Posts of June 2016

Brexit is Hardly a Done Deal

♠ Posted by Emmanuel in Europe at 6/28/2016 04:10:00 PM

Cheer up, young people: Isolationist oldsters may not have destroyed your future yet.

For all the market carnage, political upheaval, widespread racial abuse and other things most regrettable brought by the UK referendum result concerning membership in the European Union, keep this in mind: There is still a long process to go were it to leave. On the balance, you could even make a convincing argument that the UK is more likely to stay in. Why? Let me try to explain as concisely as possible. Although there are many ways to prevent the UK from filing its [Lisbon Treaty] Article 50 request to begin the process of separating from the EU, the most likely ones are as follows:

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Scenario 1: UK parliament approval is deemed necessary to start EU departure talks. With the House of Commons far more in favor of remaining, the eventual result will be to stay.
Scenario 2: A second referendum is held, by which time the UK economy has deteriorated enough to switch many who voted "Leave" to "Remain" to avoid further economic damage to themselves.
Scenario 3: Parliaments of Scotland or Northern Ireland do not consent to dissolving EU Articles of Agreement, effectively "vetoing" the referendum result
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Scenario 1: would play out this way according to some legal experts: It is constitutionally unavoidable for the UK to leave without parliamentary consent based on the text of the now-infamous Article 50. With parliament as a whole far more in favor of the status quo [1, 2] than the general public, the UK stays in. The time it will take to secure a parliamentary vote will likely see the UK economy deteriorate further, making MPs more convinced that staying is the economically sensible move:

Parliament must still vote on a bill to allow the UK to leave the European Union, leading lawyers have said. Geoffrey Robertson QC, who founded the Doughty Street Chambers, said the act which set up the referendum said "nothing" about its impact, meaning it was "purely advisory".

A new bill to repeal the 1972 European Communities Act that took Britain into the EU must now be passed by parliament, he said, adding that MPs might not be able to vote until November when the economic effects of Brexit will be clearer.

"Under our constitution, speaking as a constitutional lawyer, sovereignty rests in what we call the Queen in parliament," he told The Independent. "It's the right of MPs alone to make or break laws, and the peers to block them. So there's no force whatsoever in the referendum result. It's entirely for MPs to decide.

The requirements for starting the process are, again, actually more complex than sending a notification to Brussels:

Mr Robertson said there had been "a lot of stupid statements" suggesting Britain could simply send a note to the EU to trigger "Article 50" of the Lisbon Treaty, which lays out the process under which states can leave. The article itself says a state can only leave in accordance with "its own constitutional requirements".

"Our most fundamental constitutional requirement is that the decision must be taken by parliament. It will require a bill," he said. "In November, the situation may have totally changed. According to polls, a million vote leavers appear to have changed their mind, that could be five million by the November." In a letter to The Times, another leading QC, Charles Flint, of Blackstone Chambers, also stressed that British law required MPs to vote before Brexit could happen.

Geoffrey Robertson fills in more details in a Guardian contribution. Of course, it is possible that elections will be called again before the House of Commons has the opportunity to vote and its membership will differ. However, it is difficult to imagine a dramatic turn towards electing far more anti-EU representatives, especially as the warnings of impending Brexit come true as had been predicted. Who would want to make things even worse in the meantime?

Scenario 2: Another possibility is to simply make the UK vote again. Given the history of previous referendums by member countries on the EU, repeating the process results in the status quo being upheld. Gideon Rachman outlines this possibility:

All good dramas involve the suspension of disbelief. So it was with Brexit. I went to bed at 4am on Friday depressed that Britain had voted to leave the EU. The following day my gloom only deepened. But then, belatedly, I realised that I have seen this film before. I know how it ends. And it does not end with the UK leaving Europe.
Any long-term observer of the EU should be familiar with the shock referendum result. In 1992 the Danes voted to reject the Maastricht treaty. The Irish voted to reject both the Nice treaty in 2001 and the Lisbon treaty in 2008.

And what happened in each case? The EU rolled ever onwards. The Danes and the Irish were granted some concessions by their EU partners. They staged a second referendum. And the second time around they voted to accept the treaty. So why, knowing this history, should anyone believe that Britain’s referendum decision is definitive?

Scenario 3: See below as per SNP leader Nicola Sturgeon's voicing this course of action. That for Northern Ireland would unfold along similar lines.

Scotland's First Minister Nicola Sturgeon has told the BBC that Holyrood could try to block the UK's exit from the EU. She was speaking following a referendum on Thursday which saw Britain vote by 52% to 48% to leave Europe. However, in Scotland the picture was different with 62% backing Remain and 38% wanting to go. SNP leader Ms Sturgeon said that "of course" she would ask MSPs to refuse to give their "legislative consent".

Ms Sturgeon, whose party has 63 of the 129 Holyrood seats, said: "The issue you are talking about is would there have to be a legislative consent motion or motions for the legislation that extricates the UK from the European Union? "Looking at it from a logical perspective, I find it hard to believe that there wouldn't be that requirement - I suspect that the UK government will take a very different view on that and we'll have to see where that discussion ends up."

BOTTOM LINE: The longer it takes for the Article 50 process to begin, the more likely it is that the UK stays in the EU. Its economy getting progressively worse will likely sway many who were marginally in favor of leaving that staying is in their best interests. Hence, they will be more wililng to change their votes in a second referendum directly phrased about filing an Article 50 request at the EU. Alternately, if MPs will have discretion over the matter, it is unlikely that they could go against an increasing tide of public opinion in favor of staying since most of the parliamentarians were in favor of doing so to begin with. If elections are held, it is unlikely that a markedly more isolationist parliament would be elected for similar reasons.

Also, what lawmaker would be foolhardy enough to be directly identified with getting the Article 50 process underway when it is likely to (a) generate even more economic turmoil and (b) dismember the United Kingdom? The more time passes, the more "chicken" lawmakers--and perhaps, more importantly, the general public--will get. It was an ill-conceived misadventure from the get-go, and for all of the bluster of the anti-EU side, sacrificing one's economic well-being seldom proceeds when the consequences of doing so become apparent.

Even the misled get real...eventually. Be patient.

UPDATE: Remember, parliament is sovereign. Here's more scenario 1 commentary to the same effect that legislative assent is required -

[A]s a matter of domestic constitutional law, the Prime Minister is unable to issue a declaration under Article 50 of the Lisbon Treaty – triggering our withdrawal from the European Union – without having been first authorised to do so by an Act of the United Kingdom Parliament. Were he to attempt to do so before such a statute was passed, the declaration would be legally ineffective as a matter of domestic law and it would also fail to comply with the requirements of Article 50 itself.

UK Dismemberment: On N Ireland Joining Ireland

♠ Posted by Emmanuel in Europe at 6/26/2016 04:29:00 PM

As in Scotland, leaving the UK is afoot in Northern Ireland after the UK referendum on EU membership.

For the UK, the ultimate consequence of deciding not to remain in the EU may be its dismemberment since its constituent parts were very much for staying in the EU. In recent posts, we've covered the cases for Scottish independence (a second one--this time hinging on whether to remain in the EU) and London independence. On the face of it, London declaring independence from the EU is most unlikely as the very heart of England. However, the Scots certainly will have a better chance for leaving the UK to remain in the EU. However, this story does not end there.

Northern Ireland may also wish to secede from the United Kingdom to remain in the EU. As a small trading--I can't seem to call it a nation--region, its economic interests would be better served severing ties on a suicidal UK hellbent on inflicting harm on itself. And so just as there are significant rumblings in Scotland, we have the same in Northern Ireland which voted solidly in the "Remain" camp (55.8%). I am particularly struck by the idiocy of border controls and tariffs being applied to movement and trade between Ireland and Northern Ireland after the Good Friday Agreement helped resolve these issues all those years go:

THE UK’S DECISION to leave the EU means Sinn Féin will press for a border vote in the North. Both Northern Ireland and Scotland voted to remain in the EU, but the leave campaign was able to convince Wales and England to leave the union.

“We have a situation where the north is going to be dragged out on the tails of a vote in England… Sinn Fein will now press our demand, our long-standing demand, for a border poll,” Sinn Fein’s national chairman Declan Kearney said after the UK as a whole had vote to leave the EU. Northern Ireland could now be faced with the prospect of customs barriers for trade with the Republic.

Under the Good Friday Agreement, the Northern Ireland Secretary can initiate a poll in circumstances where it was clear public opinion had swung towards Irish unity.The Republic would then vote on the matter.

Another Sinn Fein figure calling for release is Martin McGuinness:

Northern Ireland's Deputy First Minister Martin McGuinness has called for a border poll on a united Ireland, after the UK has voted to leave the EU. Support for the EU is considerably higher in Northern Ireland than the rest of the UK. As the region shares a land border with the Republic of Ireland, it is unknown how the relationship between the two countries will be affected by Brexit.

Some politicians have speculated a physical border and passport control checks could be errected between the two, while others have questioned whether an effective border will have to be drawn around mainland Great Britain, thereby shutting off Northern Ireland from the rest of the UK.

Northern Ireland also receives considerable financial support from the EU in the form of so-called 'peace money' to fund projects aimed at supporting the region's peace process following the Troubles conflict.

Resembling Troubles-era Northern Ireland, the Democratic Unionists Party--pro-England and Pro-Brexit--will block any attempt to secede. This, of course, sets into motion the possibility of the Troubles erupting once more. Instead of religious divides, it would now focus on the question of Europe. With any consideration of a move to independence dependent on Unionist support, things look iffy. That the incumbent secretary of state for Northern Ireland, Therese Villiers, was a Brexit supporter does not bode well for parliament debating the cause:

Theresa Villiers, the Northern Ireland secretary and leave supporter, has rejected Sinn Féin demands for a referendum on the region’s position inside the UK after Brexit. As towns, cities and communities, such as Newry, that voted to remain in the EU absorb the Brexit shock, Villiers said there were no grounds to hold a border poll on a united Ireland. Theresa Villiers Theresa Villiers speaking to the press on Friday.

In a brief statement on Friday, Villiers said: “The Good Friday agreement is very clear ... There is nothing to indicate that there is majority support for a poll.” Under the rules set down by the 1998 Good Friday peace deal there cannot be a poll on Irish unity or remaining within the UK unless the majority of political representatives of both communities in Northern Ireland [Catholic Irish and their Protestant counterparts] demand it. Given the Democratic Unionist party’s lack of enthusiasm for a border poll it is unlikely the British government would grant one.

It's as though all the centripetal forces within the UK have been stirred at the same time. With England itself being as divided as it's ever been, things are not looking up for the state of the union.

Frankfurt, Paris...In Search of a Real EU Banking Center

♠ Posted by Emmanuel in Europe,Financial Services at 6/24/2016 10:36:00 AM

Hmm...with London out of the picture, I love Paris in the summer...

With the non-London English and Welsh effectively taking the UK out of the EU, London's place as a banking center--at the very least an EU banking center--has been thrown into question. With big things afoot, where will London bankers and others now decamp that's truly European? The two early contenders are two cities which London actually vanquished in the 80s and 90s--Frankfurt, Germany and Paris, France. That said, those relocating from London will probably need to get used to a lower standard of living:

London-based bankers considering a possible relocation if Britain votes out of the European Union would suffer pay cuts of up to 80 percent if they were to move to Frankfurt or Paris, data from salary-benchmarking site Emolument showed. Analyzing 8,065 salaries for front-office banking roles in London, Frankfurt and Paris, Emolument found that London bankers earned higher salaries than their German or French peers, from entry-level analyst jobs right up to coveted managing director positions.

That said, lower wages are partly offset by lower costs of living on the continent:

London-based associates earned 100,000 pounds ($146,570) on average, compared with 71,000 pounds and 70,000 pounds for their contemporaries in Frankfurt and Paris respectively, while directors earned 280,000 pounds - 98,000 pounds more than peers in Frankfurt and 114,000 pounds more than Paris-based directors.

Despite the broad pay gaps, Emolument said some bankers could be financially better off if they moved to Frankfurt, where the cost of living is 60 percent lower than in London. In Paris, however, a 35 percent reduction in living costs compared to London would not fully offset the steep pay cuts a move to the French capital would entail.

"Until now, prestigious banking jobs were usually to be found in London; an attractive set of opportunities on the continent could however give London bankers cause to leave the UK," said Alice Leguay, Co-Founder & COO at Emolument.com. If Britain does vote to leave the EU in a referendum on Thursday, sources at some banks including JPMorgan, Morgan Stanley and HSBC have indicated they could be forced to move front office and trading activities to continental offices.

I am certain that, in the aftermath of this vote, many bankers will not want to leave London. However, they have no choice now.

It's Blitz 2: Central Banks Prepare for UK's EU Referendum

♠ Posted by Emmanuel in Currencies,Europe at 6/22/2016 04:58:00 PM

Nasty people like Harry Potter's uncle Vernon Dursley--EU "Leave" voter--keep central bankers up at night.

With voting in the UK's EU referendum just a few hours away, the world's major central banks are on standby together with the London bankers into the small hours of Thursday evening and Friday morning. While the latter have making or at least not losing money on their minds, the former have keeping the international financial system intact in the event of a "Leave" vote. Which is, of course, a rather more pressing task.

Of course, the Bank of England is directly in the line of fire. First in the line of fire outside of the UK proper will be the ECB. As it so happens, both appear to be making arrangements in preparing for the worst. It's the European equivalent of the infamous US "plunge protection team," perhaps, as a "backstop" is looking likely if the negative outcome holds:

The European Central Bank would publicly pledge to backstop financial markets in tandem with the Bank of England should Britain vote to leave the European Union, officials with knowledge of the matter told Reuters.

The preparations illustrate the heightened state of alert ahead of the June 23 referendum, which will help determine Britain's future in trade and world affairs and also shape the EU. The pound and euro have lost value on fears a Brexit could tip the 28-member bloc into recession.

Such an announcement from the ECB would come on June 24 if an early-morning result showed that British voters had chosen to leave the EU, according to the sources. The aim is to underpin investor confidence across Europe and contain further market jitters.

"There will be a statement to do whatever it takes to maintain adequate market liquidity," said one senior central bank official, who spoke on condition of anonymity.

The ECB's pledge would involve opening so-called swap lines with the Bank of England, allowing euros and sterling to be exchanged and effectively making unlimited funding in both currencies available to European banks, the sources said.

Nor is it an entirely European story as the US and Japan are also going to be pulling out all-nighters since the negative event will likely have global consequences--a strengthened dollar, lower interest rates, and so forth as a "risk off" line of action:

Central banks in Japan, the U.S. and Europe are discussing an emergency supply of dollars to financial markets, seeking to ensure continued access to the currency even if the pound plunges in the event that the U.K. votes to exit the European Union.

The likely plan is to use dollar swap lines between the Federal Reserve and central banks in Japan, Canada and Europe, letting these institutions borrow dollars from the Fed to lend to financial institutions within their jurisdictions.

The Bank of Japan, which provides dollars to financial institutions once a week, will consider carrying out operations on consecutive days if it determines that supplies are running short. The ECB and BOE likely are also discussing specific measures with the Fed. Group of Seven leaders could issue a statement at the same time as an emergency dollar liquidity injection.

The BOJ is communicating and cooperating closely with other major central banks, so it can handle a dollar shortage, BOJ Gov. Haruhiko Kuroda assured reporters Thursday. Fed Chair Janet Yellen said Wednesday that a Brexit would affect the global economy and worldwide financial conditions. Though she mentioned no specifics about the Fed's planned response, a source said the central bank is considering supplying dollars to European markets.

The memory of 2008 is still fresh in the minds of central bankers as the international financial system is threatening to seize up as it did then from a lack of liquidity. This time almost everyone has ammunition on hand--namely foreign exchange, or more usually US dollars--to guard against risk events.

Everything's now in place. All that remains is the voting. Most of the rest of the world in hoping for "Remain," but it's in the hands of the British people whether to avoid or commit economic suicide.

Singapore'd: Can Pro-EU London Secede if UK Brexits?

♠ Posted by Emmanuel in Europe at 6/22/2016 12:30:00 AM

Time to get the $%^& out of the UK, not the EU? The London question.

Now here's a fascinating thought for all: In a previous post, I wrote about the solidly pro-EU Scots wishing to remain in the European Union while the rest of the UK leaves in the event of a negative outcome to the upcoming referendum. Now, here's another thing we should apparently consider: London too is solidly for remaining in the EU. Its economy is rather larger than those of Scotland, Wales, etc. Population-wise, it is larger than those less-populated regions.

So, if the small-minded Brexiteers get their way this coming Thursday, why not a London secession in the near future? Certainly its business interests are going that way, and there would quite frankly be little point sticking with a country that inflicted mortal economic damage on itself. IN particular, the financial services sector would see little point sticking around in a process described as "Guernseyfication." But what are the alternatives to being part of a country bent on economic suicide?

There are those like Kevin Doran, head of strategy and research at KBL European Private Bankers, who see London becoming an independent city state as inevitable, suggesting it could happen as early as 2035. "Within 20 to 30 years' time... they [London] will hold a referendum on taking themselves out of the UK, and away they go," Mr Doran told the Yorkshire Post in 2014.

And it's not hard to see why London might argue it would be better off striking out on its own. With a population of 8.7m - and forecast to grow to 10m by 2020 - the capital is already larger than Scotland and Wales combined.

Londoners contribute 70% more of the UK's national income than people in the rest of the country each year - a difference of £16,000 per person - and the capital generates 22% of all annual UK economic growth, despite accounting for only 12.5% of the population. London's economy is estimated to be the same size as that of Sweden, Europe's seventh largest economy, and yet currently its local government has less power than the devolved governments of Scotland and Wales.

But alas, the technical hurdles would be high:

But to many, the City of London Corporation included, the idea is that London could become an independent city state is simply a non-starter. Ian Schofield, a spokesman for the corporation, says: "The idea of London setting off as an independent city state is far-fetched and ridiculous. It is not something the City of London Corporation would support now or in the future."

Mr Schofield says to break up a very large economy like the UK's into its various component parts would not make sense. And then there is the significant economic impact that London breaking away from the UK would have on the rest of the country, given the contribution the city makes to the wider economy.

"London is unquestionably the economic capital of Europe but it would be a mistake to think of London as an island because it still relies on the rest of the UK economy," says Ben Rogers, a former Downing Street policy adviser and now director of the Centre for London think tank. "If London is the engine of the UK economy, the rest of the UK provides the fuel," he adds.

The point I wish to make though is that leaving the EU would already entail huge adjustment costs on the part of the UK. London seceding would not exactly be much greater an added complication, so perhaps it's time to get Singapore'd like how it left the Malayan Federation all those years ago when its interests were not being served there. As far as I can tell, Singapore has done pretty darned well for itself.

Baku F1 Race: Global Media is ~169 Years Late

♠ Posted by Emmanuel in Energy,Sports at 6/21/2016 12:30:00 AM

To paraphrase Jenson Button, it's "Baku baby, yeah."

As a commentator on third world goings-on first and foremost, it behooves me that last Sunday's European Grand Prix on the streets of Baku, Azerbaijan has been portrayed as a coming out party for that particular country on the world scene. So Azerbaijan is seldom mentioned in the Western media outside of the context of human rights abuses--surprise, surprise--but its economic and strategic importance in geopolitics seems to be glossed over by these accounts. It is treated as some kind of Johnny-come-lately when its energy industry has been at the global forefront from the very start.

There are, in addition, squabbles remaining over historical grievances in this part of the world:

If it were only a matter of the outward beauty of the location and the circuit’s extraordinary features, the view before the race would be one of a major success in the making. But there is controversy, given Azerbaijan’s poor human rights record and the fact that its disputed territory of Nagorno-Karabakh — also claimed by Armenia — is a war zone.

Azerbaijan, a country of more than nine million at the crossroads of Europe and Asia that shares borders with Armenia, Georgia, Russia, Iran and a small sliver of Turkey, sees itself as a part of Europe. For that reason the country bid for the race, and requested the title of European Grand Prix — rather than Azerbaijan Grand Prix. The name had been free since the last race in Valencia, Spain, in 2012, according to Arif Rahimov, the chief executive of Baku City Circuit Operations Company, the promoter of the event.

Azerbaijan proudly linking itself with all things European runs into difficulty with the EU's current emphasis on human rights and such. For all that, do consider things in broad historical sweep: it has been synonymous with energy in the region for decades and decades. Well before the Americans drilled their oil well, the Azeris were already, ah, well into the game:

Azerbaijan has been linked with oil for centuries, even for millennia. Medieval travelers to the region remarked on its abundant supply of oil, noting that this resource was an integral part of daily life there. By the 19th century, Azerbaijan was by far the frontrunner in the world's oil and gas industry. In 1846 - more than a decade before the Americans made their famous discovery of oil in Pennsylvania - Azerbaijan drilled its first oil well in Bibi-Heybat. By the beginning of the 20th century, Azerbaijan was producing more than half of the world's supply of oil.

Also consider:

The first stage started with the mechanical production of oil from the dug wells in 1847 and continued up to 1920. The years of 1847-1848 were characterized by the first production of industrial oil from the dug wells in Bibieybat and later Balakhany fields and the development of oil industry of Azerbaijan started from that moment.

The early 19th century was characterized by the first production of oil from the manual well dug at Bibieybat 30 meters away from the seashore. The first oil refinery was constructed in Baku in 1859. The kerosene plant was built by Djavad Melikov in Baku 1863 and fridges were used in the oil refining for the first time in the world. 15 oil refineries operated in 1867.

The development of well drilling technologies led to the discovery of a number of oil wells (Binegedi, Pirallahi, Surakhany and others), the increase in the production of oil, the development of oil infrastructure and oil refining and the creation of hundreds of companies engaged in oil production, refining and sales. The national bourgeoisie formed in Azerbaijan and Baku turned into one of the industrial centers of the world.

The industrial method of oil production was first used in the Balakhany-Sabunchun-Romany oil field in the Absheron peninsula in 1871. Two laws "On the excise tax on oil wells and oil products" and "Sales of oil lands held by leaseholders to individuals were adopted for the improvement of the relations in the oil industry in 1872. 15 regions of Balakhany and 2 regions in Bibiehbat were first to put on auction on December 31, 1872.

In many way it's apt that a sport literally fueled by the stuff Azerbaijan is famous for is finally held there. In history, the country's prominence in oil production predates even that of the United States. 169 years later, Azerbaijan is finally receiving some global media attention. Fancy that.

Geneva Post-Banking Secrecy is...Gathering Dust

♠ Posted by Emmanuel in Europe at 6/20/2016 12:30:00 AM

Closed for business: a now-common sight in today's Geneva.

One of the major side-effects of the global financial crisis has been a near-universal crackdown by revenue-hungry developed Western states on tax dodgers. Unfortunately for Switzerland, European countries' efforts to bring back taxable monies has resulted in a perhaps permanent diminution in its famed bank secrecy that renders it just like any other country's private banking system. It is certainly true that Swiss bank secrecy was never ironclad--witness the return of billions hidden by the Philippines' infamous dictator Ferdinand Marcos. However, when more powerful and influential countries started storming Switzerland's gates, well, that's another matter entirely:

Three years after Lloyds Banking Group Plc sold its private bank in Geneva, the only signs of life at the now-empty building are piles of cigarette butts and nutshells lying on its dirty window ledges. The riverside offices at Place de Bel-Air are a short walk away from the remaining private banks, hedge-fund managers and luxury-goods stores in the heart of the Swiss city. The locked entrance, where millionaire clients used to come and go, is a reminder that some of the biggest names in global finance have quit Geneva for good.

“The disappearance of international private banks has left an eerie silence in some of the downtown offices that were once the top end of the market,” said Raphael Reginato, who works in the city as a broker at real estate asset manager AMI International. “Geneva’s not the magnet for international finance it used to be.”

To be fair, it's also extraordinarily low prevailing interest rates for Swiss francs that's also denting the appeal of this banking center:

North American and European banks are quitting Geneva as companies battle with the loss of financial secrecy, the strong Swiss franc and pressure on profitability from low interest rates and tougher regulatory demands. Tax probes by the U.S. and France and a new system of bank-data exchange between governments have scuppered the traditional “no-questions-asked” approach to serving rich clients who reside in other countries...

Once a hub for hidden European and American assets, tougher scrutiny on the real ownership of assets and more stringent reporting standards have made offshore private banking in Geneva less profitable.

Bank of America Corp. sold its Merrill Lynch international-wealth businesses to Julius Baer Group Ltd., while Royal Bank of Canada divested its Geneva business to local firm Banque Syz SA. Morgan Stanley sold its Swiss wealth business, also based in the city, to the private bank and asset-management firm owned by billionaire Joseph Safra. Goldman Sachs Group Inc. plans to close a Geneva branch with 18 employees to streamline its operations, a person briefed on the situation said in March.

In many ways, this game is up. Now all that's left is for moviemakers to stop depicting third world dictators transferring their ill-gotten wealth to Swiss bank accounts for the fiction to follow what's already largely gone in real life.

And that, my friends, is all she wrote about Swiss bank secrecy.

Scotland's Possibilities for Remaining in EU After a Brexit

♠ Posted by Emmanuel in Europe at 6/18/2016 03:13:00 PM

Sensible Scots are avowedly Europhile. What to do if the rest of the UK plumbs for Brexit?

The Scottish National Party is interesting insofar as it is not a hardcore anti-foreigner, ultra-nationalist party. While it is rather antsy about surrendering too much power to London, it is much less about doing so to Brussels. Like the Economist poll tracker results above show, Scotland is avowedly in favor of staying in the common market. In no small part, this is due to the Scots actually being grateful about having the EU as a market for its energy exports unlike their sometimes ungrateful English and Welsh counterparts, but I will say no more.

This Europhile stance, of course, provides for some interesting technicalities should the UK as a whole vote for leaving the EU. Just two years ago, of course, the Scottish electorate decided to stay within the United Kingdom. However, it now faces yet another possible round of reconsideration: the premise then was the UK was in the EU. If that's gone, how can Scotland stay in the EU? It will obviously have to ditch the UK and become an independent nation within the EU:

The Scottish Government are set to negotiate directly with Brussels to stay in the EU if the rest of Britain votes to leave. [SNP leader] Nicola Sturgeon, spooked by polls which show the UK heading for the exit door, ordered officials in the SNP administration to draw up plans...

Swift talks with Brussels would aim to keep Scotland’s place in the EU while the rest of the UK negotiates a way out. A second independence referendum could then be called, knowing Scotland would retain its place rather than have to rejoin if the UK quits. It would create constitutional turmoil, with no clear precedent to follow. Academics have pointed to Greenland, which is an autonomous part of the Danish EU state but not a full member of the union.

The technicalities are long and arduous--first, of convincing the EU they want to remain and, second, of seceding from the UK when the referendum result staying in is still fresh in memory:

At First Minister’s Questions on Thursday, Sturgeon suggested she was planning for all eventualities. She said: “If Scotland faces the prospect of being taken out of the EU against our democratic will, all options to protect our relationship with Europe and the EU will be considered.” Sturgeon’s predecessor Alex Salmond has also urged a quick move to keep Scotland in Europe. He said: “Whatever chaos envelopes Westminster, I anticipate the First Minister will lead Scotland in that direction.”

Imagine that: unabashedly pro-EU Britons. They may become just pro-EU Scots after a while, but the conviction is clear.

Globalization: Zidane Flogs Indian Real-Estate

♠ Posted by Emmanuel in India,Sports at 6/17/2016 11:20:00 AM

What does Zinedine Zidane have to do with selling kitschy Indian real-estate? Apparently nothing.

It is fairly common in booming countries of Asia for real-estate developers to embark on mega-projects. In our high inequality countries, you should be utterly unsurprised that most of these projects cater to wealthy segments, often hawking properties at exorbitant prices. And therein lies the rub: with so much development concentrated at the upper end of the market, there will inevitably be fewer takers. Such is the problem now faced by real-estate developers in India.

Now, using foreign sporting personalities to flog [to pitch or sell in Brit-speak] stuff abroad is not unusual. Witness the insufferable Cristiano Ronaldo selling a face massager on Japanese TV for a recent example. However, his coach (for now)--the legendary Zinedine Zidane of Real Madrid, recently crowned champions of Europe--is doing the same. That is, selling a somewhat iffy product in Indian luxury real-estate at a time when the inventory there is piling up:

Zinedine Zidane is renowned for his prowess on the football field. Now a Mumbai developer is counting on the retired French football star’s power off the pitch to revive flagging sales in the city’s luxury home market.

Kanakia Spaces Pvt has hired the former attacking midfielder to market a high-end residential project named Paris in Mumbai’s new business district in the northern part of the city called Bandra. Zidane has been signed on as the project’s wellness brand ambassador to design the development’s fitness and sports areas. The company did not disclose how much it’s paying for Zidane’s brand endorsement.

Kanakia, which is counting on the star power of Zizou, as 43-year-old Zidane was nicknamed during his career, features a four-story replica of the Eiffel Tower and a reproduction of the Louvre Pyramid at the Paris project. The builder has sold about 43 percent of the 464 apartments for sale at the development, where units range from 760 square feet to 1,300 square feet and cost between 37.6 million rupees ($559,000) and 64 million rupees, the company said.

It's a straightforward supply and demand problem, with the inventory of overpriced luxury homes unlikely to dissipate anytime soon as buyers have been cautious as the global economy shows signs of slowing down:

“These marketing gimmicks won’t help to sell these homes,” said Pankaj Kapoor, founder of Liases Foras Real Estate Ratings & Research Pvt. “Prices have escalated at every level and what’s needed to boost sales is a genuine price correction.”

Sales of homes costing more than 20 million rupees dropped 23 percent in the quarter ended March from the previous three-month period, according to data compiled by the property consultancy and advisory firm. The average home price in Mumbai is still near a record set in December 2014, as a limited supply of land and demand created by a growing urban population have led to “exorbitant price levels,” according to Kapoor.

As sellers have resisted dropping prices, Mumbai is grappling with record inventory. The city has 266 million square feet of unsold homes, Liases Foras said. It may take developers as many as five years to unload their inventory of luxury homes at current levels, the data show.

Actually, there is a segment of the Indian real-estate market that is growing: homes real people can actually afford:

Budget homes costing less than 2.5 million rupees is the only segment which is showing signs of demand picking up.

Selling things people can actually afford; what a radical idea.

It's Blitz 1: All-Nighter for London Traders June 23

♠ Posted by Emmanuel in Europe at 6/15/2016 04:13:00 PM

You can bet no one will be snoozing in the City of London come the evening of June 23.

What's probably a bigger political risk event than the 2008 global financial crisis, Greece exiting the euro, or Scottish independence for the UK? Unless you've been hiding in a cave somewhere, it's the upcoming June 23 referendum when voters decide whether to remain in the EU or leave it. Needless to say, I do not side with the xenophobic isolationists, but there are apparently several misguided souls who actually get to vote who do. While next to no sane business establishment supports the UK leaving the EU, its Prime Minister David Cameron nevertheless put the issue to a referendum for reasons I can hardly comprehend.

At any rate, there is an interesting Reuters story on how it will be all hands on deck in the trading rooms of British financial institutions the day, night, and early morning after the vote. Stay or leave, there will likely be large moves in equity, fixed income, foreign exchange markets. There is, in other words, plenty of money to be gained or lost. As such, it's going to be an all-nighter for any number of traders:

The world's biggest banks including Citi and Goldman Sachs will draft in senior traders to work through the night following Britain's referendum on EU membership, set to be among the most volatile 24 hours for markets in a quarter of a century.

A vote to leave the European Union on June 23 would spook investors by undermining post-World War Two attempts at European integration and placing a question mark over the future of the United Kingdom and its $2.9 trillion economy.

Citi, Deutsche Bank, JPMorgan, Goldman Sachs, HSBC, Barclays, Royal Bank of Scotland and Lloyds are among those banks planning to have senior staff and traders working or on call in London as results start to dribble in after polls close at 2100 GMT, according to the sources.

What sort of epoch-making moves might be in store if the anarchists get their way? Let us count the ways:

A vote to leave could unleash turmoil on foreign exchange, equity and bond markets, spoiling bets across asset classes and potentially testing the infrastructure of Western markets such as computer systems, stock exchanges and clearing houses.

Federal Reserve Chair Janet Yellen has cautioned that a Brexit vote could shake financial markets and potentially push back the timing of the next rise in U.S. interest rates.

Bank of England Governor Mark Carney has said sterling could depreciate, "perhaps sharply" and some major banks have forecast an unprecedented fall to parity with the euro and as low as $1.20 in the days following any vote to leave the bloc.

The Bank of England will be staffed overnight, with senior policymakers on call if markets go into meltdown. The finance ministry would not comment on its staffing plans.

Trading could get real exciting as you'd expect:

Officials and bank managers planning for the event draw comparisons with the 40 percent surge in the Swiss franc in January 2015, which bankrupted dozens of small investment funds and cost banks including Citi hundreds of millions of dollars.

Traders and analysts told Reuters they would expect a Brexit vote to cause sterling to 'gap', or plummet lower - as orders to sell the currency met an absence of willing buyers, leaving a blank spot on the price charts snaking across traders' screens.

Gaps can inflict huge losses on banks and traders, forcing them to bail out of trades at prices far below the automatic sell orders, or 'stops' they normally use to limit losses.

Currency market participants have urged the Bank of England to call on U.S. Federal Reserve if the turbulence gets really bad. The BoE could buy sterling with dollars borrowed directly from the U.S. central bank under arrangements first used in response to the global financial crisis in 2008.

Carney has said the Bank would not stand in the way of any exchange rate adjustment but would take the necessary steps to ensure markets remained orderly. It has not commented on whether or how the bank might intervene.

I remain incredulous that Prime Minister David Cameron has (1) allowed the UK and Europe's future to be so endangered to begin with by giving voice to these sorts of cheap pandering and (2) not really thought through what the consequences of a "leave" vote would be.

But that's just me. Come June 23, all traders will be at hand as belligerents strafe London once more. Unfortunately, the most regrettable thing is that they allowed all of this to be unleashed upon themselves rather than some foreign foe.

Will MSCI Demote Peru From Emerging to Frontier Market?

♠ Posted by Emmanuel in Development,Latin America at 6/14/2016 06:39:00 PM

Stock market "trading"--something of a Peruvian novelty.

Later today, the market indexing firm MSCI will issue guidance on whether to include Chinese equities in their emerging market indices. While that decision obviously has huge implications--China is the world's second largest economy, so it rankles not to be included in a simple index of EMs--there is another pending decision you should watch for if development is an area of interest. As China vies for inclusion, Peru is trying to stave off the capital markets equivalent of "relegation." (See MSCI's classification scheme here.)

To be exact, Peru does not appear to have enough freely traded listings to qualify for inclusion in the MSCI Emerging Markets index according to free float and liquidity criteria. That is, interested foreign investors should have the means necessary to purchase such stocks without undue difficulty. How many listings should qualify? Well, it's, er, three. Even by that measure, though, Peru is coming up short. Despite Peru's thin volumes, there would still be consequences for the global universe of equity investments:

The Peruvian stock exchange fears that the move would drive foreign investment away from its $67bn bourse. Moreover, the move would further unbalance the MSCI Frontier index and potentially divert much-needed foreign investment from countries such as Nigeria, Argentina and Pakistan. “It may seem like linguistics, but the index designation is important in terms of retaining and attracting foreign investor assets,” says Mark Mobius, executive chairman of the Templeton Emerging Markets Group, who believes foreign investors are responsible for roughly a third of Peru’s trading volume.

Index inclusion often drives investment since indexed funds are obviously required to place a proportion of their investments in the countries included. Such are China's hopes and, conversely, Peru's fears. And the bush league of the frontier market is really quite tiny:

MSCI launched a consultation on Peru’s potential ejection from its flagship EM index — tracked by an estimated $1.5tn, against just $12bn for the Frontier equivalent — in August last year. MSCI’s concern was that only three stocks in its Peru equity universe meet its liquidity and free float requirements, the minimum number to be eligible for its EM index...

Compounding the problem, MSCI has proposed switching Southern Copper, one of these three stocks, to its US equity universe, where it is listed (it is currently included in the Peruvian section for “historical and index continuity reasons” and generates 43 per cent of its revenues from Peru, with the remainder from Mexico), pushing Peru below the minimum threshold.

While the arguments for and against de-indexing Peru are interesting, the larger fact remains: without wider Peruvian development, you can hardly expect its prospects for stock market indexing to be much better. And so it finds itself in this unpromising position.

Why Google Cars Beat Tesla + Old Mfgs Still Matter

♠ Posted by Emmanuel in Marketing at 6/12/2016 09:31:00 AM

Why tomorrow's king of the (virtual) road may be Google, not Tesla.

There's a wide-ranging interview in Vox of automobile commentator Edward Niedermayer on that ever-popular topic, the future of the automobile. In contrast to many of today's journalists, Niedermayer is skeptical of Tesla. Especially with its myriad of quality control issues born of, well, not really having the experience of being a full-fledged car company, he views its business model as fundamentally flawed. (Also see Consumer Reports' scathing reappraisal.) As Tesla moves down the price range, these shortcomings may become more evident as those relying on these vehicles for everyday transportation will be less forgiving of their cars' foibles:

Cars have become so reliable and so easy to use that we think about them less than we ever have in the 100-plus-year history of the automobile. This is one reason we don't appreciate this depth of complexity. Not only are cars different from software in very fundamental ways, they're much more complicated than anything else consumers buy.

Cars use a wide variety of materials, built into components and subassemblies by massive global supply chains. Car companies have to choose and develop the right materials and components, maintain their uniformity and integrity throughout that supply chain, and ensure that they operate reliably in almost every imaginable condition on Earth.

A great example is the problem of mold growing from inside the Model S's roof, particularly in Norwegian cars. Because its large panoramic sunroof is difficult to manufacture and install to a precise specification, Model S roofs often leak. A lot of those leaks are so small that customers might not notice. But because Tesla used an organic-fiber pad at the edge of the sunroof, aggressive molds invade at alarming rates in certain climates. This kind of complex, cascading defect is why automakers value their accumulated institutional knowledge and spend years testing vehicles.

Google, on the other hand, Niedermayet is more sanguine about. Despite ostensibly coming from the same "Silicon Valley" culture, Google has the foresight to enlist actual car guys instead of assuming they know better, and this supposedly makes all the difference:

Google's strategy is the counterfactual that makes me especially nervous about Tesla. Google's core technology is the autonomous drive capability, and I think they have to be closely watching Tesla and the struggles they've had. So Google has hired some very high-profile people from the car business. They have former Ford CEO Alan Mulally on their board. Lawrence Burns, the former research and development boss for General Motors, is a consultant for them. The head of their autonomous car program is John Krafcik, one of the auto industry's most respected veterans.

It's a dream team of real tier-one automaker experience. With their accumulated knowledge — and looking at Tesla's struggles — they know that building their own car is a fool's mission. They also recognize that Silicon Valley culture is fundamentally different from manufacturing culture...

What fundamentally sets Google apart is that these auto people know how hard building cars is. It is not only an intellectual challenge, it's a discipline challenge. Managing that level of complexity requires a certain amount of accumulated knowledge; building that from scratch is incredibly difficult.

And how about the traditional automakers? In a world of Tesla and Google autonomous vehicles, are these stodgy types inevitably doomed? Actually, a lot of their conservatism stems from previous experiences with product liability issues which have the potential to hinder the growth of the tech companies' vehicle sales. By contrast, the old timers have given much thought to these sorts of issues already:

But the legal liability risks are very high. It's very easy for people to make mistakes and blame the car for their mistakes. So in some ways that's an incentive to go full autonomy. But even for a company like Toyota with $80 billion in the bank, there could be liability issues that could challenge the fate of the company. So they are incredibly conservative about deployment, and they will not deploy anything unless it works in 99.9 percent of use cases. That contrasts with what Tesla is doing, a public beta test. They say they are. They admit it...

I personally tend to like Toyota's approach, because they accept and own the conservative nature of the business. So they don't fool themselves that they're going to do this leapfrog approach.

It's food for thought--especially if you're contemplating a Tesla or Google car in the future.

Polish Zloty, Hungarian Forint as Brexit Proxies

♠ Posted by Emmanuel in Currencies,Europe at 6/10/2016 12:31:00 PM

Praises be to the zloty? Its foreign exchange shows no imminent '"Brexit."

What do the currencies of former Soviet bloc countries have to do with a UK referendum on whether to stay in the EU? After all, even if Poland and Hungary opt for using the euro in the future, doesn't the UK still have its own currency? Bloomberg, however, proposes the currencies of these countries as a proxy for whether the UK will stay in the EU. And, based on current exchange rates for the zloty and forint, it looks like the UK will indeed stay:

Investors betting on Brexit may want to keep an eye on eastern European currencies, because Poland and Hungary stand to lose a bulwark of financial and political support from a British departure from the European Union. And by that measure, it looks like Britain will vote to stay in the 28-nation bloc in the June 23 referendum. Poland’s zloty and Hungary’s forint were among the top gainers of emerging currencies against the euro in the past week, even after three surveys published on Monday showed Britons favor an exit.

The logic is that, in the EU budget, the UK pumps in a lot of the money going to these newer EU member countries. Without that financial lifeline, well, the prospects of Poland and Hungary are rather diminished. Therefore, if expectations are that the UK will leave, then the currencies of those countries will take it on the chin. That simply isn't happening, however:

The calm in the currencies of post-communist bloc countries could quickly turn to turmoil because a British departure from the EU would throw into jeopardy its contribution to an EU budget that has supported the economies of Poland, Hungary, Romania and Czech Republic. Britain was the third-largest contributor to the EU budget in 2015 with a net contribution of 10.9 billion euros ($12.4 billion) and Poland is scheduled to be the biggest recipient among the bloc’s 28 members through 2020.

“Currencies and bonds of eurozone periphery countries rather than the U.K. would be most at risk after a potential Brexit,” said Peter Duronelly, strategist and money manager at Aegon’s fund unit in Budapest, which oversees 2.5 billion euros of assets.

The U.K.’s support for eastern EU countries dates back to before the bloc expanded in 2004, when the British government was the flag bearer for taking in the countries that were once behind the Iron Curtain. Those alliances have continued, with the U.K. often supporting eastern nations in the face of euro area dominance in EU decision-making, and providing a counter-balance to the attempts of western European governments that want to knit the bloc more closely together.

It's food for thought, certainly. That the pound would be less affected by the UK leaving the EU than those of Poland and Hungary is certainly interesting if unexpected.

Crossfire Victim: L'Oreal, PRC & Hong Kong Democracy

♠ Posted by Emmanuel in China,CSR,Europe at 6/09/2016 10:17:00 AM

On the bright side for L'Oreal, they won't hire the Dalai Lama as a spokesperson since he has...no hair.

I hate to say it but, if Hongkongers were optimistic about the remit of "one country, two systems," then they have been proven wrong again. What we recently had was a big brouhaha when Lancome, one of the brands of French cosmetics giant L'Oreal, decided to sponsor a concert by canto pop (that's Hong Kong's particular brand of Cantonese-language pop which you'll hear on its streets day in and day out) star Denise Ho. It would be an unremarkable marketing promotion exercise were it not for Denise Ho being an outspoken proponent of democracy for Hong Kong [!] and a vocal supporter of Tibetan independence [!!] besides. Some people--Lancome's management in HK--are just asking for it.

The trouble began when the stridently jingoistic, quasi-official Global Times blasted Lancome for effectively going against the will of Beijing, calling for a mainland boycott of the brand. With China being the brand's second-largest market, you can guess what the result was: Lancome decided to cancel the planned Hong Kong concert, disowning Denise Ho in the process. The Global Times is even gloating that PRC "market power" is responsible for this change of heart:

Ho was one of the most prominent activists during the 2014 Hong Kong Occupy Central Movement. Mainland netizens then began to boycott her and her harsh response further enraged the mainland public. Last month, she posted her photos with the Dalai Lama on Facebook, writing "I could feel the blessing and energy rushing through my body just by holding his hands." The disagreement between her and mainland opinion is deepening.

Lancôme responded fast by releasing a statement saying Ho was not a spokesperson for the brand and canceled the planned concert, citing "safety reasons." But the real reason is self-explanatory.

Some Hongkongers slammed Lancôme for groveling to the mainland and vowed to resist the products of Lancôme and parent company L'Oreal. It seems that Ho has pushed Lancôme into a dilemma. Apparently Lancôme has given more consideration to the sentiment of the mainland public, because the mainland boasts a much larger market than Hong Kong. As a commercial company, it is bound to seek commercial gains, a wisdom it is supposed to have under complex situations. No big companies would like to step into politics as the high stakes have already been proved by previous cases.

Meanwhile, mayhem erupted in the normally placid and consumerist shopping malls of Hong Kong as protesters targeted Lancome and sometimes other L'Oreal brands' outlets in the city:

Cosmetics maker Lancome shut all its Hong Kong shops on Wednesday as protesters accused the cosmetics brand of kowtowing to Beijing when it scrapped a promotional event featuring an activist singer...

Several dozen protesters marched to an unstaffed Lancome counter in a downtown Hong Kong department store Tuesday. They taped up signs accusing the company of self-censorship and of kowtowing to Beijing and called for a boycott.

Hong Kong's 23 Lancome boutiques were closed for the day and it was uncertain whether they would reopen on Thursday, which is a public holiday, a customer service representative said by phone. Lancome and its parent company, French cosmetics giant L'Oreal, did not respond to emailed requests for comment. Shops under at least four other L'Oreal brands, including Kiehl's and The Body Shop, were also shut.

There is no edifying aspect to this spectacle. Instead, I will say that it was spectacularly dumb of Lancome to choose Denise Ho for a promotional concert when there are dozens of canto pop stars who are as outspoken. Pro-democracy Hong Kong campaigners will have another reason to be dismayed, but hey, there's a definite case for not putting yourself in such a compromised position to begin with.

UPDATE: Also see Advertising Age for more on the political angle of this topic.

Will US Investors Take Up New $38B PRC Quota?

♠ Posted by Emmanuel in China at 6/08/2016 12:58:00 PM

The Chinese stock markets of Shanghai and Shenzen have been largely off-limits to foreign investors, with the partial exception of those from Hong Kong, Singapore, UK and France who have been granted Renminbi Qualified Foreign Institutional Investor (QFII) status. Recently, we received news that the Chinese are about to allow American investors to buy "A" shares as RQFII status is about to be extended to Americans as well. Here is a brief description of RQFII from China Daily:

Qualified Foreign Institutional Investor (QFII) Scheme is a transitional arrangement that allows institutional investors who meet certain qualification to invest in a limited scope of cross-border securities products, in the context of incomplete free flow of capital accounts.

Foreign investments in China are restricted due to foreign exchange control. The quota, products, accounts, and fund conversions are strictly monitored and regulated. QFII scheme was introduced in 2002, allowing foreign investor’s direct access to China's capital market.

When implemented, RQFII for US investors will supposedly be the second largest allocation after Hong Kong's. Still, $38 billion does not seem an awful lot considering that the capitalization of the Shanghai Stock Exchange alone, for instance, is $3-trillion-something. Anyway:

China will give the United States a 250 billion yuan ($38 billion) investment quota for the first time to buy Chinese stocks, bonds and other assets, officials said on Tuesday, deepening financial ties and interdependence between the world's two largest economies. China has given such quota allocations to several countries, including the UK, France and Singapore, but this would be the biggest given to a single jurisdiction after Hong Kong.

Why the seeming change of heart after all this time? With PRC stock markets floundering to be honest, there is some hope that American money can help buoy them. Still, governance concerns remain:

China's regulators have been pushing to expand foreign investors' access to domestic financial markets to make its markets broader and attract more capital inflows. But foreign interest has waned after a near meltdown in Chinese stock markets last year and heavy-handed official intervention to shore them up.

"I would imagine that investors would look for certain financial reforms in order to dive in," said Gregory Peters, a senior investment officer at Prudential Fixed Income with more than $621 billion of assets. "A consistent application of the rule of law is paramount. ... Not sure China is quite there yet."

Another is that, having been denied last year for inclusion in the MSCI index, Chinese officials want to show greater capital market access for foreign investors since it is one of the conditions for inclusion. Formally, these are "capital mobility restrictions." The logic for inclusion, though, remains to attract additional foreign investment since index-tracking funds--of which there are more and more--would have to buy PRC-listed shares were these to be included in MSCI indices:

Another big catalyst for foreign investment flow is on the horizon. Index compiler next week MSCI is expected to announce whether it would include Chinese shares in its benchmark index.

My two cents is that $38 billion is not all that much in the wider scheme of things. While Chinese mainland stocks are still somewhat pricey in price-to-earnings terms at the moment, there will likely be good entry points soon for US investors keen on diversification. So, the quota will probably be used up; just don't expect a mad rush but something more gradual.

Brexit Kronikles: Why are British Expats Held in Contempt?

♠ Posted by Emmanuel in Europe,Migration at 6/05/2016 03:37:00 PM

Unfortunately for UK expats in the EU, they don't have much say in a process affecting them greatly.

There's an interesting article in The Economist on how the upcoming UK referendum on whether to remain or leave the EU is revealing how the country treats its expatriates. Famously a widely-traveling people, it turns out that the home nation does not have particularly high regard of its citizens living abroad. The evidence is from not giving expatriates a clear and well-organized way to cast their votes. This matters especially to expatriates working in other EU countries since, if the referendum results in leaving the grouping, there is no guarantee that they can work on anywhere near similar terms since the "Leave" camp is fervently isolationist towards everyone else--especially other Europeans. Why would the EU not return the favor?

That means protections for expats need to be secured as part of Britain’s exit negotiations. But will they be? If the country sought an arrangement similar to Norway’s, whereby it kept the trade benefits of EU membership in exchange for preserving freedom of movement, this might well be possible. But the Leave campaign is increasingly defining a pro-Brexit vote on June 23rd as a mandate for a draconian clamp-down: on June 1st Vote Leave, the official Out campaign, proposed slamming the door on all EU citizens except those with particular skills. If this happened, reciprocal restrictions would presumably apply to Britons planning to move to the continent. How it would affect those who have already done so is unclear. In the event of Brexit, European leaders are likely to try to discourage copycats by pointedly restricting the full benefits of EU citizenship to full EU citizens.

In an age when diaspora communities are regarded as resources--bringing knowledge and skills back to the home nation or sending remittances from abroad--the UK is curiously of the "out of sight, out of mind" disposition towards its own:

All this is part of a wider story: Britain tends to disregard its diaspora. The country limits its expats’ voting rights (which are withdrawn after 15 years abroad) and certain welfare payments. It freezes their pensions and makes relatively little effort to find out where they are, what they are doing or even how many of them exist.

And this in a technological age when other governments are going to new lengths to engage their emigrants. Ireland is building a giant database of its diaspora, to help nurture and woo it; New Zealand runs a social network for far-flung Kiwis. Mexico, India and China see their emigrants as soft-power warriors and try to lure high-flyers, with their international experience and connections, back home. France and Italy both have overseas parliamentary constituencies and let their expats vote in embassies...

Yet why should such Britons, many of whom have paid into the welfare state for decades before moving abroad, be treated as second-class citizens.

There are many "known unknowns" in Rumsfeld-speak for the UK itself if it leaves the EU; what more for those actually plying their trade on the continent?

Nigerian Nightmare 2016: Naira Inconvertibility

♠ Posted by Emmanuel in Africa,Currencies,Political Risk at 6/03/2016 01:01:00 PM

Among others, airlines are being negatively affected by Nigeria's ill-conceived currency peg.

We've talked about the plight of any number of commodity-dependent countries amid a global plunge in the value of such exports. While Russia and Venezuela have received much airtime, save a thought for Nigeria which is doing nearly as bad as those others. With oil prices plunging, it has attempted to maintain a currency peg for its naira to the US dollar. This, of course, is an increasingly difficult balancing act since it must defend the peg by continually selling dollars it is earning less of as oil prices remain relatively low. That is, foreign exchange earnings are under pressure which does not bode well for maintaining a currency peg at all.

Caught in this sorry business are companies doing business in Nigeria. As the government aims to conserve foreign exchange and in so doing preserve the dollar peg, it is resorting to limiting the amount of nairas these firms can convert to $:

As Nigeria’s policy makers dither on plans to loosen capital controls and let the naira weaken, foreign companies such as Nampak Ltd. of South Africa and British Airways Plc are battling to get their money out of the country. Nampak, Africa’s biggest producer of beverage cans, is considering currency swaps that would enable the Johannesburg-based company to repatriate money trapped due to the shortage of foreign exchange in Nigeria, its chief executive officer said.

“We are exploring structuring options in Nigeria,” Andre de Ruyter said in a phone interview Wednesday. While some companies were contemplating dollar investments into Nigeria, they would want to avoid doing so at an overvalued official exchange rate, he said. “So there’s an option for us to do currency swaps.”

The pegged exchange rate--only implemented last year--is in imminent danger, hence the move to limit the naira's convertibility:

Nigeria has pegged the naira at 197-199 per dollar since March 2015 through import and currency-trading restrictions. While central bank Governor Godwin Emefiele said May 24 that the country would move to a more flexible foreign-exchange regime, with details of how this would work to be announced “within days,” authorities are yet to set out changes in policy.

The capital controls have sent investors fleeing and the black-market exchange rate has plummeted to 350 as the dollar scarcity has worsened. Forward contracts suggest the official rate will fall to 284 in three months.

There are indeed shades of Venezuela here as international airlines are having trouble repatriating their profits due to currency inconvertibility:

IATA said that airline revenues worth $5 billion were currently being blocked by countries, with Venezuela and Nigeria the biggest culprits, effectively withholding $3.78 billion and $591 million respectively. Sudan, Egypt and Angola are also blocking the repatriation of airlines’ revenues.

Hard times are afoot in Nigeria with political unrest also brewing, but you do have to wonder if its economic woes have been exacerbated by a decision to peg its currency when unable to afford the measures required to maintain such a peg. Then again, who would have thought oil prices would fall to today's levels back in March 2015.

Turf & Japan Shifting Investment from PRC to SE Asia

♠ Posted by Emmanuel in China,Japan,Southeast Asia at 6/01/2016 01:10:00 PM

Here is an interesting article concerning how geopolitical concerns affect foreign direct investment (FDI). Despite China being one of if not the largest recipient of Japanese FDI in past years, rising security concerns have made Japan rethink where it places its money. In a non-democratic society, it would be so easy to expropriate Japan-owned businesses if PRC leadership felt like it. This concern has been a recurrent one, especially after the 2012 riots in China against Japanese-owned businesses. Indeed, it's in the aftermath of the 2012 riots when the Japanese have actually begun putting there money where their mouths are at: anywhere but China:

Japanese investment in Southeast Asia continues to grow, owing to the region’s potential and low labor costs, amid simmering tensions that reduce the appeal of China for some Japanese businesses. For a third straight year, in 2015 the amount of foreign direct investment from Japan to the 10-member Association of Southeast Asian Nations exceeded such investment in China and Hong Kong, according to figures compiled by the Japan External Trade Organization.

The pace has been accelerating -- the outstanding amount of Japanese investment to Asean nations almost tripled from five years ago to 20.1 trillion yen ($180.9 billion) at the end of last year, according to Bank of Japan data.

Make no mistake: territorial disputes do factor into the collective decisions of Japanese investors:

Japanese investment growth to China slowed after protests there intensified in 2012 following a territorial dispute over islands in the East China Sea, prompting Japanese companies to diversify investment risks. With Japan’s economic growth anemic and the nation’s population aging and declining, companies have been searching for growth opportunities elsewhere in Asia.

“Asean markets are attractive from the Japanese perspective,”’ said Ma Tieying, an economist at DBS Group Holdings in Singapore. “Many economies have great potential to grow, thanks to relatively low per-capita incomes and a young population profile.” The openness of markets in the region along with labor costs that are lower than in China also is attracting Japanese investment, he said.

Japan is moribund, while China is becoming a gig question mark for continued investment What's left? Southeast Asia, despite its flaws, looks inviting.