Thursday 5th March 2015
NEWS TICKER – THURSDAY, MARCH 5TH 2015: Following a recent Morningstar Analyst Ratings meeting, Morningstar has moved the Henderson Horizon Japanese Equity fund and the Henderson Japan Capital Growth fund to a Morningstar Analyst Rating™ of Neutral. Both funds were previously Under Review due to a change in the lead portfolio manager. Prior to being placed Under Review, both funds were rated Bronze. The funds were solely managed by Michael Wood-Martin, who took over in 2005. However, in October 2014 Henderson decided to adopt a team-based approach. They are now run by the Japanese Equities team consisting of four investment professionals, including William Garnett, Michael Wood-Martin, Jeremy Hall, and Yun-Young Lee. Given this change to the investment process, Morningstar says it has less clarity around the likely shape of the portfolios and little evidence that the strategy can be implemented effectively. Morningstar believes a Neutral rating is appropriate at the current time —Moody's Investors Service has today republished a number of asset-backed securities (ABS) and residential mortgage-backed securities (RMBS) rating methodology reports. The updated ABS and RMBS methodology reports consolidate the secondary rating methodology "Revising default/loss assumptions over the life of an EMEA ABS/RMBS transaction" and which the agency will now retire; for RMBS specifically sees updates to the surveillance section; and for Consumer Loan-Backed ABS specifically a new appendix describing how Moody's will tailor its approach to rating consumer loans for marketplace lending loans. The republications do not represent a change in methodology and will not result in any rating changes —BATS Chi-X Europe reports a 23.7% market share, with average notional value traded at €12.3bn up substantially from €8.9bn in February 2014. Market share rose in 14 of the 15 markets the firm covers. Its trade reporting facility, BXTR, had its second-most successful month ever with more than €369.3bn reported in total during the month; an average of €18.5bn each trading day. In total, BATS Chi-X systems touched €616.1bn of trades in February—The Straits Times Index (STI) ended -20.26 points lower or -0.59% to 3395.27, taking the year-to-date performance to +0.90%. The FTSE ST Mid Cap Index declined -0.18% while the FTSE ST Small Cap Index declined -0.17%. The top active stocks were SingTel (-1.20%), DBS (+0.05%), Keppel Land (-0.44%), OCBC Bank (-0.48%) and Global Logistic (unchanged). The outperforming sectors today were represented by the FTSE ST Utilities Index (+1.66%). The two biggest stocks of the FTSE ST Utilities Index are United Envirotech (unchanged) and Hyflux (+0.58%). The underperforming sector was the FTSE ST Consumer Goods Index, which declined -1.31% with Wilmar International’s share price declining -0.61% and Thai Beverage’s share price declining -2.06%.The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (-1.22%), SPDR Gold Shares (-0.31%), DBXT MSCI Thailand TRN ETF (-0.38%). The three most active Real Estate Investment Trusts (REITs) by value were CapitaMall Trust (+0.94%), Ascendas REIT (+2.02%), CapitaCom Trust (+0.28%).The most active index warrants by value today were HSI25000MBeCW150429 (-14.16%), HSI24200MBePW150429 (+10.53%), HSI23800MBePW150330 (+16.92%)—Commerz Real and RFR Holding have signed an agreement to purchase the real estate Atlas Plaza in Miami/Florida for its open-ended real estate fund hausInvest. The retail trade complex, located in the burgeoning Design District and in part on two storeys, comprises two existing buildings and a new construction, scheduled to be completed by May 2015. Upon the completion of the building work the leasable area will total approximately 1,600 square metres. The total investment volume for the acquisition and extension of “Atlas Plaza” amounts to around 68 million US dollars (approximately €60m)—Malaysia’s corporate sukuk sales will rebound from the worst start to a year since 2010 as a recovery in oil prices spurs issuance before the US raises interest rates, according to investment bank CIMB. Islamic bond offerings to date are down MYR9.7bn on a year on year basis. Kuala Lumpur-based AmInvestment Bank Bhd predicts sales could surpass last year’s MYR62bn as more projects come on stream under the government’s 10-year development programme. A 34% rally in Brent crude from January’s six-year low will shore up the country’s finances after Fitch Ratings warned the loss of revenue for oil-exporting Malaysia puts its credit ranking at risk. The average yield on AAA rated Malaysian corporate securities has dropped to a three-month low, cutting costs for issuers involved in Prime Minister Datuk Seri Najib Razak’s $444bn spending drive and those seeking to refinance debt—Bahrain’s BIBF has announced the launch of the region’s first Islamic Finance and Muslim Lifestyle Convergence Training programme, developed as part of the Waqf Fund’s initiatives to enhance Islamic Finance training in the region, in partnership with New York-based DinarStandard, at a press conference yesterday. The burgeoning Halal food and Muslim Lifestyle sectors is estimated to be worth $2trn in 2013, and is expected to reach $2.47trn by 2018, based on the State of the Global Islamic Economy 2014 report, produced by Thomson Reuters in collaboration with DinarStandard. This represents a huge opportunity for Islamic Finance, which has been for the most part, untapped—Kames Capital is to lower the annual management charge on the Kames Investment Grade Global Bond Fund following a review of the fund’s positioning in the European markets. The move will see the AMC on the Kames Investment Grade Global Bond Fund B share class fall to 0.65% from its current rate of 0.80%, while for the A share class the charge will drop to 1.15% from 1.30%. The changes will take effect from the 1st April 2015. As part of the review, Kames will also be changing the benchmark of the fund to the Barclays Global Aggregate Corporate Index from the Lipper Global Bond Global Corporate Median. The changes are intended to bring the fund into line with its peer group particularly in Continental Europe. Whilet there will be no change to the investment process of the fund, there will be a slight change to the fund’s duration. In order to maintain its index-neutral duration, the Fund will now be aligned to the Barclays Global Aggregate Corporate Index which has a duration of around 6.4 years. This compares to the existing Lipper peer group which has an estimated duration of 5 years.

HKEX's long term commodities play

Monday, 26 November 2012
HKEX's long term commodities play The Hong Kong Exchanges and Clearing’s (HKEx’s) recent £1.4bn purchase of the member owned London Metal Exchange (LME) certainly raised a few eyebrows. At 180 times trailing net income, it ranked as the most expensive of any bourse deal above $1bn since 2000, according to data compiled by Bloomberg. However, the HKEx has no doubts that it was the right move. In one fell swoop this staid domestic player has been catapulted into the global league of exchanges. What now? Lynn Strongin Dodd reports. http://www.ftseglobalmarkets.com/

The Hong Kong Exchanges and Clearing’s (HKEx’s) recent £1.4bn purchase of the member owned London Metal Exchange (LME) certainly raised a few eyebrows. At 180 times trailing net income, it ranked as the most expensive of any bourse deal above $1bn since 2000, according to data compiled by Bloomberg. However, the HKEx has no doubts that it was the right move. In one fell swoop this staid domestic player has been catapulted into the global league of exchanges. What now? Lynn Strongin Dodd reports.

The 135 year old LME, which put itself up for sale last year, was not an easy prize to win. Competition was fierce with around 15 contenders vying for its hand. The HKEx, which mainly derives its revenues from trading in Hong Kong shares, warrants and stock index futures as well as initial public offerings, was not the most obvious choice. Its experience in commodity trading was limited and there were also fears over Beijing’s influence.


Moreover, it was up against formidable players such as the CME Group which had in 2007 made the headlines with what was then considered the priciest exchange deal—the roughly $11.9bn acquisition of CBOT at a multiple of 66 times earnings.




However, the Chicago based firm along with NYSE Liffe, the London based derivatives arm of NYSE Euronext were both knocked out in May while the IntercontinentalExchange (ICE) made it to the final stages before losing out to HKEx this summer.


While the US exchanges were thought to be in a better position to cut costs and modernise the London exchange, the opportunity to realise its potential in China made Hong Kong the most attractive bidder. The country not only consumes 40% of the world’s metals but China related trading is estimated to account for only 20% on the LME.


The HKEx also allayed fears over the Chinese government’s influence by stating that, “China does not own HKEx or have management control. HKEx embarked on this transaction for its own sound commercial reasons and in the interests of all of its shareholders. HKEx is a publicly listed company with a wide base of institutional and retail shareholders which is run with scrupulously high levels of corporate governance.” It also noted that there are various legal and institutional safeguards in place such as Hong Kong’s Basic Law, which is based on the principle of one country, two systems. In other words, Hong Kong has its own independent legal and regulatory system based on English Common Law which is separate from mainland China.


Equally as important, the HKEx assured the LME that it will not make any immediate changes to the structure or fee base for contracts currently traded before January 1st 2015. As a result, traders will be able to continue to use arcane hand signals to conduct open outcry trading in copper, aluminium, lead, nickel, tin and zinc across a circle of red leather benches.


The main appeal of the LME for the HKEx is the foray it provides onto the world exchange stage and the platform to broaden its revenue base. The price paid might have been high but some industry experts believe it will make its money back in the future. “There were some concerns that the Hong Kong stock exchange had overpaid for the LME,” says Herbie Skeete, managing director of Mondo Visione. “However, I think the LME gives them a more diversified product range and puts them in a stronger position with a more sustainable business.”


The LME will give the HKEx control of about 80% of global trade in industrial-metal futures at a time when the exchange’s main activities (trading and initial public offerings) look to be falling off. Overall performance is something of a short term worry: the latest second quarter figures, for instance, show a 21% drop in net profit to HK$1.07bn ($137.98 m) from the same period last year due to continuing weak market conditions. Share-trading volume was lacklustre for most of the first half, with average daily turnover, a key determinant of exchange income, down 23% from a year ago to about HK$56.7bn a day.


The exchange has also suffered from the vicissitudes of an indifferent IPO market of late. Its IPO calendar has been marred by high profile names such as luxury jeweller Graff Diamonds, pulling its Hong Kong offering in the light of poor investor sentiment. Recent offerings have also had a mixed reception. Shares of Shanghai’s Fosun Pharmaceutical (Group) Co Ltd fell as much as 12% on its debut in late October, underscoring weak investor appetite for new offerings. Fosun Pharmaceuticals $512m offering is the largest IPO to come to market in Hong Kong over the last three months and has been regarded in the local press as a temperature gauge for the exchange’s IPO pipeline for the rest of the year.


November in particular looks to be a testing time for the exchange’s IPO calendar. The People’s Insurance Company of China Group (PICC) is the largest expected IPO this month, and is said to be worth up to $6bn. Also expected in November are Zhengzhou Coal Mining Machinery’s planned IPO,  managed by Citic and Deutsche Bank, UBS and JP Morgan and reported to be worth $600m; CIFI Holdings ($300m), arranged by Citigroup, Morgan Stanley and Standard Chartered; and Horizon Hospitality ($800m or so), arranged by Standard Chartered and Bank of America Merrill Lynch. While China Railways $2bn is planned to debut by the end of this year (arranged by CICC, Citigroup, Credit Suisse, HSBC and UBS).


Most of the deals to come to market this year have been block offerings that target selected numbers of institutional investors. The question is whether this institutional investor appetite for big ticket Chinese IPOs is sustainable with a sizeable number of deals planned to come to market before year end.


The LME transaction is then clearly an indication of the exchange’s need to secure alternative revenue streams. If that is the case, then it might equally be that the exchange is moving between proverbial frying pans and fires. Certainly, some analysts believe that continuing buoyancy in commodities prices is no longer a given.  
There are two schools of thought. One believes that the super cycle of commodities which started on the back of the industrialisation and urbanisation of China and other emerging countries in Asia, Africa and Latin America has run its course. The rationale is that the combination of a slowdown in Chinese economic growth, the continuation of the eurozone crisis into 2014, ongoing uncertainty in the US economy and the arrival of fresh raw materials supplies (after a decade of investment in new production) will inevitably begin to dampen prices for products ranging from crude oil to iron ore.


Others however believe the cycle still may have legs. They argue that the death knell has been rung often in recent years only to ring hollow; as it did in 2008 and 2009 when the World Bank pronounced the end of the bull run in commodities. Prices then recovered sharply in 2010 after economic growth gathered momentum.
The evidence supporting either argument this time around is mixed; adding to the overall tension around key commodity prices over the near term. Overall, the IMF commodities index for instance—one of the broadest and more complete measures of raw materials costs—has fallen from its record high of four years ago. Even so, it is still up 32% over the past five years and a hefty 220% since 2000.  


Right now, the exchange wallows in a quiet period and is unable to go on the record for this interview. However, exchange personnel agreed to speak on a background basis only. According to one HKEx spokesperson, “the strategic rationale for the acquisition is based on growth of the LME’s existing operations. Revenue synergies are expected to be realised in the long term from increased volumes in China and rest of Asia, the establishment of LME Clear and the introduction of new products. The LME also provides a platform for entry into a range of commodity asset classes as well as the development of RMB denominated products in fixed income and currencies that are attached to commodity flows.  In addition, there will be opportunities for further ­geographical expansion, especially in emerging markets, by leveraging HKEx’s membership of the recently formed BRICS Exchanges Alliance.”


The five member exchanges, including Brazil’s BM&F Bovespa, Russia’s MICEX-RTS, India’s Bombay Stock Exchange, HKEx, and the Johannesburg Stock Exchange (JSE) all joined forces in October 2011. A year later in March the participating members cross listed their benchmark index futures in order to give investors easier access to the BRICS index derivatives which can be used to hedge diversified portfolios.

 Hong Kong Stock Exchange: 2012 Turnover and On-floor and Off-floor Trades
[Year to date] [Main Board + Trading Only Stock]

Hong Kong Stock Exchange: 2012 Turnover and On-floor and Off-floor Trades

The varying fortunes of the Hong Kong Stock Exchange 2011/2012 IPOs by volume and value: the world’s top ten exchanges
01 Jan - 31 October Top IPO Exchanges Globally – By Deal Volume

Varying Fortunes HK2012

 

 

 

 

 

 
01 Jan - 31 October Top IPO Exchanges Globally – By Deal Volume

Top IPO By Deal Volume

 

 

 

 

 

 

 

Although product development is important, The HKEx also plans to help the LME develop its market infrastructure. This includes the expansion of its warehouse network in Asia, including China as well as the progressive upgrade of its core platforms to drive business growth. In addition, the HKEx aims to utilise its data centre, established Asian infrastructure and market data hub in Shanghai to enhance distribution of market data to Chinese clients.


In addition to the LME acquisition, HKEx introduced the first exchange-traded currency futures settled in RMB in September and will continue promoting the listing of RMB-traded products such as bonds, exchange traded funds and a real estate investment trust in its securities market.  “We are also in the process of introducing hosting services and a clearing house for OTC derivatives, both of which are scheduled to be up and running by next year,” according to the spokesperson.


Skeete believes that these developments will help the HKEx keep its edge over rival Shanghai Futures Exchange. “Hong Kong is perceived to be the gateway of China which used to be the role of Shanghai until the Communists took over. I think the rivalry will continue and although Shanghai would like to return to where it used to be I can’t see the Hong Kong Exchange being displaced in the medium term.”


For the HKEx’s part, it would like to collaborate rather than compete and has already forged links with the Shanghai Stock Exchange and Shenzhen Stock Exchange in June to create a joint venture in Hong Kong with an aim to develop financial products and related services as well as the franchising of index-linked and other equity derivatives products. The joint venture will also include the compilation of cross-border indices based on products traded on the three markets and the establishment of industry classification for listed companies, information standards and information products. Market promotion, customer services, technical services and infrastructure development will also be covered.


According to the HKEx spokesperson, “the mainland economy’s continuing growth will result in more business for both stock markets. We believe that the Shanghai and HKEx markets are complementary; one is international and funds can be raised in a freely convertible currency; the other is mainly domestic in terms of investors and currency. With respect to other markets, HKEx has been competing with its overseas counterparts for investors and issuers for years.  Hong Kong is relatively small (about 7m people) so HKEx has to seek growth opportunities at home and abroad.”

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