Untitled

News Summary
Hello from Hong Kong.

It is going to be a busy kicking off Sunday Nov 29, EU and
Turkish leaders will meet in Brussels, a deal aimed at
stemming the flow of migrants into the bloc. In Paris, we have
the climate conference, or COP 21, but the big kick-off is
Monday, when 147 world leaders gather in the French capital.
The foreign ministers of NATO will gather on Tuesday and
Wednesday.
Come Monday Nov 30, IMF is expected to bestow reservecurrency status on Chinese Yuan. By adding the Yuan to the
basket of elite currencies comprising the IMFs lending
instrument, the global powers that govern the fund will be
acknowledging the strength and international reach of the
Chinese economy. Article by Barrons Online said the Chinese
currency is no longer stable. Predicting its course over the
next year involves everything from the strength of the dollar to
Chinese growth (page 17).
But taking the centre-stage is Mario Draghi and the European
Central Bank. Rates decision on Thursday, Dec 3 and most
people expecting the ECB to embark on a second round of
monetary stimulus. In Kathryn Coopers note in The Sunday
Times, she said Draghi is expected to expand his QE
programme by 15bn a month to 75bn from January. It
could also be extended by six months, to March 2017. This
would add nearly 600bn to the ECBs balance sheet. Markets
are also expecting deposit rates to be cut next week by at least
10 basis points from the current -0.2% (see page 2).
In an FT article, one commentary said markets are creating a
problem for Draghi. A rush to buy bonds ahead of what is
widely expected to be a new round of monetary easing on
Thursday has pushed yields so low that many are no longer
eligible for the ECBs quantitative easing programme. With
Fed Res to raise interest rates for the first time in nearly a
decade two weeks later, this would be the first time that
monetary policy in America and Europe has diverged since the
mid-1990s (page 2).
Russia has announced a package of economic sanctions
against Turkey over the shooting down of a Russian jet on the
Syrian border. The decree, signed by President Vladimir
Putin, covers imports from Turkey, the work of Turkish
companies in Russia and any Turkish nationals working for
Russian companies (page 3).
A study conducted by Zurich University of Applied Sciences
showed that half of the 25 Swiss pension funds are assessing
whether they should provide mortgages for members for the
first time, to counter the sudden strengthening of the franc in
January and negative government bond yields. The report said
11 of the pension schemes, which collectively oversee
SFr220bn ($214bn) of assets, already sell mortgages to
members (page 6).
$30 billion worth of projects to investors. The framework for

the oil and gas contracts disclosed in FT (see page 10).
On late Friday, Brazilian government announced it will sue
mining company Samarco $5.2bn for the environmental
damage caused after a waste water dam at an iron-ore mine
collapsed. Samarco is owned by Brazilian mining giants Vale,
and Anglo-Australian BHP Billiton (page 12).
Would you believe that 57 workers with access to Charles de
Gaulle airport runways and aircraft were on an intelligence
watchlist as potential Islamist extremists (see page 4)?
Yonhap News reported that North Korea is believed to have
fired a KN-11 missile from a submarine in the East Sea
roughly between 2:20-2:40pm but the submarine-launched
ballistic missile (SLBM) failed to soar from the waters (page
18). Slap in the face for Kim or maybe he was humouring the
South?
Former Malaysia PM Dr Mahathir Mohamad tquestioned how
1MDB was able to reduce its debts through the sale of energy
assets to China General Nuclear Power Corp given the
depreciation of the ringgit. In other words what 1MDB gets
from the sale would not be able to pay fully the debts in US$
raised by 1MDB, said Dr Mahathir (page 15).
In corporate news
* AB Inbev is looking to raise billions by putting Peroni and
Grolsch up for sale (page 3).
* British insurers are bracing for a financial crunch this week
when the Bank of England governor Mark Carney may order
them to raise billions of pounds of fresh capital (page 4).
* Chinese and Australian regulators are expected to give their
blessing to Shells 55bn mega takeover of BG before
Christmas (page 4).
* The sale of the Governments stake in Britains air traffic
control network is expected to trigger an international bidding
war among pension funds, infrastructure investors, and
sovereign wealth funds (page 5).
* Interesting report in Sunday Telegraph that hedge funds
suffered some of the most startling losses in the stock market
bloodbath that started in China in June (page 10).
CIBC Research The Week Ahead by Benjamin Tal
Unless something really bad happens, the Fed will start
raising rates on December 16th. If the Fed follows the average
tightening trajectory of past cycles, it will raise rates by 270
basis points through early 2017, the long end of the curve will
rise by close to 80 basis points and the next recession would
take place in mid-2019.
http://research.cibcwm.com/economic_public/download/no
v27_15.pdf
Jan Vlieghe, the newest member of Bank of Englands MPC is

confirmed a dove. An interview with The Sunday Times,
Vlieghe said he wants to see stronger wage growth before BOE
rate rises from 0.5%. As far as he is concerned, interest rates
in Britain are going nowhere for some time (page 7).
Big oil companies like Total SA, Royal Dutch Shell Plc and
Lukoil PJSC are among international companies that have
selected oil and natural gas deposits to develop in Iran as the
holder of the worlds fourth-largest crude reserves presents
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
The European Central Bank

Dollar and euro diverge thanks to Draghi
effect
Taken from the FT Saturday, 28 November 2015
The markets are creating a problem for Mario Draghi,

European Central Bank president. A rush to buy bonds ahead
of what is widely expected to be a new round of monetary
easing on Thursday has pushed yields so low that many are no
longer eligible for the ECBs quantitative easing programme.
Short-dated eurozone yields have dropped to new record lows,
with the German two-year bond yielding an extraordinary
minus 0.43 per cent. The German five-year fell on Friday to
below minus 0.2 per cent, the ECBs deposit rate and its selfimposed lower limit for buying bonds.
The ECB has three main options for further easing: a cut to
the deposit rate; increasing the size of bond buying from the
60bn a month begun in March; or extending the length of
the purchasing programme, currently due to run at least
until September. Bond investors are buzzing with the
implications, after Mr Draghi indicated last week that more
was coming. As the ECB runs out of safe bonds to buy, it may
ditch its yield limit or buy riskier paper, perhaps mortgage or
corporate bonds.
This is the sort of problem Mr Draghi should welcome. While
it creates technical difficulties and upsets Germans opposed
to the ECB buying anything with default risk it is clear
evidence that the ECB has succeeded in bringing down the
regions interest rates. Italys 10-year bond yields just 1.4 per
cent, a far cry from the 7 per cent-plus reached when euro
break-up looked plausible.
Mr Draghi is a master of the dark art of central bank
communication, so he will have no trouble talking his way out
of the wider problem: why ease further given the clear signs of
recovery?
The combination of low bond yields and measures to
recapitalise banks have boosted lending to the private sector.
Figures this week showed loans rising at the fastest rate since
2012, while the regions money supply growth is back to
normal, expanding at the average rate seen from the euros
launch in 1999 to the start of crisis year 2007.
Core inflation, stripping out volatile energy and food prices, is
out of the deflation danger zone, back above 1 per cent. While
still only half the target of below but close to 2 per cent, it
has accelerated slightly more than US core inflation this year.
The economy is growing at or above most guesses of the
sustainable long-run trend, too.
As if these positive signs were not enough, governments are
also escaping the financial shackles of Brussels, which will add
the first fiscal stimulus in five years. Franois Hollande, the
French president, even says Europes security agreement
trumps the stability pacts spending limits.
Back to normal is not good enough for Mr Draghi, who would
like to see faster growth to use up the slack in the economy
created during the protracted downturn.
For now, he is right to be dovish. The urgent need for easier
money has gone, but there is no risk of an inflationary spiral
developing soon.
On the other hand, investors may start to look more closely at
the positive economic developments. Money has flooded into
divergence bets on a weaker euro and a stronger dollar, as the
extra yield available from US two-year bonds compared to
Germany has reached the most since 2006.
There is scope for these positions to become even more
crowded as the ECB eases and the US Federal Reserves first
rate rise nears.
But those expecting the euro to drop below $1 and stay there
from just below $1.06 now need Mr Draghi to stay
supremely dovish. If Europes recent economic performance
proves sustainable, it will create the sort of problem he really

wants: growth.
(Full article click - FT)
---
Kathryn Cooper: ECB chief plans new

600bn injection
Taken from the Sunday Times 29 November 2015
Second dose of QE may drag euro down to parity with dollar

MARIO DRAGHI is set to pump at least 600bn (420bn)
into the eurozone economy and take interest rates further into
negative territory in an effort to boost inflation.
The intervention by the president of the European Central
Bank (ECB) on Thursday will kick off what promises to be a
historic month for markets.
Americas Federal Reserve is expected to raise interest rates
for the first time in nearly a decade two weeks after Draghis
move. It would be the first time that monetary policy in
America and Europe has diverged since the mid-1990s.
Economists said the euro could drop to parity with the dollar
for the first time since 2002. It was $1.06 on Friday.
We suspect the sheer scale of the policy divergence will be
enough to break the parity barrier, said Jonathan Loynes,
chief European economist at the consultancy Capital
Economics. Our euro forecast for the end of 2016 is $0.95
and we would not rule out a bigger fall.
The ECB is expected to embark on a second round of
monetary stimulus on top of the 1.1 trillion announced in
March despite evidence that growth in the eurozone has
stabilised. Inflation remains stubbornly below the central
banks 2% target, however, and the figure is likely to be
revised down even further this week.
Draghi is expected to expand his QE programme by 15bn a
month to 75bn from January. It could also be extended by
six months, to March 2017. This would add nearly 600bn to
the ECBs balance sheet.
Antonio Montilla, an economist at the investment bank Citi,
thinks Draghi will need to unleash even more stimulus next
year, taking the total size of QE2 to 1.2 trillion.
Markets are also expecting deposit rates to be cut next week
by at least 10 basis points from the current -0.2%. ECB
officials are said to be reassured by the experience of Sweden,
where the Riksbank has slashed deposit rates to -1.1% without
serious fallout.
Officials could also broaden the type of assets the central bank
can buy under the QE programme. German lnder bonds,
issued by the countrys federal states, are seen as the most
likely candidate.
Analysts warned that markets would be volatile ahead of the
ECB announcement. If the ECB merely does what is
effectively priced in by the market, we could wake up feeling a
bit deflated, like a child discovering on Christmas Day that his
parents only gave him what they had asked for, said Gilles
Moec, European economist at Bank of America Merrill Lynch.
(Full article click - Times)
European News
Turkey-Russia
jet
announces sanctions
downing:
Moscow
Taken from the BBC Sunday, 29 November 2015
Russia has announced a package of economic sanctions

against Turkey over the shooting down of a Russian jet on the
Syrian border on Tuesday.
A decree signed by President Vladimir Putin (in Russian)
covers imports from Turkey, the work of Turkish companies in
Russia and any Turkish nationals working for Russian
companies.
The decree also calls for an end to charter flights between the
countries.
Turkish President Recep Tayyip Erdogan has refused to
apologise to Russia.
On Friday, he accused Moscow of "playing with fire" in its
Syria operations. But on Saturday, he said he was "saddened"
by the downing of the jet.
Turkey and Russia have important economic links. Russia is
Turkey's second-largest trading partner, while more than
three million Russian tourists visited Turkey last year.
Mr Putin's spokesman Dmitry Peskov said on Saturday that
there were close to 90,000 Turkish nationals working in
Russia. Taking family members into account, that figure rises
to 200,000, he said.
The decree also urges Russian tour operators to refrain from
selling packages to Turkey, while Turkey's Foreign Ministry
has warned its citizens against non-essential travel to Russia
"until the situation becomes clear".
In fact, shoppers have already been affected.
Earlier this week, Russia's agriculture minister said that
around 15% of Turkish produce did not meet Russian safety
standards. Some imports were blocked, and trucks stranded at
borders.
The new sanctions will mean some imports will be stopped but it is not yet clear which.
Turkey has exported food and agricultural produce worth over
1bn (702m) to Russia already this year, and Russia says
20% of its vegetable imports come from Turkey.
Turkey's Anadolu Agency says exports of leather, textiles and
clothes to Russia were worth more than $1.52bn (1bn) last
year.
Russia mixes food and foreign policy
On Friday Russia suspended its visa-free arrangement with
Turkey.
Mr Erdogan has asked for a meeting with Mr Putin, who
wants an apology from Turkey before he will agree to talks.
Turkey says the Russian plane had intruded into its airspace
and ignored warnings to leave.
But Moscow maintains that its SU-24 fighter jet was downed
by a missile fired from a Turkish jet inside Syria.
Mr Putin has also firmly rejected any suggestion Turkey did
not recognise the plane as Russian. He said it was easily
identifiable and its co-ordinates had been passed on to
Turkey's ally, the US.
Russia has sent troops and aircraft to Syria to back up the
Syrian government of Bashar al-Assad in the civil war.
Turkey, which is a member of Nato and of a US-led coalition
in the region, insists Mr Assad must step down before any
political solution to the Syrian conflict is found.
Both countries say they are trying to rid the region of the socalled Islamic State (IS) group, which claimed the recent
attacks on Paris, Ankara and also on a Russian airliner.
On Saturday, the Turkish president again defended the
shooting down of the jet and criticised Russia's operations in
Syria in support of President Bashar al-Assad, whom Ankara
opposes.
But he renewed his call for a meeting with Mr Putin on the

sidelines of the Paris Climate talks next week, saying that both
sides should approach the issue more positively.
(Full article click - BBC)
---
InBev to sell Peroni in olive branch to EU

Giant brewer prepares to offload top brands in effort to secure

Brussels approval for 177bn mega-merger
ANHEUSER-BUSCH INBEVis to put Peroni and Grolsch up
for sale as it tries to squeeze a 177bn merger with SAB Miller
past EU regulators.
The worlds biggest brewer will sell two of SABs leading
brands in a deal that will raise billions of pounds, City sources
said.
The sale is a pre-emptive strike to appease competition
regulators in Brussels, who have the power to block the
takeover.
AB InBev, which owns Stella Artois and Becks, struck a deal
this month to buy the worlds No 2 brewer for 44 a share.
Together they will control nearly a third of the worlds beer
supply.
City sources said AB InBev was reviewing SABs European
premium brands and had already briefed its advisers about
the sale. The two Italian and Dutch beers are likely to attract
the interest of European giant Heineken, American brewer
Molson Coors and Dublin-based C&C, owner of Bulmers and
Magners.
AB InBev has already agreed to offload its 58% stake in Miller
Coors, a North American joint venture. The $12bn (8bn)
transaction, announced earlier this month, will allow it and
SAB to sidestep American competition watchdogs. The
disposal includes the American rights to Peroni and Grolsch.
SAB has invested heavily in Peroni in recent years, marketing
the lager aggressively across Europe and America. Sales in
Italy slowed last year, partly because of poor weather during
the peak season, SAB said in its latest annual report.
Grolsch, like Peroni, is classed as one of SABs global brands.
The company, founded in South Africa, is listed in London as
well as Johannesburg.
The sale is the clearest sign yet of AB InBevs eagerness to
push through the mega-merger. The company, based in
Belgium, is keen to offload the SAB beers so it can hold on to
its own premium lager brands. Its stable includes Budweiser
and Leffe. The company, run by its Brazilian chief executive
Carlos Brito, is set to reshape the global brewing industry
following the merger with SAB.
Brito expects to make cost savings of $1.4bn from combining
the businesses. The merger is expected to be completed in the
second half of next year.
The sale of Peroni and Grolsch will not proceed if the tie-up
with AB InBev fails to make it past regulators around the
world. SABs other premium brands in Europe, including
Pilsner Urquell, are not on the block, sources said this
weekend. The discussions about the Peroni and Grolsch sale
are at an early stage, insiders said. AB InBev and SAB declined
to comment.
According to analysts at the stockbroker Olivetree Securities,
the merger will face its biggest challenge in South Africa,
where it has to pass a national interest test. Unions there
have already begun lobbying against the deal because of
concerns about job losses.
AB InBev and SAB will also come under the competition
spotlight in China. The latter is expected to sell its stake in CR
Snow, a joint venture with China Resources Enterprise.
---
Insurers face big bill from Brussels

BRITISH insurers are bracing for a financial crunch this week

when the Bank of England governor Mark Carney may order
them to raise billions of pounds of fresh capital.
On Friday night the Prudential Regulation Authority, (PRA)
part of the Bank of England, will give its verdict on insurers
plans to meet new European financial guidelines. Known as
Solvency II, the rules are part of an overhaul of financial safety
standards in the 8.4 trillion (5.9 trillion) industry.
The largest players Prudential, Legal & General and Aviva
are expected to sail through. But smaller insurers such as
Just Retirement may have to raise extra reserves to ensure
they could withstand an unexpected financial shock.
The idea of the rules is to stop insurers from doing stupid
things with their businesses. However, it wont stop fraud,
said a senior executive at one of Britains largest insurers.It
will be interesting to see if any of the insurers have their plans
rejected by the Bank.
The Solvency II rules, which have been more than 10 years in
the making and will come into force in January, have put
pressure on insurance companies in recent months. Just
Retirement an annuities specialist delayed its merger
with Partnership Assurance until there was more clarity on
the new rules.
The 1.8bn deal is expected to be completed in January so
that Just Retirement can include all the relevant information
in the shareholder circular.
Annuity writers are believed to be most at risk from
unfavourable regulatory rulings, while Prudential, Britains
biggest insurer, threatened to quit Britain in 2013 to escape
the onerous regulations. Prudential directors feared that the
PRA would take a dim view of its big operations in America
and Asia.
Analysts believe that the new rules could slash the companys
reserves from 9bn to 3bn. A tough outcome on Friday could
force Prudential to consider a restructuring plan.
Shareholders were notified in Prudentials annual report,
which warned of a 1.9bn hit to capital in its Asian business.
---
French panic over Islamists with runway

clearance
FRANCE has ordered a review of the security passes of tens of

thousands of employees at the countrys main airport after the
discovery that 57 workers with access to runways and aircraft
were on an intelligence watchlist as potential Islamist
extremists.
It emerged yesterday that dozens of workers had their security
badges blocked or withdrawn after terror attacks in January,
but others continued to work at Charles de Gaulle airport
despite appearing in security files.
Philippe Riffault, the police official in charge of airport
security, said 86,000 passes for the airport would be
reviewed in co-ordination with the intelligence services. The
process would begin with 5,000 airport security personnel.
Its a question of verifying what these people might have been
doing since they obtained their authorisation, Riffault said.
Police carried out extensive searches of the airport under state
of emergency powers following the Paris attacks. Some airport
workers suspected of radical ties were placed under house
arrest.
The airport alert coincided with complaints this weekend by
easyJet that four of its aircraft at French airports had been
daubed with Arabic graffiti.
Belgium, where a number of the Paris attackers had lived, has
also withdrawn or blocked the security badges of several
airport workers after discovering some had links to Islamist

militants who had travelled to Syria.
Bernard Cazeneuve, the French interior minister, said
yesterday that 1,000 people considered a threat had been
prevented from entering his countrys territory since the state
of emergency was announced two weeks ago.
Anger has grown over the French governments failure to
monitor suspected jihadists and its mismanagement of the
20,000 people with so-called S files, identifying them as
potential threats to the state.
Half are suspected of ties to Islamic radicals, and about 3,000
live and work in and around Paris some of them at the
airport.
There has also been anxiety about creeping radicalism
among bus, Mtro and railway employees. Samy Amimour,
one of the gunmen who blew himself up in the Bataclan
concert hall in Paris, was able to get a job as a bus driver even
while figuring on the intelligence list.
It emerged last week that RATP, the transport company that
employed Amimour, is a hotbed of Islamic fundamentalism,
with drivers refusing to shake hands with female employees or
take over buses previously driven by women.
Meanwhile, the hunt continued yesterday for Salah Abdeslam,
the only one of the Paris attackers to have escaped. He was
said to have enjoyed a coffee and a leisurely chat with a friend
in a cafe in Brussels on the day after the attacks.
It also emerged yesterday he had bought 10 detonators from
an explosives company in Saint-Ouen-lAumne, a town
northwest of Paris. The owner came forward after seeing
Abdeslams picture in the media after the attacks.
Mohamed Abdeslam, the one brother of Salah who was
thought to have had a clean record, was reportedly convicted
in 2010 of stealing from accident victims while working for the
ambulance service. A third brother, Brahim, blew himself up
in the Paris attacks.
-----
Shell-BG deal to win green light
Taken from the Sunday Telegraph 29 November 2015
Regulators in China and Australia likely to support move to

create Britains biggest company
Chinese and Australian regulators are expected to give their
blessing to Shells 55bn mega takeover of BG before
Christmas, leaving the future of the deal resting squarely in
shareholders hands.
The tie-up, which will create Britains biggest public company,
has been under mounting scrutiny in recent weeks as the City
questions whether Shell can justify pushing ahead, with oil
prices remaining so suppressed.
However, the takeover will advance a major step towards
completion in the coming weeks with the two sides
anticipating clearance from Chinas Mofcom regulator after
the deal was passed into the final phase of its review process.
It is understood that Shells chief executive, Ben van Beurden,
has recently had direct meetings with the president of Chinas
ministry of commerce, Gao Hucheng, a rare occurrence in the
typically opaque process.
Mr van Beurden has criss-crossed the globe since announcing
the deal in April, including travelling to meet regulators in
Brazil and Trinidad, where BG has large gas facilities. The
takeover will enable Shell to fulfil Mr van Beurdens ambitious
growth targets and leapfrog its top US rival ExxonMobil to
become the largest liquefied natural gas (LNG) producer in
the world.
There were initial concerns about the level of Mofcoms
scrutiny, with BG set to become the biggest supplier of LNG to
China once it is in Shells hands. However, sources claim that
Shell has already put remedy proposals to Mofcom.
China was originally said to be viewing the deal as an

opportunity to renegotiate its long-term gas supply, billiondollar contracts between Shell and the countrys energy
champions, China National Petroleum Corporation (CNPC),
China National Offshore Oil Corporation (Cnooc) and
Sinopec, which could have strained the rationale for the
takeover.
However, Cnooc and CNPC have already pledged their broad
support in return for continued co-operation with Shell on
projects around the world.
Competition lawyers say Mofcom has a history of demanding
remedies that often favour China in return for approving a
deal. In 2013, it agreed to wave through Glencores acquisition
of Xstrata on the basis that its Peruvian Las Bambas copper
mine was sold to a Chinese buyer.
The authority has become a nightmare for dealmakers, as they
are given little visibility about how the regulator reaches its
decisions, while staff shortages often mean that reviews can
become drawn out affairs, even when there are limited
competition concerns.
However, with the guidance of an army of advisers, Shell has
rattled through competition clearances quicker than many
anticipated, winning approval from the US, European
Commission and Brazils beefed up CADE regulator.
It has also been given the green light from one of two
Australian regulators after the Australian Competition and
Consumer Commission (ACCC) said it was unconvinced by
concerns raised by big local gas users.
The Australian Foreign Investment Review Board (FIRB),
which applies a national interest test, still has to rule, but
sources close to the deal said they anticipated clearance by the
end of the year.
Approval from China and Australia paves the way for
investors to vote on the deal. It needs 50.1pc of Shell investors
and 75pc of BGs shareholders to vote in favour.
Questions have been raised about the growing gulf between
the price of BG shares and Shells cash and stock offer, while
some market sources have argued that the low oil price could
force Shell to renegotiate the deal and reduce its bid.
However, is understood Shell is determined to press ahead,
particularly as this is the fourth time it has looked seriously at
a takeover of BG since 2001.
Shell has met four of its top US investors, including Fidelity
and Franklin, in the past few weeks in an effort to soothe any
jitters. Shell is confident that shareholders will vote it through
because 18 of its top 20 fund managers also hold BG shares.
Shell said: We are working positively with Mofcom and are
hopeful of a positive decision, but it is up to them to decide
and we expect they will carry out a thorough and professional
review.
(Full article click - Telegraph)
---
Air traffic control sale

international bidding war
could
trigger
Sale of state's 49pc stake in UK air traffic control could start

bidding war as investors seek stable infrastructure assets
The sale of the Governments stake in Britains air traffic
control network is expected to trigger an international bidding
war among pension funds, infrastructure investors, and
sovereign wealth funds as interest in big infrastructure assets
grows.
The Government in the Autumn Statement revealed plans to
sell its 49pc stake in National Air Traffic Services (NATS),
having ditched an attempt in 2012 saying it was in the best
interests of the taxpayer to retain it. NATS oversees air traffic
control at 14 UK airports, over the Uk and eastern parts of the
Atlantic.
The Chancellor said last week that he wanted to sell it as part

of a package of disposals to raise 5bn. The stake in NATS
could sell for 500m, say industry sources, as the stock of
quality infrastructure assets which produce reliable long-term
returns runs down.
Such a price would represent a significant premium to the last
NATS sale, when pension fund USS paid 143m for a 21pc
stake in 2013.
Appetite for infrastructure investments has increased since
then, said Colin Smith, PwC partner, adding some buyers
could be put off by NATS regulation by the Civil Aviation
Authority which sets required investment level s and the
returns owners can make.
It is not a stable infrastructure investment in the way a port
or airport is, he added. It needs the technology to be
continually refreshed.
Concerns have also been raised about the Government
retaining control through a golden share, seeing NATS as
critical infrastructure.
The importance of NATS to the UK was highlighted by
technical faults at its air traffic controls centres which caused
chaso in the skies above the UK.
Trade bidders could include German peer Deutsche
Flugsicherung which signalled its interest in the previous
failed sale and Nav Canada, according to banking sources.
There is a lot more money out there chasing fewer and fewer
deals, said one.
However, current low interest rates combined with fewer
stable assets up for grabs could drive strong buyer interest and
drive up the price.
A Department for Transport spokesman said no decision had
yet been made on NATS value or whether it would retain
control through a golden share.
---
Is the Celtic Tiger really ready to roar

again?
Irelands economy has emerged from the mire but political

complacency could wreck it once more
'My generation became the mass export, says 29-year-old
Irishman Simon McMahon.
He isnt joking. After the onslaught of the recession, around
half a million people left Irish soil.
Six years ago, the diagnosis for the Irish economy was
terminal.
The one-time roaring Celtic Tiger was on life support.
The state was forced to bail out national banks, the
construction sector imploded, public debt soared and Ireland
haemorrhaged its well-educated labour force at an astonishing
rate.
Humiliating as it was, the economic lifeline, in the form of the
85bn (60bn) bail-out from the European Central Bank and
the International Monetary Fund in late 2010 was the
transfusion of cash so badly needed.
Today, Ireland, which exited its bail-out around two years ago,
is resurgent. It is the fastest growing economy in Europe, with
growth of 6.3pc forecast for this year.
So remarkable is the transformation, Irish recruiters are
heading down under, to entice those who left to return.
Accounting giant KPMG led the call to Irish expats with the
social media campaign #ComeHomeToOpportunity this year.
Recruiter Robert Walters embarked on road shows two
months ago in Australia. It was their second event since 2013.
Mr McMahon, who left Ireland with a marketing degree and
whose story of emigration spanned six years across two
continents Europe and Australia returned to a more
positive country almost a year ago to start up his own
business, Capture Digital. More than 12,000 people returned

to the motherland last year.
This month, unemployment fell below 9pc for the first time
since 2008, having surged to 15pc in the height of the
economic collapse. But cautioning that the risks to the nation
are significant, many began to wonder: had the Irish
celebrated their recovery prematurely and could the economy
overheat once again?
In the Celtic Tiger era the economy surged across a two-phase
boom over a 12-year period. Between 1995 and 2001, the
countrys growth was driven by exports and return migration,
while from 2001 until 2007 domestic credit fuelled growth. In
the subsequent two years, the economy contracted sharply by
11.2pc.
Today, the health of the economy is reminiscent of the early
Celtic Tiger era, with growth again export led. However,
according to independent economist Jim Power, the recovery
is becoming increasingly broad-based. Construction is
bouncing back and consumers are making a more meaningful
contribution, helping GDP in the first half of the year climb
6.9pc.
Power said growth over 18 months has been as a result of
four benign external developments: a dramatic fall in the oil
price; an environment of low interest rates; a weakened euro
against the pound and US dollar which boosted exports and
tourism; low corporation tax of 12.5pc has enticed many
multinationals to Ireland.
Even the recently announced mega pharma deal, that Pfizer is
buying Galway-based Allergan, is set to boost the exchequer
by up to around 620m.
However, all the drivers of growth are beyond the states
control, and as such, fears of complacency plague the recovery
story. Worryingly, debt levels remain high. Public debt has
fallen to 98pc of GDP, down from 109.7pc last year and from
highs of 123.1pc in 2013.
The mere whisper of a property bubble prompts alarm bells
nationwide. The OECD cautioned: Strong property price rises
may boost construction activity further in the short run but
also risk sparking another spiral of higher property prices and
credit. But Trinity College Dublin economist Ronan Lyons
quips: They were a little late to the party with that one.
Earlier this year, the Central Bank of Ireland introduced
mortgage caps, which require first-time buyers to save a
deposit of 20pc to buy properties that cost more than
220,000 a measure brought in to stop reckless borrowing.
As soon as the central bank moved, the risk of a property
bubble became significantly less, Mr Lyons added.
Since house prices bottomed out in March 2013, the national
average house price has risen 33.2pc in Dublin. The pace of
growth in prices has since petered out, with house prices
climbing 4.4pc nationwide last year; up 3.3pc in Dublin and
6.4pc outside the Dublin region.
However, Nick Bullman, chairman of CheckRisk, said that,
outside Dublin and Cork, Ireland is still pretty much in
lockdown mode.
Indeed household consumption is the main driver of GDP in
Ireland (accounting for 44pc of GDP). The drag on the Irish
economy is that households are still prioritising repayment
over consumption, Bullman said.
But the biggest threat facing Irelands economic recovery is
political instability. Last month, Brendan Howlin, the minister
for public expenditure, boasted that the days of spending cuts
are over, as he presented Budget 2016, but just days ago the
fiscal advisory committee criticised the government for
increasing spending by 1.5bn in this years budget, saying it
was a deviation from prudent economic budget
management.
Even more damning was a report this month from the OECD,
which slammed members of government for their lack of
willingness to engage in the budget process.
With such concerns, it is no surprise Power warned: The
greatest risk in 2016 to the economy comes domestically from
politics.
So while the economic statistics are strong, it appears that
economic recovery is a tale of two economies rural Ireland
and Dublin. As the country potentially faces political upheaval
next year, Power concluded the biggest danger is
complacency and arrogance.
The economy may not be overheating yet, but there are signs
that it is under increased pressure as the key drivers of its
growth remain outside government control.
A boom, then bust, now perhaps a boomlet?
---
Swiss pension funds push into mortgages

Taken from the FT Sunday, 29 November 2015
Swiss pension schemes are pushing into the mortgage market

in an attempt to counter the sudden strengthening of the franc
in January and negative government bond yields.
Half of 35 pension schemes examined in a study by the Zurich
University of Applied Sciences are assessing whether they
should provide mortgages for members for the first time,
according to Regina Anhorn, researcher at the university.
Ms Anhorn added that 11 of the pension schemes, which
collectively oversee SFr220bn ($214bn) of assets, already sell
mortgages to members.
Some of these have also recently started selling mortgages to
non-members as the search for yield intensifies, pushing their
mortgage exposure up from 2 per cent of assets to 7 per cent.
Reto Hintermann, pension fund expert at Gam, the Swisslisted fund house, said: Pension funds are looking to replace
their Swiss bond [holdings] with mortgages. This project is
difficult to implement. It can be costly and [mortgages] give a
low yield of 0.2-0.4 per cent. But at least that is positive,
which is better than what you achieve in the bond market.
This push into mortgages is partly in response to the Swiss
National Banks unexpected decision in January to remove the
SFr1.20 cap on the Swiss franc against the euro.
The currency intervention triggered a sudden strengthening of
the Swiss franc against the euro and caused significant
problems for domestic pension schemes unhedged foreign
investments.
At the same time the central bank pushed interest rates on
deposits deeper into negative territory, at -0.75 per cent,
making Swiss pension funds cash holdings very expensive.
Mr Hintermann said his companys pension fund is
considering raising its mortgage exposure from 1.3 per cent of
total assets to 5 per cent in response.
He added: Mortgages are so popular [among pension
schemes] now after what happened on January 15.
Swiss 10-year government bond yields hit a record low of
-0.375 per cent last week, adding to the difficulties for
domestic pension schemes. The yield for five-year government
bonds is minus 0.93 per cent.
Jerome Cosandey, an economist at Avenir Suisse, the Swiss
think-tank, warned that pension funds that are inexperienced
in this area will struggle to assess whether a property is
worthless or a dream site.
He said: Mortgages are a different game, and many banks
have had problems in the mortgage market. The central bank
has warned about a housing bubble in hotspots such as
Geneva and Zurich.
Mr Hintermann dismissed concerns about overheating in the
Swiss housing market. The real estate market is highly valued
but I wouldnt say it is high risk, he said.
In an attempt to mitigate the risk of default on mortgage

loans, some schemes require 30 per cent deposits. Others are
providing mortgages solely in the areas where they know the
local real estate market, although Mr Cosandey said this could
cause concentration of housing risk.
(Full article click FT)
---
Kathryn Cooper: MPCs hedgie cool on rate

rise
THE newest member of the Bank of Englands rate-setting

committee has revealed he is a dove who does not see interest
rates rising for some time.
In his first interview since joining the monetary policy
committee (MPC) in September, Gertjan Jan Vlieghe, a
former hedge fund economist, told The Sunday Times he
wants to see stronger wage growth before Bank rate rises from
0.5%.
His comments are likely to cement expectations in the City
that rates are unlikely to go up until well into next year. Little
has been known about his views on monetary policy until now.
Vlieghe, who previously worked for Brevan Howard, the hedge
fund run by the billionaire Alan Howard, also quashed
expectations that the Bank of England will have to follow
Americas Federal Reserve if it raises rates next month, as
expected.
He said policy at the European Central Bank was just as
important. The ECB is expected to cut deposit rates and
launch further monetary stimulus this week.
---
Hedgie in Threadneedle St sees rates on

hold
Jan Vlieghe, the Bank of Englands newest rate-setter, is a

confirmed dove
IN HIS job as an economist for one of the worlds biggest and
most aggressive hedge funds Gertjan Jan Vlieghe tried to
second-guess what the Bank of England would do.
Now, as a member of its monetary policy committee (MPC),
he offers a pretty clear signal to the markets. As far as he is
concerned, interest rates in Britain are going nowhere for
some time.
In his first newspaper interview since joining the MPC in
September, he reveals himself to be firmly in the dovish camp.
While some have speculated that a raising of interest rates by
Americas Federal Reserve next month could push the MPC
into an early hike, he says he is in no rush at all.
For Vlieghe, who has joint British-Belgian nationality, his
MPC appointment marked a return to the Bank, having
worked there from 1998 to 2005, latterly as Lord (Mervyn)
Kings economic assistant.
After that he moved into the City with Deutsche Bank and
then Brevan Howard, the hedge fund run by Alan Howard,
Britains wealthiest hedge fund boss, according to The Sunday
Times Rich List.
In financial markets there is more pressure to be fast, to get
there first, Vlieghe said. But the fundamental questions are
the same. The analysis is the same.
What does his analysis tell him now? People have been
puzzled by the weakness of productivity. But it was only a
puzzle, he argues, in the context of a normal recession
2008-9 was not normal. Once you realised it was a financial
crisis, it really wasnt that surprising, he says.
As for what is happening now, he thinks productivity growth
has picked up to 1%-1.5%, from about 0.5% 18 months ago,
but it is still weaker than before the crisis, and may stay
weaker for some time.
On what will persuade him that it is time to start thinking

about higher interest rates, he cites two factors. Growth in the
economy, he points out, has slowed over the past 18 months,
from about 3% to 2.3% in the third quarter. We need to see it
stabilise, or even pick up a bit, he says.
The other factor is wages, which he would want to see rising
more strongly perhaps decisively above 3% a year before
pressing the button, Weve seen a little bit of disappointment
on wage growth, he says. He would want to see a much
clearer direction of travel towards higher pay growth.
Underpinning his view on interest rates is a belief that two
forces the debt overhang and demographics are weighing
down on the global economy, which will mean permanently
lower interest rates.
Even when rates rise, in other words, there will not be that far
to go and so: I am relaxed about waiting a little longer before
we start.
In fact, the longer you talk to Vlieghe, the more reasons he
provides for delaying a rate rise. He snorts at suggestions that
central banks might want to start to normalise interest rates
so they have ammunition to fight the next downturn. Such a
strategy would create the slowdown they worry about. A
hike in rates by the Fed might tell the MPC that the Fed is
more confident about Americas economy but if it coincides
with further loosening by the European Central Bank, that
would tell you that there is compensating weakness in Europe.
Sterlings rise in the past two to three years is also a factor.
Weve had a huge tightening from the exchange rate, he
says. And, while stressing that he expects the next move in
rates to be up, like the Banks chief economist Andy Haldane
he is not afraid to talk about the possibility of further cuts,
even a negative rate.
If you had asked me five years ago whether the ECB or SNB
[Swiss National Bank] would have had negative interest rates,
I would have said no, he says. You have to think of it in the
context of what other people are doing.
So, if there was what he describes as an economic
disappointment, would he favour cutting interest rates or
more quantitative easing?
Probably rates first, he says. The wait for a rate hike could be
a long one.
---
Kathryn Cooper
Osbornes 3bn bill for companies
HARVEY BOWDEN faces a big increase in his wage bill from

April 2017 to pay for George Osbornes ambitious plans for
apprenticeships.
Bowden, founder and chairman of Harvey Water Softeners in
Woking, Surrey, could see costs for his 123 staff jump by
several thousand pounds under the chancellors plans for a
3bn-a-year levy to fund 3m new apprentices by 2020.
The new payroll tax, announced in last weeks autumn
statement, comes on top of higher pension costs from April
last year, when he had to start automatically enrolling his staff
into a pension scheme. The national living wage, coming next
April, will lift his pay bill further.
But Bowden, 66, is sanguine. People will scream about the
levy, but if you believe it will be good for the country to raise
our apprenticeships to the level of Germany, it is a necessity,
he said.
The chancellor is keeping the British economy moving, and
that is far more important to our business. If the economy
continues to expand and the business does well, we can
handle almost anything.
Companies such as Bowdens are paying the price for some big
policy U-turns in the autumn statement. The chancellor
shifted the emphasis of his economic plans from spending
cuts to tax rises in a blatant pitch for the political centre

ground.
Osborne surprised his critics by rowing back on 4.4bn of
planned cuts to tax credits as well as softening harsh cuts to
Whitehall departments, while still pledging to achieve a
surplus of about 10bn by the end of the parliament.
The rabbit out of the hat that helped him to confound his
detractors was a 27bn improvement in the public finances
forecast by the Office for Budget Responsibility (OBR), the
fiscal watchdog. This surprise cushion was thanks largely to
higher tax revenues and lower expected interest rates, which
have cut the governments forecast debt payments.
Yet the chancellor still needed to raise taxes by 28.5bn to
make his sums add up, with businesses and buy-to-let
landlords bearing the brunt. The apprenticeship levy will raise
nearly 12bn over the next five years, more than wiping out
the cuts to corporation tax announced in Osbornes July
budget.
The chancellor cannot pretend the apprenticeship levy is
anything but a payroll tax and a considerable one, said
Seamus Nevin of the Institute of Directors.
The levy will be set at 0.5% of a companys wage bill, but
employers receive a 15,000 allowance to set against the tax.
This means firms with payrolls below 3m will pay nothing.
The Treasury claimed only 2% of companies would be hit, but
employers groups said firms with just 100 staff may have to
pay the levy far lower than the 250 threshold expected.
The money from the levy will be ring-fenced to pay for
apprenticeship vouchers, which companies put towards the
cost of training. However, critics expect companies to game
the system by simply rebranding their existing training
programmes.
Harold Wilsons training levy 50 years ago was an expensive
waste of time. Unfortunately, this initiative looks likely to have
the same effect, said Mark Littlewood, director-general at the
Institute of Economic Affairs.
Bowden disagreed. Harvey Water Softeners pays for
apprentices out of its own coffers, so he welcomed any
measure that forces other companies to take on more of the
burden of addressing Britains skills shortage.
Businesses also welcomed Osbornes announcement that
about 400,000 of the smallest companies will continue to
receive relief from business rates from April, with a further
200,000 paying reduced rates. The governments review of
the 27bn-a-year rates system was, however, delayed until the
spring budget.
The chancellor also shifted the cost of supporting research and
development from the taxpayer to employers. He pledged to
maintain the 600m budget of Innovate UK, the agency that
distributes technology funding, but about 165m a year will be
switched from grants to new finance products such as loans
by 2019-20 meaning that innovative companies will have to
repay the taxpayer.
The countrys largest engineering companies, including RollsRoyce, have expressed grave concern about the move, but
Osborne softened the blow by pledging to protect the 4.7bn
science budget in real terms and funding for aerospace and
automotive technology in cash terms.
The chancellor also flagged up the biggest investment in
transport infrastructure in generations, but little of the
money for big projects was new. He confirmed capital
spending over the next five years of 46.7bn, including
starting construction on the HS2 rail line and 13.4bn for
investment in roads.
Despite the giveaways, economists pointed out that the
chancellor will need a big dose of luck to avoid further cuts if
the outlook turns out less benign than predicted.
He is going to need his luck to hold out, said Paul Johnson
of the Institute for Fiscal Studies. If he is unlucky and that
is almost a 50-50 shot he will have to revisit these spending

decisions or raise taxes or abandon the [surplus] target.
---
Osborne has opted to put the economy on a

riskier path
The Chancellor is now set to borrow more over the course of

his parliament than predicted back in July
Keeping up with last weeks Autumn Statement was all about
staying upright, with your eyes wide open, in a blizzard of
statistics. The numbers came thick and fast.
George Osborne plans to spend an extra 10bn on the NHS by
2020, he told us on Wednesday, while building 400,000
affordable homes.
The police budget is protected and, burnishing his one nation
Tory credentials, the Chancellor channelled further billions
into foreign aid now on course to receive more funding, by
the end of this parliament, than our very own Home Office.
Then we had the headline-grabbing rabbit, as Osborne
stunned the Commons by scrapping most of the controversial
cuts to tax credits announced in his July post-election Budget
wiping out a 4.4bn saving.
We heard a lot in this Autumn Statement about cutting our
deficit. The reality is that, despite considerable reductions
across some smaller departments, government expenditure is
set to rise by almost 9pc over this parliament from 756bn
to 821bn by 2019-20.
Inflation-adjusted spending should fall, but to an increasingly
unambitious extent. During the pre-election Budget in March,
Osborne laid out real departmental spending cuts of 14.8pc
between 2016-17 and 2018-19 a meaningful 4.6pc annual
reduction before securing a decisive election victory in May.
In July, though, the cuts were drastically scaled back as they
were again on Wednesday. Real departmental spending is now
set to fall just 2.3pc over three years, a miniscule 0.8pc per
annum. Thats less than half the 1.7pc annual reduction we
saw over the last parliament when the Tories constantly
blamed their Liberal Democrat coalition partners for the slow
pace of deficit reduction. Yet now, with a Commons majority,
the cuts proceed at an even more glacial pace.
How has Osborne managed to combine his fixing the roof
while the sun shines mantra with crowd-pleasing spending
rises while junking his welfare cuts? Firstly, by raising taxes
to the tune of 5bn a year by the end of this parliament, with
local authorities raising another 2bn in addition from higher
council tax.
Much of this extra burden falls on business in the form of a
0.5pc payroll tax alongside employer national insurance for
larger companies (labelled as an apprenticeship levy to
deflect complaints). Thats on top of the 28pc rise in the
minimum hourly wage firms must pay between now and
2020.
Then theres a huge 3.8bn hike in stamp duty on buy-to-let
properties representing a 3pc increase across each price
band, doubling the purchase tax on a 500,000 property to an
enormous 30,000. While generation rent youngsters
struggling to buy a home may cheer, this policy is unlikely to
help them.
The tight property market in many of our big cities means
landlords will pass this cost on, with rents likely to rise. Thats
particularly true seeing as the stamp duty hike probably wont
apply to large property investment companies, disadvantaging
small single-unit landlords those likely to accept a kinder
rental rate in return for low-hassle tenants.
For many such BTL buyers, often relatively ordinary families
striving to invest wisely for their children and grandchildren,
and sick of low-yielding banks and government bonds, this
extra stamp duty could be disastrous. Along with earlier cuts
to tax relief on rental income, it threatens to upend the

retirement plans of countless couples whove worked hard and
tried to do the right thing.
Its not as if this BTL raid will help young families looking for
a home as it doesnt address the underlying problem in the
UK housing market, namely the lack of appropriate supply.
The Chancellors pledge to build more affordable homes might
help, if it happens, yet the unmet Tory house-building pledges
in the last parliament raises serious doubts.
In the meantime, between now and next April, when this BTL
stamp duty rise kicks in, expect mid-market house prices to
surge making life even harder for youngsters trying to buy a
family home.
Amidst the statistical wind tunnel, only one number really
counted in this Autumn Statement namely 27bn. That was
the jaw-dropping extent to which the independent Office for
Budget Responsibility (OBR) calculated the five-year outlook
for the public finances has improved since the Chancellor last
presented his tax and spending plans to the Commons.
With the OBRs GDP forecasts up just 0.1pc in each of the next
two years, to 2.4pc and 2.5pc respectively, little of this
improvement will come from growth. Some of it stems from
lower projected debt service payments, seeing as the OBR
predicts ongoing low gilts yields over the coming five years, an
assumption which relies, perhaps, on the Bank of England
engaging in yet more quantitative easing.
The large part of this 27bn improvement, though, rests on
changes in modelling in other words, new assumptions
about how much revenue can be raised at each respective tax
rate.
While the precise contribution of such technical alterations to
the revenue side of the Governments future balance sheet
isnt entirely clear, its double-digit numbers of billions and
very convenient for the Chancellor too. I find that quite
astonishing.
So, lets get this straight. Osborne has been handed a 27bn
windfall by the OBR. Does he use this much-needed extra
headroom to lower taxes, cut the deficit or even pay down
some of our stock of national debt? No. The Chancellor is now
set to borrow more over the course of his parliament than
predicted back in July even though growth has improved,
and he has an extra 27bn to play with.
Despite all that, the Government will borrow 18.7bn more
over the course of this parliament than was forecast just four
months ago. So much for fixing the roof.
No one is pretending this is easy. Having been handed a
mandate to yank our public finances back into the real world,
though, Osborne is being too timid. He seems to think
spending largesse is now the route to the Tory leadership
but that may not be true.
If the UK economy goes south, or is buffeted by events
elsewhere, then tighter fiscal consolidation rather than a
heavy reliance on accounting smoke and mirrors could start
to look very smart.
The UK is ready for some kind of external shock, the
Chancellor told us last Wednesday, ready for whatever the
world throws at us, he reiterated, prepared for any storms
that lie ahead. The global economy, as Osborne well knows, is
fraught with financial, economic and geopolitical risk.
The Federal Reserves first post-crisis interest rate rise,
expected soon, could easily spark a major spasm on global
markets.
China, the worlds growth engine, is very much off its previous
pace. The European Union, the worlds largest economy, the
place where the UK does most business, is in a systemic crisis
the euro fragile, the spectre of terrorism looming, the free
movement of goods and people under threat.
And then, of course, theres the potentially explosive situation
in Syria the possible resolution of which has just been made
more complicated after Turkey downed a Russian jet, the first

ever attack by a Nato member on post-Soviet Russia.
If the bombing of IS intensifies, and regional tensions spiral
whether or not the UK joins the Syrian fray widespread
assumptions of a benign, growth-friendly oil price could go up
in flames
This Autumn Statement, a barrage of numbers on one level,
was really about a decisive shift in the balance between
caution and risk.
George Osborne, his ambitions now burning, just took a
decisive step towards the latter.
World News
Iran reveals framework for oil and gas
contracts
Taken from the FT Sunday, 29 November 2015
During the two-day Tehran Conference, oil executives from

European and Asian companies including Frances Total
Group, Norways Statoil, BP, Royal Dutch Shell, Repsol,
Chinas Sinopec as well as companies from India, Pakistan
and Oman, will hear about the details of the new scheme.
There was also an energy adviser from the UK government,
according to a western diplomat.
The Iran Petroleum Contract (IPC) officially puts an end to
about two decades of a buyback system that prevented foreign
companies from booking reserves or taking equity stakes in
Iranian companies. Under some circumstances, the new
model allows reserves to be booked, but foreign companies
would still not own oilfields. Accordingly, the National Iranian
Oil Company has exclusive ownership rights over resources.
We do not claim that this is an ideal and flawless scheme but
it can address the needs of both National Iranian Oil Company
and international oil companies, Irans oil minister, Bijan
Namdar Zanganeh, said.
The Islamic republic, which has the worlds largest gas
reserves and fourth-biggest oil reserves, plans to increase its
oil production capacity to about 5m barrels a day by the end of
the decade from about 1mb/d since sanctions were introduced
in 2012.
The new model, some details of which have been disclosed
over the past year, is supposed to increase foreign companies
profits by basing the fee on the risk of the fields, allowing
contracts to last for up to 25 years and putting no ceiling on
capital expenditure.
The IPC, according to Iranian officials, is a risk service
contract by which the Iranian and foreign contractors will
bear the risks of the operation. However, a reward system
envisaged would entitle contractors to a fee per barrel that
would be paid as profit to the company and contractors will
also be entitled to an increase in profits in face of dramatic oil
price fluctuations.
The buyback scheme proved hugely unpopular with
multinationals and deterred investors even before US and EU
sanctions over Irans nuclear programme were tightened in
2012.
Some representative of international companies said they had
to assess the details more precisely. One western oil official
said it seemed the contract was well-studied and the
homework was well-done. But he added that the applicable
law did not clarify whether disputes could be referred to
international arbitration.
Another western oil official said the contract was a good step
in the right direction and better than the buyback model.
The long-awaited conference has been overshadowed by
uncertainty over how international banks will react to the
implementation of Julys landmark nuclear agreement with
world powers. It is not yet clear whether US sanctions will
affect major businesses with interests in the US when
international restrictions are lifted early next year.
Banks have openly told us that they will be the last to enter
Irans market, said a western oil executive at the conference.
Our problems are about returns and being able to operate.
The absence of American companies or their subsidiaries in
Europe and the Middle East at the conference is a reminder of
the continuation of US restrictions as well as opposition inside
the country to the US infiltration a new term used by
hardliners opposed to opening up the country after the
nuclear deal.
We did not oppose their presence. They can come and use
this opportunity, Mr Zanganeh said of American companies,
adding that he had not heard of any opposition. When asked if

American companies would attend a future conference,
possibly in London in February, he said, I hope so.
Iranian oil executives confirmed to the Financial Times that
holding this weeks conference in Tehran, rather than London,
was a response to domestic political infighting.
As you see there are no American companies here now and it
does not make sense for such a conference not to have
Americans, an oil ministry official said.
Iranian officials at the conference reminded international
companies of the importance of domestic participation in joint
ventures in almost all future projects under the IPC in a
clear move to allay domestic concerns about foreign
exploitation of the countrys natural resources.
This is supposed to be a conference to lure international
companies but the minister highlights resistance economy
and how Iranian companies should be strengthened, said an
Iranian oil businessman. Domestic pressure on the oil
ministry and continuation of hostility toward the US are
creating obstacles.
Iran is expected to introduce about 50 oil and gas projects
both brown and green fields at the Tehran conference but it
is not clear when the companies will be able to bid or start
direct negotiations.
(Full article click - FT)
---
Greek crisis, China crash and low rates:

hedge funds horror year
The nightmare has wider effects, with a quarter of the

industrys assets managed for pension funds
The panic that swept the markets in August was tough for
investors the world over, but particularly for the macro hedge
funds, who bet big on economic trends.
Despite a reputation as the smartest guys in the room,
earned from promises to defy market volatility with
complicated trades, hedge funds suffered some of the most
startling losses in the stock market bloodbath that started in
China in June and sent the London market reeling by August.
Third Point, the $18bn (12bn) fund run by the American
billionaire Daniel Loeb, has described recent trading as a
harrowing round trip, with danger lurking in China that
seems more intimidating than ever before.
Even Crispin Odey, the London hedge fund manager who
made about 225m from a bearish stance against China this
summer, concedes that his industry has had a difficult 2015.
No one is covered in glory this year. When you have zero
interest rates for a long time you end up with misallocated
capital All you can do is think about how long this
equilibrium can last.
A bruising year for the hedge funds, while hardly tugging at
the heartstrings of most ordinary savers, has potentially widereaching effects. About one in every four pounds in hedge
funds worldwide is managed on behalf of pension funds,
according to the industry trade body AIMA, putting many of
us on the hook for these disastrous bets.
However, there are upwards of 10,000 hedge funds and they
are a varied bunch. Most will market themselves only to big
institutional investors, while others let individuals join,
providing they have at least 100,000 and apply during the
short fundraising windows. They often lock investors into
their fund, sometimes requiring more than a years notice to
take out money, or in times of extreme stress preventing
withdrawals in a controversial tactic known as gating.
While hedge funds attract the most attention for their
aggressive short-selling campaigns, their recent rescue of the
Co-op Bank or their pressure on the Argentinian and Puerto
Rican authorities over debt piles, many of their investing
strategies overlap with more traditional asset managers.
In stock markets they will hedge the risk of their investment

by building up shareholdings, betting on the price going up,
while short-selling other stocks to make some profit when
shares fall. They will also try to bet on movements in
currencies, interest rate derivatives, orange juice futures, and
any number of more adventurous scenarios that ordinary
investment managers will normally not attempt. Greek debts
have proven popular.
Other hedge funds will dart in and out of assets quickly as
events change. Merger arbitrage funds will position
themselves in companies about to be taken over, either to
profit from the bid price or to take the contrary position and
bet on the deal collapsing.
This event-driven strategy has, along with the Chinese rout
and the surprise double-dip in oil prices, combined to pummel
a number of the worlds biggest hedge funds. Even after the
failed merger between the pharmaceutical giants AbbVie and
Shire last year was dubbed arbageddon for the damage it
wrought on hedge funds, they could not resist repeating the
trick in what is set to be a record year for deals.
A lot of people have been caught out by high-profile M&A
deals, the biggest of which was [the drugs firms] Perrigo and
Mylan, said Russell Barlow, head of hedge funds at Aberdeen
Asset Management, which runs its own hedge funds and
invests in others. Thats been very painful for a lot of eventdriven funds.
According to Goldman Sachs, the share price of drug maker
and takeover prospect Valeant has been responsible for 70pc
of the poor performance in the hedge fund positions it tracked
since the summer, highlighting a tendency for some managers
to herd into particular trades.
Heavy concentration in the market has also been noted by
regulators. A survey by the Financial Conduct Authority found
that the 10 largest London-run firms accounted for 83pc of
the overall gross market exposure among its sample, made
87pc of the overall trades, and represented 95pc of the
counterparty risk to banks.
The largest hedge funds are currently squabbling with the
global Financial Stability Board about which funds should be
deemed globally significant and subject to more scrutiny,
while awaiting the details of the OECDs tax-avoidance
crackdown on jurisdictions like the Cayman Islands,
population 58,000 and the worlds fifth-biggest banking
centre.
Despite some spectacularly bad bets, overall the hedge fund
industry continues to grow. Assets under management have
rocketed in the last 20 years. According to research from
Citigroup, hedge funds around the world manage about $3
trillion, making them the third-biggest alternative investment
source, behind property and private equity even if this
summer the hedgies were overtaken by the plain, low-cost
exchange-traded fund industry, which simply tracks indices.
The hedge fund universe offers investors such a diversity of
alternative products and strategies that it should be no
surprise that there will be winners and losers in any given
year, said Jack Inglis, chief executive of AIMA. Pension
funds and other investors continue to allocate to hedge funds
not only because of the potential for positive, low-risk returns
but also as very effective means of preserving capital and
accessing particular investment opportunities that may not be
available to them otherwise.
Many hedge funds belied their low-risk reputation over the
summer, instead tanking along with the financial markets
they hope to beat.Hedge funds saw $95bn wiped off their
value in the summer quarter, according to Hedge Fund
Research, representing the biggest decline since the financial
crisis in 2008. Even before the rout, hedge funds returned just
3.3pc last year, compared with a 5.5pc gain by simply parking
money on the MSCI world index.
This less-than-sparkling performance has given some of the

worlds biggest funds pause for thought. BlackRock, the
worlds biggest asset manager, is closing the doors on its $1bn
macro hedge fund and returning the money to its customers.
Brevan Howard, founded by the Conservative donor Alan
Howard, has cut 10pc of its workforce, having pulled out of
Geneva to return to London earlier in the year.
Investors are also thinking again. I would argue that people
are quite cautious now, they wont buy into hedge funds until
they can show they can do well in difficult times, said Odey.
The Californian pensions giant Calpers said last year it would
stop using hedge funds, arguing that the poor returns failed to
justify fees amounting to $135m a year.
The Wellcome Trust, an 18bn medical endowment based in
London, has pared back its investment in hedge funds
significantly to about 2.5bn since the financial crisis, but still
sees the value in the industry.
We started with hedge funds in the late 90s and have now
learnt to sort the sheep from the goats, said Nick Moakes,
managing director in the trusts investment office.
Alternatives like macro and arbitrage ought to be delivering
returns that are pretty much independent of the equity
markets. The problem has been that a bunch of these firms got
bigger, and a number of funds really havent delivered the
goods consistently.
Another hurdle for some investors is the opaque nature of
many hedge funds, unlike equity managers that grant their
customers daily access to how their stocks are doing. Youre
investing in a blind pool where you know as much as the
manager chooses to tell you, said Moakes.
Nevertheless, he said the trust is prepared to pay for a smaller
number of funds that can demonstrate good returns. Its one
of those asset classes where you dont really want to be in the
cheap ones. Thats not to say that we like paying high fees;
absolutely not.
Eurekahedge, the data provider, recently found that new
hedge funds are charging performance fees of 14.7pc, down
from 17.1pc last year and far below the traditional model of
2pc to manage the fund and a 20pc bonus for passing a profit
threshold.
Some of the more established hedge funds are also trying to
row back from their reputation for expense and obscurity.
Quantitative hedge funds use computer programming to do
the trading legwork on broad investment themes they see as
profitable. Some of the biggest, including AQR and Cantab
Capital, have launched pared-back versions of their flagship
funds, with simpler strategies and fewer investments, and
therefore lower fees. A handful have even found that the
bargain version of the fund is performing better, at least in the
short term.
Other funds, including Man Group in London, have floated
parts of themselves on the stock market, raising capital while
giving ordinary investors the chance to share in their
performance. Bill Ackmans Pershing Square raised $3bn on
the Dutch stock exchange last year, although the shares have
since slumped to a fifth below their debut value.
This retrenchment is also meaning lower wages for some
hedge fund staff. While the successful Lansdowne funds paid
191m to the 21 top-performing staff last year, the average
salary for an associate has fallen 5,000 to 75,000 over the
past two years, while bonuses have dwindled from 70,000 to
45,000, according to Emolument.
The decline puts hedge funds just below the biggest
investment banks when it comes to associate pay, making it
more difficult for the industry to keep attracting the smartest
guys in the room.
The central London property market, meanwhile, is still
feeling the heat from the successful funds. In the hedge fund
heartland of Mayfair and St Jamess, rents are still rising for
the best space, which now commands 125 per square foot,
says the property company Cushman & Wakefield.
Marshall Wace, the American hedge fund, is almost tripling
the size of its London headquarters this year, while CQS and
Davidson Kempner are also moving into new space.
Start-up hedge funds are also coming thick and fast, said
Lindsey Parslow, managing director of Mayfair Quarters, who
sources office space. Serviced offices are a popular choice
because new funds can utilise a smaller space until something
more substantial becomes available. In terms of the buoyancy
of the market, most losses posted are someone elses gain,
which is the nature of the hedge fund industry. We certainly
are not seeing any doors closing, only new ones opening up.
News Americas
Brazil to sue Samarco mining firm for
$5.2bn over dam burst
Taken from the BBC Saturday, 28 November 2015
The Brazilian government says it will sue mining company

Samarco $5.2bn (3.4bn) for the environmental damage
caused after a waste water dam at an iron-ore mine collapsed.
At least 13 people died when the dam burst earlier this month
in the south-eastern state of Minas Gerais
A village was destroyed and drinking water polluted over a
wide area.
Environment Minister Izabella Teixeira said money was
needed for environmental recovery and to compensate
victims.
"There was a huge impact from an environmental point of
view," she told reporters in the capital Brasilia.
"It is not a natural disaster, it is a disaster prompted by
economic activity, but of a magnitude equivalent to those
disasters created by forces of nature."
She said about 500km (310 miles) of the Rio Doce - one of
Brazil's most important rivers - would have to be dredged in
parts, vegetation replanted and fresh water springs cleared.
Samarco is owned by mining giants Vale, from Brazil, and
Anglo-Australian company BHP Billiton.
On Thursday the UN said the dam burst had unleashed a flood
of "toxic mud".
However, mining giant BHP said in a statement that the water
in the dam - a by-product of iron ore extraction - did not pose
any threat to humans.
(Full article click - BBC)
---
Brazils President to Issue Spending Freeze

Taken from the WSJ Saturday, 28 November 2015
Decree would stay all spending until Congress approves a

lower budget target
Brazils President Dilma Rousseff will publish a decree on
Monday freezing all spending while she waits for Congress to
vote on a bill that would lower 2015 fiscal targets, a
government spokesman said Friday.
Ms. Rousseff has canceled a trip to Vietnam and Japan that
was to begin next week to avoid incurring travel costs, the
spokesman said.
The impending shutdown is a sign of Brazils dire straits, as an
economic contraction this year has drastically reduced the
countrys tax revenue. The decline in global commodity prices,
combined with a toxic political environment in Brazil that
halted economic reform, has worsened the economic
downturn. Even after making substantial cuts to the national
budget, the government still fell short of its targets.
Ms. Rousseffs government has been pushing Congress to
lower the 2015 fiscal targets to a deficit of 0.8% of gross
domestic product. The government at the start of the year
pledged to deliver a primary budget surpluswhich excludes
interest paymentsequal to 1.1% of GDP, and not achieving it
would be a breach of the countrys fiscal-responsibility law.
Congress isnt likely to vote on the proposed fiscal target until
Tuesday, so the government will freeze around 10 billion
Brazilian reais ($2.6 billion) in the budget, the spokesman
said. The decree will be published Monday and kick in
Tuesday.
Congress had been expected to vote on the bill this week, but a
key senator from the ruling party was arrested in connection
with a massive corruption investigation. The arrest all but
stopped legislative activity and the budget vote was left for
next week.
Ms. Rousseff is still traveling to Paris as scheduled this
weekend for a conference on combating climate change, a
spokesman said.
Details of the decree are still being worked on, the spokesman
said. It isnt clear how the spending freeze would affect
government activities or its obligations.
(Full article click - WSJ)
---
Irwin Stelzer
American Account: Shopping frenzy forces
retailers to go to war online
ON THE surface, little seemed to have changed as the opening

bell rang for the retailers battle that is the holiday shopping
season. On Thanksgiving Day, Americans carved some 46m
turkeys and downed 50m pumpkin pies despite a shortage of
pecans created by Chinese consumers who imported the bestquality nuts and bid the price too high for many American
families to match. We watched 12-15 hours of football, US
style, with 14-stone behemoths considered too light for many
positions on the field. Some 3.5m people jammed the streets
of Manhattan to watch the Macys parade, and 47m the
largest number since 2007 took to the air and the roads,
with drivers benefiting from petrol prices averaging about $2
a gallon (35p a litre). Some 135m people will have shopped in
stores and online by closing time tonight, the majority having
trooped to the malls.
Just like old times, in the case of a willingness to gorge, travel,
shop, watch football games and congregate, despite Islamist
terrorists attacks in Paris and sub-zero temperatures in parts
of America. But not like the past when it comes to consumers
ability to spend and how we shop and what we buy. For one
thing, consumers have more ability to spend than they have
had in recent years. The jobs market has improved, inflation is
nil, incomes are up, and Americans last month saved a larger
portion of those incomes (5.6%) than they have in the past
three years. So consumers, who account for 70% of the
nations GDP, can and probably will spend a lot of money this
holiday season. But the pattern of spending is less likely to
mimic the past.
No longer do shoppers prowl department stores in search of
the latest fashions, even if deeply discounted. Instead, this
year they seem to be spending their money on four things.
In defiance of the trend away from stuff, anything with
Star Wars on it is being snatched up, to the likely tune of
$4bn, driving toy sales to a 10-year high.
Cars are flying off the showroom floors (pun intended) in
response to attractive discounts and a three-day weekend that
gave buyers time off work to test-drive and savour that new
car smell.
House furnishings, practical and beautifying, continue to
drive sales at
DIY chains.
Experiences dining out, spa treatments, hobbies were
not hot items but have steadily claimed an ever-larger
portion of consumers cash otherwise available for the Black
Friday shopping spree.
Some bricks merchants are taking Annas advice in The King
and I and whistling a happy tune so no one will suspect they
are afraid. Gerald Storch, chief executive of Hudsons Bay
Company, which owns high-end Saks Fifth Avenue and Lord
& Taylor, sees no enduring trends that threaten his bricks.
Cars instead of clothes, the internet reaching a tipping point:
Ive heard every theory imaginable. But Christmas always
comes, and people have to shop. They will be back, he said, in
an apparent effort to fool himself as well as his interviewer.
We will know more tomorrow, on Cyber Monday, and when
the sounds of Auld Lang Syne finally fade away, but two things
are already clear: the weekend has been a good start to the
holiday season, and online sales will increase by more than
three times the growth in total sales being forecast by the
National Retail Federation (12% against 3.7%). Not that the
malls have been empty this weekend. Fanciers of a stainless

steel toaster ($7.99), or 14-piece Cuisinart ceramic cookware
set ($89.99), or Nikon Coolpix L340 ($99) lined up at Macys
and Target, with the latter selling an iPod a second on
Thanksgiving Day and both ringing up record online sales.
The problem for many retailers is that technology allows
instant price comparisons, putting consumers in the drivers
seat. They have become accustomed to deep discounts all year
round and know that many prices were raised in November
and discounted back to October levels on Thanksgiving Day.
They also know that dragging a hefty package from a crowded
store is, well, so yesterday. Enter Amazon.
Amazon bestrides the free delivery internet industry like,
well, like the powerhouse it is. Many analysts believe Jeff
Bezos has erected an unassailable fortress at Amazon, with an
estimated 44m loyal Prime customers ($99 a year for free
two-day shipping), and warehouses dotted around the country
to deliver what customers want in record time. Bezos knows
better. Given the pace of technological change and still-vibrant
American entrepreneurship, there are no unassailable
fortresses. Doubt that and recall the names of Kodak in
photography, Smith Corona in word processing and Xerox in
copying.
Retailers such as Macys are upping their internet games. So is
eBay. Target offered free delivery. Then there are wannabes.
Dilatory hosts and hostesses could call start-ups able to
deliver a bottle of wine (Saucey, Thirstie) or stuffing mix
within an hour or less. The significance of these developments
transcends turkey day. Which is why Bezos is not standing
still. He is not quite in the position of Marshal Foch in the
Great War My centre is giving way, my right is retreating,
situation excellent. I shall attack. But he does face multiple
threats and he is attacking. Amazon is experimenting with
drone deliveries against the day when bricks add more clicks,
new entrants deploy drones to create cheaper paths to
customers doors, Uber treats packages the way it now does
humans, and some app developer does what is now
unimaginable. Bezos also counterattacked department stores
invading his internet turf by starting special online sales
almost a week before Thanksgiving and escalating the war
from mid-afternoon on Thanksgiving Day, when an estimated
22% of all shoppers beat the Black Friday mobs on what is
now called Grey Thursday. Skip the lines and shop . . . from
anywhere, even your couch, advises Amazon.
More choice of price and vendor is a plus for consumers. A
good start to the holiday season is a plus for the economy and
ammunition for Fed policymakers who want to raise interest
rates in a few weeks time. And the Force is certainly with
Disney.
---
American big business faces the G20 in a

fight for $2.1tn in unpaid tax
Taken from the Sunday Observer 29 November 2015
Pfizers controversial takeover of Allergan has thrown a new

multinational crackdown on tax avoidance into sharp relief
Less than two months ago, the finance ministers of the G20
gathered for a celebratory dinner in Peru to mark agreement
on a once-in-a-century package of reforms to combat tax
avoidance by multinational corporations that is costing
governments up to $240bn a year. But last week a Scottish
accountant unveiled a record-breaking $160bn transaction
that laid bare quite how much work remains to be done.
Ian Read, chief executive of American drug maker Pfizer, has
agreed plans for a so-called tax inversion: a takeover deal
that involves joining forces with a smaller, foreign rival and
assuming its overseas headquarters for tax purposes.
The deal is expected to create the worlds biggest
pharmaceuticals company, with pills and treatments ranging
from Botox and Viagra to specialist statins and generic drugs.

But the agreed deal will also become largest-ever tax
inversion, and as such has thrown an unflattering spotlight on
the US tax code, highlighting long-standing weaknesses.
On the face of it, the US has one of the most onerous
corporate tax regimes: its headline rate of 35% is among the
highest in the world, and the authorities have taxing rights
over profits made far beyond US borders. In practice,
however, the system is riddled with loopholes that mean many
American multinationals are achieving some of the lowest
effective tax rates on record.
While this is attractive for corporations, there is a catch. To
achieve a low tax rate they must keep much of their profits
overseas, and that has led to a huge buildup of offshore cash.
Many of Americas biggest businesses now think they can
release these funds without triggering a US tax bill by moving
their headquarters outside the US.
Reads target is Allergan, itself the product of a rapid
succession of tax-driven mergers. At first sight, it appears to
be just as American a company as Pfizer: it is listed on the
New York Stock Exchange, has its administrative head office
in Parsippany, New Jersey just 30 miles from Pfizers
Manhattan HQ and makes 84% of its sales in the US.
For tax purposes, however, Allergan has an advantage: it is
able to tell the US authorities it is an Irish multinational. This
is because its main executive office suite is in a building on
Grand Canal Square, Dublin an address that has been
repeatedly used by US multinationals in aggressive tax
planning. It is this structure that Pfizer hopes to replicate
through a combination with Allergan.
Some critics of Reads plan have been quick to point to the gap
between US and Irish headline tax rates 35% and 12.5%
respectively and suggest Pfizer is preparing to use a new
Irish base to strip out earnings from its US operations,
booking them in low-tax Dublin.
But Pfizer has already structured its affairs so as not to pay tax
in the US: it has recorded losses in America every year since
2007. In fact, Pfizer has been one of Americas most proficient
tax-planning multinationals for years, parking $74bn of
untaxed profits outside the US. That sum is equivalent to
more than 35% of Pfizers stock market value.
Under American tax rules, these overseas profits are taxable
by the US but, crucially, the liability can be deferred so long
as the earnings are not brought back to the country. This
deferral has been exploited on a huge scale by Pfizer and
American multinationals such as Apple, Google, General
Motors and Merck.
In total, US multinationals are sitting on an estimated $2.1tn
in untaxed offshore profits, a third of which is accounted for
by just 10 groups among them Pfizer. The drug groups chief
financial officer, Frank DAmelio, spelt out the real tax prize
for Pfizer on a call with a Wall Street analyst last week. This
[Allergan deal] significantly increases our access to global
cash, he said.
Unlike their US counterparts, Irish tax authorities claim no
taxing rights over earnings made by an Irish multinational
through its overseas subsidiaries. With $26bn of Pfizer cash
parked offshore, it is clear Read is determined to unlock this
treasure chest while triggering as little tax liability as he can.
Reads plans, however, have brought swift condemnation from
politicians. For too long, powerful corporations have
exploited loopholes that allow them to hide earnings abroad to
lower their taxes, said Democratic presidential candidate
Hillary Clinton. Now Pfizer is trying to reduce its tax bill even
further. For Republican Donald Trump, the deal was simply
disgusting.
Read professes to be baffled by these remarks. I cannot
comprehend why [the deal] is not being applauded by the
political class, or why anyone would want to frustrate this

transaction, he told the Financial Times.
The political sniping about Pfizer provides the backdrop for
another battle over tax issues on Capitol Hill next week. Many
influential Republicans, already uncomfortable about the Peru
reforms, are expected to use committee hearings to launch an
attack on the European commissions ongoing state aid
investigations into suspected sweetheart tax deals granted by
Ireland, the Netherlands and Luxembourg to, respectively,
Apple, Starbucks and Amazon.
Well-resourced rightwing lobbyists are agitating in
Washington for a final push against the G20 tax reforms. Led
by the National Association of Manufacturers (NAM), they
particularly want to block so-called country-by-country
reporting (CBCR). Under CBCR, basic business data, broken
down by geography, will be submitted privately to tax
authorities around the world. It will provide tax offices with
valuable anti-avoidance intelligence, and is heralded as the
most significant single measure to come out of the reform
programme.
But the NAM says CBCR will force US groups to divulge
sensitive, proprietary business information to foreign
powers, and should be stopped or watered down. Several
influential Republicans, including Orrin Hatch, chair of the
Senate finance committee, and Charles Boustany, chair of the
ways and means committee have rallied to their cause.
Hatch and Boustany have announced separate hearings into
the G20-agreed reforms. The recommendations contained in
the [reform package] raise a number of serious concerns about
taxpayer confidentiality, said Hatch. At the same time, the
EU
has
launched
investigations
into
American
multinationals ... I expect a robust discussion at this hearing
on what the [G20] project means for US taxpayers ... as well as
how the EU state aid investigations could potentially affect tax
revenues paid to the US Treasury.
Pascal Saint-Amans, head of the OECD unit that led the G20
reforms, played down suggestions that political pressure could
derail them. We could ask: is Congress preparing to stop the
CBCR? Or is it just looking to make sure the Obama
administration isnt exceeding its executive powers? I think
the answer is this is not a big moment. Its largely about an
internal US debate.
Stephen Shay, a senior lecturer at Harvard law school who has
held major tax roles in the Treasury, also believes Congress
will not stand in the way of CBCR. There is going to be a lot of
Sturm und Drang, this is terrible, and theyre targeting
American multinationals from the committees ... But its too
late. I think what the politicians are going to be told by the
responsible businesses is that the bus has left the station.
But amid the handshaking and back-slapping over the reform
package in Peru last month, the words of German finance
minister Wolfgang Schuble still resonate. That is not the end
of the story, he said. If there is no implementation, it
remains an impressive amount of paper.
(Full article click - Observer)
News Asia
Copper's slide linked to massive selling by
Chinese
Taken from the Nikkei Saturday, 28 November 2015
The week's plunging copper prices in London stemmed partly

from a surge in short positions in Shanghai, adding
uncertainty to the market outlook.
Copper sank to $4,443 a ton Monday on the London Metal
Exchange, its lowest in six and half years. The Shanghai price
fell to 33,200 yuan ($5,192) a ton, its cheapest in six years and
seven months, highlighting the strong link between the two
markets.
The prospect of lower production costs was the main reason
for the declines. But surging open positions in the Shanghai
market also played a role. Open positions in copper trading in
Shanghai reached 870,000 contracts Monday, the most in
nine months. Open positions, long or short, have increased
about 50% since October, when the market decline
accelerated.
"Open positions increased due to new selling," said Shinya
Ikezaki, chief trader in the LME department at trading house
Mitsui & Co. Over the same period, open positions on the
LME have stayed flat, suggesting that China-specific factors
are at play.
Tightened rules for the Chinese equities market following
August's plunge in Shanghai have driven money to the
commodities market. Short-term trading was restricted in the
commodities market, too, but not as tightly as stock trading.
Many Chinese individuals apparently started trading with
open short positions in light of the Chinese economic
slowdown and expectations of a drop in production cost in
dollar terms, as currencies of copper-producing nations like
Chile weaken.
"Some funds and individual investors who get information
from Chinese futures-trading companies that points to
weakness in demand turned to selling," said the president of a
company closely following the Chinese commodities market.
Domestic investors in Shanghai have placed some 1.5 million
tons' worth of new sell orders for copper since October.
Equivalent to 7% of annual global demand, this much trading
impacts the LME market as well via arbitrage trading in Hong
Kong, among other routes.
Open positions on the Shanghai market have increased for
other commodities since October, too. Positions in aluminum
have roughly doubled, and those in zinc were up 60% at one
point.
Australian investment bank Macquarie Group points out that
while individual investors are adding momentum to the
market, their limited capital could be a source of volatility.
On Thursday, the news that Chinese nonferrous-metal
companies had asked authorities to restrict shorting in the
commodities market prompted short-covering by many
individuals, pushing up copper prices far in Shanghai. Prices
in London also shot up 4% at one point.
Gauging the market outlook will require closely monitoring
not only the Chinese economy itself, but also moves by
Chinese authorities and investors' reactions to them.
(Full article click - Nikkei)
---
Japan scrambles jets after Chinese military

fleet flies near Miyako and Okinawa
Taken from the SCMP Saturday, 28 November 2015
Japan scrambled jets after 11 Chinese military planes flew

near southern Japanese islands during what Beijing said was a
drill to improve its long-range combat abilities, reports said
on Saturday.
The planes eight bombers, two intelligence gathering planes
and one early-warning aircraft flew near Miyako and
Okinawa on Friday without violating Japan's airspace, the
Japanese defence ministry said in a statement released on
Friday.
Some of them flew between the two islands while others made
flights close to neighbouring islands, the ministry said.
A Chinese air force spokesman said several types of planes,
including H-6K bombers, were involved in Friday's drill over
the western Pacific, China's Xinhua news agency reported.
Shen Jinke said such open sea exercises had improved the
force's long-distance combat abilities, according to Xinhua.
While there were no further comments from the Japanese
ministry, the Yomiuri Shimbun reported that it was unusual
for China to dispatch such a large fleet close to Japan's
airspace and the ministry was analysing the purpose of the
mission.
Japan scrambles jets hundreds of times a year to defend its
airspace, both against Russia and these days also against
Chinese aircraft.
Beijing has warned this is heightening tensions between the
two Asian powerhouses, which are already at loggerheads over
a longstanding territorial row in the East China Sea and
Japanese military aggression in the first half of the 20th
century.
The move comes with tensions running high in the South
China Sea after a US warship sailed close to at least one land
formation claimed by China, which has rattled its neighbours
with its increasingly assertive stance in territorial disputes.
China transformed reefs in the region into small islands
capable of supporting military facilities, a move the US says
threatens freedom of navigation in a region through which
one-third of the world's oil passes.
China insists on sovereignty over virtually all the resourceendowed South China Sea, which is also claimed in part by a
handful of other countries. Washington has repeatedly said it
does not recognise the Chinese claims.
(Full article click - SCMP)
---
How does selling energy assets save 1MDB

billions, asks Dr Mahathir
Taken from the Malaysian Insider Saturday, 28 November 2015
Tun Dr Mahathir Mohamad today questioned how 1Malaysia

Development Berhad (1MDB) was able to reduce its debts
through the sale of energy assets to China General Nuclear
Power Corp (CGN Group), given the depreciation of the
ringgit.
The former prime minister wrote on his blog that the ringgit
was at RM3.2 against the US dollar when 1MDB first
purchased the power plants. When sold, the ringgit was
RM4.2 against the dollar, he said.
If the money borrowed by 1MDB is in ringgit, the loss would
be minimal. But if 1MDB had borrowed in US dollars, it stands
to lose RM1 for every dollar borrowed.
In other words what 1MDB gets from the sale would not be
able to pay fully the debts in US$ raised by 1MDB, said Dr
Mahathir.
1MDB, Edra Global Energy Berhad and its subsidiaries on
Monday sealed a RM9.83 billion share sale and purchase deal
with CGN Group.
The sale is for 1MDBs ownership in all its energy assets: Edra
Solar Sdn Bhd, Edra Energy Sdn Bhd, Powertek Energy Sdn
Bhd, Jimah Teknik Sdn Bhd, Jimah O&M Sdn Bhd, Mastika
Lagenda Sdn Bhd and Tiara Tanah Sdn Bhd.
The Chinese power firm will pay, in cash, an equity value of
RM9.83 billion and assume all the debts and cash of the
power assets, based on a valuation date as at March 31.
The transaction is expected to be completed in February 2016.
1MDB president and group executive director Arul Kanda
Kandasamy said the sale of equities in Edra Global Energy
would reduce 1MDB's debts between RM16 and RM18 billion.
Having sold Edra for RM9.83 billion, how does this reduce
1MDB debts between RM16 and RM18 billion?
Again considering the depreciation of the ringgit, how will
the debts in US dollars be reduced?" said Dr Mahathir today.
He also disputed Arul Kanda's statement that the purchase
brings a significant foreign direct investment commitment to
Malaysia.
The money brought in would go out to pay foreign debts. And
the amount going out would be far more than the inflow. Does
not sound like FDI (foreign direct investment) to me, said Dr
Mahathir.
He also urged Putrajaya to explain whether it allowed the full
repatriation of the plants' profit to Malaysia.
He said China only permitted repatriation in the form of
export, not cash.
How much control will the government have over a foreignowned utility? Price-fixing which may cause a loss to the
company may result in subsidy by the government, said Dr
Mahathir.
He also asked whether Petronas would be selling gas to the
power plants, and at what price. June 28, 2015.
(Full article click - Malaysian Insider)
---
Embattled Malaysian leader Najib set to

defy calls for his ouster amid corruption
allegations
Taken from the SCMP Saturday, 28 November 2015
Prime minister retains firm grip on power, with experts

expecting him to last until general elections in 2018
When the Asean Summit ended in Kuala Lumpur last
weekend, Malaysian Prime Minister Najib Razak's supporters
were jubilant - the event was deemed a success, with the
attendance of world leaders including US President Barack
Obama.
"The leaders of the United States, China and even Russia
came. What can Dr Mahathir do now," said Zainal Epi, a
supporter of Najib, referring to Malaysia's longest serving
prime minister, Dr Mahathir Mohamad, now a vehement
Najib critic.
For the past six months, Najib has been battling corruption
allegations, strident calls for him to step down from Mahathir,
as well as a slowing economy, which many thought would deal
him a knock-out blow.
But Najib, 62, has defied all predictions of his ousting and his
grip on power seems to be growing stronger. Analysts and
even some opposition figures expect him to last until the next
general elections in 2018.
"His position is a lot safer than it did six to 12 months ago. He
is looking unassailable," said Ibrahim Suffian, director of
independent pollster Merdeka Centre.
Najib has nimbly navigated himself through the fallout of
allegations of corruption and mismanagement in the country's
state investment firm, 1 Malaysian Development Berhad
(1MDB), whose advisory board he chairs. 1MDB amassed
US$9.6 billion of debt in just five years.
1MDB is presently under investigation for corruption and
mismanagement domestically as well as by various authorities
in several countries, including the US, Hong Kong,
Switzerland and Britain.
Najib has denied all wrongdoing.
"Najib is in a position of strength because everyone else

contesting his leadership is in a position of weakness ... The
opposition is, for lack of a better word, incoherent in its
political posture," said Abdillah Noh, deputy dean at the Tun
Abdul Razak School of Government at the Universiti Tun
Abdul Razak.
The presence of Obama, Premier Li Keqiang and Russian
Prime Minister Dmitry Medvedev in Kuala Lumpur attested to
Najib's geopolitical skills, selling Malaysia as an important
country with a moderate brand of Islam to counter Islamic
extremism.
Najib's trump card is Obama's centrepiece trade deal, the
Trans-Pacific Partnership - he knows Washington is keen to
have Malaysia on board the 12-nation pact to increase US
influence in East Asia and help counter the rise of China.
The Malaysian government has said it will sign the TPP after it
has been endorsed by parliament.
Domestically, Najib has removed dissenters from his cabinet
and the civil service.
"[Najib] has the attorney-general, the police and his party
chiefs in his hands. All these people can protect him from
efforts to topple him," said Kadir Jasin, a close associate of
Mahathir. "He will last until 2018. But Dr Mahathir will not
give up."
While Najib has lost some support within the ruling Umno
party of which he is chairman, he has the backing of the
majority of Umno's 191 division chiefs - the key to his survival.
According to Jamal Yusof, Umno division chief of Sungai
Besar, a large majority of chiefs support Najib, at least
according to a poll conducted via a Telegram chat group last
month.
"Out of 174 division chiefs , 157 expressed support for Najib. I
am sure more than 157 support Najib as our Telegram chat
group did not reach all 191 division chiefs," Jamal said.
If those numbers reflect reality, then Najib looks set to stay.
(Full article click - SCMP)
---
Japan sees red over Britains rush for

Chinese reactors
Far East rivalry is complicating our plans for new power

plants
BRITAIN has staged a behind-the-scenes diplomatic drive to
soothe fears in Tokyo that Japan could lose out to China in the
competition to sell nuclear reactors to the next generation of
UK power stations.
British officials reassured their Japanese counterparts that
China would not jump the queue to have its nuclear
technology certified as safe by British inspectors despite
political pressure from the Chinese government.
In Tokyo, sources said the pressure rose ahead of the visit to
Britain by Chinas president Xi Jinping last month, when
Chinese negotiators pushed for preferential treatment in lastminute negotiations to seal the deal.
China sees Britain as the gateway to the global market as it
seeks to win the first export sales for its Hualong-1 reactor,
which has not yet gone into service at home.
Nuclear co-operation is a centrepiece of George Osbornes
policy to encourage the Chinese to invest in the regeneration
of British infrastructure.
China will invest some 2bn and hold a minority stake
alongside the French energy giant EDF to build the
controversial Hinkley Point C plant in Somerset and the
Sizewell C project in Suffolk.
But the real prize for Beijing is the prospect of selling the
Hualong-1 into the Bradwell plant in Essex, a project that
China would dominate with an 80% stake.
To do so it must pass the UKs extensive approval process,
which is run by the Office for Nuclear Regulation.
The two Japanese giants, Hitachi and Toshiba, have already

committed hundreds of millions of pounds and hundreds of
staff to winning approval for their nuclear projects in Britain.
Chinas state-sponsored entry into the market, accompanied
by heavyweight political backing, made the companies
nervous that they would lose out if China was given priority
for approval.
There was also concern that the Office for Nuclear Regulation
did not have the resources to cope with several complex,
multi-year examinations at the same time. British officials
have told the Japanese that this is not the case.
Last week Hitachi executives said they were confident of fair
treatment for the Hitachi-GE advanced reactor design.
The company paid 696m to acquire Horizon Nuclear Power
in November 2012 and wants to install its advanced boiling
water reactors at sites in Gloucestershire and Anglesey.
It has held out the prospect of business for British contractors,
including Rolls-Royce and Babcock, with talk of creating
12,000 jobs. At the time, David Cameron called the Hitachi
investment a multibillion-pound vote of confidence in the
UK.
I trust the UK regulators, said Masahito Yoshimura, general
manager for global business development and management at
Hitachi-GE. Our design has been proved by many years of
operation in Japanese plants, he added.
Yoshimura said the design has passed stage three, which was
felt to be the toughest part of the UK approval process. Now
we are on stage four, which will take another two years or so,
he said.
The Japanese companies are careful to avoid direct public
criticism of western governments or of Chinas statecontrolled nuclear industry.
We are not in direct commercial competition with the
Chinese, said Yoshimura. For Chinese technology to be
trusted by other countries, their own market should be more
open and transparent.
Toshiba spent 102m for a 60% stake in nuclear firm NuGen,
with the rest held by Frances GDF Suez. It aims to install
three of its AP1000 reactors at a site in Moorside, Cumbria.
Chinas ambition to enter the global nuclear marketplace is a
core policy for its leadership. Experts believe that exporting
Chinas nuclear reactor technology is the pot of gold at the end
of the rainbow, said one communist party newspaper in a
commentary on the British deals.
A Japanese nuclear industry expert said little is known about
Chinese inspection standards because few details are disclosed
to the outside world. Basic data is treated as a state secret and
some key personnel are not allowed to leave the country.
But the expert said the quick approval inside China was not
surprising because the design of the Hualong-1 is a version of
an imported French EPR-type reactor and thus uses known
technology.
The Hualong-1 has yet to make its debut in commercial
operations inside China. State media reports say building has
started on a site for two of the reactors in east Chinas Fujian
province but power generation is between five and six years
away.
Japans national network of nuclear power stations was shut
down after the 2011 earthquake and tsunami that led to a
meltdown at the Fukushima plant, whose reactors were
supplied by GE, Hitachi and Toshiba. The disaster forced the
companies to look for sales abroad.
---
The Yuan Guessing Game
Taken from the Barrons Online 29 November 2015
The Chinese currency is no longer stable. Predicting its course

over the next year involves everything from the strength of the
dollar to Chinese growth.
The yuans recent weakness comes at a bad time, just as the
International Monetary Fund meets Nov. 30 to decide
whether to include the Chinese currency in its Special
Drawing Rights basket. Inclusion is widely seen as a
confidence vote on the currency. The once-stable yuan is
subject to expectations that it could weaken anywhere from
3% to 10% next year.
This month, the Peoples Bank of China guided its daily fix
rate lower for 10 consecutive days before scrambling to
intervene ahead of the IMF decision. The onshore yuan, at
over 6.38 per dollar, is now at its weakest since late August,
while the free-floating offshore yuan, which is easier to short,
trades at about 6.42 per dollar. Part of the yuans weakness
comes from the stronger dollar. The U.S. Dollar Index (ticker:
DXY) has rallied over 6% from its mid-October low to hit the
100 mark last week.
Seizing upon the fact that the yuan has drifted steadily lower
against the dollar, Bank of America Merrill Lynchs currency
strategist David Woo thinks the central bank is now seeking a
great divorce from the Federal Reserve. He argues that the
PBOC will let the yuan slide all the way to seven in a year,
starting soon after the Feds first interest-rate hike, probably
on Dec. 16.
MERRILL DOES NOT BELIEVE that China is engaged in a
beggar-thy-neighbor competitive devaluation game. Rather,
Chinese corporations have piled on too much debtover 120%
of Chinas gross domestic productdue to hot money flowing
into the country since quantitative easing began in the U.S.
Real interest rates are too high, says Woo, and China has to
cut its rates aggressively to keep its companies afloat. In
return, the PBOC has to let go of the yuan. For 2016, Merrill
called long dollar, short yuan its favorite currency trade.
Credit Suisse sees only a mild depreciation of 3%, to 6.6, in a
year. The Swiss bank believes China is making progress
shifting from a manufacturing powerhouse, which relies on a
cheaper currency, to a consumption-oriented economy.
Tourism and lifestyle-based businesses will take off, so Beijing
will have more tolerance toward a stronger yuan, says the
banks foreign-exchange strategist Koon How Heng. Beijing is
also keen to see an SDR inclusion translate into more foreign
investments, giving it an incentive to keep the yuan more
predictable.
Heng acknowledges that Chinas growth slowdown is
investors top concern. Offshore yuan tends to weaken more
than onshore yuan whenever there are growth scares, says
Heng, the last time being in 2011 during the Greek debt crisis.
But Credit Suisse sees China delivering 7% nominal growth
next year. Once growth fears wane, offshore yuan will
converge with onshore, he notes.
No one wants to get caught shorting the dollar, says Heng,
who works on the banks private-banking business. This round
of pending U.S. rate hikes is very different from previous
cycles, with all other major central banks walking the other
way. Worried about the kind of volatility we saw in August,
Heng says, investors want to hold as much dollar as possible
at this stage.
In its latest fund managers survey, Merrill Lynch found that
going long the dollar was by far the most popular trade in
November, with 32% of fund managers overweighting the
strategy, followed by shorting of commodity and emerging
market stocks.
(Full article click - Barron's)
---
N. Korea apparently fails to launch ballistic

missile from sub: official
Taken from the Yonhap News Sunday, 29 November 2015
North Korea apparently failed to launch a ballistic missile

from a submarine, a South Korean official said Saturday, in a
sign that Pyongyang has yet to master the technology.
North Korea is believed to have fired a KN-11 missile from a
submarine in the East Sea roughly between 2:20 p.m. and
2:40 p.m., but the submarine-launched ballistic missile
(SLBM) failed to soar from the waters, the official said
"The North appears to have failed in its launch," the official
said, citing debris from the missile found on the ocean surface.
The official asked not to be identified, citing the issues
sensitivity.
It is the first time that North Korea has fired an SLBM since
May when it claimed its leader Kim Jong-un oversaw a
successful underwater test-launch of a "strategic submarine
ballistic missile."
In May, South Korea's defense ministry described the North's
SLBM launch as "very serious and worrying," though the
missile appeared to have flown only about 100 or 150 meters
from the surface of the water.
The Pentagon has denounced North Korea's test-firing of the
missile as a "blatant violation" of U.N. Security Council
resolutions.
The North's apparent failure shows that North Korea has yet
to master the technology needed for SLBMs.
SLBMs, if developed in the North, would pose a serious threat
because their mobile nature would make them very difficult to
detect signs of a launch in advance, analysts said.
The latest launch attempt came just a day before President
Park Geun-hye is scheduled to leave for Paris for a crucial
U.N. conference on climate change.
The leaders' event -- the opening of the conference -- is set to
bring together leaders from more than 140 countries,
including U.S. President Barack Obama, as well as U.N.
Secretary-General Ban Ki-moon.
It also came two days after the two Koreas agreed to hold
high-level talks in the North's western border city of Kaesong
on Dec. 11.
The meeting is part of efforts by the two Koreas to implement
the August deal that defused military tensions sparked by a
land-mine attack blamed on North Korea. The incident
maimed two South Korean soldiers near the heavily fortified
border separating the two Koreas.
Under the deal, the two Koreas held reunions of families
separated by the 1950-53 Korean War in late October. They
still remain technically at war as the conflict ended in a truce,
not a peace treaty.
(Full article click - Yonhap News)

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News Summary

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Taken from the BBC Sunday, 29 November 2015

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