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MARKET WATCH 24 MAY, 2019

NATIONAL

INTERNATIONAL

Election Results 2019: World leaders congratulates Modi over imminent victory

With the results of India’s national polls showing a decisive win for Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP), messages of congratulations poured in for the prime minister on Thursday. Leaders of the US, Japan, China, Russia, France and Australia besides many heads of government from South Asia sent messages of congratulations via Twitter to Modi as news of the imminent win came through. Coincidentally, it also came on a day when Pakistan reportedly tested a 1,500 kilometre range surface-to-surface ballistic missile that could target most Indian cities, though Prime Minister Imran Khan posted a message on Twitter saying he looked forward to work with Modi on furthering peace in South Asia in the evening. “I congratulate Prime Minister Modi on the electoral victory of BJP and allies. Look forward to working with him for peace, progress and prosperity in South Asia," Khan said in the post. In his response, Modi said: “Thank you PM @ImranKhanPTI.I warmly express my gratitude for your good wishes. I have always given primacy to peace and development in our region." Among those who posted messages on Twitter congratulating Modi were US president Donald Trump who said:"Congratulations to Prime Minister @NarendraModi and his BJP party on their BIG election victory! Great things are in store for the US-India partnership with the return of PM Modi at the helm. I look forward to continuing our important work together!" The message came in as Modi looked set to take office for a second term with his BJP party leading in 292 of the 542 parliamentary constituencies that went to the polls, according to trends from the Election Commission. One of the first messages of congratulations has come in from Israeli Prime Minister Benjamin Netayahu who hailed Modi’s “impressive victory" and pledged to strengthen their "great friendship" as well as bilateral ties. "Greetings from the depth of my heart dear friend on your impressive victory in the elections," Netanyahu said in Twitter posts in Hebrew and Hindi. "The election results are a re-approval of your leadership and the way you lead the world's greatest democracy. Together we will continue to strengthen the great friendship between us and India and Israel and lead it to new heights," Netayahu said. Bangladesh prime minister Sheikh Hasina was among the first leaders from South Asia to call Modi and congratulate him, the Indian foreign ministry said in a statement. “The two leaders pledged to continue to raise the India-Bangladesh relationship to unprecedented new heights," the statement said adding “the leaders also agreed to identify dates for a meeting at the earliest, to resume work in service of the bilateral relationship." “Congratulations to PM @narendramodi on his historic victory in the Indian general elections. It is a strong affirmation of the Indian people's confidence in the BJP/led government. I look forward to closer and enhanced ties of Maldives-India cooperation," read the message posted on Twitter by the President of the Maldives, Ibrahim Mohammed Solih. Sri Lankan president Maithripala Sirisena in his message, also posted on Twitter said: “Congratulations on your victory and the peoples re-endorsement of your leadership. Sri Lanka looks forward to continuing the warm and constructive relationship with India in the future. @narendramodi"The Chinese president Xi Jinping also sent a message which was posted on Twitter by India’s foreign ministry. “Chinese President Xi Jinping congratulates PM @narendramodi on the electoral victory under his leadership," said Indian foreign ministry spokesman Raveesh Kumar in a Twitter post. “President Xi noted the great importance he attachedto the development of India-China relations and his desire to work with prime minister Modi to take the closer development partnership between the two countries to a new height. President Xi also expressed satisfaction at the strong momentum of development in India-China relations in recent years," the message from Xi to Modi posted on Twitter by Kumar said. According to the Indian foreign ministry, many of the leaders who posted messages on Twitter also telephoned Modi to convey their greetings. These included the King of Bhutan Jigme Khesar Namgyel Wangchuk and Prime minister Lotay Tshering. Tshering, in his Twitter message said: “I, on behalf of the people of Bhutan, offer heartiest congratulations to Prime Minister Shri Narendra Modi @PMOIndia and his team on the election victory. As we look forward to working closely in years to come, we pray India achieves greater success under your leadership." Afghan president Ashraf Ghani was also among those to post a congratulatory message on Twitter for Modi. “Congratulations to PM @narendramodi on a strong mandate from the people of India. The government and the people of Afghanistan look forward to expanding cooperation between our two democracies in pursuit of regional cooperation, peace and prosperity for all of South Asia," he said in his message. Nepalese Prime Minister K P Sharma Oli too greeted Modi on a "landslide victory." "I extend warmest congratulations to Prime Minister @narendramodi ji for landslide election victory in the Lok Sabha Elections 2019. I wish all success ahead. I look forward to working closely with you," he tweeted. Russian President Vladimir Putin called Modi to congratulate him – the first head of state from a P-5 (five permanent members of the UN Security Council) to do so. "I am convinced that as the Prime Minister of the Republic of India you will further contribute to strengthening the centuries-old friendship between our peoples and enhancing comprehensive development of special and privileged strategic partnership between Russia and India," Putin said. Japan’s Prime Minister Abe Shinzo also conveyed his message of congratulations to Modi in a telephonic conversation, the first by a foreign leader, the Japanese embassy said in a statement. “Prime Minister Abe stated that he would like to closely work with Prime Minister Modi hand in hand toward strengthening Japan-India relations and realizing a free and open Indo-Pacific," the embassy statement said. The French president Emmanuel Macron also congratulated Modi in a phone call. “The two leaders reaffirmed their commitment to work together towards further strengthening of the Strategic Partnership between India and France. Prime Minister Modi thanked France for her steadfast support to India on critical issues," India’s foreign ministry said in a statement. Macron also invited Modi to France for a bilateral visit as well as to attend the G-7 meet in his country. In his letter congratulating Modi, Singapore’s prime minister Lee Hsein Loong said he hoped for stronger India-Singapore ties in Modi’s second term in office. “Our relations are already very substantial, but we should do more to exploit our complementarities, tap the reservoir of goodwill between the two countries and peoples, and fully realise the potential for enhanced cooperation including in the fintech and digital space," he said. Australian prime minister Scott Morrison who himself won national polls last week in his message said: “Australia and India enjoy a strong, vibrant and strategic partnership, and our India Economic Strategy will take our ties to a new level. I look forward to meeting again soon." Meanwhile, Pakistan with whom India shares tense relations, on Thursday tested the Shaheen-II missile that was capable of hitting targets in India, a PTI report said. "Shaheen-II Missile is capable of carrying both conventional and nuclear warheads upto a range of 1,500 kilometers. Shaheen-II is a highly capable missile which fully meets Pakistan’s strategic needs towards maintenance of desired deterrence stability in the region," the Pakistani Army said. It said that the launch, having its impact point in the Arabian Sea, was witnessed by Director General Strategic Plans Division, Commander Army Strategic Forces Command, senior officers from the Army Strategic Forces Command, scientists and engineers of the strategic organisations. President Arif Alvi and Prime Minister Imran Khan have also congratulated scientists on their achievement, the statement said.

Source: Live Mint

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Trade sector wants strong policies, jobs from NDA-2

The business community seems overwhelmed to see the second coming of the Narendra Modi-led NDA dispensation. The trade and industry, however, expect strong policy initiatives and more jobs and farmer security from the government this time. Kiran Mazumdar Shaw, chairperson and managing director of Biocon Limited, said Mr. Modi has continued with his winning streak in 2019, leading the NDA to another sweeping victory. In its first five-year term, the NDA developed an economic agenda that sought structural policy changes and economic reforms as he quickly diagnosed the key impediments throttling the nation’s economic engine. “I would like to convey that NDA 1.0 succeeded in formulating a five-year strategic plan. Now, NDA 2.0 must focus on the implementation of this plan in order to unlock opportunities for inclusive economic growth. Over the next five years NDA 2.0 must introduce policies that are bold, innovative and transformational to translate the economic potential into prosperity for all,” she said.

Mega missions

According to Vikram Kirloskar, president of the Confederation of Indian Industry, over the last five years, the Prime Minister has brought in innovative mega missions that have changed the lives of hundreds of millions of citizens, driving a new template for development. With the mandate for another five years under his visionary and strong leadership, the transformation of India is on the fast track. Harish Bijoor, brand guru and founder of Harish Bijoor Consults Inc, said: “This kind of a strong mandate for the BJP gives us a strong government. And this means that we can expect strong policy initiatives.” Kris Gopalakrishnan, former CEO, Infosys said, in a democracy, people's mandate decides. “Business looks for stability and reforms. Economic growth is needed for job creation and I belive the new government will focus on this.”

Source: The Hindu

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Fiscal policy to manufacturing: What corporate leaders expect from Modi 2.0

We all wanted a strong Centre with a decisive mandate from the people, to allow them to take bold decisions, says Pawan Goenka, CEO & MD, Mahindra & Mahindra Centre should focus on GDP growth: Adi Godrej, Chairman, Godrej group I think it is very good that the NDA has come back to power. It will lead to economic growth, which we badly need right now. The verdict will give the government a mandate to take action. That is key. They were earlier in election mode. Now they will get down to business, which is important for the development of the economy. Above all, GDP growth is what it should concentrate on. That is because growth will bring jobs, improve income, and spending power. It will also help address distress, especially in rural areas and bring about some revival in those markets. The Centre should look at reducing corporate tax rates. They had announced this earlier, but it was done only for small companies, not the large ones. We all know that Indian corporate tax rates are the highest in the world. I think this can be looked into more closely, and also addressed immediately. As soon as the government takes action on improving GDP growth as well as kicking off further reforms, private sector investment will follow. I don’t think it will come with a lag if the government is committed to reviving growth. Manufacturing has to be competitive: Pawan Goenka, CEO & MD, Mahindra & Mahindra. The mandate is even more decisive than what the most staunch supporters of BJP+ would have expected. This augurs well for the country because this is a reconfirmation on the direction the Centre had taken during its first term. We all wanted a strong Centre with a decisive mandate from the people, to allow them to take bold decisions. The next five years can be golden provided the government, industry and the civil society work together. The immediate job for the government has to be getting the consumption cycle going, which has been on a pause mode for a few months, supposedly because of the elections. Stimulus of government spending will be required and I hope the next Budget will focus on this. Moving beyond the short term, one of the initiatives that got slightly on the back burner was ‘Make in India’. If we want a trillion-dollar manufacturing economy, a lot more has to be done for making Indian manufacturing more competitive. One of the biggest long-term concern has to be job creation and therefore industries that generate jobs must get higher priority. Majority augurs well for policy: Kaku Nakhate, President and Country Head, Bank of AmericaToday’s verdict is pro-incumbency and reflects the general satisfaction of voters on the government’s performance. The electorate rewarded the government for its consistent policies and project execution capabilities, in both social as well as economic spheres. A clear majority augurs well for policy continuity and supports our house view of fiscal prudence in the years to come. We think lowering lending rates, bank recapitalisation, and re-couping forex reserves will top the Centre’s agenda. With a commitment to lowering cost of capital, the government will now focus on injecting liquidity. Land and labour reforms, and digitisation are also key initiatives the government could focus on. As global trade conflicts intensify, the government must seize the opportunity to invite multinationals to set up base here, boosting job creation. The verdict clearly vindicates the government’s stance of driving growth through investments, instead of handouts. This means road construction, infrastructure development, housing, and projects like ‘Smart Cities’ will dominate the new government’s decision-making process. Credit, liquidity should top agenda: Vetri Subramaniam, Group president & head (equity), UTI Mutual Fund of the market and economy, the return of Modi signals continuity in policy. The outcome has also voided any tail risk related to a potentially unstable coalition government. Equity markets have moved up recently, signaling comfort with this outcome, but face headwinds from valuations. The focus shifts from politics to economy and policy. Bloomberg consensus forecasts for FY20 GDP growth for have started pointing to a dip from September 2018. High-frequency indicators and company feedback suggest weakness in demand and constrained credit availability. A post-election seasonal growth uptick is likely, but addressing the credit market pressures and tight liquidity should be top the government’s and RBI’s agenda. Given the current CPI (consumer price index) inflation, there is room for the monetary policy committee to ease rates, but injecting liquidity is equally crucial. The market will hope the track record on controlling inflation continues. Policy needs to target better balance between consumption aspirations and financial savings of the Indian household. This will enhance macro-economic stability, while creating room for investment revival. Priorities have to change in 2nd term: Harsh Mariwala, Chairman, Marico GroupThe performance of the ruling coalition in the elections has beaten all expectations, including exit polls. Having said that, we need to have a stronger opposition. I think, there is need for introspection among opposition parties. The focus of the new government should shift from welfare to reforms. The last five years saw greater thrust on welfare rather than on reforms, though there were some key measures such as the Goods and Services Tax, and Insolvency and Bankruptcy Code. Demonetisation, while not a reform, was needed to reduce dependence on cash. But now, the focus should be on implementing reforms such as land, labour and agricultural reforms. The Centre hasn’t moved strongly in these, and I believe priorities have to change during the second term. The thrust on privatisation also has to grow. Further, the government has to address the issue of liquidity, increase infrastructure spending, improve credit offtake, and simplify direct tax laws. All this will create jobs, as well as improve sentiment and spending power. Private sector will set up plants and increase manufacturing capacity only if consumption grows.

Source: Business Standard

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High-level panel pitches for 'Elephant Bonds' for infra projects, investing undisclosed income

The high-level panel also recommended a host of other measures that include a road map for doubling India's exports of goods and services to over USD 1,000 billion by 2025. A government-appointed advisory group has suggested issuance of 'Elephant Bonds' wherein people declaring undisclosed income will have to mandatorily invest half of that amount in these securities. The high-level panel also recommended a host of other measures that include a road map for doubling India's exports of goods and services to over USD 1,000 billion by 2025. These recommendations are part of a report prepared by the 12-member group, set up by the commerce ministry in September last year. The group submitted the report to Commerce and Industry Minister Suresh Prabhu Wednesday, an official said. Suggesting amnesty-like scheme, the panel asked the government to create "Elephant Bonds" (25-year sovereign bonds) in which people declaring undisclosed income will be bound to invest 50 per cent. The fund will be utilised only for infrastructure projects, the report said. The other key recommendations include lowering effective corporate tax rate, bringing down cost of capital and simplifying regulatory and tax framework for foreign investment funds. These are aimed at increasing India's exports of goods and services from USD 500 billion in 2018 to over USD 1000 billion in 2025. The report argued that India's competitors have less than 20 per cent effective tax rates. Besides, the group recommended increasing capital base of EXIM Bank by another Rs 20,000 crore by 2022, setting up of empowered investment promotion agency and seeking inputs from industry and MSMEs before signing free trade agreements (FTAs) and sensitising them of its benefits. It said there is a need for an in-depth assessment of the existing agreements and their impact on the competitiveness of the Indian industry; remedial measures, if any, to be considered for future FTA negotiations and maintaining a database based on such assessment. The nine non-industry specific recommendations also include building a comprehensive export strategy and rationalise tariff structure. "State governments need to be closely involved in improving the competitiveness of exports by providing support measures in a WTO (World Trade Organisation) consistent manner," the report said. Further, the seven industry specific suggestion include separate regulation for medical devices and a single ministry for the sector. For textiles and garments sector, it suggested modification in labour laws (like the Industrial Disputes Act, 1947) to remove limitation on firm size and allow manufacturing firms to grow. To promote tourism and medical value tourism, the group recommended simplification in medical visa regime, setting up of a pan-India tourism board. Similarly, to promote agriculture exports, it has asked for abolishing Essential Commodities Act and the APMC (Agricultural Produce Market Committee). The panel was headed by economist Surjit Bhalla. The other members include Principal Economic Adviser Sanjeev Sanyal, former commerce secretary Rajiv Kher and Quality Council of India Chairman Adil Zainulbhai. Since 2011-12, India's goods exports have been hovering at around USD 300 billion. During 2018-19, the shipments grew by 9 per cent to USD 331 billion. India services during April-February 2018-19 stood at USD 204 billion. Promoting exports helps a country to create jobs, boost manufacturing and earn more foreign exchange.

Source: Money Control

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Adani Ports to set up container terminal in Myanmar worth $290 mn by 2021

Adani Ports and Special Economic Zone will set up its first container terminal outside India in Myanmar at an estimated cost of $290 million (over Rs 2,000 crore). The company signed an agreement Thursday to develop and operate a container terminal at Yangon Port in Myanmar. Construction for phase one of the project will commence next month and will be completed by June 2021. It is a two-phase project. "Total project cost for both phases would be $275-290 million. The investment is in line with APSEZ strategy to have a footprint in Southeast Asia and expand the container terminal network," Adani Ports and Special Economic Zone (APSEZ) said in a statement. Also, the terminal will be integrated with APSEZ ports/terminals along the east and south coast of India, unlocking synergies by offering multiple entry/exit points for shipping lines, APSEZ, the logistics arm of Adani Group, said. The BOT (build, operate, transfer)/ lease agreement is signed for 50 years and extendable twice for ten years each. "The terminal will have a capacity to handle 0.80 million TEUs (twenty foot equivalent unit) of containers... The estimated cost for implementing phase I of 0.5 million TEUs is between $220-230 million and phase II expansion to 0.8 million TEUs is expected to cost between $5560 million," it added. The terminal will have a quay length of 635 meters with capability to handle three vessels at a time. APSEZ said it would introduce its operating and technological expertise to Myanmar by using modern equipment to ensure efficient handling of containers, thereby reducing the average turnaround time of vessels. All requisite clearances/permissions for setting up the terminal have been received in the form of Myanmar Investment Commission (MIC) permit, it added. "We are proud to be the first Indian company to set up a container terminal outside India. With a good balance of EXIM trade and a ten per cent growth prospect, the project is an ideal investment for us. The terminal will generate meaningful employment for over 1,100 local people," Karan Adani, CEO and Whole Time Director of APSEZ, said.

Source: Business Standard

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Tax cuts, robust banking sector can revive private investment

The statistics office expects gross fixed capital formation (GFCF), an indicator of an indicator of investment, to grow 10% in 2018-19 from 9.3% in FY18. Government capital expenditure has been the highlight of India’s investment story so far, with private funding lagging, but independent economists say this could change if the new administration strengthens the banking sector, boosts household savings and offers tax cuts. The statistics office expects gross fixed capital formation (GFCF), an indicator of investment, to grow 10% in 2018-19 from 9.3% in FY18. Average investment growth was 9.2% in FY17-FY19, higher than 3.6% GFCF growth over FY14-FY16. The current expected investment recovery is dependent on government spending as incremental private corporate capex has yet to revive. Capital expenditure for 2019-20 is estimated to be Rs 3.36 lakh crore. “Sustained and lasting effort to resolve the non-performing asset situation in the banking sector, further reforms in ease of doing business and revamping the ‘Make in India’ strategy at a sectoral level are some key areas to work on,” said Tushar Arora, senior economist at HDFC Bank NSE -3.06 % . “Resolving NPAs and non-banking financial companies’ liquidity should be a priority area for a robust banking sector. Tax cuts for households and corporates will go a long way in improving consumption,” said Madan Sabnavis, chief economist at CARE Ratings. Higher capacity utilisation has not been able to make up for a loss in industrial output and capital goods production. Factory output, as measured by Index of Industrial Production, grew at a three-year low of 3.6% in 2018-19. India Ratings and Research said the inability to bring stuck capital back into the production process will have implications for investment recovery. “Resolving structural issues is key to stimulate private investment. This can be done by reviving household savings and finding a solution for funds stuck in the real estate sector. This will boost consumption, savings and investment," said Devendra Kumar Pant, chief economist at India Ratings. As per Kotak Institutional Equities, the household savings rate declined to 17.2% in FY18 from 23.6% in FY12. “Make in India needs a major revamp to include services and agriculture. We still score low in terms of dispute resolution and paying taxes in ease of doing business. Land and labour reforms haven’t got much attention,” said an economist of a domestic bank. Upasna Bhardwaj, economist at Kotak Mahindra Bank NSE 0.30%, said: “Private investment is linked with government spending, which came to a halt recently due to election-led uncertainty. We expect it to continue in the near term.”

Source: Economic Times

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With end of uncertainty, FDI flows may perk up

With the NDA set to form the government once again with full majority, Foreign Direct Investment (FDI) is likely to receive a boost. While the FDI flow increased sharply between 2014-15 and 2016-17, over April-December 2018, it dropped 3 per cent to $46.6 billion compared with the same period last year. This, experts say, was due to the political uncertainty in the country.

Policy reforms to help

One of the top priorities when Narendra Modi became Prime Minister in 2014 was to attract more foreign companies to invest in the country’s Make-in-India programme. Sectors facing capital crunch were identified and FDI regulations relating to those were relaxed. These sectors included defence, construction and infrastructure (including railway infrastructure), telecommunication, automobile and manufacturing. For instance, 100 per cent approval was given under the Automatic Route for sectors such as food product retail trading, construction and development, industrial parks and NBFCs. Under the central government approval route, sectors such as airport transport services, telecom services, broadcasting content services, defence and railway infrastructure were given approval for receiving FDI up to 100 per cent. Though the UPA government had also introduced reforms in the FDI policy in retail, civil aviation, broadcasting and infrastructure sectors and allowed foreign direct investment in power trading exchanges, big-ticket investments did not materialise due to stringent rules. Annual FDI inflows declined from about $41.8 billion in FY09 to $34.2 billion in FY13. But under the NDA, FDI inflow increased 18.6 per cent (CAGR) between 2013-14 and 2016-17. In 2016-17, it was at a record high of $60.2 billion. In 2017-18, growth moderated, but absolute inflows still hit a new high of $60.9 billion. Initiatives such as Digital India, Smart Cities and Startup India, in addition to relaxation of FDI regulations, made it easier for foreign investors to access India. Some of the companies that have entered the Indian markets in recent years are Amazon, Ikea and Walmart. Further, smartphone companies such as Xiaomi and Samsung have opened multiple manufacturing plants. FDI inflows have moderated in the last two years, growing at 8 per cent in FY17 and at an even slower pace of 1 per cent in FY18. This could be due to domestic jitters including political uncertainty and changes in the FDI policy on e-commerce, say experts. But changing global market scenario with the US Fed raising rates and rising geopolitical tensions are also disturbing FDI inflows, says Madan Sabnavis, Chief Economist, CARE Ratings. However, he added that the environment is favourable for FDI flows now thanks to the recent reforms.

Source: The Hindu Business Line

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View: An active private sector and liberal trade policy will help the growth story

Creation of well-paid jobs for this vast workforce is nearly synonymous with transforming India into a modern economy. The Narendra Modi government has won a resounding mandate. This soundly puts him and his administration in a position to seriously confront a problem that confronts India. Today, a disproportionately large part of India’s workforce consists of farmers with holdings of less than a hectare, selfemployed, and those employed in lowproductivity activities in farming or micro enterprises in industry and services. This vast workforce earns near-subsistence level of income or wages. Creation of well-paid jobs for this vast workforce is nearly synonymous with transforming India into a modern economy. As such, no one should make light of the challenge this task poses. Accomplishing it requires interconnected reforms in virtually all areas of the economy. The first point that the new government, and public at large need to recognise is that job creation is not the job of the government. What the second Narendra Modi government can do is to put in place employment-friendly policies. But private entrepreneurs must create the vast majority of well-paid jobs. Often the government may not know precisely what it is that is keeping entrepreneurs from creating jobs. Under such circumstances, entrepreneurs, their industry associations and public policy experts have the responsibility to inform it of necessary policy changes rather than join the political class in continuously attacking it for the failure to create job. Because private sector needs to be on the forefront of this mission, the first step is to accelerate fiscal consolidation. Today, the public sector, which includes agencies such as Food Corporation of India (FCI), borrow nearly all financially intermediated household Food Corporation of India (FCI), borrow nearly all financially intermediated household savings, plus even a part of corporate savings. This greatly weakens private investment. Woes of banking sector have added to this problem. We also need to resuscitate it by accelerating a non-performing assets (NPAs) clean-up and infusion of capital.

Source: Economic Times

Rupee pares gains, settles 36 paise down at 70.02

Mumbai: The rupee surrendered all its early gains and closed 36 paise lower at 70.02 against the US dollar on Thursday after investors looked past the euphoria over BJP's election victory and shifted focus to macro-economic developments that will set the tone for the forex market going ahead. As the general election is over with the Narendra Modi's Bharatiya Janata Party's resounding victory, a host of domestic and global factors like crude oil prices, trade tussle between the US and China and the upcoming RBI monetary policy will mainly influence the forex market movements, according to analysts. The Modi-led National Democratic Alliance (NDA) is all set to form the government at the Centre for a second consecutive term after having swept the Lok Sabha polls. At the interbank foreign exchange (forex), the domestic currency opened at 69.45 a dollar and gained further strength to touch a high of 69.37 during the day. The domestic currency, however, could not hold on to the gains and settled at 70.02 per dollar, down 36 paise over its previous close. The rupee had settled at 69.66 against the US dollar Wednesday. On May 16, 2014 -- the day when the 16th Lok Sabha election results were announced -- the rupee traded around 58.74 against USD. In line with weaker rupee on Thursday, the benchmark BSE Sensex erased early gains to end 299 points lower as investors booked profits after stocks soared to record highs. During the day, the Sensex hit the 40,000 mark while the Nifty crossed the 12,000-level for the first-time ever. "Rupee started at two week's high of 69.50 against American dollar, but erased gains to trade at 70.04 with the loss of 37 paise or 0.52 per cent. Now, the focus will shift to crude oil, trade war and RBI monetary policy," said V K Sharma, Head PCG & Capital Markets Strategy, HDFC Securities. Meanwhile, government bonds rose, leading to 0.33 per cent drop in yield to 7.24 per cent. Foreign institutional investors (FIIs) were net buyers in the capital markets, buying shares worth 1,352.20 crore on Thursday, according to exchange data. The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.16 per cent to 98.19. Brent crude futures, the global oil benchmark, eased 1.65 per cent to trade at USD 69.82 per barrel. The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 69.7655 and for rupee/euro at 77.8123. The reference rate for rupee/British pound was fixed at 88.5915 and for rupee/100 Japanese yen at 63.17.

Source: Economic Times

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Global Textile Raw Material Price 23-05-2019

Item

Price

Unit

Fluctuation

Date

PSF

1150.92

USD/Ton

-0.87%

5/23/2019

VSF

1708.29

USD/Ton

-0.17%

5/23/2019

ASF

2498.73

USD/Ton

0%

5/23/2019

Polyester    POY

1100.25

USD/Ton

-0.65%

5/23/2019

Nylon    FDY

2547.95

USD/Ton

0%

5/23/2019

40D    Spandex

4502.35

USD/Ton

0%

5/23/2019

Nylon    POY

2678.25

USD/Ton

0%

5/23/2019

Acrylic    Top 3D

1259.50

USD/Ton

-0.57%

5/23/2019

Polyester    FDY

2880.92

USD/Ton

0%

5/23/2019

Nylon    DTY

5472.31

USD/Ton

0%

5/23/2019

Viscose    Long Filament

1368.08

USD/Ton

-0.53%

5/23/2019

Polyester    DTY

2417.66

USD/Ton

-1.18%

5/23/2019

30S    Spun Rayon Yarn

2446.61

USD/Ton

0%

5/23/2019

32S    Polyester Yarn

1838.58

USD/Ton

-0.39%

5/23/2019

45S    T/C Yarn

2779.58

USD/Ton

0%

5/23/2019

40S    Rayon Yarn

2736.15

USD/Ton

0%

5/23/2019

T/R    Yarn 65/35 32S

2280.13

USD/Ton

-0.32%

5/23/2019

45S    Polyester Yarn

2026.78

USD/Ton

-0.71%

5/23/2019

T/C    Yarn 65/35 32S

2417.66

USD/Ton

0%

5/23/2019

10S    Denim Fabric

1.33

USD/Meter

0%

5/23/2019

32S    Twill Fabric

0.78

USD/Meter

-0.18%

5/23/2019

40S    Combed Poplin

1.05

USD/Meter

-0.14%

5/23/2019

30S    Rayon Fabric

0.62

USD/Meter

0%

5/23/2019

45S    T/C Fabric

0.69

USD/Meter

0%

5/23/2019

Source: Global Textiles

Note: The above prices are Chinese Price (1 CNY = 0.14477 USD dtd. 22/05/2019). The prices given above are as quoted from Global Textiles.com.  SRTEPC is not responsible for the correctness of the same.

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EU, China, Thailand join hands against India’s ICT products tariff

Singapore, Canada and Chinese Taipei too have earlier sought to join this dispute consultation against India. The European Union, China, and Thailand have expressed interest to join consultations in a case filed by Japan at the WTO against India’s import duties on certain information and communication technology products, including mobile phones. Singapore, Canada and Chinese Taipei too have earlier sought to join this dispute consultation against India under the WTO’s dispute settlement body. According to a communication of EU, China, and Thailand to the World Trade Organisation (WTO), these countries claimed that they have a substantial interest in the trade of information and communication technology (ICT) goods and in joining the consultation process. On May 14, Japan dragged India to the WTO over the import duties imposed on certain electronic goods, including telephones for cellular networks, machines for the reception, conversion and transmission or regeneration of voice, images or other data; and parts of telephone sets. It alleged that imposition of import duties on these products by India infringes WTO norms as India has committed zero per cent bound tariffs on these products. While bound tariffs or duties refer to the ceiling over which a WTO member country cannot impose import duty, the applied tariff is the duty which is currently in place. In a separate communication, China said that it has a substantial trade interest in the consultations as it is one of the main exporters of information technology products in the world. “In 2018, China’s export of telephones for cellular networks to India amounted to USD 1.9 billion, base stations amounted to USD 0.23 billion, and machines for the reception, conversion and transmission or regeneration of voice, images or other data amounted to USD 0.28 billion,” it said. The EU, which has already filed a similar dispute case against in India in the WTO, stated that in light of its substantial trade interest, it desires to join the consultations. Similarly, Thailand claimed that the import duties on these goods by India may “substantially” affect Thailand’s sales and exports of these products. “As a result of this substantial trade interest, Thailand requests that it be permitted to join the consultations in this dispute,” it said. As per the WTO rules, seeking consultation is the first step of the dispute settlement process. If the bilateral consultations requested by the complainant (in this case Japan) with India do not result in a satisfactory solution, Japan can request the WTO to set up a dispute panel to pass a ruling on the matter. All the countries that are seeking to join the consultations require approval from India and Japan. A WTO member country can file a dispute if it perceives that another country’s trade policies or actions are violating global trade norms and impacting their trade. European Union, China, and Thailand are key trade partners of India. In October last year, India hiked import duty on certain communication items, including base stations, to up to 20 per cent as part of efforts to check a widening current account deficit by curbing imports.

Source: Financial Express

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Bangladesh: Exporters may get more cash incentives

The government mulls over increasing the cash incentive for exports by one percentage point as it looks to motivate exporters to leverage the sudden opportunities presented by the US-China trade war. Currently, 26 sectors are provided with cash incentives ranging from 2 percent to 20 percent of their export proceeds to encourage higher shipments. But garment exporters, who fetch more than 80 percent of the country’s export receipts, demanded more cash incentives in the incoming fiscal year to tide them through the rising costs amid implementation of the new wage scale in the industry. The finance ministry though is planning to extend the facility to all sectors as the escalating US-China trade war has suddenly expanded Bangladesh’s export market. The export growth, which slowed down last fiscal year, has started looking up again this fiscal year thanks to the trade war kick-started by US President Donald Trump in 2018. In the first ten months of fiscal 2018-19, export receipts soared 11.6 percent year-on-year in contrast to 6.41 percent registered a year earlier, according to data from the Bangladesh Bank. Like every year, the government allocated Tk 4,500 crore for cash incentive purpose in the current budget. Of the amount, Tk 500 crore went to the jute sector and the other Tk 4,000 crore was allocated for all sectors, including textile and garments, according to finance ministry statistics. So if the cash incentive is increased by one percentage point next fiscal year, as decided in a budget meeting chaired by the prime minister earlier this week, the total amount would be Tk 5,000 crore. Textile and garment sectors get the lion’s share of the cash subsidy. At present, garment makers that use local yarn enjoy subsidy of 4 percent on their export earnings. Those who export to new markets -- which are destinations other than the US and the EU -- also get cash subsidy. Garment exporters demanded 5 percent cash incentive due to the rising cost after the wage hike, said Siddiqur Rahman, the immediate past president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). Moreover, the prices of garment products declined in the international market, he added. The near-term export outlook is fairly good, particularly in the context of the renewed tariff escalation between the US and China, said Zahid Hossain, lead economist of the World Bank’s Dhaka office. “The rationale for a further increase in cash subsidy to exports is thus not immediately obvious.” It is also possible to support both exports and remittances by allowing greater flexibility to the exchange rate. “This has the advantage of providing essentially the same cash support without much additional pressure on the budget, except for the rise in the cost of imports in taka, which can be managed through appropriate import tariff adjustments.” He estimated that one taka increase in the exchange rate would be equivalent to Tk 15 billion subsidies to remittances (assuming it is $15 billion) and Tk 37 billion gross (since their cost of imports will also rise) subsidy to all exports (assuming $37 billion exports).

Source: The Daily Star

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China products fair in Istanbul draws Turkish, foreign buyers

The 2019 China Products Fair kicked off in Istanbul on Thursday, drawing more than 300 superior Chinese suppliers and many traders from Turkey and other countries. The sixth of its kind organized by the municipal government of Hangzhou in China’s Zhejiang Province, the fair has grown to be the largest and most professional one in Turkey over the years, according to Hu Wei, a vice mayor of Hangzhou. Addressing the opening ceremony, Hu described the expo as a practical step in executing the principles of extensive consultation, joint contribution and shared benefits as envisioned under the Belt and Road Initiative proposed by China. “The Silk Road and One Belt One Road Initiative is very important for us,” said Ismail Gultekin, a deputy governor of Istanbul. “The meeting of Chinese products with customers through this fair is also very important for us,” he said at the opening ceremony. “We attach significant importance to trade relations between the two countries.” Huang Songfeng, the commercial consul from the Chinese consulate general in Istanbul, said the trade disputes initiated by the United States with China have created a “historical opportunity” for Turkey and China to boost trade ties. The trade show at the Istanbul Expo Centre, a three-day event, is dedicated to home appliances, power and electricity, hardware and tools, textile and garments, household and gifts, building materials, furniture, food as well as machinery in an area of 12,000 square meters. According to the organizer, the event has drawn more than 10,000 buyers from Turkey, Greece, Bulgaria, Georgia and other countries. Mustan Bozkurt, a Turkish businessman from Istanbul, has moved from the construction sector to textile business. “Now I am trying to find some new products here,” he said. Oleksandr Savytskyi is a member of a Ukrainian business delegation comprising more than 30 people. “There is a great interest from our business circles in this business event,” he said. “We hope for establishing cooperation in new businesses.”

Source: Famagusta Gazette

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China seeks to join WTO talks over ICT products tariff in India

China has sought to participate in the dispute consultations requested by Japan with India on import duties imposed on certain IT and telecom products, including mobile phones, on the ground that the duties have hit Beijing’s exports worth $2.5 billion annually. Six other members, including the EU, the US, Canada, Singapore, Chinese Taipei and Thailand, have already given requests to the Dispute Settlement Body seeking permission to take part in the India-Japan talks. “China has a substantial trade interest in the consultations as it is one of India’s major sources of import of mechanical and electrical products…For example, the statistics show that in 2018, China’s export of telephones for cellular networks to India amounted to $1.9 billion, base stations amounted to $0.23 billion, and machines for the reception, conversion and transmission or regeneration of voice, images or other data amounted to $0.28 billion,” according to China’s submission. The EU, too, has requested a separate consultation with India on the issue of import duties on IT and telecom products. Both Japan and the EU have pointed out that the duties, ranging from 10 per cent to 25 per cent, imposed by India on mobile phones, base stations and routers, as well as the circuit boards and other components that go into these devices, were against the commitment of zero per cent duties undertaken by India when it signed the IT Agreement (ITA) of the WTO in 1996. While New Delhi has been arguing that the identified IT and telecom products on which import duties have been imposed did not exist in the present form when the ITA was signed, it is not being accepted by the opposing countries. If the consultations fail to result in a breakthrough, the complainants may ask the WTO set up a dispute settlement panel to rule on the matter.

Source: The Hindu Business Line

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Eurozone manufacturing contracts as trade tensions weigh

Manufacturing in the eurozone contracted in May, with an influential gauge indicating that activity remains weak as producers grapple with the intensifying US-China trade war and a slowing global economy. The single currency area is struggling to recover from the slowdown that began almost a year ago, according to the closely watched eurozone manufacturing purchasing managers’ index, which remained below the crucial 50 level in May. The flash manufacturing reading, which gives an indication of broader export sentiment, hit a two-month low of 47.7, just below April’s reading of 47.9. Export growth has been under pressure since the middle of 2018, affecting manufacturers across the region, including in Germany, the zone’s economic powerhouse. Another closely watched poll, the Ifo Institute’s business climate indicator, which reflects business sentiment in Germany, fell to 97.9 in May, the lowest level since 2014. “Germany's export-oriented growth model, which specialises in capital goods, continues to be under pressure in the face of cooling global GDP growth, lingering auto sector problems and growing risks for world trade,” said Katharina Utermöhl, economist at Allianz SE. However, services activity, which accounts for 73 per cent of the eurozone economy, continued to expand in May, suggesting that low unemployment and better wage growth is propping up domestic demand. In Germany, the May reading of 52.5 helped to put the composite index for the whole economy above the 50 mark and at a two-month high. A separate services reading for France, the region’s second-largest economy, rose to a six-month high. Some analysts argued that this divergence was not sustainable, however. “If manufacturing production continues to decline for a prolonged period, this will worsen the outlook for the service sector,” said Bert Colijn, economist at ING. Nicola Nobile, economist at Oxford Economics, said the sentiment indicators for April and Maymade it “increasingly likely” that her data firm would downgrade their projection for growth in the second quarter from 0.4 per cent to 0.3 per cent. Policymakers at the European Central Bank watch the PMIs closely because they tend to track GDP. However, a divergence between the hard data and business surveys has emerged since the turn of the year. Official figures for eurozone and German GDP in the first quarter were both better than expected, with each showing an expansion of 0.4 per cent between the end of 2018 and March. A detailed breakdown of German GDP data, also published on Thursday, showed that household spending was the main driver of the economic rebound. Construction was also strong, with a 1.9 per cent quarter-on-quarter expansion. The data breakdown, from the national statistics office DeStatis, indicated that growth was dragged down by changes in inventories after German carmakers delayed the introduction of new emissions standards.

Source: Financial Times

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NGOs criticise EU for requiring exemption from global PFOA ban

A group of international NGOs has criticised the EU for requiring an exemption for medical textiles from a global ban on the use of perfluorooctanoic acid (PFOA) agreed at the UN Conference of the Parties (COPs) earlier this month. In a 10 May statement, NGOs, including the Health and Environment Alliance (HEAL), Health Care Without Harm (HCWH) and Arnika, expressed "deep regret and disapproval" for the request, which could "undermine an otherwise effective worldwide ban". Delegates from more than 180 countries agreed the prohibition of the use of the chemical, adding it to Annex III of the Stockholm Convention at the conference in Geneva. However, several exemptions for the substance, including one for medical textiles, were requested by the EU delegation – along with China and Iran – and approved. PFOA is widely used for its resistance to water and oil. PFOA-related compounds are used as surfactants and surface treatment agents in textiles, papers and paints and firefighting foams. The substance has been identified as persistent, bioaccumulative and reprotoxic by the EU. The NGOs said the exemption goes "against the recommendations from the POPs Review Committee for the Stockholm Convention", which identified several potential alternatives to PFASs for use in medical textiles, but no specific applications "absolutely" requiring a PFOA use. During the COPs talks, the NGOs said even representatives of the fluorochemicals industry "repeatedly opposed this exemption request", because of the "wide availability of existing alternatives to the substance". The NGOs also blamed the EU for requesting the exemption during the meeting, after having previously nominated PFOA for listing under the Stockholm Convention, and participating in the evaluation process – during which exemptions should normally be listed. This behaviour, they said, shows "a very disturbing disrespect of the UN’s careful review process and illustrates the EU’s flagrant disregard of the accepted protocol for listing exemptions under the Stockholm Convention". In requesting the exemption, the chemicals policy and projects officer at HCWH Europe, Dorota Napierska, added, "the EU has effectively lowered the bar in global chemicals management and brought other countries in line with its own weak regulation". This, she added, will have a "significant direct impact" on the amount of PFOA released into the environment as the substance is used in significant amounts in the treatment of medical textiles. NGOs called on the EU to "change its behaviour" and "truly embrace its powerful mandate" demonstrating a strong leadership in protecting the environment.

Source: Chemical Watch

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Cover Story: Good prospects in overlooked Asean

Over the past few years, there has been a lot of talk about the appeal of emerging markets (EM) among investors and market observers. However, the markets usually referred to were in China and India while Asean — collectively the sixth largest economy in the world with a combined GDP of US$2.6 trillion and a population of more than 500 million — has been largely overlooked, according to fund managers. “With favourable demographics, a growing middle class, rising incomes as well as infrastructure development underpinning Asean’s economic growth, the region is projected to become the world’s fourth largest economy by 2030,” says Soh Chih Kai, Lion Global Investors Asian equities portfolio manager. Asean consists of Malaysia, Indonesia, Singapore, the Philippines, Thailand, Brunei, Laos, Cambodia, Vietnam and Myanmar. These countries have become attractive as they have strengthened both their corporate and government balance sheets since the two major financial crises in the last 20 years — the 1997/98 Asian financial crisis and the 2008 global financial crisis, says RHB Asset Management Sdn Bhd managing director and regional head Eliza Ong. Soh concurs. He points out the fiscal positions of these companies have strengthened with government debt levels lower than 50% of GDP and a high savings rate of at least one-third of GDP. “The growth rate of Asean countries has also become less volatile since 2000. These should provide a buffer to cushion future external shocks.” Given all this, it may come as a surprise that Asean countries have been overlooked but UOB Asset Management Bhd CEO Lim Suet Ling says this is because Asean is just a small constituent of the much talked about investment category of emerging markets. “EM also includes North Asia; China and Korea represents almost half (46%) of the MSCI Emerging Market Index while Asean, excluding Singapore, is only 8%. That’s why when people talk about emerging markets, the first market they go to is China. “When a fund manager looks at a market, they look at market capitalisation. Who is the biggest contributor to Malaysia’s economy? Petroliam Nasional Bhd, but it is not listed. So the FBM KLCI does not look big. As an economy, however, Malaysia is bigger than what is represented. Asean is small but there is growth, so investors should look at it in terms of individual stocks and opportunities,” says Lim. As of March 29, the MSCI AC Asean Index has provided 11.98% in annualised 10-year returns, compared with the MSCI Emerging Markets Index’s returns of 9.31% over the same period. Asean is the market to invest in for those looking for consistent, stable returns over the long term given its lower beta compared to most North Asian countries, says Patrick Chang, chief investment officer at Principal Asset Management Bhd. “A lot of investors think that Asean markets are risky. But China’s stock index fell 30% last year. Isn’t that considered risky? Asean markets did not fall as much — in fact, most Asean countries, including Indonesia, Vietnam and the Philippines were actually showing positive returns last year,” Chang points out. That being said, he admits that the Asean market is lacking depth when compared to the North Asian markets. However, Asean is going through a normalised, healthy growth and its companies are giving out higher dividends yields compared to the companies in North Asia, he adds.

Asean’s diversity an added advantage

Asean is well-positioned for global trade, being the world’s fourth largest exporting region collectively accounting for around 7% of global exports. According to Lion Global’s Soh, Asean’s member states have developed more sophisticated manufacturing capabilities that enhance their trading positions globally, with Vietnam specialising in textiles and apparel, Singapore and Malaysia in electronics and chemicals and Thailand in automobiles and automotive parts among others. “Other examples include Indonesia — the world’s largest producer and exporter of palm oil, largest exporter of coal and the second largest producer of cocoa and tin; Myanmar, which has large reserves of oil, gas and precious minerals; as well as the Philippines which has established a thriving business process outsourcing industry,” he adds. Each Asean country is unique with different strengths and challenges — it is a region of varying economic development, resources and infrastructure. Instead of seeing this as an obstacle, investors should view it as an opportunity, says Chang. “Asean can be divided into three economic stages — mature economies like Malaysia and Singapore, emerging economies like Indonesia, Thailand and the Philippines and lastly, high-growth economies such as Vietnam and Myanmar. By investing in Asean, investors are able to benefit from all these different economic cycles, which are progressing in a nice trajectory,” says Chang. He adds that while it is natural for investors to only focus on the two mature economies within Asean, the other countries do present interesting opportunities that may provide investors with very good returns. “The largest, deepest market in Asean today is actually Thailand. This country, regarded as the ‘sick man of Asia’ 20 years ago, is no longer sick. It now has a hefty current account surplus and one of the strongest inflows in the Asean bond market. Not many people have noticed this,” says Chang. He thinks that Indonesia also looks interesting at the moment, adding that he believes the country will strive to sustain its GDP growth of between 5% and 6% moving forward, driven by labour reforms and infrastructure development initiatives, among others. “Indonesia has embarked on its first mass rapid transit system project and there are more high-rise residential properties, hospitals and ports that are being built. “Beyond the traditional brick and mortar industries, the country also has a very interesting internet sector, driven by e-commerce sites like Tokopedia and Bukalapak,” he adds. Chang is also in favour of Vietnam. In fact, he has been monitoring it closely for the past seven years. Being a pure frontier market, he finds feels the country’s key growth driver would be its favourable demographics. Vietnam’s population is triple that of Malaysia at 95 million, 65% of whom are below the age of 30, presenting investors with strong demographic dividends. Not only does this translate to a higher consumption of fast-moving consumer goods, it also leads to a flourishing internet sector, says Chang. He adds that internet penetration in Vietnam is one of the highest in Asean — its citizens are now using their mobile phones for various tasks and transactions.  “It’s also a very hardworking population, surpassing many developed countries in terms of Program for International Student Assessment (PISA) score,” he says. PISA is a worldwide study by the Organisation for Economic Cooperation and Development to evaluate educational systems by measuring 15-year-old students’ scholastic performance on mathematics, science and reading. “This means that it has a very attractive and cheap workforce. A lot of multinational corporations (MNCs) are taking advantage of this by moving there. For example, 70% of Samsung’s mobile phones are produced out of Vietnam,” says Chang. This is a trend throughout Asean. According to Ong, Asean’s role as a manufacturing hub is growing in prominence as its wages have become more competitive than China’s. In light of the trade tensions between the US and China, MNCs are now relocating their production out of China to these lower-cost countries, which have adequate production facilities and a good network of free-trade agreements in place. While it has been going on for a few years now, the US-China trade war had prompted a sharp acceleration of this trend as companies attempt to avoid US import tariffs on Chinese goods, according to various reports. So what are the more interesting sectors in Asean? So far, the majority of fund allocations have been in the banking and telecommunications sectors. RHB Asset Management’s Ong explains that this is because the countries in Asean are still developing — meaning that businesses located here would still need financing and infrastructure. “These sectors are likely to be linked to government or large conglomerates owned by founding patriarchs or matriarchs. As the economy progresses, the rise of industrials can be seen. Then the economy would take off from industrialisation to further progress into innovation [such as information technology and healthcare] along with the growth in wealth, which will then boost consumption,” says Ong. Besides the banking and telecommunications sectors, Lion Global Investors’ Soh says he also likes the consumer and infrastructure sectors that provide exposure to Asean’s young population, rising middle class with increasing purchasing power and infrastructure spending. A quick look at some Asean-focused unit trust funds in Malaysia reveals that most of these have the financial sector as their highest allocation. For instance, the RHB Asean fund has an allocation of 46.48% to this sector, according to its April fund fact sheet. The top holdings of most of these Asean-focused funds include DBS Group Holdings Ltd, Oversea-Chinese Banking Corp and United Overseas Bank Ltd.

Challenges and long-term drivers

While there are a lot of advantages to having an Asean exposure, there are also a couple of risks. For instance, Asean is more susceptible to capital flows and currency impact as most of the countries in the region still require external financing and investments to fund their development, says Soh. “Varying levels of economic development among the 10 member states — from a developed economy like Singapore to a frontier economy like Myanmar — and the diversity in culture, language and religion make it difficult to create a one-size-fits-all investment strategy.” Aside from that, the region also has high external trade dependence and strong trade reliance on China, says Ong. “Asean’s total merchandise trade to GDP grew to 87% in 2016 from 43.1% in 1967. Additionally, China accounted for 20.3% of total Asean imports of goods and 14.1% of total exports of goods in 2017,” she adds. UOB Asset Management’s Lim says the market of some Asean member states lack liquidity, especially Cambodia, Laos, Myanmar and Vietnam. As retail investors are used to daily liquidity, they may find it difficult to navigate these smaller markets. Therefore, she suggests either buying into an Asean fund or investing in Asean companies that are listed elsewhere. “NagaCorp Ltd, for example, is a Cambodian leisure and gaming operator listed on the Hong Kong Stock Exchange. So, even though you are investing in the Hong Kong market you are actually getting exposure in Cambodia. Other examples are Thailand-based Thai Beverage plc and Myanmar-based Yoma Strategic Holdings Ltd, both listed on the Singapore Exchange,” says Lim. Another challenge the region is facing is that most of its companies have yet to reach maturity, she adds. Corporate governance remains a key issue and it is difficult for investors to sieve through the companies, given the limited amount of information available. “Investors in the region are also not mature enough. Most of them are retail, so there is always [motivation of] greed and fear which causes volatility. Institutional investors will need to come in to help the markets reach maturity. Hopefully, when these funds come in, they will provide stability for the good stocks, helping the market become steadier,” says Lim. Structural themes such as a growing middle-income group and rising consumption should remain key growth drivers over the next 12 to 24 months, says Soh. Elections in most Asean countries are over, so Lion Global Investors will focus on infrastructure investment and development in the region as governments look to strengthen their economies. Hang is excited about a lot of the growth initiatives undertaken by several Asean governments to attract long-term capital investments, such as Thailand’s Eastern Economic Corridor (EEC), which straddles three eastern provinces — Chonburi, Rayong and Chachoengsao. The 13,000 sq km EEC is part of the government’s wider Thailand 4.0 plan to transform its economy into Southeast Asia’s engine of growth. It is poised to attract about US$46 billion in investments, focused on “S-curve” industries — next-generation automotive, aviation and logistics, smart electronics, medical tourism, food, robotics, agriculture and biotechnology. Another long-term growth driver is China’s Belt and Road Initiative (BRI). This is important for Asean countries as it can help to fund and meet their infrastructure requirements, says Ong. It also supports the success of the Asean Community Vision 2025 and The Master Plan on Asean Connectivity 2025 initiatives, she adds. “Based on an estimation, the BRI has resulted in US$460 billion worth of investments in the five years since its inception in 2013. However, it is notable that the BRI continues to see serious pushback and disapproval because of its lack of transparency, inclusivity and potential ‘debt traps’ such as the often cited case of Sri Lanka’s Hambantota Port,” says Ong. Although the BRI progress has stalled, Ong says the market is hopeful that the initiative will enter a new stage following its summit held last month. “Nonetheless, we should note that the broader motives and longer-term structural changes that the BRI will bring to Asean could be positive. This warrants careful attention in the months and years ahead for further potential developments within the BRI.”

Anticipating Asean start-up IPOs

Asean is home to some of Asia’s biggest technology start-ups. The scene, which was considered small and fragmented some five years ago has turned into a thriving ecosystem, attracting hundreds of millions of dollars in funding annually. For example, ride hailing platform Grab has raised more than US$7.5 billion in its series H round of funding as at March 6. Soh Chih Kai, Lion Global Investors Asian equities portfolio manager, says that it is not surprising to see the technology start-up industry blossoming with lots of funds flowing into the region given the current low penetration and adoption of technology in Asean, on top of the immense potential opportunities. This will in turn continue to drive the growth of the industry and technology start-ups, he adds. Patrick Chang, CIO at Principal Asset Management Bhd, concurs. He says that over the past few years, there have been a lot of market observers who were unfairly comparing Asean countries to North Asian countries, highlighting that Asean does not have its own version of “Alibaba” or “Tencent”. “The fact is that we do have a lot of these companies; they are just not listed yet. That’s why I am hopeful that Go-Jek, Tokopedia, Bukalapak and the other big start-ups will soon be listed. It would definitely bring the shine back into Asean and propel people’s mindset to think that Asean is no longer a region of old economies,” says Chang. While she thinks that this would be a good opportunity for retail investors in the region to finally participate in the high-growth unicorn start-up scene, Lim Suet Ling, UOB Asset Management Bhd CEO, says that investors need to be mindful of valuations as new technology stocks tend to be more expensive due to growth potential. “It may even be chased out of proportion, so investors have to be rational and wait for the numbers to be brought back down to earth again. Additionally, investors will also have to keep themselves up to date because technology moves very fast. If the investors know where the technology is moving, they won’t be stuck in the investment,” says Lim. That being said, retail investors can still invest in start-ups even before they are listed on the stock exchange, Eliza Ong, RHB Asset Management Sdn Bhd managing director and regional head, points out. They can do so via crowdfunding platforms, which are regulated in some Asean countries such as Malaysia and Singapore. Other countries like Thailand and Indonesia are setting up their own frameworks for such platforms. “This, however, comes with a certain level of risk which should be properly disclosed to non-sophisticated investors to assist them in making informed decisions,” says Ong.

More green bond issuances expected

In 2017, the Asean Capital Markets Forum (ACMF) introduced the Asean Green Bond Standards. Subsequently, in 2018, the organisation came out with two more standards, the Asean Social Bond Standards and Sustainability Bond Standards. According to ACMF’s website, as at March 11, there were nine issuances aligned with the three standards. Going forward, there will be a continued demand for these issuances, says RHB Asset Management Sdn Bhd managing director and regional head Eliza Ong. “To ensure that Asean green investment opportunities are met by 2030, it is estimated that Asean will need US$200 billion in green investment annually from 2016 to 2030, a 400% increase from today’s annual supply of green finance.” Patrick Chang, chief investment officer at Principal Asset Management Bhd, agrees. He thinks the appetite for such issuances will increase due to the huge movement towards environmental, social and governance (ESG) awareness among institutional and retail investors globally. “It is a typical demand and supply situation — as the demand increases, there will be more companies interested in becoming issuers. That was how we started our bond market in the 1970s when the government decided to issue more bonds and get pension funds and investors like ourselves to subscribe to them, leading to a thriving bond market. Today, Malaysia is one of the largest bond markets in Southeast Asia. “So, I think it has to start somewhere. Malaysia is one of the pioneers of the ESG Index in the region and I think eventually the pension funds will adopt it. Then we, as a pension fund portfolio manager, will have to adopt it as well,” says Chang. As at end-November 2018, the Asean green bond market recorded a total issuance of US$5 billion with Indonesia, Singapore and Malaysia as the top three countries for labelled green bond issuances, says Ong. “Indonesia is the largest regional green bond issuer with its US$1.25 billion sovereign green sukuk. Buildings is the largest category financed by green bonds (43% of the market by volume), followed by energy at 32%. Transport is the largest sector financed by unlabelled climate-aligned issuances with US$7.4 billion outstanding, in front of energy at US$1.3 billion outstanding,” she elaborates.

Source: Edge Markets

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Oil slumps 5%, US crude at its cheapest since March

Oil prices plunged about 5% on May 23, with US crude at its lowest since March, as trade tensions dampened the demand outlook, putting the crude benchmarks on course for their biggest daily and weekly falls in six months. World shares were deep in the red as concerns grew the China-US trade conflict was fast turning into a technology cold war between the world's two largest economies. "Again, we're seeing the effect of worries about the trade issue on demand," said Gene McGillian, Vice President at Tradition Energy in Stamford, Connecticut. Funds and money managers who had built up long positions are "heading to the exits" as trade concerns dim the demand outlook, he said. Brent crude futures, the international benchmark, hit a session low of $67.53 per barrel, trading down $3.15, or 4.5%, at $67.84 by 11:19 a.m. EDT (1519 GMT). Meanwhile, US West Texas Intermediate (WTI) crude futures were down by $3.21, or 5.2%, at $58.19 per barrel. The contract earlier fell to a session low of $57.92, the lowest since March 15. WTI dropped 2.5% on Wednesday after government data showed that US crude inventories rose last week, hitting their highest levels since July 2017. While the ongoing trade war between the United States and China is the main cloud over economic growth and demand predictions, other bearish factors also weighed on the market. Euro zone business growth accelerated less than expected this month, a survey showed. IHS Markit's Purchasing Managers' Index (PMI), which is considered a good guide to economic health, only nudged up to 51.6 this month from a final April reading of 51.5, below the median expectation in a Reuters poll for 51.7. Additionally, tensions between the US and Iran are decreasing, some analysts said. "The administration seems to be tamping down the president's rhetoric on Iran," said John Kilduff, a partner at Again Capital in New York. The oil market has built in risk premium related to US sanctions on Iran, and that risk is now seen decreasing, he said. Countering these bearish factors are ongoing supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC). French bank BNP Paribas said high inventories meant that OPEC would likely keep its voluntary supply cuts in place beyond their current end-June deadline. Global geopolitical risk was still sufficient to provide a floor for oil prices, said Again's Kilduff.

Source: Economic Times

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