1 Deflation pressures for China (Straits Times) Producer
prices in China fell to a near six-year low last month while consumer inflation
remained subdued, signalling the world's second-largest economy was still
facing deflationary pressures and that Beijing has room to further support the
sluggish economy.
The producer price index (PPI) fell 5.4 per cent
from a year earlier, compared with an expected 5 per cent decline. It was the
worst reading since October 2009 and the 40th straight month of price falls. The
index, which tracks the factory-gate selling prices of firms, pointed to persistent
weakness in commodity prices and soft demand in China's economy, which are
eroding company profits.
An official factory survey last week showed
deteriorating conditions forced companies to cut staffing for the 21st straight
month, and manufacturers had to reduce selling prices to a six-month low due to
increasing competition. In line with sluggishness in the broader economy,
annual consumer inflation stayed muted at 1.6 per cent, slightly higher than a
1.5 per cent estimate, and up from June's 1.4 per cent.
The data showed pork price inflation was most
buoyant last month, with prices surging 16.7 per cent due to a sharp fall in
hog supplies. Pork prices are an important component of China's consumer price
index basket - the weighting of which is a secret - though some economists
estimate that food accounts for as much as 30 per cent of the index.
HSBC said in a recent research note that it still
expects another 25- basis-point (bps) interest rate cut in the second half of
this year, and a 200-bps cut in banks' required reserve ratio (RRR). The
central bank has already cut interest rates four times since November and
lowered the RRR for big banks by 150 bps.
2 For Singapore, success and challenges at 50 (San
Francisco Chronicle) Singapore threw a big party Sunday for its 50th
anniversary of independence and unrivaled economic success in a region
struggling with poverty and political instability, even as the city-state began
feeling the pinch of a midlife crisis.
While marveling at the island's leap from a poor
colonial port to a wealthy metropolis, Singaporeans are also grappling with a
growing resentment over political restrictions, an influx of foreign labor and
a rising cost of living.
Lee Kuan Yew, who died in March at age 91, and was prime
minister for more than three decades, had no tolerance for political dissent.
Opposition figures were either defeated in elections or taken to court on
defamation charges until they were bankrupt. The country's laws prohibit
bankrupts from contesting elections.
His son, current Prime Minister Lee Hsien Loong, is
now steering Singapore with similar restrictions, and is facing a general
election expected to be held Sept. 12. The ruling People's Action Party, which
holds 80 of 87 parliamentary seats, suffered its worst results in 2011
elections. Most mainstream media are controlled by government-linked companies,
and the few independent news websites that exist are wary of strict defamation
laws.
Reporters Without Borders' 2015 World Press Freedom
Index ranked Singapore 153rd of 180 countries, below Gambia and the Democratic
Republic of Congo. When the population boomed to over 2 million in the 1970s
from 1.89 million at independence, Lee vigorously campaigned for women to stop
at two children. He also carved a place for a second language in the
English-medium education system to make Singaporeans more marketable.
But as Singaporeans grew more educated and wealthy,
wages rose, and the ruling party looked to the rest of Southeast Asia for
blue-collared manpower to keep the wheels turning. Today, Singapore is among
the five most expensive cities in the world.
3 HSBC as world’s ex-local bank (Matein Khalid in
Khaleej Times) The world's local bank just got mauled by July's bloodbath in
Shanghai, Shenzhen and Hong Kong. While first-half 2015 profit was up 10 per
cent, the stock market is still concerned about the slump in emerging markets
exports and currencies. Even though HSBC pretax profits for the first half of
2015 was $13.6 billion, the bank is exposed to economic slowdowns in China,
Hong Kong, Southeast Asia, Europe, the Middle East and Sub-Saharan Africa's
oil/metal exporters.
HSBC intends to slash 50,000 jobs worldwide and
"pivot" to its Asian roots, since the bank generates two thirds of
its revenues from the Pacific Basin. Now that HSBC is selling Demirbank, its
Turkish subsidiary, after catastrophic losses in consumer banking credit cards,
the message is clear: Britain's largest listed bank is no longer the world's
local bank, if local markets do not cover their cost of allocated capital.
The bank plans to slash $290 billion in
risk-weighted assets from its global balance sheet, mostly from global banking
and markets, or GBM, 33 per cent of group revenues. This basically means
cutbacks in capital intensive structured products and complex derivatives
trading businesses worldwide.
HSBC's capital, liquidity and efficiency ratios are
stellar. The Basel Tier One capital ratio is 12 per cent. The loan/deposit
ratio is 72. The cost income ratio is 60. Its valuation metrics are modest at
10.8 times forward earnings and 0.84 times price/book value. The dividend yield
is five to six per cent, among the most attractive in global banking.
HSBC has been in restructuring mode since 2011 but
the urgency increased once pretax profits fell 17 per cent in 2014 and the
bank's Swiss private banking subsidiary was ensnared in a money laundering
probe.
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