Friday 22nd May 2015
NEWS TICKER: THURSDAY, MAY 21th: Moody's Japan has assigned rating of A1 to total of $2.5bn bonds due 2020 and 2025 issued by Japan Bank for International Cooperation (JBIC). The rating outlook is stable.The debts are guaranteed by the Government of Japan. The specific debt issues rated are $1bn Fixed Rate bonds, Series 11 JBIC Government-Guaranteed Global USD Bond due 2020 and $1.5bn Fixed Rate bonds, Series 12 JBIC Government-Guaranteed Global USD Bond due 2025. Moody's concludes that the creditworthiness of JBIC reflects that of the sovereign, given the integration of its mandate with the government's foreign economic policies and the high level of government oversight of its operations – Salvepar’s combined general shareholders meeting yesterday approved a proposed ordinary dividend for fiscal year 2014 of €2.20 per ordinary share, and has decided that each shareholder will be allowed to opt for the payment of the dividend in full in cash, or for the payment of the dividend in full in ordinary shares, or for the payment half in cash and half in ordinary shares. The option to receive the dividend payment in new shares can be exercised by the Company’s shareholders between May 28th, 2015 and June 10th, 2015 (inclusive. After June 10th, 2015, the dividend can only be paid in cash. The maximum aggregate number of new ordinary shares of the company which may be issued is 455,888 shares, which represents 6.65% of the share capital and voting rights of the company as at the date of the General Meeting - Two WisdomTree equity index ETFs launched on Xetra ETFs based on Japanese and European companies with strong dividends - plus a currency hedge. Two new exchange-listed index funds issued by WisdomTree have been tradable on Xetra since Thursday. WisdomTree is primarily a Smart Beta ETF provider, using fundamental data to weight companies in the reference index. The new WisdomTree ETFs weight the stock corporations contained in the reference index on the basis of the annual dividends they pay. Companies with higher dividend yields have a heavier weighting. WisdomTree Japan Equity UCITS ETF is a USD Hedged Asset class: equity index ETF (ISIN: DE000A14SLH0), with a total expense ratio: 0.48% and is benchmarked against the WisdomTree Japan Hedged Equity Index. The WisdomTree Japan Equity UCITS ETF - USD Hedged enables investors to participate in the performance of Japanese companies that generate at least 20% of their revenues outside Japan. The currency hedge covers the exchange rate risk of the Japanese yen to the US dollar. Meanwhile, the WisdomTree Europe Equity UCITS ETF - USD Hedged Asset class: equity index ETF (ISIN: DE000A14SLJ6) has a total expense ratio of 0.58%. The ETF provides access to the performance of European companies that generate at least 50 percent of their revenues outside Europe. This ETF also offers investors the additional benefit of the currency hedge, which reduces euro-US dollar exchange rate risk – PowerShares has launched an equity index ETF on Xetra, the first ETF for high dividend, low volatility US companies says the firm. PowerShares S&P 500 High Dividend Low Volatility UCITS ETF Asset class: equity index ETF (ISIN: IE00BWTN6Y99) has a total expense ratio of 0.39% and benchmarked against the S&P 500 Low Volatility High Dividend Index. The PowerShares S&P 500 High Dividend Low Volatility UCITS ETF provides investors access for the first time to performance of US companies with high dividend yields and low volatility. The reference index firstly comprises 75 companies with the highest dividend yields from the S&P 500, and then proceeds to identify the 50 with the lowest volatility - MTN Rwanda shareholder, Crystal Telecom, launched its much-awaited Initial Public Offering (IPO) this morning. The company is selling a 20% stake in MTN Rwanda, the largest telecom operator in the country, to the public. The move is part of the strategy by Crystal Ventures, the holding company, of monetising their mature holdings in firms with the intention of redeploying the capital in early-stage enterprises.The IPO comes after the Capital Market Authority approved Crystal Telecom's application to float its MTN Rwanda shares on the stock exchange. Once listed, Crystal Telecom will become the third domestic company with shares trading at the bourse, after Bank of Kigali and Bralirwa. The last IPO at the stock exchange was in 2011 when Bank of Kigali listed its shares for trade at RWF125 each. Crystal Telecom shares starting price will be announced during the launch - Welltec’s revenues reduced in the first quarter of 2015 as mar¬ket activity contracted sharply in response to the lower oil price. This overshadowed growth in some geomarkets and the de¬cline in revenue was accentuated by strong currency headwinds. EBITDA reduced accordingly, with margin impacted by lower levels of utilisation and increased redeployment of fleet and per¬sonnel to match the local demand. Proactive cost management and working capital discipline allowed for improved cash flows in the period. Revenues of $68m were 14% lower compared to the same period last year. On an adjusted currency basis rev¬enues were 7% lower. In Europe, Middle East, Africa and Russia CIS (EMEAR), revenues decreased by 22% to $33m. Revenues in the Americas fell 8% to $25m, while Asia Pacific revenues were level at $10m.

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The European Review

By Patrick Artus, chief economist at Natixis

What kind of economy would the euro zone be without Germany?

Thursday, 28 June 2012 Written by 
What kind of economy would the euro zone be without Germany? There is increasing talk about establishing federalist mechanisms (eurobonds, eurobills) and pooling certain risks and investments between euro-zone countries (European bank guarantees, recapitalisation of banks by the EFSF-ESM, increased investments by the EIB, EFSF-ESM access to ECB funding, purchases of government bonds by the ECB). Germany's criticism of these proposals is that they ultimately place all the costs and all the risks on Germany, due to its economic, fiscal and financial situation and its credibility in financial markets. It is claimed that eventually all the bills will be sent to Germany, since the other euro area countries have no fiscal or financial leeway or any credibility to guarantee deposits and loans. We shall therefore examine the economy of the euro zone excluding Germany and ask the question: Is it in such a bad situation that federalism or the pooling of risks and investments between euro-zone countries would in fact amount to potentially placing the entire burden on Germany? We think that Germany’s fears are justified. http://www.ftseglobalmarkets.com/

There is increasing talk about establishing federalist mechanisms (eurobonds, eurobills) and pooling certain risks and investments between euro-zone countries (European bank guarantees, recapitalisation of banks by the EFSF-ESM, increased investments by the EIB, EFSF-ESM access to ECB funding, purchases of government bonds by the ECB). Germany's criticism of these proposals is that they ultimately place all the costs and all the risks on Germany, due to its economic, fiscal and financial situation and its credibility in financial markets. It is claimed that eventually all the bills will be sent to Germany, since the other euro area countries have no fiscal or financial leeway or any credibility to guarantee deposits and loans.

We shall therefore examine the economy of the euro zone excluding Germany and ask the question: Is it in such a bad situation that federalism or the pooling of risks and investments between euro-zone countries would in fact amount to potentially placing the entire burden on Germany?

We think that Germany’s fears are justified.

Federalism: pooling between euro-zone countries

The resolution of the euro-zone crisis will inevitably involve establishing certain forms of federalism (eurobonds, eurobills) and the pooling of certain investments and risks (a European bank guarantee system, the recapitalisation of the banks (e.g. Spanish banks) by the EFSF-ESM, an increase in structural funds or investments by the EIB, ESM access to ECB funding).



The pooling of risks between euro-zone countries already exists: the Target 2 accounts are a pooling of bank risks among euro-zone central banks, and purchases of government bonds by the ECB pool sovereign risk.

This trend to federalism and pooling is inevitable: in a monetary union without federalism, countries with external surpluses and countries with external deficits cannot coexist permanently due to the resulting accumulation of external debt.

A number of financing needs are too substantial to be borne by a single country, e.g. for Spain the need for recapitalisation of its banks. And a number of risks (e.g. the risk of a bank run) are also too great not to be pooled.

Is this move towards federalism and pooling a trap for Germany?

The view in Germany is clearly that this move towards federalism and pooling is a trap for Germany. It is claimed that Germany will have to cover most of the costs because it has public finances in good health, growth that is now stronger, higher living standards than the countries in distress, and excess savings.

Germany also has strong credibility in financial markets, as shown by its interest rate level, and it is the only country to be able to credibly insure risks and guarantee loans.

The Germans' concern is therefore understandable: if there is federalism and a pooling of investments and risks, will Germany "receive all the bills"?

To determine whether this is a real risk, let’s examine the situation of the euro zone without Germany: is it such a worrying region, will it have to be propped up permanently by Germany?

The economic and financial situation of the euro zone without Germany: Is it serious?

Without going into greater detail for each country, we shall examine:

·                   its competitiveness, the foreign trade situation; the weight of industry;

·                   its situation regarding its technological level, skills, productivity and investment; its potential growth;

·                   the situation of its businesses and households;

·                   its public finances.

1. Foreign trade, competitiveness, weight of industry

The euro zone without Germany has:

·                   a structural external deficit;

·                   a shortfall in competitiveness;

·                   a small industrial base;

·                   a large external debt.

2. Technological level, skills, investment, productivity and potential growth, capacity for job creation

The technological level of the euro zone without Germany is fairly low, as is the population's level of education; this zone invests little, has low productivity gains, and since 2008 it has destroyed jobs massively.

3. Situation of businesses and households

Corporate profitability in the euro zone excluding Germany is low, but private (corporate and household) debt is lower than in Germany; however, household solvency has deteriorated (in Germany, household defaults are low and stable; in France, Spain and Italy, they are high and rising).

4. Public finance situation

The public finances of the euro zone excluding Germany are in a very poor state compared with Germany. Indeed Germany’s debt to GDP ratio is expected to fall, while in the euro zone excluding Germany it should rise rapidly toward 100%; Germany has a 1% primary surplus, while the euro zone excluding Germany has a 2% primary deficit.

Conclusion: Are the German fears justified?

If the euro zone were to become a federal monetary union, with solidarity between countries and pooling of certain investments (recapitalisation of banks, for example) and risks, surely the rest of the euro zone excluding Germany could only be:

·                   benefiting from transfers from Germany;

·                   benefiting from Germany's credibility in the markets;

·                   benefiting from Germany's guarantee;

Or could it share this burden with Germany? We suspect that the burden on Germany would be very heavy.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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