Month: September 2014

Scottish referendum: Why Asia should worry

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

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Investors would be mistaken to assume that the implications of the upcoming Scottish referendum are limited to the UK, analysts told CNBC.

In a few weeks Scottish citizens will vote on whether they would like to be independent from the United Kingdom. Until recently, a `no` vote was expected, but a Sunday Times poll published last weekend showed 51 percent of respondents would vote for independence.

Sterling fell 1.3 percent to a 10-month low against the dollar overnight and is down around 3 percent month-to-date.

If Scotland were to divorce the UK there could be broad implications for global financial markets, according to Evan Lucas, market strategist at IG.

“So far it`s only affected stocks and currencies with exposure to Scotland. However if Scotland were to leave the UK, all bets are off, and there are plenty of `what if` scenarios… we simply can`t predict how big the fallout would be,” said Lucas.

A vote to break away would lead to negotiations on whether Scotland keeps the pound as its currency, threatening the monetary union. Furthermore, the UK`s current account deficit would increase substantially if it lost 90 percent of its oil and gas assets, which are Scottish owned.

Asia isn`t immune

“It will impact Asia, the tricky thing will be how to quantify it – right now it is as much of a binary risk rather than a tail risk,” said Vishnu Varathan, market economist at Mizuho Corporate Bank.

A potential break-up of the UK could impact Asian investments in two ways, Varathan said.

“If you get any fluctuation in gilt yields, that will have a knock-on effect on yields across the global markets,” he said.

“Also many Asian investors have exposure to UK and Scottish-based financial institutions from asset managers to banks to insurers, while these institutions also hold Asian assets, so they may divest to cover positions too,” he added.

UK government bond yields have traded lower recently on expectations that much of Scotland`s financial services industry would relocate to London, but Varathan said gilt yields could spike if a `yes` vote occurs and depending on how assets and liabilities are split.

“If the fiscal burden for what remains of the UK goes a lot higher, that could push yields up as markets would expect more bond supply to come on to the market because of the higher debt obligations vis-à-vis the augmented GDP (gross domestic product) of the UK,” said Varathan.

“Durable impact will be difficult to pin down until we get further clarity, but in the meantime the uncertainty will play out as sterling weakness and weaker markets in Asia as well, so we could see equities coming off and bond yields coming off,” he added.

Another implication from a `yes` vote could be that domiciled entities in Scotland may have to look offshore, as funds would likely exit the UK, IG`s Lucas said: “Banks may find themselves looking for a new place to domicile. Singapore, for example, would be a very attractive place for Asian-facing UK business.”

Ahead of the vote, stocks, currencies and equities with exposure to Scotland are expected to continue weakening, Lucas said, especially with two more opinion polls due before the vote.

Among companies to watch Lucas flagged National Australia Bank because of its exposure to Scotland through Clydesdale Bank, along with Royal Bank of Scotland, Standard Life, Varr, Weir Group and Aberdeen Asset Management.

Copyright 2011 cnbc.com

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

Watch out: Central bank shock potential

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

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As the 2008 economic crisis took hold, central banks around the world scrambled to prop up their economies. The result: monetary easing on a global scale.

However there`s been fierce debate over whether these stimulus efforts – such as the US Federal Reserve`s massive bond-buying program – could have done more harm than good.

David Tice, president of Tice Capital and founder of the Prudent Bear Fund, warned last month that a jolt to international confidence in central banks would lead to a 30 to 60 percent market decline.

We take a look at three of the world`s key central banks, and the global risks they pose.

US Federal Reserve

The Fed cut interest rates and launched three bond-buying – or quantitative easing (QE) – programs between late 2008 and 2012 in an effort to stimulate the US economy. The move has proved controversial, with some economists arguing that QE was nothing more than a temporary fix.

Now, the Fed is looking to end its QE program with a USD 15 billion reduction in monthly purchases in October – which, according to some experts – poses risks of its own.

James Rickards, economist and author of New York Times best seller “The Death of Money”, highlighted that when the Fed tapered off its previous QE programs, the stock market and the economy stalled.

“It`s happening again, but in slow motion because the QE3 taper was gradual and from a higher level,” he told CNBC. “When this third taper is done in November, the weakness will become apparent.”

Bank of England

Much like in the US, economists in the UK are also falling over themselves to predict when the first interest rate hike from its five-year low of 0.5 percent will come. For the first time in three years, Bank of England (BoE) policymakers were split at its August meeting, with Monetary Policy Committee (MPC) members Martin Weale and Ian McCafferty voting for a rise in interest rates.

“The possibility of an increase in the Bank rate is now `in play`,” Investec`s Philip Shaw said in a note. “From here on, we might begin to see markets becoming a little jittery over a possible move ahead of each meeting.”

Central bank head Mark Carney`s reputation was called into question after he unveiled Fed-style forward guidance in August 2013, and said rates would not rise until the U.K. unemployment rate hit 7 percent. This, however, happened much quicker than happened; by April 2014, and Carney was forced to revise his guidance.

For Steen Jakobsen, chief investment officer at Saxo Bank, the BoE`s credibility – or lack of it – also poses a risk.

“Economies are sophisticated,” Steen said. “The BoE now needs to provide the market with a more sophisticated response – and there`s a risk they won`t be successful in this.”

Poor communication is very dangerous for central banks, which rely on carefully-crafted statements to guide market expectations. If faith in a central bank`s communication is lost, investor confidence could be hit, leading to volatility in stock and currency markets, and uncertainty the broader economy.

European Central Bank

In the euro zone, however, it`s a very different story.

At its September meeting, the ECB unveiled yet more stimulus measures designed to bolster the region, where an economic recovery has struggled to take hold. Growth-sapping low price growth has dogged the euro zone, with inflation falling to just 0.3 percent in August and unemployment remaining stubbornly high at 11.5 percent.

The central bank cut its three main interest rates further, and announced it was going to start buying asset-backed securities in an effort to boost the availability of credit. The next step, according to some analysts, is the launch of a full-blown QE program, like that of the Fed`s.

Nick Beecroft. chairman and senior market analyst at Saxo Capital Markets UK, told CNBC this will be launched by the end of the year, but added: “the ECB, and specifically the (German) Bundesbank, will have to be dragged kicking and screaming to this”.

Andrew Kenningham, senior global economist at Capital Economics,added: “The risk is that they don`t do actually do it… There`s an element of bluff on the part of Mario Draghi. He can promise to do things, achieve quite a lot just by promising, and then don`t have to do it.”

Even if Draghi does launch Fed-style QE, Kenningham questioned how successful it would even be. “It`s worth trying, but we`re not at all clear it would have a massive effect,” he said.

If the ECB doesn`t act in the way most expect, markets could be hit hard, as most investors have priced in further stimulus from Draghi. It could also hit the bank`s credibility, limiting the power of any future policy announcements.

Be careful what you wish for

One further potential pressure point is a growing divergence between the major advanced economies, with speculation of Fed and BoE tightening as the ECB (and Bank of Japan) inch towards further stimulus.

Currency traders in particular should be watching the situation, Steen warned. The dollar has strengthened significantly against the euro in anticipation of Fed tightening and ECB easing.

But forex markets should be wary on counting on central bank to make the right move.

“I`m perplexed that the market continues to listen to and believe central banks,” Steen added. “In the recent past, they have been very wrong.”

-By CNBC`s Katrina Bishop

Copyright 2011 cnbc.com

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

China to be biggest economy by 2024 in dollar terms

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

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China is set to overtake the US  as the world`s largest economy in US dollar terms over the next decade, according to a new report by IHS Economics.

IHS measured the size of China`s economy in US dollar terms, rather than using purchasing power parity – a technique used to determine the relative value of different currencies – which other research houses have used in the past.

Last month, the International Comparison Program – backed by the World Bank and the United Nations – forecast China could overtake the US as soon as this year, based on the PPP measure. The research puts China`s gross domestic product (GDP) at 87 percent of the US  in 2011, compared to 43 percent in 2005.

Those who use the PPP measure argue that it is a more accurate measure of the cost of living. IHS told CNBC it chose to evaluate the size of China`s economy in dollar terms because it was a more definitive measure.

“Over the next 10 years, China`s economy is expected to re-balance towards more rapid growth in consumption, which will help the structure of the domestic economy as well as growth for the Asia Pacific (APAC)as a region,” said Rajiv Biswas, chief Asia economist for IHS Economics.

This surge in consumer spending will see China`s nominal gross domestic product hit USD 28.25 trillion by 2024 from its current USD 10 trillion, larger than the USD 27.31 trillion projected for the US , the research firm said. US nominal GDP currently stands at USD 17.4 trillion.

“In 2025, if we were to take a global economic snapshot,China`s economy will play an even bigger role as a key driver of global trade and investment flows,” Biswas said, adding that China`s share of world GDP is forecast to rise from around 12 percent in 2013 to 20 percent by 2025.

Rapid consumer growth will likely see the Chinese consumer market grow to USD 10.5 trillion by 2023, around three times larger than Japan, which will sit at USD 3.7 trillion, IHS said.

While many other research houses agree that China will eventually overtake the US economy they do differ on the timing. London-headquartered news publication The Economist forecasts China will become the largest economy in 2021, while London based consultancy Center for Economic and Business Research forecasts a later date of 2028.

The impact of China`s rapidly expanding consumption is being felt across Asia Pacific. One key sector is tourism; Chinese tourism spending rose 26 percent in 2013 on the previous year to USD 129 billion, making China the largest source of tourism in spending globally, according to United Nations data.

Thailand, in particular, has benefited, with Chinese tourism visits up 68.8 percent in 2013 compared to 2012 to 4.7 million visitors.

Copyright 2011 cnbc.com

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

We need a trade deal with the US: EC Commissioner

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

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The European Union needs to secure a free trade deal with the US , Jyrki Katainen, former Finnish prime minister in the running for vice presidency at the European Commission, told CNBC.

Talks on the EU-US  free trade deal, known as the Transatlantic Trade and Investment Partnership, or TTIP, began last year and have faced opposition in Europe.

French politician Marine Le Pen, president of the right wing Front National Party, is campaigning against the deal, arguing that unfettered transatlantic commerce would damage vulnerable national industries and hit employment.

But Katainen, who currently serves as the European Commissioner for Economic and Monetary Affairs, fully backs the deal.

“We need a free trade agreement with the United States,” he said, adding that an energy union and a single market were also pivotal.

“These are the issues which could help all of Europe increase competitiveness, increase competition, and this is the way we get more jobs…We need more opportunities for our small and medium-sized [companies,] but also for the bigger companies, to go to the US  market,” he added.

The European Commissioner also reiterated his view that structural reform is still a much-needed objective in Europe and acknowledged that increasing demand is an important factor in stimulating growth.

“The European economic challenges are more structural in nature than cyclical… what I personally hope is that all the member states would do more on the structural side, like with the labor market, in some countries we need pension reforms, in some countries we need a better single market in order to strengthen competitiveness,” he said.

“Because we are not only competing between ourselves in Europe, but we should be more competitive on a global scale,” he added.

Scottish independence

A huge talking point in Europe at the moment is the Scottish referendum on September 18, especially after a Sunday Times poll revealed Scottish people are leaning towards a `yes` vote, marking a shift in sentiment.

Many analysts believe that if Scotland separates it could send tremors through Europe, because of what it means for the U.K.`s economy and political power, and for other smaller regional groups in Europe.

Katainen declined to comment on the implications of the referendum, but hinted that a weaker UK wouldn`t be positive for Europe.

“I don`t want to speculate about the result of the Scotland referendum because it`s not my duty at all, but what we need in Europe is a strong United Kingdom influencing matters when we are developing Europe,”he said.

“The only thing I want is stability, whatever threatens stability I hope that we can solve it,” he added.

The European Commissioner also commented on Ukraine and said the European Union would remain a strong partner to Ukraine during its time of crisis, but said the troubled economy would also have to do its part.

“Of course it means that there must be a strong commitment of decision makers in Ukraine to follow the path of rule of law, of democratic and transparent society,” he added.

President of the EC Jean-Claude Juncker is expected to appoint approximately six new vice presidents in around two weeks` time.

Copyright 2011 cnbc.com

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

What Alibaba learned from Facebook’s IPO flop

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

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By pricing Alibaba `s widely-anticipated initial public offering (IPO) below market expectations, CEO Jack Ma is seeking to avoid a repetition of internet peer Facebook`s disaster debut, say analysts.

“Jack Ma is very astute and he noticed that Facebook tripped over its initial public offering and doesn`t want to do the same thing, so better to low ball it a bit and let it rise as it goes into the market than let the public investors feel like they have been short changed and had paid too much,” Roger Kay, president at Endpoint Technologies told CNBC on Monday.

The Chinese e-commerce behemoth on Friday said it expects to price its IPO between USD 60 and USD 66 per share to raise as much as USD 24.3 billion – making it the largest US  public offering in history.

At USD 66 a piece, Alibaba would be valued at USD 163 billion – below analysts` expectations for a valuation of more than USD 200 billion.

Facebook, the world`s largest technology IPO to date, raised USD 16.01 billion in its May 2012 debut in New York. It had a market capitalization of USD 81.25 billion, according to Associated Press.

Shares of the social networking giant lost one-third of their value within two months of their debut.

However, some analysts believe Alibaba may eventually price above the initial range if investor demand is stronger than anticipated.

Alibaba is due to kick off its roadshow in New York on Monday and is expected to hold 100 meetings in less than two weeks.

Under the proposed timeline, Alibaba shares will be priced on Sept. 18, and will begin trading on the New York Stock Exchange the following day, under the ticker symbol BABA.

“The valuation here is really below what we had expected. We are expecting [a valuation of around] USD 200 billion, which would translate into USD 90-100 per share,” said Henry Guo, senior research analyst at JG Capital.

Guo is optimistic that Alibaba shares will avoid a Facebook-like debut flop and perform well on their first day of trade.

“When I talk to investors in the US , the overall view is very positive. I`m expecting a very good first day of trade,” he said.

Not everyone`s sold on Alibaba`s story, though.

Jeff Dorr, equity analyst at J Capital Research says with Alibaba`s 80 percent market share in online retail sales in China, growth prospects are limited.

Dorr added that expansion into the US  will prove challenging for the e-commerce giant.

“Competition is a bit stiffer with Amazon and eBay  heavily entrenched. I expect Alibaba will have a more difficult time getting into the US  market,” he said.

Difficulty in valuing the highly complex company is also deterring some investors.

Alibaba`s business involves several moving parts including business-to-business online web portals, online retail and payment services, a shopping search engine and data-centric cloud computing services.

“It`s a very interesting company, it really owns the e-commerce space in China, but then saying what it`s really worth, is a difficult one,” Sam Le Cornu, senior portfolio manager for Asia listed equities atMacquarie Funds Group.

“There`s a lot of press on this deal [but] this is one we`re probably going to pass on,” he added.

Copyright 2011 cnbc.com

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

Aug payroll growth slumps; unemployment rate down to 6.1%

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

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Job growth cooled in August, with nonfarm payrolls adding just 142,000 even as the unemployment rate fell to 6.1 percent, according to the Labor Department. The fall in the headline rate came as labor-force participation fell, declining to 62.8 percent, or 64,000 workers, tying the 2014 bottom and remaining at the lowest level since 1978.

Economists expected payroll growth of 225,000 in August following July’s upwardly revised 212,000. The unemployment rate was forecast to drop to 6.1 percent from 6.2 percent.

Markets actually liked the report, pushing stock futures higher as traders likely gained confidence that monetary policy would remain loose for an extended period of time. Bond yields declined in lockstep, with the 10-year Treasury note yield falling to 2.42 percent.

“The report is a remarkable disappointment as a headline number, especially after receiving such promising macro data over the summer,” said Todd M. Schoenberger, president of J. Streicher Asset Management. “Oddly enough, though, this flat figure may still bode well for investor’s portfolios because it should force the Fed to take a breather with its ‘increase-in-interest-rate’ chant, which will push equity valuations higher. The data should help continue the markets upward trajectory today, and throughout the rest of the quarter.”

“With respect to the market, the rally in the S&P futures off a big miss still reflects the drug junkie attitude of anything that backs (off) the Fed is somehow good,” added Peter Bockvar, chief market analyst at The Lindsey Group.

August’s number are a notoriously volatile set, with 2013’s initially reported 169,000 ultimately revised up to 238,000. In 2011, the Bureau of Labor Statistics initially said net job creation was zero, only to push that figure up to 104,000 by the time all was said and done.

The report breaks a string of months with payrolls above 200,000.

“The number was a surprise and a disappointment but we do not believe that it indicates a slowdown in the US economy,” said Joseph Lake, U.S. analyst for The Economist Intelligence Unite. “Indeed, there is a reasonable chance that it will be revised upwards in coming months.”

An alternative measure of unemployment that counts underemployed workers and those who have stopped looking also declined, falling from 12.2 percent to percent.

Professional and business services added the most positions, with 47,000, while health care gained 34,000, and bar and restaurant positions moved up by 22,000.

Overall wages increased, gaining 6 cents to $24.53 an hour, representing an annualized increase of 2.1 percent. The average work week was unchanged at 34.5 hours.

Full-time positions grew by 127,000, while part-time plunged by 327,000.

Taken as a whole the numbers are in keeping with a modest pace of economic growth likely to keep the Federal Reserve loose in how it approaches monetary policy. The U.S. central bank is nearly finished with the third round of its monthly bond buying program, but has pledged to keep short-term interest rates near zero until the jobs picture improves and inflation accelerates.

Prior months’ job growth saw downward revisions, with June cut to 267,000 from 298,000.

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

Three reasons to stay in HK property stocks

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

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Hong Kong property stocks have enjoyed a healthy run this year and according to analysts at Citi Research, the sector could benefit from further upside.

Home prices in the special administrative region`s market are among the world`s most expensive, with prices more than doubling since 2008 as buyers capitalized on low interest rates, and developers have been reaping the benefits.

Share prices of the city developers have surged in tandem; the industry`s stocks are up 19 percent year-to-date on average and hovering at 18-month highs.

“We believe the sector is just at the midpoint of its re-rating run,” said Ken Yeung and Oscar Choi, real estate analysts at Citi Research in a note published on Thursday, flagging Henderson Land, Sino Land, SHKP and CKH  as their toppicks.

In the note, Yeung and Choi highlighted three main sweet spots set to spur property stocks higher this year.

Firstly, the Hong Kong government`s fast-tracking of pre-sale consents by allowing developers to sell property before it`s completed, should provide developers with a sales boost, they said. Also, the move by the government to accept lower land premiums, especially for larger sites for fewer bidders, is seen as beneficial for developers.

Finally, the Citi Research analysts said another encouraging factor was the reduced likelihood of further policy restrictions.

In recent years, Hong Kong authorities have rolled out a series of curbs to cool frothy housing prices. In 2012, for example, three new property taxes were rolled out in quick succession, including a 15 percent tax on foreign buyers which was meant to deter speculators from mainland China.

But property prices have continued to defy restrictions, hitting another record high in June. That`s prompted speculation that more curbs could be in store, although Citi analysts doubt it will be the case.

“Although home prices have reached record highs, the government will find it difficult to impose more demand-side curbs this time,” said the analysts, who argued that end-user demand remained extremely strong.

“Property agencies have told us that 80 percent of the recent transactions were by end-users,” the analysts added.

But analysts at research house CLSA have offered an opposite view on the sector, warning investors in a note published this week to take profit on developers.

“There area lot of bad signs. For example, people with the most money are not that interested and the people who are buying lower price properties are moving in, this is usually a red flag,” she said.

“This is because the higher end of the market is the smart money – people who have invested multiple times, while at the lower end of the market are much less-experienced home buyers, who are attracted by price cuts. And we all know developers cut prices when the market is weak,” she said, noting that this situation last occurred during the global financial crisis.

Denis Ma, head of research at JLL`s Hong Kong office, is also cautious on the sector noting that the sale volumes in recent months have been driven by developer discounts.

“There`s definitely more talk about heightened policy risk coming through as one thing this government doesn`t want to see are rising property prices,” he added.

“There is a lot of supply coming on in the second half. So the rally we are seeing at the moment is pent up demand and that`s going to run its course and put a bit more pressure in the second half. We see prices falling between 10-15 percent for the full year of 2014,” he added.

Copyright 2011 cnbc.com

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

Amid Ebola crisis, is something worse coming?

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

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The worst outbreak of Ebola to date serves as a timely reminder of the threat deadly viruses pose to the world economy.

Border closures, the suspension of some international flights and slowed economic activity have already hit the west African countries worst affected by Ebola.

Analysts expect the economic damage from the virus, which has led to over 1,500 deaths in recent months, to be largely contained to Africa. Still, they warn that the risk of a pandemic that could have a devastating impact on world growth remains.

“On a regional scale, we have already seen geopolitical implications of the Ebola outbreak with flight cancellations and significantly impaired trade and human mobility,” said Vikas Shah, CEO of Swiscot, a global textiles firm and a professor who`s been following the Ebola crisis closely.

“Should a novel or other virus emerge with high mortality and ease of transmission, it could lock-up our global economy quite fast,” he said, adding that some studies suggest that the cost of a major flu-pandemic could be almost $200 billion in the U.S. alone.

At its worst, a severe flu pandemic could cost 4.8 percent of global gross domestic product (GDP), or more than USD 3 trillion, sparking a global recession, Olga Jonas, economic adviser, health, nutrition and population at the World Bank wrote on the organization`s website late last year.

“What we can say confidently is that there is a high chance of another case of pandemic. We travel more often, so viruses can spread more easily,” said Dr Jonathan O`Keeffe, medical director at International SOS, a leading medical and travel security risk services company that employs over 10,000 people working in 70 countries. “We don`t know which virus it will be and when, but sadly we do know it`s coming.”

Remember SARS?

The spread of severe acute respiratory syndrome (SARS) in 2003, mostly in Asia, showed just how damaging a fast-spreading virus can be to the world economy.

GDP in Hong Kong (one of the worst-hit countries) and Singapore tumbled more than 2 percent in the June quarter of 2003 as a result of the virus, which infected about 8,000 people.

“While the number infected was not that great, SARS had a big negative impact on the countries most affected as people stayed home for fear of catching it,” Shane Oliver, head of investment strategy and chief economist at AMP Capital, wrote in a note last month looking at the implications of Ebola.

Consumers staying at home because they fear catching a virus means fewer retail sales and less travel, hurting an economy in addition to the damage suffered from the absence of sick workers and disrupted supply-chains.

“Not withstanding the terrible human impact of Ebola – the effect caused by an outbreak on regional air traffic can be significant,” said James Stamp, head of transport at KPMG, speaking about the impact of the Ebola outbreak on the aviation industry.

“In 2003, the SARS virus caused an 8 percent reduction in traffic (worth USD 6 billion of revenues) in Asia-Pacific, the affected region. Outside of Asia, US airlines attributed a USD 1 billion reduction in revenues to SARS,” he added.

The World Health Organisation, which declared the Ebola outbreak an international public health emergency early last month, has not issued a general ban on international travel and trade.

Experts say catching Ebola requires direct contact with someone who has had the disease, so this means the risk of Ebola spreading through air travel is lower than air-born or respiratory diseases.

“Our base case scenario (with a 90 percent probability) is that Ebola remains essentially contained to Africa,” said AMP Capital`s Oliver. “This suggests that while there might be a bit of short-term volatility around Ebola scares, there is unlikely to be a major impact on share markets.”

No to complacency

Still, the Ebola outbreak, the largest and longest on record, highlights the need not to be complacent about the risks posed by deadly viruses.

“Many of my friends who are in the medical-world are quite startled that there isn`t more being done at international borders to check for `warning flags` of potential illness for flights travelling from high-risk areas,” said Swiscot`s Shah. “My gut-feel is that there is a disconnect between the serious warnings given by global-health practitioners and a lack of will on governments to act.”

That concern was also reflected by the World Bank`s Jonas, who wrote last year that pandemic risk is “under-managed” by governments.

O`Keeffe at International SOS, which has been advising companies on Ebola response planning,said he tries to encourage companies to adopt preventative measures and ensure that they have a “tried and tested” pandemic response plan in place.

“For an organization to recover quickly from a pandemic it has to take swift action,” he said. “For instance if there is a pandemic outbreak in South America, has a company put in a place an action plan on how this would impact its plant in China?”

Experts add that the Ebola crisis shows that early intervention, surveillance and treatment can help contain a deadly virus.

“Ebola is unlikely to have the same impact on the global economy as SARS, but there is still a need to not be complacent,” said KPMG`s Stamp.

Copyright 2011 cnbc.com

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

Singaporeans value new skills over pay rise: Survey

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

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Singaporeans show the most interest in upgrading their career skills in Asia, according to a global survey of 230,000 people by recruitment firm Kelly Services.

55 percent of Singaporeans surveyed said they would trade higher wages and career advancements for self-development opportunities, much higher than 43 percent in Malaysia, 42 percent in Hong Kong, 37 percent in Thailand and 30 percent in China.

“Climbing the corporate ladder is clearly important to people, but frequently not as important as developing the skills that will give them the capability and confidence to realize their long-term potential,” wrote Mark Hall, Vice President and Country Manager at Kelly Services Singapore in a note.

The frequency of career development discussions with management factors into how willing employees are in broadening their skillset. 44 percent of workers in Singapore – mostly in marketing, engineering and IT – have career development discussions with their employers, putting the city-state 6 percentage points above the global average.

Does age matter?

Singapore`s baby boomers – born between 1946 and 1964 – are the most motivated when it comes to acquiring new work-related skills, followed by Generation-Y and Generation X, the study showed. Gen-X are born between 1966 and 1976 while the Gen-Y are born between 1977 to 1994.

“Baby boomers have a more tangible appreciation of how skills [can help to] realize long-term career potential [but] Gen-Y may find that the skills they acquired during their higher education are still relevant,” Kelly`s Hall wrote in an email.

“I`m inclined towards acquiring new skills to raise my negotiating power for better pay in the future. With skills, money will come naturally,” said 29-year-old Mr Kua, the key account manager at a cosmetics and beauty firm in Singapore.

For Singaporean Phua K.W., Gen-X employees face age disadvantages and family commitments that discourage them from broadening their skillsets.

“Who doesn`t want to learn new things but if I give up this opportunity for a promotion, will I still get it next time? Age is against me,” said the 44-year-old. “Also, when you`re at the age when you need to bring home the bacon, upgrading skills takes the back seat.”

Moving forward

This emphasis on skills will continue to rise as Millenials – the demographic cohort following Gen-Y – join the workforce.

“Younger workers enjoy teamwork and are constantly on the lookout for creative ways to solve problems. Hence, they look forward to opportunities to build new skills and stay ahead in a rapidly changing economy,” wrote Stella Tang, Managing Director of Robert Half in Singapore.

Recent government efforts also play a significant role.

“The recommendations from the Aspire Committee are very encouraging, and will make it even easier for Singapore`s employers to support the continuous development of their staff,” Kelly`s Hall said, referring to the Applied Study in Polytechnics and ITE Review (ASPIRE) Committee who made recommendations to improve the job prospects of non-university graduates last month. Prime Minister Lee Hsien Loong also mentioned last month the need for a “cultural shift” in employment practices and mindsets to focus on skills over qualifications.

“As competition for business and talent heats up in the region, the Singapore Government [is] helping Singaporeans acquire new skills and raise productivity in order to embark on new career paths and engage in higher value work to enable future growth,” noted Tang.

Singapore has been trying to raise productivity levels in order to maintain economic growth amid an aging population. The Southeast Asian city-state has one of the world`s lowest unemployment rates; unemployment stood at 2 percent in the April-June period compared with 3.6 percent in Japan, 6.3 percent in the U.S. and 6.9 percent in the UK.

Copyright 2011 cnbc.com

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Abenomics approaches a moment of reckoning

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

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Japanese Prime Minister Shinzo Abe`s grand plan to revive the economy, which has run into several stumbling blocks in the past year, is reaching a “moment of reckoning”, Goldman Sachs has warned.

There are several key turning points before the year-end that will be key in determining whether Abenomics will succeed or stumble, according to the bank, pointing to this week`s cabinet reshuffle, a potential expansion of the Bank of Japan`s (BOJ) aggressive easing program, and a decision on whether to move forward with a second tax hike in 2015.

“Abenomics is approaching a moment of reckoning, with the decision on whether to further raise taxes next year perhaps the most crucial one,” Naohiko Baba, Chief Japan economist at the bank said in a report. The government is due to make a call on a second hike in the consumption tax – to 10 percent from 8 percent – in December.

Inability to raise the tax could be interpreted not only as a failure of Abenomics, but also as an abandonment of fiscal consolidation, Baba said, the biggest tail risk for foreign investors exposed to an economy with by far the highest debt-to-gross domestic product (GDP) ratio in the world.

Wages and exports must rise and Cabinet approval ratings must remain high in the coming months for Abenomics to succeed – all daunting challenge, he added.

Abe carried out a Cabinet reshuffle on Wednesday, an effort to re-energize his economic and security agenda amid declining approval ratings. A Cabinet reshuffle is a means of replacing incompetent – or scandal-ridden – ministers to ensure the government can make progress on different policies.

He kept key ministers including the finance, foreign and economy ministers, while appointing five women, matching the record high in Junichiro Koizumi`s first cabinet in 2001, according to AFP.

Stumbling blocks

Abenomics, the name given to the massive economic program launched last year, is made up of monetary easing, fiscal stimulus, and structural reforms. The economy has not responded to the program as many had anticipated, however.

A sales tax hike- to 8 percent from 5 percent – implemented in April drove the economy into its worst contraction since 2011. Meantime, the economy continues to grapple with sluggish wage growth and subdued inflation.

Japan`s nationwide core consumer price index rose 3.3 percent in July but remained well below the central bank`s 2 percent inflation target when taking into account the effect of the tax hike.

These factors point to an “unraveling” of Abenomics, according to Charles Dumas, chief economist and chairman of Lombard Street Research, who says the inflation target will be unattainable without a major devaluation of the currency and/or an expansion of the Bank of Japan`s quantitative easing (QE) program.

“Mr Kuroda has to choose between another big devaluation, risking an effective commitment to perma-QE and eventual financial crisis, or abandoning Abenomics,” he said, referring to the BoJ governor.

Three indicators to watch

With Abenomics at a critical juncture the evolution of three indicators – wages, exports and cabinet approval ratings – holding the key to its continued success, according Baba of Goldman Sachs.

“These elements will be critical to muting the negative effects of the recent consumption tax hike, pursuing another much-needed tax hike in 2015, and pushing through structural reforms to cement a sustainable path for economic growth,” said Baba.

Nominal wages rose 2.6 percent on year in July, pushed up by temporary summer bonuses. The bank expects underlying wage growth to stabilize around 1 percent in the coming months.

Exports have been feeble, falling short of an expected improvement necessary to offset tax-related domestic demand weakness. In the year to June, exports declined 1.9 percent compared with the same period last year, according to Reuters.

Cabinet approval ratings, meanwhile, slid below 50 percent in many opinion polls conducted in the summer, as items on the political agenda – such as reforms to allow the collective right to self-defense – failed to gain public favor.

Despite the decline, approval ratings remain high by historical standards meaning the political situation is unlikely to destabilize, the bank said.opyright 2011 cnbc.com

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