Mission Creep: EBRD Turns Into Mideast Aid Agency

♠ Posted by Emmanuel in ,,, at 2/08/2016 05:48:00 PM
You see a major Jordanian camp for Syrians refugees in Zaatari; the EBRD sees a development opportunity.
The European Bank for Reconstruction and Development (EBRD) was founded in the aftermath of WWII to rebuild a continent shattered by that conflict. It is one of four regional development banks together with those in Africa, the Americas, and Asia. Until recently, the EBRD's mission has not strayed far from providing funding for, yes, European reconstruction and development. In recent decades, it has helped transition economies from the former Soviet bloc move to capitalist systems.

Now, though, comes an element of "mission creep": with Middle East turmoil driving millions upon millions of refugees to European shores, the EBRD is now tasked with helping staunch this massive flow of humanity. How? By promoting economic development in Middle Eastern countries that are currently hosting large numbers of refugees:
This realization has prompted the European Bank of Reconstruction and Development to find a new calling: crisis development. Created after the fall of the Berlin Wall to help Europe's ex-communist nations become market economies, the EBRD controversially moved on to Egypt, Jordan, Morocco and Tunisia after the Arab Spring. Last summer, as he watched TV coverage of refugees coming to Europe, the bank's president, Suma Chakrabarti, told me he saw "an opportunity to show we are relevant to crisis situations." Now Lebanon has applied for EBRD membership.
Thus went the call for funding for Middle East projects:
In October, Chakrabarti says he got the EBRD's board to agree to a new approach. It would help stabilize refugee host countries by corralling funds and private investors to deal with the consequences of sudden population explosions and treat them as a development opportunity. On Wednesday, he announced a 900-million euro program. "We're ready to go," says Chakrabarti. All that's required is for donor countries to provide 400 million euros, and for the host countries to cooperate.
Jordan is currently one of the targeted nations given its massive population surge from refugees settling there:
In 2010, the population of Lebanon was around 4.3 million. By last summer the CIA estimated that figure at 6.2 million, mostly because of refugees from Syria. It is, said Lebanon's education minister Elias Bou Saab, as though 32 million people had suddenly descended on Britain...

Start with sewage. Already straining, Jordan's system can't cope with 1.4 million extra Syrians, so the first EBRD project would strengthen the network in the Zarqa River area, north of Amman. Then landfills - they're full. New ones have to be built.

Jordan, the second most water-poor country on earth, has had to halve cistern deliveries in some areas. Leaking water pipes need repair. Four hundred schools are running double shifts -- local kids in the morning, Syrians in the afternoon. More schools need to be built. Hospitals are overwhelmed. Transportation systems are overrun. Digging landfills and laying pipes is labor intensive, as is building schools and hospitals -- which is good. The work can employ both locals and Syrians.
Maybe it should now be called the EMEBRD--the European and Middle Eastern Bank for Reconstruction and Development.

South Korea, Where Speculators Short EU Stocks, HK$

♠ Posted by Emmanuel in , at 2/05/2016 12:26:00 PM
Beware the Seoul speculator whose derivatives trading causes disorder elsewhere in the world.
There's an interesting illustration of financial globalization in how derivatives trading in South Korea (of all places) is apparently helping drive down not only European stock indices but even the Hong Kong dollar. Despite being removed from where the action is--Seoul is not usually regarded as a front-line financial center--the consequences of Korean derivatives trading has magnified movements in offshore markets. The knock-on effects are evident when markets are especially turbulent--as they have been as of late:
Korea hosts the largest and most liquid market in the world for options on single stocks — bigger than the US, even, according to bankers — and retail interest in derivatives does not stop there. In what looks like the latest example of a “butterfly effect” in global markets, last year Korean investors bought record amounts of so-called “autocallables” — a structured product offering an attractive yield. About $40bn are outstanding. 
The distinguishing feature of these structured products is that they tend to magnify volatility when the indices or underlying securities they are based on fall below a level known as the "knock-in" level which makes the derivatives (and therefore mark-to-market losses) active. When this happens, investors write put options--to sell at a certain price in expectation they may decrease--to hedge against future losses. All this activity introduces additional volatility:
Since these autocallables are two- or three-year deals, and most were sold last year, the final reckoning over who has lost what is some way off. The area of interest for now is their effect on other markets. The products in essence sell volatility. They work by offering investors a “worst of” basket of two or three reference securities — typically indices.

The sales pitch is that investors get a yield on top of their capital if the reference securities stay within a specified range. If they rally above it, investors are “knocked out” and get their money back with a bonus. If it falls below a specified point — usually between 40 and 50 per cent of the level, when the product was sold — they are “knocked in” and lose some capital.
Holders can be made whole if the index recovers all lost ground before the autocallable ends — hence it being difficult to gauge losses at this point. However, the nearer an index falls to that strike price, the more product sellers have to hedge, which they do via selling futures. This is what is weighing on the HSCEI, which was a popular inclusion in the first half of last year because of China’s soaring markets. But it is now down 46 per cent from its May 2015 peak — putting it right in the zone where issuer hedging will be at its highest.
To illustrate, consider the Hong Kong dollar. As speculative rumors swirled on breaking its 32-year-old peg to the US dollar, Koreans were forced to follow suit lest this become another source of losses:
Hong Kong indices are even more popular in Korean products because of the 32-year unchanged link between the Hong Kong dollar and its US counterpart. So imagine the fear among Korean sellers of autocallables last month on seeing the Hong Kong currency suddenly spike higher after Chinese authorities quashed speculative shorts in the offshore renminbi market. The result was additional weakening pressure on the Hong Kong dollar as Korean groups rushed to hedge.  
Who'd have thought the Koreans were introducing more volatility into global finance?

Why Cheap Oil Hurts Its Net Importer, the Philippines

♠ Posted by Emmanuel in ,, at 2/01/2016 05:39:00 PM

There's an interesting story in Bloomberg about how a largely oil-importing nation, the Philippines, can be negatively affected overall by lower oil prices. Sure, the country benefits from lower oil prices to an extent. However, in the larger scheme of things, matters appear less rosy. As a large labor exporter, the Philippines has, since the first oil shock, sent large numbers of migrant workers to the Middle East. With the country dependent on workers' remittances from abroad to improve its external position--the Philippines runs a sizable trade deficit annually but nevertheless manages a current account surplus due to the aforementioned remittances--current trends are worrying:
The share of remittances coming from the Middle East could be as high as 40 percent, compared with 23 percent in the official [Philippine] data, according to a Jan. 27 research note by Michael Wan, a Credit Suisse Group AG analyst in Singapore. Remittance growth slowed to 3.6 percent in dollar terms last year through November, from 5.8 percent in 2014, central bank data show. Volumes have held up reasonably well so far, said Wan.

That could change as the impact of a 29 percent drop in Brent crude over the past six months forces Saudi Arabia to cut generous subsidies to its citizens, while the United Arab Emirates’ Etihad Rail suspended a major rail project this week after firing almost a third of its workforce. Brent recovered to around $35 on Monday after falling to a 12-year low of $27.10 a barrel on Jan. 20.

“Before, when the trouble would be concentrated in one of the countries in the Middle East and North Africa, the workers could just simply move to a neighboring country and find employment,” central bank Governor Amando Tetangco said Jan. 25. “Now the trouble is more widespread.”
Aside from affecting land-based workers in the Middle East, another possible avenue for low oil prices negatively impacting the Philippines is via reduced crew aboard oil services-related ships.  Somewhere between a fifth to a fourth of all seafarers worldwide are Filipino, so it follows:
As well as declining oil prices, a more general slowdown in global trade is affecting the job prospects of Filipino seamen. Many drillers and oil-service companies have suspended operations and shipping companies are also hurting, said Nelson Ramirez, the president of United Filipino Seafarers. “I have talked to one of the biggest crew suppliers of offshore vessels,” he said in Manila. “They have many laid-up ships. There will be more job losses.”

Economic Battle Royale: George Soros vs PRC

♠ Posted by Emmanuel in , at 1/27/2016 01:30:00 AM
Mahathir and Soros eventually reconciled, but will Chinese authorities be so forgiving?
This could be a battle for the ages if it comes true: During the Asian financial crisis, then-Malaysian Prime Minister Mahathir Mohamed famously singled out George Soros as a villain in depressing any number of Asian economies to make a quick buck through currency speculation. Aside from calling Soros a "moron," Mahathir launched all sorts of tirades against the famous financial figure, prompting a heated exchange of words:
"I know I am taking a big risk to suggest it, but I am saying that currency trading is unnecessary, unproductive and immoral," Mr. Mahathir said Saturday night. "It should be stopped. It should be made illegal. We don't need currency trading. We need to buy money only when we want to finance real trade." 

On Sunday, Mr. Soros said: "Dr. Mahathir suggested banning currency trading. This is such an inappropriate idea that it doesn't deserve serious consideration. Interfering with the convertibility of capital at a moment like this is a recipe for disaster. Dr. Mahathir is a menace to his own country..."

When Thailand's currency crisis caused the Malaysian ringgit and other regional currencies to crash last month, the Malaysian prime minister blamed hedge-fund investors such as Mr. Soros, whom he called "a moron."  
The picture above dates from 2006, when the antagonists finally met face-to-face. Apparently, Mahathir had softened his views of Soros by then. Among other things, he mentioned that he no longer believed that Soros shorted Asian currencies like the Malaysian ringgit during the crisis:
Malaysia's former premier Mahathir Mohamad today met his old foe George Soros and said he accepted the billionaire financier was not responsible for the 1997-98 Asian financial crisis. Mr Mahathir has long blamed Mr Soros for undermining South East Asian economies by destabilising their currencies, and famously called him a "moron".

"Mr Soros said he was not involved in the devaluation of the Malaysian currency and that other people were involved. And I have accepted that," Mr Mahathir said at a joint press conference.
However, George Soros' reputation precedes him of being "the man who broke the Bank of England." By speculating against the pound's devaluation way back when, Soros made a tidy profit and gained global notoriety as a currency speculator. And so it is again with China's financial markets causing adverse spill-on effects on the rest of the world (particularly Asia). At the ongoing Davos meeting, Soros suggested that he was positioning against Asian currencies, raising the particular ire of the Chinese government. They have now warned him about speculating against the yuan and the Hong Kong dollar (which is pegged to the US dollar):
China’s state press is warning George Soros not to bet against its currency after the hedge fund star-turned philanthropist predicted a “hard landing” for its economy last week. “Soros’ challenge against the renminbi and Hong Kong dollar is unlikely to succeed, there is no doubt about that,” the overseas edition of People’s Daily, the Communist Party’s main mouthpiece, said Tuesday...

But China’s warning was strange for one reason: Soros never said he was betting against the renminbi or Hong Kong dollar. At the World Economic Forum in Davos, Soros was light on specifics, only saying he was betting against U.S. stocks and Asian currencies. 
If your reputation is like that of Soros, even the merest hint of speculation against Asian currencies brings a warning from PRC officialdom. (Consider yourself warned, Mr. Soros.)

New Venezuelan FinMin: Inflation Doesn't Exist

♠ Posted by Emmanuel in ,, at 1/26/2016 01:30:00 AM
Guerra economica and ever after.
The late Venezuelan President Hugo Chavez was once described as a "Narcissist-Leninist" by a number of economic commentators. As we've subsequently learned, self-ingratiating policies for the alleged benefit of the global workingman worked a lot better when oil was at $100/barrel instead of less than a third of that. In the latter situation which Chavez's successors find themselves, the scope for the Venezuelans spreading their largesse from oil revenues is greatly diminished since, well, the country is now faced with empty coffers selling the stuff at below cost for months on end.

Enter Venezuela's new finance minister, Luis Salas. It's not a good start that he's not an economist by training but a sociologist, but it only gets more interesting. Recently, he declared that inflation does not exist:
Venezuela's new economy czar Luis Salas is tasked with controlling what is believed to be the world's highest rate of inflation, but comes to the job with an unusual perspective: that inflation does not really exist.

President Nicolas Maduro on Wednesday tapped the 39-year-old sociologist as vice president for the economy amid soaring consumer prices and chronic product shortages, signaling a move toward orthodox socialism in the OPEC nation struggling under low oil prices.

Essays written by Salas describe scarcity and spiraling prices as the result of exploitation by businesses rather than government policy, offering an academic underpinning to the "economic war" explanation that Maduro uses to describe the current malaise of recession, runaway prices and widespread product shortages.

"Inflation does not exist in real life," he wrote in a 2015 pamphlet called "22 Keys to Understanding the Economic War." "When a person goes to a shop and finds that prices have gone up, they are not in the presence of 'inflation.'"

Salas has argued against the idea that excessive printing of money causes inflation - an almost universally accepted tenet of macroeconomics. He insists prices rise primarily because corporations seek excessive profit margins.
He also goes on a tired rather than proffer any explanation of how to deal with inflation (which you wouldn't have to deal with to begin with if it didn't exist):
Salas' numerous online essays are written in flowing academic prose featuring caustic turns-of-phrase such as "speculative-parasite-vulture capital" or "global war of the planetary plutocracy."

Few offer specific policy proposals. One list of ideas for economic policies for 2016 published on Salas' blog includes a recommendation that economic policy should be "coherent" and "should not be passive but rather active and on the offensive." 
Going back to the father of socialism, did Marx also deny the existence of inflation? Actually, no. From Das Kapital:
If the paper money is in excess, if there is more of it than represents the amount of gold coins of like denomination which could actually be current, it will (apart from the danger of falling into general disrepute) represent only that quantity of gold, which, in accordance with the laws of circulation of commodities, is really required and is alone capable of being represented by paper. If the quantity of paper money issued is, for instance, double what it ought to be, then in actual fact one pound has become the money name of about one-eighth of an ounce of gold instead of about one-quarter of an ounce. The effect is the same as if an alteration had taken place in the function of gold as a standard of prices. The values previously expressed by the price ’1 will now be expressed by the price £2. 
Why is it that today's socialists deny Marx's insights? If anything, this guy is even worse than Chavez--a "Fantasist-Leninist" [!] I'll stick with "inflation is always and everywhere a monetary phenomenon" which sounds rather more likely than "inflation doesn't exist."

Will the Paris-Dakar Rally Ever Return to Africa?

♠ Posted by Emmanuel in ,, at 1/24/2016 06:45:00 PM
What's the 'Paris-Dakar Rally' doing in Bolivia, of all places? Ask winner Toby Price (AUS).
It may strike you as false advertising, but the world-famous test of endurance known as the Paris-Dakar rally or just the Dakar rally has not been held on the African continent since 2009. This cross-continental motorsports event across inhospitable terrain used to be between Paris and Dakar, Senegal at various times since its 1979 inception. The Sahara desert was the proving ground for one of the ultimate tests of man and machine. However, since 2009, it has been held in South America due to security concerns on the African continent:
The Paris-Dakar Rally was moved from Africa to South America in 2009 but it is still called The Dakar Rally (or simply, Dakar). It is one of the toughest rallies in the world. The South American trail is also tough but does not reach the extremities in the Saharan desert. This year’s rally will start with a “prologue” in Buenos Aires in the Argentinian capital, on the 2nd of February, go through the length of the country and turn around in ,Uyuni, Bolivia on the 8th of January and take another route into Argentina where it will end in Vila Carlos Pas, Rosario, on January 16th. For cars, it will be a total of 9,583 gruelling kilometres.

This rally is unique. It is a race of extreme endurance of man and machine, a modern day Odyssey. It is the ultimate physical and mental test of man (and woman). Since the start of the rally, 69 people have lost their lives as a direct result of the race. This is made up of 28 competitors and 41 non-competitors. The non-competitors who lost their lives include the race founder, Thierry Sabine, 14 news journalists and support crew, 4 spectators, 4 children, and 18 other unnamed spectators and bystanders. The most common cause of death is collision. But casualties have been few in recent years. Even so, Motorbike rider, Michal Hernik, was found dead in mysterious circumstances in the 2015 race.
However, security challenges prompted leaving Africa altogether by 2009:
By 2000, the rally started to contend with terrorists in the African desert. That year the participants were airlifted across some of the more dangerous routes. That year’s race ended in Cairo. 2001 saw a woman finishing top for the first time. Jutta Kleinschmidt from Germany won in a Mitsubishi. In 2006, the race started in Portugal for the first time. This was repeated in 2007.

The 2008 race was cancelled after the murder of four French citizens and three Mauritanian soldiers in the days before the start of the race. The French Foreign Affairs Ministry advised its citizens not to travel to Mauritania since the country’s intelligence identified terrorist threats aimed at the rally. The following year, 2009, the race was moved to South America and Africa lost an important attention seeker to the continent. Africa’s loss became South America’s gain.
Critics will see the rally as a neo-imperialist relic since African participants have been next to none during the event's history. Ditto for African automakers. Still, the move to South America is a bit saddening insofar as it reflects the deteriorating security conditions in the Sahara. Mind you, this was before ISIS allegedly gained allies in the desert regions of Africa.

Hallelujah for Markets...from Vatican Finance Chief

♠ Posted by Emmanuel in at 1/21/2016 04:53:00 PM
The cardinal for capitalism, George Pell (de facto Vatican finance minister).
In the past I've covered "liberation theology"--the application of Marxist ideology to Christianity--and the controversies within the Catholic Church regarding it. During the time of Pope Benedict XVI, the arch-conservative who was in his previous guise Cardinal Ratzinger denounced the possibility of literally godless Marxist ideology co-existing with Christian doctrine. With the Jesuit Pope Francis though coming from Latin America--home of liberation theology--the preferential option for the poor is coming also back into focus. The main reason, of course, is because the current pontiff's stances often smack of "liberation theology." 

Touching upon these controversies is the role of the market in modern societies. Having condemned the solitary pursuit of riches as the "devil's dung" and other splendid allusions, Pope Francis and his seemingly liberation theology-friendly demeanor has struck others as a form of Catholic socialism. Previously disdained figures have been visiting the Vatican. Or, has capitalism-bashing really hit a fever pitch? 

George Pell, effectively the Vatican's equivalent of a finance minister--the Vatican is a state, after all--offers a more favorable view of markets:
George Pell, the head of the Holy See’s secretariat for the economy, told a conference hosted by The Global Foundation in Rome on Sunday that “no better model is available at the moment” than market economies, citing their capacity to “rejuvenate” after the Great Depression and recent global financial crisis, and their failure to produce the “massive alienation” predicted by Karl Marx.
His boss, though, may beg to differ. in his defense, Pell states that the Pope is actually not a socialist hardliner like some have styled him. Rather, Francis sees benefits from market mechanisms, although the focus on his more exaggerated statements against capitalism's admittedly negative excesses garners the bulk of media attention:
Cardinal Pell’s remarks contrast with the harsher tone towards unbridled capitalism often adopted by Pope Francis. In a speech last July in Bolivia he described the unfettered pursuit of money as the “dung of the devil”. Pope Francis also lashed out at multinational companies for plundering the planet in a high-profile encyclical letter on the environment published last June.

But Cardinal Pell insists that the Pope’s views may be more nuanced than is often believed — particularly by conservatives who have criticised the Argentine pope for being a socialist.

“We are all aware of Pope Francis’ commitment to social justice, his option for the poor and those on the peripheries, and his condemnations of exploitation, abuse and consumerism,” he said. “What is not so widely known is that Pope Francis himself ... has made specific and favourable reference to the role of business,” Cardinal Pell said. He cited how Pope Francis wrote in last June’s encyclical that business was a “noble vocation” and on his visit to the US he spoke of “the spirit of enterprise” as essential to a sustainable economy.
Catholicism is very hard to define from the conventional left-right duality Americans and their like view the world with. The Holy See sets its own course. Sometimes pleasing lefties with anti-war and anti-death penalty stances, it too pleases righties with its focus on the family and discouraging homosexuality. More than other things, markets can be viewed either way from Catholicism. The Acton Institute famously champions a market-friendly form of Catholicism, while Latin Americans including Pope Francis to some extent do bash its more extreme forms.

My personal belief remains the same--markets are essentially amoral. It can be used for good or ill. Those criticizing it for the excesses of capitalism certainly raise a valid point, but so do those who view it as a fairly mundane way to improve welfare in societies. Again, it's how market mechanisms are used rather than being inherently immoral or moral that raises confusion about the whole matter.

Prospects for Iran as the Next Investor's Darling

♠ Posted by Emmanuel in at 1/17/2016 05:10:00 PM
Capital goes to where profits are to be made. Is this place one of them for foreign investors?
Even in these rather blah economic times, there lie opportunities...for those brave enough to take them on, I suppose. With the rest of the world economy becoming rather stagnant, where is the smart money supposed to go? How about a country with a population of 77 million that has been locked out of the international community for years on end due to sanctions? With normalized economic relations set to resume this week (with the major exception of the United States), Iran looks like the destination country of choice for any number of multinational corporations.

Starved of modern capital and consumer goods, Iran certainly will have some appetite for them:
With global growth moribund, multinational firms have been waiting with bated breath for the lifting of international sanctions against Iran for access to a country in desperate need to modernise. After nearly a decade of limited access to the outside world, many sectors of the Iranian economy need new equipment including the oil and gas industry, railways, and airlines. Plus there are 80 million Iranian consumers, many of them keen to buy cars and other goods.

Access is expected to begin opening up, now that the International Atomic Energy Agency has issued a report concluding that Iran has fulfilled its obligations under a nuclear deal reached last year with world powers.
Yes, oil prices are at near-historic lows, but still, Iran's energy sector needs to modernize rather quickly to keep up with the others. So, oil services companies certainly have Iran in their sights:
Nevertheless, with the country holding the world's fourth-largest oil reserves and currently pumping a million barrels per day less than it did before sanctions, the Iranian energy sector is still attractive for foreign firms and Tehran is looking for US$25 billion in investment in the oil and gas sectors. "The infrastructure and energy sectors offer the best opportunities for our firms", Italy's economic development ministry said recently.

Russia, which has maintained close relations with Iran, has a leg up on the competition and is willing to put money on the table to achieve its goal of boosting its annual trade turnover with Tehran from US$1.6 billion currently to US$10 billion. Russian President Vladimir Putin offered to open up a US$5 billion credit line to Iran during a visit to Tehran in November.
Aside from FDI by MNCs, portfolio investors will also get their chance to place funds in Iran's stock market. Actually, it is the fifth largest in the Middle East with a total capitalization on $90 billion, so it's nothing to sneeze at. By coincidence, Saudi Arabia opening up its stock market to international investors places them both in competition for foreign funds:
With a market cap of about $90 billion, Iran’s stock market is fifth-largest in the Middle East. The lifting of sanctions will allow the country to compete for investor attention with Saudi Arabia, which opened the region’s biggest stock market to direct foreign ownership seven months ago.

While investing on Tehran’s bourse is already legal for many international investors, financial sanctions placed on the banking system have made it almost impossible to transfer money in and out of the country. The majority of those sanctions are being removed after an international deal over Iran’s nuclear ambitions, allowing the nation’s banks to reconnect to the Swift system for international financial transactions...

Even so, dozens of Europeans and Americans living in Europe have been on organized investor tours to Iran over the past year, assessing the landscape and visiting some of the large, listed manufacturers. Many have already obtained the necessary trading codes and licenses to prepare for the removal of sanctions.
Note though that directly owning shares in some companies linked to the Revolutionary Guards is still not possible. Still, that opportunities have opened up is undeniable, but you do have to be quite brave to be one of the first (back?) in lest Iran regress, especially on building nuclear weapons.

As China is Shunned, Starbucks, UBS Expand There

♠ Posted by Emmanuel in , at 1/12/2016 05:06:00 PM
Starbucks still bets its future on China--and so do many other MNCs, so what gives?
There is a tendency nowadays to sell everything China-related: companies in the PRC, companies that export a lot to the PRC, countries headquartered near the PRC (read: the Asia-Pacific) and so on and so forth. Call it financial guilt by association--if it has even a whiff of China, sell it. So, it must come as a surprise that, actually, there are Western multinational corporations that are not only bullish on China, but plan to expand their operations greatly there in the very near future. That they represent a range of industries is also suggestive of something.

First we have the Swiss banking giants UBS:
Sergio Ermotti, CEO UBS Group, said on Monday that the company will increase its workforce in China over the next five years. In an interview with Bloomberg, Mr. Ermotti said UBS will double its headcount by adding 600 employees to its offices in China. He revealed that these additions would be made across fixed income and asset management, equities, investment banking, and wealth management divisions. He further added that some workforce expansion will also take place in back-office operations as well.

The CEO believes it is the right time to expand in China, as volatility has given rise to growth opportunities. In his statement to Bloomberg TV, Mr. Ermotti said: “Those are also the good times to plan for the future, and that’s the reason why we are starting to implement our strategic plan.”
The coffee empire Starbucks' largest growth market remains...wait for it...China. In 2016, it's still full speed ahead for them in the PRC:
Starbucks Corp. plans to accelerate its expansion in China, shrugging off concerns about a slowdown in the coffee chain’s second-largest market behind the U.S. and a potential further depreciation of the yuan. The company plans to add about 500 new stores in the year ending Sept. 27, up from 450 new outlets in the previous year. China is Starbucks’ fastest-growing market, and the coffee chain is looking to have 3,400 locations there by 2019, compared with about 2,000 now.

“We have no intention of slowing down and we remain very optimistic and bullish on the opportunities that Starbucks has in China, both in the short term as well as in the long term,” John Culver, Starbucks president of the China and Asia-Pacific region, said in a phone interview Tuesday. Starbucks joins SAP SE, the world’s biggest maker of business-management software, in expressing optimism about China, betting on a sales boost as consumption and corporate spending grows even as a decline in the yuan would erode the value of profits they generate in the country.
Are they crazy? Isn't China about to collapse like a house of cards? My inclination is to believe this: China is no longer a "frontier" market where MNCs thought you could gain an tidy profit by getting there first. Rather, it has matured to such a point where MNCs competing with other MNCs and even local firms means that a shakeout of foreign investors is long overdue. Just like in any other endeavor, there will be those who succeed and others who fail. By adapting to local market conditions and building a good name in China, UBS and Starbucks among others aim to consolidate their gains there as others leave.

It's simple as that. As I mentioned at the top of the post, indiscriminately selling anything remotely China-related is not likely to pay off. Instead, pick those names that actually have done well in China and will likely continue to do so. Yes, be discriminating since it's hardly believable that everything there has turned sour all at once. There are still opportunities, but you have to be selective since China is maturing more quickly than you think, whether it be in coffee houses or financial services.

April Fool's or Biggest IPO Ever? Floating Saudi Aramco

♠ Posted by Emmanuel in , at 1/11/2016 12:30:00 AM

Of all the darndest things I've heard during the start of the year when there was no lack of them, the idea of Saudi Arabia's state oil company Aramco listing its shares takes the cake. Certainly the timing is bad given that oil prices have dropped precipitously. Hovering around $100-something in mid 2014, the price of a barrel has fallen to about a third of that. Still, desperate times may call for desperate measures. To help close a yawning fiscal deficit, Saudi Arabia may resort to an IPO despite naysayers thinking this is some kind of prank:
When one financial adviser heard about Saudi Arabia’s plans to list a company larger than the economies of most nations, he had to pull over his car because he was laughing so hard. Saudi Arabian Oil Co., or Aramco, the world’s largest oil producer, said Friday it’s considering an initial public offering. It confirmed an interview with Deputy Crown Prince Mohammad bin Salman published in the Economist Thursday. The news was greeted with incredulity in the financial industry, according to interviews with a half dozen bankers who do business in the Middle East. They asked not to be identified to protect their business interests.

For one thing, Aramco’s inner workings are opaque, making its true value a mystery. Then there’s the timing. The price of crude oil is near its lowest level in more than a decade. Discussions with Aramco about selling assets in the past had been about much smaller parts of the business, five of the people said. An initial public offering of the entire enterprise had only ever been discussed as a joke, one of the people said. 
Even if (a) oil prices have fallen by a huge amount and (b) any flotation will only see a few shares listed of subsidiaries and not the parent company, the sheer size of Aramco is something to reckon with. Given its massive proven oil reserves, some valuation models predict it will easily be the biggest initial public offering of all time. At the top of the range, astounding implied market capitalization figures of $7-10 trillion are being touted:
Saudi Arabia’s potential sale of shares in its state-owned oil giant could lead to a publicly listed company valued in the trillions of dollars, more than 10 times Apple Inc.’s peak of about $756 billion. Saudi Arabian Oil Co., better known as Saudi Aramco, on Friday held out the prospect of an IPO on the Saudi stock exchange. Aramco said it was considering “the listing in capital markets of an appropriate percentage of the company’s shares and/or the listing of a bundle of its downstream subsidiaries.”

That potential drew attention because the company produces more than 10% of the world’s oil supply every day and controls a large chain of refineries and petrochemical facilities to complement its exploration and production operations. Taken together the business could be valued at more than $10 trillion by some estimates. Exxon Mobil Corp., the largest non-state-controlled oil company, has a market value of $317 billion.
For all the hyperbole, you have to wonder though about the veracity of such figures when the "confidence interval" here ranges from "joketime" to "biggest IPO in world history." Can the secretive Saudis pull the latter off?