Japan GPIF head: Don't have strong concern over recent weak Yen trend that reflects diverging policy direction of FED, BOJ
>>> Asset Class Flows
* Equities: $5.9bn inflows (largest in 11 weeks) (note continued divergence between $8.0bn ETF inflows and $2.2bn mutual fund outflows)
* Bonds: $3.0bn inflows (propped up by strong IG inflows)
* Precious Metals: modest $0.3bn outflows
>>> Equity Flows
* EM: 3 straight weeks of inflows ($1.2bn)…once again led by chunky $2.5bn inflows to China equity funds
* US: modest $0.9bn inflows (largest inflow in 11 weeks; all inflows via ETFs)
* Japan: small inflows ($0.1bn) (inflows in 14 out of past 15 weeks)
* Europe: $0.8bn inflows (3 straight weeks, but momentum waning – Chart 5)
>>> Fixed Income Flows
* Largest weekly outflows from EM debt funds in 19 weeks ($0.7bn)
* 6 straight weeks of outflows from govt/tsy funds ($1.6bn)
* 4 straight weeks of inflows to bank loan funds (albeit modest $98mn)
* 76 straight weeks of inflows to IG bond funds ($4.1bn)
* $0.8bn inflows to HY bond funds (3 straight weeks)
Key Takeaway
We think Accor and Hilton will benefit the most as the continuing rapid growth of the Chinese hotel market shifts from top-end hotels to the mid-market. We think IHG faces the biggest rise in competition and that Marriott and Starwood
will perform in-line with the market. China, however, will remain a relatively small contributor to group profits at c5% of EBIT, with other regions remaining a more important driver of near term financial and share performance.
China accounted for an estimated 7% of 2014 capacity and 3.5% of EBIT for the five companies in this report.
We expect annual capacity growth to continue at around the 5% level seen in recent years but with the emphasis switching away from the oversupplied top-end of the market to the middle market, as the rise of middle class incomes pulls them out the budget and economy segments. Based on flat assumed RevPAR, we expect China to account for 5.3% of group EBIT by 2017.
Room pipeline most important KPI. The rapid growth in Chinese capacity and austerity measures have inevitably put pressure on RevPAR in recent years, although most of the international players have managed to out-perform the overall market. We expect RevPAR growth to remain relatively subdued, meaning that the opening of new rooms will be the
biggest driver of profit growth. With c82,000 and c114,000 rooms respectively, Accor and Hilton, through franchise agreements with local players, have by far the largest Chinese pipelines, primarily focused on the mid-scale and upper mid-scale segments. This growth is likely to put pressure on IHG, the only international operator to currently have a significant mid-market presence. Marriott and Starwood have the smallest Chinese pipelines.
Accor and Hilton to grow profits the most. Financial disclosure is inconsistent across the companies, but we estimate that, from low bases, EBIT from China will double at Accor and Hilton by 2017 to 4% and 2.5% of total EBIT respectively. We expect IHG, Marriott and Starwood to grow Chinese profits only slightly.
Despite this rapid growth, China will remain a relatively small source of profits
with other regions being a more important driver of financial and share price performance. We continue to prefer non US exposure with self-help opportunities. The US is mature and stable, with little structural growth. US-focused companies, such as Marriott and IHG, are thus more dependent on the RevPAR cycle than the more geographically diverse Accor and
Starwood. In contrast, Europe and the Emerging Markets are under-penetrated in terms of both branded (<25% of total) and franchised hotels (<10% of total). Accor and Starwood are well placed to benefit from the structural changes in these markets as independent hotels convert to the branded, franchised model.
We see little upside risk to 2015 forecasts and valuations, and are becoming more worried about 2016. Our 2015/16 estimates, in line with consensus, are broadly based on RevPAR growth of 6% in the US and 3% in Europe. Our Buy rating on Accor is based on its geographic exposure, self-help opportunities and attractive valuation. Our Underperform recommendation on Marriott is based on large exposures to the cyclical US market, coupled with high valuations.
President Erdogan’s Future Hangs in Balance in Turkey Election
Ruling party seeks supermajority to ease path for constitutional changes
ISTANBUL—Over the past decade, Recep Tayyip Erdogan has steadily solidified his political dominance in Turkey, winning six consecutive elections and centralizing power around himself.
Now, his political supremacy hinges on an election in which he isn’t a candidate.
Facing a weakening economy and a revitalized opposition, Sunday’s parliamentary election has emerged as a make-or-break moment for Mr. Erdogan’s bid to overhaul Turkey’s constitution and create a super-presidency that could help him rule for another generation.
At stake is the nature of political power in Turkey—an important but increasingly fractious U.S. ally, North Atlantic Treaty Organization member and aspiring candidate to join the European Union. Ankara’s increasingly assertive foreign policy and domestic efforts to muzzle dissent have provoked more frequent clashes with Washington and Brussels.
Opinion polls show a slide in support for the Justice and Development Party, or AKP, that Mr. Erdogan co-founded and led until his election in August 2014 to the nonpartisan presidency.
Its backing has fallen from a record 52% last summer to closer to 40% now. While the AKP remains comfortably ahead of all other parties, some polls predict it could fall short of winning a majority of seats—much less the three-fifths Mr. Erdogan would need to attempt constitutional changes.
Mr. Erdogan thus has been campaigning ferociously in support of his old party—despite holding a job that is supposed to be apolitical.
For the past month he has been zigzagging across the country, meeting with business groups and holding dozens of political rallies. In the first week of May alone, television stations broadcast 44 hours of speeches in which he repeatedly slammed his rivals—giving him more airtime than the other political parties combined.
The Supreme Electoral Council and Turkey’s media watchdog have rejected multiple complaints from opposition parties, who charge the president with breaching the constitution.
Mr. Erdogan has billed the ballot as a vote of confidence for the AKP government. But even the pugilistic president—at once Turkey’s most popular and most polarizing politician—is sounding less confident.
“I don’t see the excitement of previous elections. The old livelihood, the old hustle and bustle that I’m used to is unfortunately not there,” Mr. Erdogan said Tuesday in a television interview.
In Kasimpasa, the hard-scrabble Istanbul neighborhood where Mr. Erdogan grew up, posters of the president and prime minister fill streets lined with AKP flags. While known generally as die-hard AKP supporters, some residents also voiced dissatisfaction with the party’s 12-year rule.
“I can’t put bread on the table anymore,” said a 32-year-old Kurdish man who peddles fruits and vegetables part-time on the street on top of another, full-time job. Having voted for the AKP once and other Islamist parties in the past, he said he is considering a pro-Kurdish party this time.
As prime minister for 12 years, Mr. Erdogan oversaw a rapidly growing economy that tripled in size to $800 billion, expanded Ankara’s diplomatic clout and removed the military’s tutelage over politics.
But in recent years, relations with Western allies and Middle Eastern neighbors became increasingly tense, as Mr. Erdogan’s reputation shifted from gifted reformer to budding autocrat.
His push for a stronger presidential system is the latest flashpoint. Currently, the presidency controls the National Security Council and decides on the use of military power, but is otherwise largely ceremonial.
Mr. Erdogan says that giving executive power, such as control over the budget and infrastructure projects, to the president rather than the prime minister and his cabinet would streamline decision making. That, he argues, would allow him to realize his vision of a “New Turkey”—an era of Turkish greatness not seen since the collapse of the Ottoman Empire.
His detractors say it would transform Turkey into an autocracy, rewiring state institutions to serve the president in ways more likely to resemble Vladimir Putin’s Kremlin than the White House or Elysée Palace.
Those arguments are at the core of Turkey’s most finely balanced election for a decade, spotlighting a growing mismatch between the AKP’s diminishing authority and Mr. Erdogan’s outsize ambitions.
“Turkey’s political backdrop is set to become less predictable and stable than it has been since 2002,” said Wolfango Piccoli, managing director at New York-based risk consultancy Teneo Intelligence. If Mr. Erdogan is unable to change the constitution as he wants, he will “continue to control the country’s politics for the foreseeable future, resisting any attempt to limit his power,” Mr. Piccoli said.
On top of the slowing economy, another key challenge for Mr. Erdogan comes from the pro-Kurdish People’s Democratic Party, or HDP. If it crosses the 10% threshold to enter parliament, it would get at least 50 or so seats—eating into the AKP’s numbers and potentially prompting the first coalition government since 2002.
The AKP needs 276 of the 550 seats to govern alone. With at least 330 seats, the AKP could pass a new constitution but would then have to put it to a referendum. With 367, it could rewrite the constitution and adopt it with just a parliamentary vote.
“Talks about a coalition are not realistic,” said Mustafa Sentop, an AKP lawmaker and deputy chairman in charge of election affairs. “The only question is whether the AKP will have the majority to adopt a new constitution.”
Most members of the governing party—handpicked by Mr. Erdogan before the 2011 elections—are adamant that Turkey would be a more stable and democratic country under Mr. Erdogan’s presidential system.
“Erdogan doesn’t need this,” Mr. Sentop said last week. “Turkey won’t have stability problems when it has Recep Tayyip Erdogan, but if there is no such powerful actor, stability becomes an issue” unless the constitution is changed.
Yet Mr. Erdogan’s towering presence over the AKP and push to consolidate his grip over the state betray a paradox: the elections threaten to rob him of his long-held goal when he is arguably at his most powerful.
In the last two years, Mr. Erdogan has firmed his control of the bureaucracy, replacing thousands of civil servants and law-enforcement officials deemed disloyal to the AKP government.
He also pushed through sweeping security laws to muzzle dissent: criminalizing street protests, blocking social media, banning companies considered sympathetic to the opposition from state tenders and seeking life imprisonment for a journalist who uncovered government about arming Syrian rebels.
“The judiciary, the police, the media—one by one Turkey’s institutions have fallen to Erdogan’s dominating political will,” said Suat Kiniklioglu, a former AKP executive and lawmaker, who says Mr. Erdogan purged liberals and centrists from the party in 2011 and 2012.
Whether Mr. Erdogan can realize his ambitions depends on the outcome of Sunday’s election.
“Frankly, democracy is at stake. It will be weaker or stronger after this election,” said Marc Pierini, a former EU ambassador to Turkey who is now a visiting scholar at Carnegie Europe.
SEC Probes Activist Funds Over Whether They Secretly Acted in Concert
Federal securities rules require shareholder activists to disclose joint campaigns
The SEC’s enforcement division has recently opened multiple investigations and sent requests for information to a number of hedge funds, according to some of the people. Neither the names of the funds nor the companies they targeted could immediately be ascertained.
SEC representatives didn’t immediately respond to requests for comment.
As part of a broader effort to promote transparency, the SEC is looking at whether certain investors coordinated their efforts without filing appropriate disclosures. Federal securities regulations require investors who jointly agree to buy, sell or vote securities to disclose those arrangements, and to designate themselves as a group if they together own at least 5% of a company’s stock or are soliciting votes from other shareholders. Such formal, disclosed alliances have included a recent effort by Barington Capital Group LP and Macellum Capital Management LLC to win board seats at retailer Children’s Place Inc.
The rules are meant to keep hedge funds from exercising the influence that comes with a big stake without incurring obligations that are meant to level the playing field with smaller shareholders.
The issue has taken on greater importance as activist hedge funds, which accumulate stakes in companies and agitate for changes such as stepped up share buybacks and asset sales, have become a major force in corporate America in recent years. Activists sometimes tip potential hedge fund allies to their trading plans, a Wall Street Journal investigation found last year. The practice isn’t illegal as long as they don’t coordinate their trades.
The investigations represent a relatively rare move by the SEC, which has taken a more hands-off approach to regulating activists. Despite appeals from companies and their advisers to make the funds’ trading more transparent, senior SEC officials have expressed little inclination to do so.
Michele Anderson, who heads the SEC’s office of mergers and acquisitions, said at a conference in March that changing the regulations on activist disclosures has proved to be “like peeling an onion,” where efforts to tackle one issue simply reveal another.
But the SEC has recently ramped up its scrutiny of trading disclosures more broadly and the activist-fund investigations are part of that effort, the people said. The effort includes increased coordination between the agency’s enforcement division and corporate-finance officials who review company and investor filings.
The first results of the initiative came in March, when the SEC charged eight corporate insiders for failing to update their stock ownership filings to reflect, among other things, steps they had taken toward buying the companies in question. The defendants agreed to settle the cases without admitting or denying the allegations.
In a sign of the SEC’s new focus on the issue, the agency in March sent a letter to activist fund Bulldog Investors LLC about its campaign for board seats at Stewart Information Services Corp., a provider of title insurance. The SEC asked whether Bulldog had any “agreements or understandings” with Foundation Asset Management LP, another fund that had run its own proxy fight at the company.
Bulldog co-founder Phil Goldstein said in an interview that the funds never made any agreement about trading or voting shares. Scrutiny from the SEC could chill legal discussions between investors, he said, adding that it isn’t surprising that underperforming companies would draw interest from several activists.
“If you go to a Grateful Dead concert, you’re going to find a lot of Grateful Dead fans,” he said. “They’re not a group. They just like the same music.”
In a speech to a gathering of corporate lawyers in March, SEC Chairman Mary Jo White said the agency was focused on ensuring that activists’ filings are accurate. She pointed to the enforcement actions in March as evidence the SEC was policing the area.
“Our role at the SEC is not to determine whether activist campaigns are beneficial or detrimental in any given circumstance,” Ms. White said. “Rather, the agency’s central focus is making sure that shareholders are provided with the information they need and that all play by the rules.”
Dow-@.94% S&P-0.86% Nasdaq-0.79% Russell-1.05%
US Market closed lower, with S&P breaking its 50d MA. Greece weighted on sentiment AGAIN. IMF Seemed confident that Greece will make today's payment but some reports indicated Greece requested permission to bundle all of its debt payment duee this month into a single payment of about EUR1.60 billion to be paid on June 19. All ten sectors ended in the red with most growth-sensitive groups showing relative weakness. Energy (-1.2%) and materials (-1.3%) spent the bulk of the session behind other groups with energy pressured by a 2.8% drop in crude oil, which ended the pit session at $58.00/bbl ahead of tomorrow's semiannual OPEC meeting. Volume were above average @ 710mil shares. Today waiting for Non Farm Payrolls for May. US After Hours UTIW +2.7%, DMND +2.5%, ZOES +2.4%, VNCE -10.0%, ZUMZ -8.9%, PAY -1.7%, GPS -0.2% following earnings/guidance. Asian equity markets were mixed in the opening hours but mid-afternoon has yet again given to more selling pressure. After opening at a 7-year high above 5,000, Shanghai Composite headed into its break down 0.1%. Volatility in other markets was more contained in the absence of significant economic data. The quiet is also typical for the session going into the key US jobs report. Only press report of note out of China in today's session came from a PBoC official who said Shanghai FTZ has already met the conditions for full Yuan convertibility. EUR/USD fell as much as 60pips to 1.1180 in early Asian hours but pared much of that decline by the afternoon. Weakness followed reports from Greece govt official that PM Tsipras announced the latest plan by the creditors cannot be the basis for the deal. Subsequently, Bundesbank's Dombret remarked that a Grexit would be manageable, adding Greek financial situation is challenging even with the banks still solvent. Also note that Athens has moved to bundle IMF loan obligations, pushing out the deadline for combined payments to the end of the month.
Nikkei -0.13% Hang Seng -0.80% Shanghai +0.73%
Eur$ 1.1236 GBP 1.5355 JPY 124.48 EURCHF 1.0484 RUB $56.63 WTI $58 (Unch)
S&P -0.08% EuroStoxx -0.9% Dax-0.85% SMI -0.51%
Macro :
- Greece Defers IMF Payment as Merkel Says Resolution Far Away (3)
- China May Retail Auto Sales Rise 3.8% on Year, PCA Says
- Greece Ready to Deal W/ Europe If Merkel Offers Hope: Varoufakis
- European Investment Banks Enjoying 2Q Boom in M&A, Barclays Says
Keep an eye on :
- BNP FP : BNP Said Seeking to Reduce Investment Bank Costs by 20%: Echos
- FNC IM : Finmeccanica in Banks Talks on EU2b Debt Renegotiation: Ansa
- CRG IM : Carige Sets Terms of Shr Sale, Subscription Price EU1.17/Shr
- GSK LN : Glaxo Challenges More Significant Than Expected: Morgan Stanley
- HSBA LN : HSBC Seen Making Investment Banking Cuts, With Equities at Risk
- SPM IM : Halted; CONSOB places temporary short sale ban
- SGO FP : Saint-Gobain CEO Repeats He Has No Plan to Raise Stake in Sika ,Calls for Constructive Talks With Sika, Saint-Gobain Got 5 Firm Bids for Verallia.
- VIV FP : Google’s YouTube to Make Push Into Music Business: NYPost
- VIV FP : Apple Said to Push to Complete Streaming Music Deal Before Event
- VOD LN : Vodafone Said to Discuss Options, Including Merger With Liberty
- VOW3 GY : VW Evaluating Stake Raise in Chinese FAW JV: Reuters
>>> Up
*LEGRAND RAISED TO BUY VS NEUTRAL AT UBS
*LLOYDS RAISED TO BUY AT HSBC
*MEDIASET ESPANA RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
*METSO RAISED TO NEUTRAL VS SELL AT UBS
*NESTE RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT BARCLAYS
*SARAS RAISED TO OVERWEIGHT VS UNDERWEIGHT AT BARCLAYS
*SCHNEIDER ELECTRIC RAISED TO NEUTRAL VS SELL AT UBS
*TELE2 RAISED TO BUY VS NEUTRAL AT CITI
*TELEFONICA DEUTSCHLAND RAISED TO HOLD VS SELL AT BANKHAUS LAMPE
*TF1 RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
>>> Down
*BETFAIR CUT TO SELL VS REDUCE AT NUMIS
*FALKLAND OIL & GAS CUT TO MARKET PERFORM AT BMO CAPITAL MARKETS
*GLAXOSMITHKLINE CUT TO EQUALWEIGHT AT MORGAN STANLEY
*HELLENIC PETROLEUM CUT TO UNDERWEIGHT VS EQUALWEIGHT: BARCLAYS
>>> PT change
>>> Initiation
*AB FOODS RATED NEW BUY AT HSBC
*ALPHA BANK, PIRAEUS RESUMED AT NEUTRAL AT MEDIOBANCA
*EUROBANK, NBG RESUMED AT OUTPERFORM AT MEDIOBANCA
>>> Call
>> Stock
*JYSKE BANK REPLACES GEA ON CITI SMID KEY BUYS LIST
>> Sector
*EUROPE UTILITIES SECTOR CUT TO UNDERWEIGHT VS NEUTRAL AT SOCGEN
*EUROPE METALS & MINING SECTOR CUT TO NEUTRAL AT SOCGEN
*EUROPE OIL & GAS SECTOR RAISED TO NEUTRAL AT SOCGEN
*EUROPEAN REFINING SECTOR RAISED TO NEUTRAL AT BARCLAYS
*EUROPE FOOD PRODUCTS SECTOR RAISED TO NEUTRAL AT SOCGEN
*EU SOFTWARE & SERVICES SECTOR RAISED TO OVERWEIGHT AT SOCGEN
Asian Mid-session Update: China brokers post mixed monthly results; Greece defiance weighs on EUR
***Economic Data***
- (AU) AUSTRALIA MAY AIG PERFORMANCE OF CONSTRUCTION INDEX: 47.8 V 47.0 PRIOR (2nd consecutive month of contraction)
- (JP) JAPAN MAY OFFICIAL RESERVE ASSETS: $1.25T V $1.25T PRIOR
***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 -0.4%, S&P/ASX -0.1%, Kospi -0.3%, Shanghai Composite +1.2%, Hang Seng -0.5%, Jun S&P500 flat at 2,098
***Commodities/Fixed Income***
- Aug gold +0.2% at $1,177/oz, Jul crude oil +0.1% at $58.04/brl, Jul copper -0.2% at $2.68/lb
- (AU) Australia MoF (AOFM) sells A$1.5B in 1.75% 2020 Bonds; avg yield: 2.4527%; bid-to-cover: 2.10x
- (JP) BOJ offers to buy ¥375B in 1-3yr JGBs, ¥400B in 3-5yr JGBs, ¥240B in 10-25yr JGBs, and ¥140B in 25yr+ JGBs
- (US) Weekly Fed Balance Sheet Total Assets for week ending June 3rd: $4.47T v $4.46T prior; M1 y/y change: 8.2% v 8.4% prior; M2 y/y change: 6.0% v 6.1% prior
***Market Focal Points/FX***
- Asian equity markets were mixed in the opening hours but mid-afternoon has yet again given to more selling pressure. After opening at a 7-year high above 5,000, Shanghai Composite headed into its break down 0.1%. Volatility in other markets was more contained in the absence of significant economic data. The quiet is also typical for the session going into the key US jobs report. Only press report of note out of China in today's session came from a PBoC official who said Shanghai FTZ has already met the conditions for full Yuan convertibility. Offshore Yuan weakened, with USD/CNH pair rising above 100-day MA of 6.21.
- In FX, EUR/USD fell as much as 60pips to 1.1180 in early Asian hours but pared much of that decline by the afternoon. Weakness followed reports from Greece govt official that PM Tsipras announced the latest plan by the creditors cannot be the basis for the deal. Subsequently, Bundesbank's Dombret remarked that a Grexit would be manageable, adding Greek financial situation is challenging even with the banks still solvent. Also note that Athens has moved to bundle IMF loan obligations, pushing out the deadline for combined payments to the end of the month. Other USD majors were little changed - AUD/USD traded in a 30pip range just below 0.77, while USD/JPY was in a 20pip range around 124.40.
***Equities***
US equities / ADRs:
- INO: Inovio is attracting interest from major pharma firms - UK press; +4.2% afterhours
- VOD: Said to be exploring options with Liberty Global, including a possible merger; also considering acquiring certain European assets - financial press; +1.4% afterhours
- ZUMZ: Reports Q1 $0.09 v $0.12e, R$177.6M v $177Me; -8.9% afterhours
- ESL: Reports Q2 $1.20 v $1.31e, R$500M v $526Me; -11.1% afterhours
Notable movers by sector:
- Financials: China Vanke Co 000002.CN +3.0% (May result); CITIC Securities 600030.CN -0.7% (May result); GF Securities Co 000776.CN +2.1% (May result); China Merchants Securities 600999.CN +1.3% (May result); SooChow Securities Co 601555.CN -1.3% (to halt margin trade for some stocks); Shenzhen Investment 604.HK -8.3% (May result, share placement); Changjiang Securities 000783.CN -2.2% (May result)
- Industrials: Great Wall Motor 2333.HK -7.9% (May sales); SAIC Motor Corp 600104.CN +1.1% (May result); Bradken Ltd BKN.AU +1.8% (speculation for KKR's bid); Fuji Heavy Industries 7270.JP -1.0% (expectations for FY15 N American sales); Mazda Motor Corp 7261.JP -1.1% (vehicle recalls); Guangzhou Automobile Group 2238.HK -1.9% (May result)
- Technology: Mesoblast Ltd MSB.AU +1.8% (receives fund); Sharp Corp 6753.JP -1.2% (speculation of net loss)