as the "Wall Street Journal" reported on its website on Sunday citing official and adviser to the central bank. The less money the banks must put aside, the more they can theoretically lend to businesses and households.

According to the report, the measure is also a reaction to the self-induced by the central bank weakening of the domestic currency. The falling rate of the renminbi (yuan) could lead to increased outflow of foreign capital, it said.
The central bank could announce the step at month-end or the beginning of September, the report said. Here, the reserve ratio would be reduced by half a percentage point. This could 678 billion yuan (93 billion euros) will be released on loans. Analysts at Commerzbank expect accordingly "for the fourth quarter a significant Dax-recovery".

For an additional damper on the markets saw the US Federal Reserve. Investors wanted in their records of evidence of an imminent turnaround in interest rates. "The weakness in China ensures plenty of nervousness," says portfolio manager Alan Gayle of RidgeWorth Investments. "That overshadows the fact that the US economy is strong and the situation is improving in the economy in the European Union."
On Tuesday data on US consumer confidence and the home sales are at, one day later, following the orders of durable goods, on Thursday, the second estimate of US gross domestic product will be published. Investors are turning their attention to this economic data. Because the US Federal Reserve makes its interest rate hikes by the development of the economy depends.

From Germany stands on Tuesday at the Ifo Business Climate Index. Analysts polled by Reuters expect a decline to 107.8 points from 108 points in the previous month. The headwind for the German economy from the emerging economies will grow ever stronger, judging Commerzbank analysts.

>>> GVC prepared to abandon Bwin takeover attempt - report

GVC prepared to abandon Bwin takeover attempt

GVC Holdings [LON:GVC] is considering walking away from its attempt to take over rival listed online gaming group Bwin.party Digital Entertainment [LON:BPTY], The Mail on Sunday reported.

A source at the company was quoted stating that all options are being considered, including abandoning the situation.

People with close links to GVC said the company will make a revised bid for Bwin in the event that rival bidder 888 Holdings [LON:888] increases its own cash-and-stock offer. However, should 888 stick to its current bid and remain recommended by the Bwin board, then GVC may pull out completely, the item reported. The inside source said Bwin has been clever by maintaining the interest of both its prospective buyers so far.

Both 888 and GVC have made cash-and-shares bids which are worth more than GBP 1bn, the report said.

The original article appeared in print; Page 88

Mail on Sunday

FT : The Fed looks set to make a dangerous mistake

The Fed looks set to make a dangerous mistake

Raising rates this year will threaten all of the central bank’s major objectives

Will the Federal Reserve’s September meeting see US interest rates go up for the first time since 2006? Officials have held out the prospect that it might, and have suggested that — barring major unforeseen developments — rates will probably be increased by the end of the year. Conditions could change, and the Fed has been careful to avoid outright commitments. But a reasonable assessment of current conditions suggest that raising rates in the near future would be a serious error that would threaten all three of the Fed’s major objectives — price stability, full employment and financial stability.
Like most major central banks, the Fed has put its price stability objective into practice by adopting a 2 per cent inflation target. The biggest risk is that inflation will be lower than this — a risk that would be exacerbated by tightening policy. More than half the components of the consumer price index have declined in the past six months — the first time this has happened in more than a decade. CPI inflation, which excludes volatile energy and food prices and difficult-to-measure housing, is less than 1 per cent. Market-based measures of expectations suggest that, over the next 10 years, inflation will be well under 2 per cent. If the currencies of China and other emerging markets depreciate further, US inflation will be even more subdued.

Tightening policy will adversely affect employment levels because higher interest rates make holding on to cash more attractive than investing it. Higher interest rates will also increase the value of the dollar, making US producers less competitive and pressuring the economies of our trading partners.
This is especially troubling at a time of rising inequality. Studies of periods of tight labour markets like the late 1990s and 1960s make it clear that the best social programme for disadvantaged workers is an economy where employers are struggling to fill vacancies.
There may have been a financial stability case for raising rates six or nine months ago, as low interest rates were encouraging investors to take more risks and businesses to borrow money and engage in financial engineering. At the time, I believed that the economic costs of a rate increase exceeded the financial stability benefits, but there were grounds for concern. That debate is now moot. With credit becoming more expensive, the outlook for the Chinese economy clouded at best, emerging markets submerging, the US stock market in a correction, widespread concerns about liquidity, and expected volatility having increased at a near-record rate, markets are themselves dampening any euphoria or overconfidence. The Fed does not have to do the job. At this moment of fragility, raising rates risks tipping some part of the financial system into crisis, with unpredictable and dangerous results.
Why, then, do so many believe that a rate increase is necessary? I doubt that, if rates were now 4 per cent, there would be much pressure to raise them. That pressure comes from a sense that the economy has substantially normalised during six years of recovery, and so the extraordinary stimulus of zero interest rates should be withdrawn. There has been much talk of “headwinds” that require low interest rates now but this will abate before long, allowing for normal growth and normal interest rates.

Whatever merit this view had a few years ago, it is much less plausible as we approach the seventh anniversary of the collapse of Lehman Brothers. It is no longer easy to think of economic conditions that can plausibly be seen as temporary headwinds. Fiscal drag is over. Banks are well capitalised. Corporations are flush with cash. Household balance sheets are substantially repaired.
Much more plausible is the view that, for reasons rooted in technological and demographic change and reinforced by greater regulation of the financial sector, the global economy has difficulty generating demand for all that can be produced. This is the “secular stagnation” diagnosis, or the very similar idea that Ben Bernanke, former Fed chairman, has urged of a “savings glut”. Satisfactory growth, if it can be achieved, requires very low interest rates that historically we have only seen during economic crises. This is why long term bond markets are telling us that real interest rates are expected to be close to zero in the industrialised world over the next decade.
New conditions require new policies. There is much that should be done, such as steps to promote public and private investment so as to raise the level of real interest rates consistent with full employment. Unless these new policies are implemented, inflation sharply accelerates, or euphoria in markets breaks out, there is no case for the Fed to adjust policy interest rates.

Barron's : Facebook, Uber Show Investors the Path to Profit

Facebook, Uber Show Investors the Path to Profit

Venture capitalists are increasingly optimistic about how much their exit strategy will pay off. That’s good news for individual tech investors as well.

The 6.8% slide in the Nasdaq Composite Index last week was not entirely surprising. As this column opined in early June, when the chip industry’s largest-ever merger was proposed—the $37 billion tie-up between Avago Technologies (ticker: AVGO) and Broadcom (BRCM)—easy money floating around smelled like a top in technology shares. (“Big Chip Mergers Signal Top for Tech,” June 1.)

What has followed has been months of erratic jumps and plunges in stocks, based on little fundamental development, an indication of speculative money at play.

The Nasdaq, at the week’s close of 4706.04, is not yet in what you’d call an actual “correction,” which Dow Jones data gurus peg at 4696.97. But there may be some bargains to peruse following the rout.

Apple (AAPL), which declined 8.8% last week to a recent $105.76, trades at just 11 times this year’s earnings, or eight times, after factoring in its net cash and investments. That’s a deal for a company in a fundamentally healthy place in its market.

Micron Technology (MU), a maker of DRAM and flash memory chips, has traded like a dog this year; shares are down 59%, reflecting the commodity aspect of its parts. However, there is some exquisite technology in the company’s parts for mobile devices that offsets the more commodity-like components they sell for personal computers.

And last month Micron discussed a novel kind of memory chip, developed in partnership with Intel (INTC), that is very different from both DRAM and flash, using special materials to avoid the use of transistors, a fundamental breakthrough in chip design. Micron stock, now $14.53 and trading at 6.6 time 2016 earnings, will eventually reflect the benefits of the company’s innovation.

BUT ALL THAT IS FOR people willing to put money into a good company and weather more downside from here. Returns in many areas of tech may continue to suffer throughout the year, as volatility increases in the market, in anticipation of an interest-rate hike, the latest news out of China, or other wild cards.

Mark Mahaney, an analyst with RBC Capital who follows Internet stocks, including Facebook (FB), said last week, “The future returns on these stocks aren’t as robust as they were at the beginning of the year.” Facebook is still expensive at 42 times this year’s earnings, but that’s not an unreasonable multiple for a company with 38% revenue growth expected this year, and that’s solidly profitable.

AN INTERESTING SIDE NOTE to last week’s bruising is what happens to private investments in tech that will create the Facebooks of the future–the so-called unicorns, young companies with staggeringly large valuations.

They include Uber, the ride-sharing service, and Airbnb, the apartment-sharing service. A recent piece in The Wall Street Journal noted that Uber, after closing another multi-billion-dollar round of investment, is valued at $50 billion.

Such price tags boggle the mind, and at least one fellow acquainted with the world of private capital predicts tough times ahead because of the breakdown of the public equity market.

Bill Gurley of Benchmark Capital, who came to fame backing stars such as eBay (EBAY) and OpenTable, and who has been warning of an over-heated market, explained in a series of tweets that “we may be nearing the end of a cycle where growth is valued more than profitability. It could be at an inflection point.” And he wasn’t talking about a positive inflection point.

Not everyone is as dour. A seasoned venture capitalist with investments in Uber and Airbnb explains the logic of the gargantuan valuations. For one thing, Uber is “making real money,” in terms of revenue, the individual, who would only speak on background, says, without getting into specifics, though he was clearly impressed.

More important for the moment is that the rise of Facebook stock has created an immediate comparable that gives venture capitalists a sense that the unicorns can easily reach a certain size once public, and thereby afford a return on investment. Facebook is worth $245 billion; that suggests that at a minimum, a unicorn of $50 billion today could expect to increase in value to some fraction of Facebook’s worth, say, perhaps $200 billion, a four-fold return.

It’s not exactly the “greater fool” theory, but the success of a handful of Internet darlings, including Facebook, but also Yelp (YELP), Twitter (TWTR), and LinkedIn (LNKD), almost guarantee today’s private investment will have an exit in the public markets at a multiple of what’s been invested in them.

If Uber were to end up turning out a four-fold gain, that’s good, though not astounding. But those kicking the tires at Uber think it can over time be worth perhaps half a trillion dollars, or a tenfold return.

And there is, after all, comfort for a venture investor in the knowledge of what’s called “the preference,” a clause in private investments that says that the principle is returned to VCs in the event of a liquidation. There’s downside protection, in other words.

THE BIGGER ISSUE FOR Facebook, as well as for the unicorns, beyond the current market slump, is the extent to which they can both create new sources of revenue and steal existing sources of revenue from established companies, and the pace at which they can pull that off.

Facebook gets most of its revenue from advertising, meaning it is in a battle to mostly take ad dollars away from traditional print, television, and radio advertising. That is a practice that has served it well.

Likewise, Uber is taking money from the traditional livery industry, but also from car rentals and even car sales, to the extent it defeats the need to ever have a car. Sending your kid to college? There may be no need to buy her a car, as some parents have traditionally done, if she can instead call an Uber in the vicinity of the campus.

Over time, there is a chance for Facebook to add additional services such as subscription video broadcast and for Uber to expand into businesses such as local package delivery, using the same drivers.

But no one can predict the rate at which all that happens, both stealing the old revenue and creating new sources of demand.

Expect periods of both elation and disappointment, depending on fluctuations in the rate at which money moves from the old economy to the new.

>>> Barrons Summary

Barrons Summary: Positive on Pharmaceuticals, KO, BLK, X, Cruise lines, Aviva; Cautious on tech unicorns, AXP, TDC 

Cover story: Positive on large pharmaceutical companies and biotechs in the immuno-oncology space. Merck and Roche are likely the best bets with dividends and big upside potential to drugs in development

Features: 1) Positive on BLK on valuation relative to the greater market. Shares could see 20% upside over the coming year. 2) Stock market's decline over the past week has made valuations more reasonable and is likely to bring buyers back into the market who were looking for bargains. 3) Positive on X, sees likely 60% appreciation by the end of next year as the company has been beaten down by lower oil industry demand and cheap China imports and the worst could be over. 

Tech Trader: Concerns are growing around private tech companies and their valuations, including Airbnb and Uber. Concerns exist yet some of the companies are profitable and could one day reach the size of a company like FB. Issues surround how these startups will be generating revenue and whether its a new source or just poached from other firms. 

Trader: Positive on KO given its stability in an otherwise volatile market. Dividend yield standing at 3.3% is attractive given the high share price. Cautious on HMSY and its potential that hinges around the award of a NY medicaid contract. 

Small Caps: Follow up: Cautious on AXP, expecting a challenging year for the company given new competition and the end of its Costco agreement. Positive on Cruise ships RCL CCL NCLH on improving demand landscape and low oil prices helping profitability. Expecting a difficult time for TDC as it faces increased competition and continued customer deferrals.

European Trader: Positive on Aviva on valuation and expected benefit from a continued restructuring. 

Asian Trader: Positive on the Malaysian Ringgit as it may have been oversold on China concerns. 

Commodities: Cautious on Tin as it has bucked the declining trend in other commodities. Expecting it too to decline in time. 

Streetwise: Cautious on firms' buyback policies. Highlights new information that shows the policy is not as positive for firms or investors as previously thought. Firms who purchased the most amounts of shares recently only outperformed the market by 0.1%, and if shares dont rise, the policy is effectively wasted capital that could have otherwise been put towards growth programs.

(BN) Mideast Stocks Sink as Oil at 2009-Low Sparks Growth Concern

Mideast Stocks Sink as Oil at 2009-Low Sparks Growth Concern
2015-08-23 13:48:31.353 GMT


By Sarmad Khan, Ahmed A. Namatalla and Yaacov Benmeleh
(Bloomberg) -- Dubai led a retreat in Middle Eastern stocks
that drove Saudi Arabia’s index into a bear market, extending
last week’s global selloff, as crude’s decline to a six-year low
reverberated through a region dependent on oil and gas exports.
The DFM General Index lost as much as 7.5 percent, the most
this year. Saudi Arabia’s Tadawul All Share Index tumbled 6.9
percent, taking its decline since 2015’s peak in April to 24
percent. Qatar’s QE Index fell 5.3 percent, while Israel’s TA-25
Index lost 4.1 percent. Egypt’s EGX 30 Index slid the most since
November 2012. Gauges in Abu Dhabi and Oman declined more than
10 percent since a recent peak, the threshold for a market
correction.
The slide in Brent crude, the benchmark grade for more than
half the world’s oil, to the lowest close since March 2009 is
piling pressure on Gulf states at a time when investors are
pulling out of higher-risk assets following China’s devaluation
of the yuan and growing expectations that the U.S. will increase
interest rates by year-end. The six-nation Gulf Cooperation
Council is home to about 30 percent of the world’s proven oil
reserves.
Given Saudi Arabia’s stature as “a bellwether for the
region, we’ll probably see more declines,” following Tadawul’s
slump into a bear market, said Tariq Qaqish, who oversees $150
million as the head of asset management at Al Mal Capital PSC
in Dubai. “Saudi Arabia is going to have to cut its spending,
especially if oil remains at these levels. Otherwise it’s going
to impact growth of the Middle East’s biggest economy.”
The MSCI Emerging Market Index closed at the lowest level
in six years on Friday as Brent fell to $45.46 per barrel and
West Texas Intermediate traded as low as $39.86 per barrel
before closing at $40.45 on the New York Mercantile Exchange.
WTI may decline to $32 on a persisting global surplus, Citigroup
Inc. said Wednesday.

Bear Markets

The Bloomberg GCC 200 Index, which tracks 200 stocks in the
GCC, sank the most since October 2008. Abu Dhabi’s ADX General
Index declined 5 percent, taking losses since a peak in July to
13 percent. Muscat’s MSM30 Index lost 2.9 percent, down 12
percent from a high in February.
The bear market in Saudi Arabian equities marks the second
in less than a year. Fitch Ratings on Saturday cut the outlook
on the nation’s AA debt rating to negative from stable,
indicating its next decision may be to lower its assessment.
“The Saudi market is taking a cue from global markets and
oil prices, which fell further on Friday,” Muhammad Faisal
Potrik, the head of research at Riyad Capital, said from the
kingdom’s capital. “Weak economic data from China and the U.S.,
and Fitch revising Saudi Arabia’s outlook to negative is not
helping either. The combination of those matrices will reflect
negatively on Saudi stocks initially this week, but we’ll have
to see how oil prices perform toward the end of it.”
All but six stocks in Saudi Arabia’s 171-member index fell,
with Saudi Basic Industries Corp., one of the world’s largest
chemicals manufacturers, leading the slump with a 9.5 percent
loss.

Regional Selloff

“There’s indiscriminate selling across the board as
regional markets follow the selloff in oil,” Ramez Merhi, a
Dubai-based director at Al Masah Capital Ltd., which manages
$500 million, said by e-mail. “Regional economies could slow
significantly if these prices are sustained.”
Dubai stocks edged closer to a bear market after the index
sank 7 percent to close at 3,451.48, bringing its loss since
2015’s peak to 18 percent. Traders exchanged about 340 million
shares on the index, 14 percent more than the 12-month average.
Dubai-based developer Emaar Properties PJSC led the drop with an
8.3 percent slide to the lowest level since December.
The relative-strength index of Dubai’s benchmark gauge fell
to 13, the lowest since December. The indicator posted a reading
of less than 30 for the rest of GCC markets, Egypt and Israel,
indicating to some analysts that they’re oversold and may be
poised to reverse course.

Israel Drops

The MSCI Emerging Markets Index last week slid below a
trading band that support prices for the first time in four
years, ending a pattern that technical analysts call a
“channel” in favor of bears. The equities gauge, which
fulfilled the description of a bear market last week by dropping
20 percent from a peak, is heading for the worst August since
1998.
Concern over a global slowdown is gathering pace after data
out of China showed the nation’s manufacturing was at the lowest
level in more than six years. The global equity selloff that
sent gauges in Taiwan, Brazil and Indonesia into bear markets is
starting to show up in Israel, which was relatively unscathed
last week with a 1 percent decline.
Israel’s TA-25 Index slumped the most since September 2011,
led by Bank Leumi Le-Israel’s 5.1 percent drop.
“The panic has reached Israel,” Tel Aviv-based Adi
Babani, a trader at Bank of Jerusalem Ltd., said by e-mail.
“It’s not as bad as other markets around the world, but
investors are certainly concerned about global economic growth
because Israel’s economy so heavily depends on international
trade. Also, the Bank of Israel’s interest rate decision is
tomorrow, which is holding back the declines as some expect a
cut.”
Two of the seventeen economist surveyed by Bloomberg
forecast the country’s central bank will reduce the base lending
rate on Monday from a record low of 0.1 percent. The remainder
predict no change.
Israeli bonds rose for a third day, with the yield on the
country’s 1.75 percent securities due August 2025 falling three
basis points to 2.12 percent.

Egypt Slumps

Egypt’s benchmark EGX30 Index retreated 5.4 percent, led by
Commercial International Bank Egypt SAE’s 5.2 percent drop. The
company accounts for about 35 percent of the gauge.
“The weakness in global markets is hitting us, much like
the Gulf,” said Ashraf Akhnoukh, the manager for Middle East
and North Africa at Cairo-based CI Capital. “But you have to
add to that Egypt’s own set of problems, including repatriation
of foreign funds, no parliament and a declining likelihood of
getting aid from the Gulf as oil drops.”
The North African country’s central bank has limited access
to foreign currency and placed restrictions on outward transfers
since the onset of the 2011 Arab Spring in order to cope with a
shortage of dollars resulting from the slump in tourism and
foreign investment.
The Egyptian pound is one of the world’s most vulnerable
currencies to a possible devaluation following Kazakhstan’s
decision Thursday to weaken its tenge, according to John-Paul
Smith, the ex-Deutsche Bank AG strategist who predicted Russia’s
1998 crisis and this year’s China rout.

(An earlier version of this story corrected the scale of Brent’s
move in the third paragraph.)

For Related News and Information:
Top Stories:TOP<GO>
Oil Falls Below $40 for First Time Since 2009 as Glut Worsens

--With assistance from Sharon Wrobel in Tel Aviv and Deema
Almashabi in Riyadh.

To contact the reporters on this story:
Sarmad Khan in Dubai at +971-4-3641045 or
skhan170@bloomberg.net;
Ahmed A. Namatalla in Cairo at +20-2-2739-6414 or
anamatalla@bloomberg.net;
Yaacov Benmeleh in Tel Aviv at +972-3-542-7137 or
ybenmeleh@bloomberg.net
To contact the editors responsible for this story:
Samuel Potter at +971-4-3641050 or
spotter33@bloomberg.net
Dana El Baltaji

(Telegraph - AEP) Record capital flight from China as industrial slump drags on

Record capital flight from China as industrial slump drags on

China's state media decries "unimaginably fierce resistance" to economic reforms, a sign that president Xi Jinping is becoming furious with incompetent party officials

Capital outflows from China have surged to $190bn over the last seven weeks, forcing the authorities to intervene on an unprecedented scale to defend the Chinese currency.
The exodus of funds is draining liquidity from interbank markets and has pushed up overnight Shibor rates by 30 basis points in the last ten trading days, a sign of market stress.
Yang Zhao from Nomura said $90bn left the country in July. The pace has accelerated since the central bank (PBOC) shocked the markets by ditching its currency peg to the US dollar.
Capital flight for the first three weeks of August is already close to $100bn, despite draconian use of anti-terrorism and money-laundering laws to curb illicit flows.

Mr Zhao said the PBOC had intervened “very aggressively” to stabilise the currency and prevent the devaluation getting out of hand, but this automatically tightens monetary policy.
The central bank will almost certainly have to cut the reserve requirement ratio (RRR) for banks to offset the loss of liquidity, with some analysts expecting action as soon as this weekend.
The PBOC’s latest report calls for “monetary easing”, dropping the usual caveat that measures should be targeted. It is a sign that Beijing is preparing blanket stimulus, despite worries that this could lead to a repeat of the credit excesses that have haunted China since the post-Lehman boom.
The PBOC has already injected $160bn into the China Development Bank for projects.
Hopes that China is at last shaking off a recession in the first half of the year – caused by a combined monetary and fiscal crunch - have once again been dashed by grim manufacturing data.
The Caixin PMI survey slumped to 47.1, far below the boom-bust line of 50 and the lowest since March 2009. New export orders slid further to 46.0 while inventories are rising, a nasty cocktail.

Caixin Insight said the bad figures reflect the tail-end of a downturn that has largely run its course as stimulus kicks in. "The economy could be in the process of bottoming out and may start to rebound within the next few months," it said.
The ructions in China come at a moment when markets are already bracing for the first interest rate rise by the US Federal Reserve in eight years, a move that threatens to tighten the noose further on over-stretched emerging markets (EM) and the commodity nexus.
Danske Bank said the latest rout is worse than the “taper tantrum” in 2013 when the Fed first hinted at tightening, and is quickly turning into a “perfect storm” as the Turkish lira, Brazilian real, Malaysian ringgit, and Russian rouble all go into free-fall.

Capital outflows from emerging markets have reached $940bn since June 2014, according to NN Investment Partners. The damage from the EM crisis is ricocheting back into the US. High-yield bonds spreads have surged to three-year highs, rising to bankruptcy levels of 1100 basis points for energy companies.
It is unclear where China’s political system is now heading. The country is gripped by an anonymous article published in the state newspapers warning that the reform process faces “unimaginably fierce resistance”
Jonathan Fenby from Trusted Sources said the article is a sign that a furious President Xi Jinping is losing faith in his officials after a secret conclave of the party leadership in August. “Behind the confident front which he presents to China and the rest of the world, factionalism is still alive within the senior ranks,” he said.
The botched handling of the Shanghai equity crash has raised serious doubts about the competence of the Chinese leadership. The conclave report urged “drastic and pragmatic reform” of the state-owned enterprises, fiscal policies, finance, and the judicial system.
There is little doubt that the party committed grave policy errors over the winter months, culminating in the so-called “fiscal cliff” as a botched reform of local government finance caused spending to collapse. The question is whether the worst is over as the authorities launch another stop-go cycle.
Credit growth rose to a 31-month high in July, though a chunk of this is simply rolling over old debts to keep the game going.
Fiscal spending is picking up sharply as the new bond market finally comes on stream. Local governments issued almost $200bn of securities in June and July, a blistering catch-up pace.
Simon Ward from Henderson Global Investors says his measure of the money supply – “true M1” – has recovered after turning negative late last year for the first time this century.

It has been rising at an annual pace of 10pc over the last six months and is accelerating, pointing to a lift-off in growth later this year. His measure includes household demand deposits.
Yet capital flight greatly complicates the picture. It comes at a time when the Shanghai composite index of stocks has dropped back to 3,507, retesting the post-crash lows of early July. There is a pervasive fear that the crisis may be deeper than admitted so far by the Communist Party.
The PBOC has clearly been caught off-guard by the violent reaction of the markets to its new exchange rate regime, widely suspected to be a disguised move to devalue the yuan and rescue struggling exporters. It has had to step in to stabilise the currency near 6.40 to the dollar, containing the devaluation at 3pc.

Nomura said these conspiracy theories are misguided. The PBOC had to act to bring exchange rate policy into line with other reforms of China’s capital account or face mounting complications. It is a healthy development.
The PBOC was faced with the “Impossible Trinity”, a textbook case in economics where you cannot control capital flows, monetary policy, and the currency, all at the same time. One has to give.
“Unless they opened up the exchange rate, they were going to lose monetary policy independence. It was quite urgent,” said the bank.
Michael Kurtz, Nomura’s Asian equity strategist, said markets have misread what is happening on the ground in China, pricing in a doom scenario that is unlikely to happen. “This represents a buying opportunity. We think stocks will end materially higher at the end of the year,” he said.
The ugly PMI figures overstate the weakness of the economy. Premier Li Keqiang is deliberately shifting resources away from the old industrial sectors. The “trade-intensity” of Chinese growth is plummeting as the country matures.
The Chinese people have hardly felt the effects of their slowdown so far. The pain has been exported to Brazil, South Africa, Australia, and other countries that live off China’s commodity demand.
Bo Zhuang from Trusted Sources said the stability of the jobs market is the “ultimate bottom line for the Chinese leadership”. Employment is so far holding up well. A net 7.2m jobs were created in first half of the year, enough to meet the annual target of 10m.

However, the ratio of vacancies to applicants peaked at 1.15 late last year and has since dropped to 1.06, the steepest fall since the Lehman crisis. One of the weakest components of Friday’s PMI survey was employment, so the ratio is likely to fall further.
The Chinese authorities have manoeuvred themselves into a corner. With hindsight they liberalised the exchange regime too soon, before the fiscal recovery had fed through and before it was clear that the recession was safely over.
They have now to contend with accelerating capital outflows that they themselves provoked, and that make it even harder to manage the downturn. Xi Jinping has every reason to be exasperated.

>>> Digicel expected to raise USD 1.5bn in NYSE listing

Digicel expected to raise USD 1.5bn in NYSE listing

Digicel, the telecoms group owned by Denis O’Brien, is expected to raise USD 1.5bn from its imminent listing in New York, the Irish Sunday Independent reported. The report did not cite a source for the claim but added that the company is expected to kick off its investor roadshow imminently.

Digicel announced two months ago that it plans to float on the New York Stock Exchange, using the proceeds to pay back debt and make acquisitions, the item noted. The IPO prospectus revealed the business had approximately USD 6.5bn debt as at 31 March this year, the report said.

A spokesperson for Digicel declined to make any comment, the item reported.

Irish Independent on Sunday