Author: Ashton Wenborn

Vietnam to relax foreign investment rules

Posted on by Ashton Wenborn

Vietnam is set to abolish its caps on foreign ownership, which would allow foreigners to own a full 100 percent of a firm. Previously, the Communist-run state placed a cap of foreign ownership on certain firms and industries at 49 percent, to prevent foreign businesses from gaining a majority stake.

Vietnam was attempting to make the case for upgrading its classification from frontier market status to emerging market status

The reform is part of wider privatisation push within the country. Vietnam has gradually liberalised its economy since the 1980s, but some leftover state controls remain from the days of the command economy. According to the Financial Times, “The new rules are part of a broader push by Vietnam to step up a sluggish privatisation programme, strike trade agreements with the US and EU, and boost its status in the widely followed MSCI world markets indices.”

It can also been seen as part of a push for reclassification by the Morgan Stanley Capital Index. As Bloomberg reported back in 2014, Vietnam was attempting to make the case for upgrading its classification from frontier market status to emerging market status. The Vietnamese State Securities Commission was tasked with investigating how to go about this, with a reduction on foreign ownership caps said to be one reform that would be pursued.

The latest MSCI market classification review, released in June 2015, however, made no mention of the South East Asian nation, instead focusing on China, Pakistan and Saudi Arabia. This would suggest that Vietnam will have to wait until the 2016 review to hear whether or not it will be considered for reclassification.

US Supreme Court votes against new air pollution laws

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The US Supreme Court has voted against new laws to clamp down on America’s biggest polluters, effectively bringing a halt to the Environmental Protection Agency’s plans to limit the amount of toxic pollutants in the atmosphere and in the country’s water supplies. The 5-4 voting split against the new laws means that the Clean Air Act will stay unchanged, on the basis that the EPA failed to factor in the costs associated with the changes.

The Supreme Court calculated that the clean-up and equipment costs alone would cost the 600 affected plants some $9.6bn a year

“The agency must consider cost – including, most importantly, cost of compliance – before deciding whether regulation is appropriate and necessary,” said Justice Antonin Scalia, writing on behalf of the court. “It is not rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.”

21 Republican-led states and a number of industry bodies appealed against the new laws, which, if passed, would limit coal-fired plants from spilling mercury, arsenic and other hazardous pollutants into the atmosphere. Peabody Energy Corp, the country’s leading coal producer, was the most vocal critic, though many more in the fossil fuels and nuclear industries echoed the company’s concerns.

The Supreme Court calculated that the clean-up and equipment costs alone would cost the 600 affected plants some $9.6bn a year, though the EPA maintains that the benefits, in terms of productivity and health, would amount to somewhere in the region of $37bn and $90n annually. According to the EPA, SNL Energy data also shows that most of the plants in question have already met or have plans to meet the targets in question.

Greek tragedy unfolds as banks go into meltdown mode

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Following the announcement of a snap referendum, thousands of people across the country began drawing cash from their local ATMs over the weekend. In a bid to prevent more funds from being withdrawn and avert financial collapse, on June 29, the government ordered the temporary closure of Greek banks and the Athens Stock Exchange. 

On June 26, Prime Minister Alexis Tsipras unexpectedly called for a national referendum regarding the cash-for-reforms deal; unable to decide the fate of the debt-ridden country, the Greek government has put the verdict in the hands of the people following another breakdown in negotiations with international lenders.

Athens has until June 30 to pay approximately €1.6bn owed to the IMF – the first in a series of upcoming repayments that are due, which will be extremely difficult to achieve without unlocking reforms. Yet the reforms proposed are deemed as unjust by the Greek parliament who have supported Tsipras’ decision to hold a referendum on July 5. “The creditors have not sought our approval but have asked for us to abandon our dignity. We must refuse,” Tspiras said in his televised address.

Athens has until June 30 to pay approximately €1.6bn owed to the IMF

Tsipras has since requested an extension of the bailout deadline, but was rejected by eurozone finance ministers, thereby raising the possibility that the deal being voted upon may not even be available when votes are cast.

In order to keep banks afloat in the meantime, cash machines will be limited to just €60 a day. Overseas transfers are not permitted, except for pre-approved commercial transactions. Cash withdrawal restrictions will not apply to with foreign credit cards and debit cards, so as not to drive tourists away.

Banks on hold: 10 institutions Greece’s government has closed

Domestic:

Alpha Bank
Attica Bank
Eurobank Ergasias
National Bank of Greece
Piraeus Bank

Greek branches of international banks:

Bank of America
Bank of Cyprus
Bank Saderat Iran
BMW Austria Bank
BNP Paribas Securities Services

The ECB declared on June 28 that it will not increase emergency funding to Greek banks, saying in a statement, “Given the current circumstances, the Governing Council decided to maintain the ceiling to the provision of emergency liquidity assistance (ELA) to Greek banks at the level decided on Friday”.

The ECB’s announcement and Greek capital controls have sent reverberations throughout European markets and even further afield. In France and Germany, stock markets fell by four percent, while banking shares tumbled by around 10 percent. The impact was also felt through Asia as shares slid by up to three percent in both Hong Kong and Tokyo.

In order to receive the latest bailout deal and remain in the eurozone, the Greek people must now vote on severe austerity measures and economic reforms. Eurozone leaders have blamed the Greek government for bringing a halt to negotiations, while Tsipras has lashed out against the terms being offered. On June 28, the commission released a statement outlining the proposal, which includes increasing the VAT rate and corporate income tax, abolishing oil subsidies for farmers and a drastic reform of the pension system.

Tsipras stated in his address that the Greek people will say no to such policies, believing that this will then strengthen his party’s bargaining position. Others believe that a yes will be voted for in the referendum as the population will opt to stay in the eurozone at all costs, for the consequences of a default would spell even further disaster for the struggling economy.

In spite of what many assume, missing the IMF repayment on June 30 will not necessarily cause a Greek default as credit rating firms focus on debt held by private-sector lenders and the IMF is obligated to give warnings when payments are missed before publishing a notice of default. Furthermore, under the loan terms outlined by the ECB and eurozone, rescue fund are also obligated to call in loans if payments are missed – although, whether they will be in a rush to do so remains doubtful.

Unwilling to go back on his pre-election campaign promises and relent to bullish tactics by international lenders, Tsipras has put this monumental decision in the hands of the people. Although the democratic notion is strong in such a move, many could argue that the slapdash manner in which the referendum was called is irresponsible. As such, the fate of Greece is now left to those living in panic as a result of capital controls and anger amid increasingly difficult economic pressures.

Goldman Sachs warns against Brexit

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If British voters decide to pursue an exit from the EU, the financial giant Goldman Sachs says that it will tilt its operations towards the continent.

Reuters reported Richard Gnodde, co-Chief Executive Officer of Goldman Sachs International and co-Head of the Investment Banking Division, as saying: “we would not completely leave Britain but we would certainly strengthen our presence in other locations within the EU.”

Cameron is attempting to renegotiate the terms of Britain’s membership

After the UK’s Conservative Party won a surprise majority in May 2015, Prime Minister David Cameron promised voters a referendum on Britain’s continued membership of the EU. Cameron is attempting to renegotiate the terms of Britain’s membership before voters go to the polls in either 2016 or 2017.

“Britain must remain part of a larger economic bloc. Anything else would damage the broader economy as well as the financial sector,” Gnodde continued. The economic costs and benefits of Britain leaving the bloc are fiercely contested, with pro-EU campaigners camp pointing out that leaving would place the British economy outside of the common market, forcing it to pay tariffs on export to member-nations and make cross-border business with EU members harder and more costly. Others, such as the campaign group Business For Britain, argue leaving would make business with economies outside the EU easier.

If UK-based financial firms do refocus their resources on the continent, the financial capital and home of the European Central Bank, Frankfurt in Germany is most likely to benefit. “I’m not revealing any secret when I say that in the unlikely event of a Brexit we would certainly put more resources into Frankfurt,” said Gnodde.

Greece’s bailout conditions leaked to press

Posted on by Ashton Wenborn

In the run up to a meeting on Saturday June 27 in which EU leaders are set to meet once again to work out a deal for Greece, a blueprint for bailout conditions by its creditors has been leaked to the Financial Times. The country has been perpetually stuck in its eleventh hour, with a deal to unlock emerging funds to prevent a default yet to be concluded.

The structure of value added tax on goods has also caused friction

The leaked document, which outlines what economic reforms creditors wish to see before any new funds are extended to the debt ridden country, comes after Greece’s reform proposals were turned down recently. According to creditors, it was too heavy on taxes and light on spending cuts, making it too recessionary.

A major point of contention has been pension reforms. Greece, in its now discarded plan, proposed to raise the retirement age to 67 by the year 2025, while the leaked document shows that its creditors are pushing for Athens to raise the age of retirement by 2022.

The structure of value added tax on goods has also caused friction, with creditors initially pushing for a two tier VAT system to be implemented, with most goods falling under the higher tier of 23 percent added tax. The new document now shows creditors ceding to the Greek’s proposal for a three tiered VAT system, with certain goods and services such as books, medicines and theatre placed in a “super-reduced rate” of six percent. They also suggested corporate tax be raised from 26 to 28 percent, in contrast to Greece’s proposal to raise it to 29 percent.

Trade Promotion Authority legislation passes Senate

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The Senate has finally approved the Trade Promotion Authority legislation, which puts President Obama’s trade-push back on course and brings an end to longstanding disagreements between the Republicans and Democrats. The approval of the TPA, or “fast-track”, as it is sometimes known, means that the president can more easily approve trade deals, and paves the way for the passage of the Trans-Pacific Partnership deal.

The vote brings the Obama administration one step closer to finalising the
TPP legislation

A procedural vote on Tuesday to overturn a filibuster was approved 60 to 37, and the same margin again voted to pass the bill the following day. The amendment means that Congress can only vote for or against finalised trade motions, and leaves it without the power to make amendments. The legislation means also that Obama can pass trade deals far more quickly, without the same degree of opposition that has so characterised Congress of late.

The vote brings the Obama administration one step closer to finalising the TPP legislation, which, if approved, would lift a series of barriers on both trade and foreign investment. The deal would include neighbouring Canada, as well as Mexico, Chile, Peru, Australia, New Zealand, Japan, Malaysia, Singapore, Brunei and Vietnam, which together play host to 800 million people and make up 40 percent of global trade.

The implications of the deal are far-reaching, and include matters such as environmental preservation and workers’ right, as well as industry-specific regulations, yet discussion on the points has come up against criticism for its lack of transparency. The approval of TPA effectively guarantees that Congress will vote on the TPP deal soon, though whether it will be approved is uncertain.

Lloyds moves towards privatisation

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Overnight, HM Treasury has sold an estimated £600m worth of its shares in Lloyds Banking Group. Through the sale of 734 million shares, the British government has reduced its stake in the bank by one percent to 16.87 percent.

George Osborne…will continue selling shares in Lloyds as quickly as possible

During the financial crisis, Lloyds Bank was rescued by the UK Government at a cost of £20.5bn to taxpayers. Between 2008 and 2009, shares were bought at 63.1p; they were sold yesterday at 87.08p per share, thereby reducing the taxpayer bill to £11.5bn.

The group is celebrating the move, which it sees as a closer step towards total privatisation – a goal it has set for 2016. “Today’s announcement shows the further progress made in returning Lloyds Banking Group to full private ownership and enabling the taxpayer to get their money back,” a Lloyds representative said in a statement, according to the BBC.

The opportunity for the British government to raise capital through Lloyds is ripe given the growing investor interest in the Bank and its rising share price. According to a quarterly statement published by Lloyds Banking Group, its underlying profit for Q1 2015 totalled £2,178m, an increase of 21 percent from the first quarter of 2014. Total income grew by 3 per cent to £4,644m.

Reportedly, Chancellor of the Exchequer, George Osborne, will continue selling shares in Lloyds as quickly as possible over the next year in order to raise capital for the spending plans committed by the incumbent government. Osborne aims to raise around £23bn through the sale of various public sector assets, including the government’s stakes in RBS, the Royal Mail and the student loan book.

French private sector expansion at 46-month high

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According to Markit Economics, a global financial information company that provides independent economic data, the French private sector has seen strong growth in June 2015. Using its Markit Flash France Composite Output Index, private company output saw growth rise from 52.0 index points in May to 53.4 in June. While France’s private sector output has expanded in each of the past five months, this was the strongest rate of expansion in 46 months.

French manufacturing output remained largely unchanged

The Composite Output Index is the weighted average of Markit Economics’ Manufacturing Output Index and the Services Business Activity Index. Within the French economy, the services industry has fuelled much of this private sector growth, with its increase at its sharpest since 2011. In contrast, French manufacturing output remained largely unchanged, although this brought an end to a 12-month long period of falling output among manufactures.

Employment increased for a fourth consecutive month within the private sector, although growth was modest with little increase from the prior month’s data. Much of the job growth also came from the services industry, with manufacturing employment still declining. New business opportunities also grew for service industry firms, while manufacturers suffered a marginal decline. Business expectations were also reported to be at a 39-month high.

According to Jack Kennedy, a senior economist at Markit, “The French economy gained further growth momentum in June, driven by a stronger service sector performance and a stabilisation in manufacturing. The figures bode well for second quarter GDP, following the 0.6 percent expansion recorded in the opening quarter of the year. With service sector business expectations standing at the highest level for over three years, it seems firms are becoming increasingly optimistic of a convincing upturn in activity.”

Gazprom and Shell fuse together

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Gazprom, the world’s largest extractor of natural gas, has signed a strategic deal with oil and gas producer Royal Dutch Shell. Termed The Agreement of Strategic Cooperation, a Gazprom press release claims it will ensure cooperation between the two countries “across all segments of the gas industry, from upstream to downstream, including a possible asset swap.” The deal will help Gazprom penetrate new markets as those in Europe become saturated.

The deal will help Gazprom penetrate new markets as European markets
become saturated

Alexey Miller, Chairman of the Gazprom Management Committee, and Ben van Beurden, Chief Executive Officer of Shell, at the St Petersburg International Economic Forum, signed the document. The two energy giants have a history of cooperation. “Documents of such significance are signed only once every five years or maybe even 10,” Miller said at the forum, reports Reuters. “Many of our traditional partners are positioning themselves as strong regional players… Shell is a global player. And as the global gas markets develop… we will be creating a global strategic partnership.”

Gazprom is officially an Open Joint Stock company, however the Russian state has the largest share of ownership. Many western firms are divesting or steering clear of Russian firms due to continuing sanctions and hostility between the west and Russia. While the US has placed sanctions on the company as punishment for Russia’s actions in Crimea, the EU has been reluctant to do so due to its members’ reliance on its gas output.

The deal will take time to come into effect. Shell is waiting for anti-monopoly clearance from authorities in a number of countries after its recent purchase of rival firm BG.

Fitbit shares sprint ahead on first day

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Opening at $20 a share, having originally priced them at $14 and later $16, wearable technology brand Fitbit has once again surpassed market expectations, with its shares having soared almost 50 percent on its first day of trading. The much-fancied San Francisco-based company is a leader in the connected health and fitness market, and makes wristbands that count calories and footsteps.

[T]he initial day’s showing puts Fitbit out front as the top-performing debut of the year so far

NYSE’s Global Head of Capital Markets said in a statement: “Fitbit’s IPO demonstrates the powerful role technology will continue to play in the health and fitness movement.” He added, “With the power of capital markets fuelling their innovation, Fitbit will be even better positioned to help people lead more active lives through wearable technology, data and inspiration.”

Founded in 2007, the brand has capitalised on a thriving wearable technology market and a budding interest in health and fitness applications. A recent BI Intelligence report on the wearable computing market conducted recently estimates that the market will grow at a compound annual growth rate of 35 percent in the next five years.

At the end of Fitbit’s first day of trading it was valued at approximately $6bn, having fast become the leading name in the global wearable market. In this year’s first quarter alone the company shipped 3.9 million devices, accounting for 35 percent of the market, and far and above second placed Xiaomi with 25 percent.

Early signs show that 20 million shares traded hands in the first 10 minutes of trading, and the initial day’s showing puts Fitbit out front as the top-performing debut of the year so far. The company said that it would use the capital to boost financial flexibility and invest a fair portion in research and development, adding also that an acquisition may also be on the cards.

Woman to appear on $10 bill

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Following growing demand by the American public, on June 17, the treasury announced that a woman’s portrait will feature on the US $10 bill. Symbolically, the new note will enter circulation in 2020, the 100-year anniversary of the Nineteenth Amendment to the Constitution, which gave every US citizen, including woman, the right to vote.

The woman, whom is yet to be named, will replace the current resident of the paper note, Alexander Hamilton, the founder of the US financial system. Hamilton, who has been the face of the $10 bill since 1928, will still feature somewhere in the new design.

The Secretary invited people to share their ideas, symbols and designs for the new ten

Jacob Lew, Secretary of the Treasury, made a video statement to announce the bold move, saying, “This historic endeavour has been years in the making.” Lew explained that democracy will be the theme for the next currency series and is integral to the new design of the $10 note.

“The woman’s suffrage movement was propelled by the fundamental truths that have animated this nation since our founding, that we are all created equal, that we are born with certain alienable rights,” Lew said in the announcement, which can be watched on YouTube. “Those ideals and our striving to make them a reality, define the United States of America”.

Lew then asked the general public to make suggestions on a new website or via Twitter with the hashtag #TheNew10 as to who should feature on the new bill. The Secretary invited people to share their ideas, symbols and designs for the new ten and “how it can reflect our representative democracy”.

The last woman to feature on US paper currency was over a century ago when Martha Washington graced the $1 Silver Certificate for a short stint between 1891 and 1896.

Legislation dictates that no one living can feature on a bill, while George Washington’s staple place on the $1 cannot be removed. Slavery abolitionist Harriet Tubman seems to be at the forefront of public favour, following a high profile petition that was given to the US president Barack Obama just last week to have her portrait on the $20 bill. Other potentials include Eleanor Roosevelt and suffragette Susan B Anthony, as indicated by an informal vote carried out by the “Women on 20s” campaigning group.

US Fed halts interest rate hike

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The interest rate set by the US Federal Reserve has been at a historic low for a record amount of time. The latest statement from the Federal Open Market Committee, released June 17, suggests this is to continue for some time still, but lending rates may gradually increase later in the year.

US economic performance has gradually improved in the second quarter of 2015

The FMOC claims that US economic performance has gradually improved in the second quarter of 2015, in contrast to its last statement in April, which conceded economic expansion had been poor for the first quarter. The latest statement notes that the US economy has seen some increased job growth, a moderate increase in household spending and an improvement in the housing sector. At the same time, it points out that net exports and business fixed investment remain low, while inflation remains below the Fed’s long run target.

This below-target inflation rate, along with an unemployment considered too great for full employment, means that an interest rate rise was not seen as justifiable as of yet, with the low level of 0.24 percent maintained. “To support continued progress toward maximum employment and price stability,” the FMOC noted in its statement, “the current 0 to 0.25 percent target range for the federal funds rate remains appropriate.”

To determine how long to hold rates, the FMOC says it will continue to monitor progress towards its objectives of maximum employment and an inflation rate of two percent. A rise in interest rates is expected sometime later this year, with the FMOC claiming it is “reasonably confident that inflation will move back to its two percent objective over the medium term.” However, even once its employment and inflation targets are reached, any raise, owing to US economic conditions, will be moderate, below what would be considered normal in the longer run.

World’s largest private equity firms join forces

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The two biggest private equity firms in the world have made a joint bid of $10bn to acquire ATM and checkout manufacturer NCR Corp. The news of the possible acquisition by Blackstone Group and Carlyle Group has sent NCR’s share price soaring from $4.15 to $35.52 per share.  The $10bn offer, which if completed will be one of the biggest acquisitions since the financial crisis, is inclusive of debt.

NCR’s weak position could leave the board with little choice but to buckle under shareholder demands

With the auction still open for several weeks, other firms are also vying to purchase the company that made the world’s first mechanical cash registers. Still in the run are Apollo Global Management LLC and Thoma Bravo LLC, while the possibility of NCR backing out of any such deal could also transpire.

NCR’s move comes as a result of increasing shareholder pressure, with Marcato Capital Management in particular being cited as calling on the company to consider its options going forward. NCR recently announced that revenue had fallen by 25 percent in the first quarter of this year as a result of currency pressures and weakening sales. Slow growth has afflicted the firm as more individuals use mobile banking to carry out transactions as opposed to traditional methods.

In a bid to cater to new spending behaviour, NCR is entering the emergent market for smart ATMs and turning its attention to cloud-based software. In April, the firm launched its Kalpana software, a programme based on the Android operating system that streamlines functions at ATMs. NCR promises that Kalpana could reduce costs by 40 percent, while also helping to reduce fraudulent behaviour. NCR’s futuristic cash points allow users to withdraw money via their mobiles or using fingerprint identification, thereby removing the need of a bank card.

As new technologies and ventures have yet to take effect, NCR’s weak position could leave the board with little choice but to buckle under shareholder demands and accept the generous bid by Blackstone and Carlyle.

Economics professor becomes Greek IMF representative

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The appointment, which will come into effect as of June 29, comes as relations between the Greek government and European lenders deteriorate – with an agreement on conditions for unlocking a much needed bailout fund worth €7.2bn failing to materialise.

European Commission president, Jean-Claude Juncker, has recently suggested the Syriza party misled voters, while Greek prime minister Alexander Tsipras accused the IMF of “criminal responsibility” for the role it has played in the debt crisis. According to analysts at BNP Paribas, the country is “staring down the barrel at default.”

The background of Psalidopoulo is not unique

Michalis Psalidopoulo is an economics professor at the University of Athens, and served as a professor at Tufts University in Massachusetts, US between 2010 and 2014. He was nominated after a previous appointee turned down the role following a backlash from the anti-austerity party.

The former professor’s appointment, despite his training and career as an economist, is unlikely to see a deal reached between Greece and European politicians. The background of Psalidopoulo is not unique, with a number of Syriza politicians having also previously served as economists at universities around the world. The Greek finance minister, Yanis Varoufakis, previously lectured at the University of Texas, Austin, while the influential Syriza MP Costas Lapavitsas taught at the SOAS, University of London for many years. Further, according to Reuters, Psalidopoulo’s appointment came as a proposal from the finance minister. Varoufakis, known for his flippant statements and uncompromising character, is perhaps the most reviled of all Greek officials by EU lenders.

Renewables could overtake coal in 15 years, says IEA

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With pressure mounting on countries to agree to new climate change targets, there now seems to be a concerted effort to back renewable energy over traditional fossil fuel-based sources, according to the International Energy Agency (IEA). If a deal is agreed this year, then the IEA predicts that renewables – led by solar power – could overtake coal, gas and nuclear power as the world’s main source of electricity.

Solar could account for as much as a third of global power generation by 2030

Solar power has been growing in use for the last couple of years, after a troubled period where much-touted companies collapsed and government subsidies in the US and Europe were cut. It is now seen as a commercially viable source of power, with China heavily backing the technology and bringing down costs as a result. According to the IEA, solar could account for as much as a third of global power generation by 2030, which would be up from the fifth of market share it has currently.

The IEA’s Energy and Climate Change report also highlighted how coal will likely remain a key component of the global energy mix in 2030, but would have slightly reduced its dominance. However, the report also calls for governments to phase out fossil fuel subsidies by 2030 in an effort to reduce the reliance of countries on polluting fuels.

The UN is pushing for stringent emissions targets to be agreed at a conference in Paris in December, and it is thought that most countries are keen to sign up to tougher goals. Previously, many states have been reluctant to meet targets that might have affected their economic development.

Maria van der Hoeven, the IEA’s Executive Director, said in the report that “time is of the essence” if the world was to mitigate the effects of greenhouse-gas emissions. “It is clear that the energy sector must play a critical role if efforts to reduce emissions are to succeed. While we see growing consensus among countries that it is time to act, we must ensure that the steps taken are adequate and that the commitments made are kept.”

The last year has seen a dramatic shift in the global energy market, with plunging oil prices exacerbated by an increase in production by the Saudi Arabia-led Organisation of the Petroleum Exporting Countries (OPEC). As discussed in the latest issue of The New Economy, the are fears in Saudi Arabia that the rise of renewable energy means that it makes more sense to get produce as much oil as possible now, before it is no longer of any value.