Weak China shares depress Asia, Ukraine also a risk

 Extended weakness in Chinese shares, driven by worries over liquidity and earnings, put a brake on other Asian stock markets on Tuesday despite Wall Street stocks rallying into a fifth session.

Although Japan's Nikkei share average held onto marginal gains and was up 0.3 percent, MSCI's broadest index of Asia-Pacific shares outside Japan was almost flat, while trading not far from a six-month high hit earlier this month.

The China Enterprises Index of the leading offshore Chinese listings in Hong Kong fell 1 percent to its lowest in nearly four weeks. That subdued other Asian markets, forcing investors to look past the longest winning streak since October in the S&P 500 index.

"Today is going to be a bit weak," said Du Changchun, an analyst at Northeast Securities in Shanghai. "I'm not so optimistic, I don't think there's much space for any increases as we're still in a period of adjustment."

The Shanghai Composite Index was almost flat around 2,063.5 points on Tuesday, after having shed 1.5 percent the previous day.

Chinese stocks have been hit by concerns about a potential share oversupply after the securities regulator released draft prospectuses for 28 new firms planning to list, marking the resumption of IPOs after a two-month hiatus.

Chinese companies such as Great Wall Motor Co Ltd, carmaker BYD and Air China have all posted weak earnings numbers or expected earnings numbers over the past week, leading to further concerns over the slowing economy.

Source: Reuters

JJL: The Highlights of 2013

It’s been another interesting year in Asia Pacific. We’ve seen quite a bit of change in economic dynamics across the region, while in the real estate sector it’s been a time of cautious corporates and busy investors. The 2013 highlights:

• China and Japan dominated the headlines. The region’s number 1 and 2 economies made good strides in addressing their challenges. China averted a hard landing and its government has pushed hard on a range of “austerity” measures. The Japanese government launched a massive stimulus program to reignite economic growth and we’ll get a better idea over the next 12 months as to the success of Abenomics.

• The leasing and investment disconnect widened. Ongoing global uncertainties have seen corporates remain cautious in their hiring and space requirements, and 2013 is likely to be the weakest year for AP office leasing activity since 2009. At the same time, QE and ultra-low borrowing costs have driven strong commercial real estate investment activity – so strong, in fact, that 2013 is likely to equal the previous record back in 2007. We’re forecasting leasing activity to pick up next year and investment volumes to strengthen further, so it will be interesting to see when the disconnect starts to narrow.

• Chinese outbound investment is set for a record year, with commercial volumes up 25% y-o-y as at the end of Q3. The major destinations for this capital have been Europe, the US, Australia and Singapore. Chinese buyers and developers have also been very active in overseas residential markets.

• e-commerce accelerated across the region, a trend which is sure to drive major change in the retail and logistics sectors in the years ahead. At the same time, international retailers have continued to set up shop in Asia Pacific, attracted by our region’s high economic growth and increasing wealth levels.

• The residential sector saw strong demand in many markets including China and South East Asia. Interest rate cuts also stimulated sales activity in Australia. Meanwhile in Hong Kong and Singapore, transaction levels have fallen following a series of cooling measures aimed at keeping a lid on home prices.

Source: JJL   Jane Murray is the Head of Research, Jones Lang LaSalle Asia Pacific.

Has the importance of physical retail space been vindicated by Alibaba?

Alibaba’s decision to significantly invest into Intime Retail, which operates 36 department stores throughout China provides an interesting insight into how internet retailers might be viewing the importance of multi-channel retailing and the role of physical retail stores.

China’s Alibaba Group, one of the world’s largest internet retailers, globally has agreed to invest US$ 692 million to acquire a 26% stake in Intime Retail (Group) Co., the Hong Kong listed operator of predominantly luxury orientated department stores, throughout mainland China.

While this news should not be read as a reversal of the significant global trend of retail spending switching from some physical retail stores to the internet, it is in our opinion a vindication from one of the strongest internet retailers as to the ongoing importance of physical retail space.

We anticipate that the most successful retailers in the future are going to be those with a complete multi-channel offering. Those providing efficient and convenient methods of sales, deliveries and returns through both a physical store portfolio and a strong internet platform will likely be the best performers.

In addition to retailing, the ownership and management of retail places is becoming increasingly specialized and challenging. Shopping mall owners need to ensure that their retail assets remain relevant in the rapidly evolving retail landscape. Nowhere is this more prevalent than in China, which has the world’s largest supply pipeline of shopping malls under development. As luxury brands and first mover fast fashion retailers look carefully at and rationalise their own expansion plans, developers might look to attract internet based operators as one way to ensure that their malls remain competitive. Don’t be surprised to see landlords chasing the signatures of internet retailers with as much vigor as they once did with global luxury brands and international department stores.

JLL global retail research team has completed a fascinating piece of research called Redefining Retail Places. While it can be read as presenting a daunting future for shopping malls, its themes should certainly be used to form part of the picture when owners are making: buy; sell; hold; joint venture and strategic management decisions.

Our most recent outlook to retail real estate investment in Asia Pacific also highlights an expected trend of specialist retail asset managers and co-investors playing a growing role alongside the investment capital and developers, in ensuring assets are built and managed to their best advantage.

Source: JLL.  David Raven lead director for retail investment for Asia

Rental Growth,Occupational fundamentals supporting higher investment volumes

Another year and another quarter of investment volume growth around the world. Investment markets which have grown consistently over the last four years have started 2014 brightly with 23% growth compared to this time last year.

Much of the growth over the last four years has been associated with a hunt for yield globally, not just within the property sector but across the global capital markets. With government bond yields at historic lows in many countries commercial property has provided an attractive source of risk adjusted investment returns, with many groups investing in the sector for the first time.

However, while investment volumes have continued to improve, occupational fundamentals have struggled post the financial crisis. The structural changes happening in the financial services industry have forced occupiers to consider their longer term space needs, in terms of quality, quantity and location. This has made for a depressed and stagnant leasing environment in many cities. This now seems to be changing with many more cities seeing an improvement in take up fundamentals and a return of rental growth across many of the office markets JLL covers globally. The improvement is not uniform, with many cities still providing plentiful options for occupiers it will be a long process, but we certainly seem to be seeing the first signs that the corner has been turned.

This should give renewed impetus to investment markets, stronger corporate demand coupled with financing markets returning to normality in most countries will provide an additional level of enthusiasm for investors to proceed with purchases. In addition the rise in values is encouraging vendors to place more stock into the market place, particularly in 2014 portfolios and larger lot sizes.

With US$130 billion transacted in the first quarter of 2014, we are confident that we shall see another year of investment growth. At this stage we are estimating US$650 billion for the full year, 10% higher than we recorded in 2013.

Source:  JLL, David Green-Morgan is Global Capital Markets Research Director, based in Singapore.

Commercial Real Estate Investment The Smaller the Safer?

When planning a successful shopping centre, location is always a top priority. If a retail project sits in the middle of a busy commercial district, or a densely populated residential area, the starting point is a catchment with lots of potential customers. But in an era with oversupply looming in many cities in China, and landlords having a harder and harder time pre-leasing space, do smaller shopping malls have less execution risk?

During a recent field trip to Zhabei district, a densely populated and mature residential part of northern Shanghai, we found three cases of low occupancy, community-oriented shopping centres that from a location perspective can be considered “good” sites. The three projects have been operating for more than one year, but average occupancy is still less than 50%. After going through Shanghai’s retail supply list, we found a significant number of smaller projects (20,000 – 50,000 sqm) in residential areas that are struggling to find tenants throughout a long period of time to reach stabilisation.

What are the reasons behind these projects’ struggles? Inexperience on the part of the landlord can lead to a lack of understanding of the catchment area and poor planning of the project positioning, including:

A mismatch between the types of tenants and income level of the neighbourhood;

Ineffective or inexperienced leasing teams for finding non-anchor tenants, especially after a supermarket, cinema or KTV have been secured;

Rental expectations that are too high.

If the average housing price near a community mall is low, residents in the neighbourhood tend to spend most of their time and money in the anchor supermarket rather than the other stores. If the catchment area has many high-end residential projects, but the mall doesn’t offer interesting lifestyle tenants, consumers may instead drive to a destination shopping mall further away for more options. Another execution risk is when anchor tenants “steal away” consumers rather than securing foot traffic for the whole property. Supermarkets or cinemas will often have their own direct access points and consumers can easily bypass the rest of the property if there isn’t a sound conversion strategy to lure them in. In conclusion, while these malls will probably stabilsze eventually, once the landlord gets the positioning right, ‘going small’ is not a panacea – there is still plenty of execution risk. Careful planning and a strong retail asset management team are critical to ensure a successful shopping centre.

Source: Jones Lang LaSalle(JLL) by Chen Lou

Lukoil launches giant West Qurna 2 oilfield in Iraq

• Russia's Lukoil (LUKOY, LUKOF) finally launches commercial production from the giant West Qurna 2 oilfield in Iraq in a move expected to lift the country’s output to record levels of ~4M bbl/day this year.
• Production from one of the world’s largest untapped oilfields, with recoverable reserves estimated at ~14B barrels, is set to rise to 400K bbl/day by year-end from an initial rate of 120K.
• The launch of the field after lengthy delays also will allow Lukoil, which holds a 75% stake as operator, to more than double its overseas output.Source: 
• Source:Seeking Alpha   March 31, 2014

Russia accuses Ukraine of violating Geneva peace deal Sergei Lavrov says Kiev 'not lifting a finger' to control extremists as armed groups refuse to stand down in eastern Ukraine

     The Guardian reports,"the Russian foreign minister, Sergei Lavrov, has accused Ukraine of violating an accord reached in Geneva last week aimed at averting a wider conflict.

"Steps are being taken – above all by those who seized power in Kiev – not only that do not fulfil, but that crudely violate the Geneva agreement," he said on Monday.

Lavrov also told a news conference that a deadly gunfight on Sunday near Slavyansk, a Ukrainian city controlled by pro-Russian separatists, showed Kiev did not want to control "extremists".

"The authorities are doing nothing, not even lifting a finger, to address the causes behind this deep internal crisis in Ukraine," he said".

At least three people are thought to have been killed in the shootout, shaking an already fragile accord reached last Thursday betweenRussia, Ukraine, the US and the European Union.

The authorities in Kiev described the incident in the early hours of Sunday as a "crude provocation" staged for Russian TV. They said some of the details of the shootout were so implausible as to be ridiculous. Ukraine's intelligence service said its Russian military counterpart, the GRU, had staged it with help from criminals. The death toll and the allegiance of those involved were hard to confirm independently.

The Geneva agreement called for an immediate end to violence in Ukraine, where western powers believe Russia is fomenting a pro-Russian separatist movement, an allegation Moscow denies.

The accord also called for illegal armed groups to stand down in a process to be overseen by Europe's OSCE watchdog.

However, separatists have shown little sign of leaving public buildings in largely Russian-speaking eastern Ukraine.

Lavrov said the Ukrainian authorities had failed to remove illegal protests from squares in Kiev, Ukraine's capital. "This is absolutely unacceptable," he said.

Washington has warned of stronger economic sanctions than those already imposed if Moscow fails to uphold the Geneva deal.

"Before giving us ultimatums, demanding that we fulfil demands within two or three days with the threat of sanctions, we would urgently call on our American partners to fully accept responsibility for those who they brought to power," Lavrov said.

He added that attempts to isolate Russia would fail because it was "a big, independent power that knows what it wants".

Schwab:U.S. Market Brief

Coming off a solid Easter shortened week, the U.S. equity markets are mixed in late-morning action, with 1Q earnings season set to heat up this week, while a stronger-than-expected read on domestic Leading Indicators is having a limited impact. However, international market action was light as European, Hong Kong, and Australian markets remained closed for the holiday weekend. Treasuries are gaining ground despite the data, which was the lone release on today's docket. Meanwhile, Sun Trust Banks, Hasbro, and Advanced Micro Devices all topped the Street's bottomline expectations, while Sarepta Therapeutics offered an upbeat outlook for its experimental muscular dystrophy treatment. In other equity news, Britain's Sunday Times reported that Dow member Pfizer approached AstraZeneca with a $100 billion takeover proposal. Gold is lower, while crude oil prices and the U.S. dollar are higher. Overseas, Japanese stocks finished flat as some weakness in the yen was offset by a disappointing trade report, while Chinese markets dropped ahead of this week's preliminary April manufacturing report from HSBC.

Source: Schwab

A Contrarian Oil Play

• "The Russian stock market has been recently out of favor, but valuations seem to be too much cheap to ignore.
• Investors should look for companies with low governmental influence like Lukoil, which is mainly owned by its management.
• Lukoil is one of the world's largest oil & gas companies and has very good growth prospects.
• It currently trades at only 4x its estimated 2014 earnings and offers a dividend yield of 5%.

The recent crisis between Russia and Ukraine has led to significant drops in Russian shares. Russian stocks were already cheap before the recent crisis, and took further beating after the Crimea standoff. For contrarian and value investors this may represent a good time to buy, especially quality companies with below-average political risk. One interesting opportunity may be Lukoil (OTCPK:LUKOY), one of the world's largest oil & gas companies. Its current market capitalization is about $45 billion, and is traded in the U.S. in the over-the-counter [OTC] market.

Lukoil is Russia's second-largest oil company, and one of the world's biggest vertically integrated companies for the production of crude oil and gas as well as for the refining of petroleum products and petrochemicals. Headquartered in Moscow, Lukoil is the second-largest public company, after Exxon Mobil (XOM), in terms of proven oil and gas reserves. In 2012, the company had 17.3 billion barrels of oil equivalent [boe], accounting for some 0.8% of global oil reserves. The company has operations in 38 countries around the world".

Source: Seeking Alpha

VimpelCom And Global Telecom Holding Announce A Strategic Partnership With The Algerian Fonds National d'Investissement And A Successful Resolution In Algeria

 April 18, 2014 /PRNewswire/ -- VimpelCom Ltd ("VimpelCom") (NASDAQ: VIP) and Global Telecom Holding S.A.E. ("GTH") (EGX: GTHE, LSE: GLTD) today announce the signing of a share purchase agreement (the "Share Purchase Agreement") for the sale by GTH of a 51% interest in Orascom Telecom Algerie SpA ("OTA" or "Djezzy") to the Fonds National d'Investissement (the "FNI"), the Algerian National Investment Fund, for a purchase consideration of USD 2.643 billion.

OTA will distribute a dividend of USD 1.862 billion to GTH immediately prior to the closing of the transaction ("Closing"), which is expected to occur by the end of 2014.

The total dividends and proceeds due to GTH at Closing are expected to amount to USD 4.0 billion, net of all taxes and after the settlement of all outstanding disputes between the parties and the payment of associated fines. All proceeds will be used to pay down the outstanding shareholder loans provided by VimpelCom to GTH.

GTH and the FNI will enter into a shareholders agreement ("the Shareholders Agreement"), effective as of Closing, which will govern their relationship as shareholders in OTA going forward. GTH will continue to exercise operational control over OTA and, as a result, both GTH and VimpelCom will continue to fully consolidate OTA. This partnership with the FNI provides OTA with a strong and stable shareholder structure on which to build and strengthen its operations in Algeria.

Jo Lunder, Chief Executive Officer of VimpelCom, commented: "This favorable long-term agreement and settlement represents a successful outcome for all stakeholders. For VimpelCom and GTH, this value accretive transaction releases USD 4.0 billion in cash proceeds to pay down gross debt. For GTH and Djezzy, it resolves our dispute in Algeria and allows us to solidify our strong leadership position in Algeria by enabling us to further invest in a high speed 3G network to take full advantage of the potential for mobile data growth in the country. We look forward to working with our new partner, the Algerian National Investment Fund, to drive the business forward and to create significant long-term value for all of our stakeholders in line with our strategic Value Agenda."

The terms of the Share Purchase Agreement and the Shareholders Agreement have been approved by the Algerian Conseil des Participations de l'Etat, the Conseil de Direction of the FNI, the VimpelCom Supervisory Board and the Global Telecom Holding Board of Directors.

Prior to Closing and in order to facilitate the Closing OTA will contribute its operations (the "Contribution") to Optimum Telecom Algerie S.p.A. ("Optimum"), a wholly-owned subsidiary of OTA. In addition, at or prior to closing, Optimum intends to establish a credit facility with a syndicate of local banks in an amount of up to 82 billion dinars (approximately USD 1.0 billion).

Ukraine peace deal falters as rebels show no sign of surrender

 An agreement reached last week to avert wider conflict in Ukraine was faltering as the new week began, with pro-Moscow separatist gunmen showing no sign of surrendering government buildings they have seized.

Washington says it will hold Moscow responsible and impose new economic sanctions if the separatists do not clear out of government buildings they have occupied across swathes of eastern Ukraine over the past two weeks. U.S. Vice President Joe Biden was due in Kiev later on Monday.

Kiev and Moscow traded accusations over a deadly shooting on Easter Sunday morning, when at least three people were killed at a checkpoint manned by armed separatists. Moscow and its separatist allies accused Ukrainian nationalists of attacking the checkpoint; Kiev said Russia had provoked the violence.

In a later incident, the Ukrainian defence ministry said gunmen on motorcycles fired on an army checkpoint between Donetsk and Slaviansk shortly after dark on Sunday. The troops opened fire, wounding one attacker and capturing two, it said.

Russia, Ukraine, the European Union and the United States signed off on an agreement in Geneva on Thursday, designed to lower tension in the worst confrontation between Russia and the West since the Cold War.

The agreement calls for occupied buildings to be vacated under the auspices of envoys from the Organization for Security and Cooperation in Europe, a security body. All sides are meant to refrain from force.

But no sooner had the accord been signed than both sides accused the other of breaking it, while the pro-Moscow rebels said the pledge to withdraw from occupied buildings was not binding on them.

"Steps are being taken - above all by those who seized power in Kiev - not only that do not fulfil, but that crudely violate the Geneva agreement," Russia's Foreign Minister Sergei Lavrov said on Monday, describing the attack on the separatist checkpoint as a crime.

President Vladimir Putin overturned decades of post-Cold War diplomacy by announcing last month that Russia has the right to intervene on the territory of its neighbours to protect Russian speakers. He then seized and annexed Ukraine's Crimea peninsula.

Moscow has since massed tens of thousands of troops on the Ukrainian border, and Kiev and its Western allies say Russian agents are directing the uprising in the east, including the

"green men" - heavily armed, masked gunmen in unmarked uniforms.

In his latest move, likely to be seen by the West as a further threat to the post-Cold War order, Putin signed a law on Monday making it easier for Russian speakers across the former Soviet Union to obtain Russian citizenship. [ID:nL6N0ND0WH]

Eastern Ukraine is largely Russian speaking and many residents are deeply suspicious of the pro-European government that took power in Kiev in February when Moscow-backed President Viktor Yanukovich fled the country after mass protests.

Separatists have declared an independent "People's Republic of Donetsk" in the east's biggest province and have named themselves to official posts in towns and cities, setting up checkpoints and flying Russian flags over government buildings.

Ukraine announced an "anti-terrorist" operation to retake the territory last week, but that modest effort largely collapsed in disarray when a column of paratroops surrendered rifle parts and some armoured vehicles to a separatist crowd.

Kiev has declared an "Easter truce", though it is far from clear it could muster any real force if it tried. The army is ill-equipped, untested and untrained for domestic operations, while the government in Kiev doubts the loyalty of the police.


SANCTIONS

The United States and European Union have imposed visa bans and asset freezes on a small number of Russians over the annexation of Crimea, measures that Moscow has openly mocked.

Washington and Brussels both say they are working on tougher economic measures to impose unless Russia's allies in eastern Ukraine back down, although building a consensus is tricky in Europe where many countries rely on Russian energy exports.

One European diplomat said the Geneva deal was a way for Putin to buy time and undermine momentum towards sanctions:

"Talks and compromises are just part of his tactics," said the diplomat. "He wants to have Ukraine."

The OSCE, a European security body that includes both NATO members and Russia, has deployed around 100 monitors and mediators in Ukraine in 10 different cities including the capital Kiev and eastern and southern towns.

An OSCE spokesman said the mediators were visiting separatist-occupied buildings with copies of last week's Geneva accord to explain it to the people inside.

"It's a mixed experience dealing with checkpoints and so forth and there is a varying reaction to teams. There is a hardened attitude in Donetsk or Slaviansk but some other areas are more accommodating," spokesman Michael Bociurkiw said. "When teams go to smaller centres people are more willing to talk."

He said there were reports of "a handful of buildings" being evacuated, though he was unable to give any details. So far Reuters has not been able to confirm any reports of separatists standing down.


JOURNALIST HELD

The separatists in the east have grown increasingly assertive and hostile to outsiders. A lawyer said on Monday the rebels had detained a Ukrainian journalist, accusing her of "war crimes" during protests that toppled Yanukovich. There were also reports of other journalists being held.

Irma Krat, 29, was held late on Sunday by militants in the city of Slaviansk, said Oleg Veremienko, a lawyer for the online television news site Krat runs. Russian Internet channel Life News posted video of her being escorted by masked men in combat gear and of an activist saying she was under arrest.

Details remained disputed in Sunday's shootout in Slaviansk, a town on an eastern highway north of Donetsk which has become a heavily militarised rebel redoubt.

The separatists said armed men from Ukraine's Right Sector nationalist group had attacked them. The Right Sector denied any role, saying Russian special forces were behind the clash.

The town's self-appointed pro-Russia mayor placed a curfew on the town and appealed to Putin to consider sending troops.

Separatist militiamen told Reuters four vehicles had approached their checkpoint at around 2:00 a.m. (2300 GMT) and opened fire.

"We had three dead, four wounded," one of the separatist fighters, called Vladimir, told Reuters at the checkpoint, where there were two burned-out jeeps.

Source: Reuters

WSJ: Another Selloff Averted. The Bullish Approach

"While the beating that momentum stocks have taken over the past month has garnered plenty of attention, the major U.S. stock indexes are once again perched near record levels.

Much of the turbulence has been concentrated in social-media companies, cloud-computing firms and early-stage drug producers. As these so-called momentum stocks have dropped sharply, the worry has been that they’d take the broad market down with them.

That hasn’t played out.

Many investors now believe that the big flows of money into and out of these stocks will have little impact on the appetite for bigger, more-established companies. There is renewed confidence that the broad indexes are poised to move higher once the so-called momentum stocks stabilize.

The Dow Jones Industrial Average, coming off its biggest gain of the year during the holiday-shortened week, is only 1% from its all-time high. The S&P 500 is positive for the year and is only 1.4% from its own record hit earlier this month.

By comparison, the Nasdaq Biotechnology Index, which doubled from early 2013 through the beginning of this year, is down 14% over the past month. The Nasdaq Internet Index is down 9% over the same time frame.

“Investors have collectively realized that earnings and growth assumptions in these highflying stocks were too aggressive and hard to come by in a world of low nominal growth and weak pricing power,” Mr. Zhao said. “As a result, they have run for the exits, causing prices to fall.”

The difference is that the broad market hasn’t felt the same pain.

“Such localized shakeouts are an inherent part of any bull market,” he added. “Although high-valuation stocks have been hit hard in the U.S. equity market, the rest of the global financial markets remain very much focused on exploiting yield, playing various carry trades and taking on risk. This is another reason why the crack in social network stocks may not be foretelling of some­thing bigger about to happen.”

The bull market, in its sixth year following the financial crisis, has shown signs of fatigue in 2014. After last year’s 30% rally, the S&P 500 is up just 0.9% this year. As MoneyBeat columnist E.S. Browning pointed out, the S&P 500 hasn’t dropped 10% or more since September 2011. That is twice as long as usual".