Asia News Update
Asia: Shares enjoy the largest growth in 15 months, with Japan showing confidence
Source: Reuters, 19 December 2014
On 19 December 2014, the Asian stocks recorded the largest increase in 15 months. This follows Wall Street's largest two-day progress since late 2011, as the Federal Reserve was not in a hurry to retract the US economy’s stimulus. The rise occurred despite oil maintaining under pressure, indicating that the equity investors are starting to become more optimistic about lower fuel costs and rise in consumer spending power. Further, Japanese Nikkei rose 2.1%, while the Australian main index climbed 2.2%. The Asia-Pacific stocks (excluding Japan) gained 1.5% in MSCI’s broadest index, the largest daily increase since September 2013. Meanwhile, the Shanghai shares reached their highest level in four years.
Barclay analysts believe that the ECB QE market anticipations add to the Federal Reserve’s optimistic message on growth in the US and Russia’s stabilization. The Bank of Japan has decided to recommit to an immense stimulus package including the printing of JPY and the purchasing big volumes of government bonds. This is an indication of Japan’s confidence in that it can resist the global market turbulence and Russia’s financial crisis. In addition, the yen against the US dollar was at 119.24.
South Korea: Visteon’s operations in the country to sell for USD 3.6 billion
Source: Reuters, 18 December 2014
Visteon Corp, the US-based auto parts producer, has entered into an agreement with South Korea’s private equity firm Hahn & Co and the South Korean tire producer Hankook Tire, to sell all of its 70% stake in Halla Visteon Climate Control Corp for USD 3.6 billion. The sale is part of a strategy to focus on in-car electronics as Visteon has been pressured by its hedge fund investors to streamline its businesses. Hahn & Co will buy 50.5% stake in Hall Visteon while Hankook Tire will hold the remaining 19.49% stake for USD 984 million, as it wants to broaden its portfolio. On 18 December 2014, Hankook Tire and Visteon Climate control gained 3% on Seoul trading.
The South Korean unit of Visteon produces cooling and heating systems for vehicles and was originally created in 1984 through a joint venture between Ford and Korea’s Mando Corp. Visteon, whose key clients are Hyundai Motor and Ford Motor, will receive KRW 52,000 for each Halla Visteon share. However, there have been concerns from Hyundai Motor of Visteon focusing on profit in the short-term over investments in the long-term. Moreover, the Samsung Securities auto analyst Yin Eun-young says that the sale might result in Hyundai further decreasing its dependence on Halla Visteon.
Philippines: Mahindra to enter auto market as part of Southeast Asian expansion
Source: Indian Autos Blog, 16 December 2014
The Indian automaker Mahindra is to enter the automotive market in the Philippines. The automotive market in Philippines is the fastest growing in Southeast Asia and has recently experienced the introduction of India’s Tata Motors. The Colombian Group (TCG), which has clients such as BMW, Kia and Peugeot, is going to be Mahindra’s distribution and importing partner in the country, according to Inquirer. The automaker’s introduction into the Philippine market is likely to occur within the next few months, with Mahindra Bolero being the first auto available under the name Enforcer.
The Enforcer will be offered as passenger variants and as single and double cabs. The passenger variant will also be provided as police patrol cars in the country. Furthermore, the Indian automaker is also considering entering additional markets in the Southeast Asia region. The chief executive of Mahindra’s Automotive Sector Pravin Shah has stated that the Southeast Asia market is unquestionably part of the automaker’s global plan, where the brand is also to target the Indonesian automotive market.
Vietnam: Domestic automakers enter into a strategic alliance
Source: Vietnamnet, 19 December 2014
Vietnam’s major companies in auto production and assembling, who also are members of the Vietnam Association of Mechanical Industry (VAMI), are entering into an alliance including Vietnam Engine and Agricultural Machinery Corporation (VEAM), Saigon Transportation Mechanical Corporation (SAMCO), Vinamotor, Truong Hai Automobile, Z179 Factory, Vinaxuki and the mechanical engineering developer MDC. The new Automobile Committee under VAMI will back the members with the aim to develop the automotive and supporting industries with a focus on trucks, sedans, passenger vehicles and specialized vehicles. The VAMI deputy chair Dao Phan Long announced that 50% of auto parts could be domestically produced. Vinaxuki general director Bui Ngoc Huyen said that the Vietnamese automotive market wants to reduce the reliance on foreign automakers by making its own automobiles.
However, the new alliance’s success will depend on support from the state, as the Vietnamese companies are poor in capital, technology and branding. Moreover, analysts are concerned about the companies’ ability to persuade the government agencies about their plan’s feasibility. Huyen recognizes that the Vietnamese automobiles cannot be marketed yet as they are hindered by high taxes and fees. The state has been requested to relieve 50% of luxury tax for sedan producers with a localization ratio of 50%. This has been accepted by the Ministry of Industry and Trade, but rejected by the Ministry of Finance. The state agencies that are not supporting are still not confident in the enterprises in Vietnam. In addition, Vietnam will by 2018 implement a zero tariff policy to all imported autos from ASEAN nations. Vietnam automobile imports totaled USD 1.1 billion for the first 10 months of 2014.
China: Mitsui and Sinopec launch rubber plant in Shanghai
Source: Chemicals-Technology, 16 December 2014
Shanghai Sinopec Mitsui Elastomers in China has begun commercial activity, which is a joint- venture between Japan’s Mitsui Chemicals and China’s Sinopec. The new rubber plant will provide 75,000 tons of ethylene-propylene-dieneterpolymer (EPT) per year to China under the name Sinopec Mitsui EPT. The plant is situated at the Shanghai Chemical Industry Park and will produce EPT with metallocene catalyst technology. EPT is claimed to be very resistant to cold and heat, rays from UV and chemicals, as well as electricity. It is mainly used to make auto parts, electric cables and various industrial materials.
Mitsui Chemicals stated that China’s demand for EPT has grown drastically, which has been boosted by the fast-growing automotive market and the social infrastructure’s development. The company also said that the new plant would deliver superior quality, performance-driven functional materials supported by wide technical services to the market in China. Furthermore, Mitsui Chemicals and Sinopec created the joint venture in May 2012 and have in 2009 signed a letter of intent for the project.
Thailand: Umicore to set up automotive catalyst facility
Source: Chemicals-Technology, 15 December 2014
Belgium’s Umicore is to construct a EUR 20 million worth emission control catalysts facility, which will be located in a special economic zone in Hemaraj, Thailand. The plant will provide automotive catalysts to the Southeast Asian markets in order to meet the growing demand. The plant will be constructed near Rayong, which has Thailand’s key automotive facilities. The plant is expected to be finished in the second half of 2016. Moreover, Umicore has predicted that the automotive catalysts demand will grow with the surge in the country’s light duty trucks and passenger cars sales.
Umicore and Nippon Shokubai’s joint venture Umicore Shokubai will also cater to the Japanese clients. Jörg von Roden, the SVP of sales and marketing of Umicore Automotive Catalysts and director of Umicore Shokubai Japan, believes that the new plant will help the company extend its ability to provide the Asian countries with emission control solutions and enhance the existing activities in Japan, China, India and South Korea. The new facility is also part of the Umicore’s strategy to enlarge its product portfolio to Japanese automakers worldwide.
Taiwan: Taiwan Sheen Soon to sell its adhesive units to BASF
Source: Chemicals-Technology, 10 December 2014
BASF has entered into an agreement to buy Taiwan Sheen Soon’s (TWSS) adhesive business and its assets in China and Taiwan. TWSS manufactures thermoplastic polyurethanes (TPU) used in solvent-based adhesives and hotmelt. The deal is part of the strategy of BASF to increase its presence in the market of TPU and its Asian manufacturing footprint by becoming a major supplier of TPU and TPU adhesives. Raimar Jahn, the president of BASF Perfomance Materials says that the new investment will improve the company’s abilities in the growing field of adhesive innovation. Thus, the adhesives operations of TWSS complements BASF’s presence in TPU extrusion and injection molding grades for different segments.
The innovative and recognized technologies of TWSS allow BASF to provide advanced solutions in an approach that is more integrated and efficient. Further, the acquisition will benefit BASF’s clients that are in short innovation cycle segments, according to Albert Heuser, the Asia Pacific president of BASF Greater China and Functions. The agreement will also grant TWSS’ current clients the access to BASF offerings, technical expertise and resources. The transaction is scheduled to be completed in 2015, however the companies chose to not disclose the financial details.
Construction & Property Development
Australia: City apartment to maintain its popularity among investors in 2015
Source: Property Wire, 17 December 2014
Colliers International predicts that the city apartment market in Sydney and Melbourne in 2015 will continue to be strong, following investors and home buyers being attracted by low interest rates. The prospects for interest rates are subjected to unemployment, activity of construction and GDP facing slower economic growth, which will contribute to steady interest rates in the short to medium term. Moreover, Sydney, Brisbane and Melbourne will experience the strongest residential growth, but Western Australia’s waning economic conditions will result in slowdowns in investment activity and development in 2015. In addition, centrally located developments that are near public transport, work and retail facilities will be in great demand. The report further states that the best performing markets have been CBDs in Melbourne and Sydney with the number of apartments over the coming five years to reach 18,000 and 6,000 correspondingly.
The report anticipates the property market in Australia will keep grow in investment volumes, increasing tenant demand and structural change through several sectors. John Kenny, CEO of Colliers International Australia and New Zealand, acknowledges that 2014 has been marked by the continued acceleration of property investment, New South Wales economy’s upturn, indications of leasing demand returning and the ownership of property in Australia continue becoming focused between less owners. Kenny noted that Australian investors are the most frequent buyers, while new foreign investors are continuing to enter the market, especially from China. Chinese investors still dominates headlines and are becoming key sources of outbound capital, with focus on Asia Pacific markets. However, Singapore still maintains the dominant industry player
China: Dalian Wanda Commercial Properties raises USD 3.7 billion through IPO
Source: The Wall Street Journal, 15 December 2014
Dalian Wanda Commercial Properties Co. has raised USD 3.7 billion through an initial public offering (IPO) in Hong Kong after valuing the listing close to the high end of an expected price range. The IPO represents the largest listing in the world by a real-estate company, surpassing Singapore’s Global Logistics Properties Ltd.’s introduction in 2010. Dalian Wanda Commercial Properties parent, Dalian Wanda Group, has previously sold 600 million shares at HKD 48 (USD 6.19), which was close to the high end of a price range as well. Across China, Dalian Wanda Commercial Properties operates 178 projects in 112 cities and 20 provinces.
The IPO of Dalian Wanda Commercial happened after the central bank of China reducing the interest rates in November 2014. It is anticipated by investors that the move will relieve the pressure on severely indebted property firms, whose share prices increased after interest rates were reduced. Furthermore, Dalian Wanda Commercial’s listing prospectus stated that the company had a debt-to-equity ratio of 87.8% at the end of June 2014.
Asia: Housing prices post slower increase in Q3/2014
Source: Business World Online, 14 December 2014
Global Property Guide’s latest report has unveiled that the housing prices in the Philippines and most of Asia continued to grow in Q3/2014, however at a slower pace. In terms of Philippine districts, Makati Central Business district (CBD) increased by an annual 3.58%, compared to the 10.83% rise in Q3/2013. The housing prices in Makati for the period recorded a 2.43% year-on-year increase. Global property Guide’s publisher Matthew Montagu-Pollock acknowledges that the deceleration was affected by the rise in interest rates, the central bank’s constraints on mortgage loans and sluggish economic growth. In addition, Housing and Land Use Regulatory Board’s data showed that applications for residential building licenses for the first eight months of 2014 were virtually flat, rising only 0.3% year-on-year.
The report examined ten Asian markets including the Philippines, Indonesia, South Korea, Vietnam, Singapore, China (Beijing), Taiwan, Hong Kong, Thailand and Japan (Tokyo), where eight of these experienced small surges in house prices during the year to Q3/2014. China reduced significantly by 3.83% in the period, while Singapore skid 4.79%. Global Property Guide reports that governments in Asia are imposing cooling measures to avoid a repeat of the past as many housing markets are overvalued. The report also noted that the worldwide house price boom is continuing as property markets outside Asia is growing more rapidly than earlier.
Consumer & Retail
South Korea: Overseas ecommerce sites gain ground amid noncompetitive domestic prices
Source: Financial Times, 14 December 2014
The amount of young South Koreans purchasing items on foreign online shopping sites for inexpensive deals is increasing, as the domestic mark-up prices are comparably higher. This trend increase because of the country’s advanced Internet infrastructure and the recent doubling of maximum value of tax-exempt shipments from the US to USD 200. Furthermore, the total value of purchases from foreign e-tailers by South Koreans totaled USD 1 billion in 2013, which is around four times more than in 2010. In the first 10 months of 2014 has the number increased to USD 1.23 billion and is estimated to reach a total of USD 1.5 billion for 2014, as more US retailers provide websites with Korean language and free international delivery.
The consumer information professor at Konkuk University Kim Si-wol acknowledges that as the economy is slower, South Korean shoppers become more aware and proactive of higher-quality items at inexpensive prices, which puts pressure on domestic retailers to lower their prices. Even domestically produced items are cheaper on foreign websites. Following the heavy regulations and retail pricing distortions in the country is does it have one of the most expensive prices for smartphones. Consequently, the South Korean retail industry is shifting as domestic retailers are exposed to intensified overseas competition. Local companies are forced to step up by launching shopping bonanzas and attracting foreign shoppers to their ecommerce sites, particularly Chinese consumers that are interested in Korean pop culture. Furthermore, experts project that South Korea and China will have an increased online trading when a bilateral free trade agreement that cuts charges for many products comes in effect.
Malaysia: Retail industry to surge amid the holiday seasons
Source: The Star, 18 December 2014
The Malaysian retail industry is projected to experience firm sales growth in Q4/2014 and Q1/2015, thanks to the holidays Christmas and Chinese New Year. The past-president of the Malaysian Association for Shopping and High-rise Complex Management Richard Chan predicts that shoppers will consume more before the new Goods and Services Tax (GST) will take effect in April 2015. He says that the competition among malls has intensified amid the Christmas shopping and as they are trying to recover from the previous slowdown in 2014 following the MH370 and MH17 air disasters that affected the number of incoming tourists. Chan also expects that many retailers will push forward sales going into the New Year ahead of the implementation of GST, especially with expensive luxury products such as watches and jewelry.
Once the GST takes effect it will take some time for the consumers to get used to it, as it took Singaporean shoppers six to nine months to adjust to their GST, according to Chan. In the meantime, the overall occupancy rates of Klang Valley retail location maintained steady at 89% in Q2/2014, as well as pre-leased malls staying at an occupancy rate of more than 70% in the period, reports property consultant CH Williams Talhar & Wong Sdn Bhd (WTW). However, the retail trade performance for Q2/2014 was slower compared to Q1/2014, which could be due to the absence of festive holidays, rise in the overnight policy rate, less incoming tourists and careful consumer spending.
Vietnam: Retail sector to be completely open for overseas companies
Source: Vietnam.net, 15 December 2014
Vietnam’s retail sector will be completely open to foreign firms once the ASEAN Economic Community (AEC) takes effect in 2015, accompanied with the implementation of the commitments of World Trade Organization (WTO) and various multilateral and bilateral free trade pacts. Many foreign leading retailers have already entered the Vietnamese market such as Germany’s Metro Cash & Carry, France’s Big C, Malaysia’s Parkson, US’ Circle, South Korea’s Lotte, Japan’s Aoen and Singapore’s Shop & Go. Foreign firms have been allowed to enter the country’s distribution system since 2009 in 110 out of 155 service sub-sectors, however they have not been allowed to sell items including newspapers, books, magazines, videos, cigarettes, exquisite stones and metal, dynamite, medicine, crude oil, petrol, sugar and rice.
Ho Chi Minh City is estimated to have around 700 convenient store and 240 traditional markets. A survey showed that the city is in demand of 100 commercial centers, 1,000 supermarkets and 10,000 convenient stores, to differentiate its distribution system and to better cater the populations’ shopping demands. Subsequently, the country has a potential in its retail market with an average revenue growth in retail of 21.2% over the past five years, and in 2013 it earned USD 124 billion. There have been a small number of domestic retailers with around 10% overseas retailers that operate 40% of Vietnam’s supermarket and are projected to increase. Moreover, the Vietnamese government has now assured to not limit the item’s origin in foreign retail outlets, which gives them the full control of deciding what goods to distribute in the country.
Energy, Resources & Environment
India: Green Energy Corridors project to receive funding from Germany
Source: Business Insider, 18 December 2014
On 17 December 2014, India and Germany have entered into an agreement to back the Green Energy Corridors (GEC) project financially. The agreement was signed as part of the Indo German Bilateral Development Cooperation. The two nations are constructing a transmission infrastructure that can later be transferred to the national power grid in the Indian states that are rich in renewable energy. Germany already invested a total of EUR 750 million (USD 918.4 million) into the GEC project since 2013.
The ministry of finance has announced that the German government also signed three loan contracts for the GEC project, totaling a value of EUR 625 million. The Development Bank KfW of Germany will give a EUR 76 million loan to Tamil Nadu, a EUR 49 million loan for intra-state transmission schemes to Rajasthan and a EUR 500 million loan to Power Grid Corporation of India Limited for inter-state transmission schemes. In addition, KfW signed a EUR 4 million agreement with the Department of Economic Affairs to deliver technical assistance to the project of Himachal Pradesh Forest Ecosystems Climate Proofing and Tamil Nadu Urban Infrastructure Development Fund respectively.
Japan: GE Energy Financial Services, Pacifico Energy to construct new solar plant
Source: Zacks Equity Research, 11 December 2014
General Electric’s subsidiary GE Energy Financial Services has signed an agreement with Virginia Solar Group’s Japanese unit Pacifico Energy to construct a 42MW solar plant in Mimasaka, Okayama prefecture of Japan. Funding for the plant was secured by GE Energy Financial Services and Virginia Solar Group, supported with a USD 109.2 million credit facility from the Bank of Tokyo-Mitsubishi UFJ and Chugoku Bank. The new plant will be equipped with photovoltaic panels and inverters from Yingli Green Energy Holding Co. Ltd. and Toshiba Mitsubishi Electric Industrial Systems Corp. The solar plant is scheduled for operation in Q3/2016 and will supply power to Chugoku Electric for 20 years at a fixed tariff rate.
Japan currently depends on solar plants for energy sources in order to meet the supply shortage that occurred after the 2011 Fukushima disaster, which impacted the country’s confidence in nuclear energy. Japan is looking to diversify its mix of power sources and aims to produce 20% of its power from renewable energy sources by 2020. Moreover, GE Energy Financial Services has had three solar projects in Japan in 2014 with renewable power being its fastest-growing energy market, where the company has invested more than USD 1.8 billion into over 1 GW solar power globally. The company and plans to invest USD 1 billion per year on renewables.
Asia: Uranium prices jump as region moves toward nuclear energy
Source: The Wall Street Journal, 18 December 2014
The largest Asian economies are increasing their dependence on nuclear energy as they are moving away from coal-fired plants. The prices of uranium have risen 35% since May 2014 and have jumped further on 17 December 2014, as Japan is to restart two of its nuclear reactors after the Fukushima accident in 2011. Before the disaster nuclear power represented 30% of Japan’s power mix, but the country has depended heavily on imported coal and gas since 2011. Moreover, demand from India and China is increasing with the latter planning on constructing nuclear-power plants to fight the smog. Additionally, uranium prices have also been partly driven by the fear of tougher Western sanctions against Russia.
Even though the uranium prices have jumped, it is still not strong enough to increase the yield from prevailing mines. Rick Rule, the founder of Sprott Global Resources Investments, says that as the short-term prospects for uranium is varied with output costs greater than the sales prices, makes it an unsustainable condition. The government of Japan’s support for nuclear energy might lead to increased prices, but the country’s economic recovery is uncertain and prices for other fuels are weak. The current price of uranium is at USD 38 per pound, which is far below the USD 70 per pound the producers need to stop cutting their production, says Alexander Molyneux, chairman of Azarga Resources Ltd. In 2014, the total amount of traded uranium recorded around 180 million pounds, corresponding to USD 6.8 billion at existing prices. By 2020, is the amount estimated to rise to between 230 and 250 million pounds.
China: Standards Chartered to offload consumer finance assets in Hong Kong and Shenzhen
Source: The New York times, 16 December 2014
The UK bank Standard Chartered has entered into an agreement to sell its consumer finance assets in Shenzhen and Hong Kong to a group of investors including China Travel Financial Holdings Company, Pepper Australia Pty Limited and York Capital Management Global Advisors. The deal comes after the British bank has been cutting assets beyond its core businesses in order to strengthen its profit. Standard Chartered has announced in 2013 that it planned to sell or exit a number of its smaller assets.
The terms of the sale of PrimeCredit Limited and Shenzhen PrimeCredit Limited were not disclosed. However, Standard Chartered has stated that it is looking to trade its consumer finance businesses of PrimeCredit for up to USD 700 million, as it is seen as noncore assets in Asia. Moreover, the consortium will after the transaction sell PrimeCredit’s residential mortgages to Bank of East Asia with a book value of HKD 5.9 billion. The chairman and chief executive of Bank of East Asia David K.P. Li announced that the purchase will contribute to the bank effectively increase its Hong Kong assets.
Thailand: BOK revises down economic outlook for 2015
Source: Reuters, 19 December 2014
Paiboon Kittisrikangwan, the Deputy Governor at Bank of Thailand, has announced that the recovery of the national economy in 2015 will not be as strong as previous projected, where the main driver behind 2015’s growth will be government spending. He added that the central bank have to spare monetary policy “space” if rate change is needed to support the growth. The central bank voted on 17 December 2014 that the key interest rate THCBIR=ECI would maintain at 2.0% and also to cut BOT’s economic growth projections that previously stated 1.5% expansion in 2014 and 4.8% in 2015. Paiboon claimed that the currency THB=TH was going in accordance with currencies regionally, but the BOT had measures that could retrain any superfluous movements.
Thailand, the second biggest economy in Southeast Asia, only expanded 0.2% in 9M/2014 following weak exports and still-subdued local demand. The country’s consumption is restrained by large household debts, whilst sectors have been distressed from unrest such as tourism. The Finance Ministry projects that economy could expand below 1% in 2014, which would be the slowest since 2011. Additionally, the Asian Development Bank also reduced its GDP forecast for Thailand from 1.6% in 2014 to 1.0%, and from 4.5% in 2015 to 4.0%.
India: Japanese banks to expand local presence amid slow home market
Source: The Daily Star, 18 December 2014
The biggest banks in Japan are seeking to strengthen their presence in India as the home market is facing a declining economy and soft demand for loan. This is encouraged by the reform agenda of India’s Prime Minister Narendra Modi to revive the country’s growth and lure overseas investments. Menawile, the two nations’ relationship would be enhanced further. Nevertheless, lenders from Europe and US have been affected negatively by the nation’s harsh decline. Japan’s Mitsubishi UFJ Financial Group and Mizuho Financial Group Inc are looking to inaugurate new branches and to offer new services such as debt capital market advisory, M&A financing and corporate deposits. They perceive a chance to tap on a market that is dominated by state-owned banks that are inefficient, where foreign lenders have 6% of banking assets.
Japan’s Mizuho Bank says that India is one of its major focus markets and has been approved to open its fifth branch in Gujarat, India. Mizuho bank will provide debt capital market services and assist Indian firms to launch ‘Samurai bonds’ as cheap borrowing options for these firms. However, there are challenges with foreign banks operating under tight regulations and risks with smaller companies with bad debts. Additionally, Sumitomo Mitsui Banking Corp seeks to tap on more project finance businesses and MUFG plans to work with Morgan Stanley to support the financing of an anticipated wave of foreign acquisitions by Indian companies. Taiju Hisai, India head of Bank of Tokyo-Mitsubishi UFJ adds that the government in Japan is actively backing and encouraging investments in India.
Logistics & Transportation
Japan: Okinawa set to become a worldwide logistics hub
Source: Business Asia One, 15 December 2014
Japan’s southernmost island prefecture Okinawa intends to become the global flight logistics hub as it has invested more than JPY 650 million since 2009 into increasing business, trade and tourism opportunities with Singapore and rest of Asia. Okinawa will launch its first Southeast Asian office located in Singapore in April 2015 adding to its existing number of offices in Beijing, Shanghai, Hong Kong and Taipei. Okinawa will gather cargo from a minimum of 15 bigger Japanese cities and ship to different destinations in Asia and vice versa. The shipments will happen as fast as half a day and in the long-term in just five hours.
Okinawa has also been announced as a Special Economic Zone including two free trade zones where stationed companies can experience nominal factory and office rental, reduced corporate tax rates, several subsidies, lower customs duties and financial services costs and close access to Naha Airport and the city. The logistics and cargo flight carrier ANA Cargo flies from Okinawa to eight Asian cities at least once per day and to other places in Japan 90 times per day. Moreover, the Japanese island exports many food products to countries and also may serve as platform for companies to penetrate key Japanese markets. However, Alfred Ang, Rosen's managing director said that the prefecture government need to make it simpler and more inexpensive for overseas firms to register and introduce products to Japan, in order for them to be interested to set up a retail space in Okinawa.
Hong Kong: Goodman Group confident in regional logistics market
Source: South China Morning Post, 17 December 2014
Albeit Mainland China’s market is growing rapidly, Hong Kong could maintain as an important regional logistic hub thanks to its excellent, efficient customs regime where no taxes are put on incoming goods that are further distributed to the rest of Asia, says Philip Pearce, the managing director of Goodman Group’s Greater China unit. The group operates a 2.4 million sq ft warehouse and distribution development in Tsing Yi, Hong Kong’s ports district. Pearce recognizes the majority of their demand in Hong Kong is for local consumption. Nevertheless, increasing costs might thwart the city’s position as a regional logistics hub.
The occupancy in Hong Kong is 99.99%, resulting in rising rents and land prices, adds Pearce. Further, CBRE reported that the warehouse vacancies stayed at 0.5% by the end of Q3/2014, and firm demand and low vacancies kept driving the rents upwards by 1.6% from Q2/2014. In 2014 was there only one new warehouse project, located in Tsing Yi and run by SF Express. In the coming two years 2.3 million sq ft logistics space by Mapletree and China Merchants will be finished. But there will still be a lacking supply of quality industrial space in the longer-term. Furthermore, government is to sell a 129,000 sq ft of industrial site in Kwai Chung, says CBRE.
Indonesia: Four new short seaports to be launched in January 2015
Source: The Jakarta Globe, 11 December 2014
Indonesia’s Transportation Ministry has announced that four new short sea shipping ports will be launched at latest in January 2015, and that the government is looking to cut shipping costs for the firms. Short sea shipping or marine highways function as short-haul shipping that follows coastlines instead of longer-distance courses that pass oceans. The director general for sea transportation at the ministry Bobby Mamahit says that there is no need to construct a new port as the nation already has ports located in Panjang in Lampung, Marunda in Jakarta, Kendal in Central Java and Paciran in East Java.
The infrastructure in the country is prepared to handle the allocated shipping volume, and as the short sea ships do not need docks that are longer than 150 meters, but there are 200 meters docks prepared, according to Bobby. He further says that the government may provide incentives such as cutting costs at the ports as the state need to support these programs to avoid hurdles. Moreover, the short sea shipping is a major part of the president’s maritime doctrine to form a more structured marine highway across the archipelago that would reduce the logistics costs for Indonesian businesses.
Manufacturing & Industrial
China: Manufacturing PMI drops to 7-month low
Source: Channel NewsAsia, 16 December 2014
According to HSBC, China’s manufacturing PMI for the month reached 49.5 - lower than the break-even point dividing expansion and contraction. The figure, compiled by Markit, is the weakest result since May’s reading of 49.4. Qu Hongbin, chief economist for China at HSBC, said, “The manufacturing slowdown continues in December and points to a weak ending for 2014. The rising disinflationary pressure, which fundamentally reflects weak demand, warrant further monetary easing in the coming months.”
The preliminary results came after the Chinese economy in the Q3/2014 rose at its slowest pace since the financial crisis. It also reflects continued weakness in the current Q4/2014. In November 2014, the central People’s Bank of China reduced interest rates for the first time in over two years to tap slowing growth, with experts forecasting further easing measures. On 2 January 2015, HSBC will publish its final reading for December 2014.
Japan: Manufacturing PMI increased to 52.1 in December
Source: Reuters, 16 December 2014
The manufacturing activity in Japan has surged slightly this month and production rose at the fastest pace since September. The Japan Markit/JMMA Manufacturing PMI increased to a seasonally adjusted 52.1 this month from a final 52.0 in November, suggesting the domestic economy is recovering from a recession in the Q3/2014. The output component of the PMI surged to a preliminary 53.3 from 52.7 in the prior month.
New orders and new export orders both increased, however at a slower rate. The index for new export orders dropped to a preliminary 50.3 from a final reading of 51.8 in November. On 5 January 2015, the final reading for December will be released. During the Q3/2014, the local economy unexpectedly dropped into a recession as a result to a hit to consumption from April’s sales tax increase. Since then, exports have rebounded, yet consumer mood declined.
Indonesia: Government to establish industrial zones outside Java in 2015
Source: Shanghai Daily, 18 December 2014
Deddy S. Priatna, Bappenas Deputy Director for Equipments and Facilities, said the Indonesia government will begin to develop 13 industrial zones outside Java in 2015 to establish new engines for the nation’s economic growth. Priatna said, “In 2013 Java contributed 55% to the nation’s growth, while Sumatra only contributed 22%. Development of industrial zones outside Java would provide more job opportunities.”
He also noted that local authorities have allocated IDR 55.44 trillion (USD 4.4 billion) to finance the projects in which IDR 17.66 trillion would be designated to construct seaports. Deddy mentioned the government is considering establish various special economic zones as well as building technology parks to support operations of those industrial zones.
Pharmaceuticals & Healthcare
Singapore: Positive 2015 outlook for domestic healthcare stocks
Source: Channel NewsAsia, 18 December 2014
Healthcare stocks have been performing well in 2014, whereas drug manufacturers, healthcare equipment producers, and biotech firms have had mixed fortunes on the Singapore bourse this year. Compared to the global median return of 5.6%, the SGX Healthcare Index has generated a year-to-date overall return of 9.6%. Andrew Chow, analyst at UOB Kay Hian, said that in ASEAN there is exceeding capacity-driven growth. According to Chow, Raffles Medical, for example, is raising it capacity in Singapore by over 70%, slated for completion by Q1/2017. IHH Healthcare Berhad, Raffles Medical Group, Tianjin Zhongxin Pharmaceuticals Group Corp, Haw Par Corp, and Parkway Life REIT – the five biggest capitalized healthcare stocks on the mainboard – have a combined market capitalization of SGD 23 billion and average total result of 12.4% year-to-date.
Meanwhile, smaller industry participants including ISEC Healthcare, QT Vascular, and TalkMed Group are also enhancing their presence in the market. David Kuo, CEO at Motley Fool, said that medical tourism in Singapore totaled nearly SGD 1 billion last year and it’s forecasted to reach to SGD 2 billion by 2020. The annual growth rate is between 13% and 15%. According to Capgemini and RBC Wealth Management’s latest report titled “Wealth Report 2014”, the Asia-Pacific region is showing world-leading levels of wealth growth with no signs of decelerating. With an increasing demand for quality healthcare, together with high-end medical services, healthcare stocks are set to do well next year.
India: Generic drug-maker Natco receives compulsory license to sell Bayer’s Naxavar
Source: Financial Times, 12 December 2014
The Supreme Court in India has rejected Bayer’s appeal against a decision by the nation’s patent controller in 2012 to annul the monopoly on Naxavar, a drug that treats kidney and liver cancers. Bayer has been battling against the issuing of a compulsory license that permitted Natco, an Indian generic drug manufacturer, to offer Nexavar for only USD 173 per month, in comparison to the USD 5,500 month charged by the German drug giant. On 12 December, Bayer said, “We are analyzing the order and will determine any future course of action afterwards.” The Lawyers Collective, a human rights organization in India, noted it as an important decision that would have a wide-range of implications for access of medicines. This decision also strengthens market concerns about intellectual property in the second-most populous country in the world.
Local courts have recently refused patent applications on drugs from Novartis and Roche, increasing tensions with the sector as well as western authorities. Yet, Nexavar is the only case until now in which the country has issued a compulsory license under rules that permit the government and enterprises to seek permission to nullify drug patents in the interest of public health. The domestic market has no involvement in Natco’s application for Nexavar license or in the patent controller’s decision to allow it. About 70% of healthcare expenses in India are paid by patients and their families. Western drug manufacturers often accuse the government of utilizing public health as an excuse to strengthen the nation’s large generic pharmaceuticals sector.
China: Government to speed entry of pharmaceuticals from the US
Source: The Tribune, 18 December 2014
During the US-China Joint Commission on Commerce and Trade that took place in Chicago, China pledged to accelerate US pharmaceuticals and medical products imports and enforce its anti-monopoly regulations equally among Chinese and overseas enterprises. Zhang Xiangchen, an assistant of the commerce minister, said China will work towards facilitating the review and approval process for US devices in the pharmaceutical and medical sectors and address a backlog within the next two to three years.
According to Xiangchen, the country will also cut as much as possible the unnecessary clinical trials. However, issues regarding protection of intellectual property and trade secrets were raised during the trade evne.t Firms have expressed concern about Chinese anti-monopoly investigations, indicating China is inadequately utilizing those probes to pressure overseas enterprises to reduce prices or change business practices. Zhang, however, noted China will try, when possible, to permit US legal counsel for American firms attend meetings in antitrust operations.
India: IPO market stuck, local firms raise money through debt or PE
Source: The Wall Street Journal, 9 December 2014
So far this year, Indian companies have only raised INR 8 billion (USD 139 million) in primary market, suggesting that if void of any large IPOs this month it would be the country’s worst year (in terms of IPOs) in more than ten years. Experts noted an increasing number of firms that want to be listed, however the procedures of IPOs are being postponed as a result of stricter regulatory requirements. Other enterprises are worried that the stock market may get ahead of itself and want further evidence that India is returning to a period of strong growth before they issue shares.
According to Pranav Haldea, managing director at Prime Database Group, the disclosure requirements of IPOs and already listed firms have shot up in the past several years. He added that authorities now require more information about previous financial transactions and shareholding patterns. It previously took three months to get all the paperwork needed for an IPO reviewed, however it can take over six months now. U.R. Bhat, managing director at Dalton Capital Advisors (India) Pvt. Ltd, find several firms raising capital through debt or private equity instead of IPOs. Indian e-commerce firm Flipkart Internet Pvt has raised over USD 1 billion in 2014 from private equity investors, whereas Jasper Infotech Pvt also raised nearly USD 1 billion this year.
Singapore: Blackstone awaits real estate recovery, pours investment in luxury properties
Source: Bloomberg, 19 December 2014
In anticipation of a property recovery over the long term, Blackstone Group LP will take part in the refinancing of luxury Singapore properties with Malaysia’s CIMB Bank Bhd. Blackstone and CIMB Bank will supply SGD 469 million (USD 357 million) in funding to City Developments Ltd.’s project in Sentosa. Blackstone maintains a positive long term view of Singapore and is prepared to wait as long as five years for a turnaround in residential prices to see higher returns on the transaction. The world’s largest private-equity property investor has ramped up investments in Asia this year, including buying GE Japan Corp.’s residential business and entering the retiree housing market in Australia. The firm is taking advantage of a slowdown in the Singapore housing market following government curbs since 2009 in a move to prevent market bubbling.
Following the introduction of stricter lending criteria in 2013, residential prices fell 0.7% in the three months ended September, the fourth quarter-on-quarter drop. Confident in the overall Asian market, Blackstone has invested approximately USD 7 billion, including USD 3 billion of equity, in the region since its first deal in 2007. Last month, the firm agreed to invest AUD 150 million (USD 123 million) in National Lifestyle Villages Pty, which develops manufactured retirement communities in Australia, and also agreed to purchase GE’s residential business in Japan for more than JPY 190 billion (USD 1.6 billion). In its latest deal with City Developments, Blackstone, CIMB and the property developer will pour in a total of SGD 750 million in a capital instrument called a profit-participation security, while DBS Bank and Oversea-Chinese Banking Corp. will provide SGD 750 million in loans separately.
Thailand: Investors remain high on hope
Source: Wall Street Journal, 08 December 2014
Fund managers continue to seek investment in Thailand despite a lack of deal flow, political upheaval and competition from family-run businesses. Benefits to investing in Thailand arise from the lack of government restrictions on the private sector, an economy driven in large part by the consumer sector and attractive company valuations. However, challenges in deal sourcing remain a major sticking point to a steady market. During H1/2014, four deals were concluded, on par with the total number of transactions for all of 2013, according to the Emerging Markets Private Equity Association.
Although the number of Thai deals has been consistent, it is small compared with that of Vietnam. One key setback to private equity is the family-run nature of businesses in Thailand, which makes them less prone to selling stakes to private equity. That said, Panaikorn Chartikavanij, co-founder of Lakeshore Capital Asia, a midcap Thai investment firm targeting the manufacturing and consumer sectors, noted that the Thai public market has traditionally traded at a discount compared with other Southeast Asian markets.
Technology, Media & Telecommunications
China: Active Android users reach 386 million
Source: Tech In Asia, 15 December 2014
China now has 386 million daily active Android users, up from 270 million users recorded as of Q3/2013 according to data compiled by Baidu for its Q2 Mobile Distribution Report. Consumption of smartphones running on Android systems has accelerated in the past few years due to the introduction of cheaper phones from brands such as Xiaomi and Coolpad. The number of daily users in the country seems to have doubled from Q1/2013 to Q2/2014. Baidu counts the number of active users based on discrete visits to its numerous sites.
In many ways, Baidu’s figure provides a better scenario of Android usage in China than Google. Google counts Android activation by counting only devices where the user visits the Google Play store. However, Google Play has been blocked in China since June of this year, limiting Google’s ability to track usage. Meantime, the number of active Android users may potentially slow down as China’s smartphone market comes close to saturation. New smartphone sales would serve as replacements rather than newcomers switching over from basic phones.
India: OnePlus hit with sales ban
Source: Tech In Asia, 17 December 2014
Chinese phone maker OnePlus has been banned by the Delhi High Court from selling, marketing, or importing phones in India due to its adoption of Cyanogenmod’s version of Android operating system, which is licensed exclusively in the country by rival phone brand Micromax. Micromax acquired the rights to be Cyanogen’s exclusive partner in India in October. Micromax argued that it has already incurred major expenses for creation of a brand catered exclusively to Indian customers Cyanogen operating systems, and would suffer from harm and loss if OnePlus was allowed to continue its illegal act.
On OnePlus’s part, it claimed that it entered a collaboration and trademark license agreement with Cyanogen in February, giving it the right to use Cyanogen’s trademark and software anywhere in the world except for mainland China. OnePlus claimed that Cyanogen only notified the termination of the Indian agreement a fortnight before the phones’ launch. For OnePlus One phones already sold, they will not receive system updates. Meantime, OnePlue will build a custom Android system for its users. Earlier this month, Xiaomi was also banned in India in a dispute over patents held by Ericsson but has now received temporary reprieve on the ban.
Japan: Line takes over MixRadio in first-ever acquisition
Source: Wall Street Journal, 19 December 2014
Line has agreed to buy mobile music streaming app MixRadio from Microsoft, representing the first business the company has acquired. The acquisition is part of Line’s strategy of building a one-stop shop for communication, commerce and entertainment. The app already provides a wide array of services including games and e-commerce. Meantime, the company is set to launch its own music streaming service called Line Music this year. Line considers Line Music and MixRadio to be separate services, with Line Music designed as a subscription-based service. Last week, Line announced its collaboration with Japanese music label Avex Digital and Sony Music Entertainment.
Line currently has a strong user base in Japan, Taiwan, Thailand and Indonesia. It aims to expand its coverage worldwide. However, it is met with fierce competition from other Asian messaging apps such as WeChat, a messaging app operated by Chinese Internet giant Tencent Holdings. WeChat also combines mobile games, e-commerce and other services in a messaging app and has 468 million active users mainly in China. Tencent also has its own music streaming service called QQ Music. Additionally, Tencent has entered into an exclusive online distribution deal with Sony Music in China this week.