Month: December 2017

Asia trades mixed on the last trading day of the year; dollar on the back foot

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Major markets in Asia were narrowly mixed on the last trading day of the year following the moderately higher close seen stateside. Meanwhile, copper prices held onto gains to trade near a four-year high.

The Nikkei 225 was higher by 0.21 percent in a session where trade is likely to be thin. Automakers, technology and financials mostly made gains early in the session, while retailers saw slight losses.

Down Under, the S&P/ASX 200 edged down 0.22 percent, with losses seen in most sectors, barring materials. Banking stocks were mixed although the financials sub-index was slightly lower on the whole: ANZ inched 0.05 percent higher and Westpac was 0.38 percent softer. Among mining names, Rio Tinto climbed 0.99 percent and Fortescue Metals shed 0.51 percent.

Greater China markets traded slightly higher on Friday. The Hang Seng Index edged up 0.2 percent. On the mainland, the Shanghai Composite rose 0.21 percent, with gains seen in banking stocks and property names in early trade. The Shenzhen Composite was 0.36 percent higher.

South Korean markets were closed on Friday, with trade to resume only after the New Year’s weekend.

Wall Street closed slightly higher on Thursday, with the Dow Jones industrial average closing at a record high. The index on Thursday remained on track to record weekly gains.

The Dow tacked on 0.26 percent, or 63.21 points, to close at 24,837.51.

Markets across Asia have run up significantly this year, buoyed by the recovery in economic growth globally. MSCI’s broad index of shares in Asia Pacific excluding Japan had risen more than 30 percent year-to-date early on Friday.

Those gains were more than the around 25 percent increase seen on the Dow this year.

Dollar on the back foot

The greenback was weaker despite the passage of a major tax bill earlier this month and the prospect of additional interest rate hikes from the Federal Reserve in the new year.

The dollar index, which tracks the U.S. currency against six major peers, traded at 92.660 at 9:44 a.m. HK/SIN, near its lowest levels in a month.

Against the yen, the dollar edged down to trade at 112.75, after beginning the week around the 113 handle.

“Seasonally light liquidity and end-of-year rebalancing flows continue to dominate price action,” Alex Stanley, senior interest rate strategist at National Australia Bank, said in a morning note.

Meanwhile, bitcoin struggled after briefly falling 11 percent following South Korea’s announcement that it would be implementing additional rules to regulate cryptocurrency trading.

Bitcoin hit a low of $13,498.78 on Thursday before paring some losses to trade at $14,284.25 at 9:45 a.m. HK/SIN, according to industry site CoinDesk. The cryptocurrency has seen volatile trade, touching a record high of above $19,800 and falling to as low as $10,400 in the span of weeks.

On the commodities front, oil extended gains after trading at its highest levels in two and a half years overnight. U.S. crude futures rose 0.52 percent to trade at $60.15 per barrel, levels not seen since mid-2015, Reuters said. Brent crude futures advanced 0.45 percent to $66.46.

Copper, often regarded as a gauge of economic growth, traded near levels not seen in four years. Three-month copper on the London Metal Exchange was 0.1 percent softer at USD 7,279 per ton after finishing nearly one percent higher in the previous session.

Corporate news

In company news, SoftBank Group and Uber came to an agreement that will see the Japanese tech giant take take a 15 percent stake in the ride-hailing start-up. The deal values Uber at USD 48 billion, which is a roughly 30 percent discount to its USD 68 billion valuation in 2016. Shares of SoftBank were higher by 0.5 percent.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

It looks like the India-China rivalry is spreading to another front

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Barack Obama says he felt a sense of ‘serenity’ after Donald Trump’s inauguration

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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When 44th U.S. President Barack Obama handed over the reins of the White House to Donald Trump, the former leader felt serene, even though there was work yet to be completed.

Speaking in an interview for the BBC Radio 4’s Today Program, Obama described to Prince Harry of the U.K. royal family the moment he left the presidency behind, while reflecting upon the work his administration had done.

“I think it was a satisfying feeling. That was mixed with all the work that was still undone. Concerns about how the country moves forward but, you know, overall there was serenity there. More than I would have expected,” Obama said.

Still, he believed his administration had “run a good race” during its eight years in office.

“One of the metaphors that I always used for the presidency is that you are a relay runner. There is the sense sometimes in any position of leadership that you, by yourself, do certain things and then it’s over and I always viewed it as taking the baton from a whole range of people who had come before me. Some of whom had been heroic and some of whom had screwed up,” Obama explained.

“But wherever you were in the race: if you ran hard, if you did your best, and that you then were able to pass that baton off successfully and the country was better off, the world was a little bit better off, then when you got there, then you could take some pride in that. And I think we were able to do that.”

So when Jan. 20, 2017, rolled around, Obama felt a feeling of satisfaction, and that the work that he, first lady Michelle Obama and the administration had done had “preserved out integrity and left us whole.”

Looking back, however, there are definitely elements that Obama misses from his time as president, in particular his team.

“Everything you do, every day you know can affect millions or billions of people in some cases. And to have really smart focused people who are there for the right reasons and who, over time, have built up trust and have learned to support each other and rely on each other — I miss that,” said Obama, adding that the work itself was “fascinating.”

Life after the White House

Since Obama left his role as president, he has remained somewhat active in the political space, weighing in on other elections such as those in France.

Meantime, Michelle Obama has turned her attention to philanthropy, officially launching the Obama Foundation with her husband earlier this year.

Based in Chicago, the foundation is “a living, working start-up for citizenship” which looks at promoting how to be a good citizen within the 21st century.

In the interview with the prince, Obama said that while it is “hugely liberating” to be able to make his own decisions and not have a constantly full inbox, which he had as president, the “things that are important” to him haven’t changed.

“I still care about making sure that the United States and the world is a place where kids get a decent education, where people who are willing to work hard are able to find a job that pays a living wage,” he said.

“And so, although I don’t have the same tools that I had as president, I have to rely more on persuasion than legislation, for example, a lot of the things that still motivate me and move me continue to this day.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Bitcoin struggles to hold above $16,000; crypto marketplace Coinbase reports transaction delays

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Bitcoin rallied Tuesday, recovering from a sharp sell-off late last week.

The digital currency briefly climbed more than 12.5 percent to above $16,100 late Tuesday morning and was trading near $15,965 late in the afternoon, according to Coinbase, the leading U.S. platform for trading major digital currencies.

However, Coinbase said on its status website at 1:24 p.m., ET, that “Due to high volume, we are experiencing a backlog of outgoing transactions for BTC and ETH. … Outgoing transactions of BTC and ETH may be delayed by several hours.”

The issue remained unresolved more than three hours later, according to the website.

With Tuesday’s gains, bitcoin has now recovered more than 50 percent from a low of $10,400 hit Friday in an extremely volatile day of trading that had no immediately apparent explanation behind it. Trading on Coinbase was also down for more than two hours during Friday’s sell-off.

Nolan Bauerle, director of research at CoinDesk, attributed much of Tuesday’s price recovery to improved access to buying cryptocurrencies.

“After last week’s sell-off, order books got some breathing room,” Bauerle said in an email to CNBC. “Those that wanted to buy at all-time highs suddenly saw discounts and more importantly could actually buy from exchanges that worked through the backlog.”

Bitcoin has soared more than 1,600 percent over the last 12 months, according to Coinbase. A surge of investor interest has helped turn the once-fringe item to an object of Wall Street’s attention. CME, the world’s largest futures exchange, and its competitor Cboe both launched bitcoin futures this month. Many see the launch as a step towards legitimizing bitcoin as an asset class for institutional investors.

The CME bitcoin futures expiring in January settled nearly 11.7 percent higher at $15,785, and the Cboe bitcoin futures settled up 13.3 percent at $15,810. Trading volume in the Cboe January contract was above 2,300, while the CME equivalent was near 2,000, according to their websites.

Ethereum traded 0.6 percent higher near near $770, down about 12.6 percent from its record high of $881.44 hit Thursday, according to CoinMarketCap.

The bitcoin offshoot, bitcoin cash, traded more than 1 percent lower near $2,806, according to Coinbase.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Bitcoin could hit $60,000 in 2018 but another crash is coming, says startup executive

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Cryptocurrency entrepreneur Julian Hosp says bitcoin’s rapid rise isn’t over yet. But there’s a catch.

“I think we’re going to see bitcoin hitting the $60,000 dollar mark, but I also think we’re going to see bitcoin hitting the $5,000 dollar mark,” said Hosp, co-founder and president of TenX, a firm that wants to make it easier for people to spend virtual currencies.

“The question is though, ‘Which one is it going to hit first?'” he said.

Numerous high-profile critics and several national governments have warned of the dangers of investing in cryptocurrencies, which they say are likely to crash because nothing underpins their value.

Hosp’s forecast would represent a $45,000 rally from the current price of bitcoin — or a $10,000 collapse, underscoring the volatility of the world’s largest cryptocurrency.

An extremely volatile asset

After rallying to a record high above $19,800 midway through December, bitcoin prices collapsed last Friday. The digital currency lost a third of its value in a single day, briefly sinking below $11,000 before regaining some of the ground it lost.

Bitcoin traded at $15,185 on Tuesday, according to Coinbase.

“For experts that have been in the market, this was actually a welcome dip,” Hosp told CNBC’s “Squawk Box”.

He said industry insiders had expected the price of bitcoin to fall, given the “dangerous” elevation of value that it has seen over the past few months.

“This dip for us was very, very healthy, and some of us have used it to buy a little bit more because suddenly we had 40-45 percent discount to all-time highs,” he added.

Hosp said he’s certain that bitcoin will fall again.

“Definitely,” he said. “I don’t think right now, but I think in the long run, we will always see a little bit of an up move, and then a dip down.”

‘Winter’ is coming — eventually

Hosp likened the current interest in bitcoin to the dotcom bubble that started about 20 years ago, and warned that a consolidation of digital coins is likely to take place in the future.

“I don’t think crypto winter is going to come in the next couple of months, but I think if we look down one to two years, there is definitely going to be a big compression in the market,” he said.

“I don’t think it’s going to be a bubble that’s just going to burst and everyone is going to lose their money, but I think it’s going to be that all the coins and all the assets with very little use or value are going to get sorted out,” he said.

“The money is going to flow into those assets in this cryptocurrency space that really deliver value, have new technology, and are being used by people,” he added.

TenX charges fees for a wallet and card that are designed to make digital currencies more usable for transactions.

Hosp didn’t share his thoughts on which cryptocurrency has the most longevity, but he did say that compression of the market will reduce their numbers.

“I see bitcoin more as digital gold,” he said, “rather than a currency that is going to be used on a daily basis.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Nikkei takes a breather the day after Christmas; Kospi edges up

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asian markets were mixed early in the Tuesday session in what’s likely to be light, holiday-week trading.

Japan’s benchmark Nikkei 225 index came under slight pressure after closing at a 26-year high in the last session, despite thin holiday trade. The index traded lower by 0.1 percent as most technology and auto names drifted lower. Energy-related companies, however, made gains as oil priced nudged higher.

Most Japanese retailers also edged higher, with shares of department store operator Takashimaya popping 3.93 percent to touch a more than two-year high. Takashimaya on Monday announced a 5.6 percent increase in operating profit for the nine months ending November, Reuters said.

Core consumer prices for November released Tuesday rose for an 11th consecutive month, although higher prices were largely due to higher fuel costs, Reuters said. The core consumer price index increased 0.9 percent in the month, above the median 0.8 percent forecast, according to the news agency.

Meanwhile, minutes for the Bank of Japan’s October meeting showed most board members thought it was necessary for the central bank to “persistently pursue powerful monetary easing,” but that additional measures were not needed now.

In South Korea, the Kospi advanced 0.53 percent in early trade. Blue chips were mixed in the morning, with Samsung Electronics holding 0.08 percent above the flat line, but Hyundai Motor and SK Hynix declining 0.33 percent and 1.04 percent, respectively.

Hong Kong, Australia and New Zealand markets remain closed on Tuesday.

Exchanges in much of the world were closed on Monday as well, including Australia, South Korea, Hong Kong and Singapore. US and European markets were also closed, though New York will be back in action on Tuesday.

In currencies, the dollar index, which tracks the greenback against a basket of six major currencies, was mostly flat at 93.253 at 8:19 a.m. HK/SIN. The dollar was steady against the yen at 113.26.

Meanwhile, bitcoin was firmer after it lost around a quarter of its value in volatile trade ahead of the Christmas weekend. That was despite news out of Israel that regulators would be looking into prohibiting bitcoin-focused companies from trading on the stock exchange, according to Reuters.

After touching a high of $14,572.98 on Monday, the cryptocurrency traded at $14,103.70 at 8:21 a.m. HK/SIN, according to industry site CoinDesk.

Sluggish trading on Monday
Japan and China turned in a mixed performance on Christmas Day, in light trading.

The Nikkei 225 and Topix indexes edged higher on Tuesday — both rising 0.16 percent — while Chinese markets closed lower.

In China, the Shanghai Composite index finished the day down 16.22 points or 0.49 percent at 3,280.84. The smaller Shenzhen index ended down 0.93 percent at 1883.89.

Taiwanese stocks also finished lower, moving in a narrow range.

China’s yuan strengthened on Monday, reaching its highest level in three-and-a-half months against the U.S. dollar. The Japanese yen also edged higher against the dollar.

What’s on tap:
The economic calendar for Tuesday is fairly crowded, with several markets in the region coming back from the Christmas holiday (all times in HK/SIN):

12:00 p.m.: Thailand November new car sales
1:00 p.m.: Singapore November inflation
5:00 p.m.: Philippines budget balance

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Eric Schmidt is stepping down as the executive chairman of Alphabet

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Eric Schmidt will be stepping down as the executive chairman of Alphabet’s board of directors and transitioning to technical advisor, the company announced. He will continue to serve on the company’s board.

Schmidt first joined Google as CEO in 2001, back when the company only had several hundred employees, and become its executive chairman 10 years later. He maintained that role when Google restructured to become Alphabet in 2015.

“Larry, Sergey, Sundar and I all believe that the time is right in Alphabet’s evolution for this transition,” Schmidt said in a statement. “The Alphabet structure is working well, and Google and the Other Bets are thriving. In recent years, I’ve been spending a lot of my time on science and technology issues, and philanthropy, and I plan to expand that work.”

Schmidt tweeted “adult supervision no longer needed,” a reference to a comment co-founder Sergey Brin made on the Charlie Rose show when Google first hired him.

In the past several years, Schmidt has become increasingly involved in philanthropy through his own family foundation, which just launched a $25 million science fellowship, as well as Rise of the Rest, which invests in startups in middle America, and the Alliance for Southern California Innovation. He also serves as a board member of the Broad Institute, which focuses on medicine and disease prevention.

In his new role, he’ll likely advise the company’s urban development arm, Sidewalk Labs, its deep learning efforts, and its healthcare spin-offs, Verily and Calico.

Alphabet expects that its board will appoint a new, non-executive chairman at its next meeting in January, meaning that it will join the ranks of Apple and Microsoft as major companies with non-executive chairman.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asia markets track Wall Street gains; euro slips

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asian markets were mostly higher in early Friday trade, tracking moderate gains made on Wall Street as investors stateside considered the effects of lower corporate taxes.

Japan’s Nikkei 225 hovered around the flat line, with automakers declining slightly in morning trade. Toyota lost 0.6 percent and Honda was lower by 0.67 percent.

Share of Kobe Steel fell 1.32 percent after it acknowledged that three senior executives knew about data falsification taking place at the company, Reuters said. The steelmaker, currently embroiled in a scandal involving tampering with product specifications, said its investigation into the matter would be completed near the end of February, Reuters added.

Across the Korean Strait, the Kospi tacked on 0.17 percent as blue chips that had fallen in the last session clawed back gains. Samsung Electronics was up 0.77 percent and Hyundai Motor rose 1.33 percent.

So-called THAAD-linked stocks that have been sensitive to developments in ties between China and South Korea extended losses. Lotte Shopping declined 1.31 percent, Hotel Shilla tumbled 2.96 percent and AmorePacific lost 3.66 percent.

Meanwhile, Australia’s S&P/ASX 200 edged up by 0.36 percent on strength in the resources sectors. Major miners and oil-related plays rose in morning trade: Rio Tinto crept higher by 0.18 percent, Santos rose 1.14 percent and Mount Gibson Iron added 2.22 percent.

Commodities prices had risen overnight on positive market sentiment. “The continued improvement in market sentiment should see [commodities] prices remain well-supported leading into the holiday period,” Tom Kenny, senior economist at ANZ, said in a note.

U.S. stocks gain on tax optimism

Several major U.S. corporations revealed details on how they would spend savings that a recently passed tax bill, which will reduce the corporate tax rate from 35 percent to 21 percent, would bring about. Among those spending measures were wage increases and employee bonuses.

Meanwhile, the Senate passed a stop-gap spending bill that would help to avoid a government shutdown. The House of Representatives approved the bill earlier on Thursday. The passage of the funding bill by the Senate now allows for President Donald Trump to sign both the Republicans’ tax bill and the government funding bill as early as Friday.

The Dow Jones industrial average rose 55.64 points, or 0.23 percent, to close at 24,782.29, with other indexes recording similarly moderate gains.

Markets were also supported by robust U.S. growth data, which showed the U.S. economy grew 3.2 percent in the third quarter. That was a slight downward revision compared to the 3.3 percent reported in November, but remained the fastest rate of growth seen in longer than two years, Reuters said.

Elsewhere, the euro slid against the dollar after results from Catalonia’s regional election pointed to a win for pro-independence parties. The election had been called after Spain’s government sacked the regional parliament when the latter declared its independence in October.

Pro-independence parties are set to win a majority of the seats in the assembly, with 96 percent of votes tallied so far, Reuters reported. The common currency traded at $1.1841 at 8:27 a.m. HK/SIN, compared to levels around $1.1875 seen on Thursday.

In currencies, the dollar edged up against a basket of currencies, with the dollar index at 93.423 at 8:24 a.m. HK/SIN, above Thursday’s close of 93.297. The greenback was steady against the yen, fetching 113.31 yen after climbing as high as 113.63 in the previous session.

The Canadian dollar was steady after rising to its highest levels in more than two weeks following the release of better-than-expected inflation and retail sales numbers. The loonie traded at $1.2741 to the dollar after touching a high of $1.2696 overnight.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

EU rules that Uber is a transport service, not a digital company

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Uber is a taxi company, according to a landmark ruling from Europe’s highest court.

The European Court of Justice (ECJ) ruled Wednesday that the U.S. ride-hailing app is a transportation firm and not a digital company. The verdict is a long-awaited judgment expected to have major implications for how Uber is regulated throughout Europe.

“Any ruling will not change things in most European Union (EU) countries where we already operate under transportation law. However, millions of Europeans are still prevented from using apps like ours,” an Uber spokesperson said in an email ahead of the decision.

Uber has long-considered itself an “information society service” which connects drivers and passengers through inter-mediation via their app. This subtle classification has helped to protect the multi-billion dollar start-up from national regulations and means it has been treated as a digital service operating across borders in the EU’s single market.

However, several European governments have argued the U.S. company should be considered a taxi firm, and just like thousands of others, it should have to comply with European transport laws.

The ECJ’s decision means Uber now faces national regulation in up to 28 member states.

Greg Marsh, co-founder and CEO of onefinestay, told CNBC on Wednesday that the majority of Uber drivers “really value” the company and the ride-hailing service was clearly “wildly popular” among consumers.

“If the majority of people want to use it as consumers and if a large proportion of the people who want to participate in it as drivers want it to exist then it seems a bit illiberal to say that we should be preventing it from operating,” he added.

How did we get here?

In 2014, a group called Elite Taxi in Barcelona asked a court in the city to impose penalties on Uber’s operations in the country. The association claimed that Uber was engaging in unfair competition towards Elite Taxi’s drivers, particularly with its UberPop service, which allowed non-licensed drivers to pick up passengers via the app.

The case was escalated eventually to the European Union’s highest court – the ECJ – for advice.

Advocate General Maciej Szpunar said in May that, in his opinion, Uber is not an “information society service”. To be considered such would mean the part of the service which is not made by electronic means is “economically independent” of the service. In Uber’s case, the drivers would need to be “economically independent”. Another factor to be considered is whether Uber provides the entire offering. For example, an online retailer has a website or app as well as shipping the goods it sells. In Uber’s case, this would mean it essentially employs the drivers. Uber has said that its drivers do not work for the company and are independent.

The ECJ advisor said that Uber does not meet either of these two conditions and is therefore a transportation company.

Uber’s European challenges

Uber launched in Europe five years ago and has since had a number of clashes with regulators as well as traditional taxi companies which have protested against the U.S. firm, which is worth around $66 billion.

In London, U.K., for example, Uber lost an appeal to a court which said that drivers on the platform must pass a strict English language test. In Italy, a court in Rome decided to suspend the app, but this injunction has been halted for now by a higher court. And in Denmark, Uber said in March it would shut down its operations in the country thanks to new rules.

However, the company has made strides to work with regulators. It is still operating in most EU countries and last year relaunched UberX in both Berlin and Madrid after being banned in the country, after it complied with local laws.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Islamic finance is becoming so attractive that even non-Muslims want in

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Islamic finance has traditionally been dominated by Muslim-majority countries in the Middle East and Southeast Asia. Now much of the rest of the world is getting in on it.

Buoyed by the perception of more tranquil market conditions and an improving regulatory backdrop, issuance of Islamic debt by non-Muslim countries is set to climb to a three-year high in 2017, according to Dealogic data.

Islamic financial products comply with Sharia, or Islamic law, and are based on the principles of risk and profit-sharing. Sharia prohibits earning interest on loans, and it bars funding activities involving alcohol, pork, pornography or gambling.

The value of sovereign sukuk, or Islamic bonds, issued outside the Middle East and Southeast Asia by non-Muslim countries reached $2.25 billion in the 11 months through November, data by Dealogic showed. That’s higher than 2016’s $2 billion and more than double the $1 billion recorded in 2015.

Islamic finance’s metamorphosis from a niche corner of global banking to a growing source of funding for rest of the world has been aided by a storied list of borrowers who have sold sukuk in recent years.

The government of Singapore was one of the earliest non-Muslim entrants into the space, followed by the United Kingdom, Luxembourg and Hong Kong, which issued their first sukuk in 2014. More recently, African nations such as South Africa, Nigeria and Ivory Coast have made legal and tax changes to, among others, make it easier for borrowers to issue sukuk.

Companies haven’t been far behind, with the likes of Goldman Sachs and General Electric’s GE Capital also selling Islamic bonds in the past few years.

Chinese entities such as Country Garden and Beijing Enterprises Water Group have also issued Islamic bonds through their Malaysian subsidiaries in 2015 and 2017, respectively. The companies used those proceeds to finance projects in the Southeast Asian country.

Experts said the global financial crisis spurred governments and companies to diversify their funding options. Islamic finance is seen as a more stable alternative to the conventional banking system and therefore appealed to borrowers still haunted by the gyrations in global bond and equity markets when the U.S. housing bubble burst, they added.

In addition, the asset class has also attracted the attention of investors taking a more ethical approach to managing their money.

“Heightened appeal for sustainable and responsible investing could also be driving the growth for Islamic finance due to the commonalities in values and shared principles,” Ruslena Ramli, head of Islamic finance at Malaysian credit rating agency RAM, told CNBC.

Variety of categories

There are several categories of Islamic financial products, according to the World Bank:

Mudaraba — a financial expert offers specialist investment advice to a customer and they share any profits at an agreed ratio.

Musharaka — an investment partnership in which two or more parties, such as the bank and its clients, share profits and losses from a pooled investment at an agreed ratio.

Murabaha— the financial institution buys the asset, such as a home or a car, and sells it to a client at a profit. Payment could be in a lump sum or in instalments.

Ijara— the financial institution buys the asset and leases it to a customer for a fixed rental payment. The bank retains the ownership but may transfer that to the client eventually.

Sukuk — similar to a bond but a sukuk buyer owns part of the underlying asset that is invested for returns.

Sharia principles, which prohibit “speculative-type of businesses,” ensured Islamic finance products were less volatile when global financial markets were rumbled during the debt crisis, said Ahmad Fuzi Abdul Razak, the secretary general of the World Islamic Economic Forum Foundation.

“The crisis that took place was a result of excessive speculation, which is harmful. Islamic finance has avoided such pitfalls,” he told CNBC.

Growing, but still small

Yet, the involvement by those outside the Muslim world is still “sporadic,” experts said. The Middle East and Southeast Asia still account for a large majority of Islamic financial assets. In the sovereign sukuk space, Middle Eastern countries raised $11.85 billion in the 11 months through November, followed by Southeast Asia at $3.96 billion, Dealogic data showed.

Total Islamic financial assets have grown by 10 to 12 percent annually over the past decade to hit $2 trillion. But at less than 1 percent, they remain only a small fraction of global financial assets, according to the International Monetary Fund.

One hurdle standing in the way is the lack of standardization, Fitch Ratings said. Currently, different jurisdictions interpret Sharia differently and there is also variation in how Islamic finance products are structured. Differences in how disputes are resolved and reporting standards are monitored add to the complexity.

“In some cases, there is still little standardization even at a local level, while in others, progress would be needed on a regional, or international, basis,” Fitch said in an October report.

Such divergence in interpretation can deter investors and the progress to resolve that issue will likely be “slow and patchy” given the scale of the challenge, Fitch added.

Experts told CNBC that notwithstanding the challenges, the Islamic finance sector is still poised for growth. The industry’s size is expected to expand further to $3.5 trillion by 2021 as countries and companies look for alternative funding sources, and tap a larger pool of investors.

As an example, Maybank’s head of global banking business, Arshad Ismail, said the sukuk market allows issuers to attract both Muslim and non-Muslim investors and therefore widen their sources of funds.

The financing costs for sukuk are also “generally similar” to conventional bonds as there is more expertise to execute such transactions now, which adds to the product’s appeal, he added.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow