Japan pension fund move hailed

Market watchers welcomed a decision by Japan's largest pension fund manager to revamp its conservative Japanese stock investing strategy.

While some hailed it as the biggest change in the history of the fund nearly ¥130 trillion ($1.26 trillion), others characterized it as a largely symbolic step toward the more significant step of increasing the fund's stock allocation.Japan's Government Pension Investment Fund said Friday that it picked 14 new active stock investment managers and added three more benchmarks to its buying strategy.
The new benchmarks for the fund include MSCI Japan, Russell Nomura Prime and the Tokyo Stock Exchange's new JPX-Nikkei 400. Previously the GPIF had only used Topix, an index of about 1,700 shares as a benchmark.

Source: WSJ

Japan, No downturn seen after consumption tax hike

Consumption has not shown a sharp downturn so far since the country's consumption tax was raised to 8 percent from 5 percent on Tuesday.

Department stores have expe-rienced a tumble in sales, mainly of high-end items, after a surge in last-minute demand the previous month. Their sales were down by 10 percent to 20 percent from a year earlier in the first six days since the tax increase.However, sales have been growing for some food items that are difficult to stockpile and at some restaurant chains, showing daily consumption remains solid despite the tax increase.
Sales at four major department store operators grew by 20 percent to 30 percent in March, reflecting the high popularity of jewelry and imported brand-name products, before a major drop early this month.
Bic Camera Inc. said that the consumer electronics retailer saw its sales tumble by about 40 percent in 1997, when the consumption tax was raised to 5 percent from 3 percent. "This time, however, the sales drop has fallen short of expectations," an official said.

Source: Japan News

Solar power business becoming money spinner

Eighteen months after the introduction of a system that obliges power companies to buy electricity generated from renewable energy sources at fixed prices, Japan's solar power generation market has been showing aspects of "solar bubbles."

While the cause is a large number of companies entering the business-seeking a windfall from a system that guarantees high sales prices-the ultimate cost of this problematic situation will be shouldered by ordinary people throughout Japan, via their electricity bills.

Introduced by the government in July 2012 to accelerate the adoption of renewable energy, the current system guarantees a set price to companies that use solar power, wind power and other renewable energy resources to generate electric power.

Under the system, existing power companies are obliged to purchase electricity generated from the renewable resources at fixed prices. The purchase prices are decided every year by the Economy, Trade and Industry Ministry.

Source: Japan News

IMF reform plan stalled on skepticism

The Spring gathering of the International Monetary Fund is approaching. China, Russia and other major developing nations are angry about a delay in reforms that give them more voting rights at the IMF. Now the countries are pushing forward with the reforms without waiting for the United States. Skeptism is growing about the new powers within international systems.

Britain is urging the US Congress to approve reforms at the International Monetary Fund that would give more power to emerging economies at the institution.

In a recent public address, British Finance Minister George Osborne said quote: "The failure of the U.S. Congress to ratify the agreed IMF reforms is bad for the institution and bad for the international community. I urge the administration and Congress to act to pass them now."

Most of the IMF’s 188 member nations have approved the reforms, which were originally hammered out in 2010. But opposition from the House and Senate Republicans have blocked efforts by the White House to pass the reform. Experts say it’s crucial for developing nations to have a seat at the table.

"The main rules of the game internationally on how countries are supposed to deal with the currencies, on reserves on some of the big, big questions on international finance are really negotiated out at the IMF. So for these countries, who had not had much of a voice in the international rules of the game, when they were substantially poorer and smaller than they are now. Now that they’ve grown so rapidly and their economies are so large, they want a seat at the table. They want to be able to participate in shaping the rules that they would partially have to live by," said Bruce Jones, senior fellow of Brookings Institution.

If the US Congress gives the reforms the green light, it would make China the IMF’s third-largest member. It would also revamp the IMF board, reducing the dominance of Western European nations. Some analysts say US lawmakers are concerned about relinquishing power to some emerging economies.

"First, Congress is traditionally fairly skeptical about international institutions and that’s been true since the founding of international systems. Second, there’s a lot of skepticism about China’s intentions on issues like currency reform and third, now, unfortunately there’s a lot of concern about Russia. And because this package was negotiated in a context where sort of all the emerging powers see their shares rise, there’s now a new preoccupation about seeing Russia’s shares rise, even though Russia’s shares will rise by a tiny fraction," said Bruce Jones, senior fellow of Brookings Institution.

Source: CCTV

Up to 600 Aussie businesses participate in China Australia Business Week

China is Australia´s top trading partner. This week, hundreds of businesses from down under are heading to China for the China Australia Business Week, eager to scan the horizon for investment opportunities and deals. The delegation is led by Prime Minister Tony Abbott as part of his broader North Asia visit and Minister for Trade and Investment Andrew Robb. 

The phone lines are hot.

One of Australia´s biggest ever trade missions to China is on its way, aiming at drumming up business and investment.

They come for the China Australia Business Week, a push to strengthen Australia´s commercial ties with its biggest trading partner.

At the China Australia Chamber of Commerce, the goal is precisely to attract more businesses.

"It´s a show of force and an opportunity for many Australian CEOs to come here and help the government push for many things that have taken a long time to get through. The two big ones have always been mining and education. But there is a big portfolio of smaller industries, the industry I represent is healthcare and other industries like agribusiness and finance. It is important that everyone gets a show." Brendan Mason, Chairman of Austcham Beijing said.

Events will be held in Beijing, Shanghai, Chengdu and Guangzhou.

"It´s the first visit by Abbott, it´s a show of force, but I think we won´t really start to see a deals flow until in 2 or 3 years time." Tom Luckock, Partner of Norton Rose Fulbright said.

Bilateral trade has ballooned in recent years. Australian exports to China totaled a record 95 billion Australian dollars in 2013, up sharply from 73 billion in 2012.

In November, China and Australia agreed to accelerate their talks over a free trade agreement.

The Australian government is confident to reach conclusion soon.

Abbott set himself a one year deadline to strike a free trade deal with China when he was elected last September. But the deal still looks remote, after nine years of negotiations.

"Whether it will be signed in one year is anyone´s guess. But I actually don´t think it is so important whether it is signed or whether it is not signed, I think what is more important is the symbolism. The fact that there is a big focus on the Australia and China link, and because of that focus I think that we will see more Chinese investments in a broader range of sectors." Tom Luckock said.

The next step now is to go beyond just the import of Chinese consumables and the export of Australian natural resources such as iron ore.

Source: CCTV

Boao Forum for Asia Annual Conference

Its been well over a decade since the Boao Forum raised its curtains once more on Tuesday let's have a quick look back on how this high level dialogue was started.
Boao forum is a non-profit organization that each year hosts leaders from government, business, and academia around the world to discuss current pressing issues.

The forum was proposed in 1998 by Fidel Ramos, former president of the Philippines, Bob Hawke, the former Australian prime minister, and Morihiro Hosokawa, the former Japanese prime minister. The forum was formally founded in 2001.

"Those three leaders felt Asia needed a platform, a forum to make its own voice heard. So they asked the then president of China, Jiang zemin, to see if the forum could be placed somewhere in China. Jiang happily accepted and they decided to place the forum in Boao." Zhou Wenzhong, Secretary General, Boao Forum for Asia said.

Chinese president Xi Jinping attended the forum last year, and this year, Premier Li Keqiang will address the meeting.

"Participants will exchange opinions and discuss on global issues. They agree on disagreements. Because policy makers also take part, some of the opinions could potentially be transformed into policies." Zhou Wenzhong said.

The Boao forum has gone on annually since its first meeting in 2002. This year’s hot topics will include sustainable development issues in Asia, such as the new economic driver of the region.

IMF Research: More than Half of Decline in Interest Rates can be attributed to substantial increase in saving in EM

The substantial increase in saving in emerging market economies, especially China, in the middle of the first decade of the 21st century was responsible for more than half of the decline in real rates . This was only partly offset by the reduction in saving in advanced economies. High-income growth in emerging market economies during this period seems to have been the most important factor driving the increase in savings.

More than half of the reduction in real rates in the first decade of the 21st century can be attributed to an increase in the relative demand for bonds. This shift reflected an increase in the riskiness of equity combined with higher demand for safe assets among emerging market economies to increase official foreign reserves accumulation. In the aftermath of the global crisis, both reasons have continued to contribute to the decline in real rates, albeit more moderately now.

China's pollution permit market must be revamped

New government plans to strengthen China's "pollution permit" market have been applauded as the meaningfulness of existing trials of the system has been called into question.

Since 2007, China has set up more than 20 local pilot trading platforms for the permits. Not to be confused with carbon trading, which targets greenhouse gases led by carbon dioxide, this scheme allow industrial firms to buy and sell rights to emit pollutants like sulphur dioxide and nitrogen oxide, major causes of smog and acid rain.

Under the system, a region first sets a maximum amount of key pollutants the area can absorb during a certain period, before translating the amount to pollution rights and making them available to companies.

In the "primary" market, companies are required to pay for the rights through auction or government-directed quotas. Firms with pollution rights can then trade the permits in the "secondary" market.

However, according to insiders, few of the pilot markets are working properly due to lax implementation, and the absence of a fair pricing mechanism and legally binding regulations forcing firms to use the permits.

SUSPECTED PUBLICITY STUNT

Take the markets in Beijing, Shanghai and Tianjin for example. All three cities set up pollution permit trading platforms in 2008, but the former two have not seen a single trade between them.

Tianjing Climate Exchange (TCX) did function once, on Dec. 23, 2008, when Tianjin Hongpeng Logistics won permits to emit 50 tons of sulphur dioxide by bidding at a price of 3,100 yuan per ton. But there have been no deals since then.

Further detracting from the credibility of the pollution permit trials, mystery surrounds the lone Dec. 23, 2008 deal. According to media reports at the time, there was suspicion that Hongpeng was a front company, fabricated to win an auction organized as a publicity stunt.

Researching this article, Xinhua dialed the phone number found on the website of Hongpeng and asked to learn about the bidding in 2008.

"The company has already been deregistered. I know what happened at that time, but there is nothing I can tell you. I don't want to make trouble," a middle-aged man said before hanging up the phone and never answering again.

TCX general manager Wang Jing reacted strongly when asked about the incident, saying, "There is no need to ask this anymore. It was five years ago."

Tian Yu took part in the bidding on behalf of his company Tianjin Tasly Group, a traditional Chinese medicine maker. He told Xinhua that all participants were persuaded or lobbied by their industrial park base, TCX or the government to help make the publicity stunt work.

Bao Jingling, engineer in chief of the Tianjin Environmental Protection Bureau, said that, for many companies, it was through government "coordination" rather than the trading platforms that they got pollution rights.

Labelling pollution permit bidding "forced marriage" directed by the authorities, the insiders said the Hongpeng case in Tianjin is not the only one of its kind.

NO REASON TO BID

Experts attribute the dysfunction of the pollution permit market to the absence of a mandatory system forcing all polluting firms to use pollution permits.

Wang said, "Since there is no compulsory regulation from the authorities requiring all companies to trade pollution permits, not many firms are willing to buy them.

"If most firms can freely emit pollutants without permits, then why would anyone buy them?" asked Tian.

Both Wang and Tian point to the large number of cases in which companies discharge much more key pollutants than their quotas allow but get no punishment.

Wang Jinnan, vice head of the Chinese Academy for Environmental Planning (CAEP) under the Ministry of Environmental Protection, blamed the lack of a fair distribution and pricing system.

"The government's goal is to control the overall amount of pollutants. The question of which company gets how many permits doesn't seem to be so important," he said.

The government itself decides the prices of the permits, "which do not necessarily have a very convincing basis." Meanwhile, the value of the permits, which is in big part determined by their effective period, varies from regions to region, making cross-regional trading impossible, according to Wang Jinnan.

Even in the same region, the value can change as the government tightens or loosens environmental protection measures, which could mean permits bought in different years have different values.

This would create a "wait and see" attitude among potential buyers and sellers of the permits, Wang Jinnan said.

SOLUTIONS

There is consensus that the authorities should, above all, draw up and implement a nationwide regulation mandating firms to buy permits before emitting pollutants.

"It must be confirmed by the central government that pollution permits are valuable rights that companies must pay to obtain," Wang of the CAEP said.

Wang Jing called for legally binding regulation to force all companies to get their permits through auction and make emission without a permit illegal.

The value and effective period of the permits should also be set and verified nationwide.

Wang Jinnan believes there should be a uniform effective period for the permits of, say, five years, and their issuance should not be tightened or loosened as government policies are adjusted.

For companies that have permits to spare as a result of the application of new technologies, it must be ensured that the extra permits can be sold at a price, said Bao of the Tianjin Environmental Protection Bureau.

Judging by its recent announcements, it seems that the central government has noticed the problems.

On March 24, the finance ministry announced a plan to establish a nationwide system for use and trade of pollution permits within three years.

The ministries of finance and environmental protection also said they had submitted draft guidelines for a market to the State Council, something almost all the insiders and experts Xinhua interviewed deemed essential.

The market would cap emissions of key pollutants from major facilities and force those that exceed their caps to buy permits, thereby providing economic incentives for polluters to invest in cleaner technologies.

Though they called permit trading an important arrangement for the market to play a role in cutting emissions, the ministries did not provide details on how the market would work.

Source: Xinhua

XInhua In-Depth: China's economic growth to rebound after adjustment period

"The Chinese economy was going through a three-year period of adjustment, but growth could return to about 8 percent afterwards, a Chinese economist told a forum held here Monday".

"From now on to the coming two years, the Chinese economy is actually going through a period of an important adjustment, including reforms and dealing with the consequences of the stimulus package of the financial crisis," David Daokui Li, director of the Center for China in the World Economy at Tsinghua University's School of Economics and Management, said.

"And after that, ... the Chinese economy most likely will be able to go back to a relatively faster rate of growth," Li said at the "Big Changes in China: Outlook for the Next Decade" forum, co-organized by Tsinghua University and Credit Lyonnais Securities Asia (CLSA).

"The overall picture of the coming 10 years would be initially low growth like low 7 (percent) from now on to 2016... Then the growth will very much likely pick up to something around 8 percent," said Li, who is also the dean of the University's Schwarzman Scholars Program.

Li said the Chinese economy faced a period of contractionary reforms, including anti-corruption and financial reforms.

These reforms were "necessary," Li said.

He said anti-corruption reform was important for long-term growth and for re-establishing a new model of doing business in China.

From a short-term perspective, Li said the Chinese economy would run through a downward trend at first this year and then pick up by the third quarter, resembling the "mini recovery pattern" seen last year.

Former World Bank president James D. Wolfensohn said a Chinese would be nominated as president of international institutions like the World Bank and International Monetary Fund at some point in the future, due to China's economic strength.

Tsinghua University President Chen Jining told the forum the extremely ambitious and comprehensive reforms China had announced recently would have a major impact on all areas of Chinese people's life.

"The world is watching these reforms with great curiosity," Chen said. "A major focus of the reform is on economic issues, as China has become a major driver of the world's economic growth over the past decade."

China Exclusive: German companies upbeat on China's future growth

 China's growth slowdown is normal as it is going through an economic transformation period, with the transition offering new opportunities for foreign firms, an official from the German Chamber of Commerce has told Xinhua.

"We expect general growth to slow which is a natural economic development when the reference base is increasing. The switch from a rapid to a more sustainable economic progress in China is the right course," said Alexandra Voss, executive chairwoman of the German Chamber of Commerce, North China, on Monday evening during an interview.

China is heading in the right direction by rebalancing its economy and slowly introducing consumption as one of the main economic drivers in addition to exports and large-scale investments in infrastructure development like highways and housing, she added.

There are about 4,500 German companies operating in China. Of these, 60 percent are members of the German chamber. In 2013, 400,000 people in China were employed by German companies.

According to the organization's annual Business Confidence Survey, members of the German chamber are very positive about their business forecast in the coming years. In 2012, 22.4 percent of respondents perceived their business outlook to be improving; in 2013 this rose to 40.5 percent, showing more confidence in the development of the Chinese market.

Chinese President Xi Jinping said during his visit to Germany in late March that China's internal impetus is driving the country's sustainable and stable growth, thus providing a huge market and opportunities for its cooperation partners, including Germany.

China needs "German quality", while Germany's growth requires the Chinese market and "China speed", the president said.

During his stay in Germany, Deutsche Bundesbank and People's Bank of China announced the establishment of a clearing center for transactions with RMB in Frankfurt am Main, the business and financial center of Germany.

"This important step is highly beneficial for many German SMEs doing business with Chinese counterparts by easing financial issues between them and lowering the transition costs of deals," Voss said.

She predicted that certain strategic industries will grow and offer opportunities during China's market-oriented reform, such as sustainable urbanization, green building creation and energy saving consultation.

The strong focus of the Chinese government on environment and energy and its decision to put more emphasis on these areas will bring great business opportunities for German companies, she said.

But Voss pointed out that German companies still see themselves confronted with a number of challenges in China such as Intellectual Property Rights protection. They also expect easier and wider market entry for foreign companies.

"We reckon that a successful execution of the reforms will ignite competition, provide more opportunities, and minimize challenges for foreign companies. Then it is only a matter of time before natural market forces facilitate more sustainable growth", she said.

Source: Xinhua

China Voice: China economy needs no stimulus. High Growth Remain No Panic.

There is no need to panic, not least because China's growth rates remain high compared with the recent sluggish standards of Western nations.

"China's economy is going to steer clear of the familiar path resorting to a stimulus whenever there is a sign of a slowdown.

A "mini stimulus" theory has been widely circulated after the State Council announced a set of policies on Wednesday that included extending tax breaks for small businesses and support measures for poor urban districts.

Anticipation has been building recently for some kind of action following a string of lukewarm economic indicators, including cargo volume and electricity consumption slowing in the first two months of 2014.

It was inevitable that the world's No. 2 economy would move forward under pressure, especially for the early part of 2014.

However, any talk about an incoming stimulus package is misleading and those anticipating the kind of stimulus China unleashed following the 2008 global financial crisis are likely to be disappointed.

The sweeping measures did help China's economy recover rapidly but also led to overcapacity, skyrocketing house prices and a credit boom, all of which the authorities are now trying to rein in.

China's economy needs a little stimulation but not a fully fledged stimulus. The tax breaks and acceleration of railway investment and social house rebuilding will certainly inject new blood into the faltering economy, but they do not forebode any massive spending and borrowing.

China has quit the habit of resorting to the so-called "masterpiece" stimulus, which could be as addictive and damaging for a national economy as doping is for the human body.

The new measures taken by the Cabinet are nothing new and in fact they are follow-up policies from the government work report in March and the reform plan unveiled in November by the top leaders.

There is no need to panic, not least because China's growth rates remain high compared with the recent sluggish standards of Western nations.

It is more appropriate to interpret the measures as "looking into the future while taking the current economic situation into account," rather than a "new round of mini economic stimulus."

The smart ones have got it. There is no sign of a monetary and fiscal policy shift. There is no hint of loosening the housing market either.

What China's economy needs most is steady and deep reforms, which the decision-makers are determined to push even at the price of an economic slowdown, because they believe only through deep and comprehensive reforms can the Chinese economy embark on a new stable and healthy path".

Source: Xinhua

G20 to focus on boosting global growth, not Crimea - official

Global financial leaders will thrash out details of individual country pledges to boost growth and overhaul their economies at this week's meetings in Washington, a senior Australian official said on Tuesday.

"To build momentum on those growth strategies is really a key goal for this meeting," he said. "A big focus of this meeting is going to be building on that growth ambition, discussing the sorts of measures that are needed to meet the Sydney growth goal."

Australia chairs the bloc of advanced and developing economies this year and has asked for firm plans to address gaps in each country's policy settings in the second half of 2014.

According to a document prepared for the G20 by European Union finance ministers, reform drafts so far have fallen short and more ambitious work is needed in areas including investment, employment and competition.

Sterland said there would be a discussion of the "full range" of geopolitical risks, but noted that Ukraine had already been an issue at the last G20 just six weeks earlier, and there was no plan for joint action against Russia.

"That sort of theme would not be on the agenda for this meeting," Sterland said.

Australia's Foreign Minister Julie Bishop has said it depends on G20 member countries whether Russia is invited to the G20 leaders' summit this year.

The G20's February communiqué said that the timing of monetary policy withdrawal should be conditional on the outlook for price stability as well as growth - sounding a note of caution given the euro zone's extremely low inflation.

"Those comments in Sydney seem to remain appropriate. We are taking an approach to keep the communiqués relatively tight," Sterland said.

The ECB has so far resisted calls from the IMF to ease monetary policy further although it said last week it was ready to start asset purchases, also known as quantitative easing, if inflation proved persistently low.

A German government official said Germany planned to tell the IMF and G20 partners it sees no deflation tendencies in Europe, noting instead that low inflation came from lower energy prices and moderate wage hikes.

Source: Reuters

U.S. High Flying Tech Stocks Correction

     Netflix                                                          Amazon
           


    Facebook                                                        Twitter
           

Oil Share Sales Surge as Keystone Worry Fades

"Oil and natural gas companies raised $2.73 billion in equity in the first three months of the year, more than six times the same period of 2013, according to data compiled by Bloomberg. The financings were all secondary offerings and represent the most since the $3.37 billion to start 2011.

The outlook for energy brightened after Canadian gas prices rose to a 14-year high in February, during the coldest U.S. temperatures for that month in four years. U.S. President Barack Obama’s deliberations on whether to approve the $5.4 billion Keystone XL pipeline also are becoming less pressing as trains carry more oil, lifting heavy crude prices. A weaker Canadian dollar also promises to translate into fatter profits.

“There’s a general sense in the market that Canada’s not hostage to Keystone XL anymore,” said Mason Granger, a portfolio manager at Sentry Investments Inc. in Toronto, referring to the pipeline that would link oil-sands output from Alberta with U.S. Gulf Coast refineries. “We’re having some pretty good performance out of the stocks so far this year.”

Rising rail shipments of crude are helping Canadian producers skirt transportation bottlenecks amid delays for new pipelines, including TransCanada Corp.’s Keystone XL, and leading to higher prices of the nation’s heavy crude relative to the U.S. benchmark.

TransCanada Chief Executive Officer Russ Girling told analysts in February that by any criteria being used, “Keystone will be determined to be in the national interest of the United States,” according to a transcript of the remarks. TransCanada cannot predict when a decision will be made on Keystone XL, Davis Sheremata, a spokesman, said in an e-mail yesterday.

With oil and gas stocks outperforming U.S. peers and optimism around rail transport and alternative pipeline proposals, such as TransCanada’s Energy East line to Canada’s Atlantic Coast, investors may boost flows into energy funds, Sentry’s Granger said".

Source: Bloomberg

Zinc Rises to One-Month High on IMF Outlook for Economy

Zinc prices advanced to a four-week high on speculation that global economic gains forecast by theInternational Monetary Fund will spur demand for the metal amid declining supplies.

Stronger U.S. growth this year and next will help the world economy withstand weaker recoveries inemerging markets including Brazil and Russia, the IMF said today in a report. Refined supplies will fall short of consumption by 117,000 metric tons this year, the International Lead & Zinc Study Group said on April 3.

“All these reports could do is remind people that the fundamentals are decent and demand isn’t bad,”Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “Some people are reversing their short positions,” or bets on price declines, he said.

Zinc for delivery in three months gained 1.2 percent to settle at $2,027 a ton at 5:50 p.m. on the London Metal Exchange. Earlier, the price reached $2,029, the highest since March 11.

Inventories tracked by the LME have dropped 28 percent in the past 12 months.

On the Comex in New York, copper futures for May delivery rose 0.4 percent to $3.051 a pound, the highest settlement since March 7. Trading was 35 percent higher than the 100-day average, according to data compiled by Bloomberg.

Source: Bloomberg

IMFSurvey Magazine: IMF Research The Real Interest Rates are likely to remain Low over the next Five Years

Since the early 1980s, interest rates, or yields, on assets of all maturities have declined worldwide, well beyond the decline in inflation expectations. This means that real interest rates—the rates paid by borrowers corrected for expected inflation—have declined. Ten-year real interest rates across countries fell from an average of 5½ percent in the 1980s to 3½ percent in the 1990s, 2 percent over 2001–08, and 0.33 percent between 2008 and 2012 (Chart 1).

With increased global economic and financial integration over the past three decades, real rates are now largely determined by common global factors, especially at longer maturities.

While monetary policy dominated the evolution of real rates in the 1980s and early 1990s, improved fiscal policy in advanced economies was the main factor underlying the decline in real interest rates during the rest of the 1990s. More recently, however, the factors mentioned above have played a crucial role.

The decline in real interest rates in the mid-2000s has often been attributed to two factors:

• a glut of saving stemming from emerging markets economies, especially China; and

• a shift in investors’ preferences toward fixed income assets—such as bonds—rather than equity, such as stocks.

Both these factors put downward pressure on real interest rates globally while the expected return to invest in equities increased.

The substantial increase in saving in emerging market economies, especially China, in the middle of the first decade of the 21st century was responsible for more than half of the decline in real rates (Chart 2). This was only partly offset by the reduction in saving in advanced economies. High-income growth in emerging market economies during this period seems to have been the most important factor driving the increase in savings.

More than half of the reduction in real rates in the first decade of the 21st century can be attributed to an increase in the relative demand for bonds. This shift reflected an increase in the riskiness of equity combined with higher demand for safe assets among emerging market economies to increase official foreign reserves accumulation. In the aftermath of the global crisis, both reasons have continued to contribute to the decline in real rates, albeit more moderately now.

What to expect

Scars from the global financial crisis resulted in a sharp and persistent decline in investment in advanced economies. This too contributed significantly to the recent decline in interest rates. The effects of the crisis on saving have been more muted. Our study finds that the effects of the global financial crisis will likely persist over the next 5 years, with investment-GDP ratios in many advanced economies unlikely to shift back to precrisis levels (Chart 3).

Part of the reason for the moderate expected increase in real interest rates and the cost of capital is cyclical: the extremely low real rates of recent years reflect a large shortfall between actual and potential output in advanced economies. The study suggests, however, that real rates and the cost of capital are likely to remain relatively low even when such gaps disappear.

In terms of policy, if real interest rates are lower than real GDP growth rates, increasing public investment may not lead to increases in public debt-to-GDP ratio in the medium term: higher growth would be financing the burden of the extra debt.

In relation to monetary policy, a period of continued low real interest rates could mean that the neutral policy rate (that is, a rate consistent with potential growth) will be lower than it was in the 1990s or the early 2000s. It could also increase the probability that the nominal interest rate will hit the zero lower bound in the event of adverse shocks to demand with inflation targets of around 2 percent. This, in turn, could have implications for monetary policy.

Finally, an environment of continued low real (and nominal) interest rates may induce financial institutions to search for higher real (and nominal) yields by taking on more risk. This, in turn, may increase systemic financial sector risks and appropriate macro- and micro-prudential oversight will be critical for maintaining financial stability.

IMF:WORLD ECONOMIC OUTLOOK RESEARCH   Andrea Pescatori and Davide Furceri

          

WSJ: Charge Your Phone in 30 Seconds? An Israeli Firm Says It Can

        The WSJ reports,"StoreDot Ltd., a Tel-Aviv based start-up, says it hopes to at least make the charging process faster–unveiling Monday a prototype charger that promises to take your battery from a tiny sliver of red to 100%, all in about 30 seconds". 

StoreDot was born out of the nanotechnology department at Tel Aviv University and developed its prototype  for Samsung’s Galaxy 4. It unveiled the device at Microsoft'sMSFT +0.05% Think Next conference in Tel Aviv. StoreDot says it plans to make chargers for other smartphones, too.

StoreDot has been developing biological semiconductors, made from naturally occurring organic compounds called peptides, or short chains of amino acids, the building blocks of proteins. The technology can be used, among other things, to speed charging times, the company says.

The prototype charger is currently the size of a laptop charger, but the company says it has a parallel engineering effort  aimed at reducing its size. The estimated cost will be twice that of an average phone charger, which is up to $30. StoreDot says commercial production in planned for late 2016.

WSJ : Microsoft: We’re in an ‘AI Spring’

''Microsoft’s secret weapons to get back to the top of the tech mountain: machine learning and artificial intelligence, some of the company’s top R&D brains said Monday.

Harry Shum, head of technology and research at Microsoft, said the big trends that his team is working on involves how a person interacts with a computer. “We are now moving from the personal computer to personal computing,” he said at Microsoft’s Think Next 2014 conference in Tel Aviv.

Microsoft is investing heavily in “invisible user interface” technology, said Yoram Yaakobi, who heads up Microsoft’s research and development center in Israel. Yaakobi said people in the future won’t need to touch, type or speak to their devices — the devices will “know” what we want them to do before we ask. He called it “UI.Next.”

“User interface started with the command prompt, moved to graphics, then touch, and then gestures,” Yaakobi said. “It’s now moving to invisible UI, where there is nothing to operate. The tech around you understands you and what you want to do” — and that’s what people expect, he said. “We’re putting this at the forefront of our efforts.”

Cortana, the virtual personal assistant Microsoft announced last week, is part of the company’s push into machine learning, Yaakobi and Shum said. Microsoft has positioned Cortana as a challenger to Apple’s Siri and Google Now''.

IMF: World Economic Outlook April 2014

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WSJ: Gazprom pushes ahead with New Pipeline,Despite Ukraine Standoff

WSJ: Why The Ugly Mood in Equities?

       The WSJ reports,''Since hitting an intraday high of 1897 on Friday, the S&P 500 is off about 2.7%. The index fell as low as 1841.46 on Monday, before closing at 1845. The 1840 level, in fact, is one that’s been noted by several market observers as a key technical marker. For now, it’s a support level--since it held. That’s a good sign for the bulls, as far as it goes. But Monday’s slide, and that 1845 close, means the downward pressure is still there although the S&P futures contract suggests a flat opening Tuesday.

Meanwhile, the Nasdaq Composite continues to be the hardest hit of the three major indexes, and is exerting pressure on the Dow and S&P 500. The Nasdaq is down 6.4% from its 14-year high of 4359, hit March 5, and is down 4.6% the past three sessions (the worst three-day slide since November 2011). The Russell 2000 is also taking on water, down 6% since hitting its all-time high on March 4.

The Nasdaq and Russell were up 40% and 39%, respectively, in 2013. If those two surging indexes, filled with small-caps, momentum stocks, and volatile tech names, are the leading edge of a selloff, it’s a bad sign for the market. “Overall, this [small cap] break to new lows which just occurred in the last couple days is a warning sign, and indeed problematic for the larger market, and despite nearing initial support, is something that’s causing a meaningful pullback in momentum,” Mark Newton, chief technical analyst at Greywolf Execution Partners, wrote in a note to clients.

Why is the market in such a cranky mood? Friday’s jobs report more or less got the jobs market back to its pre-winter growth trend, and David Levy of the Jerome Levy Forecasting Center anticipates that analysts will underestimate  the bounce back from the winter, leading to a series of “upside surprises” in the data. That should be good. But at the same time, the market is grappling with the reality that the Fed, even if it’s moving slowly, is removing its monetary support.

“What if the current stock market correction turns into something more protracted and investors just don’t buy the growth rebound without the Fed remaining at the helm?” wrote Andrew Wilkinson, the chief market analyst at Interactive Brokers. If the market doesn’t like that scenario, it’s got a problem, he noted: the problem being that everyone “is on one side of the boat staring over the edge at the prospect of imminent Fed tightening.”

The Guardian: Ukrainian MPs brawl as nationalists are accused of playing into Russia's hands

A brawl erupted in the Ukrainian parliament chamber after the country's communist leader accused nationalists of playing into the hands of Russia by adopting extreme tactics early in the Ukrainian crisis.

Two deputies from the Svoboda far-right nationalist party took exception to the charges by communist Petro Symonenko and seized him while he was talking from the rostrum. His supporters rallied to his defence and a brawl broke out with deputies from other parties joining in and trading punches.

The fight erupted hours after Ukraine launched an "anti-terrorist" operation against pro-Russian separatists occupying government buildings in several of its eastern cities.

Police arrested 70 pro-Russian demonstrators in Kharkiv on Tuesday, while protesters in two other cities held similar standoffs. Ukrainian authorities gave few details of the operation that cleared the building in Kharkiv but said two police officers had been wounded by a grenade.

Against the backdrop of the deepening crisis in the south-east, Symonenko stirred nationalist anger in parliament when, referring to the pro-Russian protesters who had seized buildings in eastern Ukraine, he suggested that nationalists had set a precedent earlier this year by seizing public buildings in protest at the rule of the ousted president, Viktor Yanukovych.

Now, he said, armed groups were attacking people who wanted to defend their rights by peaceful means. "You are today doing everything to intimidate people. You arrest people, start fighting people who have a different point of view," he said, before being pulled away from the rostrum by the Svoboda deputies.

Ukrainian special forces in combat gear, helmets and balaclavas and carrying machine guns stood guard outside the building early on Tuesday. A partly destroyed sign near the main door read: "Avakov – to jail", a reference to the Ukrainian interior minister, Arsen Avakov.

Avakov made mention of the operation to clear the buildings on his Facebook page: "An anti-terrorist operation has been launched. The city centre is blocked along with metro stations. Do not worry. Once we finish, we will open them again."

The Interfax-Ukraine news agency quoted the interior ministry saying those detained were suspected of "illegal activity related to separatism, the organisation of mass disorder, damage to human health" and breaking other laws.

Ukraine's acting president, Oleksander Turchinov, made a televised address to the nation in which he accused Moscow of orchestrating the protests in an attempt to repeat "the Crimea scenario".

World Bank trims China, East Asia 2014 growth forecasts

"The World Bank trimmed its 2014 growth forecast for developing East Asia but said the region's economies were likely to see steady growth in the next couple of years, helped by a pick-up in global growth and trade.

The Washington-based development bank expects the developing East Asia and Pacific (EAP) region to grow 7.1 percent in 2014 and 2015, down from the 7.2 percent rate it had previously forecast for both years.

Growth in 2016 is also seen at 7.1 percent, staying slightly below the 2013 growth rate of 7.2 percent, according to the World Bank's latest East Asia and Pacific Economic Update report issued on Monday.

"For East Asia, we believe that the drivers of growth are going to be increasingly from the external front, because of the recovery in advanced economies," World Bank East Asia and Pacific chief economist Bert Hofman told reporters.

In its report, the World Bank said improving global trade would offset headwinds from the tightening of global financial markets.

    The prospects for a normalization of U.S. policy rates will put upward pressure on interest rates and could trigger more sizeable capital outflows from weaker economies, as well as make debt management more difficult in countries where leverage has risen, the bank said.

The World Bank trimmed its 2014 growth forecast for China to 7.6 percent, from 7.7 percent previously. It kept the 2015 growth forecast for China steady at 7.5 percent, down slightly from 7.7 percent actual growth in 2013.

The new 2014 outlook reflected "the bumpy start to the year," it said, noting that China's industrial production and exports had been weak in the January-February period.

"While the growth rate of industrial production has slowed, and exports contracted in the first two months of 2014, the trend is nevertheless strengthening, and we expect quarterly growth to rise at midyear as external demand from the high-income countries solidifies," the World Bank said".

Source: Reuters

VimpelCom Successfully Completes A USD 1.8 Billion Revolving Credit Facility

 "VimpelCom Ltd."(NASDAQ: VIP) announced today that it has successfully completed a new revolving credit facility ("RCF") of up to USD 1.8 billion for VimpelCom Amsterdam B.V. ("VIP Amsterdam"). The RCF has a three-year tenor and will replace the existing USD 500 million RCF signed in 2011. Currently 11 banks have committed to the RCF in the aggregate amount of USD 1.65 billion. The RCF contains an option to increase the amount of the facility by up to USD 150 million within 6 months from the date of the signing. The Company also announced that it has successfully completed a new term facility of USD 0.5 billion for VIP Amsterdam. This three-year term facility was entered into with Alfa-Bank. Both credit facilities are unsecured and guaranteed by VimpelCom Holdings B.V.
These credit facilities provide the Company increased flexibility in managing its cash levels and will be used for general corporate purposes.
VimpelCom's Chief Financial Officer Andrew Davies commented: "We are very pleased with the strong support we have received from our 11 major international relationship banks as well as from Alfa-Bank, showing clear support to VimpelCom and its businesses. These two new facilities substantially improve the liquidity profile and financial flexibility of the Group and is a further step to centralize group financing at VimpelCom as part of our strategic Value Agenda."
The 11 international relationship banks in the RCF are: Barclays Bank PLC, BNP Paribas Fortis SA/NV, Citi, Credit Agricole CIB, Credit Suisse, Deutsche Bank, HSBC, ING, Intesa Sanpaolo, Raiffeisen Bank International / ZAO Raiffeisenbank and Societe Generale.

Source: PRNewsWire

Dollar Weakens as Gold Advances While Europe Stocks Slide

    "The dollar weakened against its major peers, falling the most versus currencies from New Zealand to South Africa as emerging-market stocks rose toward a four-month high. European shares fell amid concern tension over Ukraine will escalate, while gold led metals higher.

The kiwi climbed 0.8 percent to 86.68 per dollar at 7:03 a.m. in New York, and South Africa’s rand jumped 0.7 percent to its strongest level since Jan. 1. The MSCI Emerging Markets Index increased 0.6 percent. The Stoxx Europe 600 Index slid 0.9 percent, extending earlier losses. Standard & Poor’s 500 Index futures slipped 0.3 percent, signaling the gauge’s will extend its biggest three-day slide since January. Gold advanced 1.1 percent.

Price swings in currency markets have tumbled to a six-year low as central banks from the U.S. to Japan seek to boost growth with cheap cash and record-low interest rates, encouraging investors to seek higher-yielding assets. Ukraine sent additional police forces into eastern regions after pro-Russian protesters seized government buildings in Donetsk, Luhansk and Kharkiv. Alcoa Inc., the biggest U.S. producer of aluminum, reports first-quarter earnings today".

Source: Bloomberg