1 ISSUE 2,448 BUSINESS WITH PERSONALITY cityam.com WARDIANLONDON.COM FREE MEXICO (IPC) 1.6% CANADA (S&P/TSX 60) 3.1% USA (S&P 500) 3.9% USA (NASDAQ) 3.8% PERU 4.3% CHILE (Chile general) 2.1% BRAZIL (IBrX) 2.9% ARGENTINA (Burcap) 6.4% UK (FTSE 100) 4.7% SPAIN (Ibex35) 5% MOROCCO (Casablanca SE) 1% FRANCE (Cac 40) 5.4% Italy (FTSE MIB) 6% NIGERIA 2.2% GERMANY (Dax) 4.7% EGYPT (EGX 30) 1.9% S.AFRICA FTSE/JSE % KUWAIT 1.3% KENYA (Nairobi SE 20) 1.5% BY JULIAN HARRIS AND CHRIS PAPADOPOULLOS MORE than one trillion dollars was wiped off the value of the world s top companies yesterday, as panic on China s trading floors sent shockwaves through global markets. Volatility soared to levels not seen since the aftermath of the financial crisis, prompted by renewed fears over the health of China s economy and a near-nine per cent drop on the Shanghai stock exchange. In London the FTSE continued a losing run which has become its worst since 2003, recording a 10th consecutive decline by ending 4.7 per cent lower at 5, Around 72bn was wiped off the index. The market capitalisation of listed firms in the US, Europe, Japan and beyond crashed by $1.3 trillion according to the S&P Global 1200 index, while shares in China fell by nearly $300bn. The frenzied trading continued into SHANGHAI UAE (DFM general) 1.4% OMAN (MSM 30) 3% RUSSIA (MICEX) 1.8% INDIA (CNX) 5.9% RUSSIA (RTSI) 4.9% CHINA (SHANGHAI) 8.5% KOREA (Kospi) 2.5% TAIWAN (Taiwan SE) 4.8% JAPAN (Nikkei) 4.6% Australia (S&P/ASX 200) 4.1% SHOCKWAVE $1.6 trillion wiped from global blue-chips as fears over China spark a day of chaos on trading floors around the world last night, with the Dow Jones moving over 4,000 points during the day before closing down 3.6 per cent at 15, The Dow suffered its biggest points drop of all time upon opening, crashing from 16,459 to 15,454, before fighting back to 16,344 and then dropping nearly another 500 points in the final three hours. The Vix index, which records volatility, soared by as much as 90 per cent to a score of 53.29, its highest since early Individual companies saw their values bolt up and down by tens of billions of dollars as investors scrambled to make sense of the market chaos. In a sign of the volatility stalking markets throughout the day, Apple shares plunged by 13 per cent before fighting back to above its opening price in intra-day trading. Yet by the close the global tech giant was down again, closing 2.5 per cent lower. GREAT FALL OF CHINA: Pages 2-3 FTSE 100 5, FTSE , DOW 15, NASDAQ 4, /$ / /$ A NEW BENCHMARK FOR LUXURY RESIDENCES REGISTER YOUR INTEREST AT:
2 NEWS 2 To contact the newsdesk Fightback fails to CHINA'S SHARES HAVE LOST MOST OF THIS YEAR'S GAINS save Wall St from worst day since ,500 4,375 3,250 2,125 1,000 Shanghai Shenzhen BY SARAH SPICKERNELL US STOCKS were battered yesterday and after briefly reversing the losses they suffered in early morning trading, dived back down again and experienced their biggest one-day fall in four years. At the close, the Nasdaq was down 3.8 per cent at 4,526, while the benchmark Dow Jones index and S&P 500 finished the day 3.6 per cent lower and 3.9 per cent lower, respectively. According to Reuters, it was the biggest overall decline since 2011, and has pushed the S&P 500 and Nasdaq into correction territory. The day was volatile for US stocks halfway through trading there were signs that US markets, unlike European markets, would end the ses- sion mostly unscathed by the panic surrounding China s economic slowdown. The Shanghai Composite Index plummeted 8.5 per cent first thing yesterday, precipitating the global selloff of stocks. In London, a total of 72bn had been wiped off the value of the FTSE 100 by the end of trading, while 400bn ( 294bn) was lost on the FTSEurofirst 300 index. The US exchanges seemed to regain investor confidence in the early afternoon, having plunged more than five per cent at the start of the day. Apple shares recovered to close down by just 2.5 per cent after tumbling 13 per cent before noon, while Alibaba, GM and GE each went through a falland-rise of over 10 per cent. But later in the afternoon they took a turn for the worse again, steadily declining until half an hour before the closing bell, when stocks shot up and then back down again in the space of 30 minutes. Meanwhile, the US benchmark crude oil price, West Texas Intermediate, fell to a new post-financial-crisis low yesterday morning, trading at just $38.13 a barrel. Some improvement was seen in the early afternoon, but values fell back down again toward the end of the day. Concerns have been growing that China is going through an economic slowdown, with fears exacerbated by last week s devaluation of the yuan. Yesterday s fall on the Shanghai index was the biggest since February Points Feb Mar Apr May Netflix leads the way down for tech stocks in global market rout BY CLARA GUIBOURG TECH stocks took a severe beating as US markets joined yesterday s global stock market rout, with Netflix down 6.81 per cent. The US s tech-heavy Nasdaq index opened over four per cent down, following huge falls in both Asia and Europe amid investors fears that China s slowing economy would lead a global slowdown. Media and tech stocks are among the worst hit so far, with Netflix leading the plunge, and prominent tech stocks like Apple and Facebook all WHAT THE OTHER PAPERS SAY THIS MORNING opening yesterday around 10 per cent lower. Apple plunged at the open, at one point trading below $100 in pre-market trading, but by 5pm London time the drop had been erased, and the tech company crept higher. The iphone maker closed down 2.5 per cent at $ Meanwhile, Yahoo tumbled 4.92 per cent, Google lost 4.02 per cent, Groupon dropped 2.68 per cent and Facebook fell by 4.61 per cent. Twitter, whose shares had already nosedived below its float price following disappointing user growth figures, opened a further 8.9 per cent down, but rebounded slightly to close down 4.68 per cent. Online retailer Alibaba lost 3.49 percent to $65.80, below its IPO price of $68, making it the second high-profile tech company to fall below its IPO price in the past week. However, this was still nothing on Netflix. The video streaming company s downturn first started last week, as it fell over seven per cent on both Thursday and Friday. Adding yesterday s plunge, nearly 25 per cent of the company s value has been annihilated over the past three days of trading. TODAY S COMMENT: China s addiction to speculation See page 4 Opportunities in a time of crisis See page 21 Athens in BY CATHERINE NEILAN SHARE prices of Greek banks have fallen by more than a quarter as the combination of the global crash and uncertainty around a Grexit weighed heavily on the financial sector. The Athens Stock Exchange had fallen by seven per cent in mid-afternoon trading, and closed down by per cent but it was the banks that were hit hardest. The National Bank of Greece dropped per cent while Piraeus fell per cent and Athens-based Eurobank plummeted per cent. The drops came as the country reels from further political turbulence. Prime Minister Alexis Tsipras BP skips Iran trip over US concerns BP decided not to travel on foreign secretary Philip Hammond s trip to Iran to reopen the UK embassy amid concern among British companies that US regulators might take legal action even after sanctions were eased. The firm said: Sanctions are still in place and we will not do anything while that is the case. We are monitoring the situation and will take a look at the opportunities. Gender pay gap is widest at the top Britain s gender pay gap is widest at the top of the corporate ladder, where female directors earn one-tenth less on average than their male counterparts. The findings, published by the Chartered Management Institute, come hot on the heels of the announcement by David Cameron last month that companies with more than 250 employees will have to publish data on the gender pay gap from next year. Moscow snubs Rosneft funding plans The Russian government has decided not to fund four out of five Rosneft projects for which the oil company had requested financing from the sovereign wealth fund, the economy minister said yesterday. Alexei Ulyukayev said that there is a decision not to provide funds from the National Welfare Fund to four Rosneft projects. The fall in the rouble and closure of western capital markets to Russian companies has triggered a scramble to secure financing from the $75bn ( 48bn) fund. Shale gas exporter confirms approach San Leon Energy confirmed the receipt of a takeover approach but the Aim-listed Irish shale gas explorer said there was no guarantee that a deal would be completed. Shares in the company, which operates on the Continent and in North Africa, surged by more than 15 per cent yesterday after a report that it was being targeted for a takeover. RSA may ask for extension on talks A possible merger between RSA and Zurich Insurance is hanging on a knife edge as a takeover deadline looms. RSA is believed to be considering asking the Takeover Panel for more time to negotiate a potential 5bn-plus deal. Met Office lost BBC contract over rows The Met Office lost its BBC contract because of rows over dumbing down of broadcasts and fears that it could not produce a decent phone app, sources have claimed. Opec powerless to halt oil price slide Opec is powerless to arrest the slide in oil prices unless producers outside the group such as Russia match any cuts in output, according to a former president of the group. With oil prices plummeting due to global oversupply, the Organisation of the Petroleum Exporting Countries would be unable to stabilise the market on its own, Abdullah bin Hamad Al-Attiyah told the Telegraph. Target pays out $2.8m settlement Target has agreed to pay $2.8m ( 1.8m) to settle charges that it used assessments that discriminated based on race and sex during its hiring process, the US Equal Employment Opportunity Commission said yesterday. Majority of GM ignition claims rejected More than 90 per cent of the claims submitted for compensation related to General Motors faulty ignition switches were rejected by lawyers hired to handle the claims. As of Friday, the compensation fund led by lawyer Kenneth Feinberg had processed all 4,343 claims and determined that only 399 were eligible for compensation.
3 cityam.com NEWS Unions call off this week s Tube strikes IT'S NOT JUST THE STOCK MARKET. FROM COMMODITIES TO CONSTRUCTION, CHINA'S ECONOMY KEEPS DISAPPOINTING... Latest (% chg Y/Y) 4 year average (% chg Y/Y) Nominal GDP Vehicle sales 20% BY EMMA HASLETT M2 money supply growth 10% National retail sales -10% Large retailers sales Floor space under construction 20% Total Social Financing Import growth Electricity output Copper imports Jun Jul Iron ore imports Aug UNIONS planning to launch 48 hours of strikes this week have suspended their action, but RMT is planning new walkouts if it does not reach agreement with London Underground, it was confirmed yesterday evening. Members of the TSSA, RMT and Unite were due to walk out for 24 hours from 6.30pm today, and then again from 6.30pm on Thursday, after they reached a stalemate in negotiations over the launch of the Night Tube, due to take place on 12 September. Yesterday Unite said it had called off the strike as a gesture of goodwill as talks with London Underground continued. There are still some remaining sticking points, but we feel sufficient progress has been made to suspend industrial action as an act of goodwill, said Unite regional officer Hugh Roberts. We trust that London Underground management will seize this opportunity to reach a deal that fully addresses our members concerns and secures a successful future for night running on the Tube. Fixed asset investment 0% Railway cargo Source: Thompson Reuters, Credit Suisse research MEANWHILE IN LONDON AND NEW YORK , , , , Aug 10 5, Volatility soared to its highest since 2009 The FTSE 100 collapsed to its lowest level since late 2012 However, RMT set new dates for action if an agreement between the two sides is not met. It said walkouts will take place on 8 and 10 September if it cannot resolve a few matters that need further attention before we can reach a final position and a resolution. TSSA leader Manuel Cortes said: I am extremely pleased to say that our negotiating team has made sufficient progress to suspend this week s planned strike action on the tube. However, we are not out of the woods yet. A number of issues need to be resolved before our dispute is finally settled. We will therefore announce Commuters are no longer facing strikes this week future strike dates in due course although we remain hopeful that further talks will soon result in a negotiated settlement. Nick Brown, managing director for London Underground, said: It is good news for London that the strike has been suspended. We will now continue to work with the unions, so that we can resolve this dispute and get on with delivering for our customers, businesses and London. IN BRIEF meltdown as bank shares plunge resigned last week after just seven months in power, calling snap elections for the country on 20 September. Tsipras lost the backing of many of his fellow Syriza MPs after agreeing to austerity measures to secure billions of euros in bailout funds from Europe. Yesterday it emerged that the con- 3 servative New Democracy party had failed to secure a coalition government for the interim. Leader Vangelis Meimarakis has therefore passed the baton to Popular Unity, a far-left group of 25 members of the Greek parliament, to see if it can form a government under Panagiotis Lafazanis. However, it is expected that they will also be unsuccesful, in which case a caretaker government must be formed until the Greeks go to the polls. This is now occurring against a backdrop in which global markets have been collapsing. Boeing to cut hundreds of jobs Valls vows to push on with reforms n Boeing yesterday told its workers that it n French Prime Minister Manuel Valls promised to press ahead with reforms and cut taxes, brushing aside calls from some in his own Socialist party to water down a corporate tax credits scheme. Days ahead of an annual end-of-summer party meeting, Valls wrote in an opinion piece for business daily Les Echos that cutting France s tax burden was the government s third-highest priority after reviving growth and jobs. Our country has reached record levels in the matter and it is not healthy, he added. expected to cut as many as several hundred jobs in its satellite business through the end of 2015 due to a downturn in US military spending and delays in commercial orders. Multiple commercial orders were being delayed by recent failures of launch vehicles and uncertainties about the future availability of financing from the US Export-Import Bank, the company said. 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4 4 NEWS cityam.com The bubble Hyhyhyhyhyh finally bursts Tea, walnuts, garlic and now the stock market... China s fondness for speculation seems to know no bounds. Annabelle Williams reports Walnutmania: Two walnuts could sell for a staggering $31,000 in 2010 F ERMENTED tea, garlic, preserved walnuts, and mahogany furniture. All of these have soared in price at one stage in the last ten years as wealthy Chinese have looked for places to store their assets and make a quick buck. There are relatively few investment options, says Mark Williams of Capital Economics. The walnut craze peaked in 2010, during one of several occasions when Beijing tried to put the brakes on an overheating property market as bricks and mortar is traditionally seen as the best place to park wealth. The five years since then have been coloured by a boom and then bust in wealth management products one called the Credit Equals Gold No. 1 product was bailed out last year by an anonymous bidder, believed to be the People s Bank of China. And most recently, with interest paid on bank deposits low and house prices in a downturn, the Shanghai Composite rose 170 per cent in a year, only to crash spectacularly. WANNABE MILLIONAIRES China is now home to 400 billionaires, according to estimates from Forbes, which said the booming stock market had helped boost the number from 242 last autumn. And taking into account the billion other people with aspirations of wealth it is easy to see why the stock market has been the latest site of speculation. And of course, the Chinese have a fondness for gambling. Cliche though it may be, that doesn t mean it s not true, says Maarten-Jan Bakkum of NN Investment Partners. Casinos in the gambling mecca of Macau have reported a halving of traffic from mainland China. At the same time there has been a 15-fold increase in the number of China s broking accounts. The activity has literally moved from the casinos to the stock market, explains Paul Niven of F&C Asset Management. GAMBLER S MINDSET China s stock markets are young and the approach to investing is shortterm, with a focus on second-guessing potential changes which could bump up share prices. It is very speculative, says Williams. In China there is a skepticism about the financial markets, people don t really believe that [asset] prices follow any fundamental factors. That encourages people to get a bit of speculative edge so rumours travel very quickly around the market about what policymakers are going to do. As with many things in China it is difficult to obtain a clear picture of how many people have been investing in the stock market. It was widely reported that the number of online trading accounts 90m according to official figures announced this year has surpassed the membership figures of the Communist Party, at 87.8m. Many of these accounts will have been sitting dormant. As IPOs are allocated on the basis of a lottery system, people will open a few to have a better chance of winning. But that still leaves tens of millions of trading accounts, and there is anecdotal evidence of everyone from housewives to banana sellers getting involved. BETTING THE FARM Farmers were making more money trading on the stock market than on the farm itself. Trading centres were opening up in rural areas it had echoes of the roaring 1920s, says David Madden of IG. Much of this was financed by debt known as margin debt when money is borrowed to invest. It reached levels last touched in the Wall Street crash of 1929, which preceded the great depression, says Peter Toogood of City Financial. The authorities thought the stock market was a conduit for wealth creation... so people will have more money to spend, he says. This explains why, when the bubble was first pricked at the start of June and people started selling their shares Chinese authorities encouraged speculation, farmers made more money on stocks than farming en masse, China s government went nuts trying to encourage more people to buy. The authorities, instead of making speculation harder, were encouraging it, allowing people to mortgage their houses to invest in the stock market. That s clearly ludicrous, Madden says. FOREIGNERS STEER CLEAR Before the bubble burst, many Western investors were itching to have more access to China s closed stock markets, where investment by foreigners is very restricted. Index provider MSCI was being lobbied to include China s domestic stock market known as A shares in its global investment indices. It was expected to happen this autumn, but this furore has probably delayed it. That doesn t look likely. There has been so much manipulation of the stock market it is difficult to imagine they will move quickly on that, says Bakkum. The Chinese government s omnipotence has been called into question, a notion that was virtually unthinkable even among Westerners as the country has bumbled from one crisis to the next in recent years. There was this belief that Chinese authorities were in control of everything, and could fix anything. That only very recently started to change, he adds.
6 6 NEWS cityam.com Balfour Beatty shares drop despite winning super sewer contract BY EMMA HASLETT BALFOUR BEATTY yesterday announced it had been awarded a 416m contract to help build the giant 4.2bn Thames Tideway Tunnel, aka the controversial super-sewer, as the tunnel s new owners slashed costs on the project. The company said its joint venture with Morgan Sindall and BAM Nutall will construct the six kilometre-long western section of the 25km tunnel, which will stretch from Acton to Wandsworth. Construction on that section is due to begin next year, with completion scheduled for The company has form when it comes to the construction of large tunnels under London: it has been heavily involved in the building of Crossrail at Liverpool Street. However, the announcement did not translate to investor enthusiasm, with shares in Balfour closing down 5.03 per cent. Meanwhile, Tideway, a consortium of pension funds and investors including Allianz, Amber Infrastructure Group, Dalmore Capital and DIF, said it had been awarded the licence to Tyrie asks BoE to revise code of conduct BY LAUREN FEDOR TREASURY Select Committee chairman Andrew Tyrie has asked Bank of England governor Mark Carney to reexamine the rules governing the Bank s monetary policy committee (MPC). Tyrie wrote to Carney yesterday about the naming of Gertjan Vlieghe, a senior economist at the hedge fund Brevan Howard, to the MPC. He said Vlieghe s appointment, and the subsequent need to remove any perception of a conflict of interest, indicated that the Code of Conduct for MPC members would benefit from reexamination. When Carney announced Vlieghe s appointment in July, the economist said he would keep his stake in a long-term incentive plan at Brevan Howard, which would have provided him with payments based on how much money was managed by the fund. At the time, the Treasury said Vlieghe s stake in Brevan Howard did not pose a conflict of interest. But after critics including Tyrie raised a red flag, Vlieghe apparently changed his mind, saying earlier this month that he had reached an agreement to be bought out from his stake. The new tunnel, a so-called super sewer, is scheduled to be completed in 2022 own and finance the sewer by water regulator Ofwat. The consortium has pledged to invest 1.275bn into the scheme and boasted that thanks to an innovative procurement method and low interest rates, it has created significant cost savings for the project. But the scheme is not without controversy. In July former Ofwat boss Sir Ian Byatt branded it a real disaster. My big objection is it s not necessary, and whatever the final cost to consumers, it is unbearably large, he told the Financial Times. If you re thinking about improving people s standard of living, this isn t the way to do it. Once completed, the tunnel is expected to treat 39m tonnes of untreated sewage a year, waste that is currently discharged into the River Thames, connecting 34 existing overflows along the 25km stretch. Having declared the Thames biologically extinct 50 years ago, the Zoological Society of London reported last week that the capital s river was coming back to life, with 2,732 sightings of marine mammals in the past 10 years. Carney could face the sack if Corbyn makes it to 10 Downing St BY LAUREN FEDOR BANK of England governor Mark Carney could be out of a job if Jeremy Corbyn becomes Prime Minister, one of Corbyn s closest advisers has claimed. Tax expert Richard Murphy, who advises the Labour leadership hopeful and is widely credited as the mastermind of socalled Corbynomics, said yesterday that the Bank is beholden to parliament. Bank of England governors are democratically elected politicians, Murphy told the BBC. If we have governors who think they are over and above the rule of democratically elected politicians, then I m afraid to say, yes, they should be on the next plane. Like Corbyn, Murphy is a proponent of the people s QE, a proposal which would involve the Bank printing money to be used for investment in public services such as housing developments, energy and transport. Murphy dismissed suggestions yesterday that the Bank may not want to participate in such a scheme, saying: There is no such thing as Bank of England independence. There never has been. He added: It s a fiasco put together, a facade created to appease people, to put forward a presentation of something that doesn t exist. Jeremy Corbyn believes it is right that government sets the Bank s mandate, but has made not other commitments, a spokesperson for his campaign said. Corbyn remains the favourite to be Labour s next leader
7 cityam.com NEWS 7 New penalties for illegal employment BY LAUREN FEDOR Npower boss Paul Massara has been replaced by chief operating officer Paul Coffey RWE reshuffles Npower senior management as boss departs BY CHRISTOPH STEITZ GERMANY S RWE has ousted the top management at Npower following operational problems at the British unit that sent RWE shares to their lowest levels in 24 years this month. Npower cut its guidance in mid- August, blaming problems in its billing process, which prevented it from properly charging clients, as well as growing competition that caused more clients to switch to other providers. Npower chief operating officer Paul Coffey will replace chief executive Paul Massara, RWE said yesterday. The unit s finance chief Jens Madrian will be replaced by Martin Miklas, currently chief financial officer at RWE Polska. At this time we need a CEO at RWE Npower who knows the processes and has a sense for what can be done, RWE chief executive Peter Terium said. In his previous functions, Paul Coffey has repeatedly demonstrated this expertise. Reuters THE GOVERNMENT is raising the stakes in its crackdown on illegal working today, introducing new penalties for employers who give jobs to undocumented migrants. Immigration minister James Brokenshire will say: Illegal workers will face the prospect of a prison term and rogue employers could have their businesses closed, have their licences removed, or face prosecution if they continue to flout the law. Using illegal labour exploits workers, denies work to UK citizens and legal migrants and drives down wages, he will say, adding that new powers in the forthcoming immigration bill will make it easier to prosecute an employer who knows, or reasonably suspects, that the person they employ has no permission to work in the UK. The bill proposes closing businesses found to be employing illegal migrants, possibly for up to 48 hours, while they prove right to work checks have been conducted on staff. The Home Office has also said that under the new legislation, any pub, off-licence or late-night takeaway that fails to comply with immigration laws or employs illegal workers could be stripped of its licence to operate. IN BRIEF Shell to repay $2bn Iranian debt n Shell will repay a $2bn ( 1.3bn) debt to the National Iranian Oil Company when sanctions on Iran are lifted and will consider investing in the country s vast energy sector. Shell s executive vice president for commercial and new business development, Edward Daniels, said much would depend on the terms offered by the Islamic Republic once sanctions were lifted. Iran has 9.3 per cent of the world s proven oil reserves, the fourth largest after Venezuela, Saudi Arabia and Canada. Scientists create new flu vaccine n A new vaccine created by scientists in the US could give humans life-long immunity to influenza and help prevent future pandemics. If the vaccine passes full human trials and is fully developed by a pharmaceutical company, people will only need to have the jab once. In initial animal tests, the results of which are published in the journals Science and Nature Medicine, the vaccine was able to give life-long immunity to multiple strains. North and South Korea end talks n North and South Korea reached agreement overnight to end a standoff involving an exchange of artillery fire that pushed the region into a state of heightened military tension. Under the accord, reached after more than two days of talks held in the Demilitarised Zone, North Korea expressed regret over the recent wounding of South Korean soldiers in a landmine incident and Seoul agreed to halt anti-pyongyang propaganda broadcasts. GOVERNMENT REDUCES LLOYDS STAKE THE GOVERNMENT sold a further one per cent of its stake in Lloyds Banking Group yesterday, taking its total holding to less than 13 per cent. It has now realised 14.5bn from the share sale, which began in December last year and will end no later than 31 December. Proceeds go toward reducing the national debt.
8 8 NEWS cityam.com The great British pubs trade-off As more pubs are put up for sale Kasmira Jefford reports on what developers have in store for them Tiny price, big value Pick up the brilliant Microsoft Lumia 640 today. From 10 a month for phone & tariff Microsoft Lumia 640 Visit a Virgin Media store virginmedia.com Prices may change at any time during the contract. Freestyle Contract: You must pay off your loan in full in order to upgrade your handset. 0% APR Representative. Based on a 24-month consumer credit agreement with Virgin Media Mobile Finance Limited for the phone and a 30-day rolling Pay Monthly Airtime Contract with Virgin Mobile Telecoms Limited. Credit subject to status, credit check and payment by Direct Debit Your Freestyle Airtime Contract will be adjusted every year on your July bill by the Retail Price Index (RPI) rate of inflation announced in the May before. Terms and conditions apply. Visit virginmedia.com/freestyle for full details. Virgin Media Mobile Finance Limited is authorised and regulated by the Financial Conduct Authority under register no Registered office: Media House, Bartley Wood Business Park, Hook, Hampshire RG27 9UP. Registered in England and Wales no THE GROTTO Inn on the top of Monument Hill in Weybridge was a thriving pub before falling on hard times three years ago. It was forced to call last orders after succumbing to competition from nearby bars and pubs and has lain empty since its windows boarded up and beer taps gathering dust. Now, its new owners, Birchwood Homes, plan to give it a new lease of life not as a pub but as a three-storey block of flats. Converting pubs into homes, convenience stores and even student housing has become an all too familiar story over the past decade as weak consumer spending, the ban on pub smoking and competition from cheap alcohol sold through supermarkets piled pressure on pub owners. The UK s biggest landlords, Punch Taverns and Enterprise Inns, have been forced to offload thousands of pubs in a bid to cut their multi-billion pound debt piles. The biggest casualties have been traditional socalled wet-led pubs while those that morphed into gastropubs have fared better. According to Fleurets, a commercial estate agent specialising in selling pubs, around half of the premises put on the market over the last five years were sold for alternative use. The majority of these (60 per cent) are turned into residential schemes by developers looking to profit from the UK s booming housing market. Hundreds have also turned into convenience stores as supermarkets, including Sainsbury s and Tesco, race to meet changing shopping habits. Another 158 pubs changed hands yesterday after Punch confirmed it sold a portfolio to NewRiver Retail, an Aim-listed retail and leisure property firm, for 53.5m. The deal marks NewRiver s second big splurge in the pubs sector after buying a portfolio of 202 pubs from Marston s in However, NewRiver s property director Allan Lockhart said that rather than calling time on the pubs, it plans to keep the majority of the sites and boost footfall by building schemes such as convenience stores alongside them. 60% There is more demand than supply at the moment, which shows confidence in the sector 14% Pubs sold in 2014 for alternative use: 60% Residential 14% Retail 11% Convenience Stores 5% Other 4% Restaurants 3% Hotels/B&B 3% Offices Source : Fleurets 11% It is already building 64 new shops for Co-op Food on land adjacent to the former Martson s pubs, with only a handful closing where they were no longer able to keep trading. We think the pub sector is a really interesting sector, Lockhart told City A.M. It has improved since the economy came out of recession and growth is now coming through. The Punch Taverns portfolio has a negligible vacancy rate, which is a good indicator that it is a good quality portfolio. It also has had reasonable beer volume growth, Lockhart said. NewRiver believes pubs are still hugely undervalued as an asset class and that it is only a matter of time before more investors pile in, driving up prices. It is actually very similar to what we found when we started buying shopping centres [six years ago], Lockhart said. We believed at that time there was a significant mispricing in the market and we were right. Many more investors began targeting shopping centres in the regions, and that will also happen in the pub sector. Simon Hall, Fleurets director and head of agency, said the sector is already heating up, with a 5% 4% 3% 3% number of new players, including private equity, looking to enter the market. I would say there is more demand than there is supply at the moment, which shows confidence in the sector and the economy, he said. The disappearance of pubs across the UK has caused an outcry from local communities and industry bodies. According to the Campaign for Real Ale (CAMRA), pubs are closing at a rate of 29 a week. However, recent changes to planning laws, allowing communities to have a greater say in protecting their local pub, has made it more difficult for developers to convert them. Meanwhile figures from Fleurets for 2014 also show a glimmer of hope for the sector, with the number of pubs that continued to trade after they were sold increasing to 56 percent from 50 per cent. As the economy picks up, there is hope that more pubs will again prove viable.
10 10 NEWS cityam.com Miner South32 to slash costs as prices slump BY AARON PAYNE South32, the miner spun off from BHP Billiton earlier this year, announced plans to cut costs by $1bn ( 634m) over the next three years as its maiden results missed expectations. The company said pro-forma net profit for the 12 months to the end of June fell to $28m from $64m the previous year mainly due to impairment charges against its coal and manganese operations. Underlying profit rose to $575m from $407m, largely because of a fall in the value of the Australian dollar. The group outlined plans to reduce socalled sustaining capital expenditure by nine per cent to $650m during 2016, and a longer-term to plan to reduce controllable costs by a minimum of $350m a year by the end of The company said it is reviewing its South African manganese division which may lead to further cuts in alloy and ore production. Shares in South32 fell yesterday on another difficult day for commodities amid a global stocks rout triggered by China. The Sydney-listed shares dropped 7.57 per cent to AUD$1.40 and were down 10.2 percent to 63.75p in London. Jefferies International cut its rating on the company to hold from buy, and lowered its target price to 85p from 145p. South32 was demerged from BHP Billiton in May and its portfolio of commodities includes aluminium, manganese, coal and a silver mine. SOUTH AUD Aug 18 Aug 19 Aug 20 Aug 21 Aug 24 Aug UTV broadcasts many of ITV s most popular shows such as soap opera Coronation Street TalkSport owner UTV confirms discussions to sell TV stations BY MICHAEL BOW TALKSPORT owner UTV MEDIA yesterday confirmed it is in talks to sell its TV stations, with ITV mooted as the likely buyer. The Northern Ireland-based group, which owns the UTV and UTV Ireland networks, said it was holding discussions over the potential sale of its television assets. UTV Media is one of only two independent broadcasters to own Channel 3 television licences outside of ITV s control. STV Group, which operates Scottish Television (STV), is the other. It owns two licences while ITV owns the other 12 Channel 3 TV licenses. UTV offers ITV programming on its network already, while UTV Ireland, launched in January, broadcasts shows such as Coronation Street and Emmerdale. ITV Plc did not comment on reports in the Belfast Telegraph on Sunday that it would buy the group. UTV is set to report its results on Friday when details of a deal could be unveiled. GVC claims progress in Bwin battle BY AARON PAYNE GVC HOLDINGS said it has made significant progress in its longrunning battle with 888 Holdings to buy fellow gambling firm bwin.party. Bwin is the subject of rival bids from GVC and 888 Holdings as the two companies seek to grow and improve their economies of scale in the face of increased regulation. Aim-listed GVC had previously threatened to walk away from its offer, which values Bwin at 124p per share. 888 s bid values the company at 104p per share, but offers Bwin shareholders the advantage of its listing on the main stock market. The GVC board expects to be in a position to resubmit its proposal to the bwin.party board in the near future and on the same terms as set out in the 7 August announcement, having resolved the remaining open issues to both parties satisfaction, GVC said in a statement yesterday. Gaming firm 888 has not yet adjusted its own bid in reference to GVC s, but is reported to expect a chance to respond if Bwin switches its preference to GVC. GVC shares fell 1.3 per cent to 417p yesterday, down 5.5p from Friday s close. Shares in 888 dropped 0.8 per cent to p. Hair combed back, sunglasses on London Victoria to Gatwick Airport, 30 minutes average timetabled journey time (Journey times and frequencies may vary for planned essential engineering works). First train Half hourly from to Last trains and Visit gatwickexpress.com for details. Your holiday starts with us 30 mins non-stop every 15 mins Book and save 10% at gatwickexpress.com
11 cityam.com NEWS Bunzl in growth mode after acquisitions help boost earnings 11 BY JAMES NICKERSON BUNZL has reported higher profit in the six months to the end of June, after it went on a spending spree. Revenues at the outsourcing and distribution group rose seven per cent to 3.1bn in the first half, the company said yesterday, while profit before income tax jumped 11 per cent to 147.1m. Earnings per share increased 17 per cent to 32.1p from 27.5p in the first half of The board raised its interim dividend by seven per cent to 11.75p. The company had previously said organic growth slowed in the first half of the financial year. In June Bunzl announced its intention to buy four businesses in the US, Colombia, Canada and France, seeking to expand its global operation. Bunzl said three safety acquisitions significantly enhanced a growing portfolio of brand products, while recent acquisition activity in Canada creates [a] national distribution platform in cleaning and hygiene. The company has spent 241m to buy 14 businesses so far this year, and chief executive Michael Roney said more acquisitions are expected over the rest of the year. Outsourcing and distribution firm Bunzl wants to expand its international operations Lord Stuart Rose backs student property firm BY KASMIRA JEFFORD FORMER Marks & Spencer chairman Lord Stuart Rose has emerged as a surprise backer of Select Property Group, a developer and manager of student housing across the UK. Select said yesterday that Rose has invested a multi-million pound sum alongside Terry Green, the former boss of BHS and Debenhams. The privately owned group, which was founded in 2004 by chief executive Mark Stott, develops schemes, sells them on to an investor and running them on its behalf. As well as its student housing brand Vita Student, Select has launched a serviced apartment brand called City Suites the first of which will open next year in Manchester. Rose is no stranger to property, having sat until recently on the board of Land Securities. He said Select s BY KASMIRA JEFFORD FUND manager BlackRock said yesterday that it has bought an office building in west London for 55.9m from Aviva Investors. The Atrium in Uxbridge is a 138,000 square feet (sq ft) office block let to companies including American oil and gas firm Anadarko and accountants PwC. Blackrock said the deal offers a net initial yield of 5.7 per cent and has an estimated capital value of 405 per sq ft. retail-led approach to property of creating strong consumer brands has enabled them to deliver an exceptional product in the student accommodation sector. Rose and Green are not the first retail heavyweights to join the business. Former Matalan chief executive Angus Monro is chairman of Select and introduced the pair to the team. They also join Trevor Moore, former chief executive of Jessops, who joined Select as chief operating officer after an ill-fated spell at HMV at the time of its collapse. Speaking to City A.M., Moore said: Our projects need a huge amount of retail output and insight. It is about the creation of property concepts and bringing innovation, and my job as a retailer is to really understand those concepts. Rose makes canny move into property BlackRock buys PwC offices in Uxbridge from Aviva for 59m Uxbridge is a historically stable market, particularly within the office sector, and as such attracts premier tenants, Justin Brown, portfolio manager, said. The Atrium is one of the best multi-let office properties in the south east. It offers attributes that are difficult to replicate in modern buildings, providing atrium space, strong natural light and car parking which are all attractive characteristics to long term premier tenants, he added.
12 NEWS 12 cityam.com Blinkx and you ll miss it: online ad firm fails to meet expectations BY AARON PAYNE SHARES in Blinkx sank after the online video search and advertising company said second-quarter trading was below expectations and it expected to post a first-half operating loss. The Aim-listed stock dropped 17 per cent to 22p yesterday after saying growth in its core business was unlikely to offset declines in non-core areas that are being divested or exited. In a trading update, Blinkx said revenue from its core business is expected to grow 75 per cent year-onyear to at least $55m ( 35m) for the first-half to 30 September, while noncore sales will fall about 60 per cent to$30m. The company said it plans to cut $10m from operating costs and reduce its headcount by about 100 to 325. Management has taken decisive steps The online ad firm has struggled in the past year to manage the group s cost structure and expects to return to profitability, according to its statement. Last year Blinkx shares plummeted after a highly critical blog-post by Harvard Business School academic Benjamin Edelman, and a series of profit warnings hit investor confidence. BT BEATS SKY IN ASHES BROADCAST BATTLE BT HAS beaten Sky to the rights to broadcast the next Ashes series in a deal worth a reported 80m. In a five-year partnership with Cricket Australia, BT will broadcast all Australia s home tests and 35 of its Twenty20 matches. As Sky retains the rights to the Ashes 2019, cricket fans may now have a tough choice on their hands. Apple reveals iphone 6 Plus camera faults BY ANYA GEORGE THARAKAN APPLE said yesterday that it would replace a limited number of iphone 6 Plus phone cameras due to faulty back cameras that take blurry photos. The affected phones were mostly sold in a four-month period between September 2014 and January 2015, Apple said on its website. The company said it would replace the camera free of charge if it takes blurry photos and falls into a particular serial number range. Meanwhile, Apple boss Tim Cook sought to reassure shareholders about the group s performance in China in comments to CNBC that preceded a 13 per cent drop in its shares amid a global stocks rout. The shares closed down 2.5 per cent. Chinese consumers are crucial to fueling demand for iphones. A slump in the country s stock market and recent devaluation of the yuan have shaken Apple investors already worried about slowing growth in China s economy. Reuters Accounting changes hit Amlin s first-half profit BY CAITLÍN MORRISON THE BOSS of insurance firm Amlin yesterday said the company is not up for sale, quashing speculation that the group would be the next to be swept up in the wave of consolidation seen in the market over the past 12 months. Chief executive Charles Philipps made the statement while discussing the company s results for the first six months of The group s pre-tax profit fell to 143.3m in the first half, down from 148.5m in the same period last year. Philipps said the dip was due to an accounting change relating to earned premiums. Gross written premiums rose 6.2 per cent during the first half, growing from 1.89bn to 2.01bn. Its combined ratio deteriorated to 91 per cent, from 87 per cent last year. BY CAITLÍN MORRISON IRISH insurance group FBD yesterday reported a pre-tax loss of 96m ( 71m) for the first six months of 2015, on what chief executive Fiona Muldoon called a difficult day for the firm and its shareholders. The company said in a statement: The previously signalled claims uncertainty in Ireland has continued and deteriorated further. The existing business strategy has not delivered The company increased its dividend by 3.7 per cent, to 8.4 pence per share. Philipps said: This is a solid set of results in the more challenging market which prevails. He added: I am also pleased with the substantial progress which has been made following our reorganisation last year. New opportunities exist and efficiency gains are being realised. Analysts at Besi Research said that Amlin s franchise, skill and diversity position it favourably. Amlin boss Charles Philipps said the first half results were solid profitable growth and, given the significant losses reported today [Monday], the group has reviewed its strategic direction. The firm is to embark on a process of significant reserve strengthening, and has already strengthened prior year reserves by 88m. According to the company, the adverse case reserve development experienced in the first half of 2015 has been worse than any previous periods. It attributed this deterioration to legal changes Amlin had been named as a potential target for takeover, with analysts pointing to its experience in the Lloyd s market as an attribute that would attract buyers interest. The speculation was sparked by a run of deals in the insurance market over the past year, including Ace s union with Chubb and insurance broker Willis s merger with Towers Watson. In addition, Canada-based Fairfax paid $1.8bn ( 1.1bn) for Brit, Catlin shelled out 2.79bn in a tie-up with XL Group, and Tokio Marine announced a $7.5bn offer for HCC Insurance in June. Shares in Amlin fell by 4.3 per cent yesterday, to close at p. Insurance firm FBD sees earnings hit by increasingly difficult claims environment around claims which have taken place over the past 18 months. Meanwhile, the company is also moving to a focused business strategy, concentrating on its farming and agri book, and plans to divest its stake in FBD Property and Leisure. These results reflect very serious increased claims costs in our industry, said Muldoon. We are taking decisive action now to de risk our strategy and return to profitability by the end of 2016.
13 cityam.com NEWS Homeowner remortgages surge as fears of base rate hike grow 13 BY CHRIS PAPADOPOULLOS MORTGAGE borrowers are locking in record-low interest rates as the prospect of a rate rise and higher loan costs loom. The number of remortgage loans reached 46,423 last month, a massive 89 per cent jump on the same month last year and the most since November 2008, according to estimates from property services group LMS. Brokers recently told City A.M. that mortgage rates have been creeping off record lows, and are urging people to get good deals before the Bank of England lifts its base rate. An increase is currently expected around April next year. Remortgaging has come back with a bite in July, following sluggish levels of activity throughout the latter part of 2014 and first months of 2015, said LMS boss Andy Knee. Despite news that a base rate rise may be on the cards, lenders have not hiked rates and there are still many excellent deals to be had as lenders compete for business. But these will not last forever and borrowers should consider remortgaging now to avoid missing out. The total amount of equity withdrawn from remortgaging in July stood at 1.27bn, a 183 per cent jump from a year earlier, LMS said. Borrowers are being urged to remortgage before lenders start putting up interest rates Advertised pay drops as firms seek retention BY CHRIS PAPADOPOULLOS drop in advertised pay to 40,396. The previously high salaries commanded by London consultants only UK FIRMS are beginning to focus more on retaining staff than taking work in an environment of scarcity. on new recruits, according to figures Now they re being pared back, and from job search website Adzuna. advertised salaries in the capital are Advertised salaries fell to 33,873, paying the price, Hunter said. in July, down 1.1 per cent compared By sector, the biggest fall in salaries with the same month last year, the was in energy, oil and gas which fell company said today. by an average 12.7 per cent. That was The drop in salaries to a one-year followed by healthcare and nursing, low is evidence that firms are shifting from recruitment to retention, cent lower. where advertised pay was 6.5 per Adzuna said. Despite the shift to retention, the Companies are clinging on to the number of advertised vacancies skilled workers they already have, climbed 3.3 per cent in July compared with June. rather than bringing in new talent at the top, said Andrew Hunter, the Competition for jobs is now at a company s co-founder. They are new record low of 0.64 job seekers rewarding those loyal employees for each position. The figure compares with 1.14 job seekers per vacan- that stood by their side during the recession, but who hadn t seen cy last year. salaries rise since these lean years. The reduced competition for work Now, these employees are receiving their recession rewards, as workployment. Hunter said this was evi- comes amid a small rise in UK unemloads sprawl and middle managers dence of a skills mismatch, with become ever more important. employers looking for workers with The trend was particularly noticeable in London, with a 2.8 per cent are seeking different skill sets from those who jobs. Volatile pound brings foreigntrade headache for small firms BY CHRIS PAPADOPOULLOS EXCHANGE-rate risk is presenting a major challenge to the UK s smaller businesses, according to survey data released today by AFEX, a provider of foreign-currency management solutions. When trading internationally, 43 per cent of small and medium-sized firms (SMEs) said currency risk was their biggest challenge, up from 32 per cent last year. Currency risk arises when costs are in a different currency from revenue, which results in profit being impacted by movements in exchange rates. Over the last 12 months the pound has reached seven-year highs against the euro and five-year lows against the dollar. Some companies have benefitted, with six per cent saying it led to an increase in business. However, eight per cent attributed the closure of an office or a cut in staff levels to currency volatility. Only a third of SMEs currently use hedging tools, such as a fixing an exchange rate with a supplier, to mitigate exchange-rate risk, AFEX said. When it comes to trading, you need a platform as unique as you. Our fully customisable platform was built to help enhance the way you trade. That means giving you the assurance of 100% automated execution, the simplicity of 1-Click Trading and timely trading ideas from our range of advanced tools. Built by traders, for traders Switch today at cmcmarkets.co.uk Spread betting CFDs FX 25 Trading using leverage can result in losses that exceed your deposits The British Challenger for the 35th America s Cup. years
14 14 cityam.com THECAPITALIST cityam.com/the-capitalist If the markets start to panic, Twitter s sure to follow suit... SUFFICE to say Twitter went into meltdown almost as quickly as the markets yesterday. Former top Treasury official Damian McBride kicked off the crazy yesterday morning with some helpful financial advice. Get hard cash in a safe place now, he urged. Don t assume banks and cashpoints will be open, or bank cards will work. He then proceeded to suggest that Brits should stockpile water and tinned food, Do you have enough bottled water, tinned food and other essentials at home to live a month indoors? It seems that McBride wasn t actually joking. Speaking to the Capitalist, the former adviser to Gordon Brown said that we may Damian McBride: He has seen some things actually need to stockpile our wares, as governments and central banks don t have the levers to pull that they did during the great credit crunch of As if that wasn t enough surrealism for one day, UK businesses are jumping on the bandwagon to engage in some tactless marketing. Online artisan tea-sellers the english Tea Company were quick to make a tantalising offer for those following McBride s advice and stocking What s a British panic room without Darjeeling? up their panic-rooms, promising customers a 10 per cent discount at checkout if they use the promo code CRASH. Well, that tea isn t going to stockpile itself now, is it? Trading self-help website Learn to Trade decided to turn lemons into lemonade when they suggested that Black Monday could be a great opportunity for aspiring brokers. The company promised followers You should be making from this RIGHT NOW! How, you ask? By signing up to their seminars of course. In fact, there s two on in Canary Wharf today. What did the Chinese say about crisis and opportunity? Got A Story? EDITED BY EDITH HANCOCK While we re being urged to stock up on tinned food and bottled water to last us a month, what will City workers do when they get through the wine cellars? Fortunately online crowdfunded vino seller Naked Wines has set up a text-to-order service. The service allows customers to be as vague as they want; wine lovers can just specify the occasion and Naked will hand-pick the case and deliver to your door. With recent studies highlighting the stress-busting benefits of a glass of red, Naked may run into trouble if demand for claret outstrips supply. Camden might be London s edgiest borough, but it could also be the next smart move for financiers in Canary Wharf, as the council plans on building an east-to-west cycle route that joins to the docklands. Plans were unveiled yesterday for a major cycle route linking Swiss Cottage to Canary Wharf and Barking.The route would fill a missing link and allow cyclists a safe route into the heart of Camden, going via Swiss Cottage and Regents Park to King s Cross. From there riders can connect to TfL s new King s Cross to Elephant and Castle cycle superhighway. According to transport and planning cabinet member Phil Jones, the end of next year will see 10km of cycle paths connecting Camden to the City and beyond, so head to the estate agents pronto. #CGD In partnership with Recently joined City Giving Day Why are you supporting City Giving Day? Taking part in City Giving Day gives the firm an opportunity to celebrate the hard work our employees have put into our projects over the last year and encourage more people to get involved in the future. Which charities do you support? This year we are delighted to partner the Bromley by Bow Centre, an innovative community organisation in east London, one of the most disadvantaged areas of the UK. The funds we raise and our volunteers help CHARITY IN ACTION Our 'Bright Sparks' programme provides work experience to school students from less advantaged backgrounds to inspire them to consider a career in law. families, young people and adults of all ages to learn new skills, improve their health and wellbeing, find employment and achieve their goals transforming their lives. How will you celebrate CGD? We ll use the day to focus on and share our achievements across the firm and to try and get even more people involved in both leading and taking part in our fundraising and volunteering activities. We're also working on a special fundraising activity for City Giving Day! Completing one week of work experience at Stephenson Harwood was one of the most incredible opportunities I have had. I felt incredibly more confident in myself and with my ambition to succeed in a law career. REGISTER NOW AT
15 cityam.com Integrated Diagnostic Holdings reports its first half-year results BY AARON PAYNE INTEGRATED Diagnostic Holdings (IDH) yesterday released its first halfyear results since it floated in May, posting increase revenue and profit. The medical diagnostic firm had revenue growth of 18 per cent, up from 416.8m Egyptian pounds ( 33.8m) in the first six months of last year to 493.2m for the same period this year. Profit grew by 11 per cent after adjustments for the cost of the IPO to 145m Egyptian pounds. The company said its recently established Megalab would help it to bring down costs as increased automation of lab processes allowed it to reduce staff. Further additions to the company s portfolio were made in the form of 12 new labs, 11 of which were in Egypt, the company s primary base. IDH chief executive Hend El- Sherbini said: Our first-half results speak to both the robustness of our business model and to the depth of our management team. We have delivered double-digit top- and normalised bottom-line growth and inaugurated our central Megalab while simultaneously concluding our very successful IPO. Our results are in line with management expectations, leaving us well-positioned to expand our reach in our core Egyptian market and begin making better use of the expanded, cost-effective capacity afforded by the Megalab as operations are fully ramped-up by the end of the current year. Shares in the London-listed firm closed up 2.6 per cent to 5.34p. ASTRAZENECA yesterday appointed Sean Bohen as chief medical officer, giving him responsibility for patient safety at the firm. He will also become executive vice president at the group, with responsibility for the progression of the small molecules and biologics investigational medicines on AstraZeneca s books through late-stage development to regulatory approval. Bohen will report to Pascal Soriot, AstraZeneca s chief executive officer. He joins the company on 15 September. NEWS AstraZeneca appoints Bohen to chief medical officer position BY DAVID GABRA 15 Bohen departed from his previous post as senior vice president of early development at Genentech to assume his new role at AstraZeneca. In his time at Genentech, Bohen presided over preclinical and clinical development programmes across all therapy areas, including oncology, respiratory, and autoimmune diseases, to deliver trial-ready drug candidates to latestage development. Bohen was previously a clinical instructor in oncology at Stanford University School of Medicine before his move into the private sector at Genentech. Markit expands fintech service with acquisition BY EDITH HANCOCK FINANCIAL data supplier Markit is expanding its reach in the global financial industry, as it announced yesterday it has agreed to purchase foreign exchange trading service DealHub for an undisclosed sum. Markit said the acquisition will allow the group to expand its service, offering a one-stop shop for banks, brokers and asset managers. Jeff Maron, managing director at Markit, said: The combination of Markit and DealHub enhances our position in FX, one of the most important global markets, and can offer customers an end-to-end solution. Combining our teams will further position us to continue to bring innovation to the FX market. Markit is a global financial information and services company with over 3,600 employees, and handles data about derivatives, currencies, and loans. It provides services from software to trading links for big banks and other financial institutions. The deal between the two companies is expected to be finalised by the third quarter of 2015 and will be funded by a combination of cash and Markit s revolving credit facility. The news comes as Markit has recently taken an interest in broadening its applicability to the financial industry. Earlier this month, the company struck a $127m ( 81m) deal for CoreOne Technologies, a provider of regulatory reporting and data management. DealHub customers include global banks, regional banks, interdealer brokers, FX electronic trading venues and asset managers. Brad Levy, head of Markit s processing division, said: DealHub is a great company and highly complementary to Markit s growing FX processing business. Following completion of the acquisition, DealHub will become part of Markit s processing division. DealHub, owned by marketing software provider Option Computers, is a comparatively small company with just 55 employees in London, New York and Singapore. The company s users include JP Morgan, UBS, HSBC and Deutsche Bank. Markit said the acquisition will not have a major impact on its annual results. Markit Group founder and chief executive Lance Uggla Meggitt will provide operator and maintenance support services for the Canadian military Meggitt bags big contract win with Canadian Armed Forces BY AARON PAYNE ENGINEERING company Meggitt yesterday announced it had won a $25m ( 16m) contract to provide operator and maintenance support services to the Canadian military at bases across Canada. Under the agreement, the firm, which has supplied weapons simulation technology to the Canadian Armed Forces for over 20 years, will provide in-service support for its small arms trainer and indirect fire trainer for the next three years. President of Meggitt Training Systems (Quebec) Andrea Czop said: We remain a committed partner supporting the operational readiness of Canada s soldiers, sailors and airmen with advanced simulation and training systems. Meggit announced earlier this month that it was buying defence firm Cobham for $200m. Analysts had downgraded their profit expectations for the firm after a disappointing set of half-year results made reference to challenging conditions as military sales declined. Shares in the FTSE-100-listed Meggitt shares fell sharply with the rest of the index yesterday, to finish 3.55 per cent lower at 453.9p, on a day of bloodshed on the stock markets caused by unease in China and a global commodities rout. IN BRIEF TfL hands out 10k cycling grants n Cycling enthusiasts can apply for up to 10,000 in funding from TfL, under a new scheme announced yesterday. TfL said it will give community groups money for cycle safety training, bike maintenance and guided rides throughout the capital. TfL and City Hall have come under increased pressure in recent months to improve safety standards for cyclists. Eight cyclists have died in the capital this year alone, with the most-recent fatality happening in June near Bank station, when a 26-year-old PwC employee collided with a lorry. Failing schools could pay fines n A leading Westminster think tank wants failing schools to pay up by making them cover the costs of students who do not make the grade in GCSE English or maths. The right wing group Policy Exchange, which is closely aligned with the Tories, argues in a new paper that the government should impose fines on secondary schools where students fail to get a C in GCSE English or maths. Policy Exchange says the fines should go toward funding Further Education colleges which are most likely to take on failing students. Germany top in EU for holidays n German workers top the European Union in time off with an average of 30 days of paid leave plus 10 days of public holidays per year, the IW institute said yesterday. In a study for the Bavarian employers association, the Institut der deutschen Wirtschaft found that 16.2 per cent of total remuneration costs in Germany are devoted to annual leave and paid holidays the highest level in the EU. The UK straddles the EU average with 32.8 days, translating to 12.6 per cent of wage payments for annual leave and holidays. CITY MOVES WHO S SWITCHING JOBS Edited by Annabel Palmer Countrywide The property services firm has announced the appointment of Johnny Morris as its first research director. He joins from Hamptons International, part of the Countrywide Group, where he has been head of research since Mirabaud Asset Management The asset management firm has appointed Ken Nicholson to manage European small cap and mid cap equity portfolios. He joins from Standard Life Investments, where he was investment director for smaller companies, and managed the Standard Life European Smaller Companies fund between 2007 and Towers Watson Ann Flynn has been appointed senior consultant in the professional services firm s UK defined contribution pensions consulting team. She was formerly an independent consultant, having run her own practice after leaving Standard Life in 2013, where she was head of workplace distribution proposition. Flynn has also held positions at Scottish Widows and AEGON Scottish Equitable. Edison The equity advisory firm has announced the appointment of Anna Bossong as UK technology, media and telecoms analyst. She most recently worked at Unicredit Group, where she was head of Europe, Middle East and Africa telecoms research and deputy head of Europe and Middle East research for 10 years. Bossong has also held roles at Daiwa Europe, ING Barings and Porter Western. SBICAP (UK) The UK subsidiary of the State Bank of India s investment banking arm has announced the appointment of Sumit Jamuar as chief executive. He was most recently managing director and global head of sales and global clients at Lloyds Banking Group. Jamuar has also worked as a consultant at McKinsey & Co. GSMA Mats Granryd has been appointed director general of the mobile operators representative body. He was most recently president and chief executive of Tele2 Group, and will assume leadership of the GSMA on 1 January Granryd has also held senior roles at Ericsson, ARRIGO and Andersen Consulting. To appear in CITYMOVES please your career updates and pictures to
16 16 NEWS cityam.com Southern offers 5.1bn for AGL Resources to support shift to gas BY SWETHA GOPINATH POWER producer Southern Co said it will buy AGL Resources for about $8bn ( 5.1bn) in cash to become the second-largest US utility by customers after Exelon. The deal will give Southern Co access to natural gas infrastructure, including AGL s five per cent stake in the 550-mile Atlantic Coast pipeline designed to move gas from the Marcellus shale field in Pennsylvania. The purchase will support Southern Co s shift to natural gas from coal. The company, like other power producers, has been shutting coal plants or converting them into gas-fired ones to comply with US environmental regulations. The deal, valued at $12bn including debt, will form a business with 11 regulated electric and natural gas distribution companies serving about 9m customers, Southern Co said. The combined company will have generation capacity of about 46 gigawatts and will operate about 200,000 miles of electric lines and 80,000 miles of gas pipelines. AGL Resources rose as much as 27.5 per cent to a record $61 yesterday, making it one of the few to trade higher amid a massive market selloff triggered by a slump in Chinese stocks. Even so, the shares were trading well below Southern Co's offer of $66 per share. Reuters Southern will become No.2 US utility after buying AGL Resources for about 5.1bn Anglo American nets 191m in Chile mines sale Culture Crawl Join Maggie s and City A.M. as we head out into the night, discovering cultural, architectural and artistic delights in London, whilst raising as much as we can to support people with cancer and their family and friends. Maggie s is delighted to offer City A.M. readers 5 off the full entry price by using promo code CITYAM when registering. Friday 18 September In partnership with Sponsored by Maggie Keswick Jencks Cancer Caring Centres Trust (Maggie s) is a registered charity, no.sc BY FREYA BERRY ANGLO American said it plans to sell two Chilean copper mines to investment firm Audley Capital for $300m ( 191m), as it delevers its balance sheet to help combat a global slump in commodity prices. Orion Mine Finance is principal coinvestor with Audley for the open-pit Mantos Blancos and Mantoverde mines. The deal includes conditional future payments which could boost the eventual price tag by $200m, Anglo American said yesterday. Audley Capital s investment was led by John Mackenzie, a former chief executive of Anglo's copper business. Following a review last year Anglo said it would divest assets that did not meet its return criteria. The two mines were put up for sale, as well as the El Soldado mine and Chagres smelter, which were seen as having a combined worth of up to $1bn. Amid a global slump in commodity prices, many miners have embarked on asset sales to shore up balance sheets and maintain credit ratings. BY SARAH SPICKERNELL RAINDANCE Technologies, a US biotech firm, has pulled out of plans to publicly list on Nasdaq. In a regulatory filing released yesterday, the Massachusetts-based firm cited the fall in global markets as the reason for its decision. The company has determined at this time not to proceed with the offering due to market conditions. There has been a sell-off across all major stock exchanges today, stirred by a 8.5 per cent fall on the Although the transaction is only a modest step in delevering the balance sheet, the fact that Anglo American got another transaction done is a positive sign, Morgan Stanley analysts said in a note. Three-month copper on the London Metal Exchange fell to its lowest since July 2009 yesterday, as markets were hit by concerns over slowing economic growth in China. Goldman Sachs and Morgan Stanley advised Anglo on the deal, while Macquarie advised the buyer consortium. The transaction is expected to close in the third quarter. ANGLO AMERICAN Aug 18 Aug 19 Aug 20 Aug 21 Aug 24 Aug Genetic-test maker Raindance pulls US IPO amid market gloom p Reuters Shanghai Composite Index early this morning. In the US, the Dow Jones Industrial Average fell 3.7 per cent at the start of trading while the Nasdaq and S&P 500 were also badly shaken. RainDance, which specialises in developing medical devices for genetic testing, revealed in March that it was working towards a $60m ( 38m) IPO later in the year, although it hadn t specified a date. Bank of America Merrill Lynch, Cowen & Co. and Evercore Partners were appointed lead underwriters.
17 cityam.com CITYDASHBOARD In association with LONDON REPORT BESTof the BROKERS Extractive firms lead UK slump as Shanghai slides THE FTSE 100 slumped 4.7 per cent yesterday to its lowest level in almost three years, with all stocks but one in the red and miners leading the slide on growing fears of a China- led global economic slowdown. The blue-chip index was down points at 5,898.87, the worst close since late The gauge, which marked its biggest weekly loss of the year last week, has now fallen for 10 sessions in a row, the longest losing streak since Alarm bells rang across world markets, after an 8.5 per cent dive in Chinese shares and a sharp drop in the dollar and major commodities panicked investors. In the US, the Dow Jones Industrial Average crashed more than 1,000 points in early trading before paring its losses to points. Traders said investors were effectively being forced to sell to raise cash after widespread losses across markets and that the chain reaction had yet to reach its end. There is a snowball effect happening, with margin calls putting pressure on positions and creating forced sellers, said Mark Ward, head of execution trading at Sanlam Securities. Every order has been a sell today, across the board, so clearly people think we haven't hit the bottom yet. However, other traders countered that stock markets were in oversold territory and that investors should bet on a rally. Yesterday s bloodbath in London wiped a combined 72bn off the value of companies in the FTSE 100. The mining sector led the fallers, dropping nine per cent to its lowest level since 2009 as fears about China s economic slowdown continued to bludgeon commodity prices. Glencore was the worst FTSE 100 performer, crashing 13 per cent to 137.9p, a fresh all-time low, while Anglo American slumped 9.9 per cent to 660.2p. Oil stocks were also hit, with BP down 7.3 per cent, Premier Oil 14 per cent lower and Tullow Oil 10.4 per cent weaker. RSA Insurance was the only member of the FTSE 100 to close higher, rising 0.75 per cent to 495p on speculation Zurich may still emerge with an offer to buy the company. RSA has been holding out for as much as 600p a share. Outside of the benchmark, small cap UTV Media was one of the few stocks to outperform, rising almost two per cent after saying it was in talks to sell its television assets. FTSE 6,600 6,400 6,200 6,000 5, Aug 5, Aug 19 Aug 20 Aug 21 Aug 24 Aug To appear in Best of the Brokers, your research to 940 P Aug Aug 19 Aug 20 Aug 21 Aug 24 Aug PLAYTECH Canaccord Genuity reiterated its buy rating on the gambling software company, but raised target price from 950p to 1,065p. The broker said Playtech s purchase of Plus500 is an exciting adjacent marketspace for the firm, and noted the core online gaming business continues to trade strongly. 2,050 2,000 1,950 1,900 1,850 CLS HOLDINGS Panmure Gordon reiterated its buy recommendation on the property firm, noting that the recent interims demonstrated the core strengths of the group. The broker also highlighted the group s attractive debt maturity profile with no sterling refinancing risk for 2016, 2017 and P 18 Aug 19 Aug 20 Aug 21 Aug 24 Aug P 18 Aug 19 Aug 20 Aug 21 Aug 24 Aug 24 Aug 1, Aug WOOD GROUP Numis upgraded its rating on the energy services group from hold to buy, despite downgrading its forecasts for The broker said it believes the firm will ultimately end up being a relative outperformer this cycle as it... can aggressively cut its coat according to its cloth. YOUR ONE- STOP SHOP BROKER VIEWS AND MARKET REPORTS NEW YORK REPORT 17 US stocks sink as investors fret over China US STOCK indexes plunged almost four per cent yesterday as investors, rattled about China s economy, sold heavily in an unusually volatile session. The Dow Jones industrial average briefly slumped more than 1,000 points, its most dramatic intraday trading range ever, before clawing back some of the losses to close down points, or 3.57 per cent, at 15, Key index component Apple, which fell as much as 13 per cent, ended down 2.5 per cent at $ The S&P 500 lost points, or 3.94 per cent, to 1,893.21, putting it formally in correction mode. An index is considered to be in correction when it closes 10 per cent below its 52-week high. It was the gauge s worst day since 2011 and followed an 8.5 per cent slump in Chinese markets, which sparked a sell-off in global stocks, oil and other commodities. Some investors unloaded stocks ahead of the close after looking to make money from volatile price swings earlier in the session. Exxon and Chevron each fell more than 4.7 per cent. U.S. oil and gas companies have lost about $310 billion of market value this year. Alibaba dropped 3.49 per cent to $65.80, below its IPO price of $68, making it the second high-profile tech company to fall below its IPO price in the past week after Twitter on Thursday. Wall Street stayed in a narrow range for much of 2015, but volatility has jumped as investors became increasingly concerned about a potential stumble in China s economy.
18 18 THEFORUM cityam.com/forum Don t panic: The outlook for stocks remains positive despite volatility YESTERDAY S dramatic moves in stock markets around the world, coming on top of the pronounced market volatility of recent weeks, will have concerned investors, with the lack of a single clear trigger making it harder to assess the potential for this volatility to be sustained. While the fluctuations we ve seen over the last few days are indeed a cause for concern in the shorter term, however, the overall outlook for equities remains positive. For tactical investors, there could be some opportunities to buy equities in the coming days. But this is risky business, and most savers should remember that diversification remains key for riding the bumps of stock markets over the long term. What s causing volatility in equity markets? There are a number of forces driving the fluctuations we ve seen over the past week. The devaluation of the renminbi this month, which trig- nnick PETERS gered a broad sell-off of emerging market assets, has led to a spill-over of negative sentiment into developed markets. Broader fears over China have certainly impacted emerging markets, which also face pressure from US dollar strength and the prospect of Fed rate rises as well as the recent slump in commodity prices. On top of these, thinner markets during the summer holiday period mean that movements can be amplified by low liquidity, and there s likely an element of this here. Despite the panic of recent weeks, however, the outlook for the world economy has not significantly changed. From a fundamental perspective, the low growth/low inflation paradigm remains and is broadly supportive of equities. Loose central bank policy also supports this picture, particularly in Europe and Japan, and, while all eyes will turn towards the Fed, the US central bank is treading carefully and is unlikely to hike in September. Of course, plenty of risks remain. The pace of China s slowdown has brought some surprises and continues to impact commodity prices overall. However, the transition to a more sustainable, consumption-driven model of growth has been happening for some time. While China s export and manufacturing sectors are struggling, its service sector continues to expand and become more important. None of this structural transition was ever going to be a smooth ride, and its impact on both developed and emerging markets will continue to be felt. On top of this, ongoing concerns around the Fed and the prospect of higher interest rates are likely to sustain pressure on emerging markets assets and, if we see emerging market corporates (particularly in vulnerable countries such as Brazil, Russia and South Africa) blow up, then current concerns could become more serious. But in recent weeks, many active equity managers have begun to add to In recent weeks, many active equity managers have begun to add to risk assets risk assets. Indeed, our team s sentiment indicators are suggesting that now could be a good time to increase equity exposure, given the mood in markets, more attractive valuations and unchanged fundamentals. It is vital to proceed with caution: jumping into equity markets can backfire, and it may pay to begin building positions over the next four weeks, rather than piling everything in now. This environment calls for a careful and actively managed approach. For example, equity portfolio managers with solid stock-picking skills may be able to find opportunities in companies with positive longterm prospects. I think Europe and Japan look the most attractive from a regional perspective, and volatility has helped to reduce valuations here. Of course, equities aren t the only game in town. Investors can help mitigate volatility in their portfolios over the longer term by diversifying their investments across a broad range of asset classes, using multi asset portfolios to spread risk even further. While we have seen equity markets fall in recent weeks, bonds have performed relatively well, and the traditionally negative correlation between these asset classes can help protect a portfolio from volatility. Nick Peters is a portfolio manager at Fidelity Worldwide Investment. Agree? Disagree? Got a sharp comment? The Forum wants you to join the debate. CORBYN wins economists backing for radical plan thundered the Observer s front page on Sunday. As I meandered around the supermarket, I did a double-take. Would distinguished economists really back printing money to fund government investment, rent controls, widespread renationalisation (in some cases without compensation), a maximum wage, huge tax hikes and greater powers for Trade Unions? Surely not. I soon realised the newspaper was reporting a letter written by economists published in the Observer itself. Forty left-leaning economists can easily be rustled up to express support for a left-wing agenda in a left-wing newspaper with left-wing readers: hardly Nixon goes to China stuff. I should know I ve signed letters calling for lower taxes in more free-market rags. Readers discount views according to the on the web: cityam.com/forum or by nryan BOURNE source, so perhaps this wasn t an interesting story after all. Yet other news outlets, from Sky News to the Independent to the Times, repeated the story. Some used the term leading economists to describe the signatories. Had economists I ve read and learnt from had damascene conversions to the Corbyn cause? Two things struck me when I read the letter. First, contrary to the impression given by the Observer, it did not endorse Jeremy Corbyn s broad policy platform. There was no call for publicly-owned railways or 70 per cent income tax rates on high earners. No, this was a wail about austerity government spending cuts. One gets the impression that these guys have never seen an economic stimulus they disliked. For the most prominent signatory, former Bank of England ratesetter Danny Blanchflower, this is pretty accurate. Many others have also been calling for higher government spending since the 1970s. While we can debate the details and timing of the government s attempts to reduce the deficit, however, the mainstream position is now far away from that of the signatories. In 2011, when the economy was flatlining and interest rates looked stuck at the zero lower bound, heavyweights lined up to argue about whether further borrowing was necessary and desirable. Now, with reasonable growth and interest rates more likely to rise, that ship has sailed. Bigbeast critics of the last government s macro policy, like Jonathan Portes, now suggest deficit reduction over the next five years is appropriate. Even Paul Krugman implies the case for fiscal stimulus to try to boost growth is weak. Second, this was not a group of leading economists by any stretch of the imagination. Nor am I, of course, but it s reasonable to note that none of the signatories is currently employed at Russell Group universities. Some aren t even trained in economics, and others are retired left-wing activists. For several, the only hit that comes up when googling their name is this letter. One, John Weeks, is someone I debated with recently. He concluded his speech by declaring that capitalism leads to fascism. Even recognisable names, such as Mariana Mazzucato and Steve Keen, are usually introduced as heterodox i.e. at variance with established opinion. Top responses will be reprinted in The Forum. No, leading economists are not supporting Jeremy Corbyn s far-left agenda So the idea this letter represents mainstream economics must be challenged. When Sky is reporting it without an alternative viewpoint, it can mislead the public. But this also shows something interesting about the political left. People across the political spectrum like to appeal to the authority of experts to improve credibility. But for the left, this is crucial. Unlike supporters of markets, left-wing interventionists believe experts can direct economic activity for us. Building up the idea that experts support these interventions and believe they work is therefore of critical importance to obtaining public acceptance. Unfortunately for Corbyn, this collection of names neither endorses his programme nor represents a significant or meaningful strand of economic opinion, despite the Observer splash. Ryan Bourne is head of public policy at the Institute of Economic Affairs. Connect Follow Like Share
19 19 WE WANT TO HEAR YOUR VIEWS E: Comment: Mayor wishlist [Re: Five promises the City wants from the next mayor of London, yesterday] I strongly disagree with Mark Boleat that London should be humble about its success by not demanding special treatment. Although the capital has raced ahead economically, it also suffers from some unique problems that result from this success. Housing is the obvious example, but public transport, road infrastructure, pollution and the divide between the rich and poor are far more serious issues for London than, say, Birmingham. It therefore makes sense for us to have greater control of the major policy levers. Alistair Barnett LETTERS to the editor Putin s victory [Re: Putin is about to win his cynical bet in Ukraine: The West is truly dead, yesterday] The bet the West made, that sanctions and falling oil prices would bring such pressure to bear on Putin that he would have to scale back his intervention in Ukraine, has proven an astonishing failure. Whether due to a lack of expertise in policy circles about the true nature of post-soviet Russia or a naive belief that markets always crush geopolitical transgressors, Putin is now a far more serious threat than he was before the annexation of Crimea. He surely now knows that aggression will not be met with a serious response. Name withheld As the CBI upgrades its forecasts, is stronger UK growth sustainable amid global turmoil? YES Vicky Pryce After 3 per cent growth last year, the UK is continuing to perform better than many other Western economies. The CBI s upgrade of its growth forecast from 2.4 per cent to 2.6 per cent for the whole of 2015 builds on a couple of quarters of better than expected growth. Household consumption is boosted by higher than forecast employment levels and almost non-existent inflation, while business investment is likely to rise by over 6 per cent this year. This combination should more than offset weak exports. The domestic investment outlook for next year is clouded by uncertainty ahead of an EU referendum. And once inflation picks up again and interest rates start to rise, the consumer-led recovery will lose some momentum. Prospects for the UK economy though remain good, particularly if productivity continues to recover. But to see the CBI s expectation of 2.8 per cent growth for 2016, the world economy must have turned around. Vicky Pryce is chief economic adviser at CEBR. BEST OF TWITTER The last time the FTSE lost 10 per cent in a month, three MPC members voted for more The Dow Jones drops 1,000 points on the open. Is Janet Yellen getting ready to blink on rates We thought China s investment-led growth would slow severely. Why should this actually happening cause us to change our Temple of Baalshamin, Palmyra, AD , NO Geoff Tily Global market turmoil means the CBI s forecast was unfortunately timed. But its stance on the domestic economy was always going to look optimistic. This month, the Bank s MPC sounded more cautious than expected, pointing to softer than expected underlying growth and weaker employment numbers. While higher earnings inflation is welcome, there is still a huge amount of ground to make up following the longest squeeze on wages since Victorian times. Near-zero inflation here and across the world is not a good omen for the future. Weaker demand is becoming the dominant global factor. It was disappointing to hear the CBI s John Cridland claim we all know that household finances and government finances are the same. Those of us who know they are not were already worried about the impact of a second parliament of spending cuts. If these coincide with a global slowdown, the sustainability of the CBI s latest forecast will be the least of our worries. Geoff Tily is the TUC s senior economist. Banking pay-outs: Forex will be bigger than Libor THE FOREIGN exchange market is the largest financial market in the world, with transactions worth $5.4 trillion taking place every day. The revelation that banks colluded to attempt to manipulate the forex market over many years makes it likely that forex claims will cost the banks more in compensation, as well as regulatory fines, than any past banking scandal. Though New York has seen the first large-scale settlements, London will probably turn out to be where the biggest pay-outs occur. In the middle of August, nine banks, including Barclays, HSBC, RBS and Goldman Sachs, paid out a reported $2bn to settle claims brought against them in New York. It is notorious that settlements in the US are larger than ones in the UK. The reasons usually cited are: the ability of US courts to award punitive damages; the uncertainties resulting from the use of juries in civil cases in the US; and the fact that costs are not awarded separately. So why is it likely that banks could have to pay out even more in compensation for claims brought in London? First, the London forex market is the largest currency exchange market in the world. It accounts for 40.9 per cent of the daily worldwide market in foreign exchange, compared with 18.9 per cent for the US. The banks which have been fined are responsible for 48 per cent of the global forex market: in other words, almost one in two customers in the forex market is likely to have been affected by their collusion. Second, claims for forex manipulation lend themselves to litigation by way of a class action. The rigging of forex rates was one set of actions by banks which harmed multiple participants in the markets. Third, although the manipulation of Libor seems an obvious precedent, there are significant differences between the context for Libor claims ndavid MCILROY & LLOYD MAYNARD and that for forex claims. Libor litigation has so far been an iceberg, most of which is not visible. There has been no case of Libor manipulation with a bigger profile than Graiseley Properties, which reportedly accepted a settlement worth 40m last year. There has, as yet, been no class action for Libor manipulation. In part, that is because of the way the story broke. Regulators initially imposed fines on individual banks and it was only later that the extent of collusion began to be revealed. It would be a bold litigator who would allege the existence of a cartel which the regulators had not already identified. Another reason is that claims of Libor manipulation are often one of a number of complaints which customers are making against their bank. Finally, customers with Libor claims usually have an ongoing borrowing relationship with the bank they are suing and that explains the lack of decided cases: it has been in both parties interests to reach a settlement, guarded by a confidentiality clause. By contrast, the operation of numerous forex cartels has been fully documented by the regulators; the fixing claims are standalone claims; and the claimants are counterparties to the banks they are suing. Add to that the English courts new appetite to facilitate class actions of this type, and litigation in London may well prove to be an even more expensive headache for the banks. David McIlroy and Lloyd Maynard are barristers at Forum Chambers. 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20 20 cityam.com WEALTHMANAGEMENTTRADING Japanese Prime Minister Shinzo Abe could oversee an expansion of QE this autumn Investors flock to the land of the rising sun Money has poured into Japan as Asian markets crumble over China woes, explains Annabelle Williams MONEY has flowed into Japanese exchange traded funds (ETFs) this year as the market stands out as the last area of safety in Asia. So far this year, overseas investors have piled $16.4bn into ETFs tracking Japan s stock markets nearly quadruple last year s total of $4.4bn, according to data from Markit. The Nikkei 500 is up over 20 per cent over the last year, despite taking a hit of nearly 12 per cent as panic over China spreads across Asian markets. This is in stark contrast to the amount of money that has been pulled from Asia equities this year. Yesterday was dubbed Black Monday by the Chinese government, as the country s main market, the Shanghai Composite, gave up all its gains for the year. Worries about China s stock market, currency and economy have spread, and the Shanghai Composite is down 35 per cent since its peak in mid-june. So far, Chinese efforts to stimulate RED lights are flashing over bond markets as fears mount that liquidity will evaporate when interest rates rise. Nearly all bond sectors have made losses this year, including global and emerging market bonds, corporate bonds and UK government gilts, according to Investment Association the stock market have failed. The situation looks increasingly desperate as authorities have implemented measures such as banning short selling and stock sales by large shareholders regulations which in other markets would seem heavyhanded. Fear has pushed other Asian markets down, over worries China s export-led neighbours will be disadvantaged after the yuan devaluation, or hurt by a slump in Chinese demand for their goods. Although Japan s stock markets have been brushed by the bad news, compared to the potentially negative outlook for under-developed Asian markets, Japan s seem in a stronger position. STIMULUS EXPECTED Speculation is mounting that the Bank of Japan will ramp up its 80 trillion ( 412bn) annual QE programme later this year, in a move that is likely to send the stock market data, which shows the average bond fund s return. With this dismal performance already eating into investor returns, bondholders may sell out en masse when interest rates rise as hikes will cut the already-meagre returns on bonds. I am very, very confident this is going to happen when rates start to The Nikkei 500 is up 20 per cent, despite taking a 12 per cent hit from panic in Asia upwards. The Bank is meeting in October and many believe the outcome will be a continuation of the QE part of the Abenomics rescue plan, launched by Prime Minister Shinzo Abe at the end of This is partly because Japan s economy is still struggling. Recent data showed the economy contracted 1.6 per cent on an annualised basis in the second quarter. These figures were slightly better than expected, however it is a large swing [into contraction], says Adrian Lowcock of Axa Wealth. The economic contraction does raise question marks over whether rise. There is going to be a massive sell off, says Haig Bathgate of fund manager Turcan Connell. Some experts are suggesting investors sell out of bond positions now, as there is simply not enough liquidity in bond markets to support mass redemptions. Pre-crisis investment banks traded vast amounts of Abenomics is helping the economy. However, many experts believe the main effect of QE is to push up the prices of equities, bonds and housing, as this is what happened in the UK and US. Whether it is successful depends on what you think it is going to do. If you think it will raise asset prices then it has been a success, Lowcock says. Another point to bear in mind is the sheer scale of the asset purchases that the Bank of Japan is undertaking. QE in Japan is huge: roughly ten times the amount of money has been pumped into the system as in the US, and the economy is a third of the size. Abe means business, says Darius McDermott of FundCalibre. HEDGING INVESTMENTS QE has devalued the yen by 35 per cent against the dollar over the last 30 months, which is having a positive effect on corporate profits. When overseas earnings are translated back bonds daily, which kept the sector liquid, but nearly all have withdrawn from trading them. Bank of England governor Mark Carney is believed to have been meeting privately with 135 fund management groups over how they plan to deal with investors rushing for the exit. He has criticised fund managers into yen, they seem larger. Ramping up QE should mean the yen falls further again. The devaluation of the currency was important as it boosted the profits of the big global Japanese companies, McDermot says. But it also means overseas investors in Japan need to hedge, or protect, their investments from being devalued. As such the most popular ETF has been the Wisdom Tree Japan Equity Hedged, which has received $4.8bn in new money this year. The big consensus has been to invest in Japan on a hedged basis to take into consideration a further devaluation of the yen, says Simon Colvin of Markit. This is closely followed by the ishares Japan fund (an unhedged strategy) with its $4.1bn in inflows. For investors preferring to use active fund managers, McDermott highlights Neptune Japan Opportunities, Schroder Tokyo and Baillie Gifford Japanese as ones which stand out. WARNING LIGHTS FLASH OVER BOND MARKETS AS LOSSES SPREAD ACROSS SECTORS for taking liquidity for granted and crowding into trades. So far this year, the only parts of the bond market to eke out a return are strategic bonds with a 0.9 per cent return although after fund fees investors may well have made losses and high yield, with a 2.72 per cent return.